Credence Reports Preliminary Results for Third Quarter Fiscal Year 2006

MILPITAS, Calif., Aug. 24 /PRNewswire-FirstCall/ -- Credence Systems Corporation , a leading provider of test solutions from design- to-production for the worldwide semiconductor industry, today reported preliminary financial results for the third quarter of fiscal 2006 ended July 31, 2006. Third quarter results should be finalized on or before September 11, 2006 when the company files its Report on Form 10-Q and should include the impact of the goodwill and long-lived assets impairment analysis that is being evaluated in accordance with Statement of Financial Accounting Standards 142, "Goodwill and Other Intangible Assets" ("SFAS 142") and Statement of Financial Accounting Standards 144, "Accounting for Impairment or Disposal of Long Lived Assets" ("SFAS 144"). As previously reported, we expect the company to take a material non-cash charge to reduce the carrying amount of goodwill and intangible assets. We expect the charge to range from approximately $300 million to $400 million. The preliminary net loss and net loss per share reported herein for the third quarter of fiscal year 2006 will be increased by the amount of such charge when the company completes its impairment analysis.

Net sales for the third quarter were $109.6 million, down 12 percent from the immediately preceding quarter net sales of $124.8 million and down 2 percent from the third quarter of fiscal year 2005 revenue of $111.9 million. Net orders for the third quarter of fiscal 2006 were approximately $107.5 million, corresponding to a book to bill ratio of 0.98. Preliminary net loss, before the expected write-down of goodwill and intangible assets, for the quarter was $37.5 million or $0.37 per share, versus a net loss of $14.2 million or $0.14 per share in the immediately preceding quarter. Net loss from a year-ago third quarter was $41.7 million or $0.43 net loss per share.

The preliminary net loss before the expected write-down of goodwill and intangible assets this quarter included charges of $32.4 million consisting of an inventory write down of approximately $24.2 million, restructuring charges of $1.8 million, an impairment of an equity investment of $0.9 million, stock compensation expense under FAS 123(R) of $1.6 million and intangibles amortization of $4.3 million. These financial results are presented on a GAAP basis (exclusive of the above-mentioned expected non-cash charge to reduce goodwill and intangible assets).

"A softening of the PC market and lower utilization rates were the primary factors contributing to our shortfall this fiscal quarter," said Dave Ranhoff, president and chief executive officer of Credence Systems Corporation. "While we are clearly disappointed with our financial results, we remain all the more determined to rapidly return the company to profitable growth. Early in the fourth quarter we announced plans to reduce our workforce by 14% and significantly reduce our expenses. We have taken decisive steps to focus the company on higher growth opportunities and modify our business model to strengthen the Company's financial position for the long term."

Fourth Quarter Fiscal 2006 Outlook

Net sales in the fourth quarter of fiscal 2006 are expected to be consistent with third quarter levels at approximately $105 million to $110 million, with a loss per share on a GAAP basis in the range of $0.13 to $0.15. This guidance reflects an estimated charge in the range of approximately $8.0 million to $10.0 million associated with headcount reductions, but does not include any potential additional SFAS 142 and SFAS 144 impairment charges resulting from a further decline in market value from the third quarter.

Conference Call/Webcast

Credence will hold a conference call to discuss these results today, Thursday, August 24, 2006, at 5.00 pm ET. The call will be simulcast via the Credence web site at http://www.credence.com/ under the "Investor Relations - Financial Information - Webcasts" section. A replay of the call will be available via phone and web site through September 24, 2006. The replay number in the U.S. and Canada is 888-286-8010. The replay number outside the U.S. and Canada is 617-801-6888. The passcode is 63823320. A replay will also be available on the Credence web site http://www.credence.com/ under the Investor Relations section.

About Credence

Credence Systems Corporation is a leading provider of debug, characterization and ATE solutions for the global semiconductor industry. With a commitment to applying innovative technology to lower the cost-of-test, Credence delivers competitive cost and performance advantages to integrated device manufacturers (IDMs), wafer foundries, outsource assembly and test (OSAT) suppliers and fabless chip companies worldwide. A global, ISO 9001- certified company, Credence is headquartered in Milpitas, California. More information is available at http://www.credence.com/ .

Forward-Looking Statements

This release contains statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding rapidly returning the Company to profitable growth, plans to reduce the Company's workforce and significantly reduce expenses, strengthening the Company's position for the long-term, steps to focus the Company on higher growth opportunities, the amount of the charge to reduce the carrying value of goodwill and intangible assets, the completion of the SFAS 142 and SFAS 144 review prior to the filing of the Company's report on Form 10-Q for the third fiscal quarter, expected sales, expected net loss and expected charges for the fourth quarter of fiscal 2006. These forward-looking statements involve important factors that could cause our actual results to differ materially from those in the forward-looking statements. Such important factors involve risks and uncertainties including, but not limited to, the completion of the SFAS 142 and SFAS 144 review by the Company and its consultants, the volatility of the trading price of our stock, the introduction of new product features including new instruments, the completion, delivery and acceptance by customers of such new product features, the need to focus on different aspects of our business to improve stockholder value, unanticipated challenges in assessing business conditions and the overall market, unanticipated difficulties in implementing improvements to our business model, cyclicality and downturns in the semiconductor industry, rapid technological change in the automatic test equipment market, the timing of new technology, product introductions, customer requirements relating to the customization of products, the risk of a loss or reduction of orders from one or more customers among which our business is concentrated, fluctuation in customer demand, timing and volume of orders and shipments, competition and pricing pressures, reliability and quality issues, our ability to complete the development and commercialization of our new products, product mix, overhead absorption, continued dependence on "turns" orders to achieve revenue objectives, intellectual property issues, the risk of early obsolescence, our ability to control and reduce expenses (including the ability to identify and successfully institute additional cost-saving measures) and our need to achieve and maintain effective internal controls over financial reporting. Reference is made to the discussion of risk factors detailed in our filings with the Securities and Exchange Commission, including our reports on Form 10- K and 10-Q. All projections in this release are based on limited information currently available to us, which is subject to change. Although any such projections and the factors influencing them will likely change, we will not necessarily update the information, since we are only to provide guidance at certain points during the year. Actual events or results could differ materially and no reader of this release should assume later in the quarter that the information provided today is still valid. Such information speaks only as of the date of this release.

NOTE: Credence is a registered trademark, and Credence Systems is a trademark, of Credence Systems Corporation. Other trademarks that may be mentioned in this release are the intellectual property of their respective owners.

Company Contact: John Batty Senior Vice President & CFO Credence Systems Corporation Phone: [phone] FAX: [phone] E-mail: [e-mail] SYSTEMS CORPORATION PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(1) (in thousands, except per share amounts) (Unaudited) Prior Three Months Quarter Nine Months Ended Ended Ended July 31, April 30, July 31, 2006 2005 2006 2006 2005 Net sales $109,592 $111,925 $124,767 $352,527 $307,752 Cost of goods sold - on net sales(2) 61,545 59,182 68,928 194,272 176,660 Cost of goods sold - inventory write-offs (3) 24,233 23,000 11,829 36,062 29,090 Gross margin 23,814 29,743 44,010 122,193 102,002 Operating expenses: Research and development(4) 22,576 23,849 24,123 70,847 68,905 Selling, general & administrative(5) 28,988 31,317 27,520 84,422 94,552 Amortization of purchased intangible assets and deferred compensation 4,338 5,663 4,117 12,709 18,664 Restructuring charges 1,792 9,654 1,060 3,166 11,445 Total operating expenses 57,694 70,483 56,820 171,144 193,566 Operating loss (33,880) (40,740) (12,810) (48,951) (91,564) Interest and other income, net (1,6) (1,501) 1,038 (318) (1,973) 2,714 Loss before income taxes(1) (35,381) (39,702) (13,128) (50,924) (88,850) Income taxes(1) 2,110 1,975 1,103 4,844 8,602 Net loss(1) ($ 37,491)($ 41,677) ($14,231) ($ 55,768)($ 97,452) Net loss per share(1) Basic ($ 0.37) ($ 0.43) ($0.14) ($ 0.56) ($ 1.06) Diluted ($ 0.37) ($ 0.43) ($0.14) ($ 0.56) ($ 1.06) Number of shares used in computing per share amounts Basic 100,017 96,638 99,886 99,798 92,010 Diluted 100,017 96,638 99,886 99,798 92,010 (1) This Preliminary Condensed Consolidated Statement of Operations is prepared in accordance with GAAP except it does not reflect the expected write-off of goodwill and intangible assets ranging from approximately $300 million to $400 million resulting from the goodwill and other long-lived assets impairment analysis that is being evaluated in accordance with Statement of Financial Accounting Standards 142, "Goodwill and Other Intangible Assets" ("SFAS 142") and Statement of Financial Accounting Standards 144, "Accounting for Impairment or Disposal of Long Lived Assets" ("SFAS 144"). Third quarter results should be finalized on or before September 11, 2006 when the company files its Report on Form 10-Q. (2) Includes stock-based compensation under FAS 123R of $0.2 million, $0.1 million and $0.4 million for the three months ended July 31, 2006 and April 30, 2006 and nine months ended July 31, 2006, respectively. Also, includes amortization expenses resulted from the write-up to fair value of the inventory, spares and fixed assets acquired as part of our acquisition of NPTest of $0.4 million, $1.3 million and $0.7 million for the three months ended July 31, 2006 and 2005 and April 30, 2006, respectively; and $1.7 million and $4.7 million for the nine months ended July 31, 2006 and 2005, respectively. In the three and nine months ended July 31, 2005, cost of goods sold -- net of sales includes $0.7 and $1.8 million of service materials charges, relocation, travel, merger related retention bonuses and accelerated depreciation of assets. (3) Represents inventory charges and liabilities related to excess and obsolete inventory of under-performing product lines and decisions to stop significant future investments in these areas. (4) Includes stock-based compensation under FAS 123R of $0.6 million, $0.6 million and $1.5 million for the three months ended July 31, 2006 and April 30, 2006 and three months ended July 31, 2006, respectively. (5) Includes stock-based compensation under FAS 123R of $0.8 million, $1.0 million and $2.4 million for the three months ended July 31, 2006 and April 30, 2006 and nine months ended July 31, 2006, respectively. In addition, it includes amortization of the fixed assets write-up to fair value, resulting from NPTest acquisition of approximately $0.3 million for the three months ended July 31, 2005; and approximately $0.2 million and $0.9 million for the nine months ended July 31, 2006 and 2005, respectively. In addition, the three and nine months ended July 31, 2005 includes $1.7 million and $9.9 million, respectively of integration expenses related to NPTest. (6) Includes impairment of an equity investment of $0.9 million for the three and nine months ended July 31, 2006. Includes fair value adjustment to an acquired liability of $1.3 million for the nine months ended July 31, 2005. CREDENCE SYSTEMS CORPORATION PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS(1) (in thousands) Prior Quarter July 31, April 30, October 31, 2006 2006 2005 (2) (unaudited) (unaudited) ASSETS Current assets: Cash and cash equivalents $113,606 $109,384 $142,180 Short-term investments 15,681 19,160 7,816 Accounts receivable, net 106,680 119,868 114,042 Inventories 56,966 73,629 79,054 Other current assets 23,384 23,199 27,979 Total current assets 316,317 345,240 371,071 Property and equipment, net 90,048 90,068 96,691 Other assets(1) 565,026 569,274 578,543 Total assets(1) $971,391 $1,004,582 $1,046,305 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $28,707 $35,337 $45,846 Accrued liabilities 104,422 94,351 108,027 Liabilities related to leased products -- -- 5,000 Deferred profits 3,977 3,986 5,112 Total current liabilities 137,106 133,674 163,985 Other liabilities 188,244 189,834 190,818 Long-term deferred income taxes 9,473 9,473 9,473 Stockholders' equity(1) 636,568 671,601 682,029 Total liabilities and stockholder's equity(1) $971,391 $1,004,582 $1,046,305 (1) This Preliminary Condensed Consolidated Balance Sheet is prepared in accordance with GAAP except it does not reflect the expected write-off of goodwill and intangible assets ranging from approximately $300 million to $400 million resulting from the goodwill and long-lived assets impairment analysis that is being evaluated in accordance with Statement of Financial Accounting Standards 142, "Goodwill and Other Intangible Assets" ("SFAS 142") and Statement of Financial Accounting Standards 144, "Accounting for Impairment or Disposal of Long Lived Assets" ("SFAS 144"). Third quarter results should be finalized on or before September 11, 2006 when the Company files its Report on Form 10-Q. (2) Derived from the audited financial statements for the year ended October 31, 2005.