##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 27, 2009

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                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|13900 N.W. Science Park Drive, Portland, Oregon                |  | 97229                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number: (503) 641-4141

Registrants web address: www.esi.com





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   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated
filer, non-accelerate filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈ |  | Accelerated filer         |  | x
|                        |  |   | 
|Non-accelerated filer   |  |  ̈ |  | Smaller Reporting Company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

The number of shares outstanding of the Registrants Common Stock at July 31, 2009 was 27,319,503 shares.









---

##### Table of Contents

ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS



|                              |  |                                                                                                                             |  |         
|----------------------------- |  | --------------------------------------------------------------------------------------------------------------------------- |  | --------
|                              |  |                                                                                                                             |  | PAGE NO.
|PART I. FINANCIAL INFORMATION |  |                                                                                                                            
|                              |  |                                                                                                                            
|Item 1.                       |  | Financial Statements.                                                                                                       |  |         
|                              |  |                                                                                                                            
|                              |  | Condensed Consolidated Balance Sheets (Unaudited) - at June 27, 2009 and March 28, 2009                                     |  | 1       
|                              |  |                                                                                                                            
|                              |  | Condensed Consolidated Statements of Operations (Unaudited) - for the Fiscal Quarters ended June 27, 2009 and June 28, 2008 |  | 2       
|                              |  |                                                                                                                            
|                              |  | Condensed Consolidated Statements of Cash Flows (Unaudited) - for the Fiscal Quarters ended June 27, 2009 and June 28, 2008 |  | 3       
|                              |  |                                                                                                                            
|                              |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                            |  | 4       
|                              |  |                                                                                                                            
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations.                                      |  | 15      
|                              |  |                                                                                                                            
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk.                                                                 |  | 23      
|                              |  |                                                                                                                            
|Item 4.                       |  | Controls and Procedures.                                                                                                    |  | 23      
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                            
|                              |  |                                                                                                                            
|Item 1.                       |  | Legal Proceedings.                                                                                                          |  | 23      
|                              |  |                                                                                                                            
|Item 1A.                      |  | Risk Factors.                                                                                                               |  | 24      
|                              |  |                                                                                                                            
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds.                                                                |  | 32      
|                              |  |                                                                                                                            
|Item 6.                       |  | Exhibits.                                                                                                                   |  | 32      
|                              | 
|SIGNATURES                    |  | 34                                                                                                                         



---

##### Table of Contents

ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



|                                                                                                     |  |               |         |   |                |   |         |  
|---------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | -------------- | - | ------- | -
|(In thousands)                                                                                       |  | June 27, 2009 |         |   | March 28, 2009 |  
|ASSETS                                                                                               |  |               |         |   |                |   |         |  
|Current assets:                                                                                      |  |               |         |   |                |   |         |  
|Cash and cash equivalents                                                                            |  | $             | 124,474 |   |                | $ | 153,538 |  
|Short-term investments                                                                               |  |               | 30,688  |   |                |   | 2,380   |  
|                                                                                                     |  |               |         |   |                |   |         |  
|Total cash and investments                                                                           |  |               | 155,162 |   |                |   | 155,918 |  
|                                                                                                     |  |              
|Trade receivables, net of allowances of $1,015 and $969                                              |  |               | 20,070  |   |                |   | 18,847  |  
|Inventories                                                                                          |  |               | 78,744  |   |                |   | 84,882  |  
|Shipped systems pending acceptance                                                                   |  |               | 2,939   |   |                |   | 2,072   |  
|Deferred income taxes, net                                                                           |  |               | 6,206   |   |                |   | 6,298   |  
|Other current assets                                                                                 |  |               | 10,307  |   |                |   | 10,594  |  
|                                                                                                     |  |               |         |   |                |   |         |  
|Total current assets                                                                                 |  |               | 273,428 |   |                |   | 278,611 |  
|                                                                                                     |  |              
|Auction rate securities                                                                              |  |               | 7,134   |   |                |   | 6,007   |  
|Property, plant and equipment, net of accumulated depreciation of $77,351 and $74,877                |  |               | 42,234  |   |                |   | 43,005  |  
|Non-current deferred income taxes, net                                                               |  |               | 25,823  |   |                |   | 22,620  |  
|Acquired intangible assets, net of accumulated amortization of $4,893 and $4,382                     |  |               | 7,418   |   |                |   | 7,929   |  
|Other assets                                                                                         |  |               | 24,774  |   |                |   | 26,075  |  
|                                                                                                     |  |               |         |   |                |   |         |  
|Total assets                                                                                         |  | $             | 380,811 |   |                | $ | 384,247 |  
|                                                                                                     |  |               |         |   |                |   |         |  
|                                                                                                     |  |              
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                 |  |               |         |   |                |   |         |  
|Current liabilities:                                                                                 |  |               |         |   |                |   |         |  
|Accounts payable                                                                                     |  | $             | 6,233   |   |                | $ | 7,492   |  
|Accrued liabilities                                                                                  |  |               | 11,736  |   |                |   | 12,958  |  
|Deferred revenue                                                                                     |  |               | 11,776  |   |                |   | 11,251  |  
|                                                                                                     |  |               |         |   |                |   |         |  
|Total current liabilities                                                                            |  |               | 29,745  |   |                |   | 31,701  |  
|                                                                                                     |  |              
|Non-current liabilities:                                                                             |  |               |         |   |                |   |         |  
|Income taxes payable                                                                                 |  |               | 9,401   |   |                |   | 9,023   |  
|                                                                                                     |  |              
|Commitments and Contingencies                                                                        |  |               |         |   |                |   |         |  
|                                                                                                     |  |              
|Shareholders equity:                                                                                |  |               |         |   |                |   |         |  
|Preferred stock, without par value; 1,000 shares authorized; no shares issued                        |  |               |        |   |                |   |        |  
|Common stock, without par value; 100,000 shares authorized; 27,266 and 27,184 issued and outstanding |  |               | 135,566 |   |                |   | 133,808 |  
|Retained earnings                                                                                    |  |               | 205,941 |   |                |   | 211,085 |  
|Accumulated other comprehensive income related to auction rate securities                            |  |               | 740     |   |                |   |        |  
|Accumulated other comprehensive loss, other                                                          |  |               | (582    | ) |                |   | (1,370  | )
|                                                                                                     |  |               |         |   |                |   |         |  
|Total shareholders equity                                                                           |  |               | 341,665 |   |                |   | 343,523 |  
|                                                                                                     |  |               |         |   |                |   |         |  
|Total liabilities and shareholders equity                                                           |  | $             | 380,811 |   |                | $ | 384,247 |  
|                                                                                                     |  |               |         |   |                |   |         |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.



1



---

##### Table of Contents

ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                           |  |                      |        |   |               |   |        |  
|---------------------------------------------------------- |  | -------------------- | ------ | - | ------------- | - | ------ | -
|                                                           |  | Fiscal quarter ended |       
|(In thousands, except per share amounts)                   |  | June 27, 2009        |        |   | June 28, 2008 |  
|Net sales                                                  |  | $                    | 22,603 |   |               | $ | 64,024 |  
|Cost of sales                                              |  |                      | 16,642 |   |               |   | 38,733 |  
|                                                           |  |                      |        |   |               |   |        |  
|Gross profit                                               |  |                      | 5,961  |   |               |   | 25,291 |  
|                                                           |  |                     
|Operating expenses:                                        |  |                      |        |   |               |   |        |  
|Selling, service and administration                        |  |                      | 11,971 |   |               |   | 15,100 |  
|Research, development and engineering                      |  |                      | 7,455  |   |               |   | 9,658  |  
|Restructuring costs                                        |  |                      |       |   |               |   | 749    |  
|Merger termination proceeds, net                           |  |                      | (4,516 | ) |               |   |       |  
|                                                           |  |                      |        |   |               |   |        |  
|Net operating expenses                                     |  |                      | 14,910 |   |               |   | 25,507 |  
|                                                           |  |                      |        |   |               |   |        |  
|Operating loss                                             |  |                      | (8,949 | ) |               |   | (216   | )
|                                                           |  |                     
|Non-operating income (expense):                            |  |                      |        |   |               |   |        |  
|Other-than-temporary impairment of auction rate securities |  |                      |       |   |               |   | (5,094 | )
|Interest and other income, net                             |  |                      | 342    |   |               |   | 860    |  
|                                                           |  |                      |        |   |               |   |        |  
|Total non-operating income (expense)                       |  |                      | 342    |   |               |   | (4,234 | )
|                                                           |  |                     
|Loss before income taxes                                   |  |                      | (8,607 | ) |               |   | (4,450 | )
|Benefit from income taxes                                  |  |                      | (3,077 | ) |               |   | (1,692 | )
|                                                           |  |                      |        |   |               |   |        |  
|Net loss                                                   |  | $                    | (5,530 | ) |               | $ | (2,758 | )
|                                                           |  |                      |        |   |               |   |        |  
|Net loss per share  basic                                 |  | $                    | (0.20  | ) |               | $ | (0.10  | )
|                                                           |  |                      |        |   |               |   |        |  
|Net loss per share  diluted                               |  | $                    | (0.20  | ) |               | $ | (0.10  | )
|                                                           |  |                      |        |   |               |   |        |  
|Weighted average number of shares  basic                  |  |                      | 27,234 |   |               |   | 27,108 |  
|                                                           |  |                      |        |   |               |   |        |  
|Weighted average number of shares  diluted                |  |                      | 27,234 |   |               |   | 27,108 |  
|                                                           |  |                      |        |   |               |   |        |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.



2



---

##### Table of Contents

ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                      |  |                      |         |   |               |   |          |  
|------------------------------------------------------------------------------------- |  | -------------------- | ------- | - | ------------- | - | -------- | -
|                                                                                      |  | Fiscal quarter ended |        
|(In thousands)                                                                        |  | June 27, 2009        |         |   | June 28, 2008 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                  |  |                      |         |   |               |   |          |  
|                                                                                      |  |                     
|Net loss                                                                              |  | $                    | (5,530  | ) |               | $ | (2,758   | )
|Adjustments to reconcile net loss to cash (used in) provided by operating activities: |  |                      |         |   |               |   |          |  
|Depreciation and amortization                                                         |  |                      | 2,538   |   |               |   | 2,597    |  
|Amortization of acquired intangible assets                                            |  |                      | 511     |   |               |   | 740      |  
|Share-based compensation expense                                                      |  |                      | 2,307   |   |               |   | 1,410    |  
|Loss on disposal of property and equipment                                            |  |                      |        |   |               |   | 24       |  
|Other-than-temporary impairment of auction rate securities                            |  |                      |        |   |               |   | 5,094    |  
|Deferred income taxes                                                                 |  |                      | (3,496  | ) |               |   | (372     | )
|Changes in operating accounts:                                                        |  |                      |         |   |               |   |          |  
|(Increase) decrease in trade receivables, net                                         |  |                      | (681    | ) |               |   | 165      |  
|Decrease in inventories                                                               |  |                      | 6,279   |   |               |   | 6,397    |  
|(Increase) decrease in shipped systems pending acceptance                             |  |                      | (867    | ) |               |   | 1,174    |  
|Decrease (increase) in other current assets                                           |  |                      | 403     |   |               |   | (1,361   | )
|Decrease in accounts payable and accrued liabilities                                  |  |                      | (2,900  | ) |               |   | (11,729  | )
|Increase in deferred revenue                                                          |  |                      | 525     |   |               |   | 255      |  
|                                                                                      |  |                      |         |   |               |   |          |  
|Net cash (used in) provided by operating activities                                   |  |                      | (911    | ) |               |   | 1,636    |  
|                                                                                      |  |                     
|CASH FLOWS FROM INVESTING ACTIVITIES                                                  |  |                      |         |   |               |   |          |  
|Purchase of property, plant and equipment                                             |  |                      | (398    | ) |               |   | (1,486   | )
|Proceeds from the sale of property, plant and equipment                               |  |                      |        |   |               |   | 4        |  
|Purchases of investments                                                              |  |                      | (46,312 | ) |               |   | (284,294 | )
|Proceeds from sales and maturities of investments                                     |  |                      | 18,000  |   |               |   | 281,844  |  
|Minority equity investment                                                            |  |                      | (193    | ) |               |   | (876     | )
|Decrease in other assets                                                              |  |                      | 186     |   |               |   | 283      |  
|                                                                                      |  |                      |         |   |               |   |          |  
|Net cash used in investing activities                                                 |  |                      | (28,717 | ) |               |   | (4,525   | )
|                                                                                      |  |                     
|CASH FLOWS FROM FINANCING ACTIVITIES                                                  |  |                      |         |   |               |   |          |  
|Proceeds from exercise of stock options and stock plans                               |  |                      | 342     |   |               |   | 1,187    |  
|Excess tax benefit of share-based compensation                                        |  |                      |        |   |               |   | 7        |  
|Share repurchases                                                                     |  |                      | (555    | ) |               |   | (3,340   | )
|                                                                                      |  |                      |         |   |               |   |          |  
|Net cash used in financing activities                                                 |  |                      | (213    | ) |               |   | (2,146   | )
|Effect of exchange rate changes on cash                                               |  |                      | 777     |   |               |   | (730     | )
|                                                                                      |  |                      |         |   |               |   |          |  
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                               |  |                      | (29,064 | ) |               |   | (5,765   | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                      |  |                      | 153,538 |   |               |   | 141,059  |  
|                                                                                      |  |                      |         |   |               |   |          |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                            |  | $                    | 124,474 |   |               | $ | 135,294  |  
|                                                                                      |  |                      |         |   |               |   |          |  
|                                                                                      |  |                     
|SUPPLEMENTAL CASH FLOW INFORMATION                                                    |  |                      |         |   |               |   |          |  
|Cash paid for interest                                                                |  | $                    |        |   |               | $ |         |  
|Cash paid for income taxes                                                            |  | $                    | (343    | ) |               | $ | (1,264   | )
|Income tax refunds received                                                           |  | $                    | 27      |   |               | $ | 549      |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.



3



---

##### Table of Contents

ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

These unaudited interim condensed consolidated financial statements have been prepared 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 U.S. generally accepted accounting principles have been condensed or omitted in these interim statements. Accordingly, these condensed consolidated financial statements are
to be read in conjunction with the financial statements and notes included in the Companys Annual Report on Form 10-K. These interim statements include all adjustments (consisting of only normal recurring adjustments and accruals) necessary
for a fair presentation of results for the interim periods presented. The results for interim periods are not necessarily indicative of the results of operations for the entire year.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates. Management believes that the
estimates used are reasonable. Significant estimates made by management include: revenue recognition; inventory valuation; product warranty reserves; allowances for doubtful accounts; share-based compensation; income taxes including the valuation of
deferred tax assets; fair value measurements; valuation of cost method equity investments; and valuation of long-lived assets.

With the exception of the
adoption of certain pronouncements as described in Note 2 Recent Accounting Pronouncements, there have been no significant changes to the Companys significant accounting policies from those presented in Note 2 Summary of
Significant Accounting Policies to the consolidated financial statements included in the Companys Annual Report on Form 10-K filed for the fiscal year ended March 28, 2009.

Certain reclassifications have been made in the accompanying condensed consolidated financial statements for prior periods to conform to the current presentation. All
references to years or quarters relate to fiscal years or fiscal quarters unless otherwise noted.

2. Recent Accounting Pronouncements

In June 2008, the FASB issued FASB Staff Position (FSP) No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities (FSP No. EITF 03-6-1). FSP No. EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore necessitate inclusion in the computation
of earnings per share under the two-class method. FSP No. EITF 03-6-1 became effective as of the first quarter of fiscal 2010 and adoption did not have a material effect on the Companys financial statements.

In April 2009, the FASB issued three Staff Positions which became effective for the Company beginning with the first quarter of fiscal 2010: FSP No. FAS 157-4,
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions That Are Not Orderly; FSP No. FAS 115-2 and FAS No. 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments and FSP No. FAS 107-1 and APB No. 28-1, Interim Disclosures about Fair Value of Financial Instruments. FSP FAS No. 157-4 provides guidance on how to determine the fair
value of assets and liabilities under Statement of Financial Accounting Standards (SFAS) No. 157 Fair Value Measurements (SFAS No. 157) when there is no active market and reaffirms the SFAS No. 157 definition of fair
value. FSP FAS No. 115-2 and FAS No. 124-2 modifies the requirements for recognizing other-than-temporarily-impaired debt securities and revises the existing impairment model for such securities by distinguishing between credit and
non-credit components of impaired debt securities that are not expected to be sold. FSP FAS No. 107-1 and APB No. 28-1 enhances disclosures about fair value for instruments



4



---

##### Table of Contents

under the scope of SFAS No. 157 for both interim and annual periods. The Company adopted these Staff Positions as of the first quarter of fiscal 2010
and they have not had a material impact on the Companys financial statements. See Note 6 Fair Value Measurements for disclosures applicable to these Staff Positions.

In June 2009, the FASB issued SFAS No. 168 The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (SFAS No. 168). SFAS No. 168 replaces SFAS
No. 162 The Hierarchy of Generally Accepted Accounting Principles and establishes the FASB Accounting Standards Codification (ASC) as the source of authoritative accounting principles. The ASC combines all existing
authoritative standards into a comprehensive, topically organized online database to simplify user access to all authoritative GAAP. The ASC will become effective for the Companys second quarter of fiscal 2010. The Companys adoption of
the ASC will not have a material impact on its financial statements.

3. Acquisition of New Wave Research, Incorporated

On July 20, 2007, the Company acquired New Wave Research, Incorporated (NWR), a privately-held company headquartered in Fremont, California. The Company acquired
100% of NWRs outstanding common stock for approximately $36.2 million, comprised of $34.9 million in cash and merger-related transaction costs of $1.3 million.

The following table presents the details of the intangible assets purchased in the NWR acquisition as of July 20, 2007 and accumulated amortization to date at June 27, 2009:



|                                 |  |                       |  |                                        |        |                         |   |        |                               |  |   |      
|-------------------------------- |  | --------------------- |  | -------------------------------------- | ------ | ----------------------- | - | ------ | ----------------------------- |  | - | -----
|(In thousands, except years)     |  | Useful Life(in years) |  | EstimatedFair Value atAcquisition Date |        | AccumulatedAmortization |   |        | RecordedValue atJune 27, 2009
|Developed technology             |  | 7                     |  | $                                      | 8,100  |                         | $ | (2,247 | )                             |  | $ | 5,853
|Customer relationships           |  | 6                     |  |                                        | 2,700  |                         |   | (1,377 | )                             |  |   | 1,323
|Customer backlog                 |  | 1                     |  |                                        | 700    |                         |   | (700   | )                             |  |   |     
|Trade name and trademarks        |  | 3                     |  |                                        | 400    |                         |   | (259   | )                             |  |   | 141  
|Change of control agreements     |  | 1                     |  |                                        | 100    |                         |   | (100   | )                             |  |   |     
|Fair value of below-market lease |  |                       |  |                                        |        |                         |   |        |                               |  |   |      
|(non-current portion)            |  | 3.8                   |  |                                        | 311    |                         |   | (210   | )                             |  |   | 101  
|                                 |  |                       |  |                                        |        |                         |   |        |                               |  |   |      
|Subtotal  long term             |  |                       |  |                                        | 12,311 |                         |   | (4,893 | )                             |  |   | 7,418
|                                 |  |                       |  |                                       
|Fair value of below-market lease |  |                       |  |                                        |        |                         |   |        |                               |  |   |      
|(current portion)                |  |                       |  |                                        | 110    |                         |   |       |                               |  |   | 110  
|                                 |  |                       |  |                                        |        |                         |   |        |                               |  |   |      
|Total acquired intangible assets |  |                       |  | $                                      | 12,421 |                         | $ | (4,893 | )                             |  | $ | 7,528
|                                 |  |                       |  |                                        |        |                         |   |        |                               |  |   |      

Amortization expense for intangible assets purchased in the NWR acquisition has been recorded in the Condensed
Consolidated Statements of Operations as follows:



|                                    |  |                      |     |               |   |    
|----------------------------------- |  | -------------------- | --- | ------------- | - | ---
|                                    |  | Fiscal quarter ended
|                                    |  | June 27, 2009        |     | June 28, 2008
|Cost of sales                       |  | $                    | 289 |               | $ | 289
|Selling, service and administration |  |                      | 222 |               |   | 451
|                                    |  |                      |     |               |   |    
|Total                               |  | $                    | 511 |               | $ | 740
|                                    |  |                      |     |               |   |    



5



---

##### Table of Contents

The estimated amortization expense for intangible assets purchased in the NWR acquisition for the current year, including
amounts amortized to date, and in future years is as follows (in thousands):



|             |  |              |      
|------------ |  | ------------ | -----
|Year         |  | Amortization
|2010         |  | $            | 1,954
|2011         |  |              | 1,734
|2012         |  |              | 1,472
|2013         |  |              | 1,325
|2014         |  |              | 1,197
|Future years |  |              | 357  
|             |  |              |      
|             |  | $            | 8,039
|             |  |              |      

The NWR results of operations are included in the Companys condensed consolidated financial statements from
the date of acquisition forward. Pro forma financial statements of the combined entities are not presented as the impact of the acquisition was not material.

4. Termination of Proposed Merger with Zygo Corporation

On October 16, 2008, the Company announced that it had entered into a
definitive agreement with Zygo Corporation (Zygo) under which the Company would acquire Zygo in an all stock transaction. On January 20, 2009, Zygo announced that its Board of Directors had withdrawn its recommendation in favor of the merger
agreement. On April 2, 2009, the Company and Zygo entered into a Settlement Agreement and Mutual Release (Settlement Agreement).

Pursuant to the
terms of the Settlement Agreement, during the fiscal quarter ended June 27, 2009, Zygo paid the Company a $5.4 million merger termination fee. The Company also incurred $0.9 million of incremental costs relating to the merger termination during
the same quarter, resulting in net proceeds of $4.5 million recorded in the Condensed Consolidated Statement of Operations for the fiscal quarter ended June 27, 2009.

5. Share-Based Compensation

The Company follows the provisions of SFAS No. 123 (Revised 2004),
Share-Based Payment, (SFAS No. 123R) which requires the Company to recognize expense related to the fair value of its share-based compensation awards. The Company uses the Black-Scholes model to estimate the fair value of all
share-based compensation awards on the date of grant, except for unvested stock awards which are valued at the fair market value of the Companys stock on the date of award. The Company recognizes the compensation expense for all share-based
compensation awards on a straight-line basis over the requisite service period of the award.

Starting the first quarter of 2010, the Company granted stock
only stock appreciation rights (SOSARs). SOSARs grant the right to receive shares of the Companys stock equivalent to the increase in stock value of a specified number of shares over a specified period of time. The Company uses the
Black-Scholes model to estimate the fair value of SOSARs. Similar to options, SOSARs are recorded at the fair value of the award at grant date and the expense is recognized on a straight-line basis over the requisite service period of the award. The
Company did not grant any stock options during the first quarter of 2010 and did not grant any SOSARs prior to the first quarter of 2010.



6



---

##### Table of Contents

Share-based compensation was included in the Companys Condensed Consolidated Statements of Operations as follows:



|                                       |  |                      |       |               |   |      
|-------------------------------------- |  | -------------------- | ----- | ------------- | - | -----
|                                       |  | Fiscal quarter ended
|(In thousands)                         |  | June 27, 2009        |       | June 28, 2008
|Cost of sales                          |  | $                    | 215   |               | $ | 207  
|Selling, service and administration    |  |                      | 1,778 |               |   | 888  
|Research, development and engineering  |  |                      | 314   |               |   | 315  
|                                       |  |                      |       |               |   |      
|Total share-based compensation expense |  | $                    | 2,307 |               | $ | 1,410
|                                       |  |                      |       |               |   |      

There were no stock options exercised during the first quarter of 2010. The total amount of net cash received from
Employee Stock Purchase Plan (ESPP) purchases and stock awards in the fiscal quarter ended June 27, 2009 was $0.3 million. For the fiscal quarter ended June 27, 2009, tax benefits realized from the exercise of stock options and ESPP
purchases were not material. Upon exercise of stock options and SOSARs, the Company issues new shares of common stock from its authorized shares.

As of
June 27, 2009, no share-based compensation expenses were capitalized. The Company had $14.6 million of total unrecognized share-based compensation costs, net of estimated forfeitures, which are expected to be recognized over a weighted average
period of 2.73 years.

Valuation Assumptions

The weighted average assumptions used in the Black-Scholes model to estimate the fair values of options and SOSARs granted in the quarters ended June 27, 2009 and June 28, 2008 were:



|                        |  |                      |   |  |               |  
|----------------------- |  | -------------------- | - |  | ------------- | -
|                        |  | Fiscal quarter ended |  
|(In thousands)          |  | June 27, 2009        |   |  | June 28, 2008 |  
|Expected life in years  |  | 5.6                  |   |  | 4.6           |  
|Risk-free interest rate |  | 2.63                 | % |  | 3.50          | %
|Expected volatility     |  | 48                   | % |  | 41            | %
|Expected dividend rate  |  | 0                    | % |  | 0             | %

The risk-free rates used are based on the U.S. Treasury yields over the expected terms. The expected term and
forfeiture estimates for stock options and SOSARs are based on an analysis of actual exercise behavior. The Company uses its historical volatility over the estimated expected term as the expected volatility.

Share-Based Payment Award Activity

The weighted average fair
value of share-based compensation awards, including stock option and SOSAR awards granted and vested during the period, unvested stock awards granted during the period and the intrinsic value of stock options exercised during the period were:



|                                                      |  |                      |       |               |   |      
|----------------------------------------------------- |  | -------------------- | ----- | ------------- | - | -----
|                                                      |  | Fiscal quarter ended
|(In thousands, except per share data)                 |  | June 27, 2009        |       | June 28, 2008
|Stock-Option and SOSAR Awards:                        |  |                      |       |               |   |      
|Grant date fair value per share                       |  | $                    | 3.88  |               | $ | 6.47 
|Total fair value of options and SOSARs granted        |  | $                    | 3,412 |               | $ | 880  
|Total fair value of options and SOSARS vested         |  | $                    | 171   |               | $ | 95   
|Total intrinsic value of options and SOSARS exercised |  | $                    |      |               | $ | 65   
|Unvested Stock Awards:                                |  |                      |       |               |   |      
|Grant date fair value per share                       |  | $                    | 8.26  |               | $ | 16.27
|Total fair value of awards granted                    |  | $                    | 3,858 |               | $ | 5,591
|Employee Stock Purchase Plan:                         |  |                      |       |               |   |      
|Grant date fair value per share                       |  | $                    | 1.71  |               | $ | 4.26 
|Total grant date fair value                           |  | $                    | 141   |               | $ | 307  



7



---

##### Table of Contents

Information with respect to stock option and SOSAR activity is as follows:



|                                             |  |           |   |  |                               |       |                                                    |      |                                        |   |      
|-------------------------------------------- |  | --------- | - |  | ----------------------------- | ----- | -------------------------------------------------- | ---- | -------------------------------------- | - | -----
|                                             |  | Shares    |   |  | WeightedAverageExercise Price |       | WeightedAverageRemainingContractualTerm (In years) |      | AggregateIntrinsic Value(In thousands)
|Outstanding at March 28, 2009                |  | 3,430,847 |   |  | $                             | 24.74 |                                                    |      |                                        |   |      
|Granted                                      |  | 879,900   |   |  |                               | 8.26  |                                                    |      |                                        |   |      
|Exercised                                    |  |          |   |  |                               |      |                                                    |      |                                        |   |      
|Expired or forfeited                         |  | (420,288  | ) |  |                               | 24.40 |                                                    |      |                                        |   |      
|                                             |  |           |   |  |                               |       |                                                    |      |                                        |   |      
|Outstanding at June 27, 2009                 |  | 3,890,459 |   |  | $                             | 21.05 |                                                    | 5.87 |                                        | $ | 3,365
|                                             |  |           |   |  |                               |       |                                                    |      |                                        |   |      
|                                             |  |           |   | 
|Vested and expected to vest at June 27, 2009 |  | 3,596,170 |   |  | $                             | 21.99 |                                                    | 5.56 |                                        | $ | 2,385
|                                             |  |           |   |  |                               |       |                                                    |      |                                        |   |      
|                                             |  |           |   | 
|Exercisable at June 27, 2009                 |  | 2,821,511 |   |  | $                             | 25.19 |                                                    | 4.45 |                                        | $ | 3    
|                                             |  |           |   |  |                               |       |                                                    |      |                                        |   |      

Information with respect to unvested stock awards activity is as follows:



|                              |  |           |   |  |                                     |      
|----------------------------- |  | --------- | - |  | ----------------------------------- | -----
|                              |  | Shares    |   |  | WeightedAverageGrant DateFair Value
|Outstanding at March 28, 2009 |  | 716,840   |   |  | $                                   | 19.32
|Awarded                       |  | 467,300   |   |  |                                     | 8.26 
|Vested                        |  | (73,516   | ) |  |                                     | 10.77
|Forfeited                     |  | (2,740    | ) |  |                                     | 18.10
|                              |  |           |   |  |                                     |      
|Outstanding at June 27, 2009  |  | 1,107,884 |   |  | $                                   | 15.22
|                              |  |           |   |  |                                     |      

6. Fair Value Measurements

Effective March 30, 2008, the Company adopted SFAS No. 157 with respect to its financial assets and liabilities only. Effective March 29, 2009, the Company adopted the remaining provisions of SFAS
No. 157, which pertain to nonfinancial assets and liabilities. The adoption of this statement did not have a material impact on the Companys financial statements. On October 10, 2008, the FASB issued FASB Staff Position
No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (FSP FAS 157-3) which is effective upon issuance, including prior periods for which financial statements have not been
issued. This standard provides guidance when valuing securities in markets that are not active.

In April 2009, the FASB issued FSP FAS No. 157-4; FSP
FAS No. 115-2 and FAS No. 124-2; and FSP No. 107 and APB No. 28-1. FSP FAS No. 157-4 provides guidance on how to determine the fair value of assets and liabilities under SFAS No. 157 when there is no active market, and
reaffirms the SFAS No. 157 objective to reflect an assets sale price in an orderly transaction at the date of the financial statements. FSP FAS No. 115-2 and FAS No. 124-2 modifies the requirements for recognizing
other-than-temporarily-impaired debt securities and revises the existing impairment model for such securities by distinguishing between credit and non-credit components of impaired debt securities that are not expected to be sold. FSP FAS
No. 107-1 and APB No. 28-1 enhances fair value disclosures for instruments under the scope of SFAS No. 157 for both interim and annual periods. The Company adopted these Staff Positions as of the first quarter of fiscal 2010 and they
have not had a material impact on the Companys condensed consolidated financial statements.



8



---

##### Table of Contents

Fair value is defined under SFAS No. 157 as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS
No. 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include the
following:



| |  |  | Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2, defined as inputs other than quoted prices in active markets for similar assets or liabilities that are either directly or indirectly observable;
and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------

As of June 27, 2009, the Company held a total of $15.6 million invested in auction rate securities (ARS) at par value.
Additionally, the Company held $4.0 million of par value ARS which were converted by the bond issuer to its preferred stock during the third quarter of 2009. The ARS are comprised predominately of securities issued by insurance companies to raise
funds to meet regulatory capital reserve requirements and the ARS assume the credit ratings of the bond insurers who guarantee the timely payment of principal and interest on these insured securities. At the time of purchase in 2007, these ARS were
rated AAA and AA. The contractual maturities of these securities range up to calendar year 2050, and several securities and the preferred stock do not have stated maturities. Prior to September 2007, these securities provided short-term liquidity
through a Dutch auction process that reset the applicable interest rate at pre-determined calendar intervals, generally every 28 to 35 days. This mechanism previously allowed existing investors to either retain or liquidate their holdings by selling
such securities at par. As a result of the liquidity issues experienced in the global credit and capital markets, during the second quarter of 2008, the Companys ARS began to experience failed auctions.

Since that time, none of the Companys securities have traded through the auction process and very few market transactions for these securities have been observed.
Additionally, the bond insurers of the ARS and preferred stock experienced credit rating downgrades throughout fiscal 2009. Consequently, it was determined that the declines in fair value of these securities during 2009 represented
other-than-temporary impairments in accordance with U.S. generally accepted accounting principles. Accordingly, at the end of each quarter of 2009, the cost bases of these securities were written down to their estimated fair values with
other-than-temporary impairment charges totaling $13.6 million, of which $5.1 million was recorded during the first quarter of 2009. As of the first quarter of 2010, in accordance with the adoption of FSP FAS No. 115-2 and FAS No. 124-2,
the Company recorded a cumulative-effect adjustment to the opening balance of retained earnings of $0.4 million for the non-credit loss portion of the ARS. The Company also recorded a fair value adjustment to accumulated other comprehensive income
of $1.1 million to reflect the estimated fair value of the ARS. The credit loss portion of the ARS was determined by direct estimation of the change in fair value attributable to market movements. The Company utilized market indices representing
investments of constant credit quality over time and measured the index yield, which is considered attributable to non-credit related factors, at the beginning and end of the period. The effect of this change in yield on the value of the security
was measured and subtracted from the total change in fair value to arrive at the estimated change in value attributable to changes in credit quality. The $7.1 million estimated fair value of these securities is classified as a non-current asset on
the Condensed Consolidated Balance Sheet at June 27, 2009, consistent with the classification at June 28, 2008 and each subsequent reporting period.

The Company currently continues to receive all interest and preferred stock dividend payments when due. Given the continued challenges in the financial markets and the prolonged credit crisis, the Company cannot reasonably predict when
these securities will become liquid.

The Company had no sales of available for sale securities in the first quarter of 2010 or the first quarter of 2009.
For purposes of determining gross realized gains and losses and reclassification out of accumulated other comprehensive income, the cost of securities sold is based on specific identification. Net unrealized holding gains on available for sale
securities included in accumulated other comprehensive income were $0.7 million as of June 27, 2009. Net unrealized holding losses on available for sale



9



---

##### Table of Contents

securities included in accumulated other comprehensive income were insignificant as of June 28, 2008. No gains or losses were reclassified out of
accumulated other comprehensive income during the first quarter of fiscal 2010.

Certain information regarding marketable securities at June 27, 2009
and March 28, 2009 was as follows (in thousands):



|                                                  |  |      |        |            |   |      |              |   |    |            |  |   |         |   |  |   |       
|------------------------------------------------- |  | ---- | ------ | ---------- | - | ---- | ------------ | - | -- | ---------- |  | - | ------- | - |  | - | ------
|                                                  |  |      |        | Unrealized |   |      | RealizedLoss |   |    |           
|June 27, 2009                                     |  | Cost |        | Gain       |   | Loss |              |   |    | Fair Value
|Available for sale debt securities (current):     |  |      |        |            |   |      |              |   |    |            |  |   |         |   |  |   |       
|Commercial paper                                  |  | $    | 25,322 |            | $ |     |              | $ | (8 | )          |  | $ |        |   |  | $ | 25,314
|Corporate notes and bonds                         |  |      | 4,974  |            |   | 13   |              |   |   |            |  |   |        |   |  |   | 4,987 
|                                                  |  |      |        |            |   |      |              |   |    |            |  |   |         |   |  |   |       
|                                                  |  | $    | 30,296 |            | $ | 13   |              | $ | (8 | )          |  | $ |        |   |  | $ | 30,301
|                                                  |  |      |        |            |   |      |              |   |    |            |  |   |         |   |  |   |       
|                                                  |  |      |        |            |  
|Available for sale debt securities (non-current): |  |      |        |            |   |      |              |   |    |            |  |   |         |   |  |   |       
|Auction rate securities                           |  | $    | 15,600 |            | $ | 740  |              | $ |   |            |  | $ | (9,586  | ) |  | $ | 6,754 
|Preferred stock                                   |  |      | 4,000  |            |   |     |              |   |   |            |  |   | (3,620  | ) |  |   | 380   
|                                                  |  |      |        |            |   |      |              |   |    |            |  |   |         |   |  |   |       
|                                                  |  | $    | 19,600 |            | $ | 740  |              | $ |   |            |  | $ | (13,206 | ) |  | $ | 7,134 
|                                                  |  |      |        |            |   |      |              |   |    |            |  |   |         |   |  |   |       
|                                                  |  |      |        |           
|                                                  |  |      |        | Unrealized |   |      | RealizedLoss |   |    |           
|March 28, 2009                                    |  | Cost |        | Gain       |   | Loss |              |   |    | Fair Value
|Available for sale debt securities (current):     |  |      |        |            |   |      |              |   |    |            |  |   |         |   |  |   |       
|Corporate notes and bonds                         |  | $    | 2,072  |            | $ | 12   |              | $ |   |            |  | $ |        |   |  | $ | 2,084 
|                                                  |  |      |        |            |   |      |              |   |    |            |  |   |         |   |  |   |       
|                                                  |  |      |        |            |  
|Available for sale debt securities (non-current): |  |      |        |            |   |      |              |   |    |            |  |   |         |   |  |   |       
|Auction rate securities                           |  | $    | 15,600 |            | $ |     |              | $ |   |            |  | $ | (9,973  | ) |  | $ | 5,627 
|Preferred stock                                   |  |      | 4,000  |            |   |     |              |   |   |            |  |   | (3,620  | ) |  |   | 380   
|                                                  |  |      |        |            |   |      |              |   |    |            |  |   |         |   |  |   |       
|                                                  |  | $    | 19,600 |            | $ |     |              | $ |   |            |  | $ | (13,593 | ) |  | $ | 6,007 
|                                                  |  |      |        |            |   |      |              |   |    |            |  |   |         |   |  |   |       

Underlying maturities of investments at June 27, 2009 were approximately $30.3 million within one year and
$7.1 million beyond 10 years.

As of June 27, 2009, the Company had $6.0 million invested in Series D Preferred Stock and $2.2 million invested in
Series E Preferred Stock of OmniGuide, Inc., representing an 11% interest. At each reporting period end, the Company determines whether events or circumstances have occurred that are likely to have a significant adverse effect on the fair value of
these investments. If there are no events or circumstances identified that would adversely affect the fair value of the investments, the fair values of the investments are not calculated as it is not practicable to do so in accordance with SFAS
No. 107, Disclosures about Fair Value of Financial Instruments. As of June 27, 2009 and March 28, 2009, management had not identified any events or circumstances that indicated the investments were impaired; therefore, as
presented in Note 9 Other Assets, the full carrying values of $8.2 million and $8.0 million were included in other assets on the Condensed Consolidated Balance Sheets at June 27, 2009 and March 28, 2009, respectively.



10



---

##### Table of Contents

In accordance with SFAS No. 157, the following table represents the Companys fair value hierarchy for its
financial assets measured at fair value on a recurring basis as of June 27, 2009:



|                                                                               |  |         |        |                        |   |        |                |  |       |       |  |   |        |  
|------------------------------------------------------------------------------ |  | ------- | ------ | ---------------------- | - | ------ | -------------- |  | ----- | ----- |  | - | ------ | -
|(In thousands)                                                                 |  | Level 1 |        | Level 2                |   |        | Level 3        |  | Total |      
|Money market securities                                                        |  | $       | 87,492 |                        | $ |       |                |  | $     |      |  | $ | 87,492 |  
|Commercial paper                                                               |  |         |       |                        |   | 43,806 |                |  |       |      |  |   | 43,806 |  
|Corporate notes and bonds                                                      |  |         |       |                        |   | 4,987  |                |  |       |      |  |   | 4,987  |  
|Forward purchase or (sale) contracts:                                          |  |         |        |                        |   |        |                |  |       |       |  |   |        |  
|Japanese Yen                                                                   |  |         |       |                        |   | (70    | )              |  |       |      |  |   | (70    | )
|Taiwan Dollar                                                                  |  |         |       |                        |   | 58     |                |  |       |      |  |   | 58     |  
|Korean Won                                                                     |  |         |       |                        |   | (58    | )              |  |       |      |  |   | (58    | )
|Euro                                                                           |  |         |       |                        |   | 3      |                |  |       |      |  |   | 3      |  
|British Pound                                                                  |  |         |       |                        |   | 110    |                |  |       |      |  |   | 110    |  
|Auction rate securities                                                        |  |         |       |                        |   |       |                |  |       | 6,754 |  |   | 6,754  |  
|Preferred stock                                                                |  |         |       |                        |   |       |                |  |       | 380   |  |   | 380    |  
|The following table illustrates Level
3 activity during first quarter of 2010: |  |         |        |                        |   |        |                |  |       |       |  |   |        |  
|(In thousands)                                                                 |  |         |        | AuctionRate Securities |   |        | PreferredStock |  | Total |      
|Beginning Balance                                                              |  |         |        |                        | $ | 5,627  |                |  | $     | 380   |  | $ | 6,007  |  
|Net unrealized gains:                                                          |  |         |        |                        |   |        |                |  |       |       |  |   |        |  
|Included in earnings                                                           |  |         |        |                        |   |       |                |  |       |      |  |   |       |  
|Included in other comprehensive income                                         |  |         | 1,127  |                        |   |        |               |  |       | 1,127 | 
|Purchases, issuances and settlements                                           |  |         |        |                        |   |       |                |  |       |      |  |   |       |  
|Net transfers into (out of) Level 3                                            |  |         |        |                        |   |       |                |  |       |      |  |   |       |  
|                                                                               |  |         |        |                        |   |        |                |  |       |       |  |   |        |  
|Ending Balance                                                                 |  |         |        |                        | $ | 6,754  |                |  | $     | 380   |  | $ | 7,134  |  
|                                                                               |  |         |        |                        |   |        |                |  |       |       |  |   |        |  

For Level 1 assets, the Company utilized quoted prices in active markets for identical assets.

For Level 2 assets, exclusive of forward contracts, the Company utilized quoted prices in active markets for similar assets. For the forward contracts, spot prices at
June 26, 2009 were utilized to calculate the unrealized gain/loss on open forward contracts which were recorded in Accumulated other comprehensive income (loss) and Other assets on the Condensed Consolidated Balance Sheet as of June 27,
2009.

The Level 3 assets consisted of ARS and preferred stock acquired through the conversion of certain ARS during the third quarter of 2009. As none of
the Companys securities have traded through the auction process and very few market transactions have been observed for these securities, estimated fair values were based primarily upon the income approach using a discounted cash flow model
which took into account the following: (i) the underlying structure of each security; (ii) the present value of future principal and interest payments discounted at rates that reflect current market conditions; (iii) consideration of
the probabilities of default, restructuring or redemption by the issuer (trigger events); (iv) estimates of the recovery rates in the event of default for each security; (v) the financial condition, results, ratings of and financial claims
on the bond insurers and issuers; and (vi) the underlying trust assets of the securities.

7. Inventories

Inventories are principally valued at standard costs, which approximate the lower of cost (first-in, first-out) or market. Components of inventories were as follows:



|                                  |  |               |        |                |   |       
|--------------------------------- |  | ------------- | ------ | -------------- | - | ------
|(In thousands)                    |  | June 27, 2009 |        | March 28, 2009
|Raw materials and purchased parts |  | $             | 53,073 |                | $ | 56,701
|Work-in-process                   |  |               | 8,871  |                |   | 7,741 
|Finished goods                    |  |               | 16,800 |                |   | 20,440
|                                  |  |               |        |                |   |       
|                                  |  | $             | 78,744 |                | $ | 84,882
|                                  |  |               |        |                |   |       



11



---

##### Table of Contents

8. Other Current Assets

Other current assets consisted of the following:



|                             |  |               |        |                |   |       
|---------------------------- |  | ------------- | ------ | -------------- | - | ------
|(In thousands)               |  | June 27, 2009 |        | March 28, 2009
|Income tax refund receivable |  | $             | 4,827  |                | $ | 4,828 
|Value added tax receivable   |  |               | 2,868  |                |   | 3,426 
|Prepaid expenses             |  |               | 2,427  |                |   | 2,055 
|Other                        |  |               | 185    |                |   | 285   
|                             |  |               |        |                |   |       
|                             |  | $             | 10,307 |                | $ | 10,594
|                             |  |               |        |                |   |       

9. Other Assets

Other assets consisted of the following:



|                                    |  |               |        |                |   |       
|----------------------------------- |  | ------------- | ------ | -------------- | - | ------
|(In thousands)                      |  | June 27, 2009 |        | March 28, 2009
|All-Ring patent suit court bond     |  | $             | 8,966  |                | $ | 8,738 
|Minority equity investment          |  |               | 8,184  |                |   | 7,991 
|Consignment and demo equipment, net |  |               | 4,900  |                |   | 6,447 
|Patents, net                        |  |               | 2,002  |                |   | 2,044 
|Other                               |  |               | 722    |                |   | 855   
|                                    |  |               |        |                |   |       
|                                    |  | $             | 24,774 |                | $ | 26,075
|                                    |  |               |        |                |   |       

10. Accrued Liabilities

Accrued liabilities consisted of the following:



|                                        |  |               |        |                |   |       
|--------------------------------------- |  | ------------- | ------ | -------------- | - | ------
|(In thousands)                          |  | June 27, 2009 |        | March 28, 2009
|Payroll-related liabilities             |  | $             | 4,027  |                | $ | 3,971 
|Value added taxes payable               |  |               | 1,477  |                |   | 2,095 
|Product warranty accrual                |  |               | 1,284  |                |   | 2,057 
|Professional fees payable               |  |               | 1,141  |                |   | 1,143 
|Purchase order commitments and receipts |  |               | 570    |                |   | 673   
|Restructuring costs payable             |  |               | 203    |                |   | 447   
|Other                                   |  |               | 3,034  |                |   | 2,572 
|                                        |  |               |        |                |   |       
|                                        |  | $             | 11,736 |                | $ | 12,958
|                                        |  |               |        |                |   |       

11. Product Warranty Accrual

The following is a reconciliation of the change in the aggregate accrual for product warranty:



|                                    |  |                      |        |   |               |   |        |  
|----------------------------------- |  | -------------------- | ------ | - | ------------- | - | ------ | -
|                                    |  | Fiscal quarter ended |       
|(In thousands)                      |  | June 27, 2009        |        |   | June 28, 2008 |  
|Product warranty accrual, beginning |  | $                    | 2,057  |   |               | $ | 3,740  |  
|Warranty charges incurred, net      |  |                      | (1,690 | ) |               |   | (2,239 | )
|Provision for warranty charges      |  |                      | 917    |   |               |   | 2,523  |  
|                                    |  |                      |        |   |               |   |        |  
|Product warranty accrual, ending    |  | $                    | 1,284  |   |               | $ | 4,024  |  
|                                    |  |                      |        |   |               |   |        |  

Net warranty charges incurred include labor costs and costs of replacement parts for system repairs under
warranty. These costs are recorded net of any estimated cost recoveries resulting from either successful repair of damaged parts or from warranties offered by the Companys suppliers for defective components. The provision for warranty charges
reflects the estimate of future anticipated net warranty costs to be incurred for all products under warranty at quarter end and is recorded to Cost of sales.



12



---

##### Table of Contents

12. Deferred Revenue

Generally, revenue is recognized upon fulfillment of acceptance criteria at the Companys factory and title transfer which frequently occur at the time of delivery to a common carrier. Revenue is deferred whenever title transfer is
pending and/or acceptance criteria have not yet been fulfilled. Deferred revenue occurrences include sales to Japanese end-user customers, shipments of substantially new products and shipments with custom specifications and acceptance criteria. In
sales involving multiple element arrangements, the fair value of any undelivered elements, including installation services, is deferred until the elements are delivered and acceptance criteria are met. Revenue related to maintenance and service
contracts is deferred and recognized ratably over the duration of the contracts.

The following is a reconciliation of the changes in deferred revenue:



|                            |  |                      |        |   |               |   |        |  
|--------------------------- |  | -------------------- | ------ | - | ------------- | - | ------ | -
|                            |  | Fiscal quarter ended |       
|(In thousands)              |  | June 27, 2009        |        |   | June 28, 2008 |  
|Deferred revenue, beginning |  | $                    | 11,251 |   |               | $ | 12,583 |  
|Revenue deferred            |  |                      | 5,660  |   |               |   | 7,539  |  
|Revenue recognized          |  |                      | (5,135 | ) |               |   | (7,284 | )
|                            |  |                      |        |   |               |   |        |  
|Deferred revenue, ending    |  | $                    | 11,776 |   |               | $ | 12,838 |  
|                            |  |                      |        |   |               |   |        |  

13. Earnings Per Share

Basic earnings per share was calculated based on the weighted average number of common shares outstanding during each period. Diluted earnings per share was calculated based on these same weighted average shares outstanding plus the effect
of potentially dilutive share-based awards as calculated using the treasury stock method. Share-based awards were excluded from the calculation to the extent their effect would be antidilutive.

For the fiscal quarters ended June 27, 2009 and June 28, 2008, awards of options, SOSARs and unvested awards representing an additional 3.6 million and
4.3 million shares of common stock were outstanding, respectively. These shares were not included in the calculation of diluted net earnings per share because their effect would have been antidilutive.

14. Comprehensive Income (Loss)

The components of comprehensive
loss, net of tax, were as follows:



|                                                                           |  |                      |        |   |               |   |        |  
|-------------------------------------------------------------------------- |  | -------------------- | ------ | - | ------------- | - | ------ | -
|                                                                           |  | Fiscal quarter ended |       
|(In thousands)                                                             |  | June 27, 2009        |        |   | June 28, 2008 |  
|Net loss                                                                   |  | $                    | (5,530 | ) |               | $ | (2,758 | )
|Other comprehensive income                                                 |  |                      | 1      |   |               |   | 2      |  
|Foreign currency translation adjustment                                    |  |                      | 791    |   |               |   | (281   | )
|Reclassification of unrealized loss on auction rate securities to earnings |  |                      |       |   |               |   | 2,496  |  
|Unrealized gain on auction rate securities                                 |  |                      | 1,127  |   |               |   |       |  
|Net unrealized loss on securities classified as available for sale         |  |                      | (5     | ) |               |   | (22    | )
|                                                                           |  |                      |        |   |               |   |        |  
|Other comprehensive loss                                                   |  | $                    | (3,616 | ) |               | $ | (563   | )
|                                                                           |  |                      |        |   |               |   |        |  

15. Share Repurchase Program

On May 15, 2008, the Board of Directors authorized a share repurchase program for $20.0 million in shares of the Companys outstanding common stock primarily to offset dilution from equity compensation
programs. The repurchases are to be made at management's discretion in the open market or in privately negotiated transactions in compliance with applicable securities laws and other legal requirements and are subject to market conditions, share
price and other factors. There is no fixed completion date for the repurchase program.



13



---

##### Table of Contents

During the first quarter of 2010, the Company repurchased 64,960 shares for $0.6 million under this share repurchase
program at an average price per share of $8.55, calculated inclusive of commissions and fees. As of June 27, 2009, a total of 372,825 shares have been repurchased for $5.3 million under this authorization at an average price of $14.16 per
share, calculated inclusive of commissions and fees. Cash used to settle repurchase transactions is reflected as a component of cash used in financing activities in the Condensed Consolidated Statements of Cash Flows.

16. Product and Geographic Information

Net sales by product type
were as follows:



|                                         |  |                      |        |               |   |       
|---------------------------------------- |  | -------------------- | ------ | ------------- | - | ------
|                                         |  | Fiscal quarter ended
|(In thousands)                           |  | June 27, 2009        |        | June 28, 2008
|Semiconductor Group (SG)                 |  | $                    | 5,260  |               | $ | 21,728
|Passive Component Group (PCG)            |  |                      | 5,150  |               |   | 13,275
|Interconnect/Micro-machining Group (IMG) |  |                      | 12,193 |               |   | 29,021
|                                         |  |                      |        |               |   |       
|                                         |  | $                    | 22,603 |               | $ | 64,024
|                                         |  |                      |        |               |   |       

Net sales by geographic area, based on the location of the end user, were as follows:



|               |  |                      |        |               |   |       
|-------------- |  | -------------------- | ------ | ------------- | - | ------
|               |  | Fiscal quarter ended
|(In thousands) |  | June 27, 2009        |        | June 28, 2008
|Asia           |  | $                    | 16,087 |               | $ | 44,439
|Americas       |  |                      | 4,287  |               |   | 12,903
|Europe         |  |                      | 2,229  |               |   | 6,682 
|               |  |                      |        |               |   |       
|               |  | $                    | 22,603 |               | $ | 64,024
|               |  |                      |        |               |   |       

17. Legal Proceedings

All Ring Patent Infringement Prosecution

In August 2005, the Company commenced a proceeding in the Kaohsiung District Court of Taiwan (the
Court) directed against All Ring Tech Co., Ltd. (All Ring) of Taiwan. The Company alleged that All Rings Capacitor Tester Model RK-T6600 (the Capacitor Tester) infringes ESIs Taiwan Patent No. 207469, entitled Circuit
Component Handler (the 207469 patent). As part of this proceeding, the Court issued a Provisional Attachment Order (PAO) in August 2005, restricting the use of some of All Rings assets. All Ring then filed a bond with the Court to obtain
relief from the attachment of its assets. In July 2007, the Court issued a second PAO and approximately US$6.0 million was restricted in All Rings accounts. The second PAO remains in effect and cannot be revoked.

In October 2005, the Company filed a formal patent infringement action against All Ring in the Court. The Court-appointed expert has concluded that the Capacitor Tester
and All Rings RK-T2000 both infringe every claim of the 207469 patent and that All Rings RK-L50 infringes a number of the claims as well. Also in October 2005, the Court executed a Preliminary Injunction Order (PIO) that prohibits All
Ring from manufacturing, selling, offering for sale or using the Capacitor Tester until final judgment is entered in the formal patent infringement action. The Court dismissed All Rings application to revoke the PIO on January 18, 2008,
and the PIO remains in place.

In November 2005, All Ring filed a cancellation action against ESIs 207469 patent in the Taiwan Intellectual Property
Office (the IPO). On July 5, 2007, the IPO issued a notice requiring the Company to cancel two of the claims in the 207469 patent. The Company filed a response canceling the two claims and amending the remaining claims accordingly in August
2007. On August 12, 2008, the IPO decided the action in the Companys favor and dismissed the cancellation action. All Ring appealed the IPOs



14



---

##### Table of Contents

cancellation decision to the Board of Appeal of the Ministry of Economic Affairs (MOEA) on September 12, 2008. On March 23, 2009, the MOEA
dismissed the IPOs cancellation decision solely on procedural grounds. The MOEA remanded the case to the IPO with a request that the IPO issue another decision within six months that rectifies the procedural defects of the IPOs earlier
decision. On July 22, 2009, the IPO issued a decision dismissing All Rings cancellation action.

Pursuant to the Courts PAO and PIO, the
Company was required to post Taiwan dollar security bonds with the Court. The total security bonds, valued at approximately US$9.0 million, were included in the Companys other assets on the Condensed Consolidated Balance Sheet at June 27,
2009.

In the ordinary course of business, the Company is involved in various other legal matters, either asserted or unasserted, and investigations. In
the opinion of management, ultimate resolution of these matters will not have a material effect on the Companys consolidated financial position, results of operations or cash flows.

18. Subsequent Events

In May 2009, the FASB issued SFAS
No. 165, Subsequent Events (SFAS No. 165), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. It also requires
disclosure of the date through which the Company has evaluated subsequent events. The Company adopted SFAS No. 165 as of the first quarter of fiscal 2010. The Company will apply the provisions of this statement prospectively as such events
occur, and can only assess the impact of the standard at such time. For the first quarter of fiscal 2010, the Company evaluated subsequent events through August 5, 2009, the date the financial statements were issued. No such events were
identified.

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 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.

Overview of Business

Electro Scientific Industries, Inc. and its
subsidiaries (ESI) provide high-technology manufacturing equipment to the global semiconductor and micro-electronics markets, including advanced laser systems that are used to micro-engineer electronic device features in high-volume production
environments. Our customers are primarily manufacturers of semiconductors, passive components, electronic interconnect devices, and other components used in a wide variety of end products in the computer, consumer electronics, communications and
other industries. Our equipment enables these manufacturers to achieve yield and productivity gains in their manufacturing processes that can be critical to their profitability. ESI was founded in 1944, is headquartered in Portland, Oregon, and has
subsidiaries in the U.S., Europe and Asia.

Our advanced laser microengineering and inspection systems allow semiconductor and micro-electronics
manufacturers to physically alter select device features during high-volume production in order to heighten performance and boost production yields. Laser micro-engineering comprises a set of precise fine-tuning processes, including micro-machining,
wafer scribing and dicing, semiconductor memory-link cutting, device trimming and via drilling, that requires 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 during the manufacturing process for semiconductor devices, high-density interconnect (HDI) circuits, including flexible interconnect material and advanced semiconductor packaging,
high-brightness light emitting diodes (LED), flat panel liquid crystal displays (LCD) and general micro-machining applications.



15



---

##### Table of Contents

Additionally, we produce high-capacity test and optical inspection equipment that is critical to the quality control
process during the production of multi-layer ceramic capacitors (MLCCs). Our equipment ensures that each MLCC meets both the electrical and physical tolerances required to perform properly.

Summary of Sequential Quarterly Results

The financial results of the
fiscal quarter ended June 27, 2009 reflected some signs of improvement from the prior quarter in virtually all of our markets. Total order volume for the first quarter of 2010 was $28.7 million, compared to total order volume for the fourth
quarter of 2009 of $16.1 million. The increase in orders was driven by improvements in all our business groups. However, market conditions remain very difficult, as semiconductor memory prices remain relatively weak and capacity utilization, while
improving, is below the level that drives significant capacity purchases.

Orders for our Semiconductor Group (SG) products more than doubled compared to
the historically low level of orders in the fourth quarter of 2009. The increase in orders for SG products was reflected in higher levels of spending in our LED scribing business and also due in part to qualification of our new wafer repair
application.

Orders for our Passive Components Group (PCG) almost tripled compared to the very low levels in the fourth quarter of 2009. This increase was
driven by a multi-system order for our high-capacitance tester as well as increased orders for our consumable and tooling products, reflecting increased utilization and low channel inventory.

Orders for our Interconnect/Micro-machining Group (IMG) products increased by approximately 25% compared to the fourth quarter of 2009. This increase was driven
primarily by strong orders for our flex interconnect applications and increased activity in general-purpose micromachining applications.

Gross margins
were 26.4% on net sales of $22.6 million in the first quarter of 2010, compared to 25.7% on net sales of $18.1 million in the fourth quarter of 2009. The slight increase in gross margin percentage reflects the benefit from higher sales volume,
partially offset by an unfavorable product mix compared to the prior quarter. Included in cost of sales in both quarters were $0.3 million of amortization of intangible assets acquired in the acquisition of New Wave Research, Incorporated (NWR) in
July, 2007.

Total operating expenses decreased $11.4 million to $14.9 million in the first quarter of 2010, compared to $26.3 million in the fourth
quarter of 2009. Approximately $6.4 million of the sequential decrease was due to a receipt of $4.5 million in net proceeds in the first quarter of 2010 from a merger termination fee compared to $1.9 million of merger related expenses incurred in
the fourth quarter of 2009. Additionally, we incurred a $4.1 million charge in the fourth quarter of 2009 to write-off material from a research, development and engineering program due to a change in our product development strategy and
restructuring charges totaling $2.0 million. Partially offsetting these reductions, share-based compensation increased $1.2 million due to a change in the vesting schedule of current year board of director grants, incremental cost of the
Companys annual stock grant, and lower expenses recognized in the prior quarter based on reduced achievement against existing performance grants. Excluding the impact of these items, expenses decreased approximately $0.1 million due to
continued efforts to manage our cost structure and timing of engineering project costs between quarters.



16



---

##### Table of Contents

Operating loss decreased to $8.9 million in the first quarter of fiscal 2010 compared to $21.7 million in the fourth
quarter of fiscal 2009, driven by the net decrease of $11.4 million in net operating expenses and increased gross profit of $1.3 million.

There was no
other-than-temporary impairment charge related to our auction rate securities (ARS) during the first quarter of 2010 compared to a $1.1 million charge in the fourth quarter of 2009, reflecting a slight improvement of financial markets during the
first quarter of 2010.

Net interest and other income of $0.3 million in the first quarter of 2010 increased slightly from $0.2 million in the fourth
quarter of 2009. The increase was driven by improved foreign currency results partially offset by lower interest income, the result of declines in average market interest rates.

The effective tax rate was 35.7% in the first quarter of 2010, resulting in an income tax benefit of $3.1 million, compared to an effective rate of 33.9% for the fourth quarter of 2009, resulting in an income tax
benefit of $7.7 million.

Net loss for the first quarter of 2010 was $5.5 million or $0.20 per basic and diluted share, compared to a net loss of $14.9
million or $0.55 per basic and diluted share in the fourth quarter of 2009.

Results of Operations

The following table presents results of operations data as a percentage of net sales for the fiscal quarters ended June 27, 2009 and June 28, 2008:



|                                                           |  |                      |    |  |               |   
|---------------------------------------------------------- |  | -------------------- | -- |  | ------------- | --
|                                                           |  | Fiscal quarter ended |   
|                                                           |  | June 27, 2009        |    |  | June 28, 2008 |   
|Net sales                                                  |  | 100.0                | %  |  | 100.0         | % 
|Cost of sales                                              |  | 73.6                 |    |  | 60.5          |   
|                                                           |  |                      |    |  |               |   
|Gross margin                                               |  | 26.4                 |    |  | 39.5          |   
|Selling, service and administration                        |  | 53.0                 |    |  | 23.5          |   
|Research, development and engineering                      |  | 33.0                 |    |  | 15.0          |   
|Restructuring costs                                        |  |                     |    |  | 1.2           |   
|Merger termination proceeds, net                           |  | (20.0                | )  |  |              |   
|                                                           |  |                      |    |  |               |   
|Operating loss                                             |  | (39.6                | )  |  | (0.2          | ) 
|Other-than-temporary impairment of auction rate securities |  |                     |    |  | (8.0          | ) 
|Interest and other income, net                             |  | 1.5                  |    |  | 1.3           |   
|                                                           |  |                      |    |  |               |   
|Loss before income taxes                                   |  | (38.1                | )  |  | (6.9          | ) 
|Benefit from income taxes                                  |  | 13.6                 |    |  | 2.6           |   
|                                                           |  |                      |    |  |               |   
|Net loss                                                   |  | (24.5                | )% |  | (4.3          | )%
|                                                           |  |                      |    |  |               |   

Fiscal Quarter Ended June 27, 2009 Compared to Fiscal Quarter Ended June 28, 2008

Net Sales

Net sales were $22.6 million for the first quarter
of 2010, a decrease of $41.4 million or 64.7% compared to net sales of $64.0 million for the first quarter of 2009. Revenue decreased in each of our product groups, reflecting the extremely difficult global economic environment. Our worldwide
customers have been severely affected by depressed consumer demand and weak memory prices that persisted throughout calendar 2008 and to date in calendar 2009.



17



---

##### Table of Contents

Net sales by product group for the fiscal quarters ended June 27, 2009 and June 28, 2008 were as follows:



|                                         |  |                      |        |                |               |   |           |   |                |  |       |  
|---------------------------------------- |  | -------------------- | ------ | -------------- | ------------- | - | --------- | - | -------------- |  | ----- | -
|                                         |  | Fiscal quarter ended |       
|                                         |  | June 27, 2009        |        |                | June 28, 2008 |  
|(In thousands, except percentages)       |  | Net Sales            |        | % of Net Sales |               |   | Net Sales |   | % of Net Sales | 
|Semiconductor Group (SG)                 |  | $                    | 5,260  |                | 23.3          | % |           | $ | 21,728         |  | 33.9  | %
|Passive Components Group (PCG)           |  |                      | 5,150  |                | 22.8          | % |           |   | 13,275         |  | 20.7  | %
|Interconnect/Micro-machining Group (IMG) |  |                      | 12,193 |                | 53.9          | % |           |   | 29,021         |  | 45.4  | %
|                                         |  |                      |        |                |               |   |           |   |                |  |       |  
|                                         |  | $                    | 22,603 |                | 100.0         | % |           | $ | 64,024         |  | 100.0 | %
|                                         |  |                      |        |                |               |   |           |   |                |  |       |  

SG sales in the first quarter of 2010 decreased $16.5 million or 75.8% compared to the first quarter of 2009. The
overall decrease in sales was due to the significant downturn in the memory markets and its impact to our memory repair customers demand for capital equipment.

PCG sales in the first quarter of 2010 declined $8.1 million or 61.2% compared to the first quarter of 2009. The decrease in PCG net sales was driven by global reduction in demand for consumer electronics which has
reduced the utilization of existing systems at our MLCC manufacturing customers and impacted their demand for additional products.

IMG sales in the first
quarter of 2010 decreased $16.8 million or 58.0% compared to the first quarter of 2009. The decrease was primarily due to strong sales that occurred in the first quarter of 2009 for our micro-machining products driven by initial demand for the Model
5800 released during that quarter. Sales for the first quarter of 2010 reflect lower order levels from micro-machining customers partially offset by continued demand from flex circuit and integrated circuit packaging segments of the market.

Net sales by geographic region for the fiscal quarters ended June 27, 2009 and June 28, 2008 were as follows:



|                                   |  |                      |        |                |               |   |           |   |                |  |       |  
|---------------------------------- |  | -------------------- | ------ | -------------- | ------------- | - | --------- | - | -------------- |  | ----- | -
|                                   |  | Fiscal quarter ended |       
|                                   |  | June 27, 2009        |        |                | June 28, 2008 |  
|(In thousands, except percentages) |  | Net Sales            |        | % of Net Sales |               |   | Net Sales |   | % of Net Sales | 
|Asia                               |  | $                    | 16,087 |                | 71.1          | % |           | $ | 44,439         |  | 69.4  | %
|Americas                           |  |                      | 4,287  |                | 19.0          | % |           |   | 12,903         |  | 20.2  | %
|Europe                             |  |                      | 2,229  |                | 9.9           | % |           |   | 6,682          |  | 10.4  | %
|                                   |  |                      |        |                |               |   |           |   |                |  |       |  
|                                   |  | $                    | 22,603 |                | 100.0         | % |           | $ | 64,024         |  | 100.0 | %
|                                   |  |                      |        |                |               |   |           |   |                |  |       |  

Compared to the fiscal quarter ended June 28, 2008, net sales for the fiscal quarter ended June 27, 2009
declined $28.4 million or 63.8% in Asia, $8.6 million or 66.8% in the Americas, and $4.5 million or 66.6% in Europe. These decreases reflect the impact of the global economic recession on all of our markets.

Gross Profit

Gross profit for the fiscal quarters ended
June 27, 2009 and June 28, 2008 was as follows:



|                                   |  |                      |       |                |               |   |              |   |                |  |      |  
|---------------------------------- |  | -------------------- | ----- | -------------- | ------------- | - | ------------ | - | -------------- |  | ---- | -
|                                   |  | Fiscal quarter ended |      
|                                   |  | June 27, 2009        |       |                | June 28, 2008 |  
|(In thousands, except percentages) |  | Gross Profit         |       | % of Net Sales |               |   | Gross Profit |   | % of Net Sales | 
|Gross Profit                       |  | $                    | 5,961 |                | 26.4          | % |              | $ | 25,291         |  | 39.5 | %
|                                   |  |                      |       |                |               |   |              |   |                |  |      |  

Gross profit for the fiscal quarter ended June 27, 2009 was $6.0 million, a decline of $19.3 million compared
to gross profit of $25.3 million for the fiscal quarter ended June 28, 2008. Gross profit also declined as a percentage of net sales, decreasing to 26.4% for the first quarter of 2010 from 39.5% for the first quarter of 2009. These decreases
were primarily related to decreased revenue levels along with an associated reduction in capacity utilization. As a response to the decline in business, management implemented cost reduction efforts throughout fiscal 2009, including reductions in
manufacturing labor and overhead, which partially mitigated the impact of lower production volumes.



18



---

##### Table of Contents

Operating Expenses

Operating expenses for the fiscal quarters ended June 27, 2009 and June 28, 2008 were as follows:



|                                      |  |                      |        |   |                |       |   |         |   |                |  |      |  
|------------------------------------- |  | -------------------- | ------ | - | -------------- | ----- | - | ------- | - | -------------- |  | ---- | -
|                                      |  | Fiscal quarter ended |       
|                                      |  | June 27, 2009        |        |   | June 28, 2008  |      
|(In thousands, except percentages)    |  | Expense              |        |   | % of Net Sales |       |   | Expense |   | % of Net Sales | 
|Selling, Service and Administration   |  | $                    | 11,971 |   |                | 53.0  | % |         | $ | 15,100         |  | 23.5 | %
|Research, Development and Engineering |  |                      | 7,455  |   |                | 33.0  |   |         |   | 9,658          |  | 15.0 |  
|Restructuring Costs                   |  |                      |       |   |                |      |   |         |   | 749            |  | 1.2  |  
|Merger Termination Proceeds, net      |  |                      | (4,516 | ) |                | (20.0 | ) |         |   |               |  |     |  
|                                      |  |                      |        |   |                |       |   |         |   |                |  |      |  
|                                      |  | $                    | 14,910 |   |                | 66.0  | % |         | $ | 25,507         |  | 39.7 | %
|                                      |  |                      |        |   |                |       |   |         |   |                |  |      |  

Selling, Service and Administration Expenses

The primary items included in selling, service and administration (SS&A) expenses are labor and other employee-related expenses including share-based compensation expense, travel expenses, professional fees, sales
commissions and facilities costs. SS&A expenses were $12.0 million for the fiscal quarter ended June 27, 2009, a decrease of $3.1 million compared to $15.1 million in the fiscal quarter ended June 28, 2008. The decrease in SS&A
expenses was primarily attributable to restructuring and cost management activities completed in fiscal 2009. These actions have included company-wide reductions in force and related decreases in compensation, labor, and travel-related costs.
Additionally, we have implemented several temporary cost reduction measures, including salary reductions, furloughs, and elimination of the Company match of 401(k) contributions. The impact of these reductions was partially offset by an increase of
$0.9 million in SS&A share-based compensation expense. Share-based compensation expense increased compared to the same quarter of the prior year primarily due to a change to immediate vesting for annual grants to the board of directors in May of
2009 and the incremental cost of the Companys annual stock grant. To the extent that any of the temporary cost reduction measures cited above are discontinued in future quarters, employee-related expenses will increase accordingly.

Research, Development and Engineering Expenses

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 $7.5 million for the fiscal
quarter ended June 27, 2009, which represents a decline of $2.2 million compared to $9.7 million for the fiscal quarter ended June 28, 2008. This decrease was primarily due to reductions in employee-related expense resulting from our cost
containment actions, and to a lesser extent, lower project materials expense.

Restructuring Costs

No restructuring expenses were incurred during the fiscal quarter ended June 27, 2009 compared to $0.7 million during the fiscal quarter ended June 28, 2008.
The expenses for the fiscal quarter ended June 28, 2008 were incurred as the result of reductions in workforce announced in that quarter, which were taken in response to weakness in the memory market and reductions in customer capital spending.

Merger Termination Proceeds, Net

For the quarter
ended June 27, 2009, we recorded a net benefit of $4.5 million in operating expenses related to a merger termination fee. This amount represents the receipt of a $5.4 million merger termination fee offset by an additional $0.9 million of merger
transaction costs.



19



---

##### Table of Contents

Non-operating Income and Expense

Other-than-temporary Impairment of Auction Rate Securities

No other-than-temporary impairment charges related to our
auction rate securities (ARS) were recorded during the fiscal quarter ended June 27, 2009 compared to a charge of $5.1 million during the fiscal quarter ended June 28, 2008. The charge in fiscal 2009 was incurred as the result of
instability of the global financial markets throughout fiscal 2009, which created a prolonged period of decline in the values of ARS. Given the continued challenges in the financial markets and the prolonged credit crisis, we cannot reasonably
predict when these ARS will become liquid. See Note 6 Fair Value Measurements for further discussion.

Interest and Other Income, Net

Interest and other income, net, consists of interest income and expense, market gains and losses on assets held in employees deferred compensation
accounts, realized and unrealized foreign exchange gains and losses, bank charges, investment management fees, ARS valuation fees and other miscellaneous non-operating items. Net interest and other income for the fiscal quarters ended June 27,
2009 and June 28, 2008 was as follows:



|                                   |  |                              |     |                |               |   |                              |   |                |  |     |  
|---------------------------------- |  | ---------------------------- | --- | -------------- | ------------- | - | ---------------------------- | - | -------------- |  | --- | -
|                                   |  | Fiscal quarter ended         |    
|                                   |  | June 27, 2009                |     |                | June 28, 2008 |  
|(In thousands, except percentages) |  | Interest andOther Income,net |     | % of Net Sales |               |   | Interest andOther Income,net |   | % of Net Sales | 
|Interest and Other Income, net     |  | $                            | 342 |                | 1.5           | % |                              | $ | 860            |  | 1.3 | %
|                                   |  |                              |     |                |               |   |                              |   |                |  |     |  

Interest and other income, net, for the first quarter of 2010 declined $0.5 million compared to the first quarter
of 2009. The decrease was primarily attributable to a $0.8 million decrease in interest income due to significant declines in market interest rates on short-term, high-quality securities over this period, partially offset by $0.3 million of foreign
currency gains.

Income Taxes

The income tax
benefit recorded for the fiscal quarter ended June 27, 2009 was $3.1 million on pretax loss of $8.6 million, an effective rate of 35.7%. Comparatively, the income tax benefit was $1.7 million on a pretax loss of $4.5 million for the fiscal
quarter ended June 28, 2008, an effective tax rate of 38.0%.

Our effective tax rate is subject to fluctuation based upon 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 and finalization of income tax returns. Based on currently
available information, we are not aware of any such discrete events which are likely to occur that would have a materially adverse effect on our financial position, expected cash flows or results of operations. We anticipate no significant changes
in unrecognized tax benefits in the next twelve months as the result of examinations or lapsed statutes of limitation.

Net Loss

Net loss for the fiscal quarters ended June 27, 2009 and June 28, 2008 was as follows:



|                                   |  |                      |        |   |                |       |    |          |   |        |                |  |      |   
|---------------------------------- |  | -------------------- | ------ | - | -------------- | ----- | -- | -------- | - | ------ | -------------- |  | ---- | --
|                                   |  | Fiscal quarter ended |       
|                                   |  | June 27, 2009        |        |   | June 28, 2008  |      
|(In thousands, except percentages) |  | Net Loss             |        |   | % of Net Sales |       |    | Net Loss |   |        | % of Net Sales | 
|Net Loss                           |  | $                    | (5,530 | ) |                | (24.5 | )% |          | $ | (2,758 | )              |  | (4.3 | )%
|                                   |  |                      |        |   |                |       |    |          |   |        |                |  |      |   



20



---

##### Table of Contents

Net loss for the first quarter of 2010 was $5.5 million, or $0.20 per basic and diluted share, compared to net loss for
the first quarter of 2009 of $2.8 million, or $0.10 per basic and diluted share. The decline was primarily the result of the reduction in revenues and gross profit, partially offset by the benefit from cost containment actions and the net merger
termination proceeds, as discussed above.

Financial Condition and Liquidity

At June 27, 2009, our principal sources of liquidity consisted of cash, cash equivalents and current marketable investments of $155.2 million and accounts receivable of $20.1 million. At June 27, 2009, we
had a current ratio of 9.2 and held no long-term debt. Working capital of $243.7 million was down slightly compared to the March 28, 2009 balance of $246.9 million.

During fiscal 2009, we announced that we had agreed to acquire Zygo Corporation, but in the fourth quarter of fiscal 2009 we elected to pursue the termination of the proposed merger. As a result, we wrote off fees
associated with the merger of $1.9 million as operating expenses on the Consolidated Statement of Operations for the year ended March 28, 2009. During the first quarter of fiscal 2010, the termination was formalized through the establishment of
the Settlement Agreement with Zygo Corporation. Pursuant to the terms of the Settlement Agreement, we received a merger termination fee of $5.4 million in April 2009. The receipt of this fee, combined with additional merger-related costs of $0.9
million, resulted in a net benefit of $4.5 million in the first quarter of 2010. This benefit is reflected as Merger termination proceeds, net, on the Condensed Consolidated Statement of Operations for the fiscal quarter ended June 27, 2009.

On May 15, 2008, the Board of Directors authorized a share repurchase program for $20 million in shares of the Companys outstanding common
stock primarily to offset dilution from equity compensation programs. Repurchases under the program are to be made at managements discretion in the open market or in privately negotiated transactions in compliance with applicable securities
laws and other legal requirements and are subject to market conditions, share price and other factors. During the first quarter of fiscal 2010, the Company repurchased 64,960 shares for $0.6 million under this share repurchase program at an average
price per share of $8.55, which was calculated inclusive of commissions and fees. As of June 27, 2009, a total of 372,825 shares have been repurchased at an average price of $14.16 per share, which was calculated inclusive of commissions and
fees, totaling $5.3 million under this authorization. Cash used to settle repurchase transactions is reflected as a component of cash used in financing activities in the Condensed Consolidated Statements of Cash Flows. There is no fixed completion
date for the repurchase program.

As of June 27, 2009, we held a total of $15.6 million invested in auction rate securities (ARS) at par value.
Additionally, we held $4.0 million of par value ARS which were converted by the bond issuer to its preferred stock during the third quarter of 2009. The ARS are comprised predominately of securities issued by insurance companies to raise funds to
meet regulatory capital reserve requirements and the ARS assume the credit ratings of the bond insurers who guarantee the timely payment of principal and interest on these insured securities. At the time of purchase in 2007, these ARS were rated AAA
and AA. The contractual maturities of these securities range up to calendar year 2050, and several securities and the preferred stock do not have stated maturities. Prior to September 2007, these securities provided short-term liquidity through a
Dutch auction process that reset the applicable interest rate at pre-determined calendar intervals, generally every 28 to 35 days. This mechanism previously allowed existing investors to either retain or liquidate their holdings by selling such
securities at par. As a result of the liquidity issues experienced in the global credit and capital markets, during the second quarter of 2008, our ARS began to experience failed auctions.

Since that time, none of these securities have traded through the auction process and very few market transactions for these securities have been observed. Additionally,
the bond insurers of the ARS and preferred stock experienced credit rating downgrades throughout fiscal 2009. Consequently, it was determined that the declines in fair value of these securities during 2009 represented other-than-temporary
impairments in accordance with U.S. generally accepted accounting principles. Accordingly, at the end of each quarter of 2009, the cost bases of these securities were written down to their estimated fair values with other-than-temporary impairment
charges totaling $13.6 million, of which $5.1 million was recorded during the first quarter of 2009. As of the first quarter of 2010, in accordance with the adoption of



21



---

##### Table of Contents

FSP FAS No. 115-2 and FAS No. 124-2, we recorded a cumulative-effect adjustment to the opening balance of retained earnings of $0.4 million for the
non-credit loss portion of the ARS. We also recorded a fair value adjustment to accumulated other comprehensive income of $1.1 million to reflect the estimated fair value of the ARS. The credit loss portion of the ARS was determined by direct
estimation of the change in fair value attributable to market movements. We utilized market indices representing investments of constant credit quality over time and measured the index yield, which is considered attributable to non-credit related
factors, at the beginning and end of the period. The effect of this change in yield on the value of the security was measured and subtracted from the total change in fair value to arrive at the estimated change in value attributable to changes in
credit quality. The $7.1 million estimated fair value of these securities is classified as a non-current asset on the Condensed Consolidated Balance Sheet at June 27, 2009, consistent with the classification at June 28, 2008, and each
subsequent reporting period.

We currently continue to receive all interest and preferred stock dividend payments when due. Given the continued challenges
in the financial markets and the prolonged credit crisis, we cannot reasonably predict when these securities will become liquid.

Sources and Uses of
Cash for the Fiscal Quarter Ended June 27, 2009

Net cash flows used by operating activities totaled $0.9 million for the fiscal quarter ended
June 27, 2009. Significant impacts to cash flows for the period were the net loss of $5.5 million, which included a net merger termination fee of $4.5 million, adjusted for non-cash items totaling $1.9 million, offset by net improvements in
working capital. Net decreases in inventories provided operating cash of $6.3 million, while decreases in accounts payable and accrued liabilities consumed $2.9 million and other working capital improvements consumed $0.6 million.

For the fiscal quarter ended June 27, 2009, net cash of $28.7 million used in investing activities consisted primarily of $46.3 million used to purchase securities
offset by $18.0 million from maturing securities.

For the fiscal quarter ended June 27, 2009, net cash used in financing activities of $0.2 million
was primarily attributable to share repurchases.

We believe that our existing cash, cash equivalents and marketable securities are adequate to fund our
operations, share repurchase program and contractual obligations for at least the next twelve months.

Critical Accounting Policies and Estimates

Except as discussed below, we reaffirm the Critical Accounting Policies and Estimates in Part II Item 7 Managements Discussion
and Analysis of Financial Condition and Results of Operations reported in our Form 10-K for the year ended March 28, 2009.

Fair Value Measurements

Effective March 29, 2009, the Company adopted the provisions of SFAS No. 157 pertaining to nonfinancial assets and liabilities. The Company
had adopted the provisions of SFAS No. 157 pertaining to financial assets and liabilities as of March 30, 2008. The adoption of SFAS No. 157 did not have a material impact on the Companys financial statements.

In April 2009, the FASB issued FSP FAS No. 157-4; FSP FAS No. 115-2 and FAS No. 124-2; and FSP No. 107 and APB No. 28-1. FSP FAS No. 157-4
provides guidance on how to determine the fair value of assets and liabilities under SFAS No. 157 when there is no active market, and reaffirms the SFAS No. 157 objective to reflect an assets sale price in an orderly transaction at
the date of the financial statements. FSP FAS No. 115-2 and FAS No. 124-2 modifies the requirements for recognizing other-than-temporarily-impaired debt securities and revises the existing impairment model for such securities, by
distinguishing between credit and non-credit components of impaired debt securities that are not expected to be sold. FSP FAS No. 107-1 and APB No. 28-1 enhances disclosures about fair value for instruments under the scope of SFAS
No. 157 for both interim and annual periods. The Company adopted these Staff Positions as of the first quarter of fiscal 2010.



22



---

##### Table of Contents

Business Combinations

The Company adopted SFAS No. 141R beginning in the first quarter of fiscal 2010. The Company will apply the provisions of this statement prospectively to business combinations for which the acquisition date is subsequent to
March 29, 2009.

Contractual Obligations

There
have been no significant changes in our contractual obligations subsequent to those reported in our 2009 Annual Report on Form 10-K for our fiscal year ended on March 28, 2009.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have
been no material changes in the market risk disclosure contained in our 2009 Annual Report on Form 10-K for our fiscal year ended on March 28, 2009. The information regarding liquidity of auction rate securities under the heading
Financial Condition and Liquidity in Item 2 of Part I of this report is incorporated herein by reference.

Item 4. Controls and Procedures

Attached to this quarterly report as exhibits 31.1 and 31.2 are the
certifications of our President and Chief Executive Officer (CEO) and our Chief Financial Officer (CFO) required by Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This portion of our quarterly report on
Form 10-Q is our disclosure of the conclusions of our management regarding the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report based on managements evaluation of those disclosure
controls and procedures. This disclosure should be read in conjunction with the Section 302 Certifications for a complete understanding of the topics presented.

Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the
participation of our CEO and CFO, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (Exchange Act). Based
on that evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is
(1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There
has been no change in our internal control over financial reporting during our fiscal quarter ended June 27, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II  OTHER INFORMATION

Item 1. Legal Proceedings

All Ring Patent Infringement Prosecution

In August 2005, the Company commenced a proceeding in the Kaohsiung District Court of Taiwan (the Court) directed against All Ring Tech Co., Ltd. (All
Ring) of Taiwan. The Company alleged that All Rings Capacitor Tester Model RK-T6600 (the Capacitor Tester) infringes ESIs Taiwan Patent No. 207469, entitled Circuit Component Handler (the 207469 patent). As part of this
proceeding, the Court issued a Provisional Attachment Order (PAO) in August 2005, restricting the use of some of All Rings assets. All Ring then filed a bond with the Court to obtain relief from the attachment of its assets. In July 2007, the
Court issued a second PAO and approximately US$6.0 million was restricted in All Rings accounts. The second PAO remains in effect and cannot be revoked.



23



---

##### Table of Contents

In October 2005, the Company filed a formal patent infringement action against All Ring in the Court. The Court-appointed
expert has concluded that the Capacitor Tester and All Rings RK-T2000 both infringe every claim of the 207469 patent and that All Rings RK-L50 infringes a number of the claims as well. Also in October 2005, the Court executed a
Preliminary Injunction Order (PIO) that prohibits All Ring from manufacturing, selling, offering for sale or using the Capacitor Tester until final judgment is entered in the formal patent infringement action. The Court dismissed All Rings
application to revoke the PIO on January 18, 2008, and the PIO remains in place.

In November 2005, All Ring filed a cancellation action against
ESIs 207469 patent in the Taiwan Intellectual Property Office (the IPO). On July 5, 2007, the IPO issued a notice requiring the Company to cancel two of the claims in the 207469 patent. The Company filed a response canceling the two
claims and amending the remaining claims accordingly in August 2007. On August 12, 2008, the IPO decided the action in the Companys favor and dismissed the cancellation action. All Ring appealed the IPOs cancellation decision to the
Board of Appeal of the Ministry of Economic Affairs (MOEA) on September 12, 2008. On March 23, 2009, the MOEA dismissed the IPOs cancellation decision solely on procedural grounds. The MOEA remanded the case to the IPO with a request
that the IPO issue another decision within six months that rectifies the procedural defects of the IPOs earlier decision. On July 22, 2009, the IPO issued a decision dismissing All Rings cancellation action.

Pursuant to the Courts PAO and PIO, in October 2005, the Company was required to post Taiwan dollar security bonds with the Court. The total security bonds, valued
at approximately US$9.0 million, were included in other assets on the Condensed Consolidated Balance Sheet at June 
27, 2009.

Item 1A. Risk Factors

Factors That May Affect Future Results

The statements contained in this report that are not statements of
historical fact, including without limitation statements containing the words believes, expects 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 differ materially. The following information highlights some of the factors that
could cause actual results to differ materially from the results expressed or implied by our forward-looking statements. Forward-looking statements should be considered in light of these factors. Factors that may result in such variances include,
but are not limited to, the following:

The industries that comprise our primary markets are volatile and unpredictable and we are experiencing
weakness in most of our markets and may experience weakness in the future.

Our business depends upon the capital expenditures of manufacturers of
components and circuitry used in wireless communications, computers and other electronic products. The markets for electronic devices have experienced sharp downturns in the past, are currently experiencing such a downturn, and may experience
further downturns in the future. In 2008, we began to see the impact of weakness in the memory market and lower capital spending, particularly in the fourth quarter. This weakening increased significantly and expanded to general microelectronics and
other markets during 2009 driven by the financial and credit markets and subsequent global economic weakening, resulting in a decline in orders for all of our product groups in the second, third and fourth quarters of 2009, with virtually no SG
systems orders in the third and fourth quarters of 2009 and a low level of orders during the first quarter of 2010. There could be further declines in these markets and others. During such downturns, semiconductor and micro-electronics
manufacturers, including our customers, can be expected to delay or cancel capital expenditures, which would have a negative impact on our financial results. During a downturn, we are not able to project when or if demand for our products will
increase or that demand will not decrease further. Even if demand for our products does increase, there may be significant fluctuations in our profitability and net sales.



24



---

##### Table of Contents

During this and any downturn, it is difficult for us to maintain our sales levels. As a consequence, to maintain
profitability we need to reduce our operating expenses. Our ability to quickly reduce operating expenses is dependent upon the nature of the actions we take to reduce expense and our subsequent ability to implement those actions and realize expected
cost savings. Additionally, we may be unable to defer capital expenditures and we need to continue to invest in certain areas such as research and development. These factors could cause us to use greater amounts of cash in our operating and
investing activities, thereby reducing our existing cash and investment balances. This and any economic downturn may also cause us to incur charges related to impairment of assets, inventory write-offs, and reductions in force, and we may experience
delays in payments from our customers, which would have a negative effect on our financial results.

In the current environment, we have also implemented
several temporary cost reduction measures, including salary reductions, furloughs and elimination of our match of 401(k) contributions. These reductions are temporary in nature and will not be sustained over a long period of time. Accordingly, our
current level of employee-related expenses should be expected to increase in the future.

In addition, because we derive a substantial portion of our
revenue from the sale of a relatively small number of products, the timing of, or changes to, orders by our customers may also cause our order levels and results of operations to fluctuate between periods, perhaps significantly. Accordingly, order
levels or results of operations for a given period may not be indicative of order levels or results of operations for following periods.

The global
financial crisis and economic slowdown may have an impact on our business and financial condition in ways that we currently cannot predict.

The
financial crisis and economic slowdown have had and may continue to have an impact on our business and our financial condition. For example, demand for consumer electronics has fallen as a result of these events, reducing capital spending by our
customers and thereby adversely affecting demand for our products. In addition to the impact that the global financial crisis and economic slowdown have already had on us, we may face significant challenges if these conditions do not improve or
continue to worsen. Demand for our products could be adversely impacted if customers are not able to obtain financing for capital expenditures, declare bankruptcy, or are forced to discontinue operations, which could have a negative effect on our
revenues. For example, in January 2009, Qimonda AG, historically one of our top customers, filed a petition to open insolvency proceedings in Germany.

Our business is highly competitive, and if we fail to compete effectively, our business will be harmed.

The industries in which we
operate are highly competitive. We face substantial competition from established competitors, some of which have greater financial, engineering, manufacturing and marketing resources than we do. If we are unable to compete effectively with these
companies, our market share may decline and our business could be harmed. Our competitors can be expected to continue to improve the design and performance of their products and to introduce new products. New companies may enter the markets in which
we compete, or industry consolidation may occur, further increasing competition in those markets. Furthermore, our technological advantages may be reduced or lost as a result of technological advances by our competitors.

Our competitors greater resources in the areas described above may enable them to:



| |  |  | Better withstand periodic downturns;
| | - |  | ------------------------------------



| |  |  | Compete more effectively on the basis of price and technology; and
| | - |  | ------------------------------------------------------------------



| |  |  | More quickly develop enhancements to and new generations of products.
| | - |  | ---------------------------------------------------------------------

We believe that our ability to compete successfully depends on a number of factors, including:



| |  |  | Performance of our products;
| | - |  | ----------------------------



| |  |  | Quality of our products;
| | - |  | ------------------------



| |  |  | Reliability of our products;
| | - |  | ----------------------------



25



---

##### Table of Contents

| |  |  | Cost of using our products;
| | - |  | ---------------------------



| |  |  | The ability to upgrade our products;
| | - |  | ------------------------------------



| |  |  | Consistent availability of critical components;
| | - |  | -----------------------------------------------



| |  |  | Our ability to ship products on schedules required;
| | - |  | ---------------------------------------------------



| |  |  | Quality of the technical service we provide;
| | - |  | --------------------------------------------



| |  |  | Timeliness of the services we provide;
| | - |  | --------------------------------------



| |  |  | Our success in developing new products and enhancements, including those that are able to compete with new technological advancements;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our understanding of the needs of our customers;
| | - |  | ------------------------------------------------



| |  |  | Existing market and economic conditions; and
| | - |  | --------------------------------------------



| |  |  | Price of our products as compared to our competitors products.
| | - |  | ---------------------------------------------------------------

We may not be able to compete successfully in the future and increased competition may result in price reductions, reduced profit margins and loss of market share.

We depend on a few significant customers and we do not have long-term contracts with any of our customers.

We depend on a few significant customers for a large portion of our revenue. For example, our top ten customers for 2009 accounted for approximately 50% of total net
sales in 2009, with one customer accounting for approximately 21% of total net sales. None of our customers have any long-term obligation to continue to buy our products or services, and any customer could delay, reduce or cease ordering our
products or services at any time. Further, reduced revenue resulting from cyclicality or market downturns may result in a few customers accounting for a higher percentage of our revenue, as evidenced by one customer accounting for approximately 21%
of net sales in 2009. As a result, any delay, reduction or cessation in purchases by such customers during a period of reduced sales could have a significant negative impact on our financial results. In addition, the semiconductor industry, and
particularly the memory market, is very cyclical, which could result in consolidation among customers, changes in various partnership and technology arrangements among customers, bankruptcy of customers or departures of customers from the industry.
For example, in January 2009, Qimonda AG, historically one of our top customers, filed a petition to open insolvency proceedings in Germany. These changes could negatively affect demand for our products or negatively impact the value of our
technology strategies.

Our markets are subject to rapid technological change, and to compete effectively, we must continually introduce new products
that achieve market acceptance.

The markets for our products are characterized by rapid technological change and innovation, frequent new product
introductions, changes in customer requirements and evolving industry standards. Our future performance will depend on the successful development, introduction and market acceptance of new and enhanced products that address technological changes as
well as current and potential customer requirements.

We and our competitors are continuously working to develop new or enhanced products and new
technologies. For example, for many years, the semiconductor memory industry has employed alternative redundancy technologies. The adoption by our customers of non-laser based redundancy technology could have a material adverse effect on demand for
our SG products. The introduction by us or by our competitors of new or enhanced products, or alternative technologies, may cause our customers to defer, change or cancel orders for our existing products or cease purchasing our products altogether,
which may harm our operating results.

In the past we have also experienced delays in new product development. Similar delays may occur in the future. We
also may not be able to develop the underlying core technologies necessary to create new products and enhancements or, where necessary, to license these technologies from others.



26



---

##### Table of Contents

Product development delays may result from numerous factors, including:



| |  |  | Changing product specifications and customer requirements;
| | - |  | ----------------------------------------------------------



| |  |  | Difficulties in hiring and retaining necessary technical personnel;
| | - |  | -------------------------------------------------------------------



| |  |  | Difficulties in reallocating engineering resources and overcoming resource limitations;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Difficulties with contract manufacturers;
| | - |  | -----------------------------------------



| |  |  | Changing market or competitive product requirements; and
| | - |  | --------------------------------------------------------



| |  |  | Unanticipated engineering complexities.
| | - |  | ---------------------------------------

The
development of new, technologically advanced products is a complex and uncertain process, requiring high levels of innovation and highly skilled engineering and development personnel, as well as the accurate anticipation of technological and market
trends. We cannot assure you that we will be able to identify, develop, manufacture, market or support new or enhanced products successfully, if at all, or on a timely basis. Further, we cannot assure that our new products will gain market
acceptance or that we will be able to respond effectively to product announcements by competitors, technology changes or emerging industry standards. Any failure to respond to product or technology changes or new industry standards that may render
our current products or technologies obsolete could significantly harm our business.

Failure of critical suppliers of parts, components and
manufacturing equipment to deliver sufficient quantities to us in a timely and cost-effective manner could negatively affect our business.

We use a
wide range of materials from numerous suppliers in the production of our products, including custom electronic and mechanical components. We generally do not have guaranteed supply arrangements with our suppliers. We seek to reduce the risk of
production and service interruptions and shortages of key parts by selecting and qualifying alternative suppliers for key parts, monitoring the financial stability of key suppliers and maintaining appropriate inventories of key parts. Although we
make reasonable efforts to ensure that parts are available from multiple suppliers, some key parts are available only from a single supplier or a limited group of suppliers in the short term. Operations at our suppliers facilities are subject
to disruption for a variety of reasons, including changes in business relationships, competitive factors, financial difficulties, work stoppages, fire, natural disasters or other causes. Such disruption could interrupt our manufacturing. Our
business may be harmed if we do not receive sufficient parts to meet our production requirements in a timely and cost-effective manner.

Delays in
manufacturing, shipment or customer acceptance of our products could substantially decrease our sales for a period.

We depend on manufacturing
flexibility to meet the changing demands of our customers. Any significant delay or interruption in receiving raw materials or in our manufacturing operations as a result of software deficiencies, natural disasters, or other causes could result in
reduced manufacturing capabilities or delayed product deliveries, any or all of which could materially and adversely affect our results of operations.

We
also have an arrangement with a contract manufacturer in Singapore to complete the manufacture of certain of our products. Any significant interruption in this contract manufacturers ability to provide manufacturing services to us as a result
of contractual disputes with us or another party, labor disruptions, financial difficulties, natural disasters, delay or interruption in the receipt of inventory or other causes could result in reduced manufacturing capabilities or delayed
deliveries for certain of our products, any or all of which could materially and adversely affect our results of operations.

In addition, we derive a
substantial portion of our revenue from the sale of a relatively small number of products. Consequently, shipment and/or customer acceptance delays, including acceptance delays related to new product introductions or customizations, could
significantly impact recognition of revenue and could be further magnified by announcements from us or our competitors of new products and technologies. Such announcements could cause our customers to defer purchases of our systems, change existing
orders or purchase products from our competitors. Any of these delays could result in a material adverse change in our results of operations for any particular period.



27



---

##### Table of Contents

We acquire inventory based upon projected demand and our technology roadmap. If these projections are incorrect, or
our technology strategy changes, we may carry inventory that cannot be used, which may result in significant charges for excess and obsolete inventory.

Our business is highly competitive and one factor on which we compete is the ability to ship products on schedules required by customers. In order to facilitate timely shipping, management forecasts demand, both in type and amount of
products, and these forecasts are used to determine inventory to be purchased. We also order materials based on our technology roadmap which we expect to be utilized in new products. Certain types of inventory, including lasers and optical
equipment, are particularly expensive and can only be used in the production of a single type of product. If actual demand is lower than forecast with respect to the type or amount of products actually ordered, or both, our inventory levels may
increase. For example, at June 27, 2009, we had $78.7 million of inventory reflected on our Condensed Consolidated Balance Sheet, much of which we purchased or committed to purchase prior to the time the severity of the current economic
downturn became apparent. As a result, there is a risk that we may have to incur material accounting charges for excess and obsolete inventory if inventory cannot be used, which would negatively affect our financial results. Also, if we alter our
technology or product development strategy, we may have inventory which may not be usable under the new strategy, which may result in material accounting charges. For example, during 2009, we wrote-off $4.1 million of material from a research,
development, and engineering program due to a change in our product development strategy.

We are exposed to the risks that others may violate our
proprietary rights, and our intellectual property rights may not be well protected in foreign countries.

Our success is dependent upon the
protection of our proprietary rights. In the high technology industry, intellectual property is an important asset that is always at risk of infringement. We incur substantial costs to obtain and maintain patents and defend our intellectual
property. For example, we have initiated litigation alleging that certain parties have violated various patents of ours, such as the action we initiated in Taiwan against All Ring Tech Co., Ltd. in August 2005. We rely upon the laws of the United
States and of foreign countries in which we develop, manufacture or sell our products to protect our proprietary rights. However, these proprietary rights may not provide the competitive advantages that we expect or other parties may challenge,
invalidate or circumvent these rights.

Further, our efforts to protect our intellectual property may be less effective in some foreign countries where
intellectual property rights are not as well protected as in the United States. Many U.S. companies have encountered substantial problems in protecting their proprietary rights against infringement in foreign countries. If we fail to adequately
protect our intellectual property in these countries, it could be easier for our competitors to sell competing products in foreign countries, which could result in reduced sales and gross margins.

We may be subject to claims of intellectual property infringement.

Several of our competitors hold patents covering a variety of technologies, applications and methods of use similar to some of those used in our products. While we attempt in our designs to avoid patent infringement, from time to time we
and our customers have received correspondence from our competitors claiming that some of our products, as used by our customers, may be infringing one or more of these patents. Competitors or others have in the past and may in the future assert
infringement claims against our customers or us with respect to current or future products or uses, and these assertions may result in costly litigation or require us to obtain a license to use intellectual property rights of others. If claims of
infringement are asserted against our customers, those customers may seek indemnification from us for damages or expenses they incur.

If we become subject
to infringement claims, we will evaluate our position and consider the available alternatives, which may include seeking licenses to use the technology in question or defending our position. These licenses, however, may not be available on
satisfactory terms or at all. If we are not able to negotiate the necessary licenses on commercially reasonable terms or successfully defend our position, our financial condition and results of operations could be materially and adversely affected.



28



---

##### Table of Contents

Our ability to reduce costs is limited by our need to invest in research and development.

Our industry is characterized by the need for continued investment in research and development. Because of intense competition in the industries in which we compete, if
we were to fail to invest sufficiently in research and development, our products could become less attractive to potential customers, and our business and financial condition could be materially and adversely affected. As a result of our need to
maintain our spending levels in this area, our operating results could be materially harmed if our net sales fall below expectations. In addition, as a result of our emphasis on research and development and technological innovation, our operating
costs may increase in the future, and research and development expenses may increase as a percentage of total operating expenses and as a percentage of net sales.

Our worldwide direct sales and service operations and our overseas research and development facilities expose us to employer-related risks in foreign countries.

We have established direct sales and service organizations throughout the world. We have also established research and development facilities in China and Taiwan. Having overseas employees involves certain risks. We
are subject to compliance with the labor laws and other laws governing employers in the countries where our operations are located and as a result, we may incur additional costs to comply with these local regulations. Additionally, we may encounter
labor shortages or disputes that could inhibit our ability to effectively sell, market and service our products. If we cannot effectively manage the risks related to employing persons in foreign countries, our operating results could be adversely
affected.

We may make acquisitions in the future, and these acquisitions may subject us to risks associated with integrating these businesses into
our current business.

We may make acquisitions of, or significant investments in, other businesses with complementary products, services or
technologies. Acquisitions involve numerous risks, many of which are unpredictable and beyond our control, including:



| |  |  | Difficulties and increased costs in connection with integration of the personnel, operations, technologies and products of the merged businesses;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Implementation of the Companys enterprise resource planning (ERP) system into the acquired companys operations;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | Diversion of managements attention from other operational matters;
| | - |  | -------------------------------------------------------------------



| |  |  | The potential loss of key employees of the acquired company;
| | - |  | ------------------------------------------------------------



| |  |  | Lack of synergy or inability to realize expected synergies resulting from the acquisition;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Acquired assets becoming impaired as a result of technological advancements or worse-than-expected performance by the acquired company;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Difficulties establishing satisfactory internal controls at the acquired company;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | Risks and uncertainties relating to the performance of the combined company following the transaction; and
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | Incurring unanticipated liabilities for which we will not be indemnified.
| | - |  | -------------------------------------------------------------------------

Our inability to effectively manage these risks could materially and adversely affect our business, financial condition and results of operations and could cause us not to realize the anticipated benefits of an
acquisition on a timely basis or at all. In addition, if we issue common stock to pay for an acquisition, the ownership percentage of our existing shareholders will be reduced and the value of the shares held by our existing shareholders could be
diluted. If we use cash to pay for an acquisition, the payment could significantly reduce the cash that would be available to fund our operations or to use for other purposes. In addition, the accounting for an acquisition could result in
significant charges resulting from amortization of intangible assets we acquire, and new accounting guidelines, effective beginning 2010, will require that acquisition transaction costs be expensed as incurred rather than capitalized.

We may also make strategic investments in development stage companies and such investments are subject to a high degree of risk, and therefore it is possible that we
could lose our entire investment.



29



---

##### Table of Contents

We are exposed to the risks of operating a global business, including risks associated with exchange rate
fluctuations, legal and regulatory changes and the impact of regional and global economic disruptions.

International shipments accounted for 81% of
net sales in 2009, with 70% of our net sales to customers in Asia. We expect that international shipments will continue to represent a significant percentage of net sales in the future. We also have an arrangement with a contract manufacturer in
Singapore to complete the manufacture of certain of our products. Our non-U.S. sales, purchases and operations, including contract manufacturing, are subject to risks inherent in conducting business abroad, many of which are outside our control,
including the following:



| |  |  | Periodic local or geographic economic downturns and unstable political conditions;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | Price and currency exchange controls;
| | - |  | -------------------------------------



| |  |  | Fluctuation in the relative values of currencies;
| | - |  | -------------------------------------------------



| |  |  | Difficulties protecting intellectual property;
| | - |  | ----------------------------------------------



| |  |  | Local labor disputes;
| | - |  | ---------------------



| |  |  | Shipping delays and disruptions;
| | - |  | --------------------------------



| |  |  | Increases in shipping costs, caused by increased fuel costs or otherwise, which we may not be able to pass on to our customers;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | Unexpected changes in trading policies, regulatory requirements, tariffs and other barriers; and
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | Difficulties in managing a global enterprise, including staffing, collecting accounts receivable, managing suppliers, distributors and representatives, and
repatriation of earnings.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our business and operating results are subject to uncertainties arising out of the possibility of regional or
global economic disruptions (including those resulting from the global financial crisis and economic slowdown, natural disasters, or outbreaks of infectious disease), the economic consequences of military action or terrorist activities and
associated political instability, and the impact of heightened security concerns on domestic and international travel and commerce. In particular, due to these uncertainties, we are subject to:



| |  |  | The risk that future tightening of immigration controls may adversely affect the residence status of non-U.S. engineers and other key technical employees in our
U.S. facilities or our ability to hire new non-U.S. employees in such facilities;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The risk of more frequent instances of shipping delays;
| | - |  | -------------------------------------------------------



| |  |  | The risk that demand for our products may not increase or may decrease; and
| | - |  | ---------------------------------------------------------------------------



| |  |  | The risk that our customers or suppliers may experience financial difficulties or cease operations.
| | - |  | ---------------------------------------------------------------------------------------------------

Our tax rates are subject to fluctuation, which could impact our financial position, and our estimates of tax liabilities may be subject to audit, which could
result in additional assessments.

Our effective tax rates are subject to fluctuation because the income tax rates for each year are a function of:
(a) taxable income levels and the effects of a mix of profits (losses) earned by ESI and our subsidiaries in numerous tax jurisdictions with a broad range of income tax rates, (b) our ability to utilize deferred tax assets, (c) taxes,
refunds, interest or penalties resulting from tax audits, (d) the magnitude of various credits and deductions as a percentage of total taxable income and (e) changes in tax laws or the interpretation of such tax laws. Changes in the mix of
these items may cause our effective tax rates to fluctuate between periods, which could have a material adverse effect on our financial position and results of operations.

We are subject to income taxes in both the United States and numerous foreign jurisdictions. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is
uncertain. Significant judgment is exercised in determining our worldwide provisions for income taxes. Furthermore, we are occasionally under audit by tax authorities and are currently under



30



---

##### Table of Contents

audit by the United States Internal Revenue Service. Although we believe our tax estimates are reasonable, the final outcome of tax audits and the impact of
changes in tax laws or the interpretation of tax laws could result in material differences from what is reflected in historical income tax accruals. If additional taxes are assessed as a result of an examination, a material effect on our financial
results, tax positions or cash flows could occur in the period or periods in which the determination is made.

No market currently exists for the
auction rate securities (ARS) we hold and as a result we may not be able to liquidate them at the current valuation, if at all. As a result, we have written down the cost bases of these securities to their estimated fair value with
other-than-temporary impairment charges to earnings and we may have to do so again in the future.

As of June 27, 2009, we held a total of
$15.6 million invested in ARS at par value. Additionally, we held $4.0 million of par value ARS which were converted by the bond issuer to its preferred stock during the third quarter of 2009. The ARS are comprised predominately of securities issued
by insurance companies to raise funds to meet regulatory capital reserve requirements and the ARS assume the credit ratings of the bond insurers who guarantee the timely payment of principal and interest on these insured securities. At the time of
purchase in 2007, these ARS were rated AAA and AA. The contractual maturities of these securities range up to calendar year 2050, and several securities and the preferred stock do not have stated maturities. Prior to September 2007, these securities
provided short-term liquidity through a Dutch auction process that reset the applicable interest rate at pre-determined calendar intervals, generally every 28 to 35 days. This mechanism previously allowed existing investors to either retain or
liquidate their holdings by selling such securities at par. As a result of the liquidity issues experienced in the global credit and capital markets, during the second quarter of 2008 our ARS began to experience failed auctions.

Since that time, none of these securities have traded through the auction process and very few market transactions for these securities have been observed. Additionally,
the bond insurers of the ARS and preferred stock experienced credit rating downgrades throughout 2009. Consequently, it was determined that the declines in fair value of these securities during 2009 represented other-than-temporary impairments in
accordance with U.S. generally accepted accounting principles. Accordingly, at the end of each quarter of 2009, the cost bases of these securities were written down to their estimated fair values with other-than-temporary impairment charges totaling
$13.6 million, of which $5.1 million was recorded during the first quarter of 2009. As of the first quarter of 2010, in accordance with the adoption of FSP FAS No. 115-2 and FAS No. 124-2, we recorded a cumulative-effect adjustment to the
opening balance of retained earnings of $0.4 million for the non-credit loss portion of the ARS. We also recorded a fair value adjustment to accumulated other comprehensive income of $1.1 million to reflect the estimated fair value of the ARS. The
credit loss portion of the ARS was determined by direct estimation of the change in fair value attributable to market movements. The Company utilized market indices representing investments of constant credit quality over time and measured the index
yield, which is considered attributable to non-credit related factors, at the beginning and end of the period. The effect of this change in yield on the value of the security was measured and subtracted from the total change in fair value to arrive
at the estimated change in value attributable to changes in credit quality. The $7.1 million estimated fair value of these securities is classified as a non-current asset on the Condensed Consolidated Balance Sheet at June 27, 2009, consistent
with the classification at June 28, 2008, and each subsequent reporting period.

Given the continued challenges in the global financial markets and
the prolonged credit crisis, we cannot reasonably predict when or if these securities will become liquid, and it is not possible to ascertain when or whether market conditions will change resulting in the recovery of fair value on these auction rate
securities. It is possible that a secondary market for auction rate securities may emerge in which securities similar to our own would trade at prices below our currently recorded fair values. Under such a scenario, or if other events arise that
impact the fair value of the securities, we may have to recognize further other-than-temporary impairment charges, which would adversely impact our financial position and results of operations.

It is also possible that continued uncertainty in the credit markets could also impact the liquidity of our other investments and cash equivalents, which could impair
our liquidity or require us to recognize other-than-temporary impairment on the value of those investments, which would negatively impact our financial position and results of operations.



31



---

##### Table of Contents

The loss of key personnel or our inability to attract, retain and assimilate sufficient numbers of managerial,
financial, engineering and other technical personnel could have a material effect upon our results of operations.

Our continued success depends, in
part, upon key managerial, financial, engineering and technical personnel as well as our ability to continue to attract, retain and assimilate additional personnel. The loss of key personnel could have a material adverse effect on our business or
results of operations. We may not be able to retain our key managerial, financial, engineering and technical employees. Attracting qualified personnel may be difficult and our efforts to attract and retain these personnel may not be successful. In
addition, we may not be able to assimilate qualified personnel, including any new members of senior management, which could disrupt our operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On May 15, 2008, the Board of Directors authorized a share
repurchase program for $20.0 million in shares of the Companys outstanding common stock primarily to offset dilution from equity compensation programs. The repurchases are to be made at managements discretion in the open market or in
privately negotiated transactions in compliance with applicable securities laws and other legal requirements and are subject to market conditions, share price and other factors. There is no fixed completion date for the repurchase program.

The following table sets forth information about the share repurchase transactions in accordance with SEC Regulation S-K, Item 703:



|                              |  |                               |  |                                |      |                                                                                         |         |                                                                              |   |           
|----------------------------- |  | ----------------------------- |  | ------------------------------ | ---- | --------------------------------------------------------------------------------------- | ------- | ---------------------------------------------------------------------------- | - | ----------
|Period                        |  | TotalNumber ofSharesPurchased |  | Average PricePaid perShare (a) |      | ApproximateTotal Number ofShares Purchasedas Part ofPublicly AnnouncedPlans or Programs |         | Dollar Valueof Sharesthat May Yet BePurchased Under thePlans or Programs (b)
|March 29, 2009 to May 2, 2009 |  |                              |  |                                |     |                                                                                         | 307,865 |                                                                              | $ | 15,276,708
|May 3, 2009 to May 30, 2009   |  | 64,960                        |  | $                              | 8.55 |                                                                                         | 372,825 |                                                                              | $ | 14,721,550
|May 31, 2009 to June 27, 2009 |  |                              |  |                                |     |                                                                                         | 372,825 |                                                                              | $ | 14,721,550
|                              |  |                               |  |                                |      |                                                                                         |         |                                                                              |   |           
|Total                         |  | 64,960                        |  | $                              | 8.55 |                                                                                         |         |                                                                              |   |           
|                              |  |                               |  |                                |      |                                                                                         |         |                                                                              |   |           



|(a) | Average price per share was calculated inclusive of commissions and fees.
|--- | -------------------------------------------------------------------------

|(b) | Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs reflects the $20.0 million share repurchase program approved by the Board of Directors on
May 15, 2008, less the total amount used for repurchases under the authorization as of the presented dates. As of June 27, 2009, a total of 372,825 shares have been repurchased at an average price of $14.16 per share, calculated inclusive
of commissions and fees.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 6. Exhibits

This list is intended to constitute the exhibit index.



|    |  |                                                                                                                                                                                                        
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1 |  | Restated Articles of Incorporation. Incorporated by reference to Exhibit 3-A of the Companys Annual Report on Form 10-K for the fiscal year ended May 31, 1991.                                       
|    | 
|3.2 |  | Articles of Amendment of Third Restated Articles of Incorporation. Incorporated by reference to Exhibit 3-B of the Companys Annual Report on Form 10-K for the fiscal year ended
May 31, 1999.        
|    | 
|3.3 |  | Articles of Amendment of Third Restated Articles of Incorporation. Incorporated by reference to Exhibit 3 of the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended
December 2, 2000.
|    | 
|3.4 |  | Articles of Amendment to Third Restated Articles of Incorporation. Incorporated by reference to Exhibit 3.1 of the Companys Current Report on form 8-K filed on May 19, 2009
(the May 19 8-K).      



32



---

##### Table of Contents

|     |  |                                                                                                                                                                                                                                                           
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.5  |  | 2009 Amended and Restated Bylaws. Incorporated by reference to Exhibit 3.2 of the May 19 8-K.                                                                                                                                                             
|     | 
|4.1  |  | Rights Agreement, dated as of May 18, 2009, between Electro Scientific Industries, Inc. and Mellon Investor Services LLC. Incorporated by reference to Exhibit 4.1 of the May 19 8-K.                                                                     
|     | 
|10.1 |  | Settlement Agreement and Mutual Release, dated April 2, 2009, among Electro Scientific Industries, Inc., Zirkon Merger Sub, LLC, and Zygo Corporation. Incorporated by reference to
Exhibit 10 of the Companys Current Report on 8-K filed April 3, 2009.
|     | 
|31.1 |  | Certification of the Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.                                                                                                                                                
|     | 
|31.2 |  | Certification of the Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.                                                                                                                                                
|     | 
|32.1 |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                        
|     | 
|32.2 |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                        



33



---

##### Table of Contents

SIGNATURES

Pursuant to the requirements 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.



|                      |  |  |  |                                     |  |                                                                  
|--------------------- |  |  |  | ----------------------------------- |  | -----------------------------------------------------------------
|Dated: August 5, 2009 |  |  |  | ELECTRO SCIENTIFIC INDUSTRIES, INC.
|                      |  |  | 
|                      |  |  |  | By                                  |  | /s/    Nicholas Konidaris                                        
|                      |  |  |  |                                     |  | Nicholas Konidaris                                               
|                      |  |  |  |                                     |  | President and Chief Executive Officer                            
|                      |  |  |  |                                     |  | (Principal Executive Officer)                                    
|                      |  |  | 
|                      |  |  |  | By                                  |  | /s/    Paul Oldham                                               
|                      |  |  |  |                                     |  | Paul Oldham                                                      
|                      |  |  |  |                                     |  | Vice President of Administration,                                
|                      |  |  |  |                                     |  | Chief Financial Officer and Corporate Secretary                  
|                      |  |  |  |                                     |  | (Principal Financial Officer)                                    
|                      |  |  | 
|                      |  |  |  | By                                  |  | /s/    Kerry Mustoe                                              
|                      |  |  |  |                                     |  | Kerry Mustoe                                                     
|                      |  |  |  |                                     |  | Vice President, Corporate Controller and Chief Accounting Officer
|                      |  |  |  |                                     |  | (Principal Accounting Officer)                                   



34