-----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, WvpCov2joRnHo+vg70aIPSZDUelaLqmVh+uKhOdfMPaZm2M879E1rqYSKCOZe6lJ gPvnZbEGIocua95ZDvmveA== 0000950005-99-000959.txt : 19991110 0000950005-99-000959.hdr.sgml : 19991110 ACCESSION NUMBER: 0000950005-99-000959 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NANOMETRICS INC CENTRAL INDEX KEY: 0000704532 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 942276314 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13470 FILM NUMBER: 99743723 BUSINESS ADDRESS: STREET 1: 310 DEGUIGNE DR CITY: SUNNYVALE STATE: CA ZIP: 94086 BUSINESS PHONE: 4087461600 MAIL ADDRESS: STREET 1: 310 DEGUIGNE DRIVE CITY: SUNNYVALE STATE: CA ZIP: 94086 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q X Quarterly report pursuant to Section 13 or 15(d) of the Securities - ----- Exchange Act of 1934 For the quarterly period ended September 30, 1999 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 0-13470 ------------------------------------------ NANOMETRICS INCORPORATED - ------------------------------------------------------ (Exact name of registrant as specified in its charter) California 94-2276314 - ---------------------------------- ---------------------- (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 310 DeGuigne Drive, Sunnyvale, CA 94086 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (408) 746-1600 ----------------------- 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 ----- ----- At October 15, 1999 there were 8,920,127 shares of common stock, no par value, issued and outstanding. 1 NANOMETRICS INCORPORATED INDEX Part I. Financial Information Page Item 1. Financial Statements Consolidated Balance Sheets - September 30, 1999 and December 31, 1998 . . . . . . . .. 3 Consolidated Statements of Income - Three months and nine months ended September 30, 1999 and 1998 . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows - Nine months ended September 30, 1999 and 1998 . . . . . 5 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . 11 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 12 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2 PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS NANOMETRICS INCORPORATED CONSOLIDATED BALANCE SHEETS (Amounts in thousands except share amounts) (Unaudited)
September 30, December 31, 1999 1998 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 3,030 $ 1,518 Short-term investments 11,876 9,913 Accounts receivable, net of allowances of $423 and $420 9,873 8,458 Inventories 9,934 11,719 Deferred income taxes 1,446 1,441 Prepaid expenses and other 1,164 2,328 --------- ---------- Total current assets 37,323 35,377 PROPERTY, PLANT AND EQUIPMENT, NET 2,585 2,481 DEFERRED INCOME TAXES 548 560 OTHER ASSETS 790 887 --------- ---------- TOTAL $ 41,246 $ 39,305 ========= ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 1,843 $ 1,395 Accrued payroll and related expenses 787 317 Other current liabilities 1,391 1,720 Income taxes payable 211 - Current portion of long-term debt 567 1,324 --------- ---------- Total current liabilities 4,799 4,756 DEFERRED RENT 63 43 DEBT OBLIGATIONS 2,340 2,496 --------- ---------- Total liabilities 7,202 7,295 --------- ---------- SHAREHOLDERS' EQUITY: Common stock, no par value; 25,000,000 shares authorized; 8,891,794 and 8,690,643 outstanding 14,923 14,170 Retained earnings 18,977 17,974 Accumulated other comprehensive gain (loss) 144 (134) --------- ---------- Total shareholders' equity 34,044 32,010 --------- ---------- TOTAL $ 41,246 $ 39,305 =========== ========== See Notes to Consolidated Financial Statements
3 NANOMETRICS INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except per share amounts) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 ----------- ----------- ----------- ---------- NET REVENUES: Product sales $ 8,717 $ 6,249 $ 20,450 $ 25,572 Service 1,104 756 3,083 2,699 --------- --------- --------- -------- Total net revenues 9,821 7,005 23,533 28,271 --------- -------- --------- -------- COSTS AND EXPENSES: Cost of product sales 3,976 2,813 9,512 10,471 Cost of service 1,176 835 3,297 2,787 Research and development 1,099 886 3,209 3,180 Acquired in-process research and development - - - 1,421 Selling 1,519 1,366 4,105 4,467 General and administrative 730 614 2,095 2,093 --------- -------- --------- -------- Total costs and expenses 8,500 6,514 22,218 24,419 --------- -------- --------- -------- OPERATING INCOME 1,321 491 1,315 3,852 --------- -------- --------- -------- OTHER INCOME (EXPENSE): Interest income 171 146 483 463 Interest expense (22) (23) (63) (69) Other, net 67 42 (26) (106) --------- -------- ---------- --------- Total other income, net 216 165 394 288 --------- -------- --------- --------- INCOME BEFORE PROVISION FOR INCOME TAXES 1,537 656 1,709 4,140 PROVISION FOR INCOME TAXES 637 262 706 1,627 --------- -------- --------- -------- NET INCOME $ 900 $ 394 $ 1,003 $ 2,513 ========= ======== ========= ======== NET INCOME PER SHARE: Basic $ .10 $ .05 $ .11 $ .29 ========= ======== ========= ======== Diluted $ .10 $ .04 $ .11 $ .28 ========= ======== ========= ======== SHARES USED IN PER SHARE COMPUTATION: Basic 8,823 8,669 8,760 8,618 ========== ======== ========= ======== Diluted 9,347 9,074 9,242 9,018 ========== ======== ========= ======== See Notes to Consolidated Financial Statements
4 NANOMETRICS INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited)
Nine Months Ended September 30, 1999 1998 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,003 $ 2,513 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 159 191 Deferred rent 20 19 Purchase of in-process research and development - 1,421 Deferred taxes 19 (660) Changes in assets and liabilities net of effects of product line acquisition: Accounts receivable (1,201) 908 Inventories 1,906 (2,769) Prepaid expenses and other current assets 1,286 136 Accounts payable and other current liabilities 501 (342) Income taxes payable 211 (29) ------------- ------------- Net cash provided by operating activities 3,904 1,388 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of short-term investments (16,790) (12,823) Sales/maturities of short-term investments 14,827 13,498 Capital expenditures (100) (170) Other assets Product line acquisition - (3,038) ------------- ------------- Net cash used in investing activities (2,063) (2,533) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt (1,106) (551) Issuance of common stock 753 603 ------------- ------------- Net cash provided by (used in) financing activities (353) 52 ------------- ------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 24 125 ------------- ------------- NET CHANGE IN CASH AND EQUIVALENTS 1,512 (968) CASH AND EQUIVALENTS, beginning of period 1,518 3,656 ------------- ------------- CASH AND EQUIVALENTS, end of period $ 3,030 $ 2,688 ============= ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 63 $ 73 ============= ============= Cash paid for income taxes $ - $ 2,223 ============= ============= See Notes to Consolidated Financial Statements
5 NANOMETRICS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 Consolidated Financial Statements The consolidated financial statements include the accounts of Nanometrics Incorporated and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated. While the quarterly financial statements are unaudited, the financial statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) which the Company considers necessary for a fair presentation of the results of operations for the interim periods covered and of the financial condition of the Company at the date of the interim balance sheet. The operating results for interim periods are not necessarily indicative of the operating results that may be expected for the entire year. The information included in this report should be read in conjunction with the information included in the Company's 1998 Annual Report on Form 10-K filed with the Securities and Exchange Commission. Note 2. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following (in thousands):
September 30, December 31, 1999 1998 --------- ---------- Raw materials and subassemblies $ 5,122 $ 3,859 Work in process 2,379 2,253 Finished goods 2,433 5,607 --------- ---------- $ 9,934 $ 11,719 ========= ==========
Note 3. Other Current Liabilities Other current liabilities consist of the following (in thousands):
September 30, December 31, 1999 1998 --------- ---------- Commissions payable $ 354 $ 366 Accrued warranty 528 581 Other 509 773 --------- ---------- $ 1,391 $ 1,720 ========= ==========
Note 4. Net Income Per Share The reconciliation of the share denominator used in the basic and diluted net income per share computations are as follows (in thousands):
Three Months Ended Nine Months Ended September 30 September 30 1999 1998 1999 1998 ---------- ---------- ---------- --------- Weighted average common shares outstanding-shares used in basic net income per share computation 8,823 8,669 8,760 8,618 Dilutive effect of common stock equivalents, using the treasury stock method 524 405 482 400 ---------- ---------- ---------- --------- Shares used in dilutive net income per share computation 9,347 9,074 9,242 9,018 ========== ========== ========== =========
6 During the three and nine month periods ended September 30, 1999 and 1998, the Company had common stock options outstanding which could potentially dilute basic net income per share in the future, but were excluded from the computation of diluted net income per share as the common stock options' exercise prices were greater than the average market price of the common shares for the period. At September 30, 1999, 38,000 such common stock options with a weighted average exercise price of $9.00 per share were excluded from the diluted net income per share computations. Note 5. Comprehensive Income For the three months ended September 30, 1999 and 1998, comprehensive income, which consisted of net income for the periods and changes in accumulated translation adjustments, was $1,293,000 and $558,000, respectively. For the nine months ended September 30, 1999 and 1998, comprehensive income was $1,281,000 and $2,549,000, respectively. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Total net revenues for the three months ended September 30, 1999 were $9,821,000, an increase of $2,816,000 or 40% from the comparable period in 1998. For the nine months ended September 30, 1999, total net revenues of $25,533,000 decreased by $4,738,000 or 17% from the comparable period in 1998. Product sales of $8,717,000 for the three months ended September 30, 1999, increased $2,468,000 or 39% as compared with the same period in 1998. This increase resulted from stronger sales of the Company's products particularly in the U.S. and the Far East. Product sales of $20,450,000 for the nine months ended September 30, 1999, decreased $5,122,000 or 20% as compared with the same period in 1998. This decrease in product sales resulted from slower worldwide demand from the semiconductor industry during the first half of 1999. Service revenue of $1,104,000 and $3,083,000 for the three months and nine months ended September 30, 1999, respectively, increased $348,000 or 46% and $384,000 or 14%, respectively, as compared to the same periods in 1998. These increases in service revenue are primarily attributable to higher sales of accessories in the U.S. and Japan. Cost of product sales as a percentage of product sales increased slightly to 46% in the third quarter of 1999 from 45% in the third quarter of 1998. Cost of product sales as a percentage of product sales increased to 47% in the nine months ended September 30, 1999 from 41% for the same period in 1998 primarily because of lower sales volume in the first half of 1999 resulting in higher per unit manufacturing costs. Cost of service as a percentage of service revenue decreased to 107% in the third quarter of 1999 from 110% in the third quarter of 1998 primarily as a result of higher service sales. Cost of service as a percentage of service revenue increased to 107% in the nine months ended September 30, 1998 from 103% for the same period in 1998 as a result of higher service costs needed to support the Company's growing installed base of systems at customer locations. Research and development expenses for the three month and nine month periods ended September 30, 1999 increased $213,000 or 24% and $29,000 or 1% respectively, compared to the same periods in 1998 as the Company continued to commit its resources to the development of new and improved products. In the first quarter of 1998, the Company paid approximately $3.2 million for the assets and in-process research and development related to OSI's Metra product line. Of this purchase price, $1,421,000 related to the value of in-process research and development that had no alternative future use and was charged to expense in the accompanying consolidated statement of income for the nine months ended September 30, 1998. Selling expenses in the third quarter of 1999 increased by $153,000 or 11% compared to the third quarter of 1998 as a result of higher expenses associated with increased sales. Selling expenses for the nine months ended September 30, 1999 decreased $362,000 or 8% compared to the same period in 1998 primarily because of lower expenses associated with lower sales in the first half of 1999. General and administrative expenses for the third quarter of 1999 increased by $116,000 or 19% compared to the third quarter of 1998 due to spending associated with the increased level of operations in the third quarter of 1999. General and administrative expenses for the nine month period ended September 30, 1999 increased slightly by $2,000 compared to the same period in 1998. Other income (expense), net for the three month and nine month periods ended September 30, 1999 increased $51,000 or 31% and $106,000 or 37% respectively, from the comparable periods in 1998 due primarily to exchange rate gains and higher interest income in 1999. The Company reported an operating income of $1,321,000 and net income of $900,000 for the third quarter of 1999 compared to an operating income of $491,000 and net income of $394,000 for the same period in 1998. For the first nine months of 1999, the Company reported an operating income of $1,315,000 and net income of $1,003,000 which compared to an operating income of $3,852,000 and net income of $2,513,000 for the same period in 1998. 8 Liquidity and Capital Resources At September 30, 1999, the Company had working capital of $32,524,000 compared to $30,621,000 at December 31, 1998. The current ratio at September 30, 1999 was 7.8 to 1. The Company believes working capital including cash and short-term investments of $14,906,000 will be sufficient to meet its needs at least through the next twelve months. Operating activities for the first nine months of 1999 provided cash of $3,904,000 primarily from net income and decreased inventory, while the net purchases of short-term investments used $1,963,000, capital expenditures used $100,000, debt repayment used $1,106,000 and issuance of common stock provided $753,000. Year 2000 Issues Many computer systems are expected to experience problems handling dates around the year 2000 ("Y2K"). The Y2K issue is the result of many currently installed computer programs being written using two digits rather than four to define the applicable year. As a result, these computer programs are unable to distinguish between 21st century dates and 20th century dates and could cause computer system failures or miscalculations that result in significant business disruptions. Described below are the actions the Company has taken, and plans to take, to address the potential problems resulting as systems attempt to handle dates around the millennium. State of Readiness The Company's upper management has discussed and agreed upon a comprehensive plan to address its Y2K issues. The Y2K plan includes the following activities: gathering data and taking inventory; testing systems and products to evaluate Y2K compliance; execution of remediation activities to fix non-compliant products and systems; and monitoring and testing products and systems on an ongoing basis. The major business areas impacted are: Products: Many of the Company's products incorporate computer software to control certain add-on features and functionality. The Company's products are measurement tools and Y2K issues arise in the Company's products where database functions are used (e.g. storage of measurement data). The Company has completed testing and evaluation of its products for Y2K compliance. As a result of such evaluation, the Company believes that: (i) its current product lines are Y2K compliant; (ii) upgrades are currently available for non-Y2K compliant automated products; and (iii) as database functionality is not used in certain older obsolete products and in non-automated systems, Y2K compliance is not believed to be an issue. Procurement: Critical suppliers have been contacted and status of products and internal systems have been verified. Y2K compliance by the Company's suppliers is not believed to be an issue. Manufacturing: The Company believes that its assembly and test equipment and its primary manufacturing application software system are now Y2K compliant. Information Technology Systems ("IT"): The Company has purchased a Y2K upgrade license from its IT vendor and has installed the upgrade in its IT system. Facilities and Infrastructure: An assessment of the Y2K readiness of owned and leased assets has been performed and the only system which will require upgrade or replacement is the voicemail system. Costs The Company has completed its evaluation of the required activities to address the Y2K issues, and the Company currently believes that the estimated costs of Y2K compliance efforts are not expected to be material to the Company. Risks The Company believes the most reasonably likely worst case Y2K scenarios include the following: 9 Customers could change their buying patterns in a number of ways, including accelerating or delaying purchases of, or replacement of, the Company's products and services. The Company could experience a disruption in service to its customers as a result of the failure of third party products, including the following: third party products which are non-compliant and are incorporated into the Company's products could cause the products to fail; a breakdown in telephone, e-mail, voicemail, could impact the responsiveness of the Company's customer service department; Y2K problems at a number of the Company's suppliers including banks, telephone companies and the United States Postal Service could have a pervasive impact on the Company's business as a whole; and product features that rely on date parameters (generally date dependent routings and operating reports) could malfunction. Although the Company's products are undergoing both Y2K specific, and its normal testing procedures, its products may not contain all of the necessary date code or other changes to operate in the year 2000. Any failure of such products to perform could result in: claims and lawsuits against the Company; significantly impaired customer satisfaction resulting in customers withholding cash owed to the Company and delaying or canceling orders; and managerial and technical resources being diverted away from product development and other business activities. Any of the above stated consequences, in addition to others which the Company cannot yet foresee, could have a significant adverse impact on the Company's business, operating results and financial condition. Contingency Plan The Company currently believes that its plan is adequate to address its Y2K issues, and accordingly, does not believe that it is practical to develop a comprehensive contingency plan. In the event that its current plan is not adequate to address the Y2K issues, the Company believes that there will be adequate time to establish and implement a contingency plan. Once a contingency plan is implemented, however, the Company cannot be certain that such a plan would prevent significant Y2K problems from having a material adverse effect on the Company's business, operating results and financial condition. Patent Issues The Company is currently discussing patent issues with Therma-Wave Inc. The Company believes that Therma-Wave's Opti-Probe product line may infringe on a patent issued to the Company relating to absolute reflectance measurement. Therma-Wave alleges that some of the Company's film thickness products may infringe on a Therma-Wave patent relating to the combination of a spectrophotometer with a spectroscopic ellipsometer. Although the Company believes that none of its products infringe on the Therma-Wave patent, there can be no assurance that the resolution of this matter will not have a material adverse effect on the Company's future business, financial condition or results of operations. Forward Looking Statements The foregoing Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve risks and uncertainties and actual results could differ materially as a result of a number of factors, including (i) demand for the Company's products, which is affected by factors including the cyclicality of the semiconductor, magnetic recording head and flat panel display industries served by the Company, (ii) patterns of capital spending by customers, (iii) technological changes in the markets served by the Company and its customers, (iv) market acceptance of existing and new products and product enhancements of both the Company and its customers, (v) the timing, cancellation or delay of customer orders and shipments, (vi) competition, including competitive pressure on product prices and changes in pricing by the Company's customers or suppliers, (vii) fluctuation in foreign currency exchange rates, particularly the Japanese yen, (viii) the proportion of direct sales versus sales through distributors and representatives, (ix) the timing of new product announcements and releases of products by the Company or its competitors, including the Company's ability to design, introduce and manufacture new products on a timely and cost effective basis, (x) the size and timing of acquisitions of business, products or technologies (xi) fluctuations in the availability and cost of components and subassemblies, (xi) the outcome of patent infringement 10 discussions and the factors set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors" in the 1998 Annual Report on Form 10-K. The Company undertakes no obligation to update forward looking statements made in this report to reflect events or circumstances after the date of this report or to update reasons why actual results could differ from those anticipated in such forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to financial market risks, which include changes in foreign currency exchange rates and interest rates. The Company does not use derivative financial instruments. Instead, the Company actively manages the balances of current assets and liabilities denominated in foreign currencies to minimize currency fluctuation risk. As a result, a 10% change in the foreign currency exchange rates would not have a material impact on the Company's results of operations. The Company's investments in marketable securities are subject to interest rate risk but due to the short-term nature of these investments, interest rate changes would not have a material impact on their value. The Company also has fixed rate debt obligations in Japan that are subject to interest rate risk. At September 30, 1999, the Company's total debt obligation was $2,907,000 while the long-term portion was $2,340,000. The Company does not actively manage the risk associated with these obligations because the impact of interest rate changes would not have a material impact on the Company's results of operations. 11 NANOMETRICS INCORPORATED PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. Exhibits Ex. 27 - Financial Data Schedule B. Reports on Form 8-K. None. 12 NANOMETRICS INCORPORATED SIGNATURE 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. NANOMETRICS INCORPORATED (Registrant) /s/ Vincent J. Coates - ---------------------------- Vincent J. Coates Chairman of the Board /s/ John Heaton - ---------------------------- John Heaton Chief Executive Officer /s/ Paul B. Nolan - ---------------------------- Paul B. Nolan Chief Financial Officer Dated: November 9, 1999 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS Dec-31-1999 Jan-01-1999 Sep-30-1999 3,030 11,876 10,296 423 9,934 37,323 6,166 3,581 41,246 4,799 2,340 0 0 14,923 19,121 41,246 20,450 23,533 9,512 12,809 9,409 0 63 1,709 706 1,003 0 0 0 1,003 .11 .11
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