ELECTRO SCIENTIFIC INDUSTRIES, INC.
ANNUAL REPORT ESI IN BRIEF
Electro Scientific Industries, Inc. (ESI) designs and builds advanced production
equipment used throughout the world in electronics manufacturing. The principal
end markets for products made using ESI equipment include the computer,
telecommunications and automotive industries. ESI's principal product lines
- Precision, high speed production and test equipment for ceramic capacitor
- Industry leading laser processing systems for semiconductor memory yield
- Advanced laser trimming systems for the precise tuning of electronic circuits
In addition, ESI is developing new products, based upon the company's strengths,
to serve emerging markets such as advanced electronic packaging and machine
ESI backs its products with exceptional service and support, contributing to an
international reputation for excellence. With world headquarters in Portland,
Oregon, USA, ESI has production facilities in Oregon and California, and
sixteen sales and service offices, five of which are in the United States,
seven in Asia and four in Europe. Founded in 1953, ESI employs approximately
730 people. ESI became a public company in 1983 with shares traded on the
NASDAQ National Market System under the symbol ESIO.
SELECTED FINANCIAL DATA REVENUES $M
EARNINGS PER SHARE
TO OUR SHAREHOLDERS
Our focus on continuous improvement and our ability to grow by leveraging our
strengths have resulted in a successful formula for ESI. In 1995, we achieved
notable successes: We surpassed $100 million in annual sales; earned record
profits; completed a stock offering; concluded the Chicago Laser Systems
acquisition and improved our ability to meet our customers' needs.
Sales for fiscal 1995 were $108.2 million, an increase of 49 percent over the
$72.6 million recorded in fiscal 1994. Net income was $11.5 million, or $1.53
per share, compared to $7.9 million, or $1.23 per share, in fiscal 1994. Net
income increased 84 percent over the prior year, excluding the effect of the
after-tax gain of $1.6 million associated with the disposition of a non-
strategic asset in fiscal 1994. The fourth quarter of fiscal 1995 represented
ESI's twelfth consecutive quarter of improved income per share from operations.
Backlog on May 31, 1995, was $26 million, up 225 percent from the $8 million
reported on May 31, 1994.
The financial information presented throughout this report depicts strong
operating results for fiscal 1995 and a strengthening balance sheet. We
improved in all six of the indices we use to measure ESI's progress in achieving
our goal of continuous improvement. Our balance sheet and equity position
benefited from the November, 1994 stock offering, during which we raised $23
million of new equity. The fiscal 1995 return on equity was a solid 16
percent. An additional outcome of the stock offering was the significantly
increased awareness of our company in the investment community.
ESI's position improved in each of its key markets during 1995. We began the
year with good product offerings and worldwide customer support capabilities.
The acquisition of Chicago Laser Systems, Inc. (CLS) in fiscal 1995 further
improved these strengths. CLS, founded in 1976, was the second largest supplier
of laser systems for
the fine tuning of electrical circuits. We are now in the final phases of
integrating the CLS and ESI business activities.
Sales of our Palomar Systems, Inc. subsidiary led the company last year, at more
than $39 million. Exploding demand for the miniature capacitors produced by
Palomar systems fueled the growth. In addition, Palomar's commitment to
customer-involved research and development, created a broad line of fast, high
quality equipment that has made them the market leader.
Just after the conclusion of fiscal 1995, we completed the acquisition of XRL,
Inc., of Canton, Massachusetts. XRL, formed in 1984, is a major supplier of
laser systems to improve the manufacturing yield of semiconductor Dynamic Random
Access Memories (DRAMs) and Static Random Access Memories (SRAMs). While we
have just begun the post-acquisition effort with XRL, we already are identifying
opportunities to pool talents and resources to better serve our customers.
ESI introduced several important new products in 1995. Some focused on
improving our position in existing ESI markets and others on developing new
market opportunities. Three important examples are:
Model 9250 -- The latest generation Memory Yield Improvement System, with
the capability to repair DRAMs to 64 megabit, and beyond.
Model 5000 -- New Laser Via Drilling System, focused on the developing
advanced electronic packaging industry. The Model 5000, introduced at the IPC
Printed Circuits Expo in May, was the talk of the show.
Model 2007 -- New high speed Ceramic Capacitor Termination System, focused
on a part of the miniature capacitor market where our customers have typically
developed their own equipment. The Model 2007 can process more than 400,000
capacitors per hour.
During fiscal 1995, Keith Thomson, vice president and Oregon site manager for
Intel Corp. and Vernon Ryles, a prominent Portland business leader, joined the
ESI Board of Directors. Keith and Vern bring new perspectives and are superb
additions to our Board.
ESI accomplished much in 1995. These accomplishments are the result of the hard
work and dedication of ESI employees, worldwide. We extend our thanks to all
ESI'ers for a record year. You are our most valuable asset.
Our goal is to build on the results achieved to date. We are optimistic about
the broad demand for our equipment. However, we are mindful of the risks
associated with adding fixed costs and are expanding capacity judiciously. We
look forward to the challenges and opportunities associated with serving dynamic
markets and sharing our progress with you.
DAVID F. BOLENDER CHAIRMAN OF THE BOARD DONALD R. VANLUVANEE PRESIDENT & CHIEF EXECUTIVE OFFICER SERVING GROWING MARKETS
The markets for ESI's products and services have grown steadily in the past
year. What is creating this increased demand? It's the continuing digital
electronics revolution: compact and convenient wireless communication devices;
powerful, easy to use multi-media personal computers; advanced automotive
electronics; and all the increasing number of electronic devices that surround
us in everyday life. ESI has seized market opportunities and gained leadership
in providing electronic products for manufacturing computers, telecommunications
products and automobiles.
According to several research firms, we may be entering a new era for
electronics. The percentage of electronics content in most products and
services we use continues to climb, often doubling projections. Companies are
finding new ways to use personal computers for greater productivity and customer
service. Why are we emphasizing personal computers? Because they are so
interrelated to many of the markets ESI serves. According to VLSI Research,
Inc., a leading international electronics forecasting firm, personal computers
account for more than one third of worldwide semiconductor sales.
How does ESI benefit from these trends? ESI has developed sophisticated
techniques and equipment to produce essential electronic building blocks...most
notably miniature ceramic capacitors, semiconductor memories, circuit assemblies
and advanced electronic packages. ESI systems produce, test, fine tune and
improve manufacturing yields of these building blocks at extremely high speed
and reliability. ESI delivers value to customers by integrating a combination
of capabilities, including: solid state lasers: high speed, sub-micron
positioning systems; precision optics; high speed small parts handling; image
processing and optical character recognition; real time precision measurement;
software; and systems integration.
1995 WORLDWIDE REVENUE DISTRIBUTION
Asia/Pacific Rim 53%
North America 29%
AT ESI, WE ARE ON A JOURNEY OF CONTINUOUS IMPROVEMENT AND GROWTH, WORLDWIDE. MORE THAN TWO-THIRDS OF ESI'S BUSINESS IS OUTSIDE THE UNITED STATES, BUT HIGH QUALITY PRODUCTS AND RESPONSIVE SUPPORT CREATE AN INTERNATIONAL LANGUAGE ALL THEIR OWN. ESI WILL CONTINUE TO PUT PRODUCTS AND PEOPLE IN PLACE TO MEET OUR CUSTOMERS' NEEDS.
(Photo Captions page 5)
ABOVE: PALOMAR SYSTEMS MODEL 2007 TERMINATION SYSTEM ADDS METAL TO THE CONTACT POINTS OF MINIATURE CAPACITORS, AT MORE THAN 400,000 UNITS PER HOUR. BELOW: ESI'S MODEL 9250 MEMORY YIELD ENHANCEMENT SYSTEM IS THE LATEST GENERATION MEMORY
REPAIR STATION AND CAN PROCESS 64 AND 256 MEGABIT DRAMS. MINIATURE CERAMIC CAPACITOR PRODUCTION EQUIPMENT
At our Palomar Systems, Inc. subsidiary, continuous improvement and cooperative
efforts with the world's leading miniature ceramic capacitor manufacturers have
increased quality, customer satisfaction, and sales. Palomar manufactures and
sells a broad line of automatic test, production and handling equipment for
manufacturing multi-layer ceramic capacitors (MLCCs). MLCCs are used to filter
and smooth electrical signals and are found in virtually all electronic
applications and products. Palomar's advantage comes from combining small parts
handling technology with microprocessor-based controllers to create highly
SEMICONDUCTOR MEMORY YIELD ENHANCEMENT SYSTEMS
The changes occurring in personal computers and software from one generation to
the next have created unprecedented demand for semiconductor memory. Despite
rising factory costs, memory producers have realized great gains by having the
most advanced factories to produce dynamic random access memories (DRAMs) and
static random access memories (SRAMs). ESI systems are the leader in a critical
step in the memory manufacturing process. ESI laser systems perform micro-
surgery on defective elements to improve yields quickly and profitably. Each
ESI machine performs the sub-micron task of repairing hundreds of thousands of
memory chips per day. Our machines work 24-hour days in factories located in
the USA, Europe, Asia, and Japan. ESI's worldwide network of service and
support engineers provides valuable assistance to memory producers, wherever
their factories might be.
BUILDING FOR THE FUTURE LASER FINE TUNING SYSTEMS
The demand upon telecommunications and automotive electronics products
manufacturers to supply increasing quantities of devices has been accompanied by
increased complexity, tighter specifications, and reduced size. To get the
performance, ESI provides turnkey, microprocessor-controlled systems that allow
our customers to fine tune their products to precise electrical values using
lasers. For example, portable pagers are permanently laser tuned to precise
frequency specifications, avoiding interference due to frequency drift. The
combination of ESI's laser trim group with Chicago Laser Systems, acquired in
August, 1994, has created a powerful team. The resulting product offerings
allow the company to provide fine tuning solutions for the widest range of
applications in the industry -- from high speed, high volume passive component
trimming to the most precise fine tuning of complex electronic assemblies.
Over the past several years, electronics production equipment manufacturers have
increased their efforts in process integration and automation. Machine vision
systems continue to play an increasing part in those efforts. ESI's Vision
Product Division originally focused on the requirements of our laser processing
systems. Today, we are making the technology available to other original
equipment manufacturers in the semiconductor and electronics industry who need
machine vision to improve the productivity and performance of their machines.
LASER MICROMACHINING AND VIA DRILLING SYSTEMS
ESI's latest technological development uses lasers to make very small holes
(vias) in printed circuit boards and other substrates. This technology
addresses several problems involved in achieving high density advanced
electronic packaging. One editor has even characterized the ESI Model 5000
Laser Via Drilling System as enabling technology. Potential users include
advanced printed circuit board manufacturers, leading single and multi-chip
module fabricators and other manufacturers of high density electronic products.
The Model 5000 is a flexible tool that can accept computer aided design (CAD)
data directly, for more rapid production starts.
(Photo Captions -- Page 6)
ABOVE: THE MODEL CLS960 LASER TRIMMING SYSTEM OPERATES IN A CONVENIENT MICROSOFT WINDOWS -REGISTERED TRADEMARK- ENVIRONMENT. BELOW: ESI'S ROBUST OPTICAL CHARACTER RECOGNITION SYSTEM FOR SEMICONDUCTOR WAFER READING, USED ON THE MODEL 9250 MEMORY YIELD IMPROVEMENT SYSTEM, IS NOW AVAILABLE TO OTHER MANUFACTURERS.
(Photo Caption -- Page 7)
ESI'S NEW MODEL 5000 LASER VIA DRILLING SYSTEM, SHOWN WITH AN OPTIONAL WEB FEED MATERIAL HANDLING SUB-SYSTEM, BUILT SPECIFICALLY FOR SHELDAHL, INC.'S UNIQUE, FINE LINE PROCESS. 1995 REVENUE DISTRIBUTION BY BUSINESS SEGMENT
Capacitor Manufacturing Equipment 36%
Semiconductor Memory Yield Improvement 30%
Laser Fine Tuning 28%
ESI HAS BECOME THE LEADING EQUIPMENT SUPPLIER IN THE CAPACITOR MANUFACTURING EQUIPMENT, SEMICONDUCTOR YIELD IMPROVEMENT AND LASER FINE TUNING MARKET SEGMENTS. KEY FINANCIAL INDICES FOR ESI
Sound financial management and discipline are critical to the sustained success
of any company. It is the foundation for future growth and prosperity. The
following graphs present several of the important ratios which management
utilizes to regularly measure ESI's performance and progress.
SALES PER EMPLOYEE
SALES/OPERATING EXPENSES RATIO
DEBT AS % OF CAPITALIZATION
SHAREHOLDER INFORMATION ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders is
Friday, September 22, 1995 at 1 PM at
ESI's offices, 13900 NW Science Park Drive,
ANNUAL REPORT/10K REPORT
Publications and information of interest to current and potential investors are
available on request. Please contact the Investor Relations Department, ESI,
13900 NW Science Park Drive, Portland, Oregon97229-5497.
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Donald R. VanLuvanee
President and Chief Executive Officer
Barry L Harmon
Senior Vice President and
Chief Financial Officer
Edward J. Swenson
Senior Vice President
Mark W. Klug
Palomar Systems, Inc.
David B. Moser
Joseph Z. Rivlin
Vernon R. Swearingen
Richard M. Walker
Larry T. Rapp
BOARD OF DIRECTORS
David F. Bolender
Chairman of the Board
Electric Operations Group, PacifiCorp
Douglas C. Strain
Vice Chairman of the Board
Founder of ESI
Donald R. VanLuvanee
President and Chief Executive Officer
Larry L. Hanson
Executive Vice President (Retired)
Tylan General, Inc.
San Diego, California
Dr. W Arthur Porter
Houston Area Research Center
The Woodlands, Texas
Electro Scientific Industries KK
Japan Co, Ltd.
1-11-15 Higashi Gotando
Shinagawa-Ku, Tokyo 141
Electro Scientific Industries BV
Elisabethhof 21, PO Box 77
2350 AB Leiderdorp
Electro Scientific Industries Korea
So-Mang Bldg, 2nd Floor
1995 Electro Scientific Industries, Inc. ESI is an equal opportunity and
affirmative action employer.
Description of Graphic and Image Information
1. Four Bar Charts: See tables; Revenues,
Earnings Per Share, Year End Equity, and Return on Equity.
3. Photo of David F. Bolender, Chairman of the Board and Donald R.
VanLuvanee, President and CEO.
4. Pie Chart: See table 1995
Worldwide Revenue Distribution.
5. Photos: See photo captions page 5.
6. Photos: See photo captions page 6.
7. Photo: See photo caption page 7.
Pie Chart: see table 1995 Revenue Distribution by Business Segment.
8. Six Bar Charts: See tables; Sales Per Employee, Sales/Operating
Expenses Ratio, Inventory Turnover Ratio, Sales/Net Property &
Equipment Ratio, Gross Margin and Debt As % Of Capitalization.
Dates Referenced Herein and Documents Incorporated By Reference