EXFO Posts 12% Sales Growth, Loss due to Write-downs

Quebec City, Canada, June 25, 2002 -- EXFO Electro-Optical Engineering Inc. posted a sequential sales growth of 12% following the release of financial results for the third quarter of fiscal 2002. EXFO reported sales of US$16.3 million for the third quarter ended May 31, 2002 compared to US$14.6 million for the previous quarter and a peak of US$45.8 million for the third quarter of 2001.

"I am encouraged by these results and our second consecutive increase in net bookings amidst a still difficult market environment," said Germain Lamonde, Chairman, President and CEO of EXFO. "EXFO's growth was driven by our comprehensive product portfolio, our global and diversified customer base as well as our focus on market-driven innovation."

Pro forma net loss for the third quarter of fiscal 2002 amounted to US$3.9 million, or US$0.06 per share, compared to pro forma net loss of US$4.1 million, or US$0.07 per share, for the second quarter of 2002 and pro forma net earnings of US$6.2 million, or US$0.11 per share, for the third quarter of 2001.

EXFO's net loss for the third quarter of fiscal 2002 was US$263.8 million, or US$4.29 per share, compared to a net loss of US$22.7 million, or US$0.37 per share, for the previous quarter and a net loss of US$8.6 million, or US$0.15 per share, for the third quarter of 2001. The loss in the third quarter of 2002 is largely due to a US$222.2 million write-down of goodwill and a US$23.7 million write-down of intangible assets that are related to the three strategic acquisitions made during the last two years.

Gross margin, excluding an inventory write-off of US$9.1 million, amounted to 51.2% of sales for the third quarter of fiscal 2002. Including the inventory write-off, the gross margin dropped to a negative 4.5%.

During the third quarter of 2002, EXFO continued restructuring efforts with US$1.2 million in severance expenses for departed employees and US$868,000 for the write-down of property, plant and equipment.

These latest cost-cutting measures, which should provide US$7 million in annualized pre-tax savings, are part of an overall plan to reduce EXFO's pro forma break-even level to between US$20 and US$21 million before the end of calendar 2002. At the end of the third quarter, the company had approximately US$51 million in cash and short-term investments and practically no debt.

"We have taken the necessary decisions to accelerate EXFO's return to profitability, while expanding our market presence and protecting our strong positioning on a long-term basis," Mr. Lamonde added. "Our solid balance sheet, our impending return to positive cash-flow and our book-to-bill ratio approaching 1.0 are all positive indicators that we are on the right track."

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