UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Act of 1934
ELECTRO SCIENTIFIC INDUSTRIES INC. (ESIO)
(Name of Issuer)
Common Stock
(Title of Class of Securities)
285229100
(CUSIP Number)
David Nierenberg
The D3 Family Funds
19605 NE 8th Street
Camas, WA 98607
360-604-8600
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
March 09, 2006
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D and is filing this
schedule because of ss.ss.240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box: |_|
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON
The D3 Family Fund, L.P. (David Nierenberg is president of the General
Partner, which is Nierenberg Investment Management Company.)
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) |X|
(b) |_|
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) |_|
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Washington
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7 SOLE VOTING POWER
895,609 common shares (3.1%)
-----------------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 0
OWNED BY -----------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 895,609
WITH -----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,975,012 shares (6.8%)
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |_|
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.8%
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14 TYPE OF REPORTING PERSON*
PN
--------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON
The D3 Family Retirement Fund, L.P. (David Nierenberg is president of the
General Partner, which is Nierenberg Investment Management Company.)
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) |X|
(b) |_|
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3 SEC USE ONLY
--------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
--------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) |_|
--------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Washington
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7 SOLE VOTING POWER
297,025 common shares (1.0%)
-----------------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 0
OWNED BY -----------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 297,025
WITH -----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,975,012 shares (6.8%)
--------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |_|
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.8%
--------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
--------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
3
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON
The D3 Children's Fund, L.P. (David Nierenberg is president of the General
Partner, which is Nierenberg Investment Management Company.)
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) |X|
(b) |_|
--------------------------------------------------------------------------------
3 SEC USE ONLY
--------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
--------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) |_|
--------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Washington
--------------------------------------------------------------------------------
7 SOLE VOTING POWER
79,239 common shares (0.3%)
-----------------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 0
OWNED BY -----------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 79,239
WITH -----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,975,012 shares (6.8%)
--------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |_|
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.8%
--------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
--------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
4
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON
The D3 Offshore Fund, L.P. (David Nierenberg is president of the General
Partner, which is Nierenberg Investment Management Company.)
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) |X|
(b) |_|
--------------------------------------------------------------------------------
3 SEC USE ONLY
--------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
--------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) |_|
--------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Bahamas
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7 SOLE VOTING POWER
440,855 common shares (1.5%)
-----------------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 0
OWNED BY -----------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 440,855
WITH -----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,975,012 shares (6.8%)
--------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |_|
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.8%
--------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
--------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
5
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON
The D3 Family Bulldog Fund, L.P. ((David Nierenberg is president of the
General Partner, which is Nierenberg Investment Management Company.)
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) |X|
(b) |_|
--------------------------------------------------------------------------------
3 SEC USE ONLY
--------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
--------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) |_|
--------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Washington
--------------------------------------------------------------------------------
7 SOLE VOTING POWER
262,284 common shares (0.9%)
-----------------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 0
OWNED BY -----------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 262,284
WITH -----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,975,012 shares (6.8%)
--------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |_|
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.8%
--------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
--------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
6
Item 1. Security and Issuer.
Common stock in ELECTRO SCIENTIFIC INDUSTRIES INC. (ESIO), 13900 NW
Science Park Drive, Portland, OR 97229
Item 2. Identity and Background.
The D3 Family Funds are Washington State limited partnerships, whose
principal business is investing in the equities of public micro-cap
issuers. The D3 Family Funds consist of: D3 Family Fund, L.P, D3 Family
Retirement Fund, L.P, D3 Children's Fund, L.P, D3 Offshore Fund, L.P.,
D3 Family Bulldog Fund, L.P. Located at 19605 N.E. 8th St., Camas,
Washington 98607. No convictions or administrative proceedings as
described in 2 (d) and (e).
Item 3. Source and Amount of Funds or Other Consideration
Source of funds is money invested in the partnership by their partners.
Item 4. Purpose of Transaction
We added meaningfully to our ESIO investment on March 23, when the stock
sold off sharply. We believe that our recent purchases make us ESIO's
third largest shareholder. We have been shareholders much of the past
decade.
ESIO has long enjoyed several attractive investment attributes. The
company has a fortress balance sheet, with over $8.00 per share in cash
(including the litigation escrow). With continuing profitability and
normal collection of receivables, we anticipate that ESIO's cash per
share could rise to $9.00 by the end of calendar 2006 and $10.00 by the
end of 2007. ESIO holds the leading market share in each of its three
largest businesses. Most notably, ESIO has a 70-75% share of the memory
yield improvement (MYI) business, which generated 63% of its revenues in
the first nine months of fiscal 2006.
Several recent developments make ESIO even more attractive. First, CEO
Nick Konidaris, who joined ESIO just two years ago, is an accomplished
veteran of the semiconductor capital equipment industry who drove his
previous company to leadership in its product category. At ESIO
Konidaris has been strengthening his management team, reducing costs,
breaking down silos, and increasing investment in customer-driven R&D.
Second, the cost reductions enable ESIO to earn at least a 20% pre-tax
return on sales in strong times, while generating positive cash flow
during downturns. Third, several factors should accelerate ESIO's
organic revenue growth rate to 3-5 times U.S. GDP growth: increasing
DRAM bit rate growth and chip density should accelerate MYI sales, and
higher R&D investment is spawning new ultra-violet and infra-red laser
MYI products, machine vision products, capacitor test and inspection
products, and other applications of ESIO's core laser technologies.
7
We have one request for ESIO's Board: we believe that ESIO needs to
dramatically boost its return on equity. While ESIO's return on sales is
becoming acceptable, the company's cash hoard constrains return on
equity to mediocre single digits. We recognize that cash protects
shareholder value during deep downturns and could fund possible
acquisitions. But it is not advantageous to have too much of a good
thing, not if the cash sits unused when it could work smarter or do more
somewhere else. ESIO has no debt. Cash will grow, even during downturns.
Breakeven has been lowered. The company has not made an acquisition in a
long time. The many promising products emerging from ESIO's laboratories
should, by themselves, accelerate revenue growth.
Therefore, unless an acquisition by ESIO is imminent, we urge the board
to give serious consideration to paying out a large special cash
dividend, funded by cash on hand and perhaps by cash borrowed from a
leveraged recapitalization of the company. We believe that this program
could raise return on equity to an acceptable level, accelerate EPS
growth without undue financial risk, and preserve ESIO's continued
independence.
This is no wild, heretical notion. As the semiconductor capital
equipment industry has matured, its best managed companies have learned
to generate cash throughout the cycle and have built mountains of excess
cash. Therefore such leading firms as Applied Materials and KLA-Tencor
have begun returning large sums of cash to their shareholders through
dividend and share repurchase programs. This is part of a broader trend
among tech companies. For example, Microsoft paid out an enormous
special dividend to its shareholders in late 2004. We hope to see
similar shareholder friendly financial practices take root at ESIO,
while the company continues investing in its future growth. Failure to
make the company's balance sheet work smarter could risk continued
mediocre returns on shareholders' capital, which in turn could cause
ESIO's share price to languish, or could jeopardize the company's
independence. We encourage ESIO to move proactively to control its
destiny and maximize shareholder returns.
Item 5. Interest in Securities of the Issuer.
(a,b) D3 Family Funds own and have sole voting and dispositive power
over 1,975,012, 6.8% common shares of ESIO.
8
(c)
Fund Transaction Date Shares Bought Price
D3 Family Fund, L.P. 3/6/2006 10,000 25.18
D3 Family Fund, L.P. 3/7/2006 18,000 25.03
D3 Family Fund, L.P. 3/8/2006 12,000 24.59
D3 Family Fund, L.P. 3/9/2006 18,000 24.17
D3 Family Fund, L.P. 3/10/2006 25,000 24.02
D3 Family Fund, L.P. 3/13/2006 19,500 23.82
D3 Family Fund, L.P. 3/23/2006 135,000 22.20
D3 Family Fund, L.P. 3/23/2006 27,500 21.83
D3 Family Fund, L.P. 3/24/2006 7,000 21.91
D3 Family Retirement Fund, L.P. 3/6/2006 12,000 25.18
D3 Family Retirement Fund, L.P. 3/7/2006 10,000 25.03
D3 Family Retirement Fund, L.P. 3/8/2006 10,000 24.59
D3 Family Retirement Fund, L.P. 3/9/2006 7,000 24.17
D3 Family Retirement Fund, L.P. 3/10/2006 3,000 24.02
D3 Family Retirement Fund, L.P. 3/13/2006 6,500 23.82
D3 Family Retirement Fund, L.P. 3/23/2006 45,000 22.20
D3 Family Retirement Fund, L.P. 3/23/2006 8,600 21.83
D3 Family Retirement Fund, L.P. 3/24/2006 2,400 21.91
D3 Children's Fund, L.P. 3/6/2006 6,659 25.18
D3 Children's Fund, L.P. 3/7/2006 2,000 25.03
D3 Children's Fund, L.P. 3/8/2006 3,000 24.59
D3 Children's Fund, L.P. 3/9/2006 2,000 24.17
D3 Children's Fund, L.P. 3/10/2006 500 24.02
D3 Children's Fund, L.P. 3/13/2006 1,515 23.82
D3 Children's Fund, L.P. 3/23/2006 12,000 22.20
D3 Children's Fund, L.P. 3/23/2006 2,500 21.83
D3 Children's Fund, L.P. 3/24/2006 500 21.91
D3 Offshore Fund, L.P. 3/8/2006 10,000 24.59
D3 Offshore Fund, L.P. 3/9/2006 10,909 24.17
D3 Offshore Fund, L.P. 3/10/2006 7,757 24.02
D3 Offshore Fund, L.P. 3/13/2006 9,500 23.82
D3 Offshore Fund, L.P. 3/23/2006 67,000 22.20
D3 Offshore Fund, L.P. 3/23/2006 12,550 21.83
D3 Offshore Fund, L.P. 3/24/2006 3,650 21.91
D3 Family Bulldog Fund, L.P. 1/27/2006 8,193 24.39
D3 Family Bulldog Fund, L.P. 1/30/2006 300 24.40
D3 Family Bulldog Fund, L.P. 2/22/2006 1,791 25.00
D3 Family Bulldog Fund, L.P. 2/23/2006 23,309 25.00
D3 Family Bulldog Fund, L.P. 2/24/2006 3,300 24.99
D3 Family Bulldog Fund, L.P. 2/28/2006 17,941 24.97
D3 Family Bulldog Fund, L.P. 3/10/2006 2,500 24.02
D3 Family Bulldog Fund, L.P. 3/13/2006 5,500 23.82
D3 Family Bulldog Fund, L.P. 3/23/2006 41,000 22.20
D3 Family Bulldog Fund, L.P. 3/23/2006 8,400 21.83
D3 Family Bulldog Fund, L.P. 3/24/2006 1,900 21.91
9
(d) N/A
(e) N/A
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to
Securities of the Issuer.
N/A
Item 7. Material to be Filed as Exhibits
N/A
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, each of the
undersigned certifies that the information set forth in the Statement is true,
complete and correct.
March 28, 2006 /s/ DAVID NIERENBERG
--------------------------------------
David Nierenberg
President
Nierenberg Investment Management
Company, Inc., the General Partner of
The D3 Family Funds
10