Fei (FEIC) 10-Q/A 2009 Q2 Quarterly report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

Amendment No. 1

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 5, 2009

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission File No. 000-22780

FEI COMPANY

(Exact name of registrant as specified in its charter)

Oregon	93-0621989
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5350 NE Dawson Creek Drive, Hillsboro, Oregon	97124-5793
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 503-726-7500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares of common stock outstanding as of August 5, 2009 was 37,570,936.

EXPLANATORY NOTE

We are filing this Amendment No. 1 to Quarterly Report on Form 10-Q/A to restate Items 1 and 2 of Part I and Item 6 of Part II of our Quarterly Report on Form 10-Q initially filed on August 6, 2009. This amendment corrects clerical errors in the presentation of operating cash flows from deferred income taxes and the effect of exchange rate changes on cash on our Consolidated Statements of Cash Flows for the 26 week period ended July 5, 2009 and corrects related information that appeared in Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources at page 35 of this and the original filing. The restatements are more fully described in Note 24 of the Condensed Notes to the Consolidated Financial Statements. No other changes have been made to the Form 10-Q. This Form 10-Q/A speaks as of the original filing date of the Form 10-Q, does not reflect events other than the restatement disclosed in Note 24 of the Condensed Notes to the Consolidated Financial Statements that may have occurred subsequent to the original filing date, and does not modify or update any other disclosures made in the Form 10-Q in any way.

FEI COMPANY

INDEX TO FORM 10-Q/A

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets – July 5, 2009 and December 31, 2008	2
	Consolidated Statements of Operations – Thirteen and Twenty-Six Weeks Ended July 5, 2009 and June 29, 2008	3
	Consolidated Statements of Comprehensive Income – Thirteen and Twenty-Six Weeks Ended July 5, 2009 and June 29, 2008	4
	Consolidated Statements of Cash Flows – Twenty-Six Weeks Ended July 5, 2009 (as restated) and June 29, 2008	5
	Condensed Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
PART II - OTHER INFORMATION
Item 6.	Exhibits	37
Signatures		38

1

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

FEI Company and Subsidiaries

Consolidated Balance Sheets

(In thousands)

(Unaudited)

	July 5, 2009		December 31, 2008(1)
Assets
Current Assets:
Cash and cash equivalents	$	178,879	$	146,521
Short-term investments in marketable securities		145,739		32,901
Short-term restricted cash		10,783		10,994
Receivables, net of allowances for doubtful accounts of $3,705 and $3,139		162,771		139,733
Inventories		147,798		141,609
Deferred tax assets		2,651		2,884
Other current assets		52,921		32,926
Total Current Assets		701,542		507,568
Non-current investments in marketable securities		6,300		94,098
Long-term restricted cash		42,344		34,833
Property, plant and equipment, net of accumulated depreciation of $82,872 and $85,391		76,860		76,991
Goodwill		44,600		40,964
Deferred tax assets		1,618		2,188
Non-current inventories		41,468		41,072
Other assets, net		18,667		34,458
Total Assets	$	933,399	$	832,172
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	36,108	$	34,964
Accrued payroll liabilities		19,498		19,219
Accrued warranty reserves		6,683		6,439
Accrued agent commissions		10,957		9,882
Deferred revenue		69,341		44,135
Income taxes payable		3,318		3,040
Accrued restructuring, reorganization, relocation and severance		86		240
Short-term line of credit		70,800		—
Other current liabilities		40,600		33,732
Total Current Liabilities		257,391		151,651
Convertible debt		100,000		115,000
Deferred tax liabilities		4,100		4,164
Other liabilities		28,446		42,268
Commitments and contingencies
Shareholders’ Equity:
Preferred stock - 500 shares authorized; none issued and outstanding		—		—
Common stock - 70,000 shares authorized; 37,553 and 37,286 shares issued and outstanding, no par value		478,075		469,893
Retained earnings (deficit)		8,830		(1,168	)
Accumulated other comprehensive income		56,557		50,364
Total Shareholders’ Equity		543,462		519,089
Total Liabilities and Shareholders’ Equity	$	933,399	$	832,172

(1) As adjusted for the effects of the adoption of FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” See Note 20 of the Condensed Notes to the Consolidated Financial Statements.

See accompanying Condensed Notes to Consolidated Financial Statements.

2

FEI Company and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

	For the Thirteen Weeks Ended						For the Twenty-Six Weeks Ended
	July 5, 2009			June 29, 2008(1)			July 5, 2009			June 29, 2008(1)
Net Sales:
Products	$	107,109		$	119,487		$	215,344		$	236,469
Products - related party		53			271			380			503
Service and components		33,030			34,199			66,266			68,527
Service and components - related party		71			82			106			186
Total net sales		140,263			154,039			282,096			305,685
Cost of Sales:
Products		61,127			70,384			121,014			137,367
Service and components		22,975			25,035			46,229			50,473
Total cost of sales		84,102			95,419			167,243			187,840
Gross Profit		56,161			58,620			114,853			117,845
Operating Expenses:
Research and development		16,657			18,496			33,437			36,303
Selling, general and administrative		31,825			32,919			64,651			65,531
Restructuring, reorganization, relocation and severance		1,067			2,271			2,029			2,271
Total operating expenses		49,549			53,686			100,117			104,105
Operating Income		6,612			4,934			14,736			13,740
Other Income (Expense):
Interest income		668			4,118			1,801			9,117
Interest expense		(1,195	)		(5,443	)		(3,107	)		(10,795	)
Other, net		(974	)		(373	)		(515	)		(1,240	)
Total other income (expense), net		(1,501	)		(1,698	)		(1,821	)		(2,918	)
Income before income taxes		5,111			3,236			12,915			10,822
Income tax expense		1,451			1,578			2,917			4,131
Net income	$	3,660		$	1,658		$	9,998		$	6,691
Basic net income per share	$	0.10		$	0.05		$	0.27		$	0.18
Diluted net income per share	$	0.10		$	0.04		$	0.27		$	0.18
Shares used in per share calculations:
Basic		37,450			36,499			37,386			36,467
Diluted		37,745			36,895			37,681			36,868

(1) As adjusted for the effects of the adoption of FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” See Note 20 of the Condensed Notes to the Consolidated Financial Statements.

See accompanying Condensed Notes to Consolidated Financial Statements.

3

FEI Company and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

	For the Thirteen Weeks Ended					For the Twenty-Six Weeks Ended
	July 5, 2009		June 29, 2008(1)			July 5, 2009			June 29, 2008(1)
Net income	$	3,660	$	1,658		$	9,998		$	6,691
Other comprehensive income:
Change in cumulative translation adjustment, zero taxes provided		12,116		2,124			3,608			22,378
Change in unrealized loss on available-for-sale securities		40		383			(23	)		(6,402	)
Change in minimum pension liability, net of taxes		2		14			—			(7	)
Changes due to cash flow hedging instruments:
Net gain on hedge instruments		912		73			611			5,025
Reclassification to net income of previously deferred losses (gains) related to hedge derivatives instruments		521		(2,428	)		1,997			(5,908	)
Comprehensive income	$	17,251	$	1,824		$	16,191		$	21,777

(1) As adjusted for the effects of the adoption of FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” See Note 20 of the Condensed Notes to the Consolidated Financial Statements.

See accompanying Condensed Notes to Consolidated Financial Statements.

4

FEI Company and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	For the Twenty-Six Weeks Ended
	July 5, 2009			June 29, 2008(2)
	As Restated(1)
Cash flows from operating activities:
Net income	$	9,998		$	6,691
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		8,191			8,374
Amortization		1,642			8,665
Stock-based compensation		5,630			3,864
Gain on trading securities and UBS Put Right		(371	)		—
Loss on disposal of investments, property, plant and equipment and intangible assets		71			270
Write-off of deferred note issuance costs on redemption		250			226
Gain on redemption of 2.875% convertible note		(2,025	)		—
Income taxes receivable (payable), net		(1,161	)		2,695
Deferred income taxes		571			1,646
(Increase) decrease in:
Receivables		(22,049	)		(9,548	)
Inventories		(6,446	)		(7,897	)
Other assets		(4,792	)		(4,323	)
Increase (decrease) in:
Accounts payable		1,274			1,298
Accrued payroll liabilities		(97	)		(8,518	)
Accrued warranty reserves		170			359
Deferred revenue		24,162			(10,421	)
Accrued restructuring, reorganization, relocation and severance costs		(148	)		1,525
Other liabilities		(7,220	)		2,590
Net cash provided by (used in) operating activities		7,650			(2,504	)
Cash flows from investing activities:
(Increase) decrease in restricted cash		(6,531	)		6,029
Acquisition of property, plant and equipment		(5,492	)		(7,547	)
Proceeds from disposal of property, plant and equipment		25			1
Purchase of investments in marketable securities		(42,685	)		(93,857	)
Redemption of investments in marketable securities		22,776			88,488
Other		(4,360	)		(270	)
Net cash used in investing activities		(36,267	)		(7,156	)
Cash flows from financing activities:
Redemption of 5.5% convertible notes		—			(45,882	)
Redemption of zero coupon convertible notes		—			(148,907	)
Redemption of 2.875% convertible note		(13,077	)		—
Withholding taxes paid on issuance of vested restricted stock units		(536	)		(970	)
Proceeds from line of credit		70,800			—
Proceeds from exercise of stock options and employee stock purchases		3,066			3,060
Net cash provided by (used in) financing activities		60,253			(192,699	)
Effect of exchange rate changes		722			6,233
Increase (decrease) in cash and cash equivalents		32,358			(196,126	)
Cash and cash equivalents:
Beginning of period		146,521			280,593
End of period	$	178,879		$	84,467
Supplemental Cash Flow Information:
Cash paid for income taxes, net	$	2,643		$	462
Cash paid for interest		2,571			4,699
Inventories transferred to fixed assets		1,954			1,699

(1) See Note 24 of the Condensed Notes to the Consolidated Financial Statements.

(2) As adjusted for the effects of the adoption of FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” See Note 20 of the Condensed Notes to the Consolidated Financial Statements.

See accompanying Condensed Notes to Consolidated Financial Statements.

5

FEI COMPANY AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. NATURE OF BUSINESS

We are a leading supplier of instruments for nanoscale imaging, analysis and prototyping to enable research, development and manufacturing in a range of industrial, academic and research institutional applications. We report our revenue based on a market-focused organization: the Electronics market, the Research and Industry market, the Life Sciences market and the Service and Components market.

Our products include focused ion beam systems, or FIBs; scanning electron microscopes, or SEMs; transmission electron microscopes, or TEMs; andDualBeam systems, which combine a FIB and SEM on a single platform.

OurDualBeam systems include models that have wafer handling capability and are purchased by semiconductor and data storage manufacturers (“wafer-levelDualBeamsystems”) and models that have small stages and are sold to customers in several markets (“small-stageDualBeamsystems”).

We have research, development and manufacturing operations in Hillsboro, Oregon; Eindhoven, the Netherlands; and Brno, Czech Republic. Our sales and service operations are conducted in the U.S. and approximately 50 other countries around the world. We also sell our products through independent agents, distributors and representatives in additional countries.

2. BASIS OF PRESENTATION

The consolidated financial statements include the accounts of FEI Company and our majority-controlled subsidiaries (“FEI”). All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements and condensed footnotes have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included. The results of operations for the thirteen and twenty-six weeks ended July 5, 2009 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the Securities and Exchange Commission (“SEC”) on February 20, 2009.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. It is reasonably possible that the estimates we have made may change in the near future. Significant estimates underlying the accompanying consolidated financial statements include the allowance for doubtful accounts, reserves for excess or obsolete inventory, restructuring and reorganization costs, warranty liabilities, unrecognized tax benefits, tax valuation allowances, the valuation of businesses acquired and related in-process research and development and other intangibles, the valuation of investments in auction rate securities (“ARS”), the valuation of the UBS AG (together with its affiliates, “UBS”) put right (the “Put Right”), the lives and recoverability of equipment and other long-lived assets such as existing technology intangibles and goodwill and the timing of revenue recognition and the timing and valuation of stock-based compensation.

6

3. STOCK-BASED COMPENSATION

1995 Stock Incentive Plan and 1995 Supplemental Stock Incentive Plan

Our 1995 Stock Incentive Plan, as amended (the “1995 Plan”) allows for the issuance of a maximum of 10,000,000 shares of our common stock and our 1995 Supplemental Stock Incentive Plan (the “1995 Supplemental Plan”) allows for the issuance of a maximum of 500,000 shares of our common stock. At July 5, 2009, there were 3,240,545 shares available for grant under these plans and 5,470,281 shares of our common stock were reserved for issuance.

Certain information regarding all options outstanding as of July 5, 2009 was as follows:

	Options Outstanding		Options Exercisable
Number		1,486,843		1,332,843
Weighted average exercise price	$	23.53	$	24.01
Aggregate intrinsic value	$	2,438,535	$	2,002,423
Weighted average remaining contractual term		3.0 years		2.9 years

Restricted shares and restricted stock units (“RSUs”) outstanding, including awards issued within and outside of the 1995 Plan, totaled 742,893 at July 5, 2009.

Our stock-based compensation expense was included in our statements of operations as follows (in thousands):

	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	July 5, 2009		June 29, 2008		July 5, 2009		June 29, 2008
Cost of sales	$	360	$	221	$	707	$	513
Research and development		324		258		659		492
Selling, general and administrative		2,044		1,350		4,265		2,859
	$	2,728	$	1,829	$	5,631	$	3,864

As of July 5, 2009, unrecognized stock-based compensation related to outstanding, but unvested stock options, restricted shares and RSUs was $15.9 million, which will be recognized over the weighted average remaining vesting period of 1.6 years.

4. AMENDMENT OF 1995 STOCK INCENTIVE PLAN

At our annual meeting, which was held on May 14, 2009, our shareholders approved an amendment to our 1995 Stock Incentive Plan to increase the number of shares of our common stock reserved for issuance under the plan from 9,750,000 to 10,000,000.

5. AMENDMENT OF EMPLOYEE SHARE PURCHASE PLAN

At our annual meeting, which was held on May 14, 2009, our shareholders approved an amendment to our Employee Share Purchase Plan to increase the number of shares of our common stock reserved for issuance under the plan from 2,700,000 to 2,950,000.

7

6. EARNINGS PER SHARE

Basic earnings per share (“EPS”) and diluted EPS are computed using the methods prescribed by Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings per Share.” Following is a reconciliation of basic EPS and diluted EPS (in thousands, except per share amounts):

	Thirteen Weeks Ended July 5, 2009					Thirteen Weeks Ended June 29, 2008
	Net Income		Shares	Per Share Amount		Net Income		Shares	Per Share Amount(1)
Basic EPS	$	3,660	37,450	$	0.10	$	1,658	36,499	$	0.05
Dilutive effect of stock options calculated using the treasury stock method		—	55		—		—	184		(0.01	)
Dilutive effect of restricted shares		—	75		—		—	27		—
Dilutive effect of shares issuable to Philips		—	165		—		—	185		—
Diluted EPS	$	3,660	37,745	$	0.10	$	1,658	36,895	$	0.04
Potential common shares excluded from diluted EPS since their effect would be antidilutive:
Convertible debt			3,407					8,532
Stock options			1,007					1,099

	Twenty-Six Weeks Ended July 5, 2009					Twenty-Six Weeks Ended June 29, 2008
	Net Income		Shares	Per Share Amount		Net Income		Shares	Per Share Amount(1)
Basic EPS	$	9,998	37,386	$	0.27	$	6,691	36,467	$	0.18
Dilutive effect of stock options calculated using the treasury stock method		—	51		—		—	173		—
Dilutive effect of restricted shares		—	69		—		—	43		—
Dilutive effect of shares issuable to Philips		—	175		—		—	185		—
Diluted EPS	$	9,998	37,681	$	0.27	$	6,691	36,868	$	0.18
Potential common shares excluded from diluted EPS since their effect would be antidilutive:
Convertible debt			3,407					8,532
Stock options			1,777					1,528

(1) Adjusted for the effects of the adoption of FASB Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” See Note 20 for additional information.

7. CREDIT FACILITIES AND RESTRICTED CASH

We have a multibank credit agreement (the “Credit Agreement”), which provides for a $100.0 million secured revolving credit facility, including a $50.0 million subfacility for the issuance of letters of credit. We may, upon notice to JPMorgan Chase Bank, N.A. (the “Agent”), request to increase the revolving loan commitments by an aggregate amount of up to $50.0 million with new or additional commitments subject only to the consent of the lender(s) providing the new or additional commitments, for a total secured credit facility of up to $150.0 million. As of July 5, 2009, there were no revolving loans or letters of credit outstanding under the Credit Agreement, we were in compliance with all covenants and we were not in default under the Credit Agreement.

8

We also have a 50.0 million yen unsecured and uncommitted bank borrowing facility in Japan and various limited facilities in select foreign countries. No amounts were outstanding under any of these facilities as of July 5, 2009.

As part of our contracts with certain customers, we are required to provide letters of credit or bank guarantees, which these customers can draw against in the event we do not perform in accordance with our contractual obligations. At July 5, 2009, we had $53.7 million of these guarantees and letters of credit outstanding, of which approximately $53.1 million were secured by restricted cash deposits. Restricted cash balances securing bank guarantees that expire within 12 months of the balance sheet date are recorded as a current asset on our consolidated balance sheets. Restricted cash balances securing bank guarantees that expire beyond 12 months from the balance sheet date are recorded as long-term restricted cash on our consolidated balance sheet.

See also Note 8.

8. AUCTION RATE SECURITIES, PUT RIGHT AND RELATED LINE OF CREDIT

On November 6, 2008, we accepted an offer by UBS of certain auction rate securities rights (the “Put Right”). The Put Right permits us to cause UBS to repurchase, at par value, our ARS during the period beginning on June 30, 2010 and ending on July 2, 2012. The fair value of the ARS and the Put Right was approximately $96.8 million and $13.2 million, respectively, as of July 5, 2009, as discussed in more detail below. As of July 5, 2009, both the ARS and the Put Right were classified as current on our consolidated balance sheet based on our intent to exercise the Put Right within the next 12 months. The par value of the ARS was $110.1 million at July 5, 2009. The Put Right was offered in connection with UBS’s obligations under settlement agreements with the SEC and other federal and state regulatory authorities.

In addition, UBS offered us the ability to borrow no-net cost loans secured by the ARS. On March 25, 2009, we entered into an uncommitted secured demand revolving credit facility (the “UBS Credit Facility”) with UBS Bank USA (the “Lender”), providing for a line of credit in an amount of up to $70.8 million, or approximately 75% of the market value of the ARS. The obligations under the UBS Credit Facility are secured by substantially all of our collateral accounts, money, investment property and other property maintained with UBS, including the ARS (the “UBS Collateral”), subject to certain exceptions. In connection with entering into the UBS Credit Facility agreement, we amended our $100.0 million secured revolving credit facility with JPMorgan Chase Bank, N.A. to permit the incurrence of indebtedness secured by the UBS Collateral and the transactions contemplated under the UBS Credit Facility.

During the first quarter of 2009, we drew down $70.8 million, the full amount available under the UBS Credit Facility and, at July 5, 2009, $70.8 million remained outstanding. The proceeds derived from any sales of the ARS we hold in accounts with UBS will be applied to repay any outstanding obligations under the UBS Credit Facility.

The UBS Credit Facility contains affirmative and negative covenants, including, among other things, (i) a covenant that, if at any time there are amounts owing under the UBS Credit Facility and the ARS can be sold or otherwise conveyed by us for gross proceeds that are at least equal to the par value of the ARS, then we will sell or convey the ARS to the extent necessary to pay off any amounts owing under the UBS Credit Facility and will use the proceeds to pay those amounts, and (ii) a covenant that limits our ability to grant liens on the collateral.

The UBS Credit Facility includes customary events of default that include, among other things, non-payment defaults, the failure to maintain sufficient collateral, covenant defaults, inaccuracy of representations and warranties, the failure to provide financial and other information in a timely manner, bankruptcy and insolvency defaults, cross-defaults to other indebtedness and judgment defaults. The occurrence of an event of default will result in the acceleration of the obligations under the UBS Credit Facility and any amounts due and not paid following an event of default will bear interest at a rate per annum equal to 2.00% above the applicable interest rate. As of July 5, 2009, we were in compliance with all of the terms of the UBS Credit Facility.

9

We estimate the fair value of our ARS quarterly using a discounted cash flow model, comparing the expected rate of interest to be received on the ARS to similar securities. We then discount the securities over a three to ten year term, depending on the collateral underlying each ARS. The amounts derived through the discounted cash flow model were generally consistent with the quoted price indicated by the bank which holds our ARS at July 5, 2009. The increase in the fair value of the ARS in the thirteen and twenty-six week periods ended July 5, 2009 totaled $1.4 million and $5.1 million, respectively, and was recorded as a component of other income, net.

We also calculate the fair value of the Put Right on a quarterly basis based on the net present value of the difference between the par value and the fair market value of the ARS at the end of each quarter, using a twelve month option period through the settlement date discounted by the credit default rate of UBS, the issuer. We also consider several other factors, including continued failure of auctions, failure of investments to be redeemed, deterioration of credit ratings of investments, overall market risk and other factors. The decrease in the fair value of the Put Right in the thirteen and twenty-six week periods ended July 5, 2009 totaled $1.1 million and $4.7 million, respectively, and was recorded as a component of other income, net.

9. INVENTORIES

Inventories are stated at the lower of cost or market, with cost determined by standard cost methods, which approximate the first-in, first-out method. Inventory costs include material, labor and manufacturing overhead. Service inventories that exceed the estimated requirements for the next 12 months based on recent usage levels are reported as other long-term assets. Management has established inventory reserves based on estimates of excess and/or obsolete current and non-current inventory.

Inventories consisted of the following (in thousands):

	July 5,		December 31,
	2009		2008
Raw materials and assembled parts	$	44,200	$	44,458
Service inventories, estimated current requirements		19,479		18,588
Work-in-process		55,909		56,777
Finished goods		28,210		21,786
Total inventories	$	147,798	$	141,609
Non-current inventories	$	41,468	$	41,072

Non-service inventory valuation adjustments totaled $0.6 million and $1.8 million, respectively, during the thirteen and twenty-six week periods ended July 5, 2009 and totaled $0.1 million and $0.5 million, respectively, during the thirteen and twenty-six week periods ended June 29, 2008. Service inventory valuation adjustments totaled $1.3 million and $2.5 million, respectively, during the thirteen and twenty-six week periods ended July 5, 2009 and $1.5 million and $2.2 million, respectively, during the thirteen and twenty-six week periods ended June 29, 2008.

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10. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The roll-forward of our goodwill was as follows (in thousands):

	Twenty-Six Weeks Ended
	July 5, 2009		June 29, 2008
Balance, beginning of period	$	40,964	$	40,864
Additions		3,631		—
Adjustments to goodwill		5		(25	)
Balance, end of period	$	44,600	$	40,839

Additions represent the goodwill from our acquisition of certain assets of a division of an Australian software company that provides software for our mineral liberation analysis products in the second quarter of 2009. The total purchase price was $4.1 million. Pro forma operating results and the remaining asset allocation were immaterial.

Adjustments to goodwill include translation adjustments resulting from a portion of our goodwill being recorded on the books of our foreign subsidiaries.

Other Intangible Assets

The gross amount of our other intangible assets and the related accumulated amortization were as follows (in thousands):

	Amortization Period	July 5, 2009			December 31, 2008
Purchased technology	5 to 12 years	$	46,232		$	46,492
Accumulated amortization			(45,649	)		(45,197	)
			583			1,295
Patents, trademarks and other	2 to 15 years		8,292			7,569
Accumulated amortization			(3,612	)		(3,612	)
			4,680			3,957
Note issuance costs	5 to 7 years		2,747			3,159
Accumulated amortization			(1,209	)		(1,165	)
			1,538			1,994
Total intangible assets included in other long-term assets		$	6,801		$	7,246

Amortization expense was as follows (in thousands):

	Twenty-Six Weeks Ended
	July 5, 2009		June 29, 2008
Purchased technology	$	425	$	912
Patents, trademarks and other		559		563
Note issuance costs		456		632
	$	1,440	$	2,107

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Expected amortization is as follows over the next five years and thereafter (in thousands):

	Purchased Technology		Patents, Trademarks and Other		Note Issuance Costs
Remainder of 2009	$	206	$	477	$	196
2010		377		972		393
2011		—		905		393
2012		—		861		393
2013		—		803		163
Thereafter		—		662		—
	$	583	$	4,680	$	1,538

11. WARRANTY RESERVES

Our products generally carry a one-year warranty. A reserve is established at the time of sale to cover estimated warranty costs as a component of cost of sales on our consolidated statements of operations. Our estimate of warranty cost is based on our history of warranty repairs and maintenance. While most new products are extensions of existing technology, the estimate could change if new products require a significantly different level of repair and maintenance than similar products have required in the past. Our estimated warranty costs are reviewed and updated on a quarterly basis. Historically, we have not made significant adjustments to our estimates.

The following is a summary of warranty reserve activity (in thousands):

	Twenty-Six Weeks Ended
	July 5, 2009			June 29, 2008
Balance, beginning of period	$	6,439		$	6,585
Reductions for warranty costs incurred		(5,190	)		(6,571	)
Warranties issued		5,420			7,076
Translation and changes in estimates		14			69
Balance, end of period	$	6,683		$	7,159

12. INCOME TAXES

We recorded a tax provision of approximately $1.5 million and $2.9 million for the thirteen and twenty-six week periods ended July 5, 2009. The provision consisted primarily of taxes accrued in foreign jurisdictions reduced by a tax benefit for valuation allowance released against deferred tax assets utilized to offset income earned in the U.S. We continue to record a valuation allowance against remaining U.S. deferred tax assets as we do not believe it is more likely than not that we will be able to utilize the deferred tax assets in future periods.

Deferred Taxes

Deferred tax assets, net of a valuation allowance of $42.8 million as of July 5, 2009 and December 31, 2008 were classified on the balance sheet as follows (in thousands):

	July 5, 2009			December 31, 2008
Deferred tax assets – current	$	2,651		$	2,884
Deferred tax assets – non-current		1,618			2,188
Other current liabilities		(231	)		(274	)
Deferred tax liabilities – non-current		(4,100	)		(4,164	)
Net deferred tax (liabilities) assets	$	(62	)	$	634

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Unrecognized Tax Benefits

During the thirteen and twenty-six week periods ended July 5, 2009, unrecognized tax benefits increased $0.4 million and $1.6 million, respectively. These amounts were net of reductions related to the lapse of applicable statutes of limitations of $0.4 million. There were no increases or decreases in prior unrecognized tax benefits resulting from settlements with taxing authorities. We classify interest and penalties associated with unrecognized tax benefits as a component of tax expense in the statement of operations.

Current and non-current liability components of unrecognized tax benefits at July 5, 2009 and December 31, 2008 were classified on the balance sheet as follows (in thousands):

	July 5, 2009		December 31, 2008
Other current liabilities	$	16,888	$	445
Other liabilities		3,091		17,922
Unrecognized tax benefits	$	19,979	$	18,367

During the first quarter of 2009, we reclassified $15.4 million of unrecognized tax benefits from long-term to current based on the estimated timing of settlement.

For our major tax jurisdictions, the following years were open for examination by the tax authorities as of July 5, 2009:

Jurisdiction	Open Tax Years
U.S.	2005 and forward
The Netherlands	2006 and forward
Czech Republic	2006 and forward

13. RELATED PARTY AND OTHER ACTIVITY

During the thirteen and twenty-six week periods ended July 5, 2009 and the comparable periods of 2008, we sold products and services to Applied Materials, Inc. A director of Applied Materials is a member of our Board of Directors. We also sold services to Cascade Microtech, Inc. Our Chief Financial Officer is on the Board of Directors of Cascade Microtech. Sales to Applied Materials and Cascade Microtech were as follows (in thousands):

	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	July 5, 2009		June 29, 2008		July 5, 2009		June 29, 2008
Product sales:
Applied Materials	$	53	$	271	$	380	$	503
Total product sales		53		271		380		503
Service and component sales:
Applied Materials	$	70	$	74	$	104	$	178
Cascade Microtech		1		8		2		8
Total service and component sales		71		82		106		186
Total sales to related parties	$	124	$	353	$	486	$	689

As of July 5, 2009, Applied Materials and Cascade Microtech owed us $107,000 and $1,000, respectively, related to their purchases.

During the thirteen and twenty-six week periods ended July 5, 2009, we purchased $0.3 million and $2.1 million, respectively, worth of goods from Schneeberger, Inc. During the thirteen and twenty-six week periods ended June 29, 2008, we purchased $0.1 million and $0.4 million, respectively, worth of goods from Schneeberger. One of our executive officers serves on the Board of Directors of Schneeberger. As of July 5, 2009, we owed Schneeberger $0.1 million for these purchases.

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During the thirteen and twenty-six week periods ended July 5, 2009, we purchased $22,000 and $46,000, respectively, worth of services from Fidelity Investments. During the thirteen and twenty-six week periods ended June 29, 2008, we purchased $46,000 worth of services from Fidelity Investments. FMR LLC, the parent company of Fidelity Investments, is a greater than 5% shareholder of our common stock. At July 5, 2009, we did not owe Fidelity Investments any amounts for these purchases.

During the thirteen and twenty-six week periods ended July 5, 2009, we purchased $50,000 and $132,000, respectively, worth of services from TMC BV. During the thirteen and twenty-six week periods ended June 29, 2008, we purchased $113,000 and $243,000, respectively, worth of services from TMC BV. One of the members of our Board of Directors also serves on the Supervisory Board of TMC BV. At July 5, 2009, we did not owe TMC BV any amounts for these purchases.

During the thirteen and twenty-six week periods ended July 5, 2009, we purchased $32,000 and $78,000, respectively, worth of services from EasyStreet Online Services. During the thirteen and twenty-six week periods ended June 29, 2008, we purchased $21,000 and $48,000, respectively, worth of services from EasyStreet Online Services. One of the members of our Board of Directors also serves on the Board of Directors of EasyStreet Online Services. As of July 5, 2009, we did not owe EasyStreet Online Services any amounts for these purchased services.

14. REDEMPTION OF 2.875% CONVERTIBLE SUBORDINATED NOTES

We redeemed the following amounts of our 2.875% Convertible Subordinated Notes in the thirteen week period ended April 5, 2009:

Date	Amount Redeemed		Redemption Price		Redemption Discount		Related Note Issuance Costs Written Off
February 2009	$	15.0 million	86.5	%	$	2.0 million	$	0.3 million

There were no additional redemptions in the thirteen week period ended July 5, 2009.

15. COMMITMENTS AND CONTINGENCIES

From time to time, we are involved in various legal proceedings and we receive claims arising in the normal course of our business activities, including claims for alleged infringement or violation of intellectual property rights. We have been in discussions with another company that believes we infringe on certain of its patents. No litigation or formal claim has been filed to date. We are currently analyzing the potential merits of the other company’s claims and the potential defenses to such claims. We intend to vigorously defend our interests in this matter. Currently, we are not a party to any other litigation that we believe would have a material adverse effect on our financial position, results of operations or cash flows.

We have commitments under non-cancelable purchase orders, primarily relating to inventory, totaling $51.4 million at July 5, 2009. These commitments expire at various times through the first quarter of 2010.

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16. SEGMENT INFORMATION

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our Chief Executive Officer.

We report our segments based on a market-focused organization. Our segments are: Electronics, Research and Industry, Life Sciences and Service and Components. The following table summarizes various financial amounts for each of our business segments (in thousands):

Thirteen Weeks Ended July 5, 2009	Electronics		Research and Industry		Life Sciences		Service and Components		Corporate and Eliminations			Total
Sales to external customers	$	32,329	$	55,221	$	19,612	$	33,101	$	—		$	140,263
Gross profit		15,631		22,006		8,398		10,126		—			56,161
Thirteen Weeks Ended June 29, 2008
Sales to external customers	$	37,729	$	62,493	$	19,536	$	34,281	$	—		$	154,039
Gross profit		19,088		22,765		7,521		9,246		—			58,620
Twenty-Six Weeks Ended July 5, 2009
Sales to external customers	$	61,688	$	113,559	$	40,477	$	66,372	$	—		$	282,096
Gross profit		30,260		48,406		16,044		20,143		—			114,853
Twenty-Six Weeks Ended June 29, 2008
Sales to external customers	$	84,250	$	123,590	$	29,132	$	68,713	$	—		$	305,685
Gross profit		39,335		49,584		10,686		18,240		—			117,845
July 5, 2009
Total assets	$	103,631	$	151,410	$	45,498	$	141,510	$	491,350		$	933,399
Goodwill		18,134		17,780		3,627		5,062		(3	)		44,600
December 31, 2008
Total assets	$	90,100	$	142,390	$	35,560	$	137,186	$	426,936		$	832,172
Goodwill		18,132		14,148		3,626		5,061		(3	)		40,964

Market segment disclosures are presented to the gross profit level as this is the primary performance measure for which the segment general managers are responsible. Selling, general and administrative, research and development and other operating expenses are managed and reported at the corporate level and, given allocation to the market segments would be arbitrary, have not been allocated to the market segments. See our Consolidated Statements of Operations for reconciliations from gross profit to income before income taxes. These reconciling items are not included in the measure of profit and loss for each reportable segment.

One customer accounted for 10% or more of our total sales in the thirteen and twenty-six week periods ended July 5, 2009. No customer represented 10% or more of our total sales in the thirteen or twenty-six week periods ended June 29, 2008.

17. RESTRUCTURING, REORGANIZATION, RELOCATION AND SEVERANCE

In the thirteen and twenty-six week periods ended July 5, 2009, we incurred $1.1 million and $2.0 million, respectively, of costs related to our April 2008 restructuring plan related to improving the efficiency of our operations and improving the currency balance in our supply chain so that more of our costs are denominated in dollar or dollar-linked currencies. We incurred a total of $6.3 million of costs in 2008 and through the first half of 2009 related to this plan and expect to incur between approximately $1.7 million and $1.9 million in the remainder of 2009 related to the implementation of this plan. These actions are expected to reduce operating expenses, improve our factory utilization and help offset the effect of currency fluctuations on our cost of

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goods sold. The main activities, approximate range of associated costs and expected timing are described in the table below. Presently, all of the costs described are expected to result in cash expenditures and we currently expect the approximate total cost of the restructuring to range from $8.0 million to $9.0 million.

A summary of the anticipated restructuring expenses is as follows:

Type of Expense	Approximate Range of Expected Costs	Amount Incurred and Expected Timing for Remainder of Charges
Severance costs related to work force reduction of 3% (approximately 60 employees)	$3.0 million	$2.9 million incurred. Remainder in the second half of 2009.
Transfer of manufacturing and other activities	$1.5 million - $2.0 million	$0.3 million incurred. Remainder in the second half of 2009.
Shift of supply chain	$3.5 million - $4.0 million	$3.1 million incurred. Remainder in the second half of 2009.

The following table summarizes the charges, expenditures and write-offs and adjustments in the twenty-six week period ended July 5, 2009 related to our restructuring, reorganization, relocation and severance accruals (in thousands):

Twenty-Six Weeks Ended July 5, 2009	Beginning Accrued Liability		Charged to Expense, Net		Expenditures			Write-Offs and Adjustments			Ending Accrued Liability
Severance, outplacement and related benefits for terminated employees	$	221	$	94	$	(241	)	$	(24	)	$	50
Transfer of manufacturing and related activities and shift of supply chain		—		1,919		(1,922	)		3			—
Abandoned leases, leasehold improvements and facilities		19		16		—			1			36
	$	240	$	2,029	$	(2,163	)	$	(20	)	$	86

18. FAIR VALUE MEASUREMENTS OF ASSETS AND LIABILITIES

Effective January 1, 2009, we adopted the provisions of SFAS No. 157, “Fair Value Measurements,” for our non-financial assets and liabilities. The adoption of these provisions of SFAS No. 157 did not have any effect on our results of operations, financial position or cash flows.

Effective July 5, 2009, we adopted the provisions of FASB Staff Position (“FSP”) No. FAS157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This FSP provides additional guidance for estimating fair value in accordance with SFAS No. 157 and emphasizes that, even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation techniques used, the fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. This FSP amends SFAS No. 157 to require disclosure in interim and annual periods regarding the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques and related inputs, if any, during the period. It also requires that entities define major categories for equity and debt securities in accordance with paragraph 19 of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Disclosures related to this FSP are included below.

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Pursuant to SFAS No. 157, factors used in determining the fair value of our financial assets and liabilities are summarized into three broad categories:

• Level 1 – quoted prices in active markets for identical securities as of the reporting date;

• Level 2 – other significant directly or indirectly observable inputs, including quoted prices for similar securities, interest rates, prepayment speeds and credit risk; and

• Level 3 – significant inputs that are generally less observable than objective sources, including our own assumptions in determining fair value.

The factors or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

Following are the disclosures related to our financial assets as of July 5, 2009 pursuant to SFAS No. 157 (in thousands):

	Level 1		Level 2		Level 3
Available for sale marketable securities:
Corporate notes and bonds	$	9,994	$	—	$	—
U.S. Government-backed securities		35,841		—		—
Certificates of deposit and commercial paper		6,834		—		—
Trading securities:
Equity securities – mutual funds		2,600		—		—
ARS		—		—		96,771
Derivative contracts, net		—		2,678		—
Put Right		—		—		13,198
	$	55,269	$	2,678	$	109,969

A roll-forward of our Level 3 securities was as follows (in thousands):

	Auction Rate Securities		Put Right
Balance, December 31, 2008	$	91,680	$	17,917
Increase in fair value of ARS included as a component of other income, net		3,686		—
Decrease in fair value of put right included as a component of other income, net		—		(3,577	)
Balance, April 5, 2009		95,366		14,340
Increase in fair value of ARS included as a component of other income, net		1,405		—
Decrease in fair value of put right included as a component of other income, net		—		(1,142	)
Balance, July 5, 2009	$	96,771	$	13,198

The fair value of our available for sale and trading marketable securities is based on quoted market prices.

We use an income approach to value the assets and liabilities for outstanding derivative contracts using current market information as of the reporting date, such as spot rates, interest rate differentials and implied volatility. We mitigate derivative credit risk by transacting with highly rated counterparties. We have evaluated the credit and non-performance risks associated with our derivative counterparties and believe them to be insignificant and not warranting a credit adjustment at July 5, 2009.

We estimated the fair value of our ARS using a discounted cash flow model where we compared the expected rate of interest received on the ARS to similar securities. We discounted the securities over a three to ten year term depending on the collateral underlying each ARS. The amounts derived through the discounted cash flow model were generally consistent with the quoted price indicated by the bank which holds our ARS at July 5, 2009.

We calculated the fair value of the Put Right based on the net present value of the difference between the par value and the fair market value of the ARS on July 5, 2009, using a twelve month option period through the settlement date discounted by the credit default rate of UBS, the issuer. We will reassess the fair values in future reporting periods based on several factors, including continued failure of auctions, failure of investments to be redeemed, deterioration of credit ratings of investments, overall market risk, and other factors.

There were no changes to our valuation techniques during the thirteen or twenty-six week periods ended July 5, 2009.

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Effective July 5, 2009, we adopted FSP No. FAS107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements. This FSP is applicable to the disclosure of fair value of our fixed rate convertible debt. At July 5, 2009, we had $100.0 million of fixed rate convertible debt outstanding. Based on open market trades, we have determined that the fair value of our fixed rate convertible debt was approximately $95.5 million at July 5, 2009.

19. DERIVATIVE INSTRUMENTS

In the normal course of business, we are exposed to foreign currency risk and we use derivatives to mitigate financial exposure from fluctuations in foreign currency exchange rates. As of July 5, 2009 and December 31, 2008, the aggregate notional amount of our outstanding derivative contracts designated as cash flow hedges was $31.1 million and $34.5 million, respectively. As of July 5, 2009 and December 31, 2008, the aggregate notional amount of our outstanding derivative contracts for our balance sheet positions was $87.7 million and $80.4 million, respectively. The outstanding contracts at July 5, 2009 have varying maturities through the second quarter of 2010. We do not enter into derivative financial instruments for speculative purposes.

We mitigate derivative credit risk by transacting with highly rated counterparties. We have evaluated the credit and nonperformance risks associated with our derivative counterparties and believe them to be insignificant and not warranting a credit adjustment at July 5, 2009. In addition, there are no contingent features in our derivative instruments.

Balance Sheet Related

In countries outside of the U.S., we transact business in U.S. dollars and in various other currencies. We attempt to mitigate our currency exposures for recorded transactions by using forward exchange contracts to reduce the risk that our future cash flows will be adversely affected by changes in exchange rates. We enter into forward sale or purchase contracts for foreign currencies to hedge specific cash, receivables or payables positions denominated in foreign currencies. Changes in fair value of derivatives entered into to mitigate the foreign exchange risks related to these balance sheet items are recorded in other income (expense) currently together with the transaction gain or loss from the respective balance sheet position.

Foreign currency losses recorded in other income (expense), inclusive of the impact of derivatives, totaled $1.3 million and $2.7 million, respectively, in the thirteen and twenty-six week periods ended July 5, 2009 and $0.4 million and $1.9 million, respectively, in the comparable periods of 2008.

Cash Flow Hedges

We use zero cost collar contracts and option contracts to hedge certain anticipated foreign currency exchange transactions. The foreign exchange hedging structure is set up generally on a twelve-month time horizon. The hedging transactions we undertake primarily limit our exposure to changes in the U.S. dollar/euro and the U.S. dollar/Czech koruna exchange rate. The zero cost collar contract hedges are designed to protect us as the U.S. dollar weakens, but also provide us with some flexibility if the dollar strengthens.

These derivatives meet the criteria to be designated as hedges and, accordingly, we record the change in fair value of the effective portion of these hedge contracts relating to anticipated transactions in other comprehensive income rather than net income until the underlying hedged transaction affects net income. Gains and losses resulting from the ineffective portion of the hedge contracts are recognized currently in net income.

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Summary

The following tables provide summary disclosure information pursuant to SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” which was adopted January 1, 2009.

At July 5, 2009 and December 31, 2008 the fair value carrying amount of our derivative instruments were included in our balance sheet as follows:

	Location in Balance Sheet
Derivatives Designated as Hedging Instruments
Foreign Exchange Contracts in Asset Position	Other Current Assets
Foreign Exchange Contracts in Liability Position	Other Current Liabilities
Derivatives Not Designated as Hedging Instruments
Foreign Exchange Contracts in Asset Position	Other Current Assets
Foreign Exchange Contracts in Liability Position	Other Current Liabilities

Balance Sheet Information (in thousands)	Fair Value of Asset Derivatives				Fair Value of Liability Derivatives
	July 5, 2009		December 31, 2008		July 5, 2009		December 31, 2008
Derivatives Designated as Hedging Instruments
Foreign Exchange Contracts	$	998	$	—	$	—  $		2,015
Derivatives Not Designated as Hedging Instruments
Foreign Exchange Contracts	$	2,276	$	1,938	$	596	$	5,775

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The effect of derivative instruments on our Consolidated Statements of Operations for the thirteen and twenty-six week periods ended July 5, 2009 and June 29, 2008 were as follows (in thousands):

Derivatives in SFAS No. 133 Cash Flow Hedging Relationships	Amount of Gain/(Loss) Recognized in OCI (Effective Portion)			Location of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Thirteen Weeks Ended July 5, 2009
Foreign Exchange Contracts	$	1,103		Cost of Goods Sold	$	(18	)	Other, net	$	(503	)
Thirteen Weeks Ended June 29, 2008
Foreign Exchange Contracts	$	(72	)	Cost of Goods Sold	$	2,428		—	$	—
Twenty-Six Weeks Ended July 5, 2009
Foreign Exchange Contracts	$	802		Cost of Goods Sold	$	(268	)	Other, net	$	(1,729	)
Twenty-Six Weeks Ended June 29, 2008
Foreign Exchange Contracts	$	5,432		Cost of Goods Sold	$	5,908		—	$	—

Derivatives Not Designated as Hedging Instruments under SFAS No. 133	Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain/(Loss) Recognized in Income on Derivative
Thirteen Weeks Ended July 5, 2009
Foreign Exchange Contracts	Other, net	$	(544	)
Thirteen Weeks Ended June 29, 2008
Foreign Exchange Contracts	Other, net	$	2,299
Twenty-Six Weeks Ended July 5, 2009
Foreign Exchange Contracts	Other, net	$	(460	)
Twenty-Six Weeks Ended June 29, 2008
Foreign Exchange Contracts	Other, net	$	1,955

The unrealized gains at July 5, 2009 are expected to be reclassified to net income during the next 12 months as a result of the underlying hedged transactions also being recorded in net income.

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20. ADOPTION OF FSP NO. APB 14-1

Effective January 1, 2009, we adopted FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” This FSP specifies that such instruments should separately account for the liability and equity components in a manner that reflects the entity’s non-convertible debt borrowing rate when interest cost is recognized in subsequent periods. Upon adoption, this FSP was retrospectively applied to our $150.0 million principal amount of zero coupon subordinated convertible notes. In accordance with the FSP, we recognized both the liability and equity component of our notes at fair value. The liability component is recognized as the fair value of a similar instrument that does not have a conversion feature at issuance. The equity component, which is the conversion feature at issuance, is recognized as the difference between the proceeds from the issuance of the notes and the fair value of the liability component. We recognize an effective interest rate of 8.874% on the carrying value of the debt.

The effect of adoption of this FSP increased interest expense and reduced net income and earnings per share in the thirteen and twenty-six week periods ended June 29, 2008 as indicated in the following tables (in thousands, except per share amounts).

	Thirteen Weeks Ended June 29, 2008
	Interest Expense		Net Income			Basic Net Income Per Share			Diluted Net Income Per Share
Reported	$	2,250	$	4,851		$	0.13		$	0.12
Adjustment		3,193		(3,193	)		(0.08	)		(0.08	)
Revised	$	5,443	$	1,658		$	0.05		$	0.04

	Twenty-Six Weeks Ended June 29, 2008
	Interest Expense		Net Income			Basic Net Income Per Share			Diluted Net Income Per Share
Reported	$	4,481	$	13,005		$	0.36		$	0.32
Adjustment		6,314		(6,314	)		(0.18	)		(0.14	)
Revised	$	10,795	$	6,691		$	0.18		$	0.18

Amortization of the debt discount during the thirteen and twenty-six weeks ended June 29, 2008 was $3.3 million and $6.5 million, respectively.

Given that these notes were repaid in 2008, there will be no impact of this pronouncement in 2009 or future years.

21. RECLASSIFICATIONS

Certain immaterial reclassifications were made to the prior period financial statements to conform with the current period presentation. On the consolidated balance sheet, we reclassified purchased intangibles, net into other assets, net and on the consolidated statement of operations, we reclassified amortization of purchased intangibles into selling, general and administrative expense.

22. NEW ACCOUNTING PRONOUNCEMENTS

SFAS No. 168

In June 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 168 “FASB Accounting Standards Codification^TM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162.” SFAS No. 168 will become the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. On the effective date, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting

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literature not included in the Codification will become non-authoritative. As we believe that our accounting practices are consistent with the Codification, we do not believe that the adoption of SFAS No. 168 will have a material effect on our financial position, results of operations or cash flows.

SFAS No. 167

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R).” SFAS No. 167 improves financial reporting by enterprises involved with variable interest entities. SFAS No. 167 is effective as of the beginning of an entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. We do not have any entities that fall under the guidance of SFAS No. 167 and, accordingly, the adoption of SFAS No. 167 will not have any effect on our financial position, results of operations or cash flows.

SFAS No. 166

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140.” SFAS No. 166 improves the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. SFAS No. 166 also amends certain provisions of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No. 166 is effective as of the beginning of an entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. SFAS No. 166 must be applied to transfers occurring on or after the effective date. While we are still analyzing the effects of the adoption of SFAS No. 166, we do not believe that the adoption of SFAS No. 166 will have a material effect on our financial position, results of operations or cash flows.

SFAS No. 165

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” SFAS No. 165 defines subsequent events as transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 defines two types of subsequent events: (i) events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements (that is, recognized subsequent events); and (ii) events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date (that is, nonrecognized subsequent events). In addition, SFAS No. 165 requires an entity to disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued or the date the financial statements were available to be issued. SFAS No. 165 is effective for periods ending after June 15, 2009. The adoption of SFAS No. 165 effective July 5, 2009 did not have any effect on our financial position, results of operations or cash flows.

FSP No. 142-3

In April 2008, the FASB issued FSP No. 142-3, “Determination of the Useful Life of Intangible Assets,” which amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” This FSP also adds certain disclosure requirements for intangible assets with definite useful lives. The adoption of this FSP on January 1, 2009 did not have any effect on our financial position, cash flows and results of operations.

SFAS No. 161

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” which requires certain disclosures related to derivative instruments. We adopted SFAS No. 161 effective January 1, 2009. Given that SFAS No. 161 pertains primarily to footnote disclosures, the adoption of this standard did not have a material impact on our financial position, results of operations or cash flows. See Note 19 for the disclosure required pursuant to SFAS No. 161.

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SFAS No. 141R and SFAS No. 160

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements.” SFAS Nos. 141R and 160 require most identifiable assets, liabilities, noncontrolling interests and goodwill acquired in a business combination to be recorded at “full fair value” and require noncontrolling interests (previously referred to as minority interests) to be reported as a component of equity, which changes the accounting for transactions with noncontrolling interest holders. We adopted both statements effective January 1, 2009. The adoption of SFAS Nos. 141R and 160 did not have a material effect on our financial position, results of operations or cash flows.

23. SUBSEQUENT EVENTS

We have considered all events that have occurred subsequent to July 5, 2009 and through August 6, 2009, the date the financial statements as of and for the periods ended July 5, 2009 were issued.

24. RESTATEMENT OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Subsequent to the issuance of our Condensed Consolidated Financial Statements for the thirteen and twenty-six weeks ended July 5, 2009, we determined that our Consolidated Statements of Cash Flows contained a clerical error relating to the presentation of operating cash flows from deferred income taxes and the effect of exchange rate changes on cash. As a result, we have restated the accompanying Consolidated Statements of Cash Flows for the twenty-six week period ended July 5, 2009.

The restatement does not affect our Consolidated Balance Sheets, Consolidated Statements of Operations or Consolidated Statements of Comprehensive Income for the period. Accordingly, our historical net income, earnings per share, total assets and cash and cash equivalents remain unchanged.

The effects of the restatement on the individual line items of the Consolidated Statements of Cash Flows for the twenty-six weeks ended July 5, 2009 were as follows (in thousands):

	Twenty-Six Weeks Ended July 5, 2009
	As Previously Reported			Adjustments			As Restated
Deferred income taxes	$	5,497		$	(4,926	)	$	571
Net cash provided by operations		12,576			(4,926	)		7,650
Effect of exchange rate changes		(4,204	)		4,926			722

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include any expectations of earnings, revenues, gross margins, non-operating expense, income tax expense, tax rates, net income, inventory turnover rates or other financial items, as well as backlog, order levels and activity of our company as a whole or our particular markets; any statements of the plans, strategies and objectives of management for future operations, restructuring and outsourcing initiatives; factors that may affect our 2009 operating results; any statements concerning proposed new products, services, developments, changes to our restructuring reserves, our competitive position, hiring levels, sales and bookings or anticipated performance of products or services; any statements related to future capital expenditures; any statements related to the needs or expected growth of our target markets; any statement related to our ability to recognize value from the auction rate securities we hold; any statements relating to the credit worthiness of our derivative counterparties; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing; and statements made under the heading “Outlook for the Remainder of 2009.” You can identify these statements by the fact that they do not relate strictly to historical or current facts and use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “appear” and other words and terms of similar meaning. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. The risks,

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uncertainties and assumptions referred to above include, but are not limited to, those discussed here and the risks discussed from time to time in our other public filings. All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available to us as of the date of this report, and we assume no obligation to update these forward-looking statements. You are advised, however, to consult any further disclosures we make on related subjects in our Forms 10-K, 10-Q and 8-K filed with, or furnished to, the SEC. You also should read Item 1A. “Risk Factors” included in Part II of our Quarterly Report on Form 10-Q as filed on August 6, 2009 for factors that we believe could cause our actual results to differ materially from expected and historical results. Other factors also could adversely affect us.

Summary of Products and Segments

We are a leading supplier of instruments for nanoscale imaging, analysis and prototyping to enable research, development and manufacturing in a range of industrial, academic and research institutional applications. We report our revenue based on a market-focused organization: the Electronics market, the Research and Industry market, the Life Sciences market and the Service and Components market.

Our products include focused ion beam systems, or FIBs; scanning electron microscopes, or SEMs; transmission electron microscopes, or TEMs; andDualBeam systems, which combine a FIB and SEM on a single platform.

OurDualBeam systems include models that have wafer handling capability and are purchased by semiconductor and data storage manufacturers (“wafer-levelDualBeamsystems”) and models that have small stages and are sold to customers in several markets (“small-stageDualBeamsystems”).

The Electronics market consists of customers in the semiconductor, data storage and related industries such as printers and microelectromechanical systems (“MEMs”). For the semiconductor market, our growth is driven by shrinking line widths and process nodes of 65 nanometers and smaller, the use of multiple layers of new materials such as copper and low-k dielectrics and increasing device complexity. Our products are used primarily in laboratories to speed new product development and increase yields by enabling 3D wafer metrology, defect analysis, root cause failure analysis and circuit edit for modifying device structures. In the data storage market, our products offer 3D metrology for thin film head processing and root cause failure analysis. Factors affecting our business include the transition from longitudinal to perpendicular recording heads, rapidly increasing storage densities that require smaller recording heads, thinner geometries and materials that increase the complexity of device structures.

The Research and Industry market includes universities, public and private research laboratories and customers in a wide range of industries, including automobiles, aerospace, forensics, metals, mining and petrochemicals. Growth in these markets is driven by global corporate and government funding for research and development in materials science and by development of new products and processes based on innovations in materials at the nanoscale. Our solutions provide researchers and manufacturers with atomic-level resolution images and permit development, analysis and production of advanced products. Our products are also used in root cause failure analysis and quality control applications.

The Life Sciences market includes universities and research institutes engaged in biotech and life sciences applications, as well as pharmaceutical, biotech and medical device companies and hospitals. Our products’ ultra-high resolution imaging allows cell biologists and drug researchers to create detailed 3D reconstructions of complex biological structures. Our products are also used in particle analysis and a range of pathology and quality control applications.

Overview

Net sales decreased to $140.3 million in the second quarter of 2009 compared to $141.8 million in the first quarter of 2009 and $154.0 million in the second quarter of 2008. Net sales for the second quarter of 2009 increased $3.6 million compared to the first quarter of 2009 as a result of the fluctuations of the U.S. dollar against foreign currencies, primarily the euro. Foreign currency fluctuations reduced net sales in the second quarter of 2009 by $8.6 million when compared to the second quarter of 2008. Declines in the second quarter of 2009 compared to the first quarter of 2009 also resulted from lower sales in each of our market segments, except Electronics, as the global economy continued to struggle.

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Orders received in a particular period that cannot be built and shipped to the customer in that period represent backlog. We only recognize backlog for purchase commitments for which the terms of the sale have been agreed upon, including price, configuration, options and payment terms. Product backlog consists of all open orders meeting these criteria. Service and Components backlog consists of open orders for service, unearned revenue on service contracts and open orders for spare parts. U.S. government backlog is limited to contracted amounts. In addition, some of the U.S. government backlog represents uncommitted funds. At July 5, 2009, our total backlog was $336.9 million, compared to $330.5 million at December 31, 2008. At July 5, 2009, our backlog consisted of product and service and components unfilled orders of $272.8 million and $64.1 million, respectively, compared to $273.5 million and $57.0 million, respectively, at December 31, 2008.

Of our total backlog at July 5, 2009, approximately 90% is expected to be shippable within 12 months and approximately 10% requires some incremental development. Customers may cancel or delay delivery on previously placed orders, although our standard terms and conditions include penalties for cancellations made close to the scheduled delivery date. As a result, the timing of the receipt of orders or the shipment of products could have a significant impact on our backlog at any date. Historically, cancellations have been minor. However, the global markets are in a period of extraordinary financial uncertainty and historic cancellation rates may increase in the future. During 2008, we experienced cancellations of $7.6 million. We have not experienced any significant cancellations in the first two quarters of 2009. From time to time, we have experienced difficulty in shipping our product from backlog due to single-sourcing issues and problems in securing electronic components from a certain vendor. In addition, product shipments have been delayed due to delays in completing certain application development, by our customers pushing out shipments because their facilities are not ready to install our systems and by our own manufacturing delays due to the technical complexity of our products and supply chain issues. A significant portion of our backlog is denominated in currencies other than the U.S. dollar and, therefore, our reported backlog fluctuates, to an extent, as a result of foreign currency exchange rate fluctuations. For these reasons, the amount of backlog at any date is not necessarily indicative of revenue to be recognized in future periods.

Outlook for the Remainder of 2009

The ongoing difficult global economic environment, including volatility in foreign exchange markets, continues to make forecasting for the remainder of 2009 challenging. However, we are seeing some increase in visibility in some of our markets, particularly in Research and Life Sciences.

Our backlog of unfilled orders returned to record levels at the end of the second quarter of 2009, and, historically we have not experienced significant volumes of order cancellations. As a result of the backlog and our near-term outlook for new bookings, we expect revenues in the second half of 2009 to likely be in the range of the first two quarters of the year, subject to normal seasonal factors. Our third quarter usually shows some slowdown in revenue because many of our customers are universities which are closed in the summer months, as well as due to seasonal vacation in Europe. By contrast, we generally see higher revenue and bookings in the fourth quarter. For the second half of 2009, we expect an increase in bookings as a result of economic stimulus programs being implemented in the U.S. and because of our recent new product introductions. Assuming we do receive additional orders as a result of the stimulus and new products, we expect some possible increase in fourth quarter revenue with most of the revenue from those orders occurring in 2010.

The percentage of our expenses denominated in euros or Czech koruna (which tends to move generally in line with the euro on foreign exchange markets) is greater than the percentage of revenue denominated in euro and koruna. As a result, when the U.S. dollar strengthens in foreign exchange markets, our reported revenue declines or grows more slowly, while our expenses decline even more rapidly, improving operating income. Conversely, if the euro and the koruna strengthen against the U.S. dollar (as in the second quarter of 2009), revenue increases more slowly, while our expenses increase more rapidly, reducing operating income. We are taking steps to create more naturally hedged positions, but, for the remainder 2009, the impact of currency movements is expected to generally be as described above.

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Historically, our Research and Industry business has generally remained fairly stable in economic downturns, resulting in flat revenue or even modest growth, as governments, institutions and corporations globally invest in research and product development. While the current economic downturn may limit the R&D and capital spending budgets of some corporations and government entities, the long lead-times of many of our customers’ projects and the potential positive impact of government economic stimulus spending will likely provide offsetting growth opportunities for the remainder of 2009.

Presently, we expect continued growth in our Life Sciences business in 2009, although it will vary from quarter to quarter. This is an emerging, research-oriented market for us, and we expect our revenue to continue to be positively affected by increased penetration of electron microscopy into this market and U.S. economic stimulus funding in this area.

The Electronics segment, which includes semiconductor and data storage customers, is in the midst of a severe industry-wide downturn, although there are potential signs of the beginning of an industry recovery. Revenue for this segment is expected to remain at approximately the same levels as the first two quarters of 2009 for the remainder of the year, although there could be significant variation from quarter to quarter. Despite the difficult environment, we believe that we have the potential to demonstrate better performance than the semiconductor capital equipment industry as a whole because of increased demand for our higher-resolution images as manufacturers move to smaller line widths and new processes, among other factors.

Demand for service of our products is not expected to keep pace with the growth of our installed base of products, as some of our customers may decide to reduce or not renew service contracts due to the current economic environment.

We believe we hold leadership positions, both technologically and competitively, in markets in which we compete. We plan to maintain that leadership, even as competitors introduce new products that attempt to match our earlier advances. In July 2009, we introduced several new products to build on our technology leadership.

We expect gross margins to be slightly lower in the third quarter of 2009 compared to the second quarter of 2009, but to increase in the fourth quarter of 2009. Factors that are expected to affect gross margins are configuration, pricing and timing of high-end TEM shipments, overall product mix, relative foreign currency rates and the beneficial impact of the restructuring program begun in 2008. That includes lower costs from our suppliers, new outsourcing initiatives, more natural currency exposures, headcount reductions and improved systems.

Operating expenses in the second half of 2009 are expected to remain generally flat to down slightly compared with the first and second quarters of 2009. We plan to continue to limit discretionary spending and hiring in light of the overall revenue outlook.

Non-operating expense is expected to decrease in the third and fourth quarters of 2009 compared with the second quarter, due to somewhat smaller losses on foreign exchange hedges.

Our tax rate is expected to remain at approximately 28% for the remaining quarters of 2009.

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Critical Accounting Policies and the Use of Estimates

Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We believe the most complex and sensitive judgments, because of their significance to the Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain.

Management’s Discussion and Analysis and Note 1 to the Consolidated Financial Statements in our 2008 Annual Report on Form 10-K describe the significant accounting estimates and policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. Other than additional detail added regarding the valuation of excess and obsolete inventory as discussed below, during the first two quarters of 2009, there were no significant changes in our critical accounting policies or estimates from those reported in our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on February 20, 2009.

Valuation of Excess and Obsolete Inventory

Inventory is stated at the lower of cost or market, with cost determined by standard cost methods, which approximate the first-in, first-out method. Inventory costs include material, labor and manufacturing overhead.

Manufacturing inventory is reviewed for obsolescence and excess quantities on a quarterly basis, based on estimated future use of quantities on hand, which is determined based on past usage, planned changes to products and known trends in markets and technology. Changes in support plans or technology could have a significant impact on obsolescence.

To support our world-wide service operations, we maintain service spare parts inventory, which consists of both consumable and repairable spare parts. Consumable service spare parts are used within our service business to replace worn or damaged parts in a system during a service call and are generally classified in current inventory as our stock of this inventory turns relatively quickly. However, if there has been no recent usage for a consumable service spare part, but the part is still necessary to support systems under service contracts, the part is considered to be non-current and included within non-current inventories within our consolidated balance sheet. Consumables are charged to cost of goods sold when issued during the service call.

We also maintain a substantial supply of repairable and reusable spare parts for possible use in future repairs and customer field service of our install base. We have classified this inventory as a long-term asset given these parts can be repaired and reused in the service business over many years. As these service parts age over the related product group’s post-production service life, we ratably reduce the net carrying value of our repairable spare part inventory on the consolidated balance sheet to account for the excess that builds over the service life. The post-production service life of our systems is generally seven years and, at the end of seven years, the carrying value for these parts in our consolidated balance sheet is reduced to zero. We also perform periodic monitoring of our installed base for premature end of service life events and expense, through cost of sales, the remaining net carrying value of any related spare parts inventory in the period incurred.

Provision for manufacturing inventory valuation adjustments totaled $0.6 million and $1.8 million, respectively, in the thirteen and twenty-six week periods ended July 5, 2009 and $0.1 million and $0.5 million, respectively, in the comparable periods of 2008. Provision for service spare parts inventory valuation adjustments totaled $1.3 million and $2.5 million, respectively, in the thirteen and twenty-six week periods ended July 5, 2009 and $1.5 million and $2.2 million, respectively, in the comparable periods of 2008.

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Results of Operations

The following table sets forth our statement of operations data, both in absolute dollars and as a percentage of net sales (dollars in thousands).

	Thirteen Weeks Ended(1) July 5, 2009					Thirteen Weeks Ended(1) (2) June 29, 2008
Net sales	$	140,263		100.0	%	$	154,039		100.0	%
Cost of sales		84,102		60.0			95,419		61.9
Gross profit		56,161		40.0			58,620		38.1
Research and development		16,657		11.9			18,496		12.0
Selling, general and administrative		31,825		22.7			32,919		21.3
Restructuring, reorganization, relocation and severance costs		1,067		0.8			2,271		1.5
Operating income		6,612		4.7			4,934		3.2
Other income (expense), net		(1,501	)	(1.1	)		(1,698	)	(1.1	)
Income before income taxes		5,111		3.6			3,236		2.1
Income tax expense		1,451		1.0			1,578		1.0
Net income	$	3,660		2.6	%	$	1,658		1.1	%

	Twenty-Six Weeks Ended(1) July 5, 2009					Twenty-Six Weeks Ended(1) (2) June 29, 2008
Net sales	$	282,096		100.0	%	$	305,685		100.0	%
Cost of sales		167,243		59.3			187,840		61.4
Gross profit		114,853		40.7			117,845		38.6
Research and development		33,437		11.9			36,303		11.9
Selling, general and administrative		64,651		22.9			65,531		21.4
Restructuring, reorganization, relocation and severance costs		2,029		0.7			2,271		0.7
Operating income		14,736		5.2			13,740		4.5
Other income (expense), net		(1,821	)	(0.6	)		(2,918	)	(1.0	)
Income before income taxes		12,915		4.6			10,822		3.5
Income tax expense		2,917		1.0			4,131		1.4
Net income	$	9,998		3.5	%	$	6,691		2.2	%

(1) Percentages may not add due to rounding.

(2) Adjusted for the effects of the adoption of FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” See Note 20 of the Condensed Notes to the Consolidated Financial Statements.

Net sales decreased $13.7 million, or 8.9%, to $140.3 million, in the thirteen weeks ended July 5, 2009 (the second quarter of 2009) compared to $154.0 million in the thirteen weeks ended June 29, 2008 (the second quarter of 2008). Net sales decreased $23.6 million, or 7.7%, to $282.1 million in the twenty-six week period ended July 5, 2009 compared to $305.7 million in the twenty-six week period ended June 29, 2008. These decreases reflect decreases in Electronics, Research and Industry and Service and Components, partially offset by increases in Life Sciences as described more fully below.

As compared to 2008 exchange rates, currency fluctuations decreased net sales by approximately $8.6 million and $15.8 million during the thirteen and twenty-six week periods ended July 5, 2009 as approximately 29.0% and 31.8%, respectively, of our net sales were denominated in foreign currencies that declined in strength against the U.S. dollar during the periods. A significant portion of our revenue is denominated in foreign currencies, especially the euro. As the U.S. dollar strengthens against the euro, this generally has the effect of reducing net sales and backlog.

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Net Sales by Market Segment

Net sales by market segment (in thousands) and as a percentage of net sales were as follows:

	Thirteen Weeks Ended
	July 5, 2009				June 29, 2008
Electronics	$	32,329	23.0	%	$	37,729	24.5	%
Research and Industry		55,221	39.4	%		62,493	40.6	%
Life Sciences		19,612	14.0	%		19,536	12.7	%
Service and Components		33,101	23.6	%		34,281	22.2	%
	$	140,263	100.0	%	$	154,039	100.0	%

	Twenty-Six Weeks Ended
	July 5, 2009				June 29, 2008
Electronics	$	61,688	21.9	%	$	84,250	27.6	%
Research and Industry		113,559	40.3	%		123,590	40.4	%
Life Sciences		40,477	14.3	%		29,132	9.5	%
Service and Components		66,372	23.5	%		68,713	22.5	%
	$	282,096	100.0	%	$	305,685	100.0	%

Electronics

The $5.4 million, or 14.3%, decrease and the $22.6 million, or 26.8%, decrease, respectively, in Electronics sales in the thirteen and twenty-six week periods ended July 5, 2009 compared to the same periods of 2008 were primarily due to decreases in volume as a result of the continuing cyclical downturn in the semiconductor industry. In addition currency fluctuations decreased Electronics net sales by $0.7 million and $1.4 million, respectively, in the thirteen and twenty-six week periods ended July 5, 2009 compared to the same periods of 2008. These factors were partially offset by purchases from some of the larger semiconductor and data storage companies for development of their next generation devices.

Research and Industry

The $7.3 million, or 11.6%, decrease and the $10.0 million, or 8.1%, decrease, respectively, in Research and Industry sales in the thirteen and twenty-six week periods ended July 5, 2009 compared to the same periods of 2008 were due primarily to a $4.9 million and an $8.6 million decrease, respectively, related to currency fluctuations. In addition, total system sales were down in the 2009 periods compared to the 2008 periods, especially for our lower-end TEMs and SEMs, partially offset by an increase in the number of smallDualBeam units sold. We believe that Research and Industry unit sales were down in the U.S. in the second quarter of 2009 as customers delayed purchases in anticipation of the receipt of federal stimulus money. Offsetting these factors was an increase in the average price per unit sold for our TEMs and SEMs due to shifts in product mix.

Life Sciences

The $0.1 million, or 0.4%, increase and the $11.3 million, or 38.9%, increase, respectively, in Life Sciences sales in the thirteen and twenty-six week periods ended July 5, 2009 compared to the same periods of 2008 were due primarily to the sale of more high-end TEMs, partially offset by a $1.3 million and a $2.8 million decrease, respectively, related to currency fluctuations. The increases in the sale of high-end TEMs were a result of growth in world-wide funding of Life Sciences research and a greater acceptance of our TEM systems by these customers due to our industry leadership in 3-D tomography and automation.

Service and Components

The $1.2 million, or 3.4%, decrease and the $2.3 million, or 3.4%, decrease, respectively, in Service and Components sales in the thirteen and twenty-six week periods ended July 5, 2009 compared to the same periods of 2008 were due primarily to a $1.7 million and a $3.0 million decrease, respectively, related to currency fluctuations and decreased sales of our components as a result of industry-wide reductions in semiconductor capital equipment spending. These factors were partially offset by an increase in service due to a larger install base. Some customers, however, have deferred renewing certain service contracts due to idle machinery as a result of overcapacity in the semiconductor industry.

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Net Sales by Geographic Region

A significant portion of our revenue has been derived from customers outside of the U.S., and we expect this to continue. The following table shows our net sales by geographic location (dollars in thousands):

	Thirteen Weeks Ended								Twenty-Six Weeks Ended
	July 5, 2009				June 29, 2008				July 5, 2009				June 29, 2008
U.S. and Canada	$	40,410	28.8	%	$	54,343	35.3	%	$	95,892	34.0	%	$	108,526	35.5	%
Europe		40,741	29.0	%		56,106	36.4	%		89,665	31.8	%		95,903	31.4	%
Asia-Pacific Region and Rest of World		59,112	42.2	%		43,590	28.3	%		96,539	34.2	%		101,256	33.1	%
	$	140,263	100.0	%	$	154,039	100.0	%	$	282,096	100.0	%	$	305,685	100.0	%

U.S. and Canada

The $13.9 million, or 25.6%, decrease and the $12.6 million, or 11.6%, decrease, respectively, in sales to the U.S. and Canada in the thirteen and twenty-six week periods ended July 5, 2009 compared to the same periods of 2008 were primarily due to lower Electronics and Research and Industry sales. We believe that Research and Industry sales were down in the second quarter of 2009 as customers delayed purchases in anticipation of the receipt of federal stimulus money.

Europe

Our European region also includes Central America, South America, Africa (excluding South Africa), the Middle East, eastern Europe and Russia. The $15.4 million, or 27.4%, decrease and the $6.2 million, or 6.5%, decrease, respectively, in sales to Europe in the thirteen and twenty-six week periods ended July 5, 2009 compared to the same periods of 2008 were primarily due to an $8.1 million and a $12.6 million negative effect, respectively, related to currency fluctuations. In addition, these decreases were due to decreases in sales of TEM products in our Research and Industry segment. These factors were partially offset in the thirteen and twenty-six week periods ended July 5, 2009 by a large sale to a Middle Eastern university customer.

Asia-Pacific Region and Rest of World

The $15.5 million, or 35.6%, increase and the $4.7 million, or 4.7%, decrease, respectively, in sales to the Asia-Pacific Region and Rest of World in the thirteen and twenty-six week periods ended July 5, 2009 compared to the same periods of 2008 were primarily due to an increase in China as a result of increased sales of TEM products to universities and research institutions in the thirteen week period, offset by decreased sales from our Electronics segment, as semiconductor capital spending has declined, in both the thirteen and twenty-six week periods ended July 5, 2009.

Cost of Sales and Gross Margin

Our gross margin (gross profit as a percentage of net sales) by market segment was as follows:

	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	July 5, 2009		June 29, 2008		July 5, 2009		June 29, 2008
Electronics	48.3	%	50.6	%	49.1	%	46.7	%
Research and Industry	39.9	%	36.4	%	42.6	%	40.1	%
Life Sciences	42.8	%	38.5	%	39.6	%	36.7	%
Service and Components	30.6	%	27.0	%	30.3	%	26.6	%
Overall	40.0	%	38.1	%	40.7	%	38.6	%

Cost of sales includes manufacturing costs, such as materials, labor (both direct and indirect) and factory overhead, as well as all of the costs of our customer service function such as labor, materials, travel and overhead. We see five primary drivers affecting gross margin: product mix (including the effect of price competition), volume, cost reduction efforts, competitive pricing pressure and currency fluctuations.

Cost of sales decreased $11.3 million, or 11.9%, to $84.1 million in the thirteen week period ended July 5, 2009 compared to $95.4 million in the thirteen week period ended June 29, 2008 and decreased $20.6 million,

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or 11.0%, to $167.2 million in the twenty-six week period ended July 5, 2009 compared to $187.8 million in the twenty-six week period ended June 29, 2008. These decreases were primarily due to a $10.9 million and a $21.8 million decrease, respectively, related to currency fluctuations and lower sales, partially offset by an increase in costs due to increased sales of our higher-end TEM products.

The net effect on our gross margin from the change in currency exchange rates during the thirteen and twenty-six week periods ended July 5, 2009 on our net sales and cost of sales was an approximately $2.3 million increase, or a 3.8 percentage point increase, and a $6.0 million, or a 4.2 percentage point increase, respectively. Offsetting the currency effects were approximately $18,000 and $0.3 million, respectively, of cash flow hedge losses recorded in cost of sales.

Electronics

The decrease in Electronics gross margin in the second quarter of 2009 compared to the second quarter of 2008 was primarily due to a shift in mix away from the higher-margin data storage and other wafer-level products in the 2009 period. For the twenty-six week period ended July 5, 2009, these factors were offset by significant pricing pressure on certain transactions in the first quarter of 2008, which lowered gross margins during that period.

Research and Industry

The increases in Research and Industry gross margin in the thirteen and twenty-six week periods ended July 5, 2009 compared to the same periods of 2008 were primarily due favorable currency fluctuations and a shift in product mix to fewer lower-end TEM sales.

Life Sciences

The increases in the Life Sciences gross margins in the thirteen and twenty-six week periods ended July 5, 2009 compared to the same periods of 2008 were primarily due to favorable currency fluctuations, a shift to more higher-end TEMs during the first quarter of 2009 and pricing pressures on our low-end TEMs in the first quarter of 2008.

Service and Components

The increases in the Service and Components gross margin in the thirteen and twenty-six week periods ended July 5, 2009 compared to the same periods of 2008 were primarily due to favorable currency fluctuations and improvements in part usage and lower repair and distribution costs.

Research and Development Costs

Research and development (“R&D”) costs include labor, materials, overhead and payments to third parties for research and development of new products and new software or enhancements to existing products and software. These costs are presented net of subsidies received for such efforts. During the 2009 and 2008 periods, we received subsidies from European governments for technology developments specifically in the areas of semiconductor and life science equipment.

R&D costs decreased $1.8 million to $16.7 million (11.9% of net sales) in the thirteen week period ended July 5, 2009 compared to $18.5 million (12.0% of net sales) in the thirteen week period ended June 29, 2008 and decreased $2.9 million to $33.4 million (11.9% of net sales) in the twenty-six week period ended July 5, 2009 compared to $36.3 million (11.9% of net sales) in the twenty-six week period ended June 29, 2008.

R&D costs are reported net of subsidies as follows (in thousands):

	Thirteen Weeks Ended						Twenty-Six Weeks Ended
	July 5, 2009			June 29, 2008			July 5, 2009			June 29, 2008
Gross spending	$	18,463		$	19,507		$	36,416		$	38,086
Less subsidies		(1,806	)		(1,011	)		(2,979	)		(1,783	)
Net expense	$	16,657		$	18,496		$	33,437		$	36,303

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The decreases in R&D costs in the thirteen and twenty-six week periods ended July 5, 2009 compared to the same periods of 2008 were primarily due to a $1.4 million and a $2.4 million decrease, respectively, related to lower labor and related costs as a result of favorable currency movements.

We anticipate that we will continue to invest in R&D at a similar percentage of revenue for the foreseeable future. Accordingly, as revenues increase, we currently anticipate that R&D expenditures also will increase. Actual future spending, however, will depend on market conditions.

Selling, General and Administrative Costs

Selling, general and administrative (“SG&A”) costs include labor, travel, outside services and overhead incurred in our sales, marketing, management and administrative support functions. SG&A costs also include sales commissions paid to our employees as well as to our agents.

SG&A costs decreased $1.1 million to $31.8 million (22.7% of net sales) in the thirteen week period ended July 5, 2009 compared to $32.9 million (21.4% of net sales) in the thirteen week period ended June 29, 2008 and decreased $0.8 million to $64.7 million (22.9% of net sales) in the twenty-six week period ended July 5, 2009 compared to $65.5 million (21.4% of net sales) in the twenty-six week period ended June 29, 2008.

The decreases in SG&A costs were due primarily to a $1.8 million and a $3.2 million decrease, respectively, related to currency fluctuations and a decrease in amortization of purchased intangibles of $0.4 million and $0.5 million, respectively. In addition, lower legal, accounting, consulting and travel and entertainment costs contributed to the decreases. Offsetting these decreases were an increase in agent commissions and labor and related costs.

Restructuring, Reorganization, Relocation and Severance

In the thirteen and twenty-six week periods ended July 5, 2009, we incurred $1.1 million and $2.0 million, respectively, of costs related to our April 2008 restructuring plan related to improving the efficiency of our operations and improving the currency balance in our supply chain so that more of our costs are denominated in dollar or dollar-linked currencies. We incurred a total of $6.3 million of costs in 2008 and through the first half of 2009 related to this plan and expect to incur between approximately $1.7 million and $1.9 million in the remainder of 2009 related to the implementation of this plan. These actions are expected to reduce operating expenses, improve our factory utilization and help offset the effect of currency fluctuations on our cost of goods sold. The main activities, approximate range of associated costs and expected timing are described in the table below. Presently, all of the costs described are expected to result in cash expenditures and we currently expect the approximate total cost of the restructuring to range from $8.0 million to $9.0 million.

We anticipate that the actions related to our 2008 restructuring plan will reduce annualized manufacturing costs and operating expenses and increase cash flow by approximately $6.0 million in 2009 and $12.0 million annually thereafter. A portion of these expense reductions were realized in the first two quarters of 2009 with the majority of the benefit anticipated to be realized in the second half of 2009.

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A summary of the anticipated restructuring expenses is as follows:

Type of Expense	Approximate Range of Expected Costs	Amount Incurred and Expected Timing for Remainder of Charges
Severance costs related to work force reduction of 3% (approximately 60 employees)	$3.0 million	$2.9 million incurred. Remainder in the second half of 2009.
Transfer of manufacturing and other activities	$1.5 million - $2.0 million	$0.3 million incurred. Remainder in the second half of 2009.
Shift of supply chain	$3.5 million - $4.0 million	$3.1 million incurred. Remainder in the second half of 2009.

The following table summarizes the charges, expenditures and write-offs and adjustments in the twenty-six week period ended July 5, 2009 related to our restructuring, reorganization, relocation and severance accruals (in thousands):

Twenty-Six Weeks Ended July 5, 2009	Beginning Accrued Liability		Charged to Expense, Net		Expenditures			Write-Offs and Adjustments			Ending Accrued Liability
Severance, outplacement and related benefits for terminated employees	$	221	$	94	$	(241	)	$	(24	)	$	50
Transfer of manufacturing and related activities and shift of supply chain		—		1,919		(1,922	)		3			—
Abandoned leases, leasehold improvements and facilities		19		16		—			1			36
	$	240	$	2,029	$	(2,163	)	$	(20	)	$	86

The $2.3 million restructuring, reorganization, relocation and severance expense in the thirteen and twenty-six week periods ended June 29, 2008 also related to our April 2008 restructuring plan.

Other Income (Expense), Net

Other income (expense) items include interest income, interest expense, foreign currency gains and losses and other miscellaneous items.

Interest income represents interest earned on cash and cash equivalents and investments in marketable securities. Interest income was $0.7 million and $1.8 million in the thirteen and twenty-six week periods ended July 5, 2009, respectively, compared to $4.1 million and $9.1 million, respectively, in the comparable periods of 2008. These decreases were primarily due to lower interest rates and a decrease in our invested balances, primarily due to the repayment of debt.

Interest expense for both the 2009 and 2008 periods included interest expense related to our 2.875% convertible notes. Interest expense in the twenty-six week period ended June 29, 2008 also included some interest related to our 5.5% convertible notes, which were repaid in full in January 2008. Interest expense in the thirteen and twenty-six week periods ended June 29, 2008 also included $3.2 million and $6.3 million, respectively, of non-cash interest related to the effects of the adoption of FSP No. APB 14-1. See Note 20 of the Condensed Notes to the Consolidated Financial Statements.

The amortization of capitalized note issuance costs related to our convertible note issuances is also included as a component of interest expense. Interest expense in the twenty-six week period ended July 5, 2009 included a $0.3 million expense related to the write-off of note issuance costs in connection with the early redemption of a total of $15.0 million of our 2.875% convertible notes. Interest expense in the twenty-six week period ended June 29, 2008 included $0.2 million of premiums and commissions paid on the repurchase of the remaining $45.9 million of our 5.5% convertible notes as well as the write-off of $0.1 million of related deferred note issuance costs and $0.4 million of premiums and commissions paid on the repurchase of $148.9 million principal amount of our $150 million zero coupon convertible notes as well as the write-off of $0.2 million of related deferred note issuance costs.

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Assuming no additional note repurchases, amortization of our remaining convertible note issuance costs will total approximately $0.1 million per quarter through the second quarter of 2013.

For the twenty-six week period ended July 5, 2009, Other, net included a $2.0 million gain on the early redemption of our 2.875% notes. The thirteen and twenty-six week periods ended July 5, 2009 included a $0.5 million and a $1.7 million charge, respectively, for cash flow hedge ineffectiveness, foreign currency gains and losses on transactions and realized and unrealized gains and losses on the changes in fair value of derivative contracts entered into to hedge these transactions.

For the 2008 periods, Other, net primarily consisted of foreign currency gains and losses on transaction and realized and unrealized gains and losses on the changes in fair value of derivative contracts entered into to hedge these transactions.

Income Tax Expense

Our effective income tax rate of 28.4% and 38.2% for the thirteen week periods ended July 5, 2009 and June 29, 2008, respectively, and 22.6% and 48.8% for the twenty-six week periods July 5, 2009 and June 29, 2008, respectively reflect taxes accrued in foreign jurisdictions, reduced by tax benefits related to the release of valuation allowances recorded against deferred tax assets utilized to offset income earned in the U.S. Our tax expense for the twenty-six weeks ended July 5, 2009 also reflects the release of certain tax contingencies due to the lapse of statutes of limitation in the first quarter of 2009.

Our effective income tax rates for the thirteen and twenty-six week periods ended June 29, 2008 reflect higher tax expense due to the effects of the non-deductible, non-cash interest expense recorded upon adoption of FSP No. APB 14-1, offset by valuation allowance released against deferred tax assets utilized to offset income earned in the U.S. See Note 20 of the Condensed Notes to the Consolidated Financial Statements for more information regarding the adoption of FSP No. APB 14-1.

During the thirteen week period ended April 5, 2009, we reclassified approximately $15.4 million of non-current tax liabilities to current in expectation that a settlement could be reached within the next 12 months. We still anticipate resolution of the tax positions within the next 12 months and, if resolved favorably, the reversal of the current tax liabilities could provide a tax benefit up to approximately $16.4 million, including accruals through July 5, 2009, in the thirteen week period we determine the positions are more likely than not to be sustained.

Our effective tax rate may differ from the U.S. federal statutory tax rate primarily as a result of the effects of state and foreign income taxes, research and experimentation tax credits earned in the U.S. and foreign jurisdictions, adjustments to our unrecognized tax benefits and our ability or inability to utilize various carry forward tax items. In addition, our effective income tax rate may be affected by changes in statutory tax rates and laws in the U.S. and foreign jurisdictions and other factors.

Liquidity and Capital Resources

Auction Rate Securities and UBS Credit Facility

On November 6, 2008, we accepted an offer by UBS AG (together with its affiliates, “UBS”) of certain auction rate securities rights (the “Put Right”). The Put Right permits us to cause UBS to repurchase, at par value, our ARS during the period beginning on June 30, 2010 and ending on July 2, 2012. The fair value of the ARS and the Put Right was approximately $96.8 million and $13.2 million, respectively, as of July 5, 2009, as discussed in more detail below. The par value of the ARS was $110.1 million at July 5, 2009. The Put Right was offered in connection with settlement agreements entered into by UBS with the U.S. SEC and other federal and state regulatory authorities.

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In addition, UBS offered us the ability to borrow no-net cost loans secured by the ARS. On March 25, 2009, we entered into an uncommitted secured demand revolving credit facility with UBS Bank USA, providing for a line of credit in an amount of up to $70.8 million, or approximately 75% of the market value of the ARS. The obligations under the UBS Credit Facility are secured by substantially all of our collateral accounts, money, investment property and other property maintained with UBS, including the ARS, subject to certain exceptions.

During the first quarter of 2009, we drew down $70.8 million, the full amount available under the UBS Credit Facility and, as of July 5, 2009, the full $70.8 million remained outstanding. The proceeds derived from any sales of the ARS we hold in accounts with UBS will be applied to repay any outstanding obligations under the UBS Credit Facility.

The UBS Credit Facility includes customary events of default that include, among other things, non-payment defaults, the failure to maintain sufficient collateral, covenant defaults, inaccuracy of representations and warranties, the failure to provide financial and other information in a timely manner, bankruptcy and insolvency defaults, cross-defaults to other indebtedness and judgment defaults. The occurrence of an event of default will result in the acceleration of the obligations under the UBS Credit Facility and any amounts due and not paid following an event of default will bear interest at a rate per annum equal to 2.00% above the applicable interest rate. As of July 5, 2009, we were in compliance with all of the terms of the UBS Credit Facility.

See Note 8 of the Condensed Notes to the Consolidated Financial Statements for additional information.

Other Credit Facilities and Letters of Credit

We have a $100.0 million secured revolving credit facility, including a $50.0 million subfacility for the issuance of letters of credit. We may, upon notice to JPMorgan Chase Bank, N.A., request to increase the revolving loan commitments by an aggregate amount of up to $50.0 million with new or additional commitments subject only to the consent of the lender(s) providing the new or additional commitments, for a total secured credit facility of up to $150.0 million. We also have a 50.0 million yen unsecured and uncommitted bank borrowing facility in Japan and various limited facilities in select foreign countries. We mitigate credit risk by transacting with highly rated counterparties. We have evaluated the credit and non-performance risks associated with our lenders and believe them to be insignificant. No amounts were outstanding under any of these facilities as of July 5, 2009.

As part of our contracts with certain customers, we are required to provide letters of credit or bank guarantees which these customers can draw against in the event we do not perform in accordance with our contractual obligations. At July 5, 2009, we had $53.7 million of these guarantees and letters of credit outstanding, of which approximately $53.1 million were secured by restricted cash deposits. Restricted cash balances securing bank guarantees that expire within 12 months of the balance sheet date are recorded as a current asset on our consolidated balance sheets. Restricted cash balances securing bank guarantees that expire beyond 12 months from the balance sheet date are recorded as long-term restricted cash on our consolidated balance sheet.

Sources of Liquidity and Capital Resources

Our sources of liquidity and capital resources as of July 5, 2009 consisted of $335.4 million of cash, cash equivalents, short-term restricted cash and short-term investments, $6.3 million in non-current investments, $42.3 million of long-term restricted cash, $100.0 million available under revolving credit facilities (including the UBS Credit Facility), as well as potential future cash flows from operations. Restricted cash relates to deposits to secure bank guarantees for customer prepayments that expire through 2013.

We believe that we have sufficient cash resources and available credit lines to meet our expected operational and capital needs for at least the next twelve months from July 5, 2009.

In twenty-six week period ended July 5, 2009, cash and cash equivalents and short-term restricted cash increased $32.2 million to $189.7 million as of July 5, 2009 from $157.5 million as of December 31, 2008 primarily as a result of $7.7 million provided by operations, $70.8 million of proceeds from our UBS line of credit, $3.1 million of proceeds from the exercise of employee stock options and a $0.7 million favorable effect of exchange rate changes. These proceeds were partially offset by $13.1 million used for the repayment of $15.0 million face amount of our 2.875% convertible notes, $5.5 million used for the purchase of property, plant and equipment, the net purchase of $19.9 million of marketable securities and $4.1 million used for the purchase of certain assets of a division of an Australian software company.

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Accounts receivable increased $23.1 million to $162.8 million as of July 5, 2009 from $139.7 million as of December 31, 2008, primarily due to increased frequency of extended payment terms as a result of geographic sales mix and customer requests. The July 5, 2009 balance also included a $4.0 million increase related to changes in currency exchange rates. Our days sales outstanding, calculated on a quarterly basis, was 106 days at July 5, 2009 compared to 84 days at December 31, 2008.

Inventories increased $6.2 million to $147.8 million as of July 5, 2009 compared to $141.6 million as of December 31, 2008. The July 5, 2009 balance includes a $6.4 million increase related to changes in currency exchange rates. Our annualized inventory turnover rate, calculated on a quarterly basis, was 2.3 times for the quarter ended July 5, 2009 and 2.4 times for the quarter ended June 29, 2008.

Other current assets increased $20.0 million to $52.9 million as of July 5, 2009 compared to $32.9 million as of December 31, 2008, primarily due to the transfer of our Put Right from other assets, net to other current assets, as well as normal seasonal increases in prepaid insurance and our receivable for subsidies for research and development projects. Other current assets at July 5, 2009 included $13.2 million for the value of the Put Right related to our ARS.

Expenditures for property, plant and equipment of $5.5 million in the twenty-six week period ended July 5, 2009 primarily consisted of expenditures for machinery and equipment, including instruments used for demonstration as part of our marketing programs. We expect to continue to invest in capital equipment, demonstration systems and R&D equipment for applications development. We estimate our total capital expenditures in 2009 to be approximately $20 to $25 million, primarily for the development and introduction of new products, demonstration equipment and upgrades and incremental improvements to our enterprise resource planning (“ERP”) system.

Other assets, net decreased $15.8 million to $18.7 million as of July 5, 2009 compared to $34.5 million as of December 31, 2008, primarily due to the transfer of the Put Right to other current assets and a decrease in other intangible assets.

Other current liabilities increased $6.9 million to $40.6 million as of July 5, 2009 compared to $33.7 million as of December 31, 2008. The increase resulted primarily from a reclassification of $15.4 million of unrecognized tax benefits from long-term to current during the first quarter of 2009, partially offset by a decrease in our value added tax liability and our derivative liabilities.

Other liabilities decreased $13.9 million to $28.4 million as of July 5, 2009 compared to $42.3 million as of December 31, 2008. The decrease resulted primarily from the reclassification of $15.4 million of unrecognized tax benefits from long-term to current during the first quarter of 2009.

New Accounting Pronouncements

See Note 22 of the Condensed Notes to the Consolidated Financial Statements for a discussion of new accounting pronouncements.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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Part II - Other Information

Item 6. Exhibits

The following exhibits are filed herewith and this list is intended to constitute the exhibit index:

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FEI COMPANY
Dated: March 2, 2010	/s/ DON R. KANIA
	Don R. Kania
	President and Chief Executive Officer
	(Principal Executive Officer)
	/s/ RAYMOND A. LINK
	Raymond A. Link
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial Officer)

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