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

SOURCE Photon Dynamics, Inc.

So-Yeon Jeong, Vice President, Investor Relations and Marketing Communications
of Photon Dynamics, Inc., +1-408-360-3084, soyeon.jeong@photondynamics.com