The GAAP net loss consist of non-cash charges of $17.4 million for goodwill impairment related to the reduction in the company’s stock price, $2.0 million for additional write-down in the value of auction rate securities (ARS), and $4.5 million for a valuation allowance against deferred tax assets related to the ARS write-downs. Except the impact of these charges, purchase accounting, equity compensation and restructuring costs, non-GAAP net loss was $5.8 million or $0.21 per share, down from net income of $1.3 million or $0.05 per diluted share in the second quarter of fiscal 2009.

The global recession has severely impacted the activity in most of our markets,” noted Nick Konidaris, ESI president and chief executive officer. “The combination of falling consumer demand for electronics, weak memory prices, and the impact of the global credit crisis on both consumers and our customers weighed on the demand for our products.”

Third quarter orders for new business were $21.2 million, down from $37.6 million the second quarter, reflecting the global economic slowdown. Also, around $5 million of previously-booked orders were removed from backlog due to customer deferrals and cancellations.

Non-GAAP operating expenses declined by nearly $2 million sequentially, partially offsetting the reduced revenues and gross profit. Looking forward, the company plans to reduce headcount by a further 12% in the present quarter and has implemented several temporary cost reduction measures, including suspension of its 401(k) match, executive pay reductions, company-wide furloughs and plant shutdowns. Konidaris added, “Although these actions are difficult, we are committed to managing our cost structure consistent with market conditions.”

Balance Sheet and Cash Flow

Cash and investments were $166 million, together with net $7.1 million of auction rate securities. Cash provided by operations was $8.9 million for the third quarter, driven by improvements in working capital. Continued Konidaris, “We were pleased with our ability to generate cash during the quarter and believe that our strong balance sheet will enable us to weather this cycle while making critical investments to drive growth when market conditions improve.”

Proposed Merger with Zygo Corporation

On October 16, 2008, the company reported that it had signed a merger agreement to acquire Zygo Corporation in an all-stock transaction. The merger agreement had been accepted unanimously by both companies’ board of directors. On January 14, 2009, ESI received from Zygo a proposal to increase the merger consideration by $4.00 cash per share of Zygo stock and to increase from 3 to 4 the number of ESI board seats held by Zygo designees after closing. After closing that the consideration to be paid to Zygo shareholders under the merger agreement continues to reflect the relative values of ESI and Zygo, ESI suggested to Zygo its rejection of the proposal on January 20, 2009. The Zygo board subsequently notified ESI that it was withdrawing its recommendation in favor of the proposed merger.

Fourth Quarter 2009 Outlook

Looking forward, visibility is extremely limited. However, the company expects the current economic environment will continue to constrain our customers’ demand for our products. As a result, we are targeting shipments and revenues for the fourth quarter between $20 to $25 million and non-GAAP loss per share of between $0.20 and $0.30 excluding the impact of purchase accounting, equity compensation, restructuring costs, and non-recurring items.

Konidaris concluded, Although we are experiencing an extraordinary market environment, we believe that, long-term, consumers’ need for smaller and more sophisticated electronic devices will again drive growth in our markets. In the meantime, we have taken actions to reduce costs, and preserve cash, while making critical investments in new products and technology. We will continue to focus our efforts on expanding our addressable market in laser microengineering and creating a lean operating model, which will position us for leveraged earnings growth when market conditions improve.