<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) JUNE 26, 1997
COMMISSION FILE NUMBER 0-12853
ELECTRO SCIENTIFIC INDUSTRIES, INC.
OREGON 93-0370304
(STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION)
13900 N.W. SCIENCE PARK DRIVE, PORTLAND, OREGON 97229
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (503) 641-4141
1
<PAGE>
Item 2. Acquisition or Disposition of Assets
On June 26, 1997, Electro Scientific Industries, Inc. (the "Company") acquired
Chip Star Inc. ("Chip Star") by means of a merger (the "Merger") of CI Merger
Corp., a wholly owned subsidiary of the Company, with and into Chip Star. Chip
Star, a privately held California corporation, provides termination systems for
miniature surface mount ceramic capacitor producers. The Company issued 591,840
shares of its Common Stock to Denver Braden and Angelo Mitchell, the two
shareholders of Chip Star, as merger consideration in the transaction. The
Company also assumed options held by certain Chip Star employees, providing for
the issuance of up to 108,160 shares of Company Common Stock. Chip Star will
operate as a wholly owned subsidiary of the Company.
Item 7. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. Financial statements of
Chip Star are not filed because none of the conditions specified in
Rule 1-02 (w) of Regulation S-X exceeds 20 percent.
(b) PRO FORMA FINANCIAL INFORMATION. Pro forma financial information is
not filed because none of the conditions specified in Rule 1-02 (w) of
Regulation S-X exceeds 20 percent.
(c) RESTATED FINANCIAL STATEMENTS OF THE COMPANY. Pages 3 - 21 of this
Form 8-K/A Amendment No. 1 contain Supplemental Consolidated Financial
Statements of the Company as of May 31, 1997 and 1996 and for the
three years ended May 31, 1997, as restated to give retroactive effect
to the Merger which has been accounted for as a pooling of interests.
(d) EXHIBITS
2.1 Agreement of Reorganization and Merger, dated June 26, 1997, by
and among the Company, Chip Star, CI Merger Corp., Denver Braden,
and Angelo Mitchell. Included as an exhibit to the original
Current Report on Form 8-K dated June 26, 1997, as filed on July
7, 1997.
23.1 Consent of Independent Public Accountants.
27.1 Financial Data Schedule.
2
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ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
ASSETS
MAY 31,
-------
1997 1996
---- ----
(IN THOUSANDS)
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . $ 17,801 $ 19,600
Securities available for sale. . . . . . . . . 27,860 18,363
------ ------
Total cash and securities. . . . . . . . . . 45,661 37,963
Trade receivables, less allowance for
doubtful accounts of $230 and $314 at
May 31, 1997 and 1996. . . . . . . . . . . . 50,869 40,411
Inventories -
Finished goods . . . . . . . . . . . . . . . 4,322 2,979
Work-in-process. . . . . . . . . . . . . . . 6,757 6,188
Raw materials and purchased parts. . . . . . 21,772 21,906
------ ------
Total inventories. . . . . . . . . . . . . 32,851 31,073
Deferred income taxes. . . . . . . . . . . . . 2,366 2,747
Other current assets . . . . . . . . . . . . . 580 819
------ ------
Total current assets . . . . . . . . . . . 132,327 113,013
PROPERTY AND EQUIPMENT, AT COST. . . . . . . . . 40,963 39,086
Less-Accumulated depreciation. . . . . . . . . (24,559) (22,265)
------ ------
Net property and equipment . . . . . . . . 16,404 16,821
DEFERRED INCOME TAXES. . . . . . . . . . . . . . 1,042 1,137
OTHER ASSETS . . . . . . . . . . . . . . . . . . 5,040 4,487
------ ------
$154,813 $135,458
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . $ 6,494 $ 5,170
Accrued liabilities -
Payroll related. . . . . . . . . . . . . . . 4,126 3,792
Commissions. . . . . . . . . . . . . . . . . 2,189 1,961
Income taxes . . . . . . . . . . . . . . . . 811 2,930
Other. . . . . . . . . . . . . . . . . . . . 2,001 4,484
------ ------
Total accrued liabilities. . . . . . . . . 9,127 13,167
Deferred revenue . . . . . . . . . . . . . . . 78 276
------ ------
Total current liabilities. . . . . . . . . 15,699 18,613
------ ------
SHAREHOLDERS' EQUITY:
Preferred stock, without par value; 1,000 shares
authorized; no shares issued . . . . . . . . -- --
Common stock, without par value; 40,000 shares
authorized; 9,468 and 9,355 shares issued
and outstanding at May 31, 1997 and 1996 . . 57,736 55,940
Retained earnings. . . . . . . . . . . . . . . 81,378 60,905
------ ------
Total shareholders' equity . . . . . . . . . 139,114 116,845
------- -------
$154,813 $135,458
-------- --------
-------- --------
The accompanying notes are an integral part of these statements.
3
<PAGE>
ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . $160,149 $166,310 $112,900
Cost of sales. . . . . . . . . . . . . . . . . . . . . 73,097 75,167 53,238
------ ------ ------
Gross margin . . . . . . . . . . . . . . . . . . . . 87,052 91,143 59,662
Operating expenses:
Selling, service and administrative. . . . . . . . . 38,974 41,564 29,094
Research, development and engineering. . . . . . . . 17,038 16,743 13,483
Acquired in-process research and development . . . . -- 6,000 --
------ ------ ------
Total operating expenses . . . . . . . . . . . . 56,012 64,307 42,577
------ ------ ------
Operating income . . . . . . . . . . . . . . . . . . . 31,040 26,836 17,085
Interest income... . . . . . . . . . . . . . . . . . . 1,523 1,210 565
Other expense, net . . . . . . . . . . . . . . . . . . (75) (719) (167)
------ ------ ------
Income before income taxes . . . . . . . . . . . . . . 32,488 27,327 17,483
Provision for income taxes . . . . . . . . . . . . . . 11,238 10,028 5,266
------ ------ ------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 21,250 $ 17,299 $ 12,217
--------- --------- ---------
--------- --------- ---------
Net income per share . . . . . . . . . . . . . . . . . $ 2.27 $ 1.86 $ 1.49
------- ------- -------
------- ------- -------
Weighted average number of shares
used in computing per share amounts . . . . . . . 9,373 9,306 8,210
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------
NUMBER OF RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE AT MAY 31, 1994, as previously reported. . . . . . 6,420 $22,097 $31,450 $53,547
Adjustments for Chip Star, Inc. Pooling-of-Interests . . 700 150 (138) 12
------ ------ ------ ------
BALANCE AT MAY 31, 1994, adjusted. . . . . . . . . . . . . 7,120 22,247 31,312 53,559
Net income . . . . . . . . . . . . . . . . . . . . . . . -- -- 12,217 12,217
Non-employee directors stock incentive plan. . . . . . . -- 19 -- 19
Stock plans:
Employee stock plans . . . . . . . . . . . . . . . . . 241 2,104 -- 2,104
Tax benefit of stock options exercised . . . . . . . . -- 1,068 -- 1,068
Shares issued for acquisition of Chicago Laser . . . . . 333 1,939 -- 1,939
Shares issued in stock offering. . . . . . . . . . . . . 1,380 22,535 -- 22,535
Unrealized gain on securities. . . . . . . . . . . . . . -- -- 60 60
Cumulative translation adjustment. . . . . . . . . . . . -- -- 1,655 1,655
------ ------ ------ ------
BALANCE AT MAY 31, 1995. . . . . . . . . . . . . . . . . . 9,074 49,912 45,244 95,156
Net income . . . . . . . . . . . . . . . . . . . . . . . -- -- 17,299 17,299
Stock plans:
Employee stock plans . . . . . . . . . . . . . . . . . 85 706 -- 706
Tax benefit of stock options exercised . . . . . . . . -- 540 -- 540
Shares issued for acquisitions . . . . . . . . . . . . . 196 4,782 -- 4,782
Unrealized loss on securities. . . . . . . . . . . . . . -- -- (42) (42)
Cumulative translation adjustment. . . . . . . . . . . . -- -- (1,596) (1,596)
------ ------ ------ ------
BALANCE AT MAY 31, 1996. . . . . . . . . . . . . . . . . . 9,355 55,940 60,905 116,845
Net income . . . . . . . . . . . . . . . . . . . . . . . -- -- 21,250 21,250
Adjustment to align Chip Star, Inc. fiscal year
with May 31. . . . . . . . . . . . . . . . . . . . . . . -- -- (325) (325)
Stock plans:
Employee stock plans . . . . . . . . . . . . . . . . . 113 1,235 -- 1,235
Tax benefit of stock options exercised . . . . . . . . -- 561 -- 561
Unrealized loss on securities. . . . . . . . . . . . . . -- -- (19) (19)
Cumulative translation adjustment. . . . . . . . . . . . -- -- (433) (433)
------ ------ ------ ------
BALANCE AT MAY 31, 1997. . . . . . . . . . . . . . . . . . 9,468 $57,736 $81,378 $139,114
----- ------- ------- --------
----- ------- ------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . $21,250 $17,299 $12,217
Adjustment to align Chip Star, Inc. fiscal year
with May 31. . . . . . . . . . . . . . . . . . . . . . (325) -- --
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Acquired in-process research and development. . . . -- 6,000 --
Depreciation and amortization . . . . . . . . . . . 3,109 2,803 2,646
Other non-cash charges (credits). . . . . . . . . . -- -- (414)
Deferred income taxes . . . . . . . . . . . . . . . 476 (770) (1,626)
Changes in operating accounts:
Increase in trade receivables . . . . . . . . . . . (11,599) (6,010) (15,198)
Increase in inventories . . . . . . . . . . . . . . (1,012) (3,563) (3,014)
Decrease (increase) in other current assets . . . . 239 43 (368)
(Decrease) increase in current liabilities. . . . . (2,028) (3,987) 6,268
------- ------- -------
Net cash provided by operating activities. . . . . . . . 10,110 11,815 511
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of XRL subsidiary, net of cash acquired (1) . . -- (492) --
Purchase of Chicago Laser subsidiary, net of cash
acquired (2) . . . . . . . . . . . . . . . . . . . . . -- -- (707)
Purchase of property and equipment . . . . . . . . . . . (3,469) (3,755) (3,070)
Proceeds from the sale of property and equipment . . . . -- -- 648
Purchase of securities . . . . . . . . . . . . . . . . . (42,316) (30,986) (20,950)
Proceeds from sales of securities and maturing securities 32,800 29,850 4,000
(Increase) decrease in other assets. . . . . . . . . . . (720) 366 (1,458)
------- ------- -------
Net cash used in investing activities. . . . . . . . . . (13,705) (5,017) (21,537)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments to retire debt. . . . . . . . . . . . . . . . . -- -- (1,383)
Proceeds from secondary stock offering . . . . . . . . . -- -- 22,535
Proceeds from exercise of stock options and
stock plans and related tax benefits . . . . . . . . . 1,796 1,246 3,172
------- ------- -------
Net cash provided by financing activities. . . . . . . . 1,796 1,246 24,324
------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS. . . . . . . . . . (1,799) 8,044 3,298
CASH AND CASH EQUIVALENTS AT JUNE 1. . . . . . . . . . . . 19,600 11,556 8,258
------- ------- -------
CASH AND CASH EQUIVALENTS AT MAY 31. . . . . . . . . . . . $17,801 $19,600 $11,556
------- ------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
(1) Acquisition of XRL subsidiary:
Assets less liabilities acquired, net of cash acquired . . . . $(5,073)
Issuance of common stock . . . . . . . . . . . . . . . . . . . 4,581
-------
Net cash used to acquire business. . . . . . . . . . . . . . . $ (492)
-------
-------
(2) Acquisition of Chicago Laser subsidiary:
Assets less liabilities acquired, net of cash acquired . . . . $(2,646)
Issuance of common stock . . . . . . . . . . . . . . . . . . . 1,939
-------
Net cash used to acquire business. . . . . . . . . . . . . . . $ (707)
-------
-------
Cash payments for interest were not significant in 1997, 1996 or 1995.
7
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
BUSINESS ENVIRONMENT
The accompanying supplemental 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, circuit fine tuning systems, precision laser and mechanical
electronic packaging production systems and machine vision 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 electronics manufacturers: 47.1% of fiscal 1997 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 for additional commentary.
8
<PAGE>
BASIS OF PRESENTATION
In June 1997, ESI merged with Chip Star, Inc. (Chip Star), a privately-held
company based in San Marcos, California. Chip Star provides capital equipment
for producers of surface mount ceramic capacitors. Consideration paid to Chip
Star was 700 shares of ESI stock. The merger was accounted for as a
pooling-of-interests. Accordingly, all financial statements and footnote data
have been restated. The following is a reconciliation of certain restated
amounts with amounts previously reported.
YEAR ENDED MAY 31,
------------------
1997 1996 1995
---- ---- ----
Sales:
ESI. . . . . . . . . . . . . . . . $150,159 $159,705 $108,215
Chip Star. . . . . . . . . . . . . 9,990 6,605 4,685
------- ------- -------
As restated . . . . . . . . . . $160,149 $166,310 $112,900
Net income:
ESI. . . . . . . . . . . . . . . . $18,952 $16,082 $11,517
Chip Star. . . . . . . . . . . . . 2,298 1,217 700
------- ------- -------
As restated. . . . . . . . . . . $21,250 17,299 12,217
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 generally
accepted accounting principles 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.
RECLASSIFICATIONS
Certain reclassifications have been made in the accompanying supplemental
consolidated financial statements for 1995 and 1996 to conform with the 1997
presentation.
REVENUE RECOGNITION
The Company generally recognizes revenue at the time of shipment.
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.
9
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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.
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, if
significant.
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.
DEPRECIATION AND CAPITALIZATION POLICIES
Depreciation is determined on the declining balance and straight-line
methods 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.
FOREIGN CURRENCY TRANSLATION
The Company accounts for foreign currency translation in accordance with
Statement of Financial Accounting Standards No. 52. The total cumulative
translation adjustment included in retained earnings is $(4), $429 and $2,025 at
May 31, 1997, 1996 and 1995, respectively. Foreign currency transaction losses
were $176 and $227 for the years ended May 31, 1997 and 1995, respectively, with
a gain of $380 for the year ended May 31, 1996. These amounts are included in
other expense in the accompanying Supplemental Consolidated Statements of
Income.
10
<PAGE>
PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
MAY 31,
-------
1997 1996
---- ----
Land. . . . . . . . . . . . . . . . . . $ 3,419 $ 3,419
Buildings and improvements. . . . . . . 13,143 13,004
Machinery and equipment . . . . . . . . 24,132 22,321
Construction in progress. . . . . . . . 269 342
------- -------
$40,963 $39,086
------- -------
------- -------
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 1997. Management expects
to renew the revolver under similar terms or secure alternate financing. At the
Company's option, the interest rate is either prime or LIBOR plus 1.25 percent.
There were no borrowings outstanding under the line at anytime during fiscal
1997.
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 $406, $462 and $334
to the plan for the years ended May 31, 1997, 1996 and 1995, respectively.
11
<PAGE>
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Under the liability method specified by SFAS 109, the deferred tax assets
and liabilities are determined based on the temporary differences between the
financial statement and tax bases of assets and liabilities as measured by the
enacted tax rates for the years in which the taxes are expected to be paid.
The net deferred tax asset as of May 31, 1997 and May 31, 1996 consists of
the following tax effects relating to temporary differences and carryforwards:
MAY 31,
-------
1997 1996
---- ----
Deferred tax assets:
Inventory valuation. . . . . . . . . . . . . . . . . . $1,385 $1,129
Vacation pay . . . . . . . . . . . . . . . . . . . . . 629 560
Warranty costs . . . . . . . . . . . . . . . . . . . . 440 350
Accrued compensation . . . . . . . . . . . . . . . . . 443 392
------ ------
2,897 2,431
Tax loss and credit carryforwards. . . . . . . . . . . 1,405 1,874
------ ------
Total deferred tax assets. . . . . . . . . . . . . . 4,302 4,305
Deferred tax liabilities. . . . . . . . . . . . . . . . (894) (421)
----- ------
Net deferred tax asset. . . . . . . . . . . . . . . . . $3,408 $3,884
------ ------
At May 31, 1997, there was a net operating loss carryforward of $4,015
available for U.S. federal income tax purposes. These losses were acquired as
part of the XRL acquisition and expire through 2008.
The components of income before income taxes and the provision for income
taxes are as follows:
YEAR ENDED MAY 31,
------------------
1997 1996 1995
---- ---- ----
Income before income taxes:
Domestic . . . . . . . . . . . . . . . . . . . . $27,976 $25,690 $14,395
Foreign. . . . . . . . . . . . . . . . . . . . . 4,512 1,637 3,088
------- ------- -------
$32,488 $27,327 $17,483
------- ------- -------
Provision for income taxes:
Current:
U.S. Federal and State . . . . . . . . . . . . . $ 8,298 $ 9,371 $ 4,088
Foreign. . . . . . . . . . . . . . . . . . . . . 1,903 887 1,736
------- ------- -------
10,201 10,258 5,824
Deferred . . . . . . . . . . . . . . . . . . . . 476 (770) (1,626)
Income tax effect of stock options exercised . . 561 540 1,068
------- ------- -------
$11,238 $10,028 $ 5,266
------- ------- -------
In accordance with SFAS 109, 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.
12
<PAGE>
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:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Provision computed at federal statutory rate . . . . . . . . . . $11,371 $ 9,564 $ 6,119
Higher than U.S. tax rates in foreign jurisdictions. . . . . . . 323 314 753
Impact of U.S. tax loss and credit carryforwards utilization . . -- (434) (1,236)
Impact of state taxes. . . . . . . . . . . . . . . . . . . . . . 1,156 876 334
Benefit of foreign sales corporation (FSC) . . . . . . . . . . . (1,468) (137) (217)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . (144) (155) (487)
------- ------- -------
$11,238 $10,028 $ 5,266
------- ------- -------
</TABLE>
Consolidated income tax payments amounted to $12,276, $8,762 and $4,715 for
the years ended May 31, 1997, 1996 and 1995, respectively.
EARNINGS PER SHARE
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:
YEAR ENDED MAY 31,
------------------
1997 1996 1995
----------- ----------- -----------
Primary EPS as reported $2.27 $1.86 $1.49
Effect of SFAS 128 0.00 0.00 0.00
----- ----- -----
Basic EPS as restated $2.27 $1.86 $1.49
----- ----- -----
Fully diluted EPS as reported $2.27 $1.86 $1.49
Effect of SFAS 128 (0.05) (0.04) (0.04)
----- ----- -----
Diluted EPS as restated $2.22 $1.82 $1.45
----- ----- -----
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 settlement date. At May 31, 1997 and 1996, the Company had forward
exchange contracts totaling $5,470 and $7,460, respectively. These contracts
generally mature in less than one year and the counterparty is a large, widely
recognized international bank; therefore, risk of credit loss as a result of
nonperformance by the bank is minimal. The use of derivatives does not have a
significant effect on the Company's results of operations or its financial
position.
13
<PAGE>
The Company leases equipment and office space under operating leases which
are non-cancelable and expire on various dates through 2002. The aggregate
minimum commitment for rentals under operating leases beyond May 31, 1997 is not
significant.
The Company is a party to various legal proceedings. Management believes
that the outcome of such proceedings will not have a material effect on the
business, financial position or results of operations of the Company.
SECURITIES AVAILABLE FOR SALE
The Company accounts for securities in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS 115). The Company classifies its marketable
debt securities as Securities Available for Sale in the accompanying
Consolidated Balance Sheets. The fair market value of these securities at May
31, 1997 and 1996 is $27,860 and $18,363, respectively. All of the Company's
marketable debt securities are invested in high-credit quality tax-advantaged
securities with maturities of less than one year from the date of purchase; the
amortized cost of these securities approximates fair market value.
During fiscal 1997 and 1996, proceeds of $32,800 and $29,850, respectively,
resulted from the sales or maturities of securities; there were no realized
gains or losses associated with these sales or maturities.
SHAREHOLDER RIGHTS PLAN
In May 1989, the Company adopted a Shareholder Rights Plan and declared a
dividend distribution of one Right for each outstanding share of Common Stock,
payable to holders of record on June 23, 1989. 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 $55, subject to adjustment. The Rights are not
presently exercisable and will only become exercisable following the occurrence
of certain specified events. If these specified events occur, 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 or 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 12, 1999 and may be redeemed by the
Company for $0.01 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.
14
<PAGE>
STOCK PLANS
The Company has stock option and restricted stock grant plans for officers
and employees. During fiscal 1997, ESI recorded $475 of compensation expense
related to stock grants earned in April 1997. Awards under these plans are
determined by the Compensation Committee of the Board of Directors. Stock
appreciation rights may be granted in connection with options, although no
options have been granted that include stock appreciation rights. Option prices
are at fair market value at the date of the grant and all expire ten years from
the date of grant.
The Company has an employee stock purchase plan which allows qualified
employees to direct up to 15% of base pay for purchases of stock. The purchase
price for shares purchased under the Plan is 85% of the fair market value of
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 and was effective
beginning with the Company's 1996 fiscal year. The Company will continue 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.
The Company has computed, for pro forma disclosure purposes, the value of
all options granted under the stock option plan to be $16.04 and $13.26 for 1997
and 1996. The pro forma value of options granted under the employee stock
purchase plan is immaterial for both 1997 and 1996. 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 1997 and 1996:
Risk-free interest rate 7.5%
Expected dividend yield 0%
Expected life stock option plan 7 years
Expected volatility 48.5%
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:
YEAR ENDED MAY 31,
------------------
1997 1996
---- ----
NET INCOME:
As reported . . . . . . . . . . . . . . . . . . . . $21,250 $17,299
Pro forma . . . . . . . . . . . . . . . . . . . . . 20,514 17,048
NET INCOME PER SHARE:
As reported . . . . . . . . . . . . . . . . . . . . $ 2.27 $ 1.86
Pro forma . . . . . . . . . . . . . . . . . . . . . 2.22 1.85
15
<PAGE>
The following table summarizes activity in stock plans for the years ended
May 31, 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------
1997 1996
----------------------- ----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Options outstanding at beginning of year . 835 $20.60 675 $17.61
Granted. . . . . . . . . . . . . . . . . 230 25.95 277 22.20
Exercised. . . . . . . . . . . . . . . . 93 16.47 73 9.05
Canceled . . . . . . . . . . . . . . . . 55 20.93 44 20.35
---- ------ ---- ------
Options outstanding at end of year . . . . 917 22.83 835 20.60
---- ------ ---- ------
Exercisable at end of year . . . . . . . . 355 $18.27 260 $15.03
---- ------ ---- ------
</TABLE>
The following table sets forth the exercise price range, number of shares
outstanding at May 31, 1997, 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:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------------- ----------------------------
WEIGHTED-
AVERAGE
RANGE OF OUTSTANDING REMAINING WEIGHTED- EXERCISABLE WEIGHTED-
-------- AS OF CONTRACTUAL AVERAGE AS OF AVERAGE
EXERCISE PRICES MAY 31, 1997 LIFE (YEARS) EXERCISE PRICE MAY 31, 1997 EXERCISE PRICE
- --------------- ------------ ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$ 2.63-$9.88 267 5.76 $ 8.86 217 $ 8.53
9.88-18.00 210 8.60 17.46 51 16.58
18.01-24.00 183 7.96 23.62 75 23.75
24.01-33.00 243 9.59 28.22 9 32.80
33.01-39.38 14 8.25 38.36 3 38.36
--- ---- ------ --- ------
917 8.18 $22.83 355 $18.27
--- ---- ------ --- ------
</TABLE>
16
<PAGE>
GEOGRAPHIC REPORTING
The Company operates in the capital equipment segment of the electronics
industry with 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 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 May 31, 1997, 1996 and 1995 were as follows:
EUROPE ASIA TOTAL
------ ---- -----
May 31, 1997. . . . . . . . . . . . . . $4,282 $59,053 $63,335
May 31, 1996. . . . . . . . . . . . . . 1,926 68,192 70,118
May 31, 1995. . . . . . . . . . . . . . 3,889 36,605 40,494
In fiscal 1997 and 1996, there were no sales to any one customer in excess
of 10% of consolidated net sales. During fiscal 1995, one customer accounted
for 11.9% of consolidated net sales.
17
<PAGE>
The following data represents segment information for the years ending
May 31:
<TABLE>
<CAPTION>
UNITED ADJUSTMENTS
------ AND
1997 STATES EUROPE ASIA ELIMINATIONS CONSOLIDATED
- ---- ------ ------ ---- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers. . . . . $110,318 $28,872 $20,959 $ -- $160,149
Transfers between geographic areas . . . 35,986 -- 427 (36,413) --
-------- ------- ------- -------- --------
Total revenue. . . . . . . . . . . . . . $146,304 $28,872 $21,386 $(36,413) $160,149
-------- ------- ------- -------- --------
Operating income . . . . . . . . . . . . $ 26,656 $ 2,899 $ 1,623 $ (138) $ 31,040
-------- ------- ------- -------- --------
Identifiable assets at May 31, 1997. . . $ 96,299 $11,374 $ 9,480 $ (8,001) $109,152
-------- ------- ------- --------
Corporate assets . . . . . . . . . . . . 45,661
--------
Total assets at May 31, 1997 . . . . . . $154,813
--------
1996
- ----
Sales to unaffiliated customers. . . . . $125,669 $18,329 $22,312 $ -- $166,310
Transfers between geographic areas . . . 28,009 8 543 (28,560) --
-------- ------- ------- -------- --------
Total revenue. . . . . . . . . . . . . . $153,678 $18,337 $22,855 $(28,560) $166,310
-------- ------- ------- -------- --------
Operating income (1) . . . . . . . . . . $ 24,847 $ 260 $ 1,965 $ (236) $ 26,836
-------- ------- ------- -------- --------
Identifiable assets at May 31, 1996. . . $101,397 $ 8,624 $ 8,049 $(20,575) $ 97,495
-------- ------- ------- --------
Corporate assets . . . . . . . . . . . . 37,963
--------
Total assets at May 31, 1996 . . . . . . $135,458
--------
1995
- ----
Sales to unaffiliated customers. . . . . $ 73,853 $15,869 $23,178 $ -- $112,900
Transfers between geographic areas . . . 24,631 9 434 (25,074) --
-------- ------- ------- -------- --------
Total revenue. . . . . . . . . . . . . . $ 98,484 $15,878 $23,612 $(25,074) $112,900
-------- ------- ------- -------- --------
Operating income . . . . . . . . . . . . $ 13,441 $ 791 $ 2,605 $ 248 $ 17,085
-------- ------- ------- -------- --------
Identifiable assets at May 31, 1995. . . $ 84,926 $ 7,994 $10,922 $(19,746) $ 84,096
-------- ------- ------- --------
Corporate assets . . . . . . . . . . . . 28,825
--------
Total assets at May 31, 1995 . . . . . . $112,921
--------
</TABLE>
(1) Includes the $6,000 in-process research and development charge associated
with the acquisition of XRL, Inc.
ACQUISITIONS
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 yield improvement. The purchase
consideration consisted of 179 shares of ESI stock. The transaction was
accounted for as a purchase.
18
<PAGE>
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 $6,000 was charged to expense during the quarter ended August
31, 1995 and is reflected in the accompanying Consolidated Statements of Income.
Pro forma combined income statement data for the years ended May 31, 1996
and 1995 was not materially different from results presented in the accompanying
Supplemental Consolidated Statements of Income.
SUBSEQUENT EVENT - DYNAMOTION CORP.
In June 1997, ESI acquired all of the equity of Dynamotion/ATI Corp.
(Dynamotion), a publicly-held company based in Santa Ana, California.
Dynamotion provides mechanical drilling equipment for printed circuit board
manufacturers. The preliminary purchase consideration was $11,950 (347 shares
of ESI stock) and assumption of $14,352 of liabilities. The purchase
consideration includes the fair market value of all Dynamotion stock options.
The purchase price allocation includes $2,229 of goodwill which will be
amortized over seven years. The Company is still obtaining certain data related
to the acquisition, and accordingly, the purchase price allocation remains open.
The transaction was accounted for as a purchase.
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 $9,000 will be charged to expense during the quarter ended
August 31, 1997. The Company currently believes that the research and
development efforts will result in commercially feasible products in the next 24
months at an estimated additional cost of $2,000.
Pro forma combined income statement data for the years ended May 31, 1997
and 1996 are as follows:
1997 1996
--------- ---------
Sales............................... $ 172,787 $ 179,813
Income from continuing operations... $ 15,256 $ 13,913
Net income per share................ $ 1.57 $ 1.44
19
<PAGE>
SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, 1997 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
- ----------------------- ----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net sales................... $36,199 $37,415 $40,347 $46,188 $160,149
Gross margin................ 20,690 20,932 22,160 23,270 87,052
Net income.................. 4,603 5,103 5,758 5,786 21,250
Net income per share........ $ 0.49 $ 0.55 $ 0.61 $ 0.62 $ 2.27
YEAR ENDED MAY 31, 1996 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
- ----------------------- ----------- ----------- ----------- ----------- --------
Net sales................... $38,721 $43,089 $42,119 $42,381 $166,310
Gross margin................ 20,951 23,541 22,840 23,811 91,143
Net income.................. 1,226(1) 5,393 5,122 5,558 17,299
Net income per share........ $ 0.13 $ 0.58 $ 0.55 $ 0.60 $ 1.86
</TABLE>
(1) Includes the $6,000 in-process research and development charge associated
with the acquisition of XRL, Inc.
20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Electro Scientific Industries, Inc.:
We have audited the accompanying supplemental consolidated balance sheets
of Electro Scientific Industries, Inc. (an Oregon corporation) and subsidiaries
as of May 31, 1997 and 1996, and the related supplemental consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended May 31, 1997. 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 generally accepted auditing
standards. 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 supplemental consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Electro Scientific Industries, Inc. and subsidiaries as of May 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended May 31, 1997 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Portland, Oregon
August 15, 1997
21
<PAGE>
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 15, 1997 ELECTRO SCIENTIFIC INDUSTRIES, INC.
By /s/ Donald R. VanLuvanee
------------------------------------
Donald R. VanLuvanee
President and Chief Executive Officer
22
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 8-K/A Amendment No. 1, 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 and 333-29513.
ARTHUR ANDERSEN LLP
Portland, Oregon
August 15, 1997
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> MAY-31-1997 MAY-31-1996 MAY-31-1995
<PERIOD-START> JUN-01-1996 JUN-01-1995 JUN-01-1994
<PERIOD-END> MAY-31-1997 MAY-31-1996 MAY-31-1995
<CASH> 17,801 19,600 0
<SECURITIES> 27,860 18,363 0
<RECEIVABLES> 51,099 40,725 0
<ALLOWANCES> 230 314 0
<INVENTORY> 32,851 31,073 0
<CURRENT-ASSETS> 132,327 113,013 0
<PP&E> 40,963 39,086 0
<DEPRECIATION> 24,559 22,265 0
<TOTAL-ASSETS> 154,813 135,458 0
<CURRENT-LIABILITIES> 15,699 18,613 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 57,736 55,940 0
<OTHER-SE> 81,378 60,905 0
<TOTAL-LIABILITY-AND-EQUITY> 154,813 135,458 0
<SALES> 160,149 166,310 112,900
<TOTAL-REVENUES> 160,149 166,310 112,900
<CGS> 73,097 75,167 53,238
<TOTAL-COSTS> 73,097 75,167 53,238
<OTHER-EXPENSES> 56,012 64,307 42,577
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 32,488 27,327 17,483
<INCOME-TAX> 11,238 10,028 5,266
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 21,250 17,299 12,217
<EPS-PRIMARY> 2.27 1.86 1.49
<EPS-DILUTED> 2.27 1.86 1.49
</TABLE>
