Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ESIO > SEC Filings for ESIO > Form 10-Q on 7-Nov-2012All Recent SEC Filings

Show all filings for ELECTRO SCIENTIFIC INDUSTRIES INC

Form 10-Q for ELECTRO SCIENTIFIC INDUSTRIES INC


7-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The statements contained in this report that are not statements of historical fact, including without limitation, statements containing the words "believes," "expects," "anticipates" and similar words, constitute forward-looking statements that are subject to a number of risks and uncertainties. From time to time we may make other forward-looking statements. Investors are cautioned that such forward-looking statements are subject to an inherent risk that actual results may materially differ as a result of many factors, including the risks described in Part II, Item 1A "Risk Factors."

Business Overview

Electro Scientific Industries, Inc. and its subsidiaries (ESI) is a leading supplier of innovative laser-based manufacturing solutions for the microtechnology industry. Our advanced laser systems enable precise structuring of micron to submicron features in components and devices which are used in a wide variety of end products in the consumer electronics, computer, communications and other industries. These features enable our customers to achieve functionality, or improve yield and productivity in their manufacturing processes that can be critical to their profitability. Founded in 1944, ESI is headquartered in Portland, Oregon, with global operations and subsidiaries in Asia, Canada, Europe and the United States.

Our advanced laser microfabrication systems allow microelectronics, semiconductor, and other microtechnology manufacturers to physically alter select device features during high-volume production in order to increase performance and improve production yields. Laser microfabrication comprises a set of precise micron-level processes, including via drilling, wafer scribing and dicing, material ablation, semiconductor memory-link cutting, electronic device trimming, and nano-level structuring to alter material characteristics such as color and texture. These processes require application-specific laser systems able to meet our customers' exacting performance and productivity requirements. Our laser-based systems improve production yields or enable improved performance for flexible interconnect material, semiconductor devices, light emitting diodes (LEDs), high-density interconnect (HDI) circuits, advanced semiconductor packaging, flat panel liquid crystal displays (LCDs) and other high value components.


Table of Contents

Additionally, we produce high-capacity test and inspection equipment that is critical to the quality control process during the production of multilayer ceramic capacitors (MLCCs). Our equipment ensures that each component meets the electrical and physical tolerances required to perform properly. We also produce products building on this technology that are used to test the electrical and optical characteristics, including color and intensity, of packaged LEDs.

Summary of Sequential Quarterly Results

The financial results of the quarter ended September 29, 2012, which represented the second quarter of 2013, reflected sequential growth in sales and earnings despite continued challenges in many of our markets. Revenue increased to $80.2 million from $59.0 million in the first quarter of 2013 which ended June 30, 2012. However, total order volume for the second quarter of 2013 declined from $74.1 million to $35.0 million, primarily due to large advanced microfabrication orders received in the first quarter that did not repeat in the second quarter. In addition, the slowing macro-economic environment and continued overcapacity led to continued low demand in our memory repair, LED and passive component businesses.

Net sales of $80.2 million for the second quarter of 2013 increased $21.2 million compared to $59.0 million for the prior quarter. Sales for our Interconnect & Microfabrication Group (IMG) products increased $21.3 million due to fulfillment of backlog orders from microfabrication customers. Components Group (CG) and Semiconductor Group (SG) sales levels remained fairly consistent with the previous quarter.

Gross margin improved to 41.8% on net sales of $80.2 million for the second quarter of 2013 compared to 40.1% on net sales of $59.0 million for the prior quarter. The increase was driven by higher production capacity levels partially offset by less favorable product mix.

Net operating expenses of $25.6 million in the second quarter of 2013 increased $0.4 million compared to the prior quarter. The increase was primarily due to an increase of $1.0 million in research, development and engineering (RD&E) which was partially offset by a decrease of $0.6 million in selling, service and administration (SS&A). RD&E expenses increased $1.0 million due to the inclusion of a full quarter of Eolite Systems (Eolite) operations, which added $0.5 million in incremental expense and an increase of $0.5 million in variable expenses. SS&A expense decreased primarily due to $1.2 million lower share-based compensation expense. Share-based compensation expense during the first quarter included the accelerated expensing associated with the annual grants to the Chief Executive Officer and the immediate vesting of the annual board of director share grants. SS&A expense also decreased $0.7 million due to acquisition and integration costs related to the purchase of Eolite which were significantly lower in the second quarter. These decreases are partially offset by a $1.2 million increase in variable expenses due to higher business volumes.

Operating income was $7.9 million in the second quarter of 2013, an increase of $9.4 million compared to operating loss of $1.5 million in the prior quarter. The increase was primarily due to higher sales and improved gross margin as discussed above.

The effective tax rate was 34.6% for the second quarter of 2013, resulting from an income tax provision of $2.8 million, compared to an effective rate of 44.3% for the prior quarter that resulted from an income tax benefit of $0.8 million. The decrease in the effective tax rate was primarily due to the fluctuation in quarterly net income between the first and second quarters of 2013, the mix of income and relative tax rates between jurisdictions, and an increase in certain foreign losses subject to a valuation allowance.

Net income for the second quarter of 2013 was $5.2 million compared to net loss of $0.9 million in the prior quarter due to the impact of the items discussed above.


Table of Contents

Quarter Ended September 29, 2012 Compared to Quarter Ended October 1, 2011

Results of Operations

The following table presents results of operations data as a percentage of net
sales:



                                                     Fiscal quarter ended
                                               Sep 29, 2012          Oct 1, 2011
   Net sales                                           100.0 %              100.0 %
   Cost of sales                                        58.2                 56.1

   Gross margin                                         41.8                 43.9
   Selling, service and administration                  18.9                 18.2
   Research, development and engineering                13.1                 13.1

   Operating income                                      9.8                 12.6
   Interest and other income (expense), net              0.1                 (0.5 )

   Income before income taxes                            9.9                 12.1
   Provision for income taxes                            3.4                  1.7

   Net income                                            6.5 %               10.4 %

Net Sales

Net sales were $80.2 million for the second quarter of 2013, a decrease of $1.7 million or 2% compared to net sales of $81.9 million for the second quarter of 2012. The decrease in revenue was primarily driven by lower demand for SG products largely offset by an increase in shipments of microfabrication systems to fulfill orders driven by design wins and increased demand for smart phone and tablet devices.

The following table presents net sales information by product group:

                                                                        Fiscal quarter ended
(In thousands, except percentages)                    Sep 29, 2012                                 Oct 1, 2011
                                            Net Sales          % of Net Sales           Net Sales          % of Net Sales
Interconnect & Microfabrication Group
(IMG)                                      $    69,137                    86.2 %       $    51,227                    62.6 %
Components Group (CG)                            7,831                     9.8               6,486                     7.9
Semiconductor Group (SG)                         3,184                     4.0              24,171                    29.5

                                           $    80,152                   100.0 %       $    81,884                   100.0 %

IMG sales in the second quarter of 2013 increased $17.9 million or 35% compared to the second quarter of 2012. The increase was primarily driven by the shipment of large first quarter microfabrication orders in 2013 offset slightly by decreased demand for our flex interconnect products as customers digest capacity ordered in the fourth quarter of 2012.

CG sales in the second quarter of 2013 increased $1.3 million or 21% compared to the second quarter of 2012. The increase was a result of delivery of orders for our new 3510 microchip tester ordered in the first quarter of 2013.

SG sales in the second quarter of 2013 decreased $21.0 million or 87% compared to the second quarter of 2012. The decrease was driven by low demand for memory repair as customers continue to defer capacity additions. In addition, revenue declined in LED as a result of a continued overcapacity in the industry, especially for makers of LED backlights for display.


Table of Contents

The following table presents net sales information by geographic region:

                                                                        Fiscal quarter ended
(In thousands, except percentages)                    Sep 29, 2012                                 Oct 1, 2011
                                            Net Sales          % of Net Sales           Net Sales          % of Net Sales
Asia                                       $    73,580                    91.8 %       $    73,886                    90.3 %
Americas                                         4,532                     5.7               4,118                     5.0
Europe                                           2,040                     2.5               3,880                     4.7

                                           $    80,152                   100.0 %       $    81,884                   100.0 %

Compared to the second quarter of 2012, net sales for the second quarter of 2013 decreased $0.3 million in Asia, increased $0.4 million in the Americas and decreased $1.8 million in Europe. The slight dollar decrease in Asia was driven by lower demand for memory repair mostly offset by shipments of our microfabrication and flex interconnect products. Net sales in the Americas and Europe remain a lower percentage of total sales as purchases in these regions are primarily for specialized uses or research and development purposes, as compared to the trend by our Asian customers to source their high-volume manufacturing in that region.

Gross Profit

The following table presents gross profit information:

Fiscal quarter ended (In thousands, except percentages) Sep 29, 2012 Oct 1, 2011 Gross Profit % of Net Sales Gross Profit % of Net Sales Gross Profit $ 33,520 41.8 % $ 35,941 43.9 %

Gross profit for the second quarter of 2013 was $33.5 million, a decrease of $2.4 million compared to gross profit of $35.9 million for the second quarter of 2012. Gross profit as a percentage of net sales decreased to 41.8% for the second quarter of 2013 from 43.9% for the second quarter of 2012. These decreases were primarily related to less favorable product mix on higher volumes offset partially by the effect of efficiencies due to higher production capacity utilization.

Operating Expenses

The following table presents operating expense information:



                                                                      Fiscal quarter ended
(In thousands, except percentages)                    Sep 29, 2012                             Oct 1, 2011
                                            Expense          % of Net Sales          Expense          % of Net Sales
Selling, service and administration         $ 15,114                    18.9 %       $ 14,884                    18.2 %
Research, development and engineering         10,527                    13.1           10,742                    13.1

                                            $ 25,641                    32.0 %       $ 25,626                    31.3 %

Selling, Service and Administration

Selling, service and administration (SS&A) expenses primarily consist of labor and other employee-related expenses including share-based compensation expense, travel expenses, professional fees, sales commissions and facilities costs.

SS&A expenses were $15.1 million for the second quarter of 2013, up slightly from $14.9 million in the second quarter of 2012. This increase was primarily attributable to variable expenses and acquisition and integration costs for Eolite largely offset by lower share-based compensation expense due to prior year accelerated expense associated with the Chief Executive Officer's retirement eligibility date and the lower grant date fair value for new awards granted in 2013.


Table of Contents

Research, Development and Engineering

Research, development and engineering (RD&E) expenses are primarily comprised of labor and other employee-related expenses, professional fees, project materials, equipment costs and facilities costs. RD&E expenses totaled $10.5 million for the second quarter of 2013, a decrease of $0.2 million compared to the second quarter of 2012. This decrease was primarily due to labor costs associated with selective decreases in headcount partially offset by incremental expenses related to Eolite operations and an increase in variable expenses.

Non-operating Income and Expense

Interest and Other Income (Expense), net

Interest and other income (expense), net, consists of interest income and expense, market gains and losses on assets held for our deferred compensation plan, realized and unrealized foreign exchange gains and losses, bank charges, investment management fees and other miscellaneous non-operating items. Net interest and other income was $0.1 million during the second quarter of 2013 compared to net interest and other expense of $0.4 million for the second quarter of 2012. This increase was primarily attributable to market gains on assets held for our deferred compensation plan, and to a lesser extent, improvement in foreign currency results and interest income.

Income Taxes

The following table presents income tax information:



                                                          Fiscal quarter ended
(In thousands, except percentages)           Sep 29, 2012                      Oct 1, 2011
                                      Income Tax       Effective        Income Tax       Effective
                                      Provision        Tax Rate         Provision        Tax Rate
Income tax provision                 $      2,759            34.6 %    $      1,372            13.8 %

The income tax provision for the second quarter of 2013 was $2.8 million on pretax income of $8.0 million, an effective tax rate of 34.6%. For the second quarter of 2012, the income tax provision was $1.4 million on pretax income of $9.9 million, an effective tax rate of 13.8%. The higher effective tax rate for second quarter of 2013 was primarily due to the relative quarterly income level, the mix of income between jurisdictions and their relative tax rates, an increase in certain foreign losses subject to valuation, and the expiration of the research and development tax credit on December 31, 2011.

Our effective tax rate is subject to fluctuation based upon the mix of income and relative tax rates between jurisdictions, and the occurrence and timing of numerous discrete events such as changes in tax laws or their interpretations, extensions or expirations of research and experimentation credits, closure of tax years subject to examination, finalization of income tax returns, the relationship of fixed deductions to overall changes in estimated and actual pretax income or loss and the tax jurisdictions where income or loss is generated, and the ability to fully utilize our deferred tax assets. Based on currently available information, we are not aware of any further discrete events which are likely to occur that would have a material effect on our financial position, expected cash flows or results of operations.

Net Income

The following table presents net income information:

Fiscal quarter ended (In thousands, except percentages) Sep 29, 2012 Oct 1, 2011 Net Income % of Net Sales Net Income % of Net Sales Net income $ 5,211 6.5 % $ 8,537 10.4 %

Net income for the second quarter of 2013 was $5.2 million, or $0.18 per basic share and $0.17 per diluted share, compared to a net income of $8.5 million, or $0.30 per basic share and $0.29 per diluted share for the second quarter of 2012. The decrease was primarily due to lower gross profit on lower revenues in the second quarter of 2013.


Table of Contents

Two Quarters Ended September 29, 2012 Compared to Two Quarters Ended October 1, 2011

Results of Operations

The following table presents results of operations data as a percentage of net
sales:



                                                            Two fiscal quarters ended
                                                      Sep 29, 2012             Oct 1, 2011
Net sales                                                     100.0 %                 100.0 %
Cost of sales                                                  58.9                    56.1

Gross margin                                                   41.1                    43.9
Selling, service and administration                            22.1                    19.9
Research, development and engineering                          14.4                    13.8
Legal settlement costs                                           -                      0.3

Operating income                                                4.6                     9.9
Gain on sale of previously impaired auction
rate securities                                                  -                      1.7
Interest and other expense, net                                (0.1 )                  (0.3 )

Income before income taxes                                      4.5                    11.3
Provision for income taxes                                      1.4                     2.2

Net income                                                      3.1 %                   9.1 %

Net Sales

Net sales were $139.1 million for the first two quarters of 2013, a decrease of $19.8 million or 12% compared to net sales of $158.9 million for the first two quarters of 2012. The decrease in revenue was primarily driven by lower demand for SG memory repair systems. In addition, orders and revenue declined in LED as a result of a significant overcapacity in the industry, especially for makers of LED backlights for display. The decrease in revenue from SG products was partially offset by increased demand for our microfabrication products.

The following table presents net sales information by product group:

                                                                           Two fiscal quarters ended
(In thousands, except percentages)                          Sep 29, 2012                               Oct 1, 2011
                                                 Net Sales          % of Net Sales          Net Sales          % of Net Sales
Interconnect & Microfabrication Group (IMG)      $  116,969                    84.1 %       $   99,439                    62.5 %
Components Group (CG)                                15,536                    11.1             17,295                    10.9
Semiconductor Group (SG)                              6,616                     4.8             42,196                    26.6

                                                 $  139,121                   100.0 %       $  158,930                   100.0 %

IMG sales in the first two quarters of 2013 increased $17.5 million or 18% compared to the first two quarters of 2012. The increase was primarily driven by increased shipments of microfabrication orders and demand for our flex via drilling products.

CG sales in the first two quarters of 2013 decreased $1.8 million or 10% compared to the first two quarters of 2012. The decrease was primarily driven by slowed demand for tooling products partially offset by demand for our new 3510 microchip tester from MLCC customers.

SG sales in the first two quarters of 2013 decreased $35.6 million or 84% compared to the first two quarters of 2012. The decrease was driven by low demand for memory repair as customers continue to defer capacity additions. In addition, revenue declined in LED as a result of a continued overcapacity in the industry, especially for makers of LED backlights for display.


Table of Contents

The following table presents net sales information by geographic region:

                                                                      Two fiscal quarters ended
(In thousands, except percentages)                     Sep 29, 2012                               Oct 1, 2011
                                            Net Sales          % of Net Sales          Net Sales          % of Net Sales
Asia                                        $  126,034                    90.6 %       $  142,819                    89.9 %
Americas                                         8,706                     6.3              9,860                     6.2
Europe                                           4,381                     3.1              6,251                     3.9

                                            $  139,121                   100.0 %       $  158,930                   100.0 %

Compared to the first two quarters of 2012, net sales for the first two quarters of 2013 decreased across all geographic regions: $16.8 million in Asia, $1.2 million in the Americas and $1.9 million in Europe. The majority of our systems are sold into Asia as our customers' manufacturing facilities primarily reside in that region. The decrease in Asia was driven by lower demand for memory repair partially offset by continued strong shipments of our microfabrication and flex interconnect products. Net sales in the Americas and Europe remain a lower percentage of total sales as purchases in these regions are primarily for specialized uses or research and development purposes, as compared to the trend by our Asian customers to source their high-volume manufacturing in that region.

Gross Profit

The following table presents gross profit information:

Two fiscal quarters ended (In thousands, except percentages) Sep 29, 2012 Oct 1, 2011 Gross Profit % of Net Sales Gross Profit % of Net Sales Gross Profit $ 57,173 41.1 % $ 69,701 43.9 %

Gross profit for the first two quarters of 2013 was $57.2 million, a decrease of $12.5 million compared to gross profit of $69.7 million for the first two quarters of 2012. Gross profit as a percentage of net sales decreased to 41.1% for the first two quarters of 2013 from 43.9% for the two quarters of 2012. These decreases were primarily related to lower revenue levels and a less favorable product mix.

Operating Expenses

The following table presents operating expense information:



                                                                    Two fiscal quarters ended
(In thousands, except percentages)                    Sep 29, 2012                             Oct 1, 2011
                                            Expense          % of Net Sales          Expense          % of Net Sales
Selling, service and administration         $ 30,777                    22.1 %       $ 31,380                    19.9 %
Research, development and engineering         20,061                    14.4           21,976                    13.8
Legal settlement costs                            -                       -               550                     0.3

                                            $ 50,838                    36.5 %       $ 53,906                    34.0 %

Selling, Service and Administration

SS&A expenses were $30.8 million for the first two quarters of 2013, a decrease of $0.6 million compared to the first two quarters of 2012. This decrease is primarily related to a $2.3 million decrease in share-based compensation expense and a $1.0 million decrease in labor and travel costs, partially offset by $0.9 million in acquisition and integration costs for Eolite Systems, $1.2 million increase in professional fees and $0.8 million increase in variable expenses. The decrease in share-based compensation expense primarily resulted from the prior year accelerated expense associated with the Chief Executive Officer's retirement eligibility date and the lower grant date fair value for new awards granted during the first two quarters of 2013.


Table of Contents

Research, Development and Engineering

RD&E expenses totaled $20.1 million for the first two quarters of 2013, a decrease of $1.9 million compared to the first two quarters of 2012. This decrease was primarily due to lower labor costs associated with selective decreases in headcount and lower project material costs.

Legal Settlement Costs

There were no legal settlement costs in the first two quarters of 2013. Legal settlement costs for the first two quarters of 2012 were $0.6 million, which consisted of court and legal fees associated with the All Ring litigation and other non-recurring legal matters.

Non-operating Income and Expense

Gain on Sale of Previously Impaired Auction Rate Securities (ARS)

. . .

  Add ESIO to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ESIO - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.