-----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, J/B2rCPl+23mfi2QnPJ3Agntmsw+WZkR2lNYU8wPpcArQrNAh/nXOt67JyZUKJGR 2Qh3os40sEU0aU4uwq7V6Q== /in/edgar/work/20000815/0000912057-00-037709/0000912057-00-037709.txt : 20000922 0000912057-00-037709.hdr.sgml : 20000921 ACCESSION NUMBER: 0000912057-00-037709 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000603 FILED AS OF DATE: 20000815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECTRO SCIENTIFIC INDUSTRIES INC CENTRAL INDEX KEY: 0000726514 STANDARD INDUSTRIAL CLASSIFICATION: [3690 ] IRS NUMBER: 930370304 STATE OF INCORPORATION: OR FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-12853 FILM NUMBER: 702317 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-K405 1 a10-k405.txt FORM 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT (Mark One) (X) Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended June 3, 2000 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. (Exact name of registrant as specified in its charter) Oregon 93-0370304 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13900 NW Science Park Drive Portland, Oregon 97229 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (503) 641-4141 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, without par value Preferred Stock Purchase Rights 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 --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- The aggregate market value of voting and non-voting Common Stock held by nonaffiliates of the Registrant at June 30, 2000: $1,182,638,778. The number of shares of Common Stock outstanding at June 30, 2000: 26,859,078 Documents Incorporated by Reference ----------------------------------- Part of Form 10-K into Document Which is incorporated - -------- --------------------- Proxy Statement for 2000 Annual Meeting Part III of Shareholders 1 TABLE OF CONTENTS
Item of Form 10-K Page - ----------------- ---- PART I Item 1 - Business 3 Item 2 - Properties 11 Item 3 - Legal Proceedings 11 Item 4 - Submission of Matters to a Vote of Security Holders and Executive Officers 13 PART II Item 5 - Market for the Registrant's Common Equity and Related Shareholder Matters 16 Item 6 - Selected Financial Data 17 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 7A - Quantitative and Qualitative Disclosures about Market Risk 25 Item 8 - Financial Statements and Supplementary Data 26 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 52 PART III Item 10 - Directors and Executive Officers of the Registrant 52 Item 11 - Executive Compensation 52 Item 12 - Security Ownership of Certain Beneficial Owners and Management 52 Item 13 - Certain Relationships and Related Transactions 52 PART IV Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K 53 SIGNATURES 55
2 PART I BUSINESS OVERVIEW Electro Scientific Industries, Inc. and its subsidiaries ("ESI" or "The Company") provide electronics manufacturers with equipment necessary to produce key components used in wireless communications, computers, automotive electronics, and many other electronic products. ESI believes it is the leading supplier of advanced laser systems used to improve the yield of semiconductor memory devices, of high-speed test and termination equipment used in the high-volume production of miniature passive electronic components, and of advanced laser systems used to fine tune electronic circuitry. Additionally, ESI produces a family of mechanical and laser drilling systems for production of printed wiring boards (PWBs) and advanced electronic packaging, as well as machine vision products for manufacturers of semiconductors, electronics and other products. ESI's products enable these manufacturers to reduce production costs, increase yields, and improve the quality of their products. ESI's customers include manufacturers of the following: wireless communication and automotive electronics products (AMD, Burr-Brown, Delphi, Ericsson and IBM); miniature capacitors (AVX, Kyocera, MuRata, Philips, Samsung, Taiyo Yuden and Walsin); semiconductor memory devices (Dominion, Hitachi, Hyundai, IBM, Infineon and Samsung); printed wiring boards (Flextronics, Honeywell, IBM, Nitto Denko and Samsung) and users of machine vision systems in electronic manufacturing equipment (Kulicke & Soffa, Lucent Technologies, Motorola, and Universal Instruments). ELECTRONICS INDUSTRY OVERVIEW The electronic content of communications products, automobiles and personal computers continues to increase. For example, automobile manufacturers now routinely include electronic ignition, anti-lock brakes, electronic fuel injection and other electronic systems in place of components that in the past were predominantly mechanical. In addition, markets for consumer-oriented electronic products such as wireless telephones, fax machines, pagers, camcorders and personal computers have developed rapidly as increasingly affordable products have been introduced and as they have become small enough and light enough to be easily portable. Demand for electronics manufacturing equipment is driven by the demand for electronic devices and circuits. Electronic components are used in virtually all electronic products, from inexpensive consumer electronics to the most sophisticated computers. These components are produced in very large unit volumes. The demands upon manufacturers to supply increasing quantities of electronic components have been accompanied by demands for increased complexity, reduced size and improved quality. As electronic products become more powerful and portable, the devices and circuits in these products must be faster, smaller and more reliable. To achieve these attributes of higher performance, the electronic device manufacturers increase densities and tune the devices to precise electrical values. Manufacturers of wireless telephones, for example, must use miniaturized circuits to accommodate the size limitations of the finished product. These circuits must also operate within precise frequency specifications, typically requiring component values with less than 0.5 percent tolerance, enabling the existing wireless frequency bands to accommodate more users without interchannel interference. 3 As electronic device densities and performance demands have increased, the manufacturers of capacitors and resistors have been compelled to reduce size and to improve performance of these individual components. The increasing miniaturization of these components makes production, testing and termination more difficult. ESI's leading-edge technologies provide our customers with the capability to address these challenges. Another trend throughout the electronics industry is cost reduction. The highly competitive markets for electronic products create cost limitations at the consumer level, and result in cost pressure on component manufacturers. The manufacturers continuously seek to reduce device costs by improving throughput, yield, and quality in device production. OVERVIEW OF MARKETS, PRODUCTS AND STRATEGY Pagers, wireless telephones, personal computers and automotive electronics represent the largest end-market applications for electronic devices and circuits that are produced using ESI's systems. ESI's customers also serve a wide range of other electronic applications. ESI believes it is critical that each of its products provide the customer with measurable production benefits including improved yield, increased throughput, greater reliability, and increased flexibility, resulting in a high return on investment. ESI designs its production systems with a migration path for next generation capability, providing customers the flexibility to add capacity or improve product performance at a reasonable incremental cost. ESI designs and manufactures products, which target several markets within the electronics industry. These products include semiconductor yield improvement systems, electronic component manufacturing systems, advanced electronic packaging equipment, machine vision solutions and circuit fine tuning systems. SEMICONDUCTOR YIELD IMPROVEMENT SYSTEMS. Virtually all manufacturers of dynamic random access memory (DRAM) use semiconductor yield improvement systems to increase production yields. Personal computers and high performance workstations are the largest market for DRAM, although many consumer products such as personal digital assistants (PDA's), photocopiers, fax machines, electronic games and communications equipment require increasing amounts of memory. Increasingly, other semiconductor device manufacturers are using memory repair techniques in the manufacture of non-memory devices including logic with embedded memory, digital signal processors (DSPs) and high-end electronic game chips. ESI's semiconductor yield improvement system customers include Dominion, Hitachi Singapore, Hyundai, IBM, Infineon, King Yuan, NEC, Powerchip, Samsung, Sony, Texas Instruments, Toshiba, TSMC, White Oak Semiconductor, and Winbond. 4 Cost reductions and demand for higher capacity memory devices have led manufacturers to reduce the size of circuit elements while increasing the number of circuit elements per device. This increased density in memory devices has resulted in lower primary manufacturing yields, increasing the need for advanced memory repair technology as provided by ESI. Memory device manufacturers use a laser process to disconnect defective circuit elements and reconnect spare elements as replacements, thereby increasing the final yield. ESI's yield improvement product line is designed and developed to cost-effectively meet semiconductor production challenges associated with shrinking geometries, material changes and increased wafer sizes, as needed by semiconductor manufacturers and with enabling technology for next generation devices. In the case of DRAM, the yield enhancement process begins with circuit designers adding extra (redundant) elements to the memory chip. During the manufacturing process each device is tested. When a defective element is identified, its location or address is recorded and given to ESI's yield improvement system to effect a replacement or repair. The system positions a laser beam over connecting links in the defective element and cuts the electrical path. Design redundancy is used by every significant manufacturer of DRAMs and is increasingly being used by manufacturers of other semiconductor memory products, such as static random access memory (SRAMs), DSPs, and other logic devices with embedded memory. ELECTRONIC COMPONENT MANUFACTURING SYSTEMS. ESI's product offerings in the electronic component market consist of automated test, production, handling and visual inspection equipment for manufacture of miniature multi-layer ceramic capacitors (MLCCs), and other passive components, including arrays, inductors and varistors, which are used in very large numbers in nearly all types of electronic circuits. MLCCs are used in circuits that process analog and digital signals or operate at high frequencies in products such as computers, video equipment and communication products. Customers include AVX, Ceratech, Holy Stone, Kyocera, MuRata, Phillips, Samsung, Taiyo Yuden, Walsin and Yageo. Most of the leading producers are in Japan, led by MuRata, TDK and Kyocera. Production demands imposed by miniaturization are leading capacitor manufacturers to increasingly consider merchant equipment suppliers, such as ESI, as an alternative to internal development and production of manufacturing equipment. As circuit sizes have shrunk, the size of miniature capacitors has also shrunk as small as .02" x .01". These minute sizes and high unit volumes place extraordinary demands on manufacturers. ESI designs and manufactures products that combine high-speed, small parts handling technology with microprocessor-based systems to provide highly automated, cost-effective solutions for MLCC manufacturers. 5 MLCCs are manufactured in a lamination process, which involves layering conductive and insulation materials. ESI's microprocessor-based termination systems apply conductive material, or terminations, to the ends of surface mountable MLCCs, permitting connection of the device in a circuit on a PWB. Virtually all capacitors are tested and sorted by capacitance (electrical energy storage) and dissipation factor (electrical energy leakage). ESI's equipment employs high-speed handling and positioning techniques to precisely load, test and sort capacitors based on these electrical values. ESI produces a fully automated product line for termination of MLCCs and capacitor arrays. ESI's component visual inspection systems provide automated machine vision based inspection of MLCCs. Parts are inspected for dimensional criteria and defects. ADVANCED ELECTRONIC PACKAGING SYSTEMS. ESI's laser and mechanical drilling products enable manufacturers to make electronic products smaller, lighter and faster. Smaller and lighter requirements push down the physical dimensions used in electronic interconnections within the semiconductor package and between the package and the PWB. In addition, higher operating speeds of computers and communications products require more input and output channels within semiconductor packages and between the packages and the PWB. These requirements drive changes in both the materials selected, density of electrical connections and mode of interconnection. ESI's products are designed to provide a cost-effective method for increasing the density of vias (holes) used to create electrical connections between layers in high density circuit boards and electronic packages. ESI's products are targeted at small via applications requiring the highest accuracy and smallest hole dimensions. ESI's customers for advanced packaging products include 3M, Compeq, Flextronics, Honeywell, IBM, Nitto Denko, NTK and Samsung. ESI offers laser and mechanical drilling and routing technology to address these rapidly changing applications in integrated circuit (IC) packages, multi-chip modules, and high-density printed wiring boards (PWBs). ESI's technology, developed for its laser and mechanical drilling products, allows manufacturers to produce vias as small as 25 microns in a wide variety of materials, including traditional glass reinforced circuit boards, copper and new organic compounds. VISION PRODUCTS. ESI provides semiconductor and electronics manufacturers with machine vision solutions for automated process control and visual inspection for the handling and assembly of semiconductors, PWBs and discrete electronic components. This includes both machine vision subsystems sold to original equipment manufacturers (OEMs), and multi-function, stand-alone inspection systems sold to end users. In the OEM marketplace, ESI has concentrated its efforts on selling complete vision solutions and integration expertise to suppliers of semiconductor and electronics equipment. ESI has also developed and acquired new products to provide complete stand-alone inspection systems for semiconductor wafer sorting, inspection, and defect review, and integrated circuit mark and lead inspection. 6 Customers for ESI's OEM vision products include Applied Materials, Electroglas, KLA-Tencor, Kulicke & Soffa, Samsung and Universal Instruments. Customers for stand-alone inspection equipment include Analog Devices, Burr-Brown, Conexant Systems, Lucent Technologies, MicroChip Technology, Motorola, ST Microelectronics and White Oak Semiconductor. Machine vision has emerged as a critical technology as semiconductor manufacturers move toward higher densities and more complex architectures. By allowing manufacturers to achieve greater precision, increased equipment speed and fewer errors, machine vision is enabling technology in the semiconductor manufacturing process, from wafer production through final assembly and packaging. In addition, the manufacture and placement of components in the surface mount assembly area requires high speed and accuracy - obtained through integrated machine vision solutions. ESI offers machine vision solutions with low cost computer architecture, easy-to-integrate software modules, powerful application specific software and advanced lighting and optics, supported by ESI's production equipment expertise. These elements reduce application development time and shorten time to market for producers of equipment used to manufacture semiconductors and electronics. Products include patented specialized lighting, wafer alignment and identification products and application specific solutions for the surface mount industry. ESI's semiconductor automation and inspection product line includes turn-key, front-end wafer handling and inspection systems and back-end IC package handling and inspection systems. Semiconductor wafer fabs use ESI's equipment to sort and inspect wafers throughout all phases of processing. These modular systems combine multiple handling and inspection functions onto single platforms. Device manufacturers and contract packaging houses use ESI's equipment for mark and lead inspection and tape and reel packaging. CIRCUIT FINE TUNING SYSTEMS. ESI's circuit fine tuning systems tune the operating parameters of electronic circuits. The laser tuning systems precisely adjust the frequency in wireless communication devices and in numerous automotive electronics assemblies such as engine control circuits. Customers include AMD, Burr-Brown, Cyntek, Delphi, Ericsson, LG, Lucent Technologies, Philips, Samsung, Taiyosha, Tateyama and Yageo. ESI designs and manufactures application-specific laser systems that adjust the electrical performance of a product or assembly containing many circuits by removing a precise amount of material from one or more components in the circuit. This is done to achieve the desired electrical specification for the entire product. This process is called "functional trimming," and is performed while the product or assembly is under power. For example, in wireless phones, laser trimming of a few selected components in the product is used to tune the product to the desired frequency. 7 ESI's circuit fine tuning systems also adjust the resistance value of discrete devices manufactured on ceramic substrates for use in surface mount technology end products. Typically, these discrete resistors are produced at values 30% below nominal levels and need to be trimmed to value with very high accuracy. ESI's systems meet the demands for high-volume, high-accuracy miniature resistor trimming through precise positioning of the laser beam and high-speed measurement capability. The circuit fine tuning product line leverages ESI's strength in precise laser machining/trimming and very high speed handling to offer cost-effective solutions for specialized micromachining and trimming of embedded passives. SALES, MARKETING AND SERVICE ESI sells its products worldwide through direct sales and service offices located in or near: Ann Arbor, Michigan; Boston, Massachusetts; Minneapolis, Minnesota; Portland, Oregon; Austin Texas and San Diego and Orange County, California in North America; Tokyo and Nagoya, Japan; Seoul, Korea and Taipei and Chungli, Taiwan in Asia; and Munich, Germany; West Sussex, England and Paris, France in Europe. ESI serves customers in approximately 30 additional countries through manufacturers' representatives. ESI has a substantial base of installed products in use by leading worldwide electronics manufacturers. ESI emphasizes strong working relationships with these customers to meet their needs for additional systems, and to facilitate the successful development and sale of new products to these customers. ESI maintains service personnel wherever it has a significant installed base. New systems are tested to ensure they meet requirements and acceptance criteria as specified by customers. ESI offers a variety of maintenance contracts and parts replacement programs. Sales outside the U.S. accounted for 72.3%, 55.9% and 58.7% of ESI's net sales for fiscal 2000, 1999 and 1998, respectively. The most significant sales outside the U.S. were to Japan, Taiwan and Korea, which represented 21%, 16%, and 14% of ESI's net sales for fiscal 2000, respectively. In fiscal 2000, 1999 and 1998, no customer exceeded 10% of sales. BACKLOG Backlog consists of written purchase orders for products, spare parts and service, which ESI expects to ship within twelve months. Backlog was $168.7 million at June 3, 2000, versus $22.9 million at May 31, 1999 and $24.5 million at May 31, 1998. 8 RESEARCH, DEVELOPMENT AND TECHNOLOGY ESI believes that its ability to compete effectively depends, in part, on its ability to maintain and expand its expertise in core technologies and product applications. The primary emphasis of ESI's research and development is to advance ESI's capabilities in: - Lasers and laser/material interaction - High-speed, micron-level motion control systems - Precision optics - High-speed, small parts handling - Image processing and optical character recognition - Real-time production line electronic measurement - Real-time operating systems - Systems integration ESI's research and development expenditures for fiscal 2000, 1999, and 1998 were $31.1 million (9.8% of net sales), $30.3 million (14.7% of net sales), and $34.8 million (13.5% of net sales), respectively. Research and development expenditures for the year ended May 31, 1998 do not include the acquired in-process research and development expense incurred in connection with the purchase of Dynamotion Corporation ("Dynamotion"). COMPETITION ESI's markets are dynamic and highly competitive. The principal competitive factors in ESI's markets are product performance, reliability, service, technical support, product improvements, price, established relationships with customers and product familiarity. ESI believes that its products compete favorably with respect to these factors. Some of ESI's competitors have greater financial, engineering and manufacturing resources, and larger distribution networks than ESI. Some of ESI's customers develop, or have the ability to develop, similar manufacturing equipment. There can be no assurance that competition in ESI's markets will not intensify or that ESI's technological advantages may not be reduced or lost as a result of technological advances by competitors or customers, or changes in electronic device processing technology. ESI's principal competitor for semiconductor yield improvement systems is GSI Lumonics. For electronic component manufacturing equipment, ESI's competitors include Tokyo Weld, Kanebo and Humo in Japan, as well as manufacturers that develop systems for internal use. ESI's advanced electronic packaging systems compete with mechanical drills manufactured by companies such as Hitachi Via Mechanics, Excellon and Pluritec and laser systems provided by GSI Lumonics, Sumitomo, Mitsubishi and Hitachi Via Mechanics. ESI's vision products compete with vision suppliers such as Cognex, ICOS Systems, and Robotic Vision Systems. There are also numerous other vision companies and captive vendors in Japan, North America and Europe. Major competitors for circuit fine tuning systems include NEC and GSI Lumonics. 9 MANUFACTURING AND SUPPLY ESI's largest production facilities are located in Portland, Oregon and San Diego, California. Portland's manufacturing operations consist of electronic subassembly, laser production and final system assembly for semiconductor yield improvement, advanced electronic packaging, and circuit fine tuning product lines. Electronic component manufacturing systems are produced in ESI's facilities in San Diego, California. ESI's vision systems are manufactured in ESI's facilities in Ann Arbor, Michigan and Minneapolis, Minnesota. ESI is in the process of building a 50,000 square foot facility in Klamath Falls, Oregon to increase manufacturing capacity. This facility is scheduled for completion in calendar year 2001. Initial use of this facility will be for production of consumable products sold to MLCC manufacturers. ESI uses qualified manufacturers to supply many components of its products. ESI's systems use high performance computers, peripherals, lasers and other components from various suppliers. Some components used by ESI are obtained from a single source or a limited group of suppliers. An interruption in the supply of a particular component could require substitutions that would have a temporary adverse impact on ESI. ESI believes it has good relationships with its suppliers. EMPLOYEES As of June 3, 2000, ESI employed 1,093 people, including 259 in engineering, research and development, 422 in manufacturing and 412 in marketing, sales, technical support, customer service and administration. Many of ESI's employees are highly skilled, and ESI's success will depend in part upon its ability to attract and retain such employees, who are in great demand. ESI has never had a work stoppage or strike and no employees are represented by a labor union or covered by a collective bargaining agreement. ESI considers its employee relations to be good. PATENTS AND OTHER INTELLECTUAL PROPERTY ESI has a policy of seeking patents, when appropriate, on inventions relating to new products and improvements which are discovered or developed as part of ESI's ongoing research, development and manufacturing activities. ESI owns 82 United States patents and has applied for 29 additional patents in the United States. ESI owns 91 foreign patents and has applied for 94 additional foreign patents. Although ESI's patents are important, ESI believes that the success of its business depends to a greater degree on the technical competence and innovation of its employees. ESI relies on copyright protection for its proprietary software. ESI also relies upon trade secret protection for its confidential and proprietary information. There can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques, or that ESI can meaningfully protect its trade secrets. 10 PROPERTIES The Company's executive and administrative offices, as well as a manufacturing facility, are located in a three-building complex located on 15 acres in Portland, Oregon. The buildings are owned by ESI, and contain 196,500 square feet of space. ESI also owns a 60,000 square foot plant on ten acres of land in Escondido, California, and a 29,000 square foot building on 3 acres of land near Minneapolis, Minnesota. In June 2000 ESI acquired 30 acres of land in Klamath Falls, Oregon. The Company is constructing a 50,000 square foot manufacturing facility at this site. Completion is scheduled for calendar year 2001. In addition, the Company leases 15,000 square feet of industrial space in Canton, Massachusetts; 9,900 square feet of office and industrial space in Santa Ana, California; 13,900 square feet of office and industrial space in San Marcos, California; 19,000 square feet of office and industrial space in Ann Arbor, Michigan; and office and service space in several additional locations in the United States, and in seven foreign countries. The Company believes the productive capacity of these facilities to be adequate and suitable for the requirements of the business. LEGAL PROCEEDINGS ESI initiated litigation against Dynamic Details, Inc. and GSI Lumonics, Inc. for patent infringement in March 2000 in the U.S. District Court for the Central District of California (Electro Scientific Industries v. Dynamic Details, Inc. and GSI Lumonics, Inc., No. SACV00-272 AHS (ANX)). The complaint alleges that Dynamic Details and GSI Lumonics are violating ESI's U.S. patent 5,847,960 entitled "Multi-tool Positioning System". The complaint alleges that Dynamic Details infringes ESI's patent 5,847,960 and that GSI Lumonics has actively induced infringement of, and contributorily infringed, ESI's patent 5,847,960. The complaint seeks injunctive relief and monetary damages. Dynamic Details, Inc. and GSI Lumonics, Inc. have filed a counterclaim for a declaratory judgment of non-infringement and invalidity of ESI's patent 5,847,960. 11 ESI initiated litigation against General Scanning Inc. for patent infringement in December 1996 in the U.S District Court for the Northern District of California (Electro Scientific Industries, Inc. v. General Scanning, Inc. No. C-96-4268 SBA). On April 2, 1999 a federal court jury issued a verdict upholding the validity of ESI's link blowing patent, U.S. patent 5,265,114 entitled "System and Method for Selectively Laser Processing a Target Structure of One or More Materials of a Multimaterial, Multilayer Device". The jury found ESI's U.S. patent 5,473,624 entitled "Laser System and Method for Selectively Severing Links" invalid for reasons of obviousness. On April 8, 1999, the same federal court jury awarded ESI $13.1 million in damages, and also concluded that General Scanning's infringement was willful. On July 8, 1999 the court issued orders denying General Scanning's motions for a new trial and to set aside the jury verdict. The court also entered a permanent injunction, prohibiting General Scanning from making, using, selling, or offering for sale in the United States memory repair systems and upgrade kits equipped with 1.3 micron lasers. General Scanning has filed an appeal of the U.S. District Court judgment with the U.S. Court of Appeals for the Federal Circuit. ESI has not reflected the $13.1 million award in its financial results. Separately, in November 1999 the U.S. Patent and Trademark Office issued an order granting a request by General Scanning to re-examine ESI's patent 5,265,114. On July 27, 2000 the Patent Office issued a non-final first office action in its re-examination of ESI's patent 5,265,114. The action by the Patent Office states that some of the claims of the 5,265,114 patent are unpatentable. ESI is responding to the action under Patent Office procedures and its response will assert the basis for the patentability of the claims. ESI continues to record legal expenses related to this litigation and the Patent Office action as these expenses are incurred. Numerous users of the Company's products have received notice of patent infringement from the Lemelson Medical, Educational & Research Foundation Limited Partnership ("Partnership") alleging that their use of the Company's products infringes certain patents transferred to the Partnership by the late Jerome H. Lemelson. Certain of these users have notified the Company that, in the event it is subsequently determined that their use of the Company's products infringes any of the Partnership's patents, they may seek indemnification from the Company for damages or expenses resulting from this matter. 12 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the security holders of the Company during the fourth quarter ended June 3, 2000. EXECUTIVE OFFICERS The executive officers of the Company, and their ages and positions as of June 30, 2000 are as follows:
NAME AGE POSITION - ---- --- -------- Donald R. VanLuvanee 56 Chief Executive Officer, President and Director Robert E. Belter 59 Vice President Bradford S. Cooley 43 Vice President Barry A. Glasgow 55 Vice President James T. Dooley 46 Vice President, Chief Financial Officer Julia A. Harper 41 Vice President Gary M. Kapral 44 Vice President Mark W. Klug 61 Vice President John R. Kurdock 55 Vice President Michael J. Murphy 50 Vice President Larry T. Rapp 60 Vice President Joseph L. Reinhart 41 Vice President and Corporate Secretary Edward J. Swenson 61 Senior Vice President
Mr. VanLuvanee joined the Company in 1992 as Chief Executive Officer, President and a director. From 1991 to 1992, Mr. VanLuvanee was President, Chief Executive Officer and a director at Mechanical Technology Inc., a supplier of contract research and development services and a manufacturer of technologically advanced equipment. From 1990 to 1991, he was President and Chief Executive Officer of BCT Spectrum, Inc., a supplier of vacuum deposition systems. From 1984 to 1990, he was President, Chief Operating Officer and a director of Kulicke and Soffa Industries, a supplier of capital equipment and consumables to the microelectronics industry. Mr. VanLuvanee is also a director of Micro Component Technology Inc., a leading manufacturer of automated test handling equipment, and FEI Company, which designs, manufactures and markets focused ion beam workstations and both ion and electron emitter and focusing column components. Mr. Belter joined ESI in May 1997 as a Vice President and General Manager of a subsidiary. Mr. Belter is responsible for electronic component production equipment products. Prior to joining ESI, Mr. Belter served as a consultant to the Company in marketing and product development for one year. Mr. Belter has extensive prior experience in the electronic component industry, including four years as President and General Manager of Johanson Dielectrics, and ten years as President and General Manager of Kyocera Northwest, North American Electronic Components. 13 Mr. Cooley was elected Vice President in January 1999 and is responsible for engineering and corporate research and development. Mr. Cooley joined ESI in April 1993 as Director of Engineering for ESI's laser based equipment products. Prior to ESI, he held engineering management positions with Texas Instruments and Kulicke and Soffa Industries as well as several startup companies engaged in equipment development. Mr. Dooley was elected Vice President and Chief Financial Officer in June 2000. He joined ESI in 1992 as the controller of its Electronic Component Systems business and was named Corporate Controller in 1994. In 1996 he was named Director of Portland Manufacturing. Prior to joining ESI he held various financial management positions at IRT Corporation, Eli Lilly and Company, INTERMEDICS Inc., and Johnson and Johnson, Inc. Mr. Glasgow joined the Company in June 1998 as Vice President of Sales for Portland Operations and was named Vice President of Worldwide Sales and Marketing in December 1998. Prior to joining ESI, Mr. Glasgow worked for ADE as Vice President of Worldwide Sales and Customer Support, where he was responsible for all sales and service activities. In addition, Mr. Glasgow previously worked for ESI, and a company ESI acquired, XRL, Inc., from 1987 to 1997 in various sales positions including Director of Worldwide Sales for semiconductor products from 1995 to 1997. Ms. Harper joined ESI in May 1997 as Treasury and SEC Reporting Manager, was named Controller in 1998, and Vice President of Finance in April 1999. From 1995 to 1997, Ms. Harper was Accounting Manager at Instromedix Incorporated, a medical electronics manufacturer. She has also held a number of management positions with ARCO Oil and Gas Company. Mr. Kapral joined ESI in May 2000 as Vice President responsible for ESI's vision-based businesses. Prior to joining ESI, Mr. Kapral was both a corporate vice president and a business unit president of SGL Carbon Group, a major supplier to semiconductor manufacturers, with responsibility for SGL's semiconductor activities in North America and Europe. Mr. Klug joined the Company in 1992 and in 1993 was appointed a Vice President. Mr. Klug is responsible for the engineering activities of advanced electronic packaging equipment. From 1988 to 1992, Mr. Klug was Vice President of Engineering for Symtek Systems, and between 1983 and 1988, he held senior management positions with Kulicke and Soffa Industries, including Senior Vice President of U.S. Operations and Vice President of Engineering. Mr. Kurdock joined ESI in February 1997 as Vice President and General Manager of Portland Operations. During the five years prior to joining ESI, Mr. Kurdock served as Vice President of the Surface Mount Division for Universal Instruments and previously held senior operating positions with the Silicon Valley Group and Perkin Elmer. Mr. Murphy joined ESI in 1999 as Vice President of Human Resources. From 1989 to 1999, he was with ITT Automotive in Auburn Hills, Michigan where he held Human Resources positions of increasing responsibility, ending as Vice President of Human Resources for Electrical Systems. He previously held management roles within NVRyan, Air Products and Chemicals, Fiber Industries Inc. and Brunswick Corporation. 14 Mr. Rapp joined the Company in 1966 and has served in various engineering and management capacities. In 1982 he became the Government Relations and Patent Manager. He served as Assistant Secretary from 1988 to 1991, and from 1992 until June 1998 was Corporate Secretary and Legal Manager. In September 1995, Mr. Rapp was elected Vice President. Mr. Reinhart joined ESI in 1993 as Communications and Contracts Manager and was named Director of Business Development in April 1995. Mr. Reinhart was elected a Vice President in September 1996, and was elected Corporate Secretary in June 1998. His experience includes finance, venture funding, mergers and acquisitions and administration in high-technology businesses. Mr. Swenson joined the Company in 1961 as a project and applications engineer. In 1970, he initiated the manufacture of computer-controlled laser systems for trimming and scribing microcircuits. He became Manager of the Systems Business Unit in 1978, Vice President of Advanced Development in 1979, Vice President of Advanced Technology Division in 1985 and Senior Vice President of Advanced Technology Group in 1987. 15 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS COMMON STOCK PRICES/DIVIDENDS The Company's common stock trades on the Nasdaq National Market under the symbol ESIO. The following table shows, for the fiscal quarters indicated, the high, low and closing sales prices for the common stock as reported on the Nasdaq National Market.
FISCAL QUARTER 2000 1999 - -------------- ---- ---- HIGH LOW CLOSING HIGH LOW CLOSING ---- --- ------- ---- --- ------- 1st Quarter................ $22.438 $17.094 $20.000 $17.438 $9.625 $9.625 2nd Quarter................ 32.313 19.750 30.000 15.813 6.563 14.969 3rd Quarter................ 59.000 28.250 55.000 23.688 14.813 18.282 4th Quarter................ 69.125 41.875 52.688 23.938 17.500 18.750
The Company has not paid any cash dividends on its common stock during the last five fiscal years. The Company currently intends to retain its earnings for its business and does not anticipate paying any cash dividends on its common stock in the foreseeable future. The approximate number of shareholders of record at June 3, 2000 was 785. 16 ITEM 6. SELECTED FINANCIAL DATA
Fiscal Years Ended (4): JUNE 3 MAY 31 MAY 31 MAY 31 MAY 31 (THOUSANDS OF DOLLARS EXCEPT PER SHARE) 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------------------- Net sales $316,925 $206,242 $258,639 $193,325 $218,268 Net income 40,860 $7,528 $22,347 $16,519 $27,698 Net income per share - basic 1.55 0.29 0.89 0.69 1.16 Net income per share - diluted 1.49 0.28 0.86 0.67 1.13 Proforma net income (1),(2),(3) 40,860 10,399 33,260 16,519 30,154 Proforma net income per share - basic (1), (2),(3) 1.55 0.40 1.32 0.69 1.27 Proforma net income per share - diluted (1), (2),(3) 1.49 0.39 1.28 0.67 1.24 Working capital 204,800 153,139 144,840 120,483 105,272 Net property, plant and equipment 36,017 33,462 30,373 22,088 22,675 Total assets 291,641 221,823 209,131 176,003 164,729 Long-term debt - - - - - Shareholders' equity 256,141 201,261 188,094 148,762 133,719
(1) Fiscal 1996 excludes the pretax charge of $6.0 million in-process research and development associated with the acquisition of XRL, Inc. (2) Fiscal 1998 excludes the pretax charge of $14.6 million in merger-related expenses associated with the acquisitions of Chip Star, Inc. ("Chip Star"), Dynamotion and Applied Intelligence Systems, Inc. ("AISI"). (3) Fiscal 1999 excludes the pretax charges of $2.8 million in merger-related expenses associated with the acquisitions of Testec, Inc. ("Testec"), and MicroVision Corp. ("MicroVision") and $1.4 million in trial-related, non-recurring litigation expenses. (4) All per share amounts have been restated to reflect a two-for-one stock split in February 2000. 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The Company acquired the following five companies during fiscal 1998 and fiscal 1999: Dynamotion (June 9, 1997), Chip Star (June 26, 1997), AISI (December 1, 1997), Testec (December 21, 1998) and MicroVision (January 27, 1999). All of these transactions were structured as mergers. The AISI, Chip Star, MicroVision and Testec acquisitions were accounted for under the pooling-of-interests method, and the Dynamotion acquisition was accounted for as a purchase. Refer to the Notes to Consolidated Financial Statements for additional information. FISCAL YEAR ENDED JUNE 3, 2000 COMPARED TO FISCAL YEAR ENDED MAY 31, 1999 Revenue for fiscal 2000 was $316.9 million, which was 53.7% or $110.7 million higher than for fiscal 1999. The increase was due to higher sales of electronic component systems, machine vision equipment, semiconductor yield improvement systems and circuit fine tuning systems. These increases were partially offset by lower sales of advanced electronic packaging equipment. For fiscal 2000, electronic component systems represented the largest percentage of revenues at 37.2%. Semiconductor yield improvement systems contributed the highest revenues for fiscal 1999 at 31.5% of sales. Gross margin for the year ended June 3, 2000 was 55.0%, up from 49.9% in the prior fiscal year. The increase in margin from the prior fiscal year is driven by changes in product mix, higher average selling prices due to strong industry demand, and increased overhead absorption due to higher unit volumes. Selling, service and administrative expenses were $86.0 million, an increase of $27.3 million or 46.5% from fiscal 1999. Selling, service and administrative expenses decreased as a percentage of sales from 28.5% to 27.1%. The absolute dollar increase is attributable to higher commission expenses and an increase in the profit sharing and bonus accruals associated with increased sales volume and profits. Research, development and engineering expenses for the year ended June 3, 2000 increased to $31.1 million from $30.3 million for the prior year. Research, development and engineering expenses decreased as a percentage of sales, to 9.8% for 2000 from 14.7% for the prior year due to increased sales. The effective tax rate of 31.8% for the year ended June 3, 2000 was essentially flat compared to fiscal 1999. The lower effective tax rate as compared to the statutory federal tax rate is largely a result of the benefit of the Company's foreign sales corporation. 18 Net income for the year ended June 3, 2000 was $40.9 million or $1.55 per basic share compared to $7.5 million or $0.29 per basic share for the same period of the prior year. Fiscal 1999 net income includes non-recurring expenses of $4.2 million, including $2.8 million in merger-related expenses for professional service fees and expenses associated with consolidating operations, and $1.4 million for incremental legal fees and trial expenses for intellectual property litigation. Excluding non-recurring expenses, fiscal 1999 net income was $10.4 million or $0.40 per basic share. FISCAL YEAR ENDED MAY 31, 1999 COMPARED TO FISCAL YEAR ENDED MAY 31, 1998 Revenue for fiscal 1999 was $206.2 million, which was 20.3% or $52.4 million lower than for fiscal 1998. The decrease was due to lower sales of electronic component systems, machine vision equipment and circuit fine tuning systems. These decreases were partially offset by higher sales of semiconductor improvement systems and advanced electronic packaging equipment. Semiconductor yield improvement systems contributed the highest revenues for fiscal 1999 at 31.5% of sales. For fiscal 1998, electronic component systems represented the largest percentage of revenues at 27.7%. Gross margin for the year ended May 31, 1999 was 49.9%, down from 55.2% in the prior fiscal year. The decrease in margin from the prior fiscal year is driven by changes in product mix, a slight decrease in average selling prices stemming from industry-wide delays in capital equipment investment, and reduced overhead absorption due to lower unit volumes. Selling, service and administrative expenses were $58.7 million for the year ended May 31, 1999, a decrease of $4.3 million or 6.9% from fiscal 1998. The decrease is attributable to lower commission expenses associated with decreased sales, reductions associated with the continued consolidation of selling and administrative functions for the Dynamotion, Chip Star, AISI and Testec acquisitions, and cost containment measures initiated in response to the decline in revenues in fiscal 1999. Selling, service and administrative expenses increased as a percentage of sales from 24.4% to 28.5%, due mainly to lower sales volume. Research, development and engineering expenses for the year ended May 31, 1999 were $4.5 million or 13.0% lower than the prior year due to fiscal 1999 cost containment measures. Research, development and engineering expenses increased as a percentage of sales to 14.7% for 1999 from 13.5% for the prior year. In connection with the purchase price allocation for Dynamotion in fiscal 1998, the Company estimated the fair value of the intangible assets, which indicated that a majority 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, acquired in-process research and development of $9.0 million has been reflected in non-recurring operating expenses for fiscal 1998 in the accompanying financial statements. The effective tax rate of 31.4% for the year ended May 31, 1999 was slightly higher than the fiscal 1998 rate of 30.8%. The impact of pooled Subchapter S corporation earnings for the MicroVision and Testec mergers reduced the fiscal 1998 rate by about 6%. The fiscal 1999 tax rate was reduced by an increased benefit from the Foreign Sales Corporation as a percent of income and lower non-deductible merger-related expenses as compared to fiscal 1998. 19 Net income for the year ended May 31, 1999 was $7.5 million or $0.29 per basic share compared to $22.3 million or $0.89 per basic share for the same period of the prior year. Fiscal 1999 net income includes non-recurring expenses of $4.2 million, including $2.8 million in merger-related expenses for professional service fees and expenses associated with consolidating operations, and $1.4 million for incremental legal fees and trial expenses for intellectual property litigation. Excluding non-recurring expenses, fiscal 1999 net income was $10.4 million or $0.40 per basic share. Fiscal 1998 net income includes non-recurring expenses of $14.6 million, including $9.0 million for acquired in-process research and development associated with the Dynamotion purchase and $5.6 million in professional service fees and expenses associated with consolidating operations for the AISI, Chip Star and Dynamotion acquisitions. Excluding non-recurring expenses, fiscal 1998 net income was $33.3 million or $1.32 per basic share. FINANCIAL CONDITION AND LIQUIDITY The Company's principal sources of liquidity are: existing cash, cash equivalents and marketable debt securities of $98.4 million; accounts receivable of $73.3 million; and a $7.0 million line of credit, none of which was outstanding at June 3, 2000. ESI has no long-term debt and a current ratio of 6.8:1. Working capital increased to $204.8 million at June 3, 2000, from $153.1 million at May 31, 1999. The Company may acquire or invest in other complementary businesses, product lines or technologies. These acquisitions or investments may require additional debt or equity capital to fund such activities. A summary of cash flow activities follows:
2000 1999 1998 ---- ---- ---- (IN THOUSANDS) Cash flows provided by (used in): Operating activities $ 67,559 $ 343 $ 1,505 Investing activities (1) (53,410) (7,483) (11,644) Financing activities 12,934 4,899 (239) --------- --------- --------- Increase (decrease) in cash and cash equivalents (2) $ 27,083 $ (2,241) $ (10,378) ========= ========= =========
(1) Reflects net purchase of $38.8 million in marketable debt securities during fiscal 2000 and net proceeds of $4.2 million from the sale of marketable debt securities during fiscal 1999. (2) Total cash and securities increased from $32.7 million on May 31, 1999, to $98.4 million on June 3, 2000. 20 OPERATING ACTIVITIES: Operating cash flows increased $67.1 million over fiscal 1999 largely due to higher net income and partially due to net positive changes in certain working capital accounts. Trade receivables decreased $6.9 million. This decrease is primarily due to an increased emphasis on collection and fewer extended terms granted to our customers in comparison to last fiscal year. Inventory increased by $4.3 million from May 31, 1999 due to increases in raw materials and work in process. Current liabilities increased $14.5 million due to higher compensation accruals. On April 8, 1999, a federal court jury awarded ESI a $13.1 million judgment for damages in its patent infringement suit against General Scanning, Inc. General Scanning has filed an appeal of this judgment. Due to the appeal, ESI has not reflected this award in its financial results. ESI continues to record legal expenses related to this litigation as these expenses are incurred. INVESTING ACTIVITIES: Net cash of $53.3 million was used in investing activities. The Company made net purchases in marketable debt securities of $38.8 million and purchases in the amount of $9.8 million to upgrade computing and manufacturing capabilities and to renovate and improve utilization of office and manufacturing space. FINANCING ACTIVITIES: Net cash of $12.9 million was generated from financing activities in the form of cash generated by stock option exercises and sales under the employee stock purchase plan, as well as the related tax benefit. CAPITAL COMMITMENTS: The Company has capital commitments of $4.5 million for construction of an additional domestic manufacturing facility which is expected to be completed during calendar year 2001. FACTORS THAT MAY AFFECT FUTURE RESULTS The statements contained in this report that are not statements of historical fact, including without limitation, statements containing the words "believes," "expects," and similar words, constitute forward-looking statements that involve a number of risks and uncertainties. From time to time the Company may issue other forward-looking statements. Investors are cautioned that such forward-looking statements are subject to an inherent risk that actual results may materially differ. Factors that may result in such variances include, but are not limited to the following: INDUSTRY VOLATILITY The Company's business depends in large part upon the capital expenditures of manufacturers of electronic devices, including miniature capacitors, semiconductor memory devices and circuits used in wireless communications equipment, including pagers and wireless phones, automotive electronics and computers. The markets for products manufactured by the Company's customers are cyclical and have historically experienced periodic downturns, which have had a negative effect on the demand for capital equipment such as that sold by the Company. 21 CUSTOMER CONCENTRATION Ten large multinational electronics companies constituted 39.7% of the Company's fiscal 2000 sales and therefore, the loss of any of these customers would be significant. TECHNOLOGICAL CHANGE AND COMPETITION 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, 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 ordering products from the Company's existing product lines. INTERNATIONAL TRADE AND ECONOMIC CONDITIONS International shipments accounted for 72.3% of sales for fiscal 2000 compared to 55.9% of sales for fiscal 1999. About 62% of the company's fiscal 2000 product sales are to customers in Asia versus 45% for fiscal year 1999. Substantially all Asian end customer receivables are secured by letters of credit. Although the economic conditions in the Asia Pacific region have stabilized to some degree, there can be no assurance that any remaining difficulties in Asian economies will not adversely affect the demand for the Company's products in that region or elsewhere. The Company expects that international shipments will continue to represent a significant percentage of net sales in the future. Because of our significant dependence on international revenues, a continued or additional decline in the economies of any of the countries in which we do business would negatively affect our operating results. Other risks involved with international trade include 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 United States 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 risk. The European and Asian sales subsidiaries' operating expenses are denominated in their respective local currencies. These transactions represent approximately 8.6% of fiscal 2000 consolidated operating expenses and are split 54% and 46% respectively between Europe and Asia. Changes in the value of the local currency, as measured in US dollars, will commensurately increase or decrease operating expenses. EURO CONVERSION The Company's information technology systems will allow for transactions to take place in both local currencies and the Euro, with the eventual elimination of the local currency. The Company will continue to evaluate the impact over time of the introduction of the Euro; however, our management does not believe that the introduction of the Euro has or will have a material adverse affect on our results of operations. 22 FOREIGN SALES CORPORATION BENEFIT In February 2000, the World Trade Organization (WTO) ruled that Foreign Sales Corporations (FSC) provisions violated U.S. obligations under the General Agreement on Tariffs and Trade (GATT). As a result, the Company is required to discontinue use of its FSC by October 1, 2000. The Company is currently studying the effects of this ruling on its financial statements. Legislation for an alternative to the FSC may be forthcoming. Without an alternative, the Company believes that the WTO ruling will increase its effective tax rate and have a material effect on its financial statements. ACQUISITIONS The Company has made, and may in the future make, acquisitions of, or significant investments in, businesses with complementary products, services and/or technologies. Acquisitions involve numerous risks, including management assimilation and costs in connection with integration of the operations, technologies, and products of the acquired companies, possible impairment of acquired intangible assets, and the potential loss of key employees of the acquired companies. In addition, the Financial Accounting Standards Board has indicated that they plan to disallow the pooling-of-interests method of acquisition accounting. This could result is significant charges resulting from amortization of intangible assets recorded in connection with future acquisitions, and may alter the Company's acquisition strategy. The inability to manage these risks effectively could materially affect the Company's financial condition and results of operations. KEY SUPPLIERS The Company uses numerous vendors to supply materials used in production. Although the Company makes reasonable efforts to ensure that parts are available from multiple suppliers, key parts may be available only from a single supplier or a limited group of suppliers. If the Company does not receive parts for production in a timely and cost effective manner, there can be no assurance that the Company's results of operations will not be materially and adversely affected. MANUFACTURING DELAYS OR INTERRUPTIONS The Company depends on manufacturing flexibility to meet the changing demands of its customers. Any significant delay or interruption of manufacturing operations as a result of software deficiencies, natural disasters, and other causes, could result in ineffective manufacturing capabilities or delayed product deliveries. Any or all of which could materially and adversely affect the Company's results of operations and financial condition. 23 PATENT INFRINGEMENT Our business is characterized by continual technological change, with frequent introductions of new products and technologies. As a result, companies often design and develop similar products to those introduced by others, increasing the risk that their products and processes may give rise to claims that they infringe on the intellectual property rights of others. This inherent risk of infringement could cause the Company to incur significant litigation costs or other expenses. STOCK MARKET VOLATILITY ESI believes that it has product offerings and resources needed for continued success. 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 these factors, recent trends should not be considered reliable indicators of future stock prices or financial results. YEAR 2000 To date, there have been no significant issues attributable to Year 2000 (Y2K). The Company has incurred costs associated with assessing the Y2K issue and implementing its Y2K plan. These costs have included consultants, software upgrades, and security system upgrades. The Company believes it has incurred substantially all of its total expected Y2K costs. Total costs of assessing and implementing the Company's Y2K plan have not had and are not expected to have a material effect on the Company's consolidated financial position or the results of its operations. The Company believes implementation of the plan has been successful after each key rollover date. The Company believes it will have no material business risk from any additional Y2K issues. There can be no assurances that third parties, over which the company has no control, will successfully address any remaining Y2K issues. 24 ITEM 7A. MARKET RISK DISCLOSURE INTEREST RATE RISK As of June 3, 2000, the Company's investment portfolio includes marketable debt securities of $63.5 million. These securities are subject to interest rate risk, and will decline in value if interest rates increase. These securities are classified as Securities Available for Sale; therefore, the impact of interest rate changes is reflected as a separate component of shareholder's equity. Due to the short duration of the Company's investment portfolio, an immediate 10% increase in interest rates would not have a material effect on the Company's financial condition or the results of its operations. FOREIGN CURRENCY EXCHANGE RATE RISK The Company has limited involvement with derivative financial instruments and does not use them for trading purposes. Derivatives are used to manage well-defined foreign currency risks. The Company enters into forward exchange contracts to hedge the value of accounts receivable denominated in Japanese yen. The impact of exchange rates on the forward contracts will be substantially offset by the impact of such changes on the underlying transactions. The effect of an immediate 10% change in exchange rates on the forward exchange contracts and the underlying hedged positions, denominated in Japanese yen, would not be material to the Company's financial position or the results of its operations. 25 Item 8. Financial Statements and Supplementary Data. ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 3, MAY 31, 2000 1999 --------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 34,876 $ 7,793 Securities available for sale 63,522 24,865 --------- --------- Total cash and securities 98,398 32,658 Trade receivables, less allowance for doubtful accounts 73,346 78,998 Income tax refund receivable 2,091 2,835 Inventories - Finished goods 14,511 10,319 Work-in-process 12,844 8,575 Raw materials and purchased parts 28,979 32,419 --------- --------- Total inventories 56,334 51,313 Deferred income taxes 8,171 6,699 Other current assets 1,534 1,198 --------- --------- Total current assets 239,874 173,701 PROPERTY AND EQUIPMENT, AT COST 79,161 70,047 Less-accumulated depreciation (43,144) (36,585) --------- --------- Net property and equipment 36,017 33,462 DEFERRED INCOME TAXES - 2,455 OTHER ASSETS 15,750 12,205 --------- --------- $ 291,641 $ 221,823 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 13,061 $ 6,698 Accrued liabilities - Payroll related 13,820 4,478 Commissions 3,214 5,340 Warranty 2,513 2,103 Other 1,798 1,603 --------- --------- Total accrued liabilities 21,345 13,524 Deferred revenue 668 340 --------- --------- Total current liabilities 35,074 20,562 --------- --------- DEFERRED INCOME TAXES 426 - --------- --------- SHAREHOLDERS' EQUITY: Preferred stock, without par value; 1,000 shares authorized; no shares issued - - Common stock, without par value; 40,000 shares authorized; 26,855 and 26,094 shares issued and outstanding at June 3, 2000 and May 31, 1999, respectively.(1) 120,140 107,206 Retained earnings 137,405 96,545 Accumulated other comprehensive income (loss) (1,404) (2,490) --------- --------- Total shareholders' equity 256,141 201,261 --------- --------- $ 291,641 $ 221,823 ========= =========
(1) Share amounts for all periods presented have been restated to reflect a two-for-one stock split in February 2000. See Notes to the Consolidated Financial Statements. The accompanying notes are an integral part of these statements. 26 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED JUNE 3, 2000, MAY 31, 1999 AND MAY 31, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 1999 1998 --------- --------- --------- Net sales $ 316,925 $ 206,242 $ 258,639 Cost of sales 142,460 103,311 115,816 --------- --------- --------- Gross margin 174,465 102,931 142,823 Operating expenses: Selling, service and administrative 86,033 58,718 63,043 Research, development and engineering 31,143 30,289 34,806 Non-recurring operating expenses - 4,180 14,634 --------- --------- --------- Total operating expenses 117,176 93,187 112,483 --------- --------- --------- Operating income 57,289 9,744 30,340 Interest income 2,695 1,147 1,475 Other income (expense), net (112) 89 501 --------- --------- --------- Income before income taxes 59,872 10,980 32,316 Provision for income taxes 19,012 3,452 9,969 --------- --------- --------- Net income $ 40,860 $ 7,528 $ 22,347 ========= ========= ========= Net income per share - basic (1) $ 1.55 $ 0.29 $ 0.89 ========= ========= ========= Net income per share - diluted (1) $ 1.49 $ 0.28 $ 0.86 ========= ========= ========= Weighted average number of shares - basic (1) 26,357 25,854 25,182 Weighted average number of shares - diluted (1) 27,357 26,480 26,062
(1) Shares and per share amounts for all periods presented have been restated to reflect a two-for-one stock split in February 2000. See Notes to the Consolidated Financial Statements. The accompanying notes are an integral part of these statements. 27 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED JUNE 3, 2000, MAY 31, 1999 AND MAY 31, 1998 (IN THOUSANDS)
COMMON STOCK ------------ OTHER NUMBER OF RETAINED COMPREHENSIVE SHARES (1) AMOUNT EARNINGS INCOME (LOSS) TOTAL ---------- ------ -------- ------------- ----- BALANCE AT MAY 31, 1997 24,281 $ 81,951 $ 68,902 $ (2,090) $ 148,763 Adjustment to align AISI fiscal year with May 31 - - (565) - (565) Stock plans: Employee stock plans 720 5,629 - - 5,629 Tax benefit of stock options exercised - 2,204 - - 2,204 Distribution to S-corp shareholders of pooled acquisitions - - (1,094) - (1,094) Shares issued for Dynamotion acquisition 694 11,950 - - 11,950 Comprehensive income: Net income - - 22,347 - 22,347 Cumulative translation adjustment - - - (1,140) (1,140) --------- Comprehensive income - - - - 21,207 --------- --------- --------- --------- --------- BALANCE AT MAY 31, 1998 25,695 101,734 89,590 (3,230) 188,094 Stock plans: Employee stock plans 399 3,566 - - 3,566 Tax benefit of stock options exercised - 1,906 - - 1,906 Distribution to S-corp shareholders of pooled acquisitions - - (573) - (573) Comprehensive income: Net income - - 7,528 - 7,528 Cumulative translation adjustment - - - 740 740 --------- Comprehensive income - - - - 8,268 --------- --------- --------- --------- --------- BALANCE AT MAY 31, 1999 26,094 107,206 96,545 (2,490) 201,261 --------- --------- --------- --------- --------- Stock plans: Employee stock plans 761 8,648 - - 8,648 Tax benefit of stock options exercised - 4,286 - - 4,286 Comprehensive income: Net income - - 40,860 - 40,860 Unrealized loss on securities held for sale - - - (151) (151) Cumulative translation adjustment - - - 1,237 1,237 --------- Comprehensive income - - - - 41,946 --------- --------- --------- --------- --------- BALANCE AT JUNE 3, 2000 26,855 $ 120,140 $ 137,405 $ (1,404) $ 256,141 ========= ========= ========= ========= =========
(1) Share amounts for all periods presented have been restated to reflect a two-for-one stock split in February 2000. See Notes to the Consolidated Financial Statements. The accompanying notes are an integral part of these statements. 28 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 3, 2000, MAY 31, 1999 AND MAY 31, 1998 (IN THOUSANDS)
2000 1999 1998 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 40,860 $ 7,528 $ 22,347 Adjustment to align pooled companies fiscal years with May 31 - - (565) Adjustments to reconcile net income to cash provided by operating activities: Non-recurring operating expenses - 4,180 14,634 Depreciation and amortization 8,808 6,772 5,879 Non-cash charges (credits) 78 (297) (757) Deferred income taxes 1,409 (1,674) 528 Changes in operating accounts: (Increase) decrease in trade receivables 6,857 (12,773) (8,490) (Increase) decrease in inventories (4,274) 1,670 (14,055) (Increase) decrease in other current assets 631 (417) (2,959) Increase (decrease) in current liabilities 13,928 (4,943) (15,814) -------- -------- -------- Net cash provided by operating activities 68,297 46 748 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (10,004) (9,625) (13,480) Proceeds from sales of property and equipment 132 1,410 1,662 Purchase of securities (66,169) (16,809) (18,668) Proceeds from sales of securities and maturing securities 27,361 21,057 17,415 (Increase) decrease in other assets (5,468) (3,219) 2,184 -------- -------- -------- Net cash used in investing activities (54,148) (7,186) (10,887) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of stock options and stock plans and related tax benefits 12,934 5,472 7,833 Repayments of Dynamotion subsidiary debt(1) - - (6,978) Distribution to S-corp shareholders of pooled acquisitions - (573) (1,094) -------- -------- -------- Net cash provided by (used in) financing activities 12,934 4,899 (239) -------- -------- -------- NET CHANGE IN CASH AND CASH EQUIVALENTS 27,083 (2,241) (10,378) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,793 10,034 20,412 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 34,876 $ 7,793 $ 10,034 ======== ======== ======== The accompanying notes are an integral part of these statements. 29 (1) Acquisition of Dynamotion: Assets less liabilities acquired, net of cash $(11,950) Issuance of common stock and common stock options 11,950 -------- Net cash used to acquire business $ - ========
Cash payments for interest were not significant in 2000, 1999 or 1998. 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA UNLESS OTHERWISE NOTED) BUSINESS ENVIRONMENT The accompanying consolidated financial statements include the accounts of Electro Scientific Industries, Inc. and its subsidiaries (the Company), all of which are wholly owned. The Company designs and manufactures sophisticated products used around the world in electronics manufacturing including: laser manufacturing systems for semiconductor yield improvement, production and test equipment for the manufacture of surface mount ceramic capacitors, laser and mechanical advanced electronic packaging production systems, machine vision systems, and circuit fine tuning systems. The Company serves the global electronics market from its headquarters in Portland, Oregon and through subsidiaries located in the United States, Europe and Asia. CONCENTRATIONS OF CREDIT RISK The Company uses financial instruments that potentially subject it to concentrations of credit risk. Such instruments include cash equivalents, securities held for sale, trade receivables and financial instruments used in hedging activities. The Company invests its cash in cash deposits, money market funds, commercial paper, certificates of deposit and readily marketable debt securities. The Company places its investments with high credit quality financial institutions and limits the credit exposure from any one institution or instrument. To date, the Company has not experienced losses on any of these investments. The Company sells a significant portion of its products to a small number of large electronics manufacturers: 39.7% of fiscal 2000 revenues were derived from ten customers. The Company's operating results could be adversely affected if the financial condition and operations of these key customers decline. CONCENTRATIONS OF OTHER RISKS The Company's operations involve a number of other risks and uncertainties including but not limited to the cyclicality of the electronics market, rapidly changing technology, international operations and hedging exposures. Refer to Management's Discussion and Analysis of Financial Conditions and Results of Operations for additional commentary. 31 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION All material intercompany accounts and transactions have been eliminated. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates and such differences could be material to the financial statements. STOCK SPLIT The Company's Board of Directors approved a two-for-one stock split to shareholders of record at the close of business February 23, 2000, effective February 24, 2000. All per share and shares outstanding data in the Consolidated Financial Statements and Notes to Consolidated Financial Statements have been retroactively restated to reflect the stock split. CHANGE IN FISCAL YEAR END On September 30, 1999, the Company decided to change its fiscal quarters to correspond with a four week, five week, four week quarter, which means each quarter will end on a Saturday. Previously, the quarters ended on the last day of the calendar month. This translates to a change in fiscal year end. Previously, the Company's fiscal year end was May 31. Upon implementing this change, the fiscal year will end on the Saturday following or directly preceding May 31, whichever Saturday is the fewest number of days from May 31. In addition, depending on which Saturday is used, the Company may have either a 52 or 53 week fiscal year. RECLASSIFICATIONS Certain reclassifications have been made in the accompanying consolidated financial statements for 1998 and 1999 to conform to the 2000 presentation. REVENUE RECOGNITION The Company generally recognizes revenue at the time of shipment and when collection of the receivable is probable. Revenue associated with service or maintenance contracts is recognized ratably over the life of the contract, which is generally one year. See Recent Accounting Pronouncements for more information. 32 PRODUCT WARRANTY The Company generally warrants its systems for a period of up to 12 months for material and labor to repair and service the system. A provision for the estimated cost related to warranty is recorded upon shipment. RESEARCH AND DEVELOPMENT Research and development costs are expensed as incurred. TAXES ON INCOME Deferred income taxes have not been provided on unremitted earnings of foreign subsidiaries as the Company believes any U.S. tax on such earnings would be substantially offset by associated foreign tax credits. COMPREHENSIVE INCOME The Company has adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 establishes standards for reporting and presentation of comprehensive income and its components in financial statements. Comprehensive income includes net income and "other comprehensive income," which includes charges or credits to equity that are not the result of transactions to shareholders. The Company's only material components of "other comprehensive income" are cumulative foreign currency translation adjustments and unrealized gain or loss on securities available for sale. NET INCOME PER SHARE The Company computes net income per share in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share," (SFAS 128). SFAS 128 requires the dual presentation of basic and diluted earnings per share and other additional disclosures. Basic earnings per share is computed by dividing net income by the weighted average number of shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average number of shares and share equivalents (stock options) outstanding. CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less at date of purchase to be cash equivalents. INVENTORIES Inventories are principally valued at standard costs, which approximate the lower of cost (first-in, first-out) or market. Costs utilized for inventory valuation purposes include material, labor and manufacturing overhead. 33 DEPRECIATION AND CAPITALIZATION POLICIES Depreciation is determined on the straight-line method based on the following useful lives: buildings: 25 to 40 years; building improvements: 5 to 15 years; and machinery and equipment: 3 to 10 years. Expenditures for maintenance, repairs and minor improvements are charged to expense. Major improvements and additions are capitalized. When property is sold or retired, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in other expense. RECENT ACCOUNTING PRONOUNCEMENTS: Revenue Recognition The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements," in December 1999. SAB 101 provides guidance for applying Generally Accepted Accounting Principles (GAAP) to revenue recognition in financial statements filed with the SEC. Specifically, SAB 101 addresses recognizing revenue upon installation and acceptance versus shipment. The Company generally recognizes revenue upon shipment. The Company will be required to adopt SAB 101 in the fourth fiscal quarter of 2001. Management has not yet determined the potential effect of the implementation of SAB 101 on the Company's financial condition or results of operations. Since the implementation of SAB 101 could result in changes to the timing of the Company's revenue recognition, its effect could be material and adverse to the Company's financial condition and results of operations in the period of implementation. HEDGING ACTIVITIES The Financial Accounting Standards Board issued "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), in June 1998. SFAS 133 requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The change in the derivative's fair value related to the ineffective portion of a hedge, if any, will be immediately recognized in earnings. The Company expects to adopt this Standard as of the beginning of its fiscal year 2002. The effect of adopting this standard is currently being evaluated, but is not expected to have a material effect on the Company's financial position or its results of operations. 34 PROPERTY AND EQUIPMENT Major classes of property and equipment consist of the following:
JUNE 3, MAY 31, 2000 1999 ---- ---- Land $ 4,534 $ 4,534 Buildings and improvements 23,990 22,171 Machinery and equipment 48,770 41,756 Construction in progress 1,867 1,586 ------- ------- $79,161 $70,047 ======= =======
LINE OF CREDIT The Company has a short-term revolving line of credit with a large foreign bank totaling $7,000. This line expires in September 2000. The Company expects to renew the line through 2001. At the Company's option, the interest rate is prime or LIBOR plus 1.25 percent. There were no borrowings outstanding at June 3, 2000 or May 31, 1999. EMPLOYEE BENEFIT PLANS The Company has an employee savings plan under the provisions of section 401(k) of the Internal Revenue Code. The Company contributed $1,123, $950 and $830 to the plan for the years ended June 3, 2000, May 31, 1999 and May 31, 1998, respectively. 35 INCOME TAXES The Company accounts for income taxes under the asset and liability method as defined by the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," (SFAS 109). Under this method, deferred income taxes are recognized for the future tax consequences attributable to temporary differences between the financial statement and tax balances of existing assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The net deferred tax asset as of June 3, 2000 and May 31, 1999 consists of the following tax effects relating to temporary differences and carryforwards:
JUNE 3, MAY 31, 2000 1999 ---- ---- Deferred Tax Assets: Receivable and inventory valuation $ 3,384 $ 2,418 Vacation pay 880 963 Warranty costs 930 778 Capitalized merger expenses - 406 Accrued commissions 135 1,561 Payroll related accruals 1,065 - Other accrued liabilities 988 1,175 ---------- --------- 7,382 7,301 Tax loss and credit carryforwards 5,089 7,438 ---------- --------- Total deferred tax assets 12,471 14,739 Deferred Tax Liabilities: Tax in excess of book depreciation (1,054) (1,257) Other deferred tax liabilities (597) (891) ---------- --------- Total deferred tax liabilities (1,651) (2,148) Valuation allowance (3,075) (3,437) ---------- --------- Net deferred tax asset $ 7,745 $ 9,154 ========== =========
At June 3, 2000 there were net operating losses of $11,591 available for U.S. federal income tax purposes. These losses were principally acquired as part of the Dynamotion and AISI acquisitions and expire through 2013. These losses are subject to certain limitations caused by the change in ownership. Accordingly, their utilization in future periods may be restricted. Given these limitations, some of these losses may not be realizable, and accordingly, a valuation allowance has been recorded. 36 The components of income before income taxes and the provision for income taxes are as follows:
JUNE 3, MAY 31, MAY 31, 2000 1999 1998 ---- ---- ---- Income (loss) before income taxes: Domestic $ 58,300 $ 12,309 $ 30,775 Foreign 1,572 (1,329) 1,541 --------- --------- --------- $ 59,872 $ 10,980 $ 32,316 ========= ========= ========= Provision (benefit) for income taxes: Current: U.S. Federal and State $ 11,905 $ 3,209 $ 6,658 Foreign 1,412 11 579 --------- --------- --------- 13,317 3,220 7,237 Deferred 1,409 (1,674) 528 Income tax effect of stock options exercised 4,286 1,906 2,204 --------- --------- --------- $ 19,012 $ 3,452 $ 9,969 ========= ========= =========
The tax benefit related to stock option exercises has been recorded as an increase to common stock rather than a reduction to the provision for income taxes. A reconciliation of the provision for income taxes at the federal statutory income tax rate to the provision for income taxes as reported is as follows:
JUNE 3, MAY 31, MAY 31, 2000 1999 1998 ---- ---- ---- Provision computed at federal statutory rate $ 20,956 $ 3,843 $ 11,311 Higher than U.S. tax rates in foreign jurisdictions 822 353 40 Impact of U.S. tax losses and credit carryforwards (1,188) (636) (2,214) Impact of state taxes 1,314 503 342 Benefit of foreign sales corporation (FSC) (3,500) (1,027) (1,332) Nondeductible merger related expenses - 487 3,617 Impact of pooled subchapter S corporations - (236) (1,913) Other, net 608 165 118 -------- -------- -------- $ 19,012 $ 3,452 $ 9,969 ======== ======== ========
Consolidated income tax payments amounted to $12,856, $4,361 and $9,673 for the years ended June 3, 2000, May 31, 1999 and May 31, 1998, respectively. 37 EARNINGS PER SHARE The Company computes net income per share in accordance with Statement of Financial Accounting Standards 128, "Earnings Per Share" (SFAS 128). All earnings per share amounts in the following table are presented to conform to the SFAS 128 requirements
JUNE 3, MAY 31, MAY 31, 2000 1999 1998 ---- ---- ---- (IN 000'S EXCEPT PER SHARE DATA) Net income $ 40,860 $ 7,528 $ 22,347 ======== ======== ======== Weighted average number of shares of common stock and common stock equivalents outstanding: Weighted average number of shares - basic 26,357 25,854 25,182 Dilutive effect of employee stock options 1,000 626 880 -------- -------- -------- Weighted average number of shares - diluted 27,357 26,480 26,062 ======== ======== ======== Net income per share - basic $ 1.55 $ 0.29 $ 0.89 ======== ======== ======== Net income per share - diluted $ 1.49 $ 0.28 $ 0.86 ======== ======== ========
The number of options to purchase shares of common stock that were excluded from the table above (as the effect would have been anti-dilutive) were 1,208,599, 1,154,116 and 41,100 for the years ended June 3, 2000, May 31, 1999, and May 31, 1998, respectively. 38 COMMITMENTS AND CONTINGENCIES The Company has limited involvement with derivative financial instruments and does not use them for trading purposes. Derivatives are used to manage well-defined foreign currency risks. The Company enters into forward exchange contracts to hedge the value of accounts receivable denominated in a foreign currency. Foreign exchange contracts have gains and losses that are recognized at the end of each fiscal period. At June 3, 2000 and May 31, 1999 , the Company had forward exchange contracts totaling $35,491 and $5,443, respectively. These contracts mature in approximately one year and the counterparties are large, highly rated, widely recognized banks; therefore, risk of credit loss as a result of nonperformance by the banks is minimal. The use of derivatives does not have a significant effect on the Company's financial position or the results of its operations. The Company leases certain equipment, cars, and office space under operating leases, which are non-cancelable and expire on various dates through 2011. The aggregate minimum commitment for rentals under operating leases beyond June 3, 2000 is as follows: 2001 $1,261 2002 856 2003 501 2004 369 2005 262 Thereafter 552 ------ Total $3,801 ======
Rental Expense for all operating leases was $1,314 in 2000, $ 1,854 in 1999, and was insignificant in 1998. SECURITIES AVAILABLE FOR SALE The Company classifies its marketable debt securities as Securities Available for Sale in the accompanying Consolidated Balance Sheets. All of the Company's marketable debt securities are invested in high credit quality securities. The amortized cost of these securities approximates fair market value. During fiscal 2000 and 1999, proceeds of $27,361 and $21,057, respectively, resulted from the sale or maturity of securities. There were no material realized gains or losses associated with these sales or maturities. 39 SHAREHOLDER RIGHTS PLAN The Company renewed its Shareholder Rights Plan in May 1999 and accordingly declared a dividend distribution of one Right for each outstanding share of Common Stock, payable to holders of record on June 4, 1999. Under certain conditions, each Right may be exercised to purchase 1/100 of a share of Series A No Par Preferred Stock at a purchase price of $270, subject to adjustment. The Rights are not presently exercisable and will only become exercisable following the occurrence of certain specified events. Generally the Rights become exercisable after a person or group acquires or commences a tender offer that would result in beneficial ownership of 15 percent or more of the Company's outstanding Common Stock. In addition, the Rights become exercisable if any party becomes a beneficial owner of 10 percent or more of the Company's outstanding Common Stock and is determined by the Board of Directors to be an adverse party. If a person or group acquires 15 percent of the Company's outstanding Common Stock or the Board of Directors declares a person to be an Adverse Person, each Right will be adjusted to entitle its holder to receive, upon exercise, Common Stock or, in certain circumstances, other assets of the Company having a value equal to two times the exercise price of the Right. If, after the Rights become exercisable, the Company is acquired in a merger or other business combination, each Right will be adjusted to entitle its holder to receive, upon exercise, Common Stock of the acquiring company having a value equal to two times the exercise price of the Right, depending on the circumstances. The Rights expire on May 7, 2009 and may be redeemed by the Company for $0.001 per Right. The Rights do not have voting or dividend rights, and until they become exercisable, have no dilutive effect on the earnings of the Company. STOCK PLANS In September 1989, the shareholders approved the adoption of the 1989 Stock Option Plan (the "1989 Plan") pursuant to which 500,000 shares of the Company's common stock have been reserved for issuance. In September 1998, shareholders approved additional shares under this plan increasing the total available to 2,200,000. The Company's two for one stock split in February 2000 doubled the total shares available to 4,400,000. Options under the 1989 Plan generally vest 25% per year over a 4 year period from the date of grant, expire ten years from the date of grant, and are exercisable at prices generally not less than the fair market value at the grant date. The 1989 Plan allows for automatic annual grants to non-employee directors for 6,000 shares (as adjusted) of Common Stock on July 31 of each year, with an option price equal to the closing market price on the date of the grant, a ten-year term and a four-year vesting schedule. The 1989 Plan allows for grants of incentive stock options, as defined in Section 422 of the Internal Revenue Code of 1986, as amended or non-statutory stock options. Stock appreciation rights may be granted in connection with options, although no options have been granted which include stock appreciation rights. 40 In September 1990, the shareholders approved the adoption of the 1990 Employee Stock Purchase Plan (the "ESPP") pursuant to which 150,000 shares of the Company's common stock have been reserved for issuance to participating employees. In September 1998, shareholders approved additional shares under this plan increasing the total available to 450,000. The Company's two for one stock split in February 2000 doubled the total shares available to 900,000. Eligible employees may elect to contribute up to 15 percent of their cash compensation during each pay period. The ESPP provides for one 12-month offering period beginning January 8 of each year. During the offering period, participants accumulate funds in an account via payroll deduction. At the end of the offering period, the purchase price is determined and the accumulated funds are used to automatically purchase shares of the Company's common stock. The purchase price per share is equal to 85% of the lower of the fair market value of the common stock (a) on the enrollment date of the offering period or (b) on the date of purchase. In September 1996, the shareholders approved the 1996 Stock Incentive Plan (the "Incentive Plan") pursuant to which 150,000 shares of the Company's common stock have been reserved for issuance to participating employees. In September 1998, shareholders approved additional shares under this plan increasing the total available to 250,000. The Company's two for one stock split in February 2000 doubled the total shares available to 500,000. The Incentive Plan allows for the grants of stock bonuses, restricted stock or performance-based awards. The Company's restricted stock grants vest based on certain performance criteria that are tied to the Company's stock price. During fiscal 2000, 1999 and 1998, ESI recorded $2,498, $499 and $455, respectively, of compensation expense related to restricted stock grants, respectively. In April 2000, the Board of Directors approved the adoption of the 2000 Stock Option Plan (the "2000 Plan") pursuant to which 1,000,000 shares of the Company's common stock have been reserved for issuance. The 2000 Plan allows for grants to non-officer employees of non-statutory stock options, stock bonuses or restricted stock. The Company accounts for its stock option plans and its employee stock purchase plan in accordance with the provisions of the Accounting Principles Board's Opinion No. 25 (APB 25), "Accounting For Stock Issued to Employees." In 1995, the Financial Accounting Standards Board released Statement of Financial Accounting Standard No. 123 (SFAS 123), "Accounting For Stock Based Compensation." SFAS 123 provides an alternative to APB 25. The Company continues to account for its employee stock plans in accordance with the provisions of APB 25. Accordingly, the Company has elected to provide pro forma disclosures as required by SFAS 123. 41 The Company has computed, for pro forma disclosure purposes, the per share value of all options granted under the stock option plan to be $29.19, $22.36 and $17.88 for 2000, 1999 and 1998, respectively. The pro forma value of options granted under the employee stock purchase plan is immaterial for 2000, 1999 and 1998. These computations were made using the Black-Scholes option-pricing model, as prescribed by SFAS 123, with the following weighted average assumptions for grants in 2000, 1999, and 1998:
YEAR ENDED: JUNE 3, MAY 31, MAY 31, 2000 1999 1998 ---- ---- ---- Risk-free interest rate 5.5% 5.5% 7.5% Expected dividend yield 0% 0% 0% Expected life 6 years 5 years 5 years Expected volatility 66.5% 67.4% 46.5%
The total value of options granted would be amortized on a pro rata basis over the vesting period of the options. Options generally vest equally over four years. If the Company had accounted for these plans in accordance with SFAS 123, the Company's net income and net income per share would have decreased as reflected in the following pro forma amounts for the fiscal years ended as follows:
JUNE 3, MAY 31, MAY 31, 2000 1999 1998 ---- ---- ---- Net income: As reported $40,860 $7,528 $22,347 Pro forma $36,373 $3,990 $21,116 Net income per share: (1) As reported - basic $ 1.55 $ 0.29 $ 0.89 As reported - diluted $ 1.49 $ 0.28 $ 0.86 Pro forma - basic $ 1.38 $ 0.16 $ 0.84 Pro forma - diluted $ 1.36 $ 0.15 $ 0.81
(1) Per share amounts for all periods presented have been restated to reflect a two-for-one stock split in February 2000. See Notes to the Consolidated Financial Statements 42 The following table summarizes activity in the stock plans for the years ended June 3, 2000, May 31, 1999, and May 31, 1998.
FISCAL YEAR ENDED 2000 1999 1998 ---- ---- ---- WEIGHTED- WEIGHTED- WEIGHTED- SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE (IN 000'S) EXER. PRICE (IN 000'S) EXER. PRICE (IN 000'S) EXER. PRICE ---------- ----------- ---------- ----------- ---------- ----------- Options outstanding at beginning of year 2,566 $14.08 1,886 $10.46 2,394 $ 9.70 Granted ........................... 1,593 46.39 1,068 17.83 416 16.37 Exercised ......................... 685 10.10 322 8.16 780 6.19 Canceled .......................... 201 17.99 66 12.48 144 12.86 ------ ------- ------ ------ ------ ------ Options outstanding at end of year ..... 3,273 30.41 2,566 14.08 1,886 10.46 ====== ======= ====== ====== ====== ====== Exercisable at end of year ............. 852 $12.53 1,088 $ 9.50 1,030 $ 7.84 ====== ======= ====== ====== ====== ====== Shares issued under the ESPP ........... 62 $19.34 75 $14.72 53 $10.99 ====== ======= ====== ====== ====== ======
In addition to the options above, the company had 122,450, 156,946 and 157,022 of restricted stock grants outstanding as of June 3, 2000, May 31, 1999, and May 31, 1998, respectively, none of which were exercisable. 43 The following table sets forth the exercise price range, number of shares outstanding at June 3, 2000, weighted average remaining contractual life, weighted average exercise price, number of exercisable shares and weighted average exercise price of exercisable options by groups of similar price and grant date:
WEIGHTED- AVERAGE RANGE OF OUTSTANDING REMAINING WEIGHTED- EXERCISABLE WEIGHTED- EXERCISE AS OF CONTRACTUAL AVERAGE AS OF AVERAGE PRICES JUNE 3, 2000 LIFE (YEARS) EXERCISE PRICE JUNE 3, 2000 EXERCISE PRICE ------ ------------ ------------ -------------- ------------ -------------- $ 1.35- 9.00 328,854 4.45 $6.11 319,324 $6.06 9.75-13.56 332,580 6.47 12.85 229,561 12.75 14.25-15.75 69,872 7.43 15.45 33,622 15.45 15.78-18.88 730,774 8.82 18.80 184,664 18.72 18.91-26.64 585,613 8.73 23.55 81,303 20.28 27.63-50.38 26,400 9.53 36.75 500 29.03 52.75-52.75 1,133,255 9.86 52.75 - - 54.50-61.00 63,844 9.57 59.31 3,094 55.25 61.63-63.25 1,500 9.84 62.17 - - ------------------------------------------------------------------------------------------------ 3,272,692 8.48 $30.41 852,068 $12.53 ================================================================================================
44 SEGMENT REPORTING The Company adopted Statement of Financial Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and Related Information" (SFAS 131), effective May 31, 1999. ESI designs and manufactures products that target several markets within the capital equipment segment of the electronics industry. These products include semiconductor yield improvement systems, electronic component manufacturing systems, advanced electronic packaging equipment, vision and inspection products and circuit fine tuning systems. The Company generally manages its resources on an enterprise-wide basis for assessing performance. Accordingly, based on the provisions of SFAS 131, the Company operates in one segment. The following data represents sales by product line for the years ending:
JUNE 3, MAY 31, MAY 31, 2000 1999 1998 ---- ---- ---- Semiconductor Yield Improvement $ 81,947 $ 64,953 $ 61,353 Electronic Component Systems 117,915 46,312 71,729 Advanced Electronic Packaging 40,897 46,149 44,721 Vision Products 45,122 27,021 54,132 Circuit Fine Tuning Products 31,044 21,807 26,704 --------- --------- --------- Net Sales $ 316,925 $ 206,242 $ 258,639 ========= ========= =========
The Company has geographic operations in the United States, Europe and Asia. Transfers between geographic areas are made at prevailing market prices. Operating income is total revenue less operating expenses. In computing operating income, none of the following items have been added or deducted: interest income, other income or expense or the provision for income taxes. Identifiable assets are those assets of the Company that are identified with the operations in each geographic location. Corporate assets are primarily cash and cash equivalents and securities available for sale. Export sales included in United States sales to unaffiliated customers for the years ended June 3, 2000, May 31, 1999, and May 31, 1998 were as follows:
EUROPE ASIA TOTAL ------ ---- ----- June 3, 2000...............................$ 13,758 $164,697 $178,455 May 31, 1999...............................$ 5,512 $ 77,527 $ 83,039 May 31, 1998...............................$ 12,112 $ 96,839 $108,951
The most significant sales outside the U.S. were to Japan, Taiwan and Korea, which represented 21%, 16%, and 14% of the Company's net sales for fiscal 2000, respectively. In fiscal 2000, 1999 and 1998, there were no sales to any one customer in excess of 10% of consolidated net sales. 45 The following data represents segment information for the years ending:
ADJUSTMENTS UNITED AND JUNE 3, 2000 STATES EUROPE ASIA ELIMINATIONS CONSOLIDATED - ------------ ------ ------ ---- ------------ ------------ Sales to unaffiliated customers .... $266,243 $ 17,935 $ 32,747 $ - $316,925 Transfers between geographic areas . 38,944 - 287 (39,231) - -------- -------- -------- -------- -------- Total revenue ...................... $305,187 $ 17,935 $ 33,034 $(39,231) $316,925 ======== ======== ======== ======== ======== Operating income (loss) ........... $ 55,657 $ (146) $ 2,613 $ (835) $ 57,289 ======== ======== ======== ======== ======== Identifiable assets at June 3, 2000 $233,025 $ 7,322 $ 19,653 $(66,757) $193,243 ======== ======== ======== ======== Corporate assets ................... 98,398 -------- Total assets at June 3, 2000 ....... $291,641 ======== MAY 31, 1999 - ------------ Sales to unaffiliated customers .... $173,912 $ 17,472 $ 14,858 $ - $206,242 Transfers between geographic areas . 23,643 - 229 (23,872) - -------- -------- -------- -------- -------- Total revenue ...................... $197,555 $ 17,472 $ 15,087 $(23,872) $206,242 ======== ======== ======== ======== ======== Operating income (loss) (1)......... $ 11,220 $ (1,553) $ 290 $ (213) $ 9,744 ======== ======== ======== ======== ======== Identifiable assets at May 31, 1999 $226,612 $ 6,099 $ 10,286 $(53,832) $189,165 ======== ======== ======== ======== Corporate assets ................... 32,658 -------- Total assets at May 31, 1999 ...... $221,823 ======== MAY 31, 1998 - ------------ Sales to unaffiliated customers .... $215,874 $ 24,089 $ 18,676 $ - $258,639 Transfers between geographic areas . 31,361 - 217 (31,578) - -------- -------- -------- -------- -------- Total revenue ...................... $247,235 $ 24,089 $ 18,893 $(31,578) $258,639 ======== ======== ======== ======== ======== Operating income (2)................ $ 28,767 $ 497 $ 935 $ 141 $ 30,340 ======== ======== ======== ======== ======== Identifiable assets at May 31, 1998 $189,040 $ 8,739 $ 8,425 $(36,220) $169,984 ======== ======== ======== ======== Corporate assets ................... 39,147 -------- Total assets at May 31, 1998 ...... $209,131 ========
(1) Includes $2,773 in non-recurring operating expenses associated with the acquisition of Microvision and Testec and $1,407 in trial-related expenses associated with the General Scanning lawsuit (2) Includes $14,634 in merger-related expenses associated with the acquisition of Dynamotion, Chip Star and AISI. 46 ACQUISITIONS MICROVISION CORP. On January 29, 1999, the Company completed the acquisition of MicroVision, a provider of integrated, vision-based inspection and automation solutions for use in semiconductor front-end and back-end applications, located in Chanhassen, Minnesota. The acquisition consideration consisted of 2,037,000 shares of ESI stock. The transaction has been accounted for as a pooling-of-interests and, accordingly, all data included in the Consolidated Financial Statements has been restated. TESTEC, INC. On December 21, 1998, the Company completed the acquisition of Testec, a provider of electrical test systems for the passive component marketplace, located in Phoenix, Arizona. The acquisition consideration consisted of 1,000,000 shares of ESI common stock. The transaction has been accounted for as a pooling-of-interests and, accordingly, all data included in the Consolidated Financial Statements has been restated. CHIP STAR INC. On June 26, 1997, the Company completed the acquisition of Chip Star Inc., a provider of ceramic capacitor termination systems located in San Marcos, California, through the issuance of 1,400,000 shares of ESI stock. The transaction has been accounted for as a pooling-of-interests and, accordingly, all data included in the Consolidated Financial Statements has been restated. APPLIED INTELLIGENT SYSTEMS, INC. On December 1, 1997, the Company completed the acquisition of AISI, a provider of machine vision solutions for the semiconductor and electronics industries, located in Ann Arbor, Michigan. The acquisition consideration consisted of 2,799,030 shares of ESI common stock. The transaction has been accounted for as a pooling-of-interests and, accordingly, all data included in the Consolidated Financial Statements has been restated. 47 The following is a reconciliation of certain restated amounts with amounts previously reported. Chip Star operations from the period June 1, 1997 to the date of acquisition were immaterial and as such were combined in ESI activity for the fiscal year 1998. AISI activity shown for fiscal 1998 is for the period from June to December 1, 1997, the date of acquisition. Testec and MicroVision activity shown for fiscal 1999 is for the period from June 1 to December 21 and January 29, respectively, their dates of acquisition.
YEAR ENDED MAY 31, 1999 1998 ---- ---- Net Sales: ESI $ 196,735 $ 212,374 MicroVision 6,920 21,889 Testec 2,587 7,131 AISI - 17,245 ---------------------------- As Restated $ 206,242 $ 258,639 ============================ Net Income : ESI $ 6,853 $ 13,135 MicroVision 335 3,521 Testec 340 1,943 AISI - 3,748 ---------------------------- As Restated $ 7,528 $ 22,347 ============================
DYNAMOTION CORP. On June 9, 1997, the Company acquired all of the outstanding stock of Dynamotion Corp., a producer of high performance mechanical drilling and routing systems based in Santa Ana, California. The purchase consideration consisted of 694,400 shares of ESI stock. The transaction was accounted for as a purchase. In connection with the purchase price allocation, the Company obtained an appraisal of the intangible assets indicating 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 was charged to merger-related expense during the quarter ended August 31, 1997 and is reflected in the accompanying Consolidated Statements of Income. 48 Pro forma combined income statement data reflecting the Dynamotion transaction for the year ended May 31, 1998 is equal to consolidated income statement figures for the year as the activity of Dynamotion from June 1, 1997 to the date of acquisition was insignificant. NON-RECURRING OPERATING EXPENSES In fiscal 1999, the Company incurred $2,773 in professional service fees and expenses associated with the acquisitions of Testec and MicroVision. In addition, the Company incurred $1,407 in incremental trial-related legal costs associated with the General Scanning lawsuit. Both of these amounts are included in non-recurring operating expenses on the income statement. In fiscal 1998, the Company incurred $14,634 in merger-related expenses associated with the acquisitions of Dynamotion, Chip Star and AISI. These expenses included $9,000 for acquired in-process research and development associated with the Dynamotion purchase and $5,634 in professional and service fees and expenses associated with the consolidation of operations for AISI, Chip Star and Dynamotion purchases. 49 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1ST 2ND 3RD 4TH YEAR ENDED JUNE 3, 2000 QUARTER QUARTER QUARTER QUARTER - ----------------------- ------- ------- ------- ------- Net sales $ 58,974 $ 66,935 $ 82,081 $ 108,935 Gross margin 30,621 36,288 45,899 61,657 Net income 4,785 6,927 11,943 17,205 Net income per share - basic(2) $0.18 $0.26 $0.45 $0.64 Net income per share - diluted(2) $0.18 $0.26 $0.43 $0.61 YEAR ENDED MAY 31, 1999 Net sales $ 48,421 $ 49,038 $ 51,506 $ 57,277 Gross margin 23,975 24,781 26,091 28,084 Net income1 1,213 2,459 920 2,936 Net income per share - basic(1),(2) $ 0.05 $ 0.10 $ 0.04 $ 0.11 Net income per share - diluted(1),(2) $ 0.05 $ 0.09 $ 0.03 $ 0.11
(1) Operations for fiscal 1999 include $2,773 and $1,407 in pretax non-recurring operating expenses for the third and fourth quarters, respectively. (2) Share and per share amounts for all periods presented have been restated to reflect a two-for-one stock split in February 2000. 50 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Electro Scientific Industries, Inc.: We have audited the accompanying consolidated balance sheets of Electro Scientific Industries, Inc. (an Oregon corporation) and subsidiaries as of June 3, 2000 and May 31, 1999 and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended June 3, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Electro Scientific Industries, Inc. and subsidiaries as of June 3, 2000 and May 31, 1999, and the results of their operations and their cash flows for each of the three years in the period ended June 3, 2000 in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Portland, Oregon June 30, 2000 51 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this item is included under "Election of Directors" in the Company's Proxy Statement for its 2000 Annual Meeting of Shareholders and is incorporated herein by reference. Information with respect to executive officers of the Company is included under Item 4 of Part I of this Report. No information is required to be included for Item 405 of Regulation S-K for 2000. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is included under "Board Compensation," "Executive Compensation" (excluding the performance graph) and "Compensation Committee Interlocks and Insider Participation" in the Company's Proxy Statement for its 2000 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information with respect to security ownership of certain beneficial owners and management is included under "Voting Securities and Principal Shareholders" in the Company's Proxy Statement for its 2000 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. 52 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Financial Statements and Schedules. The following financial statements are included in this Annual Report on Form 10-K on the pages indicated. Electro Scientific Industries, Inc. and Subsidiaries:
Page ---- Consolidated Balance Sheets as of June 3, 2000 and May 31, 1999 26 Consolidated Statements of Income for the Years Ended June 3, 2000, May 31, 1999, and May 31, 1998 27 Consolidated Statements of Shareholders' Equity for the Years Ended June 3, 2000, May 31, 1999, and May 31, 1998 28 Consolidated Statements of Cash Flows for the Years Ended June 3, 2000, May 31, 1999, and May 31, 1998 29 Notes to Consolidated Financial Statements 31-50 Report of Independent Public Accountants 51
All schedules are omitted, as the required information is inapplicable or not significant. 53 (A)(3) Exhibits. 3-A. Restated Articles of Incorporation of the Company. Incorporated by reference to Exhibit 3-A of the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1991. 3-B. Articles of Amendment of Restated Articles of Incorporation of the Company. Incorporated by reference to Exhibit 3-B of the Company's Annual Report on Form10K for the fiscal year ended May 31, 1999. 3-C. Bylaws of the Company. Incorporated by reference to Exhibit 3-B of the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1994. 4-A. Rights Agreement, dated as of May 7, 1999, between the Company and First Chicago Trust Company of New York, relating to rights issued to all holders of Company Common Stock. Incorporated by reference to Exhibit 4.1 to the Company's Report on Form 8-K dated May 7, 1999. 10-A. ESI 1983 Stock Option Plan, as amended. Incorporated by reference to Exhibit 10-E of the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1986. (1) 10-B. ESI 1989 Stock Option Plan, as amended. (1) Incorporated by reference to Exhibit 10-B of the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1997. 10-C. Form of Indemnity Agreement between the Company and each of its Directors. Incorporated by reference to Appendix C to the Company's definitive Proxy Statement for its 1986 Annual Meeting of Shareholders. (1) 10-D. Form of Severance Agreement between the Company and each of its executive officers. Incorporated by reference to Exhibit 10-H of the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1992. (1) 10-E. 1996 Stock Incentive Plan. Incorporated by reference to Exhibit 10-E of the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1997. 10-F. 2000 Stock Option Plan. 21. Subsidiaries of the Company. 23. Consent of Independent Public Accountants. 27. Financial Data Schedule. (b) Reports on Form 8-K. No reports of Form 8-K were filed during the quarter ended June 3, 2000. (1) Management contract or compensatory plan or arrangement. 54 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: August 1, 2000 ELECTRO SCIENTIFIC INDUSTRIES, INC. By /s/ Donald R. Vanluvanee --------------------------------- Donald R. VanLuvanee President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on August 1, 2000. Signature Title (1) Principal Executive, Financial and Accounting Officers /s/ Donald R. Vanluvanee Director, President and Chief - -------------------------------- Executive Officer Donald R. VanLuvanee /s/ James T. Dooley Senior Vice President and Chief - -------------------------------- Financial Officer James T. Dooley (2) Directors /s/ David F. Bolender Chairman of the Board - -------------------------------- David F. Bolender /s/ Larry L. Hansen Director - -------------------------------- Larry L. Hansen /s/ W. Arthur Porter Director - -------------------------------- W. Arthur Porter /s/ Vernon B. Ryles Jr. Director - -------------------------------- Vernon B. Ryles /s/ Gerald F. Taylor Director - -------------------------------- Gerald F. Taylor /s/ Jon D. Tompkins Director - -------------------------------- Jon D. Tompkins /s/ Keith L. Thomson Director - -------------------------------- Keith L. Thomson 55 EXHIBIT INDEX EXHIBIT NO. EXHIBIT DESCRIPTION ----------- ------------------- 3-A. Restated Articles of Incorporation of the Company. Incorporated by reference to Exhibit 3-A of the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1991. 3-B. Articles of Amendment of Restated Articles of Incorporation of the Company. Incorporated by reference to Exhibit 3-B of the Company's Annual Report on Form10K for the fiscal year ended May 31, 1999. 3-C. Bylaws of the Company. Incorporated by reference to Exhibit 3-B of the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1994. 4-A Rights Agreement, dated as of May 7, 1999, between the Company and First Chicago Trust Company of New York relating to rights issued to all holders of Company Common Stock. Incorporated by reference to Exhibit 4.1 to the Company's Report on Form 8-K dated May 7, 1999. 10-A. ESI 1983 Stock Option Plan, as amended. Incorporated by reference to Exhibit 10-E of the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1986. 10-B. ESI 1989 Stock Option Plan, as amended. Incorporated by reference to Exhibit 10-B of the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1997. 10-C. Form of Indemnity Agreement between the Company and each of its Directors. Incorporated by reference to Appendix C to the Company's definitive Proxy Statement for its 1986 Annual Meeting of Shareholders. 10-D. Form of Severance Agreement between the Company and each of its executive officers. Incorporated by reference to Exhibit 10-H of the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1992. 56 10-E. 1996 Stock Incentive Plan. Incorporated by reference to Exhibit 10-E of the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1997. 10-F. 2000 Stock Option Plan 21. Subsidiaries of the Company. 23. Consent of Independent Public Accountants. 27. Financial Data Schedule. 57 EX-10.F 2 ex-10_f.txt EXHIBIT 10-F ELECTRO SCIENTIFIC INDUSTRIES, INC. 2000 STOCK OPTION PLAN 1. PURPOSE. The purpose of this Stock Option Plan (the "Plan") is to enable Electro Scientific Industries, Inc. (the "Company") to attract and retain the services of selected employees of the Company or any parent or subsidiary of the Company. For purposes of this Plan, a person is considered to be employed by or in the service of the Company if the person is employed by or in the service of the Company or any parent or subsidiary of the Company (an "Employer"). 2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided below and in Section 9, the shares to be offered under the Plan shall consist of Common Stock of the Company, and the total number of shares of Common Stock that may be issued under the Plan shall be 1,000,000 shares. If an option granted under the Plan expires, terminates or is cancelled, the unissued shares subject to that option shall again be available under the Plan. If shares sold or awarded as a bonus under the Plan are forfeited to or repurchased by the Company, the number of shares forfeited or repurchased shall again be available under the Plan. 3. EFFECTIVE DATE AND DURATION OF PLAN. (a) EFFECTIVE DATE. The Plan shall become effective as of April 7, 2000. Subject to this limitation, options may be granted and shares may be awarded as bonuses or sold under the Plan at any time after the effective date and before termination of the Plan. (b) DURATION. The Plan shall continue in effect until all shares available for issuance under the Plan have been issued and all restrictions on the shares have lapsed. The Board of Directors may suspend or terminate the Plan at any time except with respect to options and shares subject to restrictions then outstanding under the Plan. Termination shall not affect any outstanding options, any right of the Company to repurchase shares or the forfeitability of shares issued under the Plan. 4. ADMINISTRATION. (a) BOARD OF DIRECTORS. The Plan shall be administered by the Board of Directors of the Company, which shall determine and designate the individuals to whom awards shall be made, the amount of the awards and the other terms and conditions of the awards. Subject to the provisions of the Plan, the Board of Directors may adopt and amend rules and regulations relating to administration of the Plan, advance the lapse of any waiting period, accelerate any exercise date, waive or modify any restriction applicable to shares 1 (except those restrictions imposed by law) and make all other determinations in the judgment of the Board of Directors necessary or desirable for the administration of the Plan. The interpretation and construction of the provisions of the Plan and related agreements by the Board of Directors shall be final and conclusive. The Board of Directors may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any related agreement in the manner and to the extent it deems expedient to carry the Plan into effect, and the Board of Directors shall be the sole and final judge of such expediency. (b) COMMITTEE. The Board of Directors may delegate to any committee of the Board of Directors (the "Committee") any or all authority for administration of the Plan. If authority is delegated to the Committee, all references to the Board of Directors in the Plan shall mean and relate to the Committee, except (i) as otherwise provided by the Board of Directors and (ii) that only the Board of Directors may amend or terminate the Plan as provided in Sections 3 and 10. (c) OFFICERS. The Board of Directors may delegate to any officer or officers of the Company authority to grant awards under the Plan, subject to any restrictions imposed by the Board of Directors. 5. TYPES OF AWARDS, ELIGIBILITY, LIMITATIONS. The Board of Directors may, from time to time, take the following action, separately or in combination, under the Plan: (i) grant options, as provided in Section 6; (ii) award stock bonuses as provided in Section 7; and (iii) sell shares subject to restrictions as provided in Section 8. Awards may be made to employees, including employees who are not officers or directors. The Board of Directors shall select the individuals to whom awards shall be made and shall specify the action taken with respect to each individual to whom an award is made. At the discretion of the Board of Directors, an individual may be given an election to surrender an award in exchange for the grant of a new award. No employee may be granted options for more than an aggregate of 250,000 shares of Common Stock in a calendar year; provided, however, that to the extent the annual limitation is not fully used in any year for an employee, any shares not used may be added to the number of shares for which options may be granted to that employee in any future year. 2 6. OPTION GRANTS. (a) GENERAL RULES RELATING TO OPTIONS. (i) TERMS OF GRANT. The Board of Directors may grant options under the Plan. With respect to each option grant, the Board of Directors shall determine the number of shares subject to the option, the exercise price, the period of the option and the time or times at which the option may be exercised. At the time of the grant of an option or at any time thereafter, the Board of Directors may provide that an optionee who exercised an option with Common Stock of the Company shall automatically receive a new option to purchase additional shares equal to the number of shares surrendered and may specify the terms and conditions of such new options. (ii) EXERCISE OF OPTIONS. Except as provided in Section 6(a)(iv) or as determined by the Board of Directors, no option granted under the Plan may be exercised unless at the time of exercise the optionee is employed by or in the service of the Company and shall have been so employed or provided such service continuously since the date the option was granted. Except as provided in Sections 6(a)(iv) and 9, options granted under the Plan may be exercised from time to time over the period stated in each option in amounts and at times prescribed by the Board of Directors, provided that options may not be exercised for fractional shares. Unless otherwise determined by the Board of Directors, if an optionee does not exercise an option in any one year for the full number of shares to which the optionee is entitled in that year, the optionee's rights shall be cumulative and the optionee may purchase those shares in any subsequent year during the term of the option. (iii) NONTRANSFERABILITY. Unless otherwise determined by the Board of Directors, each option granted under the Plan by its terms (i) shall be nonassignable and nontransferable by the optionee, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the optionee's domicile at the time of death, and (ii) during the optionee's lifetime, shall be exercisable only by the optionee. (iv) TERMINATION OF EMPLOYMENT OR SERVICE. (A) GENERAL RULE. Unless otherwise determined by the Board of Directors, if an optionee's employment or service with the Company terminates for any reason other than because of total disability or death as provided in Sections 6(a)(iv)(B) and (C), his or her option may be exercised at any time before the expiration date of the option or the expiration of three 3 months after the date of termination, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of termination. (B) TERMINATION BECAUSE OF TOTAL DISABILITY. Unless otherwise determined by the Board of Directors, if an optionee's employment or service with the Company terminates because of total disability, his or her option may be exercised at any time before the expiration date of the option or before the date 12 months after the date of termination, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of termination. The term "total disability" means a medically determinable mental or physical impairment that is expected to result in death or has lasted or is expected to last for a continuous period of 12 months or more and that, in the opinion of the Company and two independent physicians, causes the optionee to be unable to perform his or her duties as an employee, director, officer or consultant of the Employer and unable to be engaged in any substantial gainful activity. Total disability shall be deemed to have occurred on the first day after the two independent physicians have furnished their written opinion of total disability to the Company and the Company has reached an opinion of total disability. (C) TERMINATION BECAUSE OF DEATH. Unless otherwise determined by the Board of Directors, if an optionee dies while employed by or providing service to the Company, his or her option may be exercised at any time before the expiration date of the option or before the date 12 months after the date of death, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of death and only by the person or persons to whom the optionee's rights under the option shall pass by the optionee's will or by the laws of descent and distribution of the state or country of domicile at the time of death. (D) AMENDMENT OF EXERCISE PERIOD APPLICABLE TO TERMINATION. The Board of Directors may at any time extend the 3-month and 12-month exercise periods any length of time not longer than the original expiration date of the option. The Board of Directors may at any time increase the portion of an option that is exercisable, subject to terms and conditions determined by the Board of Directors. (E) FAILURE TO EXERCISE OPTION. To the extent that the option of any deceased optionee or any optionee whose employment or service terminates 4 is not exercised within the applicable period, all further rights to purchase shares pursuant to the option shall cease and terminate. (F) LEAVE OF ABSENCE. Absence on leave approved by the Employer or on account of illness or disability shall not be deemed a termination or interruption of employment or service. Unless otherwise determined by the Board of Directors, vesting of options shall continue during a medical, family, military or other leave of absence, whether paid or unpaid. (G) CHANGE OF CONTROL. In the event an optionee's employment by the Company or by any parent or subsidiary of the Company terminates within one year after a change in control of the Company for any reason other than retirement, death, or physical disability (as defined in Section 6(a)(iv)(B)), any option held by such optionee may be exercised with respect to all remaining shares subject thereto, free of any limitation on the number of shares with respect to which the option may be exercised in any one year, at any time prior to its expiration date or the expiration of three months after the date of such termination of employment, whichever is the shorter period. A "change in control of the Company" shall mean a change in control of a nature that would be required to be reported in response to item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act"); provided that, without limitation, such a change in control shall be deemed to have occurred if (1) any "person" (as such term is used in Sections 13(d) or 14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding securities; or (2) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. A change in control of the Company shall not include any change in control pursuant to a written agreement between the Company and another person, which agreement is approved and adopted by the Board of Directors of the Company or pursuant to any tender offer or exchange offer which the Board of Directors has in any manner recommended acceptance of to the shareholders of the Company. (v) PURCHASE OF SHARES. Unless the Board of Directors determines. 5 otherwise, shares may be acquired pursuant to an option granted under the Plan only upon the Company's receipt of written notice from the optionee of the optionee's binding commitment to purchase shares, specifying the number of shares the optionee desires to purchase under the option and the date on which the optionee is obligated to complete the transaction, and, if required to comply with the Securities Act of 1933, containing a representation that it is the optionee's intention to acquire the shares for investment and not with a view to distribution. Unless the Board of Directors determines otherwise, on or before the date specified for completion of the purchase of shares pursuant to an option exercise, the optionee must pay the Company the full purchase price of those shares in cash, check or, in whole or in part, in Common Stock of the Company valued at fair market value, restricted stock or other contingent awards denominated in either stock or cash, promissory notes and other forms of consideration. Unless otherwise determined by the Board of Directors, any Common Stock provided in payment of the purchase price must have been previously acquired and held by the optionee for at least six months. The fair market value of Common Stock provided in payment of the purchase price shall be the closing price of the Common Stock last reported on the date the option is exercised, if the Common Stock is publicly traded, or another value of the Common Stock as specified by the Board of Directors. No shares shall be issued until full payment for the shares has been made, including all amounts owed for tax withholding. Unless the Board of Directors determines otherwise, an optionee may request the Company to apply automatically the shares to be received upon the exercise of a portion of a stock option (even though stock certificates have not yet been issued) to satisfy the purchase price for additional portions of the option. Each optionee who has exercised an option shall, immediately upon notification of the amount due, if any, pay to the Company in cash or check amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If additional withholding is or becomes required (as a result of exercise of an option or as a result of disposition of shares acquired pursuant to exercise of an option) beyond any amount deposited before delivery of the certificates, the optionee shall pay such amount, in cash or check, to the Company on demand. If the optionee fails to pay the amount demanded, the Company or the Employer may withhold that amount from other amounts payable to the optionee, including salary, subject to applicable law. Unless the Board of Directors determines otherwise, an optionee may satisfy this obligation, in whole or in part, by instructing the Company to withhold from the shares to be issued upon exercise or by delivering to the Company other shares of Common Stock; provided, however, that the number of shares so withheld or delivered shall not exceed the minimum amount necessary to satisfy the required withholding obligation. Upon the exercise of an option, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued upon exercise of the option (less the number of any shares surrendered in payment for the exercise price or withheld to 6 satisfy withholding requirements). (b) OPTION PRICE AND DURATION. Options shall be subject to the following terms and conditions, in addition to those set forth in Section 6(a) above: (i) OPTION PRICE. The option price shall be determined by the Board of Directors at the time of grant and may be any amount determined by the Board of Directors. (ii) DURATION OF OPTIONS. Options granted under the Plan shall continue in effect for the period fixed by the Board of Directors. 7. STOCK BONUSES. The Board of Directors may award shares under the Plan as stock bonuses. Shares awarded as a bonus shall be subject to the terms, conditions and restrictions determined by the Board of Directors. The restrictions may include restrictions concerning transferability and forfeiture of the shares awarded, together with any other restrictions determined by the Board of Directors. The Board of Directors may require the recipient to sign an agreement as a condition of the award, but may not require the recipient to pay any monetary consideration other than amounts necessary to satisfy tax withholding requirements. The agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares awarded shall bear any legends required by the Board of Directors. The Company may require any recipient of a stock bonus to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the recipient fails to pay the amount demanded, the Company or the Employer may withhold that amount from other amounts payable to the recipient, including salary, subject to applicable law. With the consent of the Board of Directors, a recipient may satisfy this obligation, in whole or in part, by instructing the Company to withhold from any shares to be issued or by delivering to the Company other shares of Common Stock; provided, however, that the number of shares so withheld or delivered shall not exceed the minimum amount necessary to satisfy the required withholding obligation. Upon the issuance of a stock bonus, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued, less the number of shares withheld or delivered to satisfy withholding obligations. 8. RESTRICTED STOCK. The Board of Directors may issue shares under the Plan for any consideration (including promissory notes and services) determined by the Board of Directors. Shares issued under the Plan shall be subject to the terms, conditions and restrictions determined by the Board of Directors. The restrictions may include restrictions concerning transferability, repurchase by the Company and forfeiture of the shares issued, together with any other restrictions determined by the Board of Directors. All Common Stock. 7 issued pursuant to this Section 8 shall be subject to a purchase agreement, which shall be executed by the Company and the prospective purchaser of the shares before the delivery of certificates representing the shares to the purchaser. The purchase agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares shall bear any legends required by the Board of Directors. The Company may require any purchaser of restricted stock to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the purchaser fails to pay the amount demanded, the Company or the Employer may withhold that amount from other amounts payable to the purchaser, including salary, subject to applicable law. With the consent of the Board of Directors, a purchaser may satisfy this obligation, in whole or in part, by instructing the Company to withhold from any shares to be issued or by delivering to the Company other shares of Common Stock; provided, however, that the number of shares so withheld or delivered shall not exceed the minimum amount necessary to satisfy the required withholding obligation. Upon the issuance of restricted stock, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued, less the number of shares withheld or delivered to satisfy withholding obligations. 9. CHANGES IN CAPITAL STRUCTURE. (a) STOCK SPLITS, STOCK DIVIDENDS. If the outstanding Common Stock of the Company is hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any stock split, combination of shares, dividend payable in shares, recapitalization or reclassification, appropriate adjustment shall be made by the Board of Directors in the number and kind of shares available for grants under the Plan and in all other share amounts set forth in the Plan. In addition, the Board of Directors shall make appropriate adjustment in the number and kind of shares as to which outstanding options, or portions thereof then unexercised, shall be exercisable, so that the optionee's proportionate interest before and after the occurrence of the event shall be maintained as before the occurrence of such event. Such adjustment in outstanding options shall be made without change in the total price applicable to the unexercised portion of any option and with a corresponding adjustment in the option price per share. Notwithstanding the foregoing, the Board of Directors shall have no obligation to effect any adjustment that would or might result in the issuance of fractional shares, and any fractional shares resulting from any adjustment may be disregarded or provided for in any manner determined by the Board of Directors. Any such adjustments made by the Board of Directors shall be conclusive. (b) MERGERS, REORGANIZATIONS, ETC. In the event of a merger, consolidation, plan of exchange, acquisition of property or stock, split-up, split-off, spin-off, reorganization 8 or liquidation to which the Company is a party or a sale of all or substantially all of the Company's assets (each, a "Transaction"), the Board of Directors shall, in its sole discretion and to the extent possible under the structure of the Transaction, select one of the following alternatives for treating outstanding options under the Plan: (i) Outstanding options shall remain in effect in accordance with their terms. (ii) Outstanding options shall be converted into options to purchase stock in one or more of the corporations, including the Company, that are the surviving or acquiring corporations in the Transaction. The amount, type of securities subject thereto and exercise price of the converted options shall be determined by the Board of Directors of the Company, taking into account the relative values of the companies involved in the Transaction and the exchange rate, if any, used in determining shares of the surviving corporation(s) to be held by holders of shares of the Company following the Transaction. Unless otherwise determined by the Board of Directors, the converted options shall be vested only to the extent that the vesting requirements relating to options granted hereunder have been satisfied. (iii) The Board of Directors shall provide a period of 30 days or less before the completion of the Transaction during which outstanding options may be exercised to the extent then exercisable, and upon the expiration of that period, all unexercised options shall immediately terminate. The Board of Directors may, in its sole discretion, accelerate the exercisability of options so that they are exercisable in full during that period. (c) DISSOLUTION OF THE COMPANY. In the event of the dissolution of the Company, options shall be treated in accordance with Section 9(b)(iii). (d) RIGHTS ISSUED BY ANOTHER CORPORATION. The Board of Directors may also grant options and stock bonuses and issue restricted stock under the Plan with terms, conditions and provisions that vary from those specified in the Plan, provided that any such awards are granted in substitution for, or in connection with the assumption of, existing options, stock bonuses and restricted stock granted, awarded or issued by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a Transaction. 10. AMENDMENT OF THE PLAN. The Board of Directors may at any time modify or amend the Plan in any respect. Except as provided in Section 9, however, no change in an award already granted shall be made without the written consent of the holder of the award if 9 the change would adversely affect the holder. 11. APPROVALS. The Company's obligations under the Plan are subject to the approval of state and federal authorities or agencies with jurisdiction in the matter. The Company will use its best efforts to take steps required by state or federal law or applicable regulations, including rules and regulations of the Securities and Exchange Commission and any stock exchange on which the Company's shares may then be listed, in connection with the grants under the Plan. The foregoing notwithstanding, the Company shall not be obligated to issue or deliver Common Stock under the Plan if such issuance or delivery would violate state or federal securities laws. 12. EMPLOYMENT AND SERVICE RIGHTS. Nothing in the Plan or any award pursuant to the Plan shall (i) confer upon any employee any right to be continued in the employment of an Employer or interfere in any way with the Employer's right to terminate the employee's employment at any time, for any reason, with or without cause, or to decrease the employee's compensation or benefits, or (ii) confer upon any person engaged by an Employer any right to be retained or employed by the Employer or to the continuation, extension, renewal or modification of any compensation, contract or arrangement with or by the Employer. 13. RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan shall have no rights as a shareholder with respect to any Common Stock until the date of issue to the recipient of a stock certificate for those shares. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date occurs before the date such stock certificate is issued. Adopted: April 7, 2000. 10 EX-21 3 ex-21.txt EXHIBIT 21 EXHIBIT 21 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT AS OF JUNE 3, 2000
PERCENTAGE OF STATE/COUNTRY VOTING SECURITIES SUBSIDIARIES OF INCORPORATION OWNED(1) - ------------ ---------------- -------- Dynamotion, Inc. New York 100% ESI Foreign Sales Corporation Guam 100% ESI GmbH Germany 100% ESI International (DISC) Oregon 100% ESI KK Japan 100% ESI Korea Korea 100% ESI Ltd England 100% ESI SARL France 100% ESI SRL Italy 100% Microvision, Corp. Minnesota 100% Palomar Systems, Inc. Oregon 100% Testec, Inc. Arizona 100%
(1) Other than qualifying shares, where applicable. 58 EX-23 4 ex-23.txt EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into Electro Scientific Industries, Inc. and subsidiaries previously filed Form S-8 and Form S-3 Registration Statements File Nos., 2-91731, 33-2623, 33-2624, 33-34098, 33-37148, 33-46970, 33-58292, 33-70584, 33-63705, 33-65477, 333-16485, 333-16487, 333-29513, 333-35917, 333-35927, 333-46443, 333-88411 and 333-88727, Portland, Oregon August 15, 2000 59 EX-27 5 ex-27.txt EXHIBIT 27
5 1,000 YEAR JUN-03-2000 JUN-01-1999 JUN-03-2000 34,876 63,522 71,393 1,953 56,334 239,874 79,161 43,144 291,641 35,074 0 0 0 120,140 136,001 291,641 316,925 316,925 142,460 142,460 117,176 0 0 59,872 19,012 0 0 0 0 40,860 1.55 1.49
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