-----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, UPXgl5DeSqjiE6NvVjptkYNAz+LK/Hf60LAOguy+bLwNZ1IM+ITISPJDrFsFIpHx SHufNw/5TEL7m84/U1p9Pw== 0001047469-98-001137.txt : 19980116 0001047469-98-001137.hdr.sgml : 19980116 ACCESSION NUMBER: 0001047469-98-001137 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980115 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: SEC FILE NUMBER: 000-12853 FILM NUMBER: 98507063 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 10Q Page 1/15 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________________ TO ______________________ COMMISSION FILE NUMBER 0-12853 ELECTRO SCIENTIFIC INDUSTRIES, INC. OREGON 93-0370304 13900 N.W. SCIENCE PARK DRIVE, PORTLAND, OREGON 97229 (503) 641-4141 INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO AS OF NOVEMBER 30, 1997 THERE WERE 9,955,422 SHARES OF COMMON STOCK OF ELECTRO SCIENTIFIC INDUSTRIES, INC. OUTSTANDING. Page 2/15 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT INDEX Part I. Financial Information Page No. -------- Item 1. Consolidated Financial Statements (Unaudited) Consolidated Balance Sheets 3-4 November 30, 1997 and May 31, 1997 Consolidated Statements of Income 5 Three Months and Six Months ended November 30, 1997 and November 30, 1996 Consolidated Statements of Cash Flows 6-7 Six Months ended November 30, 1997 and November 30, 1996 Notes to Consolidated Financial Statements 8-11 Item 2. Management's Discussion and Analysis of Financial 12-14 Condition and Results of Operations Signature 15 Page 3/15 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Thousands of dollars) ASSETS November 30, 1997* May 31, 1997 - ------ ----------------- ------------ CURRENT ASSETS: Cash and cash equivalents $ 10,940 $ 17,801 Securities available for sale 29,231 27,860 ------ ------ Total Cash and Securities 40,171 45,661 Trade receivables, net 52,457 50,869 Inventories 42,811 32,851 Deferred income taxes 2,366 2,366 Other current assets 1,868 580 ----- ----- Total current assets 139,673 132,327 ------- ------- PROPERTY AND EQUIPMENT, AT COST 48,158 40,963 Less - Accumulated depreciation (26,320) (24,559) ------- ------- Net property and equipment 21,838 16,404 ------ ------ DEFERRED INCOME TAXES 4,042 1,042 OTHER ASSETS 8,953 5,040 ----- ----- $ 174,506 $ 154,813 --------- --------- The accompanying notes are an integral part of these statements. * Unaudited Page 4/15 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Thousands) LIABILITIES AND - --------------- SHAREHOLDERS' EQUITY November 30, 1997* May 31, 1997 - -------------------- ------------------ ------------ CURRENT LIABILITIES: Accounts payable $ 9,094 $ 6,494 Accrued liabilities: Payroll related 4,008 4,126 Commissions 3,411 2,189 Warranty reserve 1,666 1,239 Income taxes (1,360) 811 Other 1,005 762 ----- ----- Total accrued liabilities 8,730 9,127 Deferred revenue 1,013 78 ----- -- Total current liabilities 18,837 15,699 ------ ------ SHAREHOLDERS' EQUITY: Preferred stock, without par value; 1,000 shares authorized, no shares issued -- -- Common stock, without par value; Authorized: 40,000 shares; Outstanding: 9,955, and 9,468 respectively 72,681 57,736 Retained earnings 82,988 81,378 ------ ------ Total shareholders' equity 155,669 139,114 ------- ------- $174,506 $154,813 -------- -------- The accompanying notes are an integral part of these statements. * Unaudited Page 5/15 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Thousands except per share)
Three Months Ended Six Months Ended ------------------ ---------------- Nov. 30, 1997* Nov. 30, 1996* Nov. 30, 1997* Nov. 30, 1996* ----------------------------- -------------- -------------- Net Sales $51,390 $37,415 $99,746 $ 73,614 Cost of sales 23,551 16,483 44,842 31,992 ------ ------ ------ ------ Gross margin 27,839 20,932 54,904 41,622 Operating expenses: Selling, service and administrative 13,547 9,259 25,796 18,501 Research, development and engineering 5,225 4,207 10,259 8,533 Acquired in-process research and development and merger related expenses -- -- 11,124 -- ------ ------ ------ ------ Total operating expenses 18,772 13,466 47,179 27,034 ------ ------ ------ ------ Operating income 9,067 7,466 7,725 14,588 Interest income 363 350 816 742 Other income (expense) 267 33 324 (243) ------ ------ ------ ------ Income before income taxes 9,697 7,849 8,865 15,087 Provision for income taxes 3,527 2,756 6,556 5,391 ------ ------ ------ ------ Net income $ 6,170 $ 5,093 $ 2,309 $ 9,696 ------- ------- ------- ------- ------- ------- ------- ------- Net income per share $ 0.62 $ 0.54 $ 0.23 $ 1.04 ------- ------- ------- ------- ------- ------- ------- ------- Weighted average number of shares used in computing per share amounts 9,949 9,369 9,896 9,362
The accompanying notes are an integral part of these statements. * Unaudited Page 6/15 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of dollars)
Six Months Ended November 30, November 30, ------------ ------------ 1997* 1996* ------ ------ Cash Flows From Operating Activities: Net income $ 2,309 $ 9,696 Adjustments to reconcile net income to cash used in operating activities: Acquired in-process research and development and merger-related expenses (1) 11,124 -- Depreciation and amortization 2,399 1,613 Changes in operating accounts: Increase in trade receivables (97) (7,478) Increase in inventories (4,976) (3,113) Increase in other current assets (1,250) (432) Decrease in accounts payable and accrued liabilities (5,418) (2,346) Increase (decrease) in deferred revenue 935 (37) --- --- Net cash provided by (used in) operating activities: 5,026 (2,097) ----- ------ Cash Flows From Investing Activities: Purchases of property and equipment (6,495) (1,571) Purchase of securities (12,871) (25,191) Proceeds from sales of securities and maturing securities 11,500 20,800 Increase in other assets (37) (622) --- ---- Net cash used in investing activities: (7,903) (6,584) ------ ------ Cash Flows From Financing Activities: Repayment of Dynamotion subsidiary debt (2) (6,979) -- Proceeds from exercise of stock options and stock plans 2,995 227 ----- --- Net cash, provided by (used in) financing activities: (3,984) 227 ------ --- Net Change In Cash And Cash Equivalents (6,861) (8,454) Cash and Cash Equivalents at Beginning of Period 17,801 19,600 ------ ------ Cash and Cash Equivalents at End of Period $ 10,940 $ 11,146 -------- -------- -------- --------
The accompanying notes are an integral part of these statements. *Unaudited Page 7/15 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Thousands of dollars) (Unaudited) Cash payments for interest were not significant for the six months ended November 30, 1997 and November 30, 1996. Cash payments for income taxes were $8,911 and $6,262 for the six months ended November 30, 1997 and November 30, 1996, respectively. Notes: (1) See Note 5 in Notes to Consolidated Financial Statements. (2) Acquisition of Dynamotion subsidiary: Assets less liabilities acquired, net of cash $(11,950) Issuance of common stock and common stock options 11,950 ------ Net cash used to acquire Dynamotion: $ 0 Page 8/15 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) 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 1997 Annual Report filed on Form 10-K and Form 8-KA filed in conjunction with the Chip Star pooling. Results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. NOTE 2 - ACCOUNTS RECEIVABLE Accounts receivable are net of an allowance for doubtful accounts of $414 at November 30, 1997 and $230 at May 31, 1997*. NOTE 3 - INVENTORIES Inventories consist of the following: November 30, 1997 May 31, 1997 * ----------------- -------------- Raw materials and purchased parts $24,775 $21,772 Work-in-process 11,954 6,757 Finished goods 6,081 4,322 ------- ------- $42,811 $32,851 ------- ------- ------- ------- *Audited Page 9/15 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands) (Unaudited) Note 4 - Net Income Per Share Net income per share is computed using the weighted average number of common shares and common stock equivalents (stock options) outstanding. In March 1997, the Financial Accounting Standards Board issued Statement 128, Earnings Per Share ("SFAS 128"), superseding APB Opinion 15. SFAS 128 is required to be adopted for periods ending after December 15, 1997. When adopted, all prior earnings per share (EPS) calculations will be restated to conform to SFAS 128. The pro forma effects of applying SFAS 128 to EPS are as follows: Three Months Ended Six Months Ended November 30 November 30 ----------- ------------ 1997 1996 1997 1996 ---- ---- ---- ---- Primary EPS as reported: $ 0.62 $ 0.54 $ 0.23 $ 1.04 Effect of SFAS 128 0.00 0.00 0.00 0.00 ---- ---- ---- ---- Basic EPS as restated $ 0.62 $ 0.54 $ 0.23 $ 1.04 Fully diluted EPS as reported: $ 0.62 $ 0.54 $ 0.23 $ 1.04 Effect of SFAS 128 (0.02) (0.01) (0.01) (0.03) ---- ---- ---- ---- Diluted EPS as restated $ 0.60 $ 0.53 $ 0.22 $ 1.01 NOTE 5 - ACQUISITION OF DYNAMOTION, INC. 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 preliminary purchase consideration consisted of 347,000 shares of ESI stock. The transaction was accounted for as a purchase. The Company is still obtaining data about certain contingent assets and liabilities related to the acquisition and, accordingly, the purchase price allocation remains open. In connection with the purchase price allocation, the Company estimated the fair value 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 Page 10/15 expense during the period ended November 30, 1997 and is reflected in the accompanying Consolidated Statements of Income. The following pro forma combined income statement data for the six months ended November 30, 1996 was prepared as if the acquisition had occurred at the beginning of the period. The pro forma affect of Dynamotion's revenue and net income for the period from June 1 to June 9, 1997 is not deemed to be significant. Pro forma Combined Statement of Income ------------------- (Unaudited) Six Months Ended November 30, 1996 ---------------------------------- Net sales $ 80,880 Net income $ 5,826 Net income per share $ 0.60 Note 6 - ACQUISITION OF 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 700,000 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 have been restated to reflect the Chip Star acquisition. Disclosure of ESI and Chip Star's revenue and net income, on an individual company basis from June 1 to June 25, 1997 is not deemed to be significant. A reconciliation of amounts previously reported to amounts included in the financial statements is as follows: Three Months Ended Nov. 30, 1996 Six Months Ended Nov. 30, 1996 -------------------------------- ------------------------------ As Previously As Previously Reported Chip Star Combined Reported Chip Star Combined --------- --------- -------- -------- ---------- -------- Revenue $35,101 $2,314 $37,415 $69,957 $3,657 $73,614 Net Income $ 4,587 $ 506 $ 5,093 $ 8,966 $ 730 $ 9,696 NOTE 7 - INCOME TAXES Page 11/15 The effective income tax rate for the interim period is based on estimates of annual amounts of taxable income, tax credits and other factors. SUBSEQUENT EVENT - ACQUISITION OF APPLIED INTELLIGENT SYSTEMS, INC. (AISI) 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 consists of 1,400,000 shares of ESI common stock, of which 1,126,000 have been issued and the remaining 274,000 have been reserved for stock options assumed in the acquisition. The transaction will be accounted for as a pooling-of-interests. Page 12/15 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS Results of Operations Revenue of $51.4 million for the quarter ended November 30, 1997 was 37.4% or $14.0 million higher as compared to the same quarter of the prior year, and was 6.3% or $3.0 million higher than that in the prior quarter. The increase in revenues was due to continued market improvement for capacitor test and termination equipment, higher demand for electronic packaging equipment and incremental sales associated with the purchase of Dynamotion. Gross margin for the three months ended November 30, 1997 decreased to 54.2% from 55.9% for the same period of the prior year. Margins increased slightly for semiconductor yield improvement and capacitor test and termination equipment, whereas changes in product mix for electronic packaging and circuit fine tuning equipment resulted in reduced margins in those business segments. Selling, service and administrative expenses were $4.3 million higher for the three months ended November 30, 1997 than for the second quarter of the prior year. The increase is due to higher selling commissions associated with increased sales volumes, higher incentive compensation accruals, and administrative expenses associated with Dynamotion Corp., which was acquired in June 1997. Selling service and administrative expenses, as a percentage of sales, increased to 26.4% from 24.7% in the second quarter of fiscal 1997. Research, development and engineering expenses for the quarter ended November 30, 1997 increased by $1.0 million as compared to the same quarter of the prior year. Research, development and engineering expenses, as a percentage of sales, decreased to 10.2% from 11.2% for the same period of the prior year. Net income for the quarter ended November 30, 1997 was $6.2 million or $0.62 per share, an increase of 21.1% over the prior year's second quarter earnings of $5.1 million or $0.54 per share. Ending backlog on November 30, 1997 was $25 million, as compared to $30 million on August 31, 1997. Page 13/15 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS (continued) Liquidity, Capital Resources and Business Environment The Company's principal sources of liquidity are existing cash and cash equivalents and marketable debt securities of $40.2 million, accounts receivable of $52.5 million, and a $7.0 million line of credit, none of which was outstanding at November 30, 1997. ESI has no debt and a current ratio of 7.4:1. Working capital increased to $120.8 million at November 30, 1997, from $117.6 million at August 31, 1997. Inventory increased by $3.9 million from the August 31, 1997 level due to higher levels of work in process associated with increased production levels. The Company's business depends in large part upon the capital expenditures of manufacturers of electronic devices, including miniature capacitors and semiconductor memory devices, and circuits used in wireless telecommunications equipment, such as pagers and cellular phones, automotive electronics and computers. The markets for products manufactured by the Company's customers are cyclical and have historically experienced periodic downturns, which often have had a negative effect on the demand for capital equipment such as that sold by the Company. Several large, multinational electronics companies constituted 47.1% of the Company's fiscal 1997 sales and are expected to comprise a similar ratio in fiscal 1998. The loss of any of these customers would be significant. The market for the Company's products is characterized by rapidly changing technology and evolving industry standards. The Company believes that its future success will depend on its ability to develop and manufacture new products and product enhancements, to introduce them successfully into the market and to create and sustain intellectual property protection for these new products. Failure to do so in a timely fashion could harm the Company's competitive position. The announcements or introductions of new products by the Company or its competitors may adversely affect the Company's operating results, since these announcements may cause customers to defer or forego ordering products from the Company's existing product lines. International shipments accounted for 62% of year-to-date sales for fiscal 1998 compared to 71% for fiscal 1997. About one-third of the Company's products are sold to Asian customers. Several countries in this region, notably South Korea, Japan and Taiwan, have experienced currency devaluation and/or difficulties in financing short-term obligations. The Company's customers in these countries thus far have continued to purchase and pay for ESI products on normal terms. There can be no assurance that difficulties in the Asian economy will not adversely affect the demand for the company's products in that region or elsewhere. Page 14/15 The Company expects that international shipments will continue to represent a significant percentage of net sales in the future. As a result, a significant portion of the Company's net sales will be subject to certain risks, including changes in demand resulting from fluctuations in interest and currency exchange rates, as well as factors such as government financed competition, changes in trade policies, tariff regulations, difficulties in obtaining US export licenses and the difficulties of staffing and managing foreign operations. Most of the Company's sales are transacted in dollars and the Company's products are made in the United States. Many Japanese customers pay in yen; therefore, ESI hedges these sales transactions to mitigate currency risks. The European and Asian sales subsidiaries' operating expenses are denominated in their respective local currencies. These transactions represent approximately 9.9% of total consolidated operating expenses with about 60% attributable to Europe and 40% to Asia. Changes in the value of the local currency, as measured in US dollars, will commensurably increase or decrease operating expenses. Information in the Management Discussion and Analysis regarding expectations for future product demand, customers, international shipments and future product offerings and resources constitute forward-looking statements that involve a number of risks and uncertainties. In addition, the Company may from time to time issue other forward-looking statements. The following factors are among the factors that could cause actual results to differ materially from the forward-looking statements: general economic conditions, including their impact on capital expenditures; business conditions in the electronics industry, including the cyclical nature of the market for the Company's products; rapidly changing technology and evolving industry standards; availability and continued validity of intellectual property protection; competitive factors, including increased competition, new product offerings by competitors and price pressures; availability of supplies from third party suppliers on a timely basis and at reasonable prices; and international business conditions, including fluctuations in interest and currency exchange rates, government financed competition, changes in trade policies, tariff regulations, and the difficulties of staffing and managing foreign operations. The forward-looking statements should be considered in light of these factors. Page 15/15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned thereunto duly authorized. ELECTRO SCIENTIFIC INDUSTRIES, INC. Dated: January 8, 1998 Barry L. Harmon -------------------------------------- Barry L. Harmon, Senior Vice President and Chief Financial Officer EX-27 2 FDS
5 1,000 6-MOS MAY-31-1998 JUN-01-1997 NOV-30-1997 10940 29231 52871 414 42811 137673 48158 26320 174506 18837 0 0 0 72681 82988 174506 99746 97746 44842 44842 47179 0 0 8865 6556 0 0 0 0 2309 .23 .23
-----END PRIVACY-ENHANCED MESSAGE-----