Photon Dynamics Reports Fiscal 2008 Third Quarter Results

SAN JOSE, Calif., July 31  /PRNewswire-FirstCall/ -- Photon Dynamics, Inc. (NASDAQ:PHTN) today reported financial results for the third quarter of fiscal year 2008, ended June 30, 2008.

Revenue for the third quarter of fiscal 2008 was $46.1 million, compared to second quarter of fiscal 2008 revenue of $45.1 million and third quarter of fiscal 2007 revenue of $14.4 million.  Net income for the third quarter was $3.9 million or $0.21 earnings per diluted share, compared to second quarter net income of $3.9 million or $0.21 earnings per share and a net loss of $8.7 million or $0.52 loss per share for the third quarter a year ago.

Net income for the third quarter of fiscal 2008 reflects net charges of $2.5 million related to the following items:

  -- Stock-based employee compensation expense of $1.1 million
  -- Acquisition related charges of $1.6 million
  -- Recovery of previously reserved inventory of $1.1 million
  -- Amortization of intangible assets of $0.9 million




Third quarter non-GAAP net income was $6.4 million or $0.34 earnings per diluted share, compared to second quarter non-GAAP net income of $4.2 million or $0.23 earnings per diluted share and non-GAAP loss of $8.1 million or $0.49 loss per share for the third quarter a year ago. A reconciliation of these non-GAAP measures is provided after the GAAP financial statements below.

Bookings for the third quarter of fiscal 2008 reached $105.0 million, and the Company posted a shippable backlog of $170.5 million at the end of June 2008.  The Company noted that bookings and backlog are not necessarily indicative of future revenue and that historically bookings have fluctuated on a quarter-to-quarter basis.  These fluctuations in bookings may continue in the future. The Company's cash, cash equivalents, short-term and long term investments were $71.8 million as of June 30, 2008.

"Photon Dynamics' results for the third fiscal quarter reflect the superb execution of our financial and operational initiatives as well as healthier than expected market conditions in the second half of 2008," said Jeff Hawthorne, president and chief executive officer.  "While the revenue grew 2%, our net income on a non-GAAP basis increased by 50% sequentially.  As exemplified in our third consecutive record bookings of $105 million, our continuous product innovation, dedicated customer support, and enhanced business efficiency positioned us exceptionally well to benefit from the near term strength in the LCD equipment market.  We firmly believe in the long term growth prospects for the LCD market and our capability of capitalizing on that growth. Photon Dynamics remains fully devoted to meeting our customer commitments and keenly focused on fulfilling the customers' delivery requirements."

On June 26, Photon Dynamics, Inc. and Orbotech Ltd. announced the signing of a definitive agreement for Orbotech to acquire Photon Dynamics.  The transaction is subject to customary conditions to closing, including approval by Photon Dynamics' shareholders and requisite regulatory approvals, and is expected to close during the second half of 2008.  Given the pending transaction, the Company has suspended the historic practice of providing the Company projection for the coming quarter.

Information Regarding Non-GAAP Financial Measures

Photon Dynamics provides non-GAAP net income and earnings per share data in addition to its operating results.  These measures are not in accordance with or an alternative for GAAP, and may be different from non-GAAP measures used by other companies.  Photon Dynamics' non-GAAP net income or loss and non-GAAP earnings per diluted share exclude the effect of SFAS 123 (R), acquisition related charges, recovery of previously reserved inventory, and amortization of intangible assets.  Management believes that these non-GAAP financial measures can enhance the comparability of historical results, and as a result uses these measures in making financial, operating and planning decisions and in evaluating the Company's performance.

About Photon Dynamics, Inc.

Photon Dynamics, Inc. (NASDAQ:PHTN) is a global supplier utilizing advanced machine vision technology for market leading Liquid Crystal Display (LCD) flat panel display test and repair systems and for high performance digital imaging systems for defense, surveillance, industrial inspection and medical imaging applications.  For more information about Photon Dynamics, visit its website at http://www.photondynamics.com/.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995

This release includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by phrases such as PDI or its management "believes," "expects," "anticipates," "foresees," "forecasts," "estimates" or other words or phrases of similar import. Similarly, statements in this release that describe our business strategy, outlook, objectives, projections, plans, intentions or goals also are forward-looking statements. All such forward-looking statements are based on current expectations as of the date of this press release and are subject to risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include but are not limited to: cancellations or rescheduling of backlog which could cause revenue to fail to meet expectations; our continued ability to sustain profitability; competitive and growth trends in the overall flat panel market; and  those risks and uncertainties described in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Factors Affecting Operating Results" in Photon Dynamics' Annual Report on Form 10-K for the year ended September 30, 2007  and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 as filed with the Securities and Exchange Commission. As a result, actual results may differ substantially from expectations. Photon Dynamics undertakes no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise.

                            PHOTON DYNAMICS, INC.
                         CONSOLIDATED BALANCE SHEET
                                 (Unaudited)


  (In thousands)                         June 30,    March 31, September 30,
                                           2008        2008        2007

                 ASSETS
  Current assets:
    Cash and cash equivalents            $60,672     $44,344     $41,170
    Short-term investments                10,156      19,321      42,640
    Accounts receivable, net              36,894      30,210      11,934
    Inventories                           21,409      18,081      13,292
    Refundable customs obligations           632         676         560
    Other current assets                   5,066       4,870       3,661
        Total current assets             134,829     117,502     113,257

  Long-term investments                    1,000       1,525       1,176
  Land, property and equipment, net        9,725       8,637      10,583
  Other assets                             6,174       5,952       5,365
  Intangible assets, net                   8,348       9,240      11,023
  Goodwill                                 6,857       6,857       6,857
        Total assets                    $166,933    $149,713    $148,261


              LIABILITIES AND SHAREHOLDERS' EQUITY
  Current liabilities:
    Accounts payable                     $22,112     $14,637      $4,217
    Warranty                               5,824       3,583       3,217
    Employee notes payable                 2,733       2,733           -
    Customs obligations                      438         690       4,114
    Other current liabilities             11,963      10,084       9,874
    Deferred gross margin                  1,699         773       3,236
        Total current liabilities         44,769      32,500      24,658

  Non-current liabilities:
    Long-term employee note payable        2,667       2,667       5,381
    Other non-current liabilities              -           -          38
        Total non-current liabilities      2,667       2,667       5,419

  Shareholders' equity:
    Common stock                         302,413     301,222     300,290
    Accumulated deficit                 (182,352)   (186,238)   (181,503)
    Accumulated other comprehensive
     income                                 (563)       (438)       (603)
        Total shareholders' equity       119,498     114,546     118,184

        Total liabilities and
         shareholders' equity           $166,933    $149,713    $148,261



                             PHOTON DYNAMICS, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                  (Unaudited)

    (In thousands, except per share data)
                                                          Nine Months Ended
                                 Three Months Ended            June 30,
                           6/30/2008 3/31/2008 6/30/2007    2008      2007

  Revenue                   $46,121   $45,093   $14,430  $107,390   $49,793
  Cost of revenue            24,986    27,110    11,215    63,821    40,769
    Gross margin             21,135    17,983     3,215    43,570     9,024
  Operating expenses:
    Research and development  7,309     6,156     6,213    18,681    21,343
    Selling, general and
     administrative           9,216     7,535     5,831    24,071    17,197
    Restructuring charge
     (benefit)                    -         -       (95)        -     1,368
    Impairment of property
     and equipment                -         -         -         -     2,834
    Loss (gain) on sale of
     property and equipment       -         1        (0)      (49)       (0)
    Amortization of
     intangible assets          892       892       254     2,675       999
        Total operating
         expenses            17,417    14,584    12,203    45,378    43,741
  Income (loss) from
   operations                 3,719     3,399    (8,988)   (1,809)  (34,717)
  Interest income and other,
   net                          423       618       327     1,885     3,337
  Income (loss) before income
   taxes                      4,141     4,018    (8,661)       77   (31,380)
  Provision for income taxes    255       163        72       560       278
    Net income (loss)        $3,886    $3,854   $(8,733)    $(483) $(31,658)
  Net income (loss) per
   share:
    Basic                     $0.22     $0.22    $(0.52)   $(0.03)   $(1.91)
    Diluted                   $0.21     $0.21    $(0.52)   $(0.03)   $(1.91)
  Weighted average number of
   shares:
    Basic                    17,786    17,749    16,635    17,759    16,605
    Diluted                  18,624    18,561    16,635    17,759    16,605



       Non-GAAP Net Income (Loss) Reconciliation For All Non-GAAP Items

  (In thousands, except per share data)
                                                           Nine Months Ended
                                 Three Months Ended            June 30,
                           6/30/2008 3/31/2008 6/30/2007    2008      2007

  GAAP net income (loss)     $3,886    $3,854   $(8,733)    $(483) $(31,658)
  Stock-based employee
   compensation expense       1,060       509       425     1,982     1,513
  Restructuring charge            -         -       (95)        -     1,368
  Acquisition related
   charges                    1,631         -         -     1,631         -
  Impairment of property
   and equipment                  -         -         -         -     2,834
  Loss (gain) on sale of
   property and
   equipment                      -         1         -       (49)       (0)
  Recovery of previously
   reserved inventory        (1,105)   (1,906)        -    (3,011)        -
  Amortization of
   intangible assets            892       892       254     2,675       999
  Restatement related
   expenses                       -       868         -     2,300         -
  Non-GAAP net income
   (loss) per share          $6,364    $4,218   $(8,149)   $5,046  $(24,944)

  Non-GAAP Net Income (Loss) Per Diluted  Share Reconciliation For All
   Non-GAAP Items

  GAAP net income (loss)
   per share - diluted        $0.21     $0.21    $(0.52)   $(0.03)   $(1.91)
  Stock-based employee
   compensation expense        0.06      0.03      0.03      0.11      0.09
  Restructuring charge            -         -     (0.01)        -      0.08
  Acquisition related
   charges                     0.09         -         -      0.09         -
  Impairment of property
   and equipment                  -         -         -         -      0.17
  Loss (gain) on sale
   of property and
   equipment                      -      0.00         -     (0.00)    (0.00)
  Recovery of previously
   reserved inventory         (0.06)    (0.10)        -     (0.17)        -
  Amortization of
   intangible assets           0.05      0.05      0.02      0.14      0.06
  Restatement related
   expenses                       -      0.04         -      0.12         -
  Non-GAAP net income
  (loss) per share -
  diluted                     $0.34     $0.23    $(0.49)    $0.26    $(1.50)

  Shares used in basic
   shares calculation        17,786    17,749    16,635    17,759    16,605
  Shares used in diluted
   shares calculation        18,624    18,561    16,635    18,594    16,605


DATASOURCE: Photon Dynamics, Inc.



CONTACT:  So-Yeon Jeong, Vice President, Investor Relations and Marketing

Communications of Photon Dynamics, Inc., [phone],





Web site:  http://www.photondynamics.com/ 

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