-----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, AqfsR5pMV0VYP5NPSoCEXDRtgH8OPGZOalt/K6QfrjmcE3XyHrVFJC+d0H9XToIW 6tZN1u7YLR9mLhAIHrQ3+g== 0001047469-99-038778.txt : 19991018 0001047469-99-038778.hdr.sgml : 19991018 ACCESSION NUMBER: 0001047469-99-038778 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991014 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: 99728128 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 10-Q Page 1/20 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 AUGUST 31, 1999 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 AUGUST 31, 1999 THERE WERE 13,093,377 SHARES OF COMMON STOCK OF ELECTRO SCIENTIFIC INDUSTRIES, INC. OUTSTANDING. Page 2/20 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 August 31, 1999 and May 31, 1999* Consolidated Statements of Income 5 Three Months ended August 31, 1999 and August 31, 1998 Consolidated Statements of Cash Flows 6-7 Three Months ended August 31, 1999 and August 31, 1998 Notes to Consolidated Financial Statements 8-12 Item 2. Management's Discussion and Analysis of Financial 13-17 Condition and Results of Operations Part II. Other Information Item 1. Legal Proceedings 18 Item 4. Submission of Matters to a Vote of Security Holders 19-22 Signature 21 *Audited
Page 3/20 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
ASSETS August 31, 1999* May 31, 1999 - ------ --------------- ------------- CURRENT ASSETS: Cash and cash equivalents $ 20,124 $ 7,793 Securities available for sale 23,360 24,865 Trade receivables, net 78,261 78,998 Income tax refund receivable 48 2,835 Inventory 50,838 51,313 Deferred income taxes 6,699 6,699 Other current assets 1,682 1,198 --------------- ------------- Total current assets 181,012 173,701 --------------- ------------- PROPERTY AND EQUIPMENT, AT COST 71,427 70,047 Less - Accumulated depreciation (38,313) (36,585) --------------- ------------- Net property and equipment 33,114 33,462 --------------- ------------- DEFERRED INCOME TAXES 3,655 2,455 OTHER ASSETS 12,574 12,205 --------------- ------------- $230,355 $221,823 =============== =============
The accompanying notes are an integral part of these statements. * Unaudited Page 4/20 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY August 31, 1999* May 31, 1999 - -------------------- ---------------- ------------ CURRENT LIABILITIES: Accounts payable $ 6,910 $ 6,698 Accrued liabilities: Payroll related 5,232 4,478 Commissions 4,643 5,340 Warranty 2,232 2,103 Other 1,903 1,603 --------------- ------------ Total accrued liabilities 14,010 13,524 Deferred revenue 166 340 --------------- ------------ Total current liabilities 21,086 20,562 --------------- ------------ SHAREHOLDERS' EQUITY: Preferred stock, without par value; 1,000 shares authorized; no shares issued -- -- Common stock, without par value; Authorized: 40,000 shares; Outstanding: 13,093, and 13,047 respectively 108,477 107,206 Retained earnings 101,330 96,545 Accumulated other comprehensive income (loss) (538) (2,490) --------------- ------------ Total shareholders' equity 209,269 201,261 --------------- ------------ Total liabilities and shareholders' equity $230,355 $221,283 =============== ============
The accompanying notes are an integral part of these statements. * Unaudited Page 5/20 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands except per share)
Three Months Ended * Three Months Ended * August 31, 1999 August 31, 1998 --------------- --------------- Net sales $58,974 $48,421 Cost of sales 28,353 24,446 ------------ ------------ Gross margin 30,621 23,975 Operating expenses: Selling, service and administrative 16,569 14,441 Research, development and engineering 7,232 8,085 ------------ ------------ Total operating expenses 23,801 22,526 ------------ ------------ Operating income 6,820 1,449 Interest income 257 350 Other income (expense), net (40) 46 ------------ ------------ Income before income taxes 7,037 1,845 Provision for income taxes 2,252 632 ------------ ------------ Net income $ 4,785 $ 1,213 ============ ============ Net income per share: Basic $ 0.37 $ 0.09 ============ ============ Diluted $ 0.36 $ 0.09 ============ ============ Weighted average number of shares: Basic 13,059 12,863 Diluted 13,384 13,173
The accompanying notes are an integral part of these statements. * Unaudited Page 6/20 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Three Months Ended August 31, 1999* August 31, 1998* ---------------- ---------------- Cash Flows From Operating Activities: Net income $ 4,785 $ 1,213 Adjustments to reconcile net income to cash provided by (used in) operating activities: Depreciation and amortization 2,141 1,558 Deferred Income Taxes (1,200) -- Changes in operating accounts: (Increase) decrease in trade receivables 2,773 (5,755) (Increase) decrease in inventories (226) 1,330 (Increase) decrease in other current assets 2,786 (1,728) Increase in current liabilities 226 1,043 ------------ ------------ Net cash (used in) provided by operating activities: 11,285 (2,339) ------------ ------------ Cash Flows From Investing Activities: Purchases of property and equipment (1,362) (2,629) Purchase of securities (5,552) (10,137) Proceeds from sales of securities and maturing securities 7,057 11,050 Increase in other assets (369) (1,472) ------------ ------------ Net cash used in investing activities: (226) (3,188) ------------ ------------ Cash Flows From Financing Activities: Proceeds from exercise of stock options and stock plans 1,272 310 ------------ ------------ Net cash, provided by financing activities: 1,272 310 ------------ ------------ Net Change in Cash and Cash Equivalents 12,331 (5,217) Cash and Cash Equivalents at Beginning of Period 7,793 10,034 ------------ ------------ Cash and Cash Equivalents at End of Period $ 20,124 $ 4,817 ============ ============
*Unaudited Page 7/20 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (in thousands) (Unaudited) Cash payments for interest were not significant for the three months ended August 31, 1999 and August 31, 1998. Cash payments for income taxes were $562 and $902 for the three months ended August 31, 1999 and August 31, 1998, respectively. Page 8/20 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 1999 Annual Report filed on Form 10-K. Results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. NOTE 2 - INVENTORIES Inventories consist of the following:
August 31, 1999 May 31, 1999 * --------------- -------------- Raw materials and purchased parts $30,376 $32,419 Work-in-process 9,226 8,575 Finished goods 11,236 10,319 --------------- -------------- $50,838 $51,313 =============== ==============
*Audited Page 9/20 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (in thousands) (Unaudited) NOTE 3 - NET INCOME 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.
Three Months Ended August 31, 1999 August 31, 1998 --------------- --------------- Net income $ 4,785 $ 1,213 Weighted average number of shares of common stock and common stock equivalents outstanding: Weighted average number of shares outstanding for computing basic net income per share 13,059 12,863 Dilutive effect of employee stock options after application of the treasury stock method 325 330 ------------- ------------ Weighted average number of shares outstanding for computing diluted net income per share 13,384 13,173 ============= ============ Net income per share - basic $0.37 $0.09 ============= ============ Net income per share - diluted $0.36 $0.09 ============= ============
Page 10/20 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (in thousands) (Unaudited) For purposes of computing diluted earnings per share, weighted average common share equivalents do not include the following stock options because inclusion would have an anti-dilutive effect on the earnings per share calculation.
Three Months Ended August 31, 1999 August 31, 1998 --------------- --------------- Number of Employee Stock Options 95 63
NOTE 4 - 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 1,018,500 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 500,000 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. Page 11/20 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (in thousands) (Unaudited) A reconciliation of amounts previously reported to amounts included in the financial statements is as follows:
Three Months Ended August 31, 1998 ------------------ Revenue: ESI $45,192 MICROVISION 2,562 TESTEC 667 ------- As Restated $48,421 Net Income (Loss): ESI $ 1,241 MICROVISION 133 TESTEC (161) ------- As Restated $ 1,213
Page 12/20 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (in thousands) (Unaudited) NOTE 5 - 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. NOTE 6 - NEW ACCOUNTING PRONOUNCEMENT 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. Page 13/20 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS Results of Operations Revenue of $59.0 million for the quarter ended August 31, 1999 was $10.6 million or 21.8% higher than in the first quarter of fiscal 1999, and $1.7 million or 3.0% higher than in the quarter ended May 31, 1999. Higher revenues were the result of an increase in units shipped--especially for electronic component and memory yield products. Electronic component manufacturing systems made up the largest percentage of sales for the quarter at 29.5% of total revenues versus 17.5% in the same quarter of the prior year. Memory yield improvement, electronic component and machine vision equipment sales were all up significantly over the first quarter of fiscal 1999. The increases were partially offset by decreased sales in circuit fine tuning and advanced packaging equipment. Gross margin for the three months ended August 31, 1999 increased substantially to 51.9% from 49.5% for the first quarter of the prior fiscal year. Higher margins were the result of a shift in product mix, and a higher level of absorption of fixed manufacturing costs. Gross margin for the current period was also up significantly from 49.0% for the quarter ended May 31, 1999. Selling, service and administrative expenses for the three months ended August 31, 1999 were $2.1 million higher than for the first quarter of fiscal 1999, but decreased as a percentage of sales from 29.8% to 28.1%. A higher volume of business this quarter resulted in increased payroll and commission expense. Expenses for sales, services and administration were up from the prior quarter as increased sales volume raised commissions, and as the result of a payroll expense increase associated with annual salary reviews. Expenses associated with research, development and engineering decreased in absolute terms and as a percentage of sales from both the first quarter of fiscal 1999 and the fourth quarter of fiscal 1999. The $0.8 million decrease over the first quarter, prior year, is attributable to lower spending on project material. R&D expenses decreased $0.2 million over the prior quarter and decreased slightly as a percentage of sales. R&D spending typically fluctuates from quarter to quarter as engineering projects move through their life cycles. Net income for the quarter ended August 31, 1999 was $4.8 million or $0.37 per basic share. This represents an increase of 294.5% over the first quarter of fiscal 1999, when earnings were $1.2 million or $0.09 per basic share. As market conditions continue to improve, ending backlog as of August 31, 1999 increased to $39.0 million as compared to $23.0 million as of May 31, 1999. Page 14/20 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS (CONT.) Liquidity, Capital Resources and Business Environment The Company's principal sources of liquidity are existing cash and cash equivalents and marketable debt securities of $43.5 million, accounts receivable of $78.3 million, and a $7.0 million line of credit, none of which was outstanding at August 31, 1999. Accounts receivable was slightly lower than at May 31, 1999. ESI has a current ratio of 8.6:1 and no long-term debt. Working capital increased to $159.9 million at August 31, 1999 vs. $153.1 million at May 31, 1999. Inventory decreased by $0.5 million as compared to the May 31, 1999 level. A reduction in raw materials was partially offset by increases in work in process and finished goods inventory. 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 26.9% of the Company's fiscal 1999 sales and are expected to comprise a similar ratio in fiscal 2000. 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 have accounted for 57% of year-to-date sales for fiscal 2000 as compared to 56% for the fiscal year 1999. About 36% of the company's year-to-date product sales are to Asian customers versus 26% for the fiscal year 1998. 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 continued to purchase and pay for ESI products within agreed upon terms. In addition, substantially all Asian end customer receivables are secured by letter of credit. Page 15/20 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS (CONT.) 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. 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 us in yen, and 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 9.5% of total consolidated operating expenses with about 62% attributable to Europe and 38% to Asia. Changes in the value of the local currency, as measured in US dollars, will commensurably increase or decrease operating expenses. The Year 2000 (Y2K) issue is the result of computer programs operating incorrectly when the calendar year changes on January 1, 2000. Any of the Company's computer programs that have date-sensitive software may recognize a two-digit date using "00" as calendar year 1900 rather than the year 2000. This could result in system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to engage in normal business activities. The Company has a task force to prepare for Y2K issues. A Vice President serves as the Y2K coordinator and has overall responsibility for organizing and managing the Company's Y2K program. The coordinator reports directly to the President and CEO of the Company. The Company has evaluated its technology and data used in the creation and delivery of its products and services and in its internal operations, and has identified Y2K issues related to its customers and suppliers. Each of the Company's product lines has technical and communication resources assigned for Y2K readiness. ESI uses Sematech tests to determine equipment product readiness. All of the Company's current standard products are now Y2K ready. Past products have been evaluated and readiness upgrade kits are being developed and offered where practical. The overall Y2K coordinator is working with each product line group to develop and implement their product plans. Y2K readiness is viewed as a necessary capability for doing business. Page 16/20 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS (CONT.) The Company has completed the inventory and evaluation of its business systems with regard to Y2K readiness. Assessment includes facilities, engineering, manufacturing, laboratory, banking, accounting, procurement, product test, customer order, receiving, warehousing, and communications. The Company's core business systems are now Y2K ready. Non-critical business systems that have been previously identified as not ready have either been upgraded, replaced, or otherwise made obsolete. Year 2000 date related tests are part of normal systems tests for new business systems integration. The Company has a Director level manager assigned the responsibility for ESI's supplier Y2K readiness evaluation. The plan included automatic assessment of the top 80% of the suppliers and key supplier identification of the remaining 20%. Additionally, in each business area, engineering and purchasing teams were formed to identify material that met certain criteria for inclusion as strategic material. Vendors supplying this strategic material were subjected to an in depth assessment of their ability to continue to supply to the Company. Remediation actions for at-risk vendors include working with the vendors to ensure continued delivery of material and inventory of some materials within the Company. Material and vendor assessment activity has been completed and processes for Y2K evaluation of new material and new vendors have been implemented. 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. Total costs of assessing and implementing the Company's Y2K plan are not material to the Company's consolidated financial position or the results of its operations. Consequences of the Company's Y2K plan not being successful include inability to ship product, delay or loss of sales, and delays in factory operations. The Company believes that, provided that third parties mitigate their own risks successfully, the Company will have no material business risk from such Y2K issues. However, there can be no assurances that third parties, over which the company has no control, will successfully address their own Y2K issues. Page 17/20 ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS (CONT.) 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 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 18/20 Part II Other Information Item 1. Legal Proceedings 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 U.S. patent 5,473,624 entitled "Laser System and Method for Selectively Serving Links" invalid for reasons of obviousness. On April 8, 1999 the same federal court jury awarded ESI $13,133,170 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 announced that it intends to appeal the verdict. ESI has not reflected this award in its financial results. However, ESI continues to record legal expenses related to this litigation as these expenses are incurred. In July 1999, ESI announced a settlement with GSI Lumonics Inc. and General Scanning Inc. in ESI's laser trimming patent infringement suit. ESI initiated the suit against General Scanning in October 1998 in the United States District Court for the Northern District of California. The complaint alleged that General Scanning violated the following ESI's patents: 5,569,398 entitled "Laser System and Method for Selectively Trimming Films" issued on October 29, 1996; 5,685,995 entitled "Method for Laser Functional Trimming of Films and Devices" issued on November 11, 1997; and 5,808,272 entitled "Laser System for Functional Trimming of Films and Devices" issued on September 15, 1998. GSI is not making, using, selling or offering to sell any laser trim systems operating at a wavelength between 1.2 and 3.0 microns, or any kit for converting a laser trim system to operate at a wavelength between 1.2 and 3.0 microns. The terms of the settlement agreement are confidential. 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. Page 19/20 Item 4. Submission of Matters to a Vote of Security Holders The 1999 Annual Meeting of Shareholders was held on Friday, September 30, 1999. The following items were approved by the vote indicated: 1. W. Arthur Porter and Gerald F. Taylor were re-elected to the Board of Directors for a three-year term. David F. Bolender, Douglas C. Strain, Donald R. VanLuvanee, Larry L. Hansen, Vernon B. Ryles, Jr., Keith L. Thomson, and Jon D. Tompkins continue as Directors. For 8,627,140 Against 0 Abstain 92,408
2. Selection of Arthur Andersen LLP as independent auditors for the Company was approved. For 8,713,598 Against 3,467 Abstain 2,483
Page 20/20 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: October 14, 1999 By /s/ Jonathan C. Howell ----------------------------------- Jonathan C. Howell, Senior Vice President And Chief Financial Officer. EX-27 2 EX-27
5 1,000 3-MOS MAY-31-2000 MAY-31-1999 AUG-31-1999 20,124 23,360 77,432 829 50,838 181,012 71,427 38,313 230,355 21,086 0 0 0 108,477 100,792 230,355 58,974 58,974 28,353 28,353 23,801 0 0 7,037 2,252 0 0 0 0 4,785 .37 .36
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