-----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, KrLA8LXgEWVzOvXF2K6J8ipDCjrFCKL65CZxSnvqMDsfvpzZm3noB6P61zaW/56T +keVh6RpSFD6GlHr7HIv9g== 0000912057-97-012690.txt : 19970414 0000912057-97-012690.hdr.sgml : 19970414 ACCESSION NUMBER: 0000912057-97-012690 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970411 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: 97578881 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 12 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 FEBRUARY 28, 1997 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 FEBRUARY 28, 1997 THERE WERE 8,693,034 SHARES OF COMMON STOCK OF ELECTRO SCIENTIFIC INDUSTRIES, INC. OUTSTANDING. Page 2 of 12 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT INDEX Part I. Financial Information Page No. -------- Item 1. Consolidated Financial Statements Consolidated Balance Sheets 3-4 February 28, 1997 and May 31, 1996 Consolidated Statements of Income 5 Three Months and Nine Months ended February 28, 1997 and February 29, 1996 Consolidated Statements of Cash Flows 6-7 Nine Months ended February 28, 1997 and February 29, 1996 Notes to Consolidated Financial Statements 8-9 Item 2. Management's Discussion and Analysis of Financial 10-11 Condition and Results of Operations Signature 12 Page 3 of 12 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (THOUSANDS OF DOLLARS) ASSETS February 28, 1997* May 31, 1996 ------------------ ------------ CURRENT ASSETS: Cash and cash equivalents $ 11,943 $ 18,622 Securities available for sale 27,055 18,363 Trade receivables, net 44,228 39,792 Inventories 33,463 30,167 Deferred income taxes 3,884 3,884 Other current assets 876 819 -------- -------- Total current assets 121,449 111,647 -------- -------- PROPERTY AND EQUIPMENT, AT COST 40,552 38,853 Less - accumulated depreciation (23,835) (22,191) -------- -------- Net property and equipment 16,717 16,662 -------- -------- OTHER ASSETS 4,149 4,216 -------- -------- $142,315 $132,525 -------- -------- -------- -------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. * UNAUDITED Page 4 of 12 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (THOUSANDS OF DOLLARS) LIABILITIES AND SHAREHOLDERS' EQUITY February 28, 1997* May 31, 1996 ------------------ ------------ CURRENT LIABILITIES: Accounts payable $ 5,385 $ 5,142 Accrued liabilities: Payroll related 3,666 3,433 Commissions 1,902 1,890 Income taxes 1,123 2,463 Other 2,133 4,681 -------- -------- Total accrued liabilities 8,824 12,467 -------- -------- Total current liabilities 14,209 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: 8,693,034 and 8,655,408, respectively 56,263 55,790 Retained earnings 71,843 59,126 -------- -------- Total shareholders' equity 128,106 114,916 -------- -------- $142,315 $132,525 -------- -------- -------- -------- The accompanying notes are an integral part of these statements. * Unaudited Page 5 of 12 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (THOUSANDS EXCEPT PER SHARE)
Three Months Ended Nine Months Ended ------------------ ----------------- Feb. 28, 1997 Feb. 29, 1996 Feb. 28, 1997 Feb. 29, 1996 ------------- ------------- ------------- ------------- Net Sales $ 37,202 $ 41,626 $107,159 $118,437 Cost of sales 17,130 19,034 47,880 54,524 --------- --------- -------- -------- Gross margin 20,072 22,592 59,279 63,913 Operating expenses: Selling, service and administrative 9,335 10,535 26,873 29,705 Research, development and engineering 3,707 3,886 11,990 11,905 Acquired in-process research and development * -- -- -- 6,000 --------- --------- -------- -------- Total operating expenses 13,042 14,421 38,863 47,610 --------- --------- -------- -------- Operating income 7,030 8,171 20,416 16,303 Interest income 378 293 1,093 879 Other income (expense) 72 (147) (171) (291) --------- --------- -------- -------- Income before income taxes 7,480 8,317 21,338 16,891 Provision for income taxes 2,618 3,073 7,510 6,226 --------- --------- -------- -------- Net income $ 4,862 $ 5,244 $ 13,828 $ 10,665 --------- --------- -------- -------- --------- --------- -------- -------- Net income per share $ 0.56 $ 0.61 $ 1.60 $ 1.24 --------- --------- -------- -------- --------- --------- -------- -------- Weighted average number of shares used in computing per share amounts 8,681 8,628 8,668 8,593
* 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 12 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (THOUSANDS OF DOLLARS)
Nine Months Ended Feb. 28, 1997 Feb. 29, 1996 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 13,828 $ 10,665 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 2,269 2,100 Other non-cash (credits) (28) -- Deferred income taxes -- (2,001) Changes in operating accounts: (Increase) in trade receivables (5,237) (5,304) (Increase) in inventories (2,331) (2,957) (Increase) in other current assets (102) (437) (Decrease) in accounts payable and accrued liabilities (3,379) (2,025) --------- --------- Net cash provided by operating activities 5,020 6,041 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of XRL subsidiary, net of cash(2) -- (492) Purchases of property and equipment (2,395) (2,352) Purchases of securities (36,511) (24,900) Proceeds from sales of securities and maturing securities 27,800 21,850 (Increase) in other assets (1,066) (474) --------- --------- Net cash used in investing activities (12,172) (6,368) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of stock options and stock plans 473 972 --------- --------- Net cash provided by financing activities 473 972 --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS (6,679) 645 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 18,622 11,643 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,943 $ 12,288 --------- --------- --------- ---------
The accompanying notes are an integral part of these statements. Page 7 of 12 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 nine months ended February 28, 1997 and 1996. Cash payments for income taxes were $8,733 and $7,681 for the nine months ended February 28, 1997 and 1996, 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 4,581 -------- Cash paid $ (492) -------- -------- Page 8 of 12 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 $254 at February 28, 1997 and $314 at May 31, 1996. NOTE 3 - INVENTORIES Inventories consist of the following: Feb. 27, 1997 May 31, 1996* ------------- ------------- Raw materials and purchased parts $21,284 $21,000 Work-in-process 8,011 6,188 Finished goods 4,168 2,979 ------- ------- $33,463 $30,167 ------- ------- ------- ------- NOTE 4 - NET INCOME PER SHARE Net income per share is computed using the weighted average number of common shares and common stock equivalents (stock options) outstanding. * Audited Page 9 of 12 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 12 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS Results of Operations Revenue of $37.2 million for the quarter ended February 28, 1997 was 10.6% or $4.4 million lower as compared to the same quarter of the prior year. Third quarter fiscal 1997 revenue was higher than that in the prior two quarters. Shipments of capacitor production equipment rebounded in the third quarter to $11.3 million, up from $7.4 million in the prior quarter, and is comparable to shipments for the same period in the prior year. Year-to-date revenue of $107.2 million was 9.5%, or $11.3 million lower than for the first nine months of fiscal 1996 due to fewer shipments of capacitor production equipment during the first half of fiscal 1997 as customers absorbed capacity added in the prior year. Gross margin of 54.0% for the three months ended February 28, 1997 was consistent with the 54.3% margin for the same period of the prior year. Gross margin increased to 55.3% year-to-date fiscal 1997 from 54.0% for the first nine 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. Selling, service and administrative expenses were $1.2 million lower for the three months ended February 28, 1997 and $2.8 million lower for the nine months ended February 28, 1997 than for the comparable periods of the prior year. The decrease is a result of lower selling commissions associated with decreased sales volumes and lower incentive compensation. As a percentage of sales, selling, service and administrative expenses decreased to 25.1% from 25.3% for the third quarter of fiscal 1997 compared to the same quarter of the prior year and were 25.1% of sales for the nine months ended February 28, 1997 and February 29, 1996. Research, development and engineering expenses for the quarter ended February 28, 1997 were $0.2 million lower than the same quarter of the prior year and were up $0.1 million for the nine months ended February 28, 1997 compared to the same periods of the prior year. As a percentage of sales, research, development and engineering expenses increased to 10.0% for the current quarter from 9.3% for the same quarter of the prior year. Year-to-date research, development and engineering expenses as a percentage of sales increased to 11.2% for the nine months ended February 28, 1997 from 10.1% 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. Net income for the quarter ended February 28, 1997 was $4.9 million or $0.56 per share compared to $5.2 million or $0.61 per share for the same period of the prior year. Net income for the nine months ended February 28, 1997, was $13.8 million or $1.60 per share compared to $10.7 million or $1.24 per share after the effect of the acquired in-process research and development charge of $6.0 million for the nine months ended February 29, 1996. Net income for the nine months ended February 29, 1996, excluding the acquired in-process research and development charge, was $14.4 million or $1.68 per share. The third quarter results reflect the shorter decision cycle time in many of ESI's markets. Incoming orders were $36 million and ending backlog on February 28, 1997 was $19 million which represents a 47% decrease from May 31, 1996. Page 11 of 12 MANAGEMENT DISCUSSION AND ANALYSIS (CONT.) Liquidity, Capital Resources and Business Environment The Company's principal sources of liquidity are existing cash, cash equivalents and marketable debt securities of $39.0 million, accounts receivable of $44.2 million, and a $7.0 million line of credit, none of which was outstanding at February 28, 1997. ESI has no debt and a current ratio of 8.5:1. Working capital increased to $107.2 million at February 28, 1997, from $94.0 million at May 31, 1996. Accounts receivable increased as product payment terms are longer for the recently introduced models 9300, 5100 and 3300. Inventory has increased since the end of fiscal 1996 in the form of production ramp ups for new product offerings in the semiconductor yield improvement and electronic packaging businesses. Current liabilities have decreased since May 31, 1996 due to estimated payments of income taxes and reduced incentive compensation accruals. 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 it's future success will depend on it's ability to develop and manufacture new products and product enhancements and to introduce them successfully into the market. 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. International sales accounted for 69.4% of third quarter sales and 73.6% of year-to-date sales for fiscal 1997 compared to 57.4% of third quarter and 66.3% 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 16.6% of year-to- date 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. ESI believes that it has the product offerings and resources needed for continuing success; however, future revenue and margin trends cannot be reliably predicted and may cause the Company to adjust its operations. Factors external to the Company can result in volatility of the Company's common stock price. Because of the foregoing factors, recent trends should not be considered reliable indicators of future stock prices or financial results. Page 12 of 12 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: April 9, 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 9-MOS MAY-31-1997 JUN-01-1996 FEB-28-1997 11,943 27,055 44,482 254 33,463 121,449 40,552 23,835 142,315 14,209 0 0 0 56,263 71,843 142,315 107,159 107,159 47,880 47,880 38,863 0 0 21,338 7,510 0 0 0 0 13,828 1.60 1.60
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