-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TztJZRDHMhxq0aQnVDlfpgxAAWg2gCFNwdySNH3W/RD0hPrKZGUfP7eTBTrDP5z9 If++E/jK80+qAeKrbADYMQ== 0001169232-06-001708.txt : 20060328 0001169232-06-001708.hdr.sgml : 20060328 20060328112439 ACCESSION NUMBER: 0001169232-06-001708 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20060328 DATE AS OF CHANGE: 20060328 GROUP MEMBERS: THE D3 CHILDREN'S FUND, L.P. GROUP MEMBERS: THE D3 FAMILY BULLDOG FUND, L.P. GROUP MEMBERS: THE D3 FAMILY RETIREMENT FUND, L.P. GROUP MEMBERS: THE D3 OFFSHORE FUND, L.P. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ELECTRO SCIENTIFIC INDUSTRIES INC CENTRAL INDEX KEY: 0000726514 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 930370304 STATE OF INCORPORATION: OR FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-34524 FILM NUMBER: 06713949 BUSINESS ADDRESS: STREET 1: 13900 NW SCIENCE PARK DR CITY: PORTLAND STATE: OR ZIP: 97229 BUSINESS PHONE: 5036414141 MAIL ADDRESS: STREET 1: 13900 NW SCIENCE PARK DRIVE CITY: PORTLAND STATE: OR ZIP: 97229-5497 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: NIERENBERG INVESTMENT MANAGEMENT CO CENTRAL INDEX KEY: 0001282683 IRS NUMBER: 911677205 FILING VALUES: FORM TYPE: SC 13D MAIL ADDRESS: STREET 1: 19605 NE 8TH ST CITY: CAMAS STATE: WA ZIP: 98607 SC 13D 1 d67559_sc13d.txt 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: |_| - -------------------------------------------------------------------------------- 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.) - -------------------------------------------------------------------------------- 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 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 - -------------------------------------------------------------------------------- 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! - -------------------------------------------------------------------------------- 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.) - -------------------------------------------------------------------------------- 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 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 - -------------------------------------------------------------------------------- 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.) - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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.) - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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.) - -------------------------------------------------------------------------------- 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 -----END PRIVACY-ENHANCED MESSAGE-----