-----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, ON67xOeX/YULlpyzXw1CoABs1IeGHIkxnQaY5QiXVJ4mEMt+dwpGP8OTG+JwN1Lv eWv86JHU+jQRWrHQbnVQwg== 0000912057-00-023757.txt : 20000515 0000912057-00-023757.hdr.sgml : 20000515 ACCESSION NUMBER: 0000912057-00-023757 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTEGRATED MEASUREMENT SYSTEMS INC /OR/ CENTRAL INDEX KEY: 0000945441 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 930840631 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26274 FILM NUMBER: 628120 BUSINESS ADDRESS: STREET 1: 9525 SW GEMINI DR CITY: BEAVERTON STATE: OR ZIP: 97008 BUSINESS PHONE: 5036267117 MAIL ADDRESS: STREET 1: 9525 SW GEMINI DR CITY: BEAVERTON STATE: OR ZIP: 97008 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 - ------------------------------------------------------------------------------ FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 2000 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-26274 - ------------------------------------------------------------------------------ INTEGRATED MEASUREMENT SYSTEMS, INC. (Exact name of registrant as specified in its charter) OREGON 93-0840631 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 9525 S.W. GEMINI DRIVE, BEAVERTON, OR 97008 (Address of principal executive offices) (zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (503) 626-7117 - ------------------------------------------------------------------------------ NO CHANGE Former name, former address, and former fiscal year, if changed since last report 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 April 30, 2000, there were 7,808,300 shares of Integrated Measurement Systems, Inc. common stock, $0.01 par value, outstanding. (Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.) INTEGRATED MEASUREMENT SYSTEMS, INC. INDEX TO FORM 10-Q
PART 1 FINANCIAL INFORMATION PAGE NUMBER Item 1. Financial Statements Consolidated Statements of Operations for the three months ended March 31, 2000 and 1999 3 Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 4 Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999 5 Notes to the Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 8-11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. 13 SIGNATURES 14
2 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INTEGRATED MEASUREMENTS SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
Three Months Ended March 31, 2000 1999 ---- ---- SALES: Systems $ 11,581 $ 7,548 Software 1,728 1,363 Service 2,413 2,311 --------- -------- NET SALES 15,722 11,222 --------- -------- COST OF SALES: Systems 4,860 3,274 Software 320 152 Service 1,066 1,005 --------- -------- Total cost of sales 6,246 4,431 --------- -------- GROSS MARGIN 9,476 6,791 OPERATING EXPENSES: Research, development and engineering 2,245 1,928 Selling, general and administrative 5,035 4,333 --------- -------- Total operating expenses 7,280 6,261 --------- -------- OPERATING INCOME 2,196 530 Other income, net 285 128 --------- -------- Income before income taxes 2,481 658 Provision for income taxes 794 224 --------- -------- NET INCOME $ 1,687 $ 434 ========= ======== BASIC EARNINGS PER SHARE $ 0.22 $ 0.06 ========= ======== DILUTED EARNINGS PER SHARE $ 0.20 $ 0.06 ========= ======== Weighted average number of common shares outstanding for basic earnings per share 7,720 7,448 Incremental shares from assumed conversion of employee stock options 840 290 --------- -------- Adjusted weighted average shares for diluted earnings per share 8,560 7,738 ========= ========
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS 3 INTEGRATED MEASUREMENT SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)
As of As of March 31, December 31, 2000 1999 ---- ---- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 15,555 $ 7,507 Short-term investments 8,531 15,117 Trade receivables, less allowance for doubtful accounts of $255 and $257 19,114 13,956 Inventories, net 12,830 13,176 Deferred income taxes 2,662 2,662 Prepaid expenses and other current assets 3,722 3,453 --------- -------- Total current assets 62,414 55,871 PROPERTY, PLANT AND EQUIPMENT, NET 10,311 10,737 SERVICE SPARE PARTS, NET 3,005 2,986 SOFTWARE DEVELOPMENT COSTS, NET 3,844 3,915 OTHER ASSETS, NET 784 915 --------- -------- Total assets $ 80,358 $ 74,424 ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 2,320 $ 1,512 Payable to Cadence, net 111 27 Accrued compensation 2,089 2,608 Accrued warranty 1,393 1,182 Deferred revenue 3,178 2,193 Other current liabilities 1,156 947 Income taxes payable 997 818 Capital lease obligations - current 151 149 --------- -------- Total current liabilities 11,395 9,436 DEFERRED INCOME TAXES 1,390 1,390 CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 174 213 DEFERRED COMPENSATION 1,664 1,565 SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value, authorized 10,000,000 shares; none issued and outstanding - - Common stock, $.01 par value, authorized 15,000,000 shares; issued and outstanding 7,803,057 and 7,588,600 78 76 Additional paid-in capital 44,399 42,173 Retained earnings 21,258 19,571 --------- -------- Total shareholders' equity 65,735 61,820 --------- -------- Total liabilities and shareholders' equity $ 80,358 $ 74,424 ========= ========
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS. 4 INTEGRATED MEASUREMENT SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended March 31, 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,687 $ 434 Adjustments to reconcile net income to Cash provided by operating activities: Depreciation and amortization 1,660 1,410 Deferred compensation 95 7 Net change in receivable from/payable to Cadence 84 (91) (Increase) decrease in trade receivables (5,158) 818 Decrease (increase) in inventories 346 (471) Increase in other current assets (265) (274) Net change in income taxes payable or receivable 817 -- Increase in deferred revenue 985 916 Increase (decrease) in accounts payable and accrued liabilities 709 (633) ---------- --------- Net cash provided by operating activities 960 2,116 ------------ ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Sale of short-term investments 6,586 2,122 Purchases of equipment & service spare parts (666) (699) Software development costs (385) (454) ---------- ------- Net cash provided by investing activities 5,535 969 ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments under capital leases (37) (96) Proceeds from employee stock plans 1,590 228 ---------- ---------- Net cash provided by financing activities 1,553 132 ---------- ---------- Net increase in cash and cash equivalents 8,048 3,217 Beginning cash and cash equivalents balance 7,507 3,379 ---------- ---------- Ending cash and cash equivalents balance $ 15,555 $ 6,596 ========== ========== SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: Tax benefit from Cadence and IMS stock options $ 638 $ -- ========== ========== OTHER SUPPLEMENTAL CASH FLOW DISCLOSURES: Income taxes (paid) refunded $ (106) $ 103 ============ ========== Interest paid $ (8) $ (14) ========== ==========
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS. 5 INTEGRATED MEASUREMENT SYSTEMS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All numerical references are in thousands, except share data) (Unaudited) (1) BASIS OF PRESENTATION The interim financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the management of the Company believes that the disclosures are adequate to make the information presented not misleading. Interim financial statements are by necessity somewhat tentative; judgments are used to estimate interim amounts for items that are normally determinable only on an annual basis. The financial information as of December 31, 1999 is derived from the Company's audited financial statements. The interim period information presented herein includes normally recurring adjustments, which are, in the opinion of the management of the Company, only necessary for a fair statement of the results of the respective interim periods. Results of operations for interim periods are not necessarily indicative of results to be expected for an entire year. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. (2) INVENTORIES Inventories, consisting principally of computer hardware, electronic sub-assemblies and test equipment, are valued at the lower of cost (first-in, first-out) or market. Costs used for inventory valuation purposes include material, labor and manufacturing overhead.
March 31, December 31, 2000 1999 ---- ---- Raw materials. . . . . . . . . . . . . . . . . . $ 7,453 $ 7,443 Work-in-progress . . . . . . . . . . . . . . . . 2,331 2,184 Finished goods . . . . . . . . . . . . . . . . 3,046 3,549 --------- --------- $ 12,830 $ 13,176 ========= =========
(3) EARNINGS PER SHARE Earnings per share amounts presented in the accompanying Statements of Income have been calculated in accordance with Statement of Accounting Standards No. 128, "Earnings per Share." For the three month periods ended March 31, 2000 and 1999, 29,750 and 278,125 outstanding common stock options, respectively, were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the common stock. 6 (4) SEGMENT DISCLOSURES Disclosures about the Company's business segments, as required by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," are as follows: FOR THE THREE MONTHS ENDED MARCH 31, 2000
TEST SYSTEMS VIRTUAL TEST CONSOLIDATED -------------- -------------- ---------------- Segment net sales $ 14,778 $ 944 $ 15,722 Segment operating income (loss) $ 2,552 $ (356) $ 2,196
FOR THE THREE MONTHS ENDED MARCH 31, 1999
TEST SYSTEMS VIRTUAL TEST CONSOLIDATED -------------- -------------- ---------------- Segment net sales $ 10,259 $ 963 $ 11,222 Segment operating income (loss) $ 644 $ (114) $ 530
(5) REVENUE RECOGNITION Revenue from systems sales and software licenses is generally recognized as the product ships and when no significant obligations remain. Contract service and support revenues billed in advance are recorded as deferred revenue and recognized ratably over the contractual period as the services and support are performed. Revenue from other services, such as consulting and training, is recognized as the related services are performed or when certain milestones are achieved. In December 1999, the Securities and Exchange Commission released Staff Accounting Bulletin, or SAB, No. 101 "Revenue Recognition in Financial Statements." SAB 101 provides guidance for public companies on the recognition, presentation and disclosure of revenue in their financial statements. The semiconductor equipment industry and the accounting profession are currently evaluating SAB 101 and the practical effects of its implementation are still uncertain. The Company has historically recognized revenue at the time its products are shipped which is the predominant method used by companies in the semiconductor equipment industry. SAB 101 would require the Company to recognize revenue at the time a shipped product has been accepted by a customer. This change in the Company's revenue recognition policy would have to be reported as a change in accounting principles effective January 1, 2000. Implementation of this change has been deferred by the SEC to the second quarter of 2000. The change may result in the restatement of the Company's financial statements for the quarter ended March 31, 2000 to record a significant non-operating charge against net income reflecting the deferral of revenue for shipments of the Company's products previously reported as revenue in 1999 which had not been accepted by customers as of December 31, 1999. This deferred revenue would be recognized in subsequent periods when formal customer acceptance has been obtained. While the Company is still evaluating the implementation of SAB 101, the Company believes it will affect the timing and predictability of ongoing revenue recognition and may require a portion of the Company's quarterly and annual revenue in 2000 and beyond to be deferred. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS QUARTERLY REPORT, AS WELL AS THE FINANCIAL STATEMENTS AND THE NOTES THERETO, AND THE MANAGEMENT DISCUSSION AND ANALYSIS PRESENTED IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999. THIS QUARTERLY REPORT, INCLUDING THE FOLLOWING DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTAINS CERTAIN STATEMENTS, TREND ANALYSIS AND OTHER INFORMATION THAT CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, AS AMENDED, WHICH MAY INVOLVE RISKS AND UNCERTAINTIES. SUCH FORWARD LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, STATEMENTS INCLUDING THE WORDS "ANTICIPATE," "BELIEVE," "PLAN," "ESTIMATE," "EXPECT," "INTEND" AND OTHER SIMILAR EXPRESSIONS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN DUE TO NUMEROUS FACTORS INCLUDING, BUT NOT LIMITED TO, THOSE DISCUSSED IN THE FOLLOWING DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, AS WELL AS THOSE DISCUSSED ELSEWHERE HEREIN AND IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999. OVERVIEW We were founded in 1983 to design and develop integrated circuit validation systems to test and measure complex electronic devices at the prototype stage. We were acquired by Valid Logic Systems, Incorporated in 1989 and then by Cadence in 1991 as a result of the merger of Valid Logic into Cadence. We were operated as a separate subsidiary of Cadence. In July 1995, we completed our initial public offering of common stock and in February 1997, completed our secondary public offering of our common stock. Cadence sold shares in each of those offerings, and as of March 31, 2000, continues to own approximately 33% of our common stock. Our net sales are comprised of validation systems sales, software sales, including validation systems software and our virtual test software, and service sales, which consist primarily of revenue derived from maintenance and consulting contracts. Revenue from validation systems sales and software licenses is generally recognized as the product ships and when no significant obligations remain. Contract service and support revenues billed in advance are recorded as deferred revenue and recognized ratably over the contractual period as the services and support are performed. Revenue from other services, such as consulting and training, is recognized as the related services are performed or when specified milestones are achieved. In December 1999, the Securities and Exchange Commission released Staff Accounting Bulletin, or SAB, No. 101 "Revenue Recognition in Financial Statements." SAB 101 provides guidance for public companies on the recognition, presentation and disclosure of revenue in their financial statements. The semiconductor equipment industry and the accounting profession are currently evaluating SAB 101 and the practical effects of its implementation are still uncertain. We have historically recognized revenue at the time our products are shipped which is the predominant method used by companies in the semiconductor equipment industry. SAB 101 would require us to recognize revenue at the time a shipped product has been accepted by a customer. This change in our revenue recognition policy would have to be reported as a change in accounting principles effective January 1, 2000. Implementation of this change has been deferred by the SEC to the second quarter of 2000. The change may result in the restatement of our financial statements for the quarter ended March 31, 2000 to record a significant non-operating charge against net income reflecting the deferral of revenue for shipments of our products previously reported as revenue in 1999 which had not been accepted by customers as of December 31, 1999. This deferred revenue would be recognized in subsequent periods when formal customer acceptance has been obtained. While we are still evaluating the implementation of SAB 101, we believe it will affect the timing and predictability of ongoing revenue recognition and may require a portion of our quarterly and annual revenue in 2000 and beyond to be deferred. We derive a substantial portion of our net sales from the sale of validation systems which typically range in price from $200,000 to $1.8 million per unit and may be priced as high as $2.3 million for a single unit. As a result, the receipt of a single order, and the timing of the receipt and shipment of a single order can have a significant impact on our net sales and results of operations for a particular period. In addition, a substantial portion of our net sales are typically realized during the last few weeks of each quarter. A significant portion of our operating expenses are 8 relatively fixed in nature, and planned expenditures are based in part on anticipated orders. As a result, we may be unable to reduce such expenses in a particular period if our sales goals for that period are not met. The inability to reduce spending quickly enough to compensate for any revenue shortfall would magnify the adverse impact of such revenue shortfall on our results of operations. RESULTS OF OPERATIONS NET SALES Net sales increased $4.5 million, or 40%, from $11.2 million for the three months ended March 31, 1999 to $15.7 million for the three months ended March 31, 2000. Sales to Intel accounted for 45% of net sales, and sales to National Semiconductor accounted for 24% of net sales for the three months ended March 31, 1999. Sales to Intel accounted for 45% of net sales, and sales to National Semiconductor accounted for 12% of net sales for the three months ended March 31, 2000. No other customer accounted for more than 10% of net sales during the three month periods ended March 31, 1999 and 2000. International sales accounted for 20% of net sales for the three months ended March 31, 1999, and 15% for the three months ended March 31, 2000. Systems sales increased $4.1 million, or 53%, from $7.5 million for the three months ended March 31, 1999, to $11.6 million for the three months ended March 31, 2000. This increase was almost entirely the result of higher sales from Vanguard logic validation systems, Electra MX mixed-signal validation systems and Orion memory validation systems, partially offset by lower sales of ATS and XTS logic validation systems. Software sales increased $365,000, or 27%, from $1.4 million for the three months ended March 31, 1999 to $1.7 million for the three months ended March 31, 2000. Systems software sales increased $347,000, or 63%, from $551,000 for the three months ended March 31, 1999, to $898,000 for the three months ended March 31, 2000. This increase in systems software sales was the direct result of increased sales of Vanguard systems software. Virtual test software sales remained relatively constant at $812,000 for the three months ended March 31, 1999 and $830,000 for the three months ended March 31, 2000. Service sales increased $102,000, or 4%, from $2.3 million for the three months ended March 31, 1999, to $2.4 million for the three months ended March 31, 2000. Service sales have grown slower than systems sales from 1999 to 2000 as a result of an increase in our standard warranty period for our systems, which has delayed the sale of maintenance contracts covering new systems shipped during 1999 and the first quarter of 2000. In the fourth quarter of 1998, we changed our standard warranty period from 90 days to 12 months and from 12 months to 24 months for Intel. GROSS MARGIN Gross margin was $6.8 million, or 61% of net sales for the three months ended March 31, 1999, and $9.5 million, or 60% of net sales for the three months ended March 31, 2000. The gross margin from sales of our validation systems was 57% of systems sales for the three months ended March 31, 1999, and 58% of systems sales for the three months ended March 31, 2000. Software sales yielded gross margin of 89% of software sales for the three months ended March 31, 1999, and 81% of software sales for the three months ended March 31, 2000. Software gross margin was lower in the first quarter of 2000 due primarily to increased amortization of capitalized software development costs. Service gross margin declined slightly from 57% of service sales for the three months ended March 31, 1999, to 56% of service sales for the three months ended March 31, 2000. OPERATING EXPENSES Research, development and engineering or R&D, expenses consist of employee costs, costs of materials consumed, depreciation of equipment and engineering related costs. R&D expenses increased from $1.9 million for the three months ended March 31, 1999, to $2.2 million for the three months ended March 31, 2000. R&D expenses amounted to 17% of net sales for the three months ended March 31, 1999, compared to 14% for the three months ended March 31, 2000. The increase in R&D expenses primarily reflects increased spending on R&D activities related to the enhancement of the Orion memory validation systems. In addition, the amount we capitalized for 9 software development costs declined from $454,000 for the three months ended March 31, 1999, to $385,000 for the three months ended March 31, 2000. The decrease in R&D expenses as a percentage of net sales was directly attributable to the increase in net sales. Selling, general and administrative, or SG&A, expenses consist of salaries and commissions of sales personnel, marketing expenses, salaries of administrative personnel and other general administrative expenses. SG&A expenses increased from $4.3 million for the three months ended March 31, 1999, to $5.0 million for the three months ended March 31, 2000. As a percentage of net sales, SG&A expenses decreased from 39% for the three months ended March 31, 1999, to 32% for the three months ended March 31, 2000. The increase in SG&A expenses reflects payment of sales commissions on higher sales volumes and payment of employee performance bonuses attributable to our achievement of specified operating income targets. The decrease in SG&A expenses as a percentage of net sales resulted directly from the increase in net sales. OTHER INCOME, NET Other income, net was $128,000 for the three months ended March 31, 1999 and $285,000 for the three months ended March 31, 2000. The increase in other income, net was due to the impact of higher average cash and investment balances on interest income. PROVISION FOR INCOME TAXES Our effective tax rate was 34% for the three months ended March 31, 1999, and 32% for the three months ended March 31, 2000. Our income tax position includes the effects of available tax benefits in certain countries where we do business, benefits for available net operating loss carryforwards, and tax expense for subsidiaries with pre-tax income. While management currently anticipates our effective tax rate to be approximately 32% for the year 2000, this rate is very sensitive to the geographic and product mix of our net sales, and therefore could be higher or lower in the future depending upon actual net sales realized. NET INCOME As a result of the various factors discussed above, net income increased from $434,000 or $0.06 per diluted share for the three months ended March 31, 1999, to $1.7 million or $0.20 per diluted share for the three months ended March 31, 2000. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2000, our principal sources of liquidity consisted of cash, cash equivalents and short-term investments of approximately $24.1 million, and funds available under an existing bank line of credit of $10.0 million. Cash, cash equivalents and short-term investments increased by $1.5 million from December 31, 1999. Since 1988, we have relied on cash generated from operations and cash raised through public stock offerings as our principle source of liquidity. OPERATING ACTIVITIES Our net cash flows from operating activities include cash received from customers, payments to suppliers, payments to employees and interest received and paid. Net cash provided by operating activities amounted to $2.1 million for the three months ended March 31, 1999 and $960,000 for the three months ended March 31, 2000. Trade receivables amounted to $14.0 million at December 31, 1999 and $19.1 million at March 31, 2000. This increase is due to the normal seasonal increase in renewals of annual maintenance contracts by customers and very strong 10 international sales in the fourth quarter of 1999. International customers typically pay slower. Inventories decreased from $13.2 million at December 31, 1999 to $12.8 million at March 31, 2000. This decrease was primarily due to the combination of increased sales volume and focused inventory reduction programs. Deferred revenue increased from $2.2 million at December 31, 1999, to $3.2 million at March 31, 2000 as a result of the maintenance contract renewals. INVESTING ACTIVITIES Investing activities provided net cash of $969,000 for the three months ended March 31, 1999 and $5.5 million for the same period in 2000. The increased level of net cash provided by investing activities for the three months ended March 31, 2000 was directly attributable to a greater portion of our investments being in debt securities with original maturities of three months or less, or cash equivalents, than at December 31, 1999. FINANCING ACTIVITIES Financing activities provided net cash of $132,000 for the three months ended March 31, 1999 and $1.6 million for the three months ended March 31, 2000. Cash used for payments of certain capital leases obtained for computers and equipment used in operations was $96,000 and $37,000 for the respective periods ended March 31, 1999 and 2000. We received $228,000 for the quarter ended March 31, 1999 and $1.6 million for the same period in 2000 from the issuance of stock under our employee stock option and stock purchase plans. We realized reductions in current income tax liabilities of $638,000 in the three months ended March 31, 2000, resulting from the benefit of tax deductions of employee gains upon exercise of Cadence and our employee stock options. During the same period in 1999 no such benefits were recorded. The compensation for tax purposes associated with stock option exercises are typically not treated as expense for financial reporting purposes, and the exercise of Cadence stock options does not increase the number of shares of our common stock outstanding. The tax benefits available from the stock option deduction may decrease in the future as employee holdings of Cadence stock options decline due to option exercises and cancellations. Additionally, the timing and magnitude of such decrease in tax benefits, if realized, is uncertain as the number of employee stock options which are exercised, and the amount of gains realized upon exercise, will be determined by, among other factors, fluctuations in the market values of Cadence common stock and our common stock. We have obtained a $10.0 million revolving line of credit with U.S. National Bank of Oregon, which is available for general corporate purposes as needed. Under the agreement, we can borrow, with interest at the bank's prime lending rate, or if lower, at certain margins above banker's acceptance or interbank offering rates. There have been no borrowings against the line of credit to date. The term of the agreement ends April 30, 2001. We believe that existing funds, funds expected to be generated by operating activities, and the available line of credit, will satisfy our anticipated working capital and other general corporate purposes through at least the next twelve months. We currently have no significant capital commitments other than commitments under facility operating leases and vendor contracts for development services, consulting services and parts. From time to time, we may consider the acquisition of complementary businesses, products or technologies. Presently, there are no significant understandings, commitments or agreements with respect to any such acquisitions. Any such transactions, if consummated, may require additional financing. No assurance can be given that additional financing will be available or that, if available, such financing will be obtainable on terms favorable to us. YEAR 2000 During 1999 and 1998, we developed and executed our Year 2000 Readiness Plan which included steps to monitor, test and implement corrective measures for our critical vendors and suppliers, products and information systems. We estimate the costs incurred during 1999 and 1998, including payments to third parties and estimates of internal costs, for developing and implementing our Year 2000 readiness plan were less than $300,000 and $200,000, respectively. To date, we have not been impacted by any material Year 2000 issues. 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK The Company's exposure to market risk for changes in interest rates relate primarily to its investment portfolio. The Company mitigates its risk by diversifying its investments among high credit quality securities in accordance with the Company's investment policy. As of March 31, 2000, the Company's investment portfolio includes marketable debt securities of $19.2 million. These securities are subject to interest rate risk, and will decline in value if the interest rates increase. Due to the short duration of the Company's investment portfolio, an immediate 10 percent increase in interest rates would not have a material effect on the Company's financial condition or the results of its operations. FOREIGN CURRENCY EXCHANGE RATE RISK The Euro is the functional currency of the Company's subsidiaries in France, Germany and Switzerland. The Yen is the functional currency of the Company's subsidiary in Japan. The Company does maintain cash balances denominated in currencies other than the U.S. Dollar in order to meet minimum operating requirements of its foreign subsidiaries. The Company has limited involvement with derivative financial instruments and does not use them for trading purposes. Derivatives are used to manage well-defined foreign currency risks. The Company enters into forward exchange contracts to hedge the value of recorded short-term receivables and payables denominated in a foreign currency. Accordingly, the impact of exchange rates on the forward contracts will be substantially offset by the impact of such changes on the underlying transactions. The effect of an immediate 10 percent change in exchange rates on the forward exchange contracts and the underlying hedged positions denominated in foreign currencies would not be material to the Company's financial position or the results of its operations. 12 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (exhibit reference numbers refer to Item 601 of Regulation S-K) 27. Financial Data Schedule (b) Reports on Form 8-K: No report on Form 8-K was filed during the quarter ended March 31, 2000. 13 SIGNATURES 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 on May 12, 2000. INTEGRATED MEASUREMENT SYSTEMS, INC. (Registrant) /s/ Fred Hall ------------------------------------ Fred Hall Chief Financial Officer (on behalf of the Registrant and as Principal Financial Officer) 14 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INCOME STATEMENT FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2000, AND THE BALANCE SHEET AS OF MARCH 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 15,555 8,531 19,369 255 12,830 62,414 25,794 15,483 80,358 11,395 174 0 0 78 65,657 80,358 13,309 15,722 5,180 6,246 7,280 0 8 2,481 794 1,687 0 0 0 1,687 0.22 0.20
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