EX-99.1 2 a4848711ex991.txt EXHIBIT 99.1 Exhibit 99.1 ESI Announces Fiscal 2005 Third Quarter Results PORTLAND, Ore.--(BUSINESS WIRE)--March 22, 2005--Electro Scientific Industries, Inc. (Nasdaq:ESIO) today announced results for its fiscal 2005 third quarter ended February 26, 2005. Third quarter sales were $49.1 million, down 26% compared to second quarter sales of $66.0 million and down 16% compared to prior year third quarter sales of $58.8 million. Operating income for the quarter was $2.7 million, compared with operating income of $9.8 million in the second quarter and operating income of $4.4 million in the third quarter a year ago. Net income for the quarter was $2.0 million, or $0.07 per basic and diluted share, compared with net income of $7.9 million, or $0.28 per basic and diluted share, in the second quarter and net income of $10.0 million, or $0.36 per basic share and $0.34 per diluted share, in the third quarter a year ago. Included in the third quarter 2005 operating results was a $1.2 million charge, primarily related to severance costs, resulting from the reorganization announced in December 2004. Included in the second quarter 2005 operating results was a $2.2 million charge resulting from the settlement and related legal costs for a patent infringement lawsuit. Net orders for the third quarter were $39.8 million, unchanged from the second quarter and a decrease of 35% compared with $61.2 million in the third quarter of 2004. Backlog decreased $8.5 million to $41.4 million at February 26, 2005 from $49.9 million at November 27, 2004. Deferred revenue decreased this quarter to $8.6 million compared to $9.4 million at November 27, 2004. "With third quarter order volumes remaining flat with the second quarter, the decline in business we have experienced during the past few quarters seems to have stabilized," noted Nick Konidaris, ESI's president and chief executive officer. "Orders increased in both the Semiconductor business and the Electronic Interconnect business as capacity needs drove additional capital expenditures. The increase was offset by a decline in the Passive Components business as factory utilization in that market remained low." Konidaris continued, "Despite the ongoing softness in the industry, the company continues to perform capably. During the third quarter, the company reduced operating expenses significantly, drove positive cash flow of $17 million, reorganized to streamline technology development efforts and enhance our customer-centric focus, and delivered a fifth consecutive profitable quarter." Mike Dodson, ESI's chief financial officer added, "Gross margin of 44 percent during the quarter was down 6 percentage points from 50 percent in the second quarter. The decrease in gross margin was primarily due to lower overhead absorption on reduced production levels as well as a change in sales mix. The lower production levels were due to a reduction in finished goods and work-in-process inventories of $6 million during the quarter as well as lower shipment levels. The unfavorable sales mix was due to more sales of older technology tools." "Operating expenses were $19 million in the third quarter and $23 million in the second quarter. Excluding the $1 million charge in the third quarter and the $2 million charge in the second quarter, operating expenses were $18 million in the third quarter, down from $21 million in the second quarter. The decrease in operating expense during the third quarter was due to lower employee related expense as a result of the reorganization and holiday shutdown, lower variable selling expenses related to the decrease in revenues, lower research and development expenses resulting from the timing of project expenses, and lower professional fees," added Dodson. "Our balance sheet remained strong during the quarter. Cash and investments were $356 million at the end of the quarter, up $17 million from the prior quarter. Cash increased primarily due to a decrease in accounts receivable," concluded Dodson. As previously announced, during March the company redeemed all of its outstanding 4 1/4% Convertible Notes, eliminating its long-term debt. As a result of this transaction, the company will record one-time charges of approximately $4.2 million on a pre-tax basis during the fourth quarter, which includes the costs of redemption and non-cash charges of approximately $1.6 million. Excluding the one-time charge in the fourth quarter, net interest income is expected to increase by approximately $1 million per quarter. Konidaris added, "Although our visibility continues to remain limited, our goal is to remain profitable on an operating income basis. Based on the best information available to us at this time, we believe fourth quarter shipments and revenues will be in the range of $40 million to $50 million. We expect margins to remain in the mid-40% range and operating expenses to be approximately $18 to $19 million. The tax rate is estimated to remain at 25%." "Despite the current softness in the industry, we feel confident that ESI is in a strong position as the global leader in the markets we serve. We have the number one market share position in each of our businesses, a continuing stream of best-in-class products, a strong cash position and balance sheet, and a talented employee base. While we have managed expenses to align our cost structure to profitably meet current demand, we have also continued to invest in engineering, infrastructure, and the world-class talent base necessary to emerge from the current softness even stronger. We remain excited about the long-term prospects of this company within the growing laser micro-engineering industry," concluded Konidaris. The company will hold a conference call today at 5:00 p.m. Eastern Time. The session will include a review of the financial results, operational performance, business outlook, and a question and answer period. The conference call can be accessed by calling 800-374-2470 (domestic participants) or 706-634-5108 (international participants). A live audio webcast can be accessed at www.esi.com. Upon completion of the call, an audio replay will be accessible for thirty days following at 800-642-1687 (domestic participants) or 706-645-9291 (international participants), with conference ID number 4667274. The audio replay will also be available on the ESI website. Forward-Looking Statements This press release includes forward-looking statements concerning the markets we serve, shipments and revenues, gross margins, operating expenses, non-operating income, operating income, customer relations, internal operations, cost containment and tax rates. Actual results may differ materially from those in the forward-looking statements. Risks and uncertainties that may affect the forward-looking statements include: the relative strength and volatility of the electronics industry - which is dependent on many factors including component prices, global economic strength and political stability, and overall demand for electronic devices (such as capacitors, semiconductor memory devices and advanced electronic packages) used in wireless telecommunications equipment, computers and consumer and automotive electronics; the ability of the company to respond promptly to customer requirements; the ability of the company to develop, manufacture and successfully deliver new products and enhancements; the ability of the company to achieve anticipated cost reductions and savings; the company's need to continue investing in research and development; the company's ability to hire and retain key employees; and the company's ability to create and sustain intellectual property protection around its products. About ESI Electro Scientific Industries, Inc. (ESI) is a global supplier of manufacturing equipment to increase productivity for customers in the semiconductor, passive components and electronic equipment markets. As an innovator in the electronics industry, ESI has a legacy of technology firsts and customer recognition for product excellence. The advanced electronic devices you see and use around the world today -- cell phones, personal computers, digital cameras, PDAs, even automotive electronics -- contain components that were likely manufactured with ESI equipment. The company was founded in 1944 and is headquartered in Portland, Oregon. ESI's web site is http://www.esi.com. Electro Scientific Industries, Inc. FY 2005 Results (In thousands, except per share data) (Unaudited) Operating Results: Three months ended Nine months ended ------------------- ------------------- Feb. 26, Feb. 28, Feb. 26, Feb. 28, 2005 2004 2005 2004 ---------- -------- --------- -------- Net sales $ 49,084 $58,770 $187,708 $125,399 Cost of sales 27,646 35,444 96,558 81,570 -------- ------- -------- -------- Gross profit 21,438 23,326 91,150 43,829 Operating expenses: Selling, service and administrative 12,290 13,502 40,254 41,408 Research, engineering and development 6,400 5,429 20,706 16,593 Patent infringement settlement and related legal fees - - 2,240 - -------- ------- -------- -------- Total operating expenses 18,690 18,931 63,200 58,001 -------- ------- -------- -------- Operating income (loss) 2,748 4,395 27,950 (14,172) Net interest income (expense) 83 (22) (166) 61 Other expense (161) (197) (485) (207) -------- ------- -------- -------- Income (loss) before income taxes 2,670 4,176 27,299 (14,318) Provision for (benefit from) income taxes 672 (5,798) 6,709 (10,050) -------- ------- -------- -------- Net income (loss) $ 1,998 $ 9,974 $ 20,590 $ (4,268) ======== ======= ======== ======== Net income (loss) per share - basic $ 0.07 $ 0.36 $ 0.73 $ (0.15) ======== ======= ======== ======== Net income (loss) per share - diluted $ 0.07 $ 0.34 $ 0.72 $ (0.15) ======== ======= ======== ======== Electro Scientific Industries, Inc. Analysis of FY 2005 Results (Dollars in thousands) (Unaudited) Three months ended Nine months ended ------------------- ------------------- Feb. 26, Feb. 28, Feb. 26, Feb. 28, 2005 2004 2005 2004 ---------- -------- --------- -------- Sales detail: Semiconductor Group $ 29,712 $37,068 $109,383 $ 70,941 Electronic Interconnect Group 6,893 9,140 27,264 23,341 Passive Components Group 12,479 12,562 51,061 31,117 --------- ------- -------- -------- Total $ 49,084 $58,770 $187,708 $125,399 ========= ======= ======== ======== Gross margin % 44% 40% 49% 35% Selling, service and administrative expense % 25% 23% 21% 33% Research, engineering and development expense % 13% 9% 11% 13% Operating income (loss) % 6% 7% 15% (11%) Effective tax rate % 25% (139%) 25% 70% Average shares outstanding - basic 28,492 28,030 28,383 27,933 Average shares outstanding - diluted 28,600 32,187 28,533 27,933 End of period employees 571 607 571 607 Electro Scientific Industries, Inc. FY 2005 Results (Amounts in thousands) (Unaudited) Financial Position As Of: February 26, November 27, May 29, 2005 2004 2004 ------------ ------------- ----------- Assets Current assets: Cash and cash equivalents $ 147,724 $ 91,309 $ 80,358 Marketable securities 159,929 190,467 206,931 Restricted securities - 3,296 6,251 ------------ ------------- ----------- Total cash and securities 307,653 285,072 293,540 Trade receivables, net 36,838 53,971 51,696 Income tax refund receivable 9,108 8,896 7,466 Inventories 66,788 68,321 58,627 Shipped systems pending acceptance 1,332 2,234 4,391 Deferred income taxes 11,358 12,548 16,096 Assets held for sale - - 2,391 Prepaid and other current assets 5,031 5,055 3,348 ------------ ------------- ----------- Total current assets 438,108 436,097 437,555 Long-term marketable securities 47,853 53,021 39,214 Property and equipment, net 32,848 33,085 33,531 Deferred income taxes 16,138 15,609 17,630 Other assets 11,827 12,464 9,256 ------------ ------------- ----------- Total assets $ 546,774 $ 550,276 $ 537,186 ============ ============= =========== Liabilities and shareholders' equity Current liabilities: Accounts payable $ 5,681 $ 8,326 $ 13,248 Accrued liabilities 32,674 36,662 42,381 Deferred revenue 8,573 9,375 11,985 Convertible subordinated notes 143,410 - - ------------ ------------- ----------- Total current liabilities 190,338 54,363 67,614 Long term debt - convertible subordinated notes - 143,193 142,759 ------------ ------------- ----------- Total liabilities 190,338 197,556 210,373 Shareholders' equity: Preferred and common stock 154,828 153,290 147,054 Retained earnings 201,952 199,954 181,362 Accumulated other comprehensive loss (344) (524) (1,603) ------------ ------------- ----------- Total shareholders' equity 356,436 352,720 326,813 ------------ ------------- ----------- Total liabilities and shareholders' equity $ 546,774 $ 550,276 $ 537,186 ============ ============= =========== End of period shares outstanding 28,534 28,463 28,175 ============ ============= =========== Total cash and investments $ 355,506 $ 338,093 $ 332,754 ============ ============= =========== Electro Scientific Industries, Inc. FY2005 Results (Amounts in thousands) (Unaudited) Consolidated Statements of Cash Flows: Nine months ended ------------------- Feb. 26, Feb. 28, 2005 2004 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 20,590 $ (4,268) Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Depreciation and amortization 7,176 6,942 Provision for doubtful accounts 199 101 Loss on disposal of property and equipment 281 57 Deferred income taxes 6,271 461 Tax benefit of stock options exercised 637 703 Changes in operating accounts: (Increase) decrease in trade receivables, net 16,645 (6,336) Increase in income tax receivable (1,642) (28,490) Increase in inventories, net (11,781) (7,381) Decrease in shipped systems pending acceptance 3,059 1,615 (Increase) decrease in prepaid and other current assets (1,346) 262 Increase (decrease) in accounts payable and other current liabilities (18,407) 19,520 Increase (decrease) in deferred revenue (3,413) 3,398 -------- -------- Net cash provided by (used in) operating activities 18,269 (13,416) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (3,397) (3,328) Proceeds from sale of property and equipment 92 9 Proceeds from sale of assets held for sale 2,361 - Change in investments, net 45,178 23,061 Increase in other assets (827) (309) -------- -------- Net cash provided by investing activities 43,407 19,433 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from stock plans 5,690 4,840 -------- -------- Net cash provided by financing activities 5,690 4,840 -------- -------- NET CHANGE IN CASH AND CASH EQUIVALENTS $ 67,366 $ 10,857 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $ 80,358 $ 31,017 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $147,724 $ 41,874 ======== ======== CONTACT: Electro Scientific Industries, Inc. Mike Dodson, 503-671-7028 Craig Stoehr, 503-671-7061