Our focus during the past several years has been on building long-term relationships and strong collaborative partnerships with our global customers to serve their measurement needs. Toward that end, we rely primarily upon employing our own sales personnel to sell our products, and use sales representatives, to whom we pay a commission, in areas where we believe it is not cost-beneficial to employ our own people. This sales channel strategy allows us to build a sales network of focused, highly trained sales engineers who specialize in measurement expertise and problem-solving for customers and enhances our ability to sell our products to customers with worldwide operations. We believe our ability to serve our customers has been strongly enhanced by deploying our own employees throughout the United States, Europe and Asia. We expect that selling through our own sales force will be favorable to earnings during times of strong sales, but it is unfavorable during times of depressed sales, such as the current economic environment, as a substantial portion of our selling costs are fixed. Critical Accounting Policies and Estimates Management has identified the Company's "critical accounting policies." These policies have the potential to have a more significant impact on our financial statements, either because of the significance of the financial statement item to which they relate or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events which will be settled in the future. These critical accounting policies and estimates are described in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our 2008 Form 10-K, and include use of estimates, revenue recognition, inventories, income taxes, pension plan and stock compensation plans.
Results of Operations
Third Quarter Fiscal Year 2009 Compared with Third Quarter Fiscal Year 2008 Net sales of $23,438 for the third quarter of fiscal year 2009 decreased 43 percent as compared to the prior year's third quarter sales of $40,955 primarily due to the global economic recession as described in the section titled "Business Overview" above. The effect of a nine percent weighted-average stronger U.S. dollar negatively impacted sales growth by approximately three percentage points. Geographically, sales were down 40 percent in the Americas, 45 percent in Europe, and 43 percent in Asia. Approximately 70 percent of our sales were generated outside the Americas during the third quarter of fiscal year 2009. On a sequential basis, sales decreased two percent from the second quarter of fiscal year 2009.
Orders of $23,733 for the third quarter decreased 41 percent compared to last year's orders of $40,515. Geographically, orders decreased 33 percent in the Americas, 27 percent in Europe, and 56 percent in Asia when compared to the prior year. Orders from the Company's semiconductor customers decreased approximately 55 percent, orders from wireless communications customers decreased approximately 85 percent, orders from precision electronic component and subassembly manufacturers decreased approximately 40 percent, while research and education customer orders increased approximately 15 percent compared to the prior year's third quarter. The Company had sequential order growth of nine percent versus the second quarter of fiscal 2009. Order backlog decreased $1,303 during the quarter to $11,452 as of June 30, 2009. The Company does not track net sales in the same manner as it tracks orders by major customer group. However, sales trends generally correlate to Company order trends although they may vary between quarters depending upon the orders which remain in backlog. Cost of goods sold as a percentage of net sales increased to 46.7 percent from 42.0 percent in the prior year's third quarter. The increase was primarily due to fixed manufacturing costs being spread over lower sales volume, the unfavorable effect of a stronger U.S. dollar, and customer sales mix. Nearly all products the Company sells are manufactured in the United States; therefore, cost of goods sold expressed in dollars is generally not affected by changes in foreign currencies. However, as a percentage of net sales, it is affected as net sales dollars fluctuate due to currency exchange rate changes. The effect of foreign exchange hedging increased cost of goods as a percentage of net sales by 0.7 percentage points in the third quarter of fiscal year 2009 and by 0.3 percentage points in the third quarter fiscal year 2008.
Selling, general and administrative expenses of $11,678, or 49.8 percent of net sales, decreased 33 percent from $17,441, or 42.6 percent of net sales, in last year's third quarter. The decrease was due primarily to lower salaries as a result of lower headcount and a 10 percent pay reduction implemented in the United States on January 1, 2009, lower incentive costs as a result of lower sales and the net loss, the favorable translation impact on expenses outside the United States as a result of a nine percent stronger dollar, and lower discretionary spending due to cost-cutting measures.

Product development expenses for the quarter were $3,655, or 15.6 percent of net sales, down $3,116, or 46 percent, from last year's $6,771, or 16.5 percent of net sales. The decrease is primarily the result of discontinuing the S600 parametric test product line, which was announced in February 2009, as well as the cost-cutting measures described above.
The Company reported an operating loss for the third quarter of fiscal year 2009 of $2,848 compared to an operating loss of $448 for the prior year's quarter. The decrease in earnings from operations was primarily the result of an $11,279 decrease in gross margins as a result of lower sales. The decrease in gross margins was partially offset by a 37 percent reduction in operating expenses. Investment income was $42 for the quarter compared to $338 in last year's third quarter. The decrease was due to lower interest rates and lower average cash and investment balances, and a reduction to the interest rate on a long-term note receivable.
Income tax expense for the third quarter ended June 30, 2009, was $601 on a loss before taxes of $2,825. This compared with an income tax benefit of $86 on a loss before taxes of $125. The Company is recording tax expense despite reflecting a loss before tax because it was unable to record a tax benefit on the third quarter 2009 losses incurred in the United States and certain other foreign jurisdictions. In addition, the Company recorded tax expense for other foreign operations' results, discrete tax expense for prior year's taxes and contingent liabilities. The effective tax rate for the quarter ended June, 30 2008 was greater than the U.S. federal statutory tax rate due to the impact of favorable net tax benefits claimed against a small operating loss. The favorable tax benefits included the settlement of tax audits. These benefits were partially offset by the net impact of changes to tax credits, other increases for contingent tax liabilities, and provision return adjustments. See Note N. The Company reported a net loss for the quarter of $3,426, or $0.22 per share, compared to a net loss for the quarter of $39, or $0.00 per share, last year. Lower sales and gross margins, lower investment income, and a higher income tax rate, partially offset by lower expenses described above, accounted for the decrease.
Nine Months Ended June 30, 2009 Compared with Nine Months Ended June 30, 2008 Net sales of $78,469 for the nine months ended June 30, 2009, decreased 34 percent from $119,331 reported for the nine-month period last year. The effect of a six percent stronger U.S. dollar negative impacted sales growth by approximately two percentage points. Geographically, net sales were down 28 percent in the Americas, 35 percent in Europe, and 38 percent in Asia. Orders of $73,136 for the nine months ended June 30, 2009, decreased 39 percent from $120,105 last year. Geographically, orders decreased 31 percent in the Americas, 51 percent in Asia, and 30 percent in Europe. See the "Business Overview" section of Management's Discussion and Analysis of Financial Condition and Results of Operations for a breakout of the first nine months of fiscal year 2009 orders by major industry group.
Cost of goods sold as a percentage of net sales increased to 44.2 percent from 40.7 percent for the nine-month period last year. The increase was primarily due to fixed manufacturing costs being spread over lower sales volume, and the unfavorable effect of a six percent stronger U.S. dollar. The effect of foreign exchange hedging on cost of goods sold was not material in either period. Also included in gross profit in the second quarter of fiscal year 2009 was $2,540, or 3.2 percent of net sales, of non-cash charges for inventory write-offs and accelerated depreciation with regard to the Company's decision to discontinue its S600 parametric test product line. See Note O.
Selling, general and administrative expenses of $37,952, or 48.3 percent of net sales, decreased 24 percent from $49,869, or 41.8 percent of net sales, in the same period last year. The decrease was due primarily to lower salaries as a result of lower headcount and a 10 percent pay reduction implemented in the United States on January 1, 2009, a favorable adjustment for performance award units granted in prior years versus recording expense for such awards in the prior year's period (see Note E), lower incentive compensation costs as a result of lower sales and the net loss, and lower discretionary spending due to cost-cutting measures.

Product development expenses for the first nine months of fiscal year 2009 of $14,341, or 18.3 percent of sales, were down 25 percent from $19,212, or 16.1 percent of net sales, for the same period last year. The decrease was primarily a result of lower salaries and benefits due to lower headcount and a 10 percent pay reduction implemented in the United States on January 1, 2009, lower project consultant costs and other discretionary spending resulting from our cost-cutting actions and the discontinuance of the S600 parametric test product line announced in February 2009, and a favorable adjustment for performance award units granted in prior years versus recording expense for such awards in the prior year's period (see Note E).
The Company recorded $4,202 for restructuring charges during the first nine of fiscal year 2009. The majority of the charges were recorded in the second quarter of fiscal year 2009. See the discussion above and Note O. Investment income during the first nine months of fiscal year 2009 of $274 decreased $1,047, or 79 percent, from $1,321 for the same period in the prior year. The decrease was primarily due to lower average cash and investment balances, lower interest rates during the period, and a reduction to the interest rate on a long-term note receivable.
We review our investments for other-than-temporary impairment whenever the fair value of an investment is less than amortized cost and evidence indicates that an investment's carrying value is not recoverable within a reasonable period of time. In the evaluation of whether impairment is other-than-temporary, the Company considers its ability and intent to hold the investment until the market price recovers, the reasons for the impairment, compliance with the Company's investment policy, the severity and duration of the impairment and expected future performance. Based on this evaluation, during the second quarter of fiscal year 2008, we recorded impairment losses of $670 before taxes, or approximately $0.03 per share after taxes, on our long-term investments carried at cost. Additionally, during the 2008 period we recorded a temporary mark-to-market fair value adjustment through other comprehensive income of $780 related to our investment in auction rate securities. See Note M. For the nine months ended June 30, 2009, income taxes were $31,068 on a loss before taxes of $14,996. The 2009 period's tax expense included a $29,967 non-cash expense for a valuation allowance recorded against U.S. deferred tax assets, which was recorded during the first quarter of fiscal year 2009. When considering the need for a valuation allowance against deferred tax assets, we consider all positive and negative evidence that would indicate whether or not we will be able to utilize the deferred tax assets. As a result of the overall downturn in the U.S. economy in the first quarter of fiscal year 2009, and more specifically, in the industries in which we operate, our sales and profitability were adversely impacted resulting in a cumulative loss in the U.S. for the twelve quarters ended December 31, 2008. Additionally, during January 2009, we revised our fiscal year 2009 forecast downward to reflect continuing weakness in the end markets which we serve. As a result of this negative evidence, we concluded that it was more likely than not that we would not have the necessary future taxable income to realize the deferred tax assets; accordingly, we recorded the full valuation allowance on the U.S. deferred tax assets. For the nine months ended June 30, 2008, income taxes were $225 on income before taxes of $2,260, an effective tax rate of 10.0 percent. The effective tax rate was less than the U.S. federal statutory tax rate due to the favorable impacts resulting from the settlement of tax audits, favorable differences between the prior year tax return and the prior year provision, and tax benefits related to foreign income. These benefits were partially offset by the net impact of changes to tax credits, and other increases for contingent tax liabilities. Excluding the discrete items mentioned above, the tax rate would have been 33.7 percent for the first nine months of fiscal year 2008. See Note N. The Company reported a net loss of $46,064, or $2.95 per share, for the first nine months of fiscal 2009, compared with net income of $2,035, or $0.13 per diluted share, for the first nine months of fiscal 2008. Included in the current period's results is an unfavorable discrete tax adjustment of approximately $1.92 per share, as well as restructuring and other charges related to cost-cutting actions taken in January and February 2009.

Financial Condition, Liquidity and Capital Resources
Working Capital
The following table summarizes working capital as of June 30, 2009 and
September 30, 2008:

                                           June 30, 2009       September 30, 2008
   Current assets:
   Cash and cash equivalents              $        25,542     $             22,073
   Restricted cash                                    558                        -
   Short-term investments                             868                    5,700
   Accounts receivable and other, net              10,926                   17,265
   Total inventories                               10,389                   19,823
   Deferred income taxes                              559                    5,483
   Prepaid expenses                                 1,761                    2,079

   Total current assets                            50,603                   72,423

   Current liabilities:
   Short-term debt                                    199                       23
   Accounts payable                                 3,997                    7,325
   Accrued payroll and related expenses             4,009                    7,073
   Other accrued expenses                           4,968                    6,142
   Income taxes payable                             1,039                    1,174

   Total current liabilities                       14,212                   21,737

   Working capital                        $        36,391     $             50,686

Working capital decreased during the first nine months of fiscal year 2009 by $14,295. Current assets decreased during the period by $21,820, while current liabilities decreased $7,525. During the first quarter of fiscal year 2009, we converted $12,500 of investments, including our investments in auction rate securities, to cash. The $12,500 included $6,120 of auction rate securities (net of a valuation allowance of $680), which were classified as long-term at September 30, 2008. The Company no longer holds any auction rate securities. Short-term investments at June 30, 2009, include certificates of deposits. Accounts receivable and other, net decreased $6,339 during the period primarily due to lower net sales and improved collections. Days sales outstanding were 42 at June 30, 2009, and 47 at September 30, 2008. Inventories decreased $9,434 during the period, with $4,020 of the decrease due to the write-off related to the discontinuance of our parametric test product line. See Note O. Inventory turns were 4.1 at June 30, 2009, and 2.7 at September 30, 2008. Deferred income taxes decreased $4,924 primarily due to the establishment of a valuation reserve against the U.S. deferred tax assets. See Note N. With regard to the decrease in current liabilities, accounts payable decreased $3,328 primarily due to the decrease in business during the period. Accrued payroll and related expenses decreased $3,064 due to the scheduled pay-outs of deferred compensation, lower incentive compensation tied to lower sales levels, lower accrued salaries due to the reduction in headcount during the period, and lower accrued 401(k) withholding due to the cost-cutting actions the Company has taken. Additionally, the Company paid out $3,021 in salaries and related benefits due to the reductions in headcount that took place in September 2008, and January and February 2009. Included in the Accrued payroll and related expenses balance at June 30, 2009 is $475 of severance and related benefits, the majority of which are expected to be paid out during the remainder of fiscal year 2009. Significant changes in cash and cash equivalents and short-term investments are discussed in the "Sources and Uses of Cash" section below. Sources and Uses of Cash
The following table is a summary of our condensed consolidated statements of cash flows:

                                                For the Nine Months
                                                   Ended June 30,
                                                 2009           2008
                Cash (used in) provided by:
                Operating activities          $    (4,425 )   $ (2,142 )
                Investing activities                9,530       15,593
                Financing activities               (1,715 )     (6,806 )

Operating activities. Cash used in operating activities of $4,425 for the first nine months of fiscal year 2009 increased $2,283 as compared with cash used in operating activities of $2,142 in the same period last year. The primary cause of the increased use of cash was lower net income, partially offset by higher non-cash charges for the establishment of a valuation reserve against our U.S. deferred tax assets (see Note N), and the write-down of inventory and fixed assets related to the discontinuance of a product line (see Note O), as well as changes in working capital. Changes in working capital were described above in the section titled Working Capital. Adjustments to reconcile net earnings to net cash provided by operating activities are presented on the condensed consolidated statements of cash flows.
Investing activities. Cash provided by investing activities was $9,530 for the first nine of fiscal year 2009 compared with $15,593 in the same period last year. Payments for property, plant and equipment decreased $1,224 as a result of our cost-cutting actions. During the period, we reclassified $558 of cash to restricted cash. Per the terms of our credit agreement, as amended, we are required to maintain a cash reserve equal to the sum of the outstanding debt balance and open letters of credit. See Note G. We purchased short-term investments of $868 and sold short-term investments generating $12,500 in cash during the first nine months of 2009 as discussed above in Working Capital. During the 2008 period, we purchased short-term investments of $13,225 and sold short-term investments of $31,586. Short-term investments totaled $868 at June 30, 2009, as compared to $6,201 at June 30, 2008. Also, at June 30, 2008, we held $7,020 of auction rate securities, net of a $780 temporary mark-to-market fair value adjustment, which were classified as long-term investments. See Note M.
Financing activities. Cash used in financing activities was $1,715 in the first nine months of fiscal year 2009 as compared to $6,806 last year. The Company's stock repurchase program expired in February 2009. Prior to its expiration, the Company purchased 166,733 Common Shares for $787 at an average cost of $4.72 per share including commissions during the fiscal year 2009 period. This includes 11,733 Common Shares withheld for payroll taxes upon the issuance of Common Shares for vested performance award units in November 2008. During the first nine months of fiscal year 2008, the Company purchased 482,300 Common Shares for $4,700 at an average cost per share of $9.74 including commissions. See Note F. Additionally, the Company cut its quarterly dividend by two-thirds during the June 2009 quarter to $0.0125 per Common Share from $.0375 per Common Share in the prior period to conserve cash. Short-term debt was $199 at June 30, 2009, and $283 at June 30, 2008.
We expect to finance capital spending and working capital requirements with cash and short-term investments and our available lines of credit. At June 30, 2009, we had available unused lines of credit with domestic and foreign banks aggregating $5,935, which was a combination of long-term and short-term depending upon the nature of the indebtedness. See Note G. Financial Condition
Following is a discussion of material changes in the Company's statement of financial position from September 30, 2008 to June 30, 2009, other than changes in working capital that are discussed above.
Current deferred income taxes decreased $4,924 to $559 at June 30, 2009, and long-term deferred income taxes decreased $25,101 to $996 at June 30, 2009, primarily due to the valuation allowance recorded against U.S. deferred tax assets, which we recorded at December 31, 2008. See Note N.
Prepaid pension assets decreased by $7,976 to $6,066 at June 30, 2009. In accordance with the provisions of SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," a curtailment associated with restructuring and exit activities, which occurred during the second quarter of fiscal year 2009, was recorded related to the United States plan. The United States plan assets were remeasured at February 28, 2009. As a result, the United States prepaid pension asset balance of $7,955 at September 30, 2008 was written-down to $0 and a liability of $10,160 was recorded as of June 30, 2009. See Note L. The balance at June 30, 2009 in the prepaid pension account consists of the indirect insurance the Company purchased, which is expected to be available for use as German pension liabilities of $5,871 mature.
Other assets decreased $7,072 to $4,002 at June 30, 2009, primarily due to the redemption of auction rate securities totaling $6,120 (net of a valuation . . .