UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2003
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 number: 0-27234
PHOTON DYNAMICS, INC.
(Exact name of registrant as specified in its charter)
| California | 94-3007502 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
5970 Optical Court
San Jose, California 95138-1400
(Address of principal executive offices including zip code)
(408) 226-9900
(Registrant’s telephone number, including area code)
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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of January 30, 2004, there were 16,512,370 shares outstanding of the Registrant’s Common Stock, no par value.
| Page | ||||
| PART I |
FINANCIAL INFORMATION |
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| Item 1. |
Financial Statements (unaudited) |
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| Condensed Consolidated Balance Sheets as of December 31, 2003 and September 30, 2003 |
1 | |||
| 2 | ||||
| 3 | ||||
| 4 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 | ||
| Item 3. |
33 | |||
| Item 4. |
33 | |||
| PART II |
OTHER INFORMATION |
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| Item 1. |
35 | |||
| Item 2. |
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
35 | ||
| Item 3. |
35 | |||
| Item 4. |
35 | |||
| Item 5. |
36 | |||
| Item 6. |
36 | |||
| 37 | ||||
PART I. FINANCIAL INFORMATION
| ITEM 1. | Financial Statements |
PHOTON DYNAMICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS *
| December 31, 2003 |
September 30, 2003 |
|||||||
| (in thousands) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 15,413 | $ | 18,305 | ||||
| Short-term investments |
97,219 | 98,164 | ||||||
| Accounts receivable, net |
15,374 | 10,402 | ||||||
| Inventories |
10,866 | 9,887 | ||||||
| Other current assets |
3,502 | 6,449 | ||||||
| Total current assets |
142,374 | 143,207 | ||||||
| Land, property and equipment, net |
16,176 | 12,298 | ||||||
| Other assets |
3,109 | 3,002 | ||||||
| Intangible assets, net |
604 | 2,894 | ||||||
| Goodwill |
153 | 518 | ||||||
| Total assets |
$ | 162,416 | $ | 161,919 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 4,636 | $ | 4,239 | ||||
| Other current liabilities |
9,808 | 10,605 | ||||||
| Deferred gross margin |
1,651 | 2,739 | ||||||
| Total current liabilities |
16,095 | 17,583 | ||||||
| Other liabilities |
140 | 193 | ||||||
| Commitments and contingencies |
||||||||
| Shareholders’ equity: |
||||||||
| Common stock, no par value |
280,777 | 279,417 | ||||||
| Accumulated deficit |
(134,916 | ) | (135,872 | ) | ||||
| Accumulated other comprehensive income |
320 | 598 | ||||||
| Total shareholders’ equity |
146,181 | 144,143 | ||||||
| Total liabilities and shareholders’ equity |
$ | 162,416 | $ | 161,919 | ||||
| * | Amounts as of December 31, 2003 are unaudited. Amounts as of September 30, 2003 are derived from the September 30, 2003 audited financial statements. |
See accompanying notes to condensed consolidated financial statements.
1
PHOTON DYNAMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended December 31, |
||||||||
| 2003 |
2002 |
|||||||
| (in thousands, except per share data) |
||||||||
| Revenue |
$ | 24,499 | $ | 19,162 | ||||
| Cost of goods sold |
13,412 | 11,569 | ||||||
| Gross margin |
11,087 | 7,593 | ||||||
| Operating expenses: |
||||||||
| Research and development |
5,810 | 4,487 | ||||||
| Selling, general and administrative |
4,598 | 3,068 | ||||||
| Impairment of goodwill |
665 | — | ||||||
| Impairment of purchased intangibles |
2,089 | — | ||||||
| Impairment of fixed assets |
234 | — | ||||||
| Acquired in-process research and development |
— | 1,849 | ||||||
| Amortization of intangible assets |
201 | 260 | ||||||
| Total operating expenses |
13,597 | 9,664 | ||||||
| Loss from operations |
(2,510 | ) | (2,071 | ) | ||||
| Interest income and other, net |
3,781 | 824 | ||||||
| Income (loss) from continuing operations before income taxes and discontinued operations |
1,271 | (1,247 | ) | |||||
| Provision for income taxes |
362 | 11 | ||||||
| Income (loss) from continuing operations before discontinued operations |
909 | (1,258 | ) | |||||
| Income (loss) from discontinued operations |
47 | (23,760 | ) | |||||
| Net income (loss) |
$ | 956 | $ | (25,018 | ) | |||
| Net income (loss) per share from continuing operations |
||||||||
| Basic |
$ | 0.06 | $ | (0.08 | ) | |||
| Diluted |
$ | 0.05 | $ | (0.08 | ) | |||
| Net income (loss) per share from discontinued operations |
||||||||
| Basic |
$ | 0.00 | $ | (1.47 | ) | |||
| Diluted |
$ | 0.00 | $ | (1.47 | ) | |||
| Net income (loss) per share |
||||||||
| Basic |
$ | 0.06 | $ | (1.55 | ) | |||
| Diluted |
$ | 0.06 | $ | (1.55 | ) | |||
| Weighted average number of shares: |
||||||||
| Basic |
16,461 | 16,156 | ||||||
| Diluted |
17,174 | 16,156 | ||||||
See accompanying notes to condensed consolidated financial statements.
2
PHOTON DYNAMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended December 31, |
||||||||
| 2003 |
2002 |
|||||||
| (in thousands) | ||||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) from continuing operations |
$ | 909 | $ | (1,258 | ) | |||
| Adjustments to reconcile net income (loss) from continuing operations to net cash used in operating activities from continuing operations: |
||||||||
| Depreciation |
1,020 | 527 | ||||||
| Amortization of intangible assets |
201 | 560 | ||||||
| Impairment of goodwill |
665 | — | ||||||
| Impairment of purchased intangibles, and fixed assets |
2,323 | — | ||||||
| Acquired in-process research and development |
— | 1,849 | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
(5,009 | ) | (9,066 | ) | ||||
| Inventories |
(709 | ) | 543 | |||||
| Other current assets |
2,417 | 758 | ||||||
| Other assets |
(407 | ) | 139 | |||||
| Accounts payable |
413 | (1,805 | ) | |||||
| Other current liabilities |
(852 | ) | (495 | ) | ||||
| Deferred gross margin |
(1,088 | ) | 234 | |||||
| Other liabilities |
(53 | ) | — | |||||
| Net cash used in operating activities from continuing operations |
(170 | ) | (8,014 | ) | ||||
| Net cash provided by (used in) operating activities from discontinued operations |
653 | (2,968 | ) | |||||
| Net cash provided by (used in) operating activities |
483 | (10,982 | ) | |||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment |
(5,402 | ) | (129 | ) | ||||
| Acquisition of Rapid Thermal Processing Division from Intevac, Inc. |
— | (20,000 | ) | |||||
| Purchase of short-term investments |
(143,149 | ) | (134,785 | ) | ||||
| Redemption of short-term investments |
143,963 | 171,314 | ||||||
| Net cash provided by (used in) investing activities from continuing operations |
(4,588 | ) | 16,400 | |||||
| Net cash used in investing activities from discontinued operations |
— | (537 | ) | |||||
| Net cash provided by (used in) investing activities |
(4,588 | ) | 15,863 | |||||
| Cash flows from financing activities: |
||||||||
| Issuance of common stock, net |
1,360 | 868 | ||||||
| Repurchase of common stock |
— | (13,375 | ) | |||||
| Capital lease repayments |
— | (11 | ) | |||||
| Net cash provided by (used in) financing activities from continuing operations |
1,360 | (12,518 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents |
(147 | ) | 87 | |||||
| Net increase in cash and cash equivalents from continuing operations |
(3,545 | ) | (4,045 | ) | ||||
| Net increase (decrease) in cash and cash equivalents from discontinued operations |
653 | (3,505 | ) | |||||
| Net decrease in cash and cash equivalents |
(2,892 | ) | (7,550 | ) | ||||
| Cash and cash equivalents at beginning of period |
18,305 | 25,580 | ||||||
| Cash and cash equivalents at end of period |
$ | 15,413 | $ | 18,030 | ||||
See accompanying notes to condensed consolidated financial statements.
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of Photon Dynamics, Inc. (“Photon Dynamics” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the unaudited interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations and cash flows for the periods indicated.
These financial statements and notes should be read in conjunction with the Item 8, “Financial Statements and Supplementary Data” included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2003, filed with the Securities and Exchange Commission on December 24, 2003. Operating results for the three months ended December 31, 2003, are not necessarily indicative of the results that may be expected for any other interim period or for the full fiscal year ending September 30, 2004.
The condensed consolidated balance sheet as of September 30, 2003, is derived from the Company’s audited consolidated financial statements as of September 30, 2003, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
Description of Operations and Principles of Consolidation. Photon Dynamics is a supplier of integrated yield management solutions for the flat panel display industry. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated.
Through January 14, 2003, the Company conducted business in three operating segments: flat panel display products, cathode ray tube display and high quality glass inspection products and printed circuit board assembly inspection products. In January 2003, the Company implemented a plan to exit the printed circuit board assembly inspection business. In June 2003, the Company implemented a plan to exit the cathode ray tube display and high quality glass inspection businesses. Accordingly, the operating results of these former business segments have been presented as discontinued operations in accordance with the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets,” (“FAS 144”) and the Company’s condensed consolidated financial statements and related footnotes have been reclassified to conform with the current period’s basis of presentation. Accordingly, in the condensed consolidated statements of operations, the net operating results of these former businesses have been classified as “Income (loss) from discontinued operations,” for all periods presented. The cash flows from these businesses have been presented as “Net cash flows from discontinued operations” in the operating, investing and financing sections of the condensed consolidated statements of cash flows.
Management Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates made by management include the calculation of allowance for doubtful accounts, inventory write-downs, warranty provisions, impairment of goodwill, other acquired intangible assets and long-lived assets, acquired in-process research and development and litigation and contingency assessments.
Fair Value of Financial Instruments. The Company evaluates the estimated fair value of financial instruments using available market information and valuation methodologies as provided by the custodian. The use of different market assumptions and/or estimation methodologies could have a negative effect on the estimated fair value amounts. The fair value of the Company’s cash, cash equivalents, accounts receivable, accounts payable and other current liabilities approximates the carrying amount due to the relatively short maturity of these items. The Company’s derivative instruments, consisting of forward exchange contracts, are r