-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CME/ZAgcuFXhkWpmUW0DJ6+ntUCQBDfQbB7CFIlzYjG70bR1xAdCssnPI6LraYAH 6Gi6MS9yYhh96zzI/1F7yQ== 0000912057-97-000942.txt : 19970115 0000912057-97-000942.hdr.sgml : 19970115 ACCESSION NUMBER: 0000912057-97-000942 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19970114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECTRO SCIENTIFIC INDUSTRIES INC CENTRAL INDEX KEY: 0000726514 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 930370304 STATE OF INCORPORATION: OR FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12853 FILM NUMBER: 97505895 BUSINESS ADDRESS: STREET 1: 13900 NW SCIENCE PARK DR CITY: PORTLAND STATE: OR ZIP: 97229 BUSINESS PHONE: 5036414141 MAIL ADDRESS: STREET 1: 13900 NW SCIENCE PARK DRIVE CITY: PORTLAND STATE: OR ZIP: 97229-5497 10-Q 1 FORM 10-Q Page 1 of 13 THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 901(D) OF REGULATION S-T UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1996 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 0-12853 ELECTRO SCIENTIFIC INDUSTRIES, INC. OREGON 93-0370304 13900 N.W. SCIENCE PARK DRIVE, PORTLAND, OREGON 97229 (503) 641-4141 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 ----- --- AS OF NOVEMBER 30, 1996 THERE WERE 8,671,333 SHARES OF COMMON STOCK OF ELECTRO SCIENTIFIC INDUSTRIES, INC. OUTSTANDING. Page 2 of 13 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT INDEX Part I. Financial Information Page No. -------- Item 1. Consolidated Financial Statements Consolidated Balance Sheets 3-4 November 30, 1996 and May 31, 1996 Consolidated Statements of Income 5 Three Months and Six Months ended November 30, 1996 and November 30, 1995 Consolidated Statements of Cash Flows 6-7 Six Months ended November 30, 1996 and November 30, 1995 Notes to Consolidated Financial Statements 8-9 Item 2. Management's Discussion and Analysis of Financial 10-12 Condition and Results of Operations Signature 13 Page 3 of 13 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (THOUSANDS OF DOLLARS) ASSETS November 30, 1996* May 31, 1996 - ------ ------------------ ------------ CURRENT ASSETS: Cash and cash equivalents $ 9,911 $ 18,622 Securities available for sale 22,735 18,363 Trade receivables, net 46,359 39,792 Inventories 34,549 30,167 Deferred income taxes 3,884 3,884 Other current assets 1,251 819 -------- -------- Total current assets 118,689 111,647 -------- -------- PROPERTY AND EQUIPMENT, AT COST 40,254 38,853 Less - accumulated depreciation (23,470) (22,191) -------- -------- Net property and equipment 16,784 16,662 -------- -------- OTHER ASSETS: 3,842 4,216 -------- -------- $139,315 $132,525 -------- -------- -------- -------- The accompanying notes are an integral part of these statements. * Unaudited Page 4 of 13 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (THOUSANDS OF DOLLARS) LIABILITIES AND SHAREHOLDERS' EQUITY November 30, 1996* May 31, 1996 - -------------------- ------------------ ------------ CURRENT LIABILITIES: Accounts payable $ 5,273 $ 5,142 Accrued liabilities: Payroll related 3,200 3,433 Commissions 1,913 1,890 Income taxes 2,105 2,463 Other 2,802 4,681 -------- -------- Total accrued liabilities 10,020 12,467 -------- -------- Total current liabilities 15,293 17,609 -------- -------- SHAREHOLDERS' EQUITY: Preferred stock, without par value; 1,000,000 shares authorized, no shares issued -- -- Common stock, without par value; Authorized: 40,000,000 shares; Outstanding: 8,671,333 and 8,655,408, respectively 56,017 55,790 Retained earnings 68,005 59,126 -------- -------- Total shareholders' equity 124,022 114,916 -------- -------- $139,315 $132,525 -------- -------- -------- -------- The accompanying notes are an integral part of these statements. * Unaudited Page 5 of 13 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (THOUSANDS EXCEPT PER SHARE)
Three Months Ended Six Months Ended ------------------ ---------------- Nov. 30, 1996 Nov. 30, 1995 Nov. 30, 1996 Nov. 30, 1995 ------------- ------------- ------------- ------------- Net Sales $ 35,101 $ 40,836 $ 69,957 $ 76,811 Cost of sales 15,706 18,723 30,750 35,490 --------- --------- --------- --------- Gross margin 19,395 22,113 39,207 41,321 Operating expenses: Selling, service and administrative 8,668 10,368 17,538 19,170 Research, development and engineering 4,082 4,112 8,283 8,019 Acquired in-process research and development * -- -- -- 6,000 --------- --------- --------- --------- Total operating expenses 12,750 14,480 25,821 33,189 --------- --------- --------- --------- Operating income 6,645 7,633 13,386 8,132 Interest income 337 313 715 586 Other income (expense) 33 (229) (243) (144) --------- --------- --------- --------- Income before income taxes 7,015 7,717 13,858 8,574 Provision for income taxes 2,428 2,836 4,892 3,153 --------- --------- --------- --------- Net income $ 4,587 $ 4,881 $ 8,966 $ 5,421 --------- --------- --------- --------- --------- --------- --------- --------- Net income per share $ 0.53 $ 0.57 $ 1.04 $ 0.63 --------- --------- --------- --------- --------- --------- --------- --------- Weighted average number of shares used in computing per share amounts 8,669 8,629 8,662 8,575
* The acquired in-process research and development represents a one time charge associated with the acquisition of XRL, Inc. The accompanying notes are an integral part of these statements. Page 6 of 13 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (THOUSANDS OF DOLLARS)
Six Months Ended Nov. 30, 1996 NOV. 30, 1995 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 8,966 $ 5,421 Adjustments to reconcile net income to cash provided by (used in ) operating activities: Acquired in-process research and development(1) -- 6,000 Depreciation and amortization 1,569 1,264 Effect of exchange rates on operating accounts (68) 647 Deferred income taxes -- (1,984) Changes in operating accounts: (Increase) in trade receivables (6,567) (704) (Increase) in inventories (3,513) (2,235) (Increase) in other current assets (432) (725) (Decrease) in accounts payable and accrued liabilities (2,316) (3,268) -------- ------- Net cash (used in) provided by operating activities (2,361) 4,416 -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of XRL subsidiary, net of cash(2) -- 102 Purchases of property and equipment (1,566) (1,741) Purchases of securities (25,191) (16,879) Proceeds from sales of securities and maturing securities 20,800 16,930 (Increase) decrease in other assets (620) 438 -------- ------- Net cash used in investing activities (6,577) (1,150) -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of stock options and stock plans 227 377 -------- ------- Net cash provided by financing activities 227 377 -------- ------- NET CHANGE IN CASH AND CASH EQUIVALENTS (8,711) 3,643 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 18,622 11,385 -------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,911 $15,028 -------- ------- -------- -------
The accompanying notes are an integral part of these statements. Page 7 of 13 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED) (THOUSANDS OF DOLLARS) Cash payments for interest were not significant for the six months ended November 30, 1996 and 1995. Cash payments for income taxes were $5,511 and $4,861 for the six months ended November 30, 1996 and 1995, respectively. Notes: (1) See Note 5 in Notes to Consolidated Financial Statements (2) Acquisition of XRL subsidiary: Assets less liabilities acquired, net of cash $ (5,073) Issuance of common stock 5,175 ------ Cash acquired $ 102 ----------- ----------- Page 8 of 13 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (THOUSANDS OF DOLLARS) NOTE 1 - BASIS OF PRESENTATION The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in these interim statements. Management believes that the interim statements include all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of results for the interim periods. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's 1996 Annual Report. Results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. NOTE 2 - ACCOUNTS RECEIVABLE Accounts receivable are net of an allowance for doubtful accounts of $318 at November 30, 1996 and $314 at May 31, 1996. NOTE 3 - INVENTORIES Inventories consist of the following:
Nov. 30, 1996 May 31, 1996* ------------- ------------- Raw materials and purchased parts $22,727 $21,000 Work-in-process 7,590 6,188 Finished goods 4,232 2,979 ------- ------- $34,549 $30,167 ------- ------- ------- -------
NOTE 4 - NET INCOME PER SHARE Net income per share are computed using the weighted average number of common shares and common stock equivalents (stock options) outstanding. * Audited Page 9 of 13 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (THOUSANDS OF DOLLARS) NOTE 5 - ACQUISITION OF XRL, INC. In July 1995, the Company acquired all of the outstanding stock of XRL, Inc., a privately held company based in Canton, Massachusetts. XRL provides capital equipment for semiconductor memory yield improvement. The preliminary purchase consideration consisted of 206,867 shares of ESI stock. These shares were subsequently reduced due to price adjustments and other elections provided for by the agreement. The transaction was accounted for as a purchase. In connection with the purchase price allocation, the Company obtained an appraisal of the intangible assets which indicated that substantially all of the acquired intangible assets consisted of research and development projects in process. At that time, the development of these projects had not reached technological feasibility and the technology was believed to have no alternative future use. In accordance with generally accepted accounting principles, the acquired in-process research and development of $6.0 million was charged to expense during the quarter ended August 31, 1995 and is reflected in the accompanying Consolidated Statements of Income. Pro-forma combined income statement data for the three months ended August 31, 1995 was not materially different from results presented in the accompanying Consolidated Statements of Income. NOTE 6 - TERMINATED MERGER AGREEMENT - APPLIED INTELLIGENT SYSTEMS, INC. (AISI) On August 9, 1996, the Company announced the agreement to acquire AISI would be terminated due to current market conditions. As a result of the acquisition effort, $0.2 million was charged to expense during the quarter ended August 31, 1996 and is reflected in the accompanying Consolidated Statements of Income. NOTE 7 - INCOME TAXES The effective income tax rate for the interim period is based on estimates of annual amounts of taxable income, tax credits and other factors. Page 10 of 13 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS Results of Operations Revenue of $35.1 million for the quarter ended November 30, 1996, was 14.0% or $5.7 million lower as compared to the same quarter of the prior year. The second quarter results reflect a continuation of the uncertainty experienced in recent quarters in some of ESI's markets. Second quarter fiscal 1997 revenue was slightly higher than that in the prior quarter. Demand remains strong for equipment in the semiconductor yield improvement market and in ESI's emerging machine vision and electronic packaging businesses. Shipments of laser trimming systems and capacitor production equipment were substantially lower during the second quarter of fiscal 1997 than in the same period last year. Capacity added by customers in early fiscal 1996, particularly in the capacitor business, is still being absorbed by market demand during the second quarter of fiscal 1997. Year-to-date revenue of $70.0 million was 8.9% or $6.8 million lower than for the first six months of fiscal 1996. Gross margin for the three months ended November 30, 1996 increased to 55.3% from 54.2% for the same period of the prior year, and increased to 56.0% year-to-date fiscal 1997 from 53.8% for the first six months of fiscal 1996. The improvement was a result of increased sales of higher margin semiconductor yield improvement systems, electronic packaging equipment and machine vision systems, more than offsetting the negative impact of a significant decline in the capacitor business. Selling, service and administrative expenses were $1.7 million lower for the three months ended November 30, 1996 and $1.6 million lower for the six months ended November 30, 1996 than for the comparable periods of the prior year. The decrease is a result of lower selling commissions associated with decreased sales volumes and incentive compensation accrued in the second quarter of fiscal 1996. As a percentage of sales, selling, service and administrative expenses decreased to 24.7% from 25.4% for the second quarter of fiscal 1997 compared to the same quarter of the prior year and were 25.1% of sales for the six months ended November 30, 1996 as compared to 25.0% for the same period of the prior year. Research, development and engineering expenses for the quarter ended November 30, 1996 remained constant with the same quarter of the prior year and were up $0.3 million for the six months ended November 30, 1996 compared to the same periods of the prior year. As a percentage of sales, research, development and engineering expenses increased to 11.6% for the current quarter from 10.1% for the same quarter of the prior year. Year-to-date research, development and engineering expenses as a percentage of sales increased to 11.8% for the six months ended November 30, 1996 from 10.4% for the same period of the prior year. The comparison between year-to-date spending of the current year and year-to-date of the prior year does not include the acquired in-process research and development charge of $6.0 million incurred in connection with the purchase price allocation of XRL, Inc. Page 11 0f 13 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS (CONT.) Net income for the quarter ended November 30, 1996 was $4.6 million or $0.53 per share compared to $4.9 million or $0.57 per share for the same period of the prior year. Net income for the six months ended November 30, 1996 was $9.0 million or $1.04 per share compared to $5.4 million or $0.63 per share after the effect of the acquired in-process research and development charge of $6.0 million for the six months ended November 30, 1995. Net income for the six months ended November 30, 1995, excluding the acquired in-process research and development charge, was $9.2 million or $1.07 per share. The second quarter results reflect the shorter decision cycle time in many of ESI's markets. Incoming orders were $28 million and ending backlog on November 30, 1996 was $20 million which represents a 42% decrease from May 31, 1996. Liquidity, Capital Resources and Business Environment The Company's principal sources of liquidity are existing cash and cash equivalents and marketable debt securities of $32.6 million, accounts receivable of $46.4 million, and a $7.0 million line of credit, none of which was outstanding at November 30, 1996. ESI has no debt and a current ratio of 7.8:1. Working capital increased to $103.4 million at November 30, 1996, from $94.0 million at May 31, 1996. Accounts receivable increased because the payment terms are longer for the recently introduced models 9300, 3300 and 5100 and several large accounts were paid in December 1996. Inventory has increased since the end of fiscal 1996 due to expected increases in demand for new product offerings in the semiconductor yield improvement, capacitor and electronic packaging businesses. The Company's business depends in large part upon the capital expenditures of manufacturers of electronic devices, including miniature capacitors and semiconductor memory devices, and circuits used in wireless telecommunications equipment, including pagers and cellular phones, automotive electronics and computers. The markets for products manufactured by the Company's customers are cyclical and have historically experienced periodic downturns, which often have had a negative effect on the demand for capital equipment such as that sold by the Company. Several large, multinational electronics companies constituted 41.8% of the Company's fiscal 1996 sales and are expected to comprise a similar ratio in fiscal 1997; therefore, the loss of any of these customers would be significant. The market for the Company's products is characterized by rapidly changing technology and evolving industry standards. The Company believes that its future success will depend on its ability to develop and manufacture new products and product enhancements, to introduce them successfully into the market and to create and sustain intellectual property protection for these new products. Failure to do so in a timely fashion could harm the Company's competitive position. The announcements or introductions of new products by the Company or its competitors may adversely affect the Company's operating results, since these announcements may cause customers to defer or forego ordering products from the Company's existing product lines. Page 12 of 13 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS (CONT.) International sales accounted for 81.2% of second quarter sales and 75.8% of year-to-date sales for fiscal 1997 compared to 74.8% of second quarter and 71.1% of year-to-date sales for fiscal 1996. The Company expects that international shipments will continue to represent a significant percentage of net sales in the future. As a result, a significant portion of the Company's net sales will be subject to certain risks, including changes in demand resulting from fluctuations in interest and currency exchange rates, as well as factors such as government financed competition, changes in trade policies, tariff regulations, difficulties in obtaining US export licenses and the difficulties of staffing and managing foreign operations. Most of the Company's sales are transacted in dollars and the Company's products are made in the United States. Many Japanese customers pay in yen; therefore, ESI hedges these sales transactions to mitigate currency risks. The European and Asian sales subsidiaries' operating expenses are denominated in their respective local currencies. These transactions represent approximately 17.0% of total consolidated operating expenses and are equally split between Europe and Asia. Changes in the value of the local currency, as measured in US dollars, will commensurably increase or decrease operating expenses. Information in the Management Discussion and Analysis regarding expectations for future product demand, customers, international shipments and future product offerings and resources constitute forward-looking statements that involve a number of risks and uncertainties. In addition, the Company may from time to time issue other forward-looking statements. The following factors are among the factors that could cause actual results to differ materially from the forward-looking statements: general economic conditions, including their impact on capital expenditures; business conditions in the electronics industry, including the cyclical nature of the market for the Company's products; rapidly changing technology and evolving industry standards; availability and continued validity of intellectual property protection; competitive factors, including increased competition, new product offerings by competitors and price pressures; availability of supplies from third party suppliers on a timely basis and at reasonable prices; and international business conditions, including fluctuations in interest and currency exchange rates, government financed competition, changes in trade policies, tariff regulations, difficulties and the difficulties of staffing and managing foreign operations. The forward-looking statements should be considered in light of these factors. Page 13 of 13 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned thereunto duly authorized. ELECTRO SCIENTIFIC INDUSTRIES, INC. Dated: January 14, 1997 By /s/ Barry L. Harmon -------------------------------------- Barry L. Harmon, Senior Vice President, Finance and Chief Financial Officer EX-27 2 EXHIBIT 27 FDS
5 1,000 6-MOS MAY-31-1997 JUN-01-1996 NOV-30-1996 9911 22735 46677 318 34549 118689 40254 23470 139315 15293 0 0 0 56017 68005 139315 69957 69957 30750 30750 25821 0 0 13858 4892 0 0 0 0 8966 1.04 1.04
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