-----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, LJlLYRBTDpcin2bY+LQ/oaCxY6a74NGFx7JjjknQ391Um+yXIGu8/+nfGjdPCwh4 PDSB1KAiO7qHyWpfn+Yl5Q== 0001012870-97-000587.txt : 19970329 0001012870-97-000587.hdr.sgml : 19970329 ACCESSION NUMBER: 0001012870-97-000587 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NASD 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13470 FILM NUMBER: 97565963 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-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K (Mark One) [x] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the fiscal year ended December 31, 1996 or [_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) 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, California 94086 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (408) 746-1600 _________________________ Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value -------------------------- Title of Class 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 10, 1997: $14,795,550 based upon the last sales price reported for such date. For purposes of this disclosure, shares of common stock held by officers, directors or persons who hold more than 5% of the outstanding shares of common stock of the Registrant have been excluded in that such persons may be deemed to be "affiliates" as that term is defined under the rules and regulations promulgated under the Securities Exchange Act of 1934, as amended. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of shares outstanding of the Registrant's common stock as of March 11, 1996 was 8,262,192. DOCUMENTS INCORPORATED BY REFERENCE The information called for by Part III is incorporated by reference to the definitive Proxy Statement for the Annual Meeting of Shareholders of the Company to be held May 15, 1997 which will be filed with the Securities and Exchange Commission no later than 120 days after December 31, 1996. NANOMETRICS INCORPORATED ANNUAL REPORT - - FORM 10-K TABLE OF CONTENTS PAGE ---- Part I Item 1. Business............................................ I-1 Item 2. Properties.......................................... I-8 Item 3. Legal Proceedings................................... I-8 Item 4. Submission of Matters to a Vote of Security Holders. I-8 Part II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters................................ II-1 Item 6. Selected Consolidated Financial Data................ II-2 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................ II-3 Item 8. Financial Statements and Supplementary Data......... II-9 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................ II-24 Part III Item 10. Directors and Executive Officers of the Registrant.. III-1 Item 11. Executive Compensation.............................. III-1 Item 12. Security Ownership of Certain Beneficial Owners and Management..................................... III-1 Item 13. Certain Relationships and Related Transactions...... III-1 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................................ IV-1 Signatures.......................................................... V-1 (ii) PART I ITEM 1. BUSINESS -------- INTRODUCTION - ------------ Nanometrics Incorporated ("Nanometrics" or the "Company"), incorporated in California in 1975, designs, manufactures, markets and services optical microscope-based measurement and inspection stations. The primary market served by the Company is the semiconductor industry, which utilizes these instruments to monitor processes employed in the fabrication of integrated circuits on wafers, flat panel displays (FPDs) and magnetic recording heads (MRHs). Nanometrics pioneered many developments in measurement and inspection and today is a leading producer of automated instruments used to measure physical dimensions of circuit elements. All of the Company's products contain proprietary computer software and patented features. Since 1977, the majority of the Company's revenues have been from the sale of semiconductor measurement systems utilizing optical instrumentation. Newer versions of Nanometrics' optical measurement systems utilize wide-range, high sensitivity optics that allow the totally automated measurement of most films used in integrated circuits, FPDs and MRHs manufacturing today. Nanometrics' business has experienced growth because more intensive inspection is required as a result of the semiconductor industry's rapid transition to smaller and more complex integrated circuits on larger substrates. As devices have become more dense and as the number of process steps have increased, the Company has responded with more efficient and automatic operator- free measurement systems. In October 1994, a new Fully Automated Film Thickness Measurement System, the NanoSpec 8000 was introduced to the market and began shipping to customers in the second quarter of 1995. In December 1994, as a result of R&D performed at its wholly-owned subsidiary in Japan, the Company introduced another major Automated Film Thickness Measurement System, the NanoSpec 5500, aimed at large flat panel display manufacturing. These systems have undergone continuous development since their introduction, to meet current and future requirements of modern highly automated and high-throughput fabrication facilities. I-1 PRODUCTS - -------- Nanometrics offers a range of products to address the varying needs of its customers for film thickness measurement and inspection. Current products are as follows: NANOSPEC/AFT FILM THICKNESS SYSTEMS. - -------------------------------------- These optical microscope-based systems measure the dielectric film thickness and chemical composition of film materials on integrated circuits, selectively and non-destructively. They measure the spectrum of the optical interference pattern in small areas of the die to determine the thickness and optical constants of different transparent films at chosen sites. A wide range of "thick" and "thin" films can be measured, including silicon dioxide, silicon nitride, polysilicon and photoresist on silicon, gallium arsenide, glass, metal and other substrates. Since its introduction in 1977, the NanoSpec/AFT has gone through several model changes which have enhanced and improved performance based on customer needs. With an installed base of over 4200 units, the NanoSpec/AFT continues to be a leading product line of the Company. Fast, Automated Measurement and Analysis Systems ------------------------------------------------ In October 1994, Nanometrics introduced a new Fully Automated Film Thickness Measurement System, the NanoSpec 8000, which can be programmed to run operator-free and is designed to meet the speed, measurement, performance and reliability requirements which are essential to high level factory control of today's semiconductor mega-fabs and magnetic head production. The Company believes that this system offers the lowest cost of ownership of any system available today due to its high throughput (greater than 100 wafers per hour), small footprint in costly clean room space, robust construction and competitive price. It features fully automated operation and high efficiency optics, which allow fast measurement in small spots and mapping of most films used in the manufacture of integrated circuits. Reliable wafer handling robotics and stage systems are also incorporated in the NanoSpec 8000. These mechanisms use well- accepted principles which typically show more than 10,000 hours mean time between failure based on actual experience in field operation. The first shipments of the NanoSpec 8000 were made in the second quarter of 1995, with more than 30 units having been shipped through the end of 1996. For some time, semiconductor fabricators have wanted to monitor the chemical composition of films which can determine the electronic performance of finished micro-chip circuits. To achieve this capability, in early 1995 Nanometrics and J.A. Woollam Company made an agreement to incorporate Woollam's spectroscopic ellipsometer into the Model 8000. The Woollam ellipsometer adds unique and powerful capabilities to the Model 8000, allowing both the measurement and analysis of the chemical composition of films on advanced semiconductor wafers. The integration of this important capability was completed in the second quarter of 1996. The tool, designated the NanoSpec 8000XSE, was shown for the first time in July 1996 at SEMICON/West, the world's largest semiconductor equipment trade show. I-2 Also, in early 1995, SEMATECH, a consortium of large U.S. semiconductor manufacturers, selected Nanometrics to design and build a tool that could handle and measure film thickness on 300mm wafers. The previous standard wafer sizes ranged from 100mm to 200mm in diameter, was handled by the Model 8000. The selection of Nanometrics is part of a project SEMATECH was launching to develop tools for the eventual industry shift to the manufacture of ICs on 300mm semiconductor wafers. These larger diameter wafers are designed to allow lower production cost since many more chips per wafer can be simultaneously manufactured. In response to their selection, Nanometrics unveiled the NanoSpec 8300 in July 1995 at the SEMICON/West trade show. The Model 8300 is the semiconductor industry's first 300mm film thickness measuring system. The system is capable of handling both 200mm and 300mm (eight to twelve inch) diameter wafers. In addition, the NanoSpec 8300 incorporates both a spectroscopic ellipsometer and spectrophotometer, enabling the system to accurately measure and analyze virtually any dielectric film used in semiconductor manufacture today. The production version of the Model 8300, the NanoSpec 8300X was completed in July, 1996 and introduced to the industry at SEMICON/West that same month. The first production versions of the 8300 were shipped in the second quarter 1996 and installed in customer facilities. At the Semicon Japan trade show held in Tokyo in December 1994, the Company introduced a new film thickness metrology system for flat panel displays, the Model 5500. The flat panel display industry, including displays for lap-top computers, is projected to grow rapidly. Flat panel displays utilize transparent films which must be accurately measured. The Model 5500 was developed by the Company's Japanese subsidiary, which has been working closely with a number of Japanese flat panel display manufacturers over the last several years. The Model 5500 is fully automated and accommodates substrates up to 650 x 550 mm. Virtually all optically transparent films used in the manufacture of flat panel displays can be measured. The first shipments of the Model 5500 took place in the first quarter of 1995 and 12 units have been shipped through the end of 1996. Table-Top Systems ----------------- The company believes that it manufactures the widest range of film thickness systems of compact design to fit on a work table. In 1992, Nanometrics introduced and began shipping two additions to the NanoSpec/AFT family of Semi Automatic Table-Top Film Thickness Measurement Systems, the Models 4000 and 4100. These tools utilize the advanced IBM OS/2 /(TM)/ software platform and a revolutionary high-sensitivity ultraviolet/visible light optical system, an industry first. These products provide semiconductor manufacturers with the ability to measure certain films and film properties important for fabrication of the latest fast, very large scale integrated (VLSI) circuits. The Model 4150, an enhanced version of the Model 4100 introduced in the middle of 1994, provides automated stage and focusing systems for hands-off uniformity maps. The Model 4000 is a lower cost system that provides manual stage and focusing controls. In 1994, the Company's Japanese subsidiary introduced two table-top systems, the Models 5000 and 5100 specifically engineered to meet the needs of the Japanese market. These systems are modified versions of the Models 4000 and 4150, respectively. In June, 1996 Nanometrics Japan Ltd. introduced a new enhanced table top system, the NanoSpec 6100. First shipments of this new product were made in the last quarter 1996. The lowest priced FT system manufactured by Nanometrics Japan is the Model 3000 which was introduced in 1995. The Company believes that it has a significant share of the semi-automatic film thickness measurement market for table-top systems. I-3 The Company offers unique capability because of its design of programmable algorithms to the software platforms of its table top products. This provides the semiconductor process engineer with the freedom and flexibility to create custom measurement programs to characterize the unique films and multi-layer film stacks which have become common design elements in modern VLSI circuits. The programmable measurement algorithms also broaden the instruments' markets by allowing the measurement of specialized films used in the thin magnetic head and flat panel display equipment manufacturing industries. NANOLINE LINEWIDTH MEASURING SYSTEMS ------------------------------------ The Nanoline Model 50-2C is a table-top instrument used for semi-automated measurement of linewidths and pattern overlay alignment on semiconductor wafers. This system is composed of a scanning microdensitometer microscope subsystem, a CRT display and a computer. The technology is well proven and is effective in measuring linewidths down to .8 microns on both wafers and photomasks. First Nanolines were introduced in 1979 and more than 1000 units have been shipped worldwide to semiconductor fabrication facilities. Backlog - ------- As of December 31, 1996, the Company's backlog was approximately $3,603,000, compared with approximately $6,211,000 at December 31, 1995. The decrease from last year was primarily due to the timing of some large orders that were not received until January 1997. The Company's backlog as of the January 31, 1997 was $9,230,000. The majority of this backlog is expected to be shipped in 1997. Historically, order cancellations and order rescheduling have not been significant. However, there can be no assurance that orders presently in backlog will not be cancelled or rescheduled. Marketing and Customers - ----------------------- Nanometrics sells its semiconductor equipment products worldwide to many of the major integrated circuit, flat panel display and magnetic head manufacturers, including those which manufacture components for use in their own products. Limited sales are also made to manufacturers of semiconductor equipment and photomasks. No single customer represented 10% or more of the Company's total revenues in 1996. Sales to one customer represented approximately 10% of total revenue in 1995 and 11% of total revenue in 1994. The Company sells its products by means of direct sales and through independent sales representatives whose territories cover the United States and Canada. The majority of the Company's domestic sales representatives have sold the Company's products for at least five years. Export sales, which exclude sales by the Company's foreign subsidiary in Japan, constituted approximately 21%, 25% and 30% of total revenues for 1996, 1995 and 1994, respectively. The Company's products are sold and distributed in Japan by its wholly-owned subsidiary, Nanometrics Japan, Ltd. The Company's products are sold in Europe to Intertrade Scientific ("ITS") an independent dealer organization, which has offices in the United Kingdom, France, Germany and Italy, which functions as a distributor and buys the Company's products for resale to its customers. Direct I-4 exports of the Company's semiconductor equipment to foreign customers and shipments to its subsidiary require general export licenses. See Note 10 of Notes to Consolidated Financial Statements for information regarding total revenues, operating income (loss) and identifiable assets of the Company's foreign operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Factors that May Affect Future Operating Results-International Operations." The Company believes that the market for its products is well-defined, and most sales are made to established customers. Marketing activities include participation in numerous domestic and foreign trade shows, advertising in trade magazines and periodic direct mailings. Service - ------- Nanometrics provides warranty and post-warranty service from its corporate office in California. The Company also has service operations based in Arizona, Massachusetts, Texas and Pennsylvania. In Europe, local service and spare parts are provided by ITS. In the Far East, service is provided in Japan by Nanometrics Japan, Ltd., in Korea by Nanometrics Korea Ltd. and the Company's distributors and representatives provide service in other countries. In addition, in 1996, the Company opened a sales and service office in Taiwan to provide stronger support to a growing customer base in that country. Nanometrics provides a one year warranty on parts and labor for products sold domestically and in foreign markets. Revenues from post-warranty services (Service Revenue), including sales of replacement parts, represented approximately 19%, 20% and 29% of 1996, 1995 and 1994 total consolidated net revenues, respectively. Competition - ----------- Competition in the markets for the Company's film thickness measurement and inspection systems is strong as domestic and foreign manufacturers continue to introduce competitive products, including automated film thickness measurement and inspection systems. The Company is a leading supplier of spectrophotometric film thickness measurement systems to the semiconductor industry; however, its measurement and inspection systems face intense competitive pressure from numerous manufacturers. Many of the Company's competitors have strong financial resources, broad product lines, large customer service organizations and large established customer bases. Nanometrics believes that the principal competitive factors in its markets are the technical capabilities and characteristics of systems offered (including automation and software capability), proven product reliability, quality of service, name recognition, and price. The Company believes that it competes favorably with respect to these factors, but continues to develop and design new and improved products in order to remain competitive. During 1996, the Company invested $2.8 million in research and development or approximately 9% of total consolidated net revenues. The Company conducts some manufacturing of its products in Japan, where modifications are required to better serve the needs of the local Japanese markets and to address intense competition for sales. I-5 Manufacturing - ------------- The Company's manufacturing activities consist of assembling and testing components and subassemblies obtained from outside suppliers. Accordingly, the Company's manufacturing operations are not capital equipment intensive, but reflect the Company's reliance on systems engineering and software development. Some components and subassemblies of the Company's principal products are technically advanced and available from only one or two suppliers, which in some cases are not U.S. companies. As a partial safeguard against interruption or termination of supplies, the Company attempts to maintain its inventory of such items in quantities estimated to be sufficient to permit time for product redesign, if necessary. However, the Company could be adversely affected if a sole source of supply was terminated and product redesign could not be completed in the time estimated or involved other unanticipated problems. The Company has manufacturing operations in Japan through its Japanese subsidiary. The Company currently ships product kits to its Japanese subsidiary, which are then assembled, tested and shipped to customers. Research and Development - ------------------------ The Company's current research and development efforts are directed toward enhancing existing products and developing and introducing new products to achieve technological leadership and to appeal to a wider range of customers. The Company is working to develop potential applications of new and emerging technologies, including improved methods of measurement. These efforts are conducted at its facilities in California and also at its Japanese subsidiary. Expenditures for research and development during 1996, 1995 and 1994 were $2.8 million, $2.6 million and $2.4 million and represented 9%, 12% and 18% of total consolidated net revenues, respectively. Patents and Trademarks - ---------------------- Nanometrics actively pursues a program of filing patent applications to seek protection of technologically sensitive features of its products. The Company holds numerous United States patents and additional patents in Japan and Europe. Additionally, the Company has several patent applications pending in the United States and abroad which cover various features of its optical systems. The United States patents, issued during the period 1980 to 1996, will expire from 1997 to 2013. The validity of the Company's patents has not been adjudicated by any court. Competitors may bring legal challenges to the validity of one or more of these patents, or attempt to circumvent the patents. While the Company does not anticipate any challenges to the validity of its patents, there can be no assurance that either of such activities by competitors will not be successful. The Company has licensed some of its technology to other manufacturers in the past. Although the Company believes that its patents are valuable, the Company also depends on its trade secrets and the innovative skills of its technical personnel to maintain its competitive position. I-6 Executive Officers of the Registrant - ------------------------------------ The executive officers of the Company are as follows: Name Age Position with the Company ---- --- ------------------------- Vincent J. Coates 72 Chairman of the Board, Chief Executive Officer, Secretary John Heaton 37 Director, President and Chief Operating Officer Paul B. Nolan 42 Vice President and Chief Financial Officer Mr. Vincent Coates has been Chairman of the Board since the Company was founded. He served as President from the founding through July 1988 except for the period January 1986 through February 1987 when he served exclusively as Chief Executive Officer. He is currently the Chief Executive Officer of the Company and was elected Secretary in February 1989. Mr. Heaton joined the Company in September 1990 and in March 1994 he was elected Vice President. In July 1995 he was appointed to the Board of Directors. In 1996 he was elected President and Chief Operating Officer. Mr. Heaton served as Equipment Engineer at National Semiconductor prior to joining the Company. Mr. Nolan joined the Company in March 1989 and in March 1994 he was elected Vice President and Chief Financial Officer. Mr. Nolan served as Senior Financial Analyst at Harris Corporation prior to joining the Company. Mr. Vincent Coates is the father of Mr. Norman Coates, a director of the Company. There are no other family relationships among any of the executive officers and directors of the Company. All directors hold office until the next annual meeting of shareholders of the Company and until their successors have been elected and qualified. Officers are elected by and serve at the discretion of the Board of Directors. Employees - --------- At December 31, 1996, the Company employed 134 persons worldwide on a full-time basis, including 30 in research and development, 29 in manufacturing and manufacturing support, 61 in marketing, sales and field service and 14 in general administration and finance. None of these employees is represented by a union and the Company has never experienced a work stoppage as a result of union actions. Many of the Company's employees have specialized skills of value to the Company. Nanometrics' future success will depend in large part upon its ability to attract and retain highly skilled technical, managerial, financial and marketing personnel, who are in great demand in the industry. Nanometrics considers its employee relations to be good. I-7 ITEM 2. PROPERTIES ---------- The Company's principal manufacturing and administrative facility is located in Sunnyvale, California in a leased building with approximately 35,000 square feet. The lease on this building began in May 1992 and expires in April 1997. See Note 7 of Notes to Consolidated Financial Statements. During 1995, the Company's Japanese subsidiary also leased some sales and service facilities. Rent expenses for the Company's facilities was approximately $483,000 in 1996. The Company owns a 15,000 square foot facility near Narita International Airport in Japan. This facility is utilized by the Company's Japanese subsidiary for sales, service, engineering and manufacturing processes which are specific to the Japanese market. ITEM 3. LEGAL PROCEEDINGS ----------------- Some customers using certain products of the Company have received notices of infringement from Technivision Corporation/Jerome Lemelson alleging that equipment used in the manufacture of semiconductor products infringes his patents. Certain of these customers have notified the Company that they may seek indemnification from the Company for any damages and expenses resulting from this matter. Certain of the Company's customers are engaged in litigation with Mr. Lemelson involving a number of his patents, and are challenging the validity of these patents and whether these patents are infringed. Recently, a U.S. District Court Magistrate in Reno, Nevada recommended that a patent lawsuit filed by Mr. Lemelson be dismissed. Following that, a District Judge in Las Vegas, Nevada adopted a recommendation by the Magistrate that a summary judgment sought by the defendant in this lawsuit be granted. Mr. Lemelson filed motions seeking reconsideration of the defendant's motion. The District Judge heard arguments on this matter and took Mr. Lemelson's motion under advisement. Although the ultimate outcome of these matters is not presently determinable, management believes that the resolution of all such pending matters will not have a material adverse affect on the Company's financial position or results of operations although there can be no assurance of such. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- No matters were submitted to a vote of security holders during the quarter ended December 31, 1996. I-8 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND --------------------------------------------- RELATED SHAREHOLDER MATTERS --------------------------- The Company's Common Stock had been traded on The Nasdaq National Stock Market under the symbol "NANO" since the Company's initial public offering in 1984, until February 24, 1995 when the Nasdaq Stock Market Inc. began listing the Company's Common Stock on the Nasdaq SmallCap Market using the symbol "NANOC" under a temporary exception which required that the Company maintain a minimum market value of $1 million on its public float. On August 9, 1995 the Company's common stock began trading again on the Nasdaq National Stock Market under the symbol "NANO". The following table sets forth, for the periods indicated, the range of high and low sale prices as reported on the Nasdaq National Market. December 27 and December 29 were the last trading days of the 1996 and 1995 fiscal years. Year ended December 31, 1996 1995 - ----------------------- ---- ---- High Low High Low First Quarter $8.63 $5.25 $ 2.19 $0.44 Second Quarter 7.19 4.88 6.50 1.44 Third Quarter 6.00 4.00 10.50 5.00 Fourth Quarter 6.13 4.19 9.25 4.25 As of March 11, 1997, there were approximately 144 shareholders of record and approximately 2,000 beneficial shareholders. The last sale price reported on the Nasdaq National Market on February 12, 1997 was $6.88 per share. The Company has never paid cash dividends. It is the present policy of the Company's Board of Directors to retain earnings to finance expansion of the Company's operations, and the Company does not expect to pay dividends in the foreseeable future. II-1 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA ------------------------------------
The following table summarize certain selected consolidated financial data. See Consolidated Financial Statements included herein. Years Ended December 31, - ----------------------------------------------------------------------------------------- Statement of 1996 1995 1994 1993 1992 - ------------ ---- ---- ---- ---- ---- Operations Data ( In thousands, except per share data) - --------------- Total net revenues $30,336 $22,759 $13,579 $16,570 $15,213 ======= ======= ======= ======= ======= Gross margin $16,139 $11,164 $ 5,589 $ 7,768 $ 6,479 ======= ======= ======= ======= ======= Operating income(loss) $ 6,213 $ 2,641 $(2,231) $ 216 $ (838) ======= ======= ======= ======= ======= Income (loss) before cumulative effect of accounting change $ 3,993 $ 4,277 $(2,074) $ 555 $ (416) Cumulative effect of accounting change (1) - - - (200) - ------- ------- ------- ------- ------- Net income (loss) $ 3,993 $ 4,277 $(2,074) $ 355 $ (416) ======= ======= ======= ======= ======= Income (loss) per common and equivalent share: Income (loss) before cumulative effect of accounting change $ .47 $ .52 $ (.28) $ .08 $ (.06) Cumulative effect of accounting change - - - (.03) - ------- ------- ------- ------- ------- Net income (loss) $ .47 $ .52 $ (.28) $ .05 $ (.06) ======= ======= ======= ======= ======= Weighted average common and equivalent shares outstanding 8,524 8,280 7,304 7,016 6,949 ======= ======= ======= ======= ======= Balance Sheet Data: - ------------------ Working Capital $22,613 $18,338 $10,205 $11,809 $11,308 Total Assets 29,964 25,167 15,786 18,414 17,404 Long-term Debt 3,296 3,528 421 578 961 Shareholders' Equity 22,060 17,574 12,995 14,427 13,533
(1) Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", and recognized the cumulative effect of adoption of the change in accounting for income taxes of $200,000 ($0.03 per share). II-2 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- RESULTS OF OPERATIONS Total revenues for 1996 were $30.3 million, a 33% increase from 1995. The increase in total revenues resulted primarily from increased worldwide sales of the Company's flagship NanoSpec 8000 product family and of the fully automated Model 5500 flat panel display metrology system particularly in the Far East. The Company experienced a 77% increase in domestic revenues to $14.4 million for 1996 from $8.2 million in 1995 while international revenues increased 9% to $15.9 million for 1996 from 14.6 million in 1995. The increase in international revenue was partially offset by the impact of the strengthening of the US dollar against the Japanese yen on sales in Japan. Total revenues for 1995 were $22.8 million, a 68% increase from 1994 total revenues of $13.6 million which resulted primarily from the introduction and sales of the NanoSpec 8000 product family and the Model 5500 in 1995. Domestic revenues increased 119% to $8.2 million in 1995 from $3.7 million in 1994 while international revenues increased 48% to $14.6 million in 1995 from $9.9 million in 1994. Cost of product sales as a percentage of net product sales decreased to 41% in 1996 from 45% in 1995 primarily because of higher prices resulting from strong demand for the Company's products and a continued decline in fixed operating costs as a percent of higher sales. Cost of product sales as a percentage of net product sales decreased to 45% in 1995 from 53% in 1994 as a result of a shift in product mix and a decline in fixed operating costs as a percent of higher sales. The Company may experience fluctuations in gross margins as a result of competitive pressures, changes in product mix, product introductions and transitions, varying production levels, and fluctuations in material and labor costs among other factors. Service revenues increased to $5.7 million in 1996 from $4.6 million in 1995 and $3.9 million in 1994. The increase in 1996 resulted from continued higher levels of service and accessory sales in the U.S. and Japan as the Company's installed base of systems has increased. Cost of service as a percentage of service revenue was 71% in 1996, slightly lower than 73% in both 1995 and in 1994. Research and development expenses for 1996 were higher than 1995 levels by $123,000 or 5%. Research and development expenses for 1995 were higher than 1994 levels by $226,000 or 9%. These increases were primarily due to additional personnel hired to develop new products and features. The Company continues to be committed to the development of new and enhanced products and believes that new product introductions will play an important and necessary role in obtaining future revenues. The Company expects that spending for research and development in 1997 will be comparable to 1996 levels. Selling expenses increased $984,000 in 1996 or 27% when compared to 1995 as a result of higher sales commission expenses from increased sales and the addition of sales personnel in the U.S. and the Far East. Selling expenses increased $766,000 in 1995 or 26% when compared to 1994 as a result of both higher sales commission expenses from increased sales and startup costs in establishing new domestic and foreign sales offices in 1995. During 1996 selling expenses represented 15% of II-3 total consolidated revenues, compared to 16% and 22% in 1995 and 1994, respectively. This decrease, particularly from 1994, was due primarily to fixed selling expenses growing at a slower rate than revenues in 1996. General and administrative expenses in 1996 increased by $296,000 or 14% compared to 1995 due primarily to the addition of a managing director and related expenses in Japan. General and administrative expenses during 1995 decreased by $289,000 or 12% when compared to 1994. The general and administrative expenses in 1994 were higher than in 1995 primarily because of a $517,000 write-off of a doubtful receivable in 1994. During 1996 general and administrative expenses represented 8% of total consolidated revenues, compared to 10% and 18% in 1995 and 1994, respectively. Other income decreased $380,000 or 46% in 1996 compared to 1995 as a result of more favorable exchange rate results in 1995. Other income increased $639,000 or 345% in 1995 compared to 1994 as a result of higher interest income and more favorable exchange rate results. The Company's provision for income taxes in 1996 was $2.7 million and the effective tax rate was 40%. The effective tax rate exceeds the U.S. statutory rate primarily due to state income taxes and realization of foreign sales corporation benefit. The effective income tax rate differed from the U.S. statutory rate because the results for 1995 included a $2.3 million favorable income tax adjustment to reverse the valuation allowance for certain deferred tax assets in accordance with SFAS 109. The effective income tax rate differed from the U.S. statutory rate during 1994 as a result of non-deductible expenses and an increase in the valuation allowance for deferred tax assets. See Note 5 of Notes to Consolidated Financial Statements. The Company reported an operating profit of $6,213,000 and net income of $3,993,000 or $.47 per share in 1996 compared to an operating profit of $2,641,000 and net income of $4,277,000 or $.52 per share in 1995 and an operating loss of $2,231,000 and net loss of $2,074,000 or $.28 per share in 1994. The impact of inflation on the Company's results of operations has not been significant. During each quarter, the Company sells a relatively small number of systems, and therefore a slight change in the timing of shipments can have a significant impact on quarterly results of operations. The Company's backlog at the beginning of each quarter generally does not include all systems sales needed to achieve expected revenues for that quarter. Consequently, the Company is often dependent on obtaining orders for systems to be shipped in the same quarter that the order is received. Moreover, customers may reschedule shipments, and production difficulties could delay shipments. Accordingly, the Company's results of operations are subject to significant variability from quarter to quarter and could be adversely affected for a particular quarter if shipments for that quarter were lower than anticipated. Because a relatively small group of customers may account for a significant percentage of the Company's sales in any given period, the loss of any single customer could have a short-term adverse effect on the Company's results of operations. II-4 LIQUIDITY AND CAPITAL RESOURCES During 1996, operating activities provided cash of $356,000 primarily from higher net income partially offset by higher working capital requirements. Financing activities provided cash of $358,000 primarily from the sale of shares under the employee stock purchase and option plans. Investing activities used cash of $2.6 million, primarily from the purchase of short-term investments in the U.S. During 1995, operating activities provided cash of $2.3 million primarily from higher net income partially offset by higher working capital requirements. Financing activities provided cash of $4.2 million primarily from a loan of $4.7 million from a bank in Japan using the Company's building and adjacent land in Japan as collateral. Investing activities used cash of $4.1 million, primarily from the investment of proceeds of the bank financing in short-term investments in the U.S. During 1994, operating activities used cash of $2.0 million and financing activities used cash of $385,000. The Company reduced its short-term investments by $3.4 million in 1994 to meet these cash flow requirements. The Company believes that its working capital, including cash and short- term investments of approximately $8.4 million, will be sufficient to meet its needs at least through the end of 1997. At December 31, 1996, the Company had $22.6 million in working capital and its current ratio was 6.0 to 1. Outstanding borrowings at December 31, 1996 totalled approximately $3.6 million of which $347,000 is due within one year. See Note 6 of Notes to Consolidated Financial Statements. The Company has evaluated in the past and will continue to evaluate the acquisition of products, technologies or businesses that are complementary to the Company's business. These activities may result in product and business investments. FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS This Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Action of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, but not limited to, the statements regarding the Company backlog, outcome of legal proceedings, expected research and development expenses. These forward-looking statements inherently involve risks and uncertainties. The Company's actual results could differ materially from the results anticipated in such forward- looking statements. Factors that could cause or contribute to such differences include, without limitation, the factors set forth below as well as and elsewhere in this report. The following risk factors should be considered by shareholders of and by potential investors in the Company in evaluating the Company, its business, financial condition and business prospects. Significant Fluctuations in Operating Results. The Company's operating results have fluctuated significantly in the past and may fluctuate significantly in the future. The Company anticipates that factors affecting its future operating results will include the cyclicality of the semiconductor industry and the markets served by the Company's customers, the size and timing of II-5 orders, patterns of capital spending by customers, the proportion of direct sales and sales through distributors and representatives, the proportion of international sales to net sales, changes in pricing by the Company, its competitors, customers or suppliers, market acceptance of new and enhanced versions of the Company's products, the timing of new product announcements and releases of products by the Company or its competitors, delays, cancellations or rescheduling of orders due to customer financial difficulties or otherwise lengthy sales cycles. Gross margins may vary materially based on a variety of factors including the mix and average selling prices of product sales and the cost associated with new product introductions. Limited Systems Sales; Backlog. The Company derives a substantial portion of its sales from the sale of a relatively small number of systems which typically range in purchase price from approximately $40,000 to $400,000. As a result, the timing of recognition of revenue for a single transaction could have a material adverse affect on the Company's sales and operating results. The Company's backlog at the beginning of a quarter typically does not include all sales required to achieve the Company's sales objective for that quarter. Moreover, all customer purchase orders are subject to cancellation or rescheduling by the customer with limited or no penalties. Therefore, backlog at any particular date is not necessarily representative of actual sales for any succeeding period. The Company's net sales and operating results for a quarter may depend upon the Company obtaining orders for systems to be shipped in the same quarter that the order is received. The Company's business and financial results for a particular period could be materially adversely affected if an anticipated order for even one system is not received in time to permit shipment during such period. Highly Competitive Industry. The semiconductor capital equipment industry is intensely competitive. A substantial investment is required by customers to install and integrate capital equipment into a semiconductor production line. As a result, once a semiconductor manufacturer has selected a particular vendor's capital equipment, the Company believes that the manufacturer generally relies upon that equipment for the specific production line application and frequently will attempt to consolidate its other capital equipment requirements with the same vendor. Accordingly, the Company expects to experience difficulty in selling to a particular customer for a significant period of time if that customer selects a competitor's capital equipment. The Company currently experiences intense competition worldwide from a number of foreign and domestic manufacturers, including Tencor Instruments and Therma- Wave, some of which have substantially stronger financial resources than the Company. The Company expects its competitors to continue to develop enhancements to and future generations of competitive products that may offer improved price or performance features. New product introductions and enhancements by the Company's competitors could cause a significant decline in sales or loss of market acceptance of the Company's systems in addition to intense price competition or otherwise make the Company's systems or technology obsolete or noncompetitive. Increased competitive pressure could lead to reduced demand and lower prices for the Company's products, thereby materially adversely affecting the Company's operating results. There can be no assurance that the Company will be able to compete successfully in the future. II-6 International Operations. A significant portion of the Company's total revenues are derived from customers outside the United States, and the Company anticipates that international revenues will continue to be significant in the future. The Company's international operations are subject to risks inherent in the conduct of international business, including unexpected changes in regulatory requirements, exchange rates, export license requirements, tariffs and other barriers, political and economic instability, limited intellectual property protection, difficulties in collecting payments due from sales agents or customers, difficulties in managing distributors or representatives, difficulties in staffing and managing foreign subsidiary operations and potentially adverse tax consequences. In addition, the Company does not currently engage in currency exchange rate hedging transactions and there can be no assurance that fluctuations in currency exchange rates in the future will not have a material adverse impact on the Company's business, operating results and financial conditions. Rapid Technological Change; Importance of Timely Product Introduction. The semiconductor manufacturing industry is subject to rapid technological change and new product introductions and enhancements. The Company's ability to remain competitive will depend in part upon its ability to develop new and enhanced systems and to introduce these systems at competitive prices and in a timely and cost effective manner to enable customers to integrate the systems into their operations either prior to or upon commencement of volume product manufacturing. In addition, new product introductions or enhancements by the Company's competitors could cause a decline in sales or loss of market acceptance of the Company's existing products. Increased competitive pressure could also lead to intensified price-based competition resulting in lower prices and margins, which would materially adversely affect the Company's business, financial conditions and results of operations. The success of the Company in developing, introducing and selling new and enhanced systems depends upon a variety of factors, including product selections, timely and efficient completion of product design and development, timely and efficient implementation of manufacturing and assembly processes, effective sales and marketing and product performance in the field. Because new product development commitments must be made well in advance of sales, new product decisions must anticipate both the future demand for the products under development and the equipment required to produce such products. There can be no assurance that the Company will be successful in selecting, developing, manufacturing and marketing new products or in enhancing existing products. Intellectual Property Rights. Although the Company attempts to protect its intellectual property rights through patents, copyrights, trade secrets and other measures, it believes that its financial performance will depend more upon the innovation, technological expertise and marketing abilities of its employees than upon such protection. There can be no assurance that any of the Company's pending patent applications will be issued or that foreign intellectual property laws will protect the Company's intellectual property rights. There can be no assurance that any patent issued to the Company will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide competitive advantages to the Company. Furthermore, there can be no assurance that others will not independently develop similar products, duplicate the Company's product, or, if patents are issued to the Company, design around the patents issued to the Company. Although there are currently no pending claims or lawsuits against the Company regarding any possible infringement claims, there can be no assurance that infringement claims by third parties or claims for indemnification resulting from infringement claims will not be asserted in the future or that such assertions, if proven to have merit, will not materially adversely affect the Company's business, II-7 financial condition and results of operations. If any such claims are asserted against the Company, the Company may seek to obtain a license under the third party's intellectual property rights. There can be no assurance that a license will be available on reasonable terms or at all. The Company could decide, in the alternative, to resort to litigation to challenge such claim. Such challenges could be extremely expensive and time consuming and could materially adversely affect the Company's business, financial condition and results of operations. In addition, some customers of the Company have received notices of infringement from Technivision Corporation/Jerome Lemelson alleging that equipment used in the manufacture of semiconductor products infringes their patents. A number of these customers have notified the Company that they may seek indemnification from the Company for any damages and expenses resulting from this matter. Certain of the Company's customers have engaged in litigation with Mr. Lemelson involving a number of his patents and some of these cases have settled. Although the ultimate outcome of these matters is not presently determinable, the Company believes that the resolution of all such pending matters will not have a material adverse effect on the Company's financial position or results of operations, however, there can be no assurance of this. Sole or Limited Sources of Supply; Reliance on Subcontractors; Complexity in Manufacturing Processes. Certain components, subassemblies and services necessary for the manufacture of the Company's systems are obtained from a sole supplier or limited group of suppliers. The Company does not maintain any long-term supply agreements with any of its suppliers. The Company is relying increasingly on outside vendors to manufacture many components and subassemblies. The Company's reliance on sole or a limited group of suppliers and the Company's increasing reliance on subcontractors involve several risks, including a potential inability to obtain an adequate supply of required components and reduced control of pricing and timely delivery of components and subassemblies. Because the manufacture of certain of these components and subassemblies is an extremely complex process and requires long lead times, there can be no assurance that delays or shortages caused by suppliers will not occur in the future. Certain of the Company's suppliers have relatively limited financial and other resources. Any inability to obtain adequate deliveries or any other circumstance that would restrict the Company's ability to ship its products, could damage relationships with current and prospective customers and could have a material adverse effect on the Company's business and results of operations. Cyclicality of Semiconductor Industry. The semiconductor industry has been characterized by cyclicality. The industry has experienced significant economic downturns at various times in the last decade, characterized by diminished product demand, accelerated erosion of average selling prices and production over-capacity. The Company may experience substantial period-to- period fluctuations in future operating results due to general industry conditions or events occurring in the general economy. Management of Growth. The Company's business is currently experiencing a period of growth that has placed and is expected to continue to place a significant strain on the Company's personnel and resources. The Company's ability to manage future growth, if any, will depend on its ability to continue to implement and improve operational, financial and management information and controls systems on a timely basis, together with maintaining effective cost controls, and any failure to do so could have a material adverse effect on the Company's business, operating results and financial condition. II-8 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- The financial statements filed herewith are listed in the index in Item 14. II-9 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Nanometrics Incorporated: We have audited the accompanying consolidated balance sheets of Nanometrics Incorporated and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the consolidated financial statement schedule listed in the Index at Item 14.(a)2. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Nanometrics Incorporated and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP San Jose, California February 19, 1997 II-10 NANOMETRICS INCORPORATED CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (IN THOUSANDS, EXCEPT SHARE AMOUNTS) - ------------------------------------------------------------------------------- ASSETS 1996 1995 CURRENT ASSETS: Cash and equivalents $ 1,725 $ 3,625 Short-term investments 6,657 4,458 Accounts receivable, less allowance for doubtfull accounts of $419 and $380 in 1996 and 1995, respectively 11,100 7,567 Inventories 5,078 3,955 Deferred income taxes 1,648 2,069 Prepaid expenses and other 882 428 ------- ------- Total current assets 27,090 22,102 PROPERTY, PLANT AND EQUIPMENT, Net 2,600 2,900 OTHER ASSETS 274 165 ------- ------- TOTAL $29,964 $25,167 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 1,563 $ 1,172 Accrued payroll and related expenses 533 486 Other current liabilities 763 1,155 Income taxes payable 1,271 398 Current portion of long-term debt 347 553 ------- ------- Total current liabilities 4,477 3,764 LONG-TERM DEBT, Net of current portion 3,296 3,528 DEFERRED INCOME TAXES 131 301 ------- ------- Total liabilities 7,904 7,593 ------- ------- COMMITMENTS AND CONTINGENCIES (Note 7) SHAREHOLDERS' EQUITY: Common stock, no par value; 25,000,000 shares authorized; 8,258,061 and 7,883,910 outstanding 11,833 10,983 Retained earnings 10,387 6,394 Accumulated translation adjustment (160) 197 ------- ------- Total shareholders' equity 22,060 17,574 ------- ------- TOTAL $29,964 $25,167 ======= ======= See notes to consolidated financial statements. II-11 NANOMETRICS INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS, EXCEPT SHARE AMOUNTS) - ------------------------------------------------------------------------------- NET REVUES: 1996 1995 1994 Product sales $24,603 $18,117 $ 9,655 Service 5,733 4,642 3,924 ------- ------- ------- Total net revenues 30,336 22,759 13,579 ------- ------- ------- COSTS AND EXPENSES: Cost of product sales 10,109 8,189 5,128 Cost of service 4,088 3,406 2,862 Research and development 2,754 2,631 2,405 Selling 4,696 3,712 2,946 General and administrative 2,476 2,180 2,469 ------- ------- ------- Total costs and expenses 24,123 20,118 15,810 ------- ------- ------- OPERATING INCOME (LOSS) 6,213 2,641 (2,231) ------- ------- ------- OTHER INCOME (EXPENSE): Interest income 390 302 93 Interest expense (92) (152) (49) Other, net 146 674 141 ------- ------- ------- Total other income, net 444 824 185 ------- ------- ------- INCOME (LOSS) BEFORE INCOME TAXES 6,657 3,465 (2,046) PROVISION (BENEFIT) FOR INCOME TAXES 2,664 (812) 28 ------- ------- ------- NET INCOME (LOSS) $ 3,993 $ 4,277 $(2,074) ======= ======= ======= EARNINGS PER COMMON AND EQUIVALENT SHARE $ 0.47 $ 0.52 $ (0.28) ======= ======= ======= COMMON AND EQUIVALENT SHARES USED IN PER SHARE COMPUTATION 8,524 8,280 7,304 ======= ======= ======= See notes to consolidated financial statements. II-12 NANOMETRICS INCORPORATED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------
COMMON STOCK ACCUMULATED TOTAL ---------------------- RETAINED TRANSLATION SHAREHOLDERS' SHARES AMOUNT EARNINGS ADJUSTMENT EQUITY BALANCES, January 1, 1994 7,119,303 $ 9,859 $ 4,191 $ 377 $14,427 Issuance of common stock under employee stock purchase plan 11,975 8 - - 8 Issuance of common stock under stock option plan 239,700 151 - - 151 Accumulated translation adjustment - - - 483 483 Net loss - - (2,074) - (2,074) --------- ------- ------- ----- ------- BALANCES, December 31, 1994 7,370,978 10,018 2,117 860 12,995 Issuance of common stock under employee stock purchase plan 26,504 29 - - 29 Issuance of common stock under stock option plan 486,428 322 - - 322 Tax benefit of stock option transactions - 614 - - 614 Accumulated translation adjustment - - - (663) (663) Net income _ _ 4,277 - 4,277 --------- ------- ------- ----- ------- BALANCES, December 31, 1995 7,883,910 10,983 6,394 197 17,574 Issuance of common stock under employee stock purchase plan 25,627 115 - - 115 Issuance of common stock under stock option plan 348,524 233 - - 233 Tax benefit of stock option transactions - 502 - - 502 Accumulated translation adjustment - - - (357) (357) Net income - - 3,993 - 3,993 --------- ------- ------- ----- ------- BALANCES, December 31, 1996 8,258,061 $11,833 $10,387 $(160) $22,060 ========= ======= ======= ===== ======= See notes to consolidated statements.
II-13 NANOMETRICS INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------ 1996 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 3,993 $ 4,277 $ (2,074) Reconciliation of net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 309 318 332 Deferred income taxes 263 (1,826) 306 Changes in assets and liabilities: Accounts receivable (4,031) (2,886) 811 Inventories (1,228) 766 (494) Prepaid expense and other (458) (202) (125) Accounts payable, accruals and other current liabilities 111 782 (526) Income taxes payable 1,397 1,050 (285) -------- -------- -------- Net cash provided by (used in) operating activities 356 2,279 (2,055) -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of short-term investments (12,522) (8,786) (3,250) Sales/maturities of short-term investments 10,321 4,821 6,688 Purchases of property, plant and equipment (270) (117) (31) Other assets (128) (60) 11 -------- -------- -------- Net cash provided by (used in) investing activities (2,599) (4,142) 3,418 -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings 762 4,700 - Repayments of long-term borrowings (752) (822) (544) Sale of shares under employee stock purchase and option plans 348 351 159 -------- -------- -------- Net cash provided by (used in) financing activities 358 4,229 (385) -------- -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (15) (876) (53) -------- -------- -------- NET CHANGE IN CASH AND EQUIVALENTS (1,900) 1,490 925 CASH AND EQUIVALENTS, beginning of year 3,625 2,135 1,210 -------- -------- -------- CASH AND EQUIVALENTS, end of year $ 1,725 $ 3,625 $ 2,135 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 118 $ 135 $ 50 ======== ======== ======== Cash paid for income taxes $ 715 $ 157 $ 161 ======== ======== ========
See notes to consolidated financial statements. II-14 NANOMETRICS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Description of Business - Nanometrics Incorporated (the "Company") designs, manufactures, markets and services optical microscope-based measurement and inspection systems used primarily for manufacturing process control during the fabrication of wafers used to make integrated circuits and flat panel displays. In addition, the Company produces analytical instruments for general use in biological and industrial research. The Company's products are primarily sold to semiconductor and flat panel display manufacturers in the United States, Asia and Europe, and its business is dependent on the demand for semiconductors and electronic products using flat panel displays (such as portable computers). Basis of Presentation - The consolidated financial statements include the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions are eliminated. Although for presentation purposes the Company has indicated its year end as December 31, its fiscal year actually ends on the Saturday nearest to December 31. The Company's fiscal years for 1996, 1995 and 1994 ended on December 28, 1996, December 30, 1995, and December 31, 1994. Fiscal 1996, 1995 and 1994 each contained 52 weeks. Financial Statement Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include provisions for doubtful accounts, warranty costs and lower of cost or market valuation reserves. Actual results could differ from those estimates. Cash and Equivalents - Cash and equivalents include cash and highly liquid debt instruments with original maturities of three months or less when purchased. Short-Term Investments - The Company's short-term investments consist of United States Treasury bills with maturities at the date of acquisition of more than three months. While the Company's intent is to hold debt securities to maturity, they are classified as available-for-sale because the sale of such securities may be required prior to maturity. Available-for-sale securities at December 31, 1996 are stated at cost which approximates fair market value. Concentration of Credit Risk - Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and equivalents, short-term investments and accounts receivable. The Company invests its cash and short-term investments generally in United States Treasury bills that are primarily held by one broker. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for sales on credit. The Company maintains reserves for potential credit losses and such losses have historically been within management's expectations. II-15 Inventories - Inventories are stated at the lower of cost (first-in, first-out) or market. Property, Plant and Equipment - Property, plant and equipment are stated at cost. Depreciation is computed using straight line and accelerated methods over the estimated useful lives of the assets ranging from three to 45 years. Leasehold improvements are amortized over the shorter of the estimated useful lives of the improvements or the lease term. Stock-Based Compensation - The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Revenue Recognition - Revenues from product sales are recognized at the time of shipment. Revenue from service contracts is recognized ratably over the period of the contract. The Company sells the majority of its products with a one-year repair or replacement warranty and records a provision for estimated claims at the time of sale. Fair Value of Financial Instruments - Financial instruments include cash equivalents, short-term investments, and long-term obligations. Cash equivalents are stated at fair market value based on quoted market prices. The short-term investments are stated at cost which approximates fair market value. The recorded carrying amount of the Company's long-term obligations approximates fair market value. Foreign Currency - The functional currencies of the Company's foreign subsidiaries are the local currencies. Accordingly, translation adjustments for the subsidiaries have been included in shareholders' equity. Gains and losses from transactions denominated in currencies other than the functional currency of the Company or its subsidiaries are included in other income and consist of gains of $39,000, $623,000 and $65,000 for 1996, 1995 and 1994, respectively. Income Taxes -The Company accounts for income taxes under an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and net operating loss and tax credit carryforwards. Common and Equivalent Per Share Data - Common and equivalent per share data is computed using the weighted average number of common and dilutive common equivalent shares outstanding. Common equivalent shares include dilutive common stock options (using the treasury stock method) and shares issuable under the employee stock purchase plan. Common stock equivalents are excluded from the computation in loss periods as they are antidilutive. Reclassifications - Certain prior year amounts in the accompanying financial statements have been reclassified to conform to the current year presentation. II-16 2. INVENTORIES Inventories at December 31 consist of the following: 1996 1995 (IN THOUSANDS) Finished goods $ 1,809 $ 1,398 Work in process 1,414 830 Raw materials and subassemblies 1,855 1,727 ------- ------- $ 5,078 $ 3,955 ======= ======= 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31 consist of the following: 1996 1995 (IN THOUSANDS) Land $ 908 $ 1,014 Building 2,753 3,000 Machinery and equipment 1,510 1,667 Leasehold improvements 397 392 Furnitures and fixtures 281 251 ------- ------- 5,849 6,324 Accumulated depreciation and amortization (3,249) (3,424) ------- ------- $ 2,600 $ 2,900 ======= ======= 4. OTHER CURRENT LIABILITIES Other current liabilities at December 31 consist of the following: 1996 1995 (IN THOUSANDS) Commissions payable $ 269 $ 317 Accrued warranty 303 198 Trade-in allowances - 293 Other accrued liabilities 191 347 ------- ------- $ 763 $ 1,155 ======= ======= 5. INCOME TAXES Income (loss) before income taxes for the years ended December 31 consists of the following: 1996 1995 1994 (IN THOUSANDS) Domestic $ 6,305 $ 1,964 $(2,331) Foreign 352 1,501 285 ------- ------- ------- Total $ 6,657 $ 3,465 $(2,046) ======= ======= ======= II-17 The provision (benefit) for income taxes consists of the following: 1996 1995 1994 (IN THOUSANDS) Current: Federal $ 1,583 $ 477 $ (304) State 354 137 5 Foreign 304 461 21 ------- ------- ------- 2,241 1,075 (278) ------- ------- ------- Deferred: Federal 287 (1,302) 304 State 186 (557) - Foreign (50) (28) 2 ------- ------- ------- 423 (1,887) 306 ------- ------- ------- Provision (benefit) for income taxes $ 2,664 $ (812) $ 28 ======= ======= ======= Significant components of the Company's net deferred tax asset (liability) at December 31 are as follows: 1996 1995 (IN THOUSANDS) Deferred tax assets: Reserves and accruals not currently deductible $ 1,466 $ 1,234 Capitalized inventory costs 182 244 Net operating loss carryforwards - 230 Tax credit carryforwards - 561 ------- ------- Total deferred tax assets 1,648 2,269 ------- ------- Valuation allowance - (200) ------- ------- 1,648 2,069 ------- ------- Deferred tax liabilities: Depreciation (56) (50) Other (75) (251) ------- ------- Total deferred tax liabilities (131) (301) ------- ------- Net deferred tax asset $ 1,517 $ 1,768 ======= ======= During the year ended December 31, 1996, the Company determined that it was not likely to realize certain foreign tax credit carryforward benefits and wrote these deferred tax assets off against the related valuation allowance. II-18 Following is a summary of differences between income taxes computed by applying the statutory federal income tax rate to income (loss) before income taxes and the provision for income taxes: 1996 1995 1994 (IN THOUSANDS) Income taxes (benefit) computed at 35% U.S. statutory rate $ 2,330 $ 1,213 $ (716) State income taxes 356 - - Foreign taxes higher than U.S. taxes 60 225 - Foreign sales corporation benefit (205) (66) - Nondeductible expenses 87 84 82 Change in valuation allowance - (2,339) 662 Other, net 36 71 - ------- ------- ------- Provision (benefit) for income taxes $ 2,664 $ (812) $ 28 ======= ======= ======= 6. LONG-TERM DEBT Long-term debt at December 31 consists of the following: BANK LOAN DESCRIPTION 1996 1995 (IN THOUSANDS) 1995 working capital bank loan $ 2,949 $ 3,675 1996 working capital bank loan 649 - Real estate bank loan - 232 Building construction bank loan - 174 ------- ------- Total 3,643 4,081 Current portion (347) (553) ------- ------- Long-term debt $ 3,296 $ 3,528 ======= ======= The 1995 working capital bank loan was obtained by the Company's Japanese subsidiary. The loan is secured by receivables of the Japanese subsidiary and is guaranteed by the parent, Nanometrics Incorporated. The loan is denominated in Japanese yen ((Yen)340,000,000 at December 31, 1996) and bears interest at the rate of 3.3% per annum. The loan is payable in quarterly installments with unpaid principal and interest due May 2005. In 1996, a working capital bank loan was obtained by the Company's Japanese subsidiary. A portion of the borrowing proceeds were used to repay the remaining balances of the real estate and building construction loans. The loan is secured by land and building. The loan is denominated in Japanese yen ((Yen)80,000,000 at December 31, 1996) and bears interest at the rate of 3.4% per annum. The loan is payable in quarterly installments beginning May 1998 with unpaid principal and interest due May 2006. II-19 At December 31, 1996, future annual maturities of long-term debt (excluding current portion) are as follows (in thousands): 1998 $ 409 1999 430 2000 430 Thereafter 2,027 ------- $ 3,296 ======= 7. COMMITMENTS AND CONTINGENCIES The Company leases manufacturing and administrative facilities and certain equipment under noncancellable operating leases. The Company's current primary facility lease expires in April 1997 and includes a renewal option for a five year extension. Rent expense for 1996, 1995 and 1994, was approximately $483,000, $420,000 and $500,000, respectively. Future minimum lease payments for each of the years ending December 31 are as follows (in thousands): 1997 $ 200 1998 49 1999 49 2000 35 2001 4 ------- $ 337 ======= The Company is party to various claims, legal actions and complaints in the normal course of business. Although the ultimate outcome of these matters is not presently determinable, management believes that the resolution of all such pending matters will not have a material adverse effect on the Company's financial position or results of operations. 8. SHAREHOLDERS' EQUITY Common Stock The authorized capital stock of the Company consists of 25,000,000 common shares, of which 22,500,000 shares have been designated "Common Stock" and 2,500,000 shares have been allocated to all other series of common shares, collectively designated "Junior Common." Stock Option Plans Under the 1991 Stock Option Plan (the Option Plan), the Company may grant options to purchase up to 1,500,000 shares of common stock to employees and consultants at prices not less than the fair market value at date of grant for incentive stock options and not less than 50% of fair market value for nonstatutory stock options. These options generally expire five years from the date of grant and become exercisable ratably generally over a period of three years as set forth in the stock option agreements. Under the 1991 Directors' Stock Option Plan (the Directors' Plan), nonemployee directors of the Company are automatically granted options to purchase 10,000 shares of common stock at the fair market value at the date of grant each year that such person remains a director of the Company. Options granted II-20 under the plan become exercisable ratably over a period of three years and expire five years from the date of grant. The total shares authorized under the plan are 300,000. Option activity under the plans is summarized as follows:
OUTSTANDING OPTIONS ------------------------------- WEIGHTED SHARES NUMBER OF AVERAGE AVAILABLE SHARES EXERCISE PRICE Balances, January 1, 1994 1,198,000 1,435,700 $ 0.81 Exercised - (239,700) 0.63 Granted (468,500) 468,500 0.65 Cancelled 212,000 (380,800) 1.23 --------- --------- Balances, December 31, 1994 (780,710 exercisable at a weighted average price of $0.65) 941,500 1,283,700 0.66 Exercised - (486,428) 0.66 Granted (weighted average fair value of $3.20) (636,700) 636,700 4.76 Cancelled 122,500 (204,400) 0.73 --------- --------- Balances, December 31, 1995 (372,312 exercisable at a weighted average price of $0.63) 427,300 1,229,572 2.77 Exercised - (348,524) 0.67 Granted (weighted average fair value of $3.61) (308,500) 308,500 5.36 Cancelled 91,607 (91,607) 3.69 --------- --------- Balances, December 31, 1996 210,407 1,097,941 $ 4.08 ========= =========
Additional information regarding options outstanding as of December 31, 1996 is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------- ------------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE $ 0.56 - $ 0.75 251,073 3.1 $ 0.63 162,756 $ 0.63 $ 0.88 - $ 2.06 117,668 3.9 1.99 43,297 1.88 $ 4.31 - $10.00 729,200 4.4 5.61 142,461 5.83 --------- ------- $ 0.56 - $10.00 1,097,941 4.0 $ 4.08 348,514 $ 2.91 ========= =======
Employee Stock Purchase Plan Under the 1986 Employee Stock Purchase Plan, (the Purchase Plan), eligible employees are allowed to have salary withholdings of up to 10% of their base compensation to purchase shares of common stock at a price equal to 85% of the lower of the market value of the stock at the beginning or end of each six- II-21 month offering period, subject to an annual limitation. Stock issued under the plan was 11,975, 26,504 and 25,627 shares in 1994, 1995 and 1996 at weighted average prices of $0.66, $1.10 and $4.49, respectively. The weighted average per share fair value of the 1995 and 1996 awards was $5.19 and $5.16, respectively. At December 31, 1996, 97,319 shares were reserved for future issuances under the Purchase Plan. Additional Stock Plan Information As discussed in Note 1, the Company continues to account for its stock-based awards using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and its related interpretations. Accordingly, no compensation expense has been recognized in the financial statements for employee stock arrangements. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," (SFAS 123) requires the disclosure of pro forma net income and earnings per share had the Company adopted the fair value method as of the beginning of fiscal 1995. Under SFAS 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Company's calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions: expected life, four years from the date of grant; stock volatility, 90% in 1995 and 1996; risk free interest rates, 6.3% in 1995 and 6.0% in 1996; and no dividends during the expected term. The Company's calculations are based on a single option valuation approach and forfeitures are recognized at a historical rate of 29% per year. If the computed fair values of the 1995 and 1996 awards had been amortized to expense over the vesting period of the awards, pro forma net income would have been $4,116,000 ($0.51 per share) in 1995 and $3,576,000 ($0.43 per share) in 1996. However, the impact of outstanding nonvested stock options granted prior to 1995 has been excluded from the pro forma calculation; accordingly, the 1995 and 1996 pro forma adjustments are not indicative of future period pro forma adjustments, when the calculation will apply to all applicable stock options. 9. PROFIT-SHARING AND RETIREMENT AND BONUS PLANS No contributions were made by the Company in 1996, 1995 and 1994 to the Company's discretionary profit-sharing and retirement plan. The Company paid $523,000 and $188,000 in 1996 and 1995, respectively, under formal discretionary cash bonus plans which cover all eligible employees. No such cash bonuses were paid in 1994. 10. MAJOR CUSTOMER AND GEOGRAPHIC INFORMATION In 1996, no sales to a single customer accounted for 10% or more of total revenues. Sales to one customer represented approximately 10% of total revenues in 1995 and 11% of total revenues in 1994. At December 31, 1996, no single customer accounted for 10% or more of accounts receivable. At December 31, 1995, one customer's balance accounted for 11% of accounts receivable. II-22 Export sales constituted approximately 21%, 25% and 30% of total revenues for 1996, 1995 and 1994, respectively. The majority of these export sales have been to Asia and Europe. Transfers between geographic areas are recorded at amounts generally above cost. Identifiable assets of geographic areas represent those assets used in the Company's operations in each area. The following table summarizes selected geographic financial information of the Company at December 31. 1996 1995 1994 (IN THOUSANDS) Net revenues: United States $20,781 $13,876 $ 7,770 Japan 9,454 8,883 5,809 Korea 101 - - ------- ------- ------- $30,336 $22,759 $13,579 ======= ======= ======= Export sales: Asia $ 4,997 $ 3,020 $ 1,847 Europe 1,235 2,326 1,493 Other 128 370 708 ------- ------- ------- $ 6,360 $ 5,716 $ 4,048 ======= ======= ======= Transfers between United States and Japan eliminated in consolidation $ 4,118 $ 2,564 $ 1,529 ======= ======= ======= Operating income (loss): United States $ 5,280 $ 741 $(3,013) Japan 1,324 1,900 782 Korea (391) - - ------- ------- ------- $ 6,213 $ 2,641 $(2,231) ======= ======= ======= Identifiable assets: United States $20,805 $15,799 $ 8,391 Japan 9,040 9,368 7,395 Korea 119 - - ------- ------- ------- $29,964 $25,167 $15,786 ======= ======= ======= * * * * * II-23 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None II-24 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The section entitled "Election of Directors" appearing in the Registrant's proxy statement for the annual meeting of shareholders to be held on May 15, 1997 sets forth certain information with respect to the directors of the Registrant and is incorporated herein by reference. Certain information with respect to persons who are or may be deemed to be executive officers of the Registrant is set forth under the caption "Business-Executive Officers of the Registrant" in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION The section entitled "Executive Compensation" appearing in the Registrant's proxy statement for the annual meeting of shareholders to be held on May 15, 1997, sets forth certain information with respect to the compensation of management of the Registrant and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Election of Directors" appearing in the Registrant's proxy statement for the annual meeting of shareholders to be held on May 15, 1997, sets forth certain information with respect to the ownership of the Registrant's Common Stock and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section entitled "Transactions with Management" appearing in the Registrant's proxy statement for the annual meeting of shareholders to be held on May 15, 1997, sets forth certain information with respect to certain business relationships and transactions between the Registrant and its directors and officers and is incorporated herein by reference. III-1 PART IV ITEM 14. EXHIBITS FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: 1. Financial Statements. The following Consolidated Financial Statements of Nanometrics Incorporated and Independent Auditors' Report are filed as part of this Annual Report. Independent Auditors' Report Consolidated Balance Sheets, at December 31, 1996 and 1995 For the years ended December 31, 1996, 1995 and 1994: Consolidated Statements of Operations Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 2. Financial Statements Schedules. The following consolidated financial statement schedules of Nanometrics Incorporated are filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of Nanometrics Incorporated. Financial Statement Schedules for the years ended December 31, 1996, 1995 and 1994. Schedule Page - -------- ---- II - Valuation and Qualifying Accounts .............. S-1 Schedules not filed herein are omitted because of the absence of conditions under which they are required or because the information called for is shown in the consolidated financial statements or notes hereto. (b) Reports on Form 8-K: None IV-1
3. Exhibits. 3.1.(1) Restated and Amended Articles of Incorporation of Registrant filed July 7, 1982. 3.2.(1) Certificate of Amendment of Articles of Incorporation filed January 31, 1983. 3.3.(1) Certificate of Amendment of Articles of Incorporation filed July 28, 1983. 3.4.(1) Certificate of Amendment of Certificate of Determination of Preferences of Series B Common Stock filed September 13, 1983. 3.5.(1) Certificate of Amendment of Articles of Incorporation filed September 13, 1983. 10.1(1) 1981 Incentive Stock Option Plan, with form of Stock Option Agreement. 10.2(1) Employee's Profit Sharing Plan, as amended. 10.3(1) Purchase Agreement dated November 9, 1982 between Registrant and Warner-Lambert Technologies, Inc. and letter Agreement dated November 9, 1982 between Registrant, Warner-Lambert Technologies, Inc., Vincent J. Coates and Leonard Welter. 10.4(2) Amendment to and Restatement of Redemption Agreement dated March 4, 1993 between Vincent J. Coates and Registrant. 10.6(3) 1991 Stock Option Plan. 10.7(4) 1991 Director Option Plan. 21 Subsidiaries of Registrant. 23 Independent Auditors' Consent (See page IV-4). 24 Power of Attorney (see page V-1). 27 Financial Data Schedule
IV-2 1) Incorporated by reference to exhibits filed with Registrant's Registration Statement on Form S-1 (File No. 2-93949), which became effective November 28, 1984. 2) Incorporated by reference to exhibit 10.10 filed with Registrant's Form 10-K dated March 29, 1993. 3) Incorporated by reference to exhibit 4.1 filed with Registrant's Registration Statement on Form S-8 (file number 33-43913) filed on November 14, 1991. 4) Incorporated by reference to exhibit 4.2 filed with Registrant's Registration Statement on Form S-8 (file number 33-43913) filed on November 14, 1991. IV-3 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33- 8518, 33-8519 and 33-43913 of Nanometrics Incorporated on Form S-8 of our report dated February 19, 1997, appearing in this Annual Report on Form 10-K of Nanometrics Incorporated for the year ended December 31, 1996. DELOITTE & TOUCHE LLP San Jose, California March 24, 1997 IV-4 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and 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 Date: March 27, 1997 By: /s/VINCENT J. COATES Vincent J. Coates, Chairman and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Vincent J. Coates, jointly and severally, his attorneys-in-fact, each with full power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated:
Signature Title Date - --------- ----- ---- /s/VINCENT J. COATES Chairman of the Board and March 27, 1997 - ----------------------- Chief Executive Officer (Vincent J. Coates) (Principal Executive Officer) /s/PAUL B. NOLAN Chief Financial Officer March 27, 1997 - ----------------------- (Principal Accounting and (Paul B. Nolan) Financial Officer) /s/JOHN D. HEATON Director, President and March 27, 1997 - ----------------------- Chief Operating Officer (John D. Heaton) /s/NORMAN V. COATES Director March 27, 1997 - ----------------------- (Norman V. Coates) /s/NATHANIEL BRENNER Director March 27, 1997 - ----------------------- (Nathaniel Brenner) /s/KANEGI NAGAI Director March 27, 1997 - ----------------------- (Kanegi Nagai) /s/CLIFFORD F. SMEDLEY Director March 27, 1997 - ----------------------- (Clifford F. Smedley)
V-1 SCHEDULE II NANOMETRICS INCORPORATED VALUATION AND QUALIFYING ACCOUNTS Allowance for Doubtful Accounts
Balance at Charged To Deductions- Balance beginning costs and write-offs at end Year Ended of period expenses of accounts* of period ---------- ------------ ------------- --------- December 31, 1996... $380,000 $ 39,000 $ 0 $419,000 December 31, 1995... $270,000 $110,000 $ 0 $380,000 December 31, 1994... $260,000 $527,000 $517,000 $270,000
* Includes recoveries of past due accounts previously written off. S-1 EX-21 2 SUBSIDIARIES OF REGISTRANT EXHIBIT 21 SUBSIDIARIES OF REGISTRANT Nanometrics Japan Ltd. Nanometrics Korea Ltd. EX-27 3 FINANCIAL DATA SCHEDULE
5 0000704532 NANOMETRICS INC. 1,000 12-MOS DEC-31-1996 OCT-01-1996 DEC-31-1996 1,725 6,657 11,519 419 5,078 27,090 2,600 0 29,964 4,477 3,296 0 0 11,833 10,227 29,964 24,603 30,336 10,109 14,197 9,926 0 0 6,657 2,664 3,993 0 0 0 3,993 .47 .47
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