-----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, GpadH8jGDjWGc4S/G9r/cYrKLCTsOjSCd8D4P8Lqp8BqN8myip0AHacuFuf6EJl+ wlHJ3zKKlR5ZinfD5fKmXA== 0000912057-96-006118.txt : 19960409 0000912057-96-006118.hdr.sgml : 19960409 ACCESSION NUMBER: 0000912057-96-006118 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960229 FILED AS OF DATE: 19960408 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECTRO SCIENTIFIC INDUSTRIES INC CENTRAL INDEX KEY: 0000726514 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 930370304 STATE OF INCORPORATION: OR FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12853 FILM NUMBER: 96545086 BUSINESS ADDRESS: STREET 1: 13900 NW SCIENCE PARK DR CITY: PORTLAND STATE: OR ZIP: 97229 BUSINESS PHONE: 5036414141 MAIL ADDRESS: STREET 1: 13900 NW SCIENCE PARK DRIVE CITY: PORTLAND STATE: OR ZIP: 97229-5497 10-Q 1 FORM 10-Q Page 1 of 12 THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 901(D) OF REGULATION S-T UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 29, 1996 or ----------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________________ to ______________________ Commission file number 0-12853 ELECTRO SCIENTIFIC INDUSTRIES, INC. Oregon 93-0370304 13900 N.W. Science Park Drive, Portland, Oregon 97229 (503) 641-4141 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- As of February 29, 1996 there were 8,636,672 shares of Common Stock of Electro Scientific Industries, Inc. outstanding. Page 2 of 12 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT INDEX Part I. Financial Information Page No. -------- Item 1. Consolidated Financial Statements Consolidated Balance Sheets 3-4 February 29, 1996 and May 31, 1995 Consolidated Statements of Income 5 Three Months and Nine Months ended February 29, 1996 and February 28, 1995 Consolidated Statements of Cash Flows 6-7 Nine Months ended February 29, 1996 and February 28, 1995 Notes to Consolidated Financial Statements 8-9 Item 2. Management's Discussion and Analysis of Financial 10-11 Condition and Results of Operations Signature 12 Page 3 of 12 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Thousands of dollars)
ASSETS February 29, 1996 * May 31, 1995 - ------ -------------------- ------------ CURRENT ASSETS: Cash and cash equivalents $ 12,288 $ 11,643 Securities available for sale 20,063 17,011 Trade receivables, net 40,190 33,331 Inventories 29,894 24,882 Deferred income taxes 3,136 2,946 Other current assets 1,272 760 -------- -------- Total current assets 106,843 90,573 -------- -------- PROPERTY AND EQUIPMENT, AT COST 38,729 36,003 Less - accumulated depreciation (22,582) (20,387) -------- -------- Net property and equipment 16,147 15,616 -------- -------- OTHER ASSETS: Deferred income taxes 1,979 -- Other assets 5,028 4,409 -------- -------- $129,997 $110,598 -------- -------- -------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. * UNAUDITED Page 4 of 12 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
LIABILITIES AND - --------------- SHAREHOLDERS' EQUITY February 29, 1996 * May 31, 1995 - -------------------- -------------------- ------------ CURRENT LIABILITIES: Accounts payable $ 7,286 $ 7,002 Accrued liabilities: Payroll related 2,443 2,324 Commissions 2,352 1,706 Income taxes 928 1,258 Other 4,104 1,758 -------- -------- Total accrued liabilities 9,827 7,046 Deferred revenue 519 1,032 -------- -------- Total current liabilities 17,632 15,080 OTHER LONG-TERM LIABILITIES 1,107 1,074 -------- -------- Total liabilities 18,739 16,154 -------- -------- SHAREHOLDERS' EQUITY: Preferred stock, without par value; 1,000,000 shares authorized, no shares issued -- -- Common stock, without par value; Authorized: 40,000,000 shares; Outstanding: 8,636,672, and 8,374,546 respectively 55,516 49,762 Retained earnings 55,742 44,682 -------- -------- Total shareholders' equity 111,258 94,444 -------- -------- $129,997 $110,598 -------- -------- -------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. (*) UNAUDITED Page 5 of 12 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (THOUSANDS EXCEPT SHARE DATA)
Three Months Ended Nine Months Ended ------------------ ----------------- Feb. 29, 1996 Feb. 28, 1995 Feb. 29, 1996 Feb. 28, 1995 ------------- ------------- ------------- ------------- Net Sales $ 41,626 $ 29,398 $ 118,437 $ 75,207 Cost of sales 19,034 13,792 54,524 35,412 --------- --------- -------- --------- Gross margin 22,592 15,606 63,913 39,795 Operating expenses: Selling, service and administrative 10,535 7,557 29,705 19,726 Research, development and engineering 3,886 3,588 11,905 8,773 Acquired in-process research and development * -- -- 6,000 -- --------- --------- -------- --------- Total operating expenses 14,421 11,145 47,610 28,499 --------- --------- -------- --------- Operating income 8,171 4,461 16,303 11,296 Interest income (expense) 293 334 879 350 Other income (expense) (147) (259) (291) (290) --------- --------- -------- --------- Income before income taxes 8,317 4,536 16,891 11,356 Provision for income taxes 3,073 1,360 6,226 3,397 --------- --------- -------- --------- Net income $ 5,244 $ 3,176 $ 10,665 $ 7,959 --------- --------- -------- --------- --------- --------- -------- --------- Net income per share $ 0.61 $ 0.39 $ 1.24 $ 1.10 --------- --------- -------- --------- --------- --------- -------- --------- Weighted average number of shares used in computing per share amounts 8,628 8,205 8,593 7,238
* The acquired in-process research and development represents a one time charge associated with the acquisition of XRL, Inc. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. Page 6 of 12 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (THOUSANDS OF DOLLARS)
Nine Months Ended Feb. 29,1996 Feb. 28,1995 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 10,665 $ 7,959 Adjustments to reconcile net income to cash provided by (used in) operating activities: Acquired in-process research and development(1) 6,000 -- Depreciation and amortization 2,100 1,807 Deferred income taxes (2,001) (1,608) Deferred revenue (513) -- Stock compensation agreement -- 58 Changes in operating accounts: (Increase) in trade receivables (5,304) (11,195) (Increase) in inventory (2,957) (2,205) (Increase) decrease in other current assets (437) 219 (Decrease) increase in accounts payable, accrued liabilities and other long-term liabilities (1,444) 1,829 (Decrease) increase in income taxes (330) 1,804 -------- -------- Net cash provided by (used in) operating activities 5,779 (1,332) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of XRL subsidiary, net of cash(2) (492) -- Purchase of Chicago Laser subsidiary, net of cash (3) -- (707) Purchases of property and equipment (2,352) (2,432) Purchases of securities (24,900) -- Proceeds from sales of securities and maturing securities 21,850 -- (Increase) in other assets (474) (217) -------- -------- Net cash used in investing activities (6,368) (3,356) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Payments to retire long-term debt -- (768) Reduction of notes payable to banks (4) -- (415) Proceeds from stock offering -- 22,509 Proceeds from exercise of stock options and stock plans 972 811 -------- -------- Net cash provided by financing activities 972 22,137 -------- -------- EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS 262 (525) NET CHANGE IN CASH AND CASH EQUIVALENTS 645 16,924 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,643 8,221 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD (5) $12,288 $25,145 -------- -------- -------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. Page 7 of 12 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED) (THOUSANDS OF DOLLARS) Cash payments for interest were not significant for the nine months ended February 29, 1996 and 1995. Cash payments for income taxes were $7,681 and $2,819 for the nine months ended February 29, 1996 and 1995, respectively. Notes: (1) See Note 6 in Notes to Consolidated Financial Statements (2) Acquisition of XRL subsidiary: Assets less liabilities acquired, net of cash $(5,073) Issuance of common stock 4,581 ------- Net cash used to acquire XRL subsidiary $ (492) ------- ------- (3) Acquisition of Chicago Laser subsidiary: Assets less liabilities acquired, net of cash $(2,646) Issuance of common stock 1,939 ------- Net cash used to acquire Chicago Laser subsidiary $ (707) ------- ------- (4) Activity for the nine months ended February 28, 1995 includes debt acquired in August 1994, related to the Chicago Laser acquisition which was subsequently paid off in August 1994. (5) Cash and cash equivalents at February 28, 1995 includes the proceeds from the stock offering of $22.5 million. Subsequent to February 28, 1995, the Company invested these funds in marketable securities which are classified as securities available for sale in the accompanying Consolidated Balance Sheets. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. Page 8 of 12 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (THOUSANDS OF DOLLARS) NOTE 1 - BASIS OF PRESENTATION The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in these interim statements. Management believes that the interim statements include all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of results for the interim periods. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's 1995 Annual Report. Results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made in the accompanying consolidated financial statements for fiscal 1995 to conform with fiscal 1996 presentation. NOTE 2 - ACCOUNTS RECEIVABLE Accounts receivable are net of an allowance for doubtful accounts of $504 at February 29, 1996 and $299 at May 31, 1995. NOTE 3 - INVENTORIES Inventories consist of the following:
Feb. 29, 1996 May 31, 1995* ------------- ------------- Raw materials and purchased parts $20,316 $15,566 Work-in-process 6,765 7,225 Finished goods 2,813 2,091 ------- ------- $29,894 $24,882 ------- ------- ------- -------
NOTE 4 - NET INCOME PER SHARE Net income per share are computed using the weighted average number of common shares and common stock equivalents (stock options) outstanding. NOTE 5 - OTHER LONG-TERM LIABILITIES Other long-term liabilities represent a termination reserve for the employees of the Company's Japanese subsidiary as mandated by Japanese law. * Audited Page 9 of 12 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (THOUSANDS OF DOLLARS) NOTE 6 - ACQUISITION OF XRL, INC. In July 1995, the Company acquired all of the outstanding stock of XRL, Inc., a privately held company based in Canton, Massachusetts. XRL provides capital equipment for semiconductor memory yield improvement. The preliminary purchase consideration consisted of 206,867 shares of ESI stock. These shares were subsequently reduced by 23,227 shares due to an adjustment provided for by the agreement. The shares are restricted, subject to registration rights in March 1996. The transaction was accounted for as a purchase. The Company is still obtaining certain data related to the acquisition and, accordingly, the purchase price allocation remains open. The Company recorded the acquisition at the estimated fair value of the assets acquired and liabilities assumed. In connection with the purchase price allocation, the Company obtained an appraisal of the intangible assets which indicated that substantially all of the acquired intangible assets consisted of research and development projects in process. The development of these projects had not reached technological feasibility and the technology has no alternative future use. In accordance with generally accepted accounting principles, the acquired in-process research and development of $6.0 million was charged to expense during the first quarter ended August 31, 1995 and is reflected in the accompanying Consolidated Statements of Income. Pro-forma combined income statement data for the nine months ended February 29, 1996 and 1995 was not materially different from results presented in the accompanying Consolidated Statements of Income. NOTE 7- ACQUISITION OF CHICAGO LASER SYSTEMS, INC. On August 12, 1994, the Company acquired the stock of Chicago Laser Systems, Inc. ("Chicago Laser"), a privately held company based in Des Plaines, Illinois. The purchase consideration consisted of approximately $1,280 in cash and 333,000 shares of ESI stock. The shares are restricted, subject to Securities and Exchange Commission Rule 144. The transaction was accounted for as a purchase. The Company recorded the acquisition at the estimated fair value of the assets acquired and liabilities assumed. The following pro-forma combined income statement data for the nine months ended February 28, 1995 was prepared as if the acquisition had occurred at the beginning of the period.
Pro Forma --------- Combined Income Statements Data ------------------------------- Nine months ended ----------------- February 28, 1995 ----------------- Net Sales $78,268 Net Income $7,536 Net Income per share $1.04
NOTE 8 - INCOME TAXES The effective income tax rate for the interim period is based on estimates of annual amounts of taxable income, tax credits and other factors. Page 10 of 12 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS Results of Operations Net sales increased 41.6% or $12.2 million for the three months ended February 29, 1996 and 57.5% or $43.2 million for the nine months ended February 29, 1996 compared to the same periods of the prior year. These increases result from strong unit sales of semiconductor yield improvement systems, laser trimming systems and capacitor manufacturing equipment. XRL, Inc. acquired in July, 1995 contributed $13.0 million year-to-date toward the increase in semiconductor yield improvement sales, which represents a significant increase over XRL historical sales levels. Gross margin for the three months ended February 29, 1996 increased to 54.3% from 53.1% for the same period of the prior year as a result of increased sales of higher margin semiconductor yield improvement systems, laser trimming systems and equipment used in the production of miniature capacitors. Year-to-date gross margin increased from 52.9% for the nine months ended February 28, 1995 to 54.0% as a result of increased volume of semiconductor yield improvement equipment sold, increased sales of higher margin laser trimming systems, and cost savings associated with increased sales of capacitor manufacturing equipment. Selling, service and administrative expenses increased $3.0 million for the three months ended February 29, 1996 and $10.0 million for the nine months ended February 29, 1996 over the comparable periods of the prior year as a result of higher selling commissions associated with increased sales volumes and employee profit sharing accruals. As a percentage of sales, selling, service and administrative expenses decreased to 25.3% from 25.7% for the third quarter of fiscal 1996 compared to the same quarter of the prior year and to 25.1% from 26.2% for the nine months ended February 29, 1996 compared to the same period of the prior year. Research, development and engineering expenses increased $0.3 million for the current quarter and $3.1 million for the nine months ended February 29, 1996 compared to the same periods of the prior year as a result of project material increases, compensation increases and additional engineering costs associated with XRL. As a percentage of sales, research, development and engineering expenses declined to 9.3% for the current quarter from 12.2% for the same quarter of the prior year. Year-to-date research, development and engineering expenses as a percentage of sales declined to 10.1% for the nine months ended February 29, 1996 from 11.7% for the same period of the prior year. The decreases are a reflection of the change in sales year over year rather than a decline in research and development efforts. For the nine months ended February 29, 1996, the acquired in-process research and development expense of $6.0 million occurred in connection with the purchase price allocation of XRL, Inc. The Company obtained an appraisal of the intangible assets which indicated that substantially all of the acquired intangible assets consisted of research and development in process. In accordance with generally accepted accounting principles, the acquired in- process research and development was expensed during the first quarter ended August 31, 1995. Year-to-date interest income (expense) increased $ 0.5 million over the same period of the prior year as a result of investing the November 1994 stock offering funds in marketable securities; there were no such investments during the first two quarters of the prior year. The effective tax rate of 37% for the three month and nine month periods ended February 29, 1996 increased from 30% for the three month and nine month periods ended February 28, 1995 as a result of utilization of certain deferred tax assets in fiscal 1994 which had previously been reserved. Page 11 of 12 Net income for the quarter ended February 29, 1996 was $5.2 million or $0.61 per share compared to $3.2 million or $0.39 per share for the same period of the prior year. Net income for the nine months ended February 29, 1996, after the effect of the acquired in-process research and development charge of $6.0 million, was $10.7 million or $1.24 per share compared to $7.9 million or $1.10 per share for the nine months ended February 28, 1995. Net income for the nine months ended February 29, 1996, excluding the acquired in-process research and development charge, was $14.4 million or $1.68 per share. Incoming orders were $31 million and ending backlog on February 29, 1996 was $32 million which represents a 23% increase from May 31, 1995. Liquidity, Capital Resources and Business Environment The Company's principal sources of liquidity are operating earnings, existing cash and cash equivalents and marketable debt securities of $32.4 million, accounts receivable of $40.2 million, and a $7.0 million line of credit, none of which was outstanding at February 29, 1996. ESI has no debt and a current ratio of 6.1:1. Working capital increased to $89.2 million at February 29, 1996, from $75.5 million at May 31, 1995, as a result of the increased level of sales and resulting operating income. In addition to the increased level of sales, accounts receivable of $40.2 million at February 29, 1996 reflects an increase in shipments near quarter end compared to prior fiscal year end, and delays in receiving a critical component for the Company's semiconductor yield improvement products. Inventory increases of $5.0 million over May 31, 1995 is the result of increased sales associated with the Company's laser business. Other accrued liabilities increased over the prior fiscal year end primarily due to employee profit sharing accruals. The Company's business depends in large part upon the capital expenditures of manufacturers of electronic devices, including miniature capacitors and DRAMs, and circuits used in wireless telecommunications and automotive equipment. The markets for products manufactured by the Company's customers are cyclical and have historically experienced periodic downturns, which often have had a negative effect on the demand for capital equipment such as that sold by the Company. There is no assurance that these markets will not experience downturns in the future or that such downturns would not have a material adverse effect on the Company's operating results. ESI's business success depends on: accurate identification of viable markets; timely development of technologically superior products; and providing excellent service to a small number of customers located throughout the world. Several large, multinational companies represent a substantial portion of the Company's sales and the loss of any one of these customers would be significant. The cost of product development requires the Company to make large investments in relation to its ability to recover from unforeseen market shifts. A significant portion of future revenues are expected from new products. However, a number of uncertainties exist, including ESI's product performance and pricing, compared to competitors, and uncertain worldwide conditions. Therefore, the Company can not predict the ultimate effect new products will have on sales or net income. The combination of these factors can result in large swings in working capital and results of operations from year to year. Page 12 of 12 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned thereunto duly authorized. ELECTRO SCIENTIFIC INDUSTRIES, INC. Dated: April 4, 1996 By /s/ Barry L. Harmon ------------------------------------- Barry L. Harmon, Senior Vice President, Finance and Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS MAY-31-1996 JUN-01-1995 FEB-29-1996 12288 20063 40694 504 29894 106843 38729 22582 129997 17632 0 0 0 55516 55742 129997 118437 118437 54524 54524 47610 0 0 16891 6226 0 0 0 0 10665 1.24 1.24
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