8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report: October 29, 2003
(Date of earliest event reported)

0-26660
(Commission file number)

ESS TECHNOLOGY, INC.

(Exact name of registrant as specified in its Charter)

CALIFORNIA
(State or other jurisdiction
of incorporation) 94-2928582
(IRS Employer
Identification No.)

48401 FREMONT BOULEVARD
FREMONT, CALIFORNIA 94538
(Address of principal executive offices including zip code)

(510) 492-1088
(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

TABLE OF CONTENTS

	Item 7. Financial Statements and Exhibits
	Item 12. Results of Operations and Financial Condition
SIGNATURE
EXHIBIT INDEX
EXHIBIT 99.1

Item 7. Financial Statements and Exhibits.

(c)	Exhibits.
99.1	Press Release dated October 29, 2003 regarding financial results and certain other information related to the third quarter of fiscal year 2003.

Item 12. Results of Operations and Financial Condition.

     On October 29, 2003, ESS Technology, Inc. (ESS) announced its consolidated financial results for the third quarter of fiscal year 2003. A copy of this press release is furnished as an exhibit to this Current Report on Form 8-K. The information contained in this Form 8-K, including the exhibit, is being furnished and should not be deemed “filed” for the purposes of the Securities Exchange Act of 1934, as amended. Furthermore, the information in this Current Report on Form 8-K, including the exhibit, shall not be deemed to be incorporated by reference into the filings of ESS under the Securities Act of 1933, as amended.

Use of Non-GAAP Information

     In addition to providing results that are determined in accordance with Generally Accepted Accounting Principles (GAAP), ESS also provides certain non-GAAP financial measures that exclude certain charges as additional information relating to its operating results. These measures are not in accordance with, or an alternative to, GAAP and may be different from non-GAAP measures used by other companies. The calculations of non-GAAP financial measures have been adjusted to exclude the effects of amortization of intangible assets, write down of investments, in-process research and development, and related tax effects. Pursuant to the requirements of Regulation G, ESS has provided reconciliation within the earnings release of the non-GAAP financial measures to the most directly comparable GAAP financial measures as well as a statement disclosing the reasons why ESS’ management believes that the non-GAAP financial measures provide useful information to investors.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: October 29, 2003	ESS TECHNOLOGY, INC.
	By:	/s/ Robert L. Blair
		Robert L. Blair
		President and Chief Executive Officer

EXHIBIT INDEX

99.1 Press Release dated October 29, 2003 regarding financial results and certain other information related to the third quarter of fiscal year 2003.

EX-99.1 3 f94035exv99w1.htm EXHIBIT 99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

Contact Information:
ESS Technology, Inc.	Rebecca Mack
Investor Relations	Bergman Mack & Associates
(510) 492-1161	(949) 981-4496

ESS TECHNOLOGY REPORTS 55% SEQUENTIAL REVENUE GROWTH FOR THIRD QUARTER 2003

     FREMONT, Calif., October 29, 2003—ESS Technology (Nasdaq: ESST) today reported net revenues for the third quarter of 2003 of $48.2 million compared to $60.7 million for the same period last year and compared to $31.0 million for the second quarter of 2003.

     GAAP net income for the third quarter of 2003 was $2.7 million, or $0.07 per diluted share, compared to GAAP net income of $2.8 million, or $0.06 per diluted share, for the third quarter of 2002. For the second quarter of 2003, GAAP net income was $15.9 million, or $0.40 per diluted share.

     Non-GAAP net income for the third quarter of 2003 was $5.3 million, or $0.13 per diluted share, compared to third quarter 2002 non-GAAP net income of $3.3 million, or $0.07 per diluted share. Non-GAAP net income excludes the effects of amortization of intangible assets, write-down of investments, in-process research and development and their related tax effects.

     Both GAAP and Non-GAAP net income for the third quarter of 2003 include approximately $8.7 million of tax benefits. The $8.7 million consists primarily of $5.9 million related to the tax-exempt ruling from the Taiwan government, and a $2.7 million net favorable tax adjustment for prior years which is no longer required.

     Robert Blair, president and CEO of ESS Technology commented, “We are very pleased with our third quarter results as our new products are driving significant growth. All of our digital entertainment product lines grew during the third quarter, and all of the markets we serve are still expanding. Our new Vibratto II integrated DVD chips and our VibrattoS MPEG4/DivX chips led our DVD gains, and our VCD products again set new records as the VCD market continues its growth worldwide. And during Q3, our recordable products and digital imaging products started ramping to production volumes and will continue to grow. We believe all of the consumer digital entertainment markets we address are showing strength and robust growth which will enable ESS to grow in the future.”

     Mr. Blair continued, “Looking forward, we believe ESS is well positioned for strong growth in 2004 for several reasons. Vibratto II’s improved market share in the mainstream DVD player market will contribute significantly to annual revenue growth. Our new MPEG4/DivX and recordable products have higher selling prices than our MPEG2 playback products which will enable both revenue growth and margin improvement. Our VCD products continue their dominance in their growing market and we are forecasting significant growth in our digital imaging business, especially for our cameraphone products. With the strength of the digital entertainment and digital imaging markets, and our many new products, we are looking forward to increases in revenue and earnings in 2004.”

December Quarter 2003 Guidance

     The forward-looking statements in this release are based on current expectations. Actual results may differ materially from those expectations. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. Continuing uncertainty in global economic conditions makes it particularly difficult to predict product demand and other related matters.

     We expect net revenue for the fourth quarter of 2003 to increase by 35% - 40% over the third quarter to $65 to $68 million with gross margins to range from 32% - 35%. We also expect R&D expenses at 15% - 16%, and other operating expenses to be flat with the third quarter of 2003. Overall we expect a GAAP net income per diluted share to be in the range of $0.06 to $0.09 and non-GAAP net income per diluted share to be in the range of $0.10 - $0.13. Non-GAAP net income and loss excludes the effects of amortization of intangible assets, investment gains and losses and their related tax effects.

Earnings Conference Call

     As previously announced, ESS Technology, Inc. has scheduled a conference call beginning 2:00 p.m. PST / 5:00 p.m. EST, October 29, 2003, to discuss its third quarter 2003 results. Investors are invited to listen to a live webcast of the conference call at www.esstech.com or http://www.videonewswire.com/ESST/102903. A replay of the webcast will also be available at www.esstech.com and http://www.videonewswire.com/ESST/102903 or by telephone at (800) 633-8284 (U.S./Canada) / (402) 977-9140 (International), Reservation #2116217, beginning at 5:00 p.m. PST / 8:00 p.m. EST, October 29, 2003.

About ESS Technology

     ESS Technology, Inc., is a leading supplier of high-performance feature-rich chips for the rapidly expanding digital video, digital imaging and digital entertainment markets. The company is also a leading provider of solutions for applications in the growing consumer entertainment market. ESS provides advanced products that enable the emergence of digital home systems that deliver and manage entertainment and information in the home.

     ESS, headquartered in Fremont, California, has R&D, sales, and technical support offices worldwide. ESS Technology’s common stock is traded on the Nasdaq National Market under the symbol “ESST”. ESS Technology’s web site address is: http://www.esstech.com.

(ATTACHMENTS: Consolidated Summary Financial Statements)

     The matters discussed in this news release include certain forward-looking statements that involve risks and uncertainties, including, but not limited to, the impact of competitive products and pricing, the possible reduction of consumer spending occasioned by general economic conditions, the timely availability and acceptance of ESS’ new products, the dependence on continued growth in demand for consumer multimedia products and other risks detailed from time to time in the SEC reports of ESS, including the reports on Form 10-K, Form 10-Q and Form 8-K (if any) which we incorporate by reference. Actual results could differ materially from those projected in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.

     All trademarks mentioned in this news release are owned by their respective holders and are used in this news release for identification purposes only.

# # #

ESS TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)

			September 30,		December 31,
			2003		2002
ASSETS
Current Assets:
	Cash and cash equivalents		$	48,833	$	138,072
	Short-term investments			55,127		61,030
	Accounts receivable, net			38,796		28,468
	Accounts receivable- MediaTek			50,000		—
	Inventories			22,001		24,155
	Prepaid expenses and other assets			3,483		2,834
		Total current assets		218,240		254,559
Property, plant and equipment, net				21,192		18,985
Other assets, net				65,692		8,058
		Total Assets	$	305,124	$	281,602
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
	Accounts payable and accrued expenses		$	52,391	$	35,084
	Income taxes payable and deferred income taxes			25,555		9,474
		Total current liabilities		77,946		44,558
Non-current deferred tax liability				12,926		7,676
Shareholders’ Equity:
	Common stock			171,999		196,344
	Accumulated other comprehensive income			401		504
	Retained earnings			41,852		32,520
		Total shareholders’ equity		214,252		229,368
		Total Liabilities and Shareholders’ Equity	$	305,124	$	281,602

ESS TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS-GAAP BASIS
(unaudited)
(in thousands, except per share data)

			Three months ended						Nine months ended
			September 30,			September 30,			September 30,			September 30,
			2003			2002			2003			2002
Net revenues			$	48,243		$	60,746		$	112,405		$	225,898
Cost of revenues				33,281			45,665			77,639			141,321
	Gross profit			14,962			15,081			34,766			84,577
				31	%		25	%		31	%		37	%
Operating expenses:
	Research and development			10,090			7,160			23,676			20,584
	In-process Research and Development			1,270			—			2,690			—
	Selling, general and administrative			8,874			6,452			22,208			27,859
Operating income (loss)				(5,272	)		1,469			(13,808	)		36,134
Nonoperating income (loss) , net				(659	)		1,438			44,472			1,256
Income (loss) before provision for (benefit from) income taxes				(5,931	)		2,907			30,664			37,390
Provision for (benefit from) income taxes				(8,680	)		148			14,127			923
Net income			$	2,749		$	2,759		$	16,537		$	36,467
Net income per share
		Basic	$	0.07		$	0.06		$	0.42		$	0.83
		Diluted	$	0.07		$	0.06		$	0.40		$	0.77
Weighted average common shares:
		Basic		38,694			43,484			39,669			44,127
		Diluted		40,579			45,706			40,925			47,408

ESS TECHNOLOGY, INC.
NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)(2)
(unaudited)
(in thousands, except per share data)

			Three months ended						Nine months ended
			September 30,			September 30,			September 30,			September 30,
			2003			2002			2003			2002
Net revenues			$	48,243		$	60,746		$	112,405		$	225,898
Cost of revenues				32,781			45,665			77,139			141,321
	Gross profit			15,462			15,081			35,266			84,577
				32	%		25	%		31	%		37	%
Operating expenses:
	Research and development			9,869			6,946			22,816			20,064
	Selling, general and administrative			8,231			6,452			21,565			27,859
Operating income (loss)				(2,638	)		1,683			(9,115	)		36,654
Nonoperating income (loss), net				(659	)		1,788			46,459			4,562
Income (loss) before provision for (benefit from) income taxes				(3,297	)		3,471			37,344			41,216
Provision for (benefit from) income taxes				(8,548	)		176			14,461			2,026
Net income			$	5,251		$	3,295		$	22,883		$	39,190
Net income per share
		Basic	$	0.14		$	0.08		$	0.58		$	0.89
		Diluted	$	0.13		$	0.07		$	0.56		$	0.83
Weighted average common shares:
		Basic		38,694			43,484			39,669			44,127
		Diluted		40,579			45,706			40,925			47,408

(1)  Use of Non-GAAP Financial Information:
To supplement our consolidated financial statements presented in accordance with GAAP, we use non-GAAP measures of operating results, net income/(loss) and earnings per share, which are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP measures are provided to enhance the user’s overall understanding of our current financial performance and our prospects for the future. Specifically, we believe the non-GAAP results provide useful information to both management and investors by excluding certain expenses, gains and losses that we believe are not indicative of our on-going core operating results. Our non-operating income includes licensing fees from MediaTek. In addition, since we have historically reported non-GAAP results to the investment community, we believe the inclusion of non-GAAP numbers provides consistency in our financial reporting. Further, these non-GAAP results are one of the primary indicators management uses for planning and forecasting results for future periods. The non-GAAP information is presented using consistent methodology from quarter-to-quarter and year-to-year. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results.

(2) Non-GAAP adjustments are detailed within the schedule entitled “Reconciliation of GAAP Basis Net Income to Non-GAAP Net Income”

ESS TECHNOLOGY, INC.
RECONCILIATION OF GAAP BASIS NET INCOME TO NON-GAAP NET INCOME
(unaudited)
(in thousands)

		Three months ended						Nine months ended
		September 30			September 30			September 30			September 30
		2003			2002			2003			2002
Net income - GAAP basis		$	2,749		$	2,759		$	16,537		$	36,467
Non-GAAP Adjustments:
	Amortization of intangible assets (3)		1,364			214			2,003			428
	Write down of investments (4)		—			350			1,987			3,337
	In-process research and development (5)		1,270						2,690
	Cisco Sale (6)		—			—			—			61
	Tax effect to items (3) to (6)		(132	)		(28	)		(334	)		(1,103	)
Net income - Non-GAAP		$	5,251		$	3,295		$	22,883		$	39,190

(3)	Non-GAAP amounts for all periods presented exclude the effects of amortization of intangible assets, amounting to $1,364 and $214 for the three months ended September 30, 2003 and September 30, 2002, respectively, and $2,003 and $428 for the nine months ended September 30, 2003 and September 30, 2002, respectively.
(4)	Non-GAAP amounts exclude the effect of the write-down of investments, amounting to $350 for the three months ended September 30, 2002, and $1,987 and $3,337 for the nine months ended September 30, 2003 and September 30, 2002, respectively.
(5)	Non-GAAP amounts exclude the effect of in - process research and development resulting from Divio and Pictos acquisitions, amounting to $1,270 for the three months ended September 30, 2003, and $2,690 for the nine months ended September 30, 2003.
(6)	Non-GAAP amounts exclude the realized losses on the sale of Cisco stock, amounting to $61 for the nine months ended September 30, 2002.

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EX-99.1

Exhibit 99.1