FSII FS Development Corporation II

FSI International, Inc. (Nasdaq: FSII), a manufacturer of capital equipment for the microelectronics industry, today reported financial results for the second quarter of fiscal 2011 and for the six months ended February 26, 2011.

Fiscal 2011 Second Quarter and First Half

Second quarter fiscal 2011 sales increased 62 percent to $30.8 million, compared to $18.9 million for the same period in fiscal 2010. The company’s net income for the second quarter of fiscal 2011 was $4.9 million, or $0.13 per share, compared to net income of $609,000, or $0.02 per share, for the second quarter of fiscal 2010.

Sales for the first half of fiscal 2011 increased 24 percent to $41.6 million, compared to $33.5 million for the same period of fiscal 2010. The company’s net income for the first half of fiscal 2011 was $2.4 million, or $0.06 per share, compared to net income of $555,000, or $0.02 per share, for the first half of fiscal 2010.

The second quarter financial results included $216,000 and $865,000, of stock-based compensation in fiscal 2011 and 2010, respectively. First half financial results included $403,000 and $1,128,000 of stock-based compensation in fiscal 2011 and 2010, respectively.

Balance Sheet

Cash, cash equivalents, restricted cash and long-term securities at the end of the second quarter were $34.9 million. The company generated $342,000 from operations and used $3.5 million of cash in operations, during the second quarter and first half of fiscal 2011, respectively. Inventory increased from $26.1 million at the end of fiscal 2010 to $36.9 million at the end of the second quarter of fiscal 2011, as the company placed products at customers for evaluation and began to ramp ORION® single wafer cleaning system production in anticipation of follow-on orders.* At the end of the second quarter, the company had a current ratio of 4.3 to 1.0 and a book value of $2.24 per share and no debt.

Outlook

Given the quarter-to-date orders and the visible pipeline of order opportunities, the company expects third quarter orders to approach $40 million as compared to $23.1 million in the second quarter of fiscal 2011.* This assumes the receipt of several follow-on ANTARES® CryoKinetic cleaning system and ORION® system production orders that are anticipated late in the quarter.*

Based on the backlog and deferred revenue levels at the end of the second quarter and expected additional third quarter orders, the company expects third quarter fiscal 2011 revenues to again exceed $30 million, as compared to $30.8 million in the second quarter of fiscal 2011.*

Based upon the anticipated gross profit margin and the operating expense run rate, the company expects net income of $4.5 to $5.5 million for the third quarter of fiscal 2011.* The company expects to use cash in operating activities in the third quarter, as we support the higher expected third quarter order levels and based upon the expected timing of third quarter shipments.*

Conference Call Details

FSI investors have the opportunity to listen to management’s discussion of its financial results on a conference call at 3:30 p.m. CDT today. The company invites all those interested to join the call by dialing 888.469.1667 and entering access code 4274595. For those who cannot listen to the live broadcast, a replay will be available shortly after the call by dialing 866.468.7674.

About FSI

FSI International, Inc. is a global supplier of surface conditioning equipment, technology and support services for microelectronics manufacturing. Using the company’s broad portfolio of cleaning products, which include batch and single-wafer platforms for immersion, spray, vapor and cryogenic aerosol technologies, customers are able to achieve their process performance, flexibility and productivity goals. The company’s support services programs provide product and process enhancements to extend the life of installed FSI equipment, enabling worldwide customers to realize a higher return on their capital investment. For more information, visit FSI’s website at http://www.fsi-intl.com, or call Benno Sand, 952.448.8936.

“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995

This press release contains certain “forward-looking” statements (*), including, but not limited to expected ORION® system follow-on production orders, expected orders, expected third quarter revenues, expected use of cash, expected timing of shipments and expected financial results for the third quarter of fiscal 2011. Except for the historical information contained herein, the matters discussed in this news release are forward-looking statements involving risks and uncertainties, both known and unknown, that could cause actual results to differ materially from those in such forward-looking statements. Such risks and uncertainties include, but are not limited to, changes in industry conditions; order delays or cancellations; general economic conditions; changes in customer capacity requirements and demand for microelectronics; the extent of demand for the company’s products and its ability to meet demand; global trade policies; worldwide economic and political stability; the company’s successful execution of internal performance plans; the cyclical nature of the company’s business; volatility of the market for certain products; performance issues with key suppliers and subcontractors; the level of new orders; the timing and success of current and future product and process development programs; the success of the company’s direct distribution organization; legal proceedings; the potential impairment of long-lived assets; and the potential adverse financial impacts resulting from declines in the fair value and liquidity of investments the company presently holds; the impact of natural disasters on parts and consumables supply and demand for products; as well as other factors listed herein or from time to time in the company’s SEC reports, including our latest 10-K annual report. The company assumes no duty to update the information in this press release.

            FSI INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share data) (unaudited)   Second Quarter Ended Six Months Ended Feb. 26,     Feb. 27, Feb. 26,     Feb. 27, 2011 2010 2011 2010 Sales $ 30,752 $ 18,925 $ 41,633 $ 33,542 Cost of goods   17,703     10,882     23,413     18,932   Gross margin 13,049 8,043 18,220 14,610 Selling, general and administrative expenses 4,957 4,267 9,628 8,061 Research and development expenses   3,172     3,263     6,172     6,019   Operating income 4,920 513 2,420 530 Interest and other (expense) income, net   (1 )   90     (9 )   35   Income before income taxes 4,919 603 2,411 565 Income tax (benefit) expense   (1 )   (6 )   (7 )   10   Net income $ 4,920   $ 609   $ 2,418   $ 555   Income per share – basic $ 0.13   $ 0.02   $ 0.06   $ 0.02 Income per share – diluted $ 0.13   $ 0.02   $ 0.06   $ 0.02   Weighted average common shares Basic 38,635 31,917 38,589 31,777 Diluted 39,176 32,252 38,995 32,017             FSI INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (in thousands) (unaudited)   Feb. 26, Aug. 28, 2011 2010 Assets   Current assets Cash, restricted cash and cash equivalents $ 32,089 $ 34,687 Receivables, net 16,971 18,935 Inventories 36,933 26,145 Other current assets   4,251   3,673 Total current assets 90,244 83,440   Property, plant and equipment, net 13,095 13,204   Long-term securities 2,766 3,612 Investment 460 460 Other assets   1,642   1,582 Total assets $ 108,207 $ 102,298   Liabilities and Stockholders’ Equity   Current liabilities Trade accounts payable $ 9,372 $ 8,396 Deferred profit* 5,770 2,669 Accrued expenses   5,946   8,020 Total current liabilities 21,088 19,085   Long-term liabilities 459 410   Total stockholders’ equity   86,660   82,803   Total liabilities and stockholders’ equity $ 108,207 $ 102,298  

*Deferred profit reflects deferred revenue less manufacturing and other related costs.

    FSI INTERNATIONAL, INC. AND SUBSIDIARIES MISCELLANEOUS FINANCIAL INFORMATION (in thousands, except percentages, per share and total employee data) (unaudited)   Six Months Ended Feb. 26,       Feb. 27, 2011 2010 Sales by Area   United States 46 % 49 % International 54 % 51 %   Cash Flow Statement   Capital expenditures $ 1,004 $ 404 Depreciation $ 1,097 $ 1,329   Miscellaneous Data   Total employees, including contract 325 272 Book value per share $ 2.24 $ 1.63 Shares outstanding 38,699 32,071