<PAGE>
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>
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ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Part I. Financial Information
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
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
</TABLE>
<PAGE>
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ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
ASSETS August 31, 1999* May 31, 1999
- ------ --------------- -------------
<S> <C> <C>
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
=============== =============
</TABLE>
The accompanying notes are an integral part of these statements.
* Unaudited
<PAGE>
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ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY August 31, 1999* May 31, 1999
- -------------------- ---------------- ------------
<S> <C> <C>
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
=============== ============
</TABLE>
The accompanying notes are an integral part of these statements.
* Unaudited
<PAGE>
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ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share)
<TABLE>
<CAPTION>
Three Months Ended * Three Months Ended *
August 31, 1999 August 31, 1998
--------------- ---------------
<S> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these statements.
* Unaudited
<PAGE>
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ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
August 31, 1999* August 31, 1998*
---------------- ----------------
<S> <C> <C>
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
============ ============
</TABLE>
*Unaudited
<PAGE>
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>
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:
<TABLE>
<CAPTION>
August 31, 1999 May 31, 1999 *
--------------- --------------
<S> <C> <C>
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
=============== ==============
</TABLE>
*Audited
<PAGE>
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.
<TABLE>
<CAPTION>
Three Months Ended
August 31, 1999 August 31, 1998
--------------- ---------------
<S> <C> <C>
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
============= ============
</TABLE>
<PAGE>
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.
<TABLE>
<CAPTION>
Three Months Ended
August 31, 1999 August 31, 1998
--------------- ---------------
<S> <C> <C>
Number of Employee Stock Options 95 63
</TABLE>
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>
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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:
<TABLE>
<CAPTION>
Three Months Ended
August 31, 1998
------------------
<S> <C>
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
</TABLE>
<PAGE>
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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>
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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>
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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>
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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>
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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>
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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>
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>
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.
<TABLE>
<S> <C>
For 8,627,140
Against 0
Abstain 92,408
</TABLE>
2. Selection of Arthur Andersen LLP as independent auditors for the Company
was approved.
<TABLE>
<S> <C>
For 8,713,598
Against 3,467
Abstain 2,483
</TABLE>
<PAGE>
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.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> MAY-31-1999
<PERIOD-END> AUG-31-1999
<CASH> 20,124
<SECURITIES> 23,360
<RECEIVABLES> 77,432
<ALLOWANCES> 829
<INVENTORY> 50,838
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0
0
<COMMON> 108,477
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<EPS-BASIC> .37
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</TABLE>
