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 quarterly period ended March 31, 2001 or
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Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______________ to _______________
Commission file number 0-13470
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NANOMETRICS INCORPORATED
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(Exact name of registrant as specified in its charter)
California 94-2276314
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1550 Buckeye Drive, Milpitas, CA 95035
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 435-9600
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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
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At April 10, 2001 there were 11,630,986 shares of common stock, no par value,
issued and outstanding.
NANOMETRICS INCORPORATED
INDEX
Part I. Financial Information Page
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2001 and December 31, 2000 ....................... 3
Condensed Consolidated Statements of Income -
Three months ended March 31, 2001 and 2000 ............... 4
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 2001 and 2000 ............... 5
Notes to Condensed Consolidated Financial Statements ..... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............. 8
Item 3. Quantitative and Qualitative Disclosures
about Market Risk .......................................... 9
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K ........................... 10
Signatures ................................................................ 11
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share amounts)
March 31, December 31,
2001 2000
(Unaudited)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,957 $ 16,934
Short-term investments 61,131 52,854
Accounts receivable, net of
allowances of $415 and $425 12,462 14,319
Inventories 16,315 15,753
Deferred income taxes 2,405 2,760
Prepaid expenses and other 2,164 3,351
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Total current assets 102,434 105,971
PROPERTY, PLANT AND EQUIPMENT, Net 39,561 37,223
DEFERRED INCOME TAXES 229 227
OTHER ASSETS 2,840 1,375
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TOTAL $ 145,064 $ 144,796
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,973 $ 4,625
Accrued payroll and related expenses 1,746 1,610
Deferred revenue 5,255 3,015
Other current liabilities 2,957 3,049
Income taxes payable 726 331
Current portion of debt obligations 393 921
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Total current liabilities 13,050 13,551
DEBT OBLIGATIONS 3,737 4,236
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Total liabilities 16,787 17,787
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SHAREHOLDERS' EQUITY:
Common stock, no par value; 25,000,000 shares
authorized; 11,629,653 and 11,607,839 outstanding 96,202 95,929
Retained earnings 33,406 31,783
Accumulated other comprehensive loss (1,331) (703)
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Total shareholders' equity 128,277 127,009
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TOTAL $ 145,064 $ 144,796
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<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
3
NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share amounts)
(Unaudited)
Three Months Ended
March 31,
2001 2000
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NET REVENUES:
Product sales $ 12,939 $ 15,205
Service 1,486 1,111
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Total net revenues 14,425 16,316
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COSTS AND EXPENSES:
Cost of product sales 5,291 6,434
Cost of service 1,466 1,395
Research and development 2,595 1,745
Selling 2,033 2,360
General and administrative 939 999
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Total costs and expenses 12,324 12,933
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INCOME FROM OPERATIONS 2,101 3,383
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OTHER INCOME (EXPENSE):
Interest income 993 476
Interest expense (22) (21)
Other, net (409) (71)
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Total other income, net 562 384
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INCOME BEFORE INCOME TAXES 2,663 3,767
PROVISION FOR INCOME TAXES 1,040 1,502
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INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRICIPLE 1,623 2,265
CUMULATIVE EFFECT OF CHANGE IN REVENUE
RECOGNITION PRINCIPLE (SAB 101) - (1,364)
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NET INCOME $ 1,623 $ 901
============== =============
BASIC NET INCOME (LOSS) PER SHARE:
Income before cumulative effect of change in
accounting principle $ 0.14 $ 0.23
Cumulative effect of change in revenue recognition
principle (SAB 101) - (0.14)
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Net income $ 0.14 $ 0.09
============== =============
DILUTED NET INCOME (LOSS) PER SHARE:
Income before cumulative effect of change in
accounting principle $ 0.14 $ 0.21
Cumulative effect of change in revenue recognition
principle (SAB 101) - (0.13)
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Net income $ 0.14 $ 0.08
============== =============
SHARES USED IN PER SHARE COMPUTATION:
Basic 11,616 9,693
============== =============
Diluted 11,992 10,880
============== =============
<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
4
NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Three Months Ended
March 31,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,623 $ 901
Reconciliation of net income to net
cash provided by operating activities:
Depreciation and amortization 240 117
Deferred rent -- (7)
Deferred income taxes 326 29
Changes in assets and liabilities:
Accounts receivable 1,487 (1,308)
Inventories (1,277) (2,141)
Prepaid expenses and other 777 (900)
Accounts payable accrued and other current liabilities (444) 4,140
Income taxes payable 400 1,390
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Net cash provided by operating activities 3,132 2,221
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (76,866) (54,395)
Sales/maturities of short-term investments 68,589 2,865
Purchases of property, plant and equipment (2,849) (101)
Other assets (627) --
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Net cash used in investing activities (11,753) (51,631)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt obligations (574) (209)
Issuance of common stock 96 72,752
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Net cash provided by (used in) financing activities (478) 72,543
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 122 12
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NET CHANGE IN CASH AND EQUIVALENTS (8,977) 23,145
CASH AND EQUIVALENTS, beginning of period 16,934 3,442
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CASH AND EQUIVALENTS, end of period $ 7,957 $ 26,587
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 32 $ 17
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Cash paid for income taxes $ 333 $ --
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SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Common stock issued as partial proceeds in a business combination $ 214 $ --
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<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
5
NANOMETRICS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Condensed Consolidated Financial Statements
The condensed consolidated financial statements include the accounts of
Nanometrics Incorporated and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
While the quarterly consolidated financial statements are unaudited, the
financial statements included in this report reflect all adjustments (consisting
only of normal recurring adjustments) which Nanometrics considers necessary for
a fair presentation of the results of operations for the interim periods covered
and of our financial condition at the date of the interim balance sheet. The
operating results for interim periods are not necessarily indicative of the
operating results that may be expected for the entire year. The information
included in this report should be read in conjunction with the information
included in Nanometrics' 2000 Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
Note 2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following (in thousands):
March 31, December 31,
2001 2000
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Raw materials and subassemblies $ 9,784 $ 8,126
Work in process 2,728 1,434
Finished goods 3,803 6,193
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Total inventories $ 16,315 $ 15,753
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Note 3. Shareholders' Equity
Net Income Per Share - The reconciliation of the share denominator used in
the basic and diluted net income per share computations are as follows (in
thousands):
Three Months Ended
March 31,
2001 2000
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Weighted average common shares outstanding-shares
used in basic net income per share computations 11,616 9,693
Dilutive effect of common stock equivalents,
using the treasury stock method 376 1,187
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Shares used in diluted net income per share computation 11,992 10,880
======= ======
During the three months ended March 31, 2001 and 2000, Nanometrics had
common stock options outstanding which could potentially dilute basic net income
per share in the future, but were excluded from the computation of diluted net
income per share as the common stock options' exercise prices were greater than
the average market price of the common shares for the period. At March 31, 2001,
771,366 of such common stock options with a weighted average exercise price of
$33.09 per share were excluded from the diluted net income per share computation
as their exercise prices were greater than the average market price of the
common shares for the period.
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Note 4. Comprehensive Income
Comprehensive income, which consisted of net income and changes in
accumulated other comprehensive income, was $995,000 for the three months ended
March 31, 2001 compared to $934,000 for the same period in 2000.
Note 5. New Accounting Pronouncement
The Company adopted the provisions of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended, effective January 1,
2001. To the extent the Company were to enter into derivative activity, the
purpose would be to hedge its exposure to foreign currency risks or interest
rate risks. The Company intends to record changes in the fair value of
derivative instruments as a charge through the income statement because it
expects derivative activity to be infrequent. As noted, the Company is exposed
to foreign currency and interest rate risks, however, the Company does not
generally use derivative instruments to hedge its risk in those areas and, at
this time, the Company is not party to any contracts and therefore, there was no
impact from adopting SFAS No. 133.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Total net revenues for the first quarter of 2001 were $14,425,000, a
decrease of $1,891,000 or 12% from the same quarter in 2000. Product sales of
$12,939,000 decreased $2,266,000 or 15% for the first quarter of 2001 compared
to the same period in 2000 as a result of weakening demand for semiconductor
process control equipment, particularly in the U.S. and the Far East. Service
revenue of $1,486,000 increased $375,000 or 34% in the first quarter of 2001
compared to the same period in 2000 primarily due to higher spare parts sales in
the U.S.
Cost of product sales as a percentage of product sales decreased slightly
to 41% in the first quarter of 2001 from 42% in the first quarter of 2000. Cost
of service as a percentage of service revenue decreased to 99% in the first
quarter of 2001 from 126% in the first quarter of 2000 primarily as a result of
higher service sales in the U.S.
Research and development expenses for the first quarter of 2001 increased
$850,000 or 49% compared to the same period in 2000 resulting primarily from
increased headcount and related expenses for the development of new and enhanced
products.
Selling expenses for the first quarter of 2001 decreased by $327,000 or 14%
compared to the same period in 2000 primarily because of decreased commission
expenses and other expenses associated with lower sales levels.
General and administrative expenses for the first quarter of 2001 decreased
by $60,000 or 6% compared to the same period in 2000 primarily as a result of
lower spending associated with the decreased level of operations.
Total other income, net increased $178,000 or 46% during the first quarter
of 2001 compared to the same period in 2000 due primarily to higher interest
income.
The cumulative effect of change in revenue recognition principle (SAB 101)
of $1.4 million in the first quarter of 2000 is the net result of recording $2.5
million in net revenues, which were previously recorded in 1999, offset by $1.1
million in related costs and expenses.
Nanometrics' income from operations was $2,101,000 and net income was
$1,623,000 or $0.14 per diluted share in the first quarter of 2001 compared to
income from operations of $3,383,000 and net income of $901,000 or $0.08 per
diluted share in the first quarter of 2000.
Liquidity and Capital Resources
At March 31, 2001, Nanometrics had working capital of $89,384,000 compared
to $92,420,000 at December 31, 2000. The current ratio at March 31, 2001 was 7.8
to 1. We believe working capital, including cash, cash equivalents and
short-term investments of $69,088,000 will be sufficient to meet our needs at
least through the next twelve months. Operating activities for the first three
months of 2001 provided cash of $3,132,000 primarily from net income and lower
accounts receivable offset to some extent by higher inventory levels, while the
sales/maturities of short-term investments net of purchases used $8,277,000,
capital expenditures used $2,849,000 and debt repayment used $574,000.
8
Forward Looking Statements
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934. These statements involve risks and uncertainties and
actual results could differ materially as a result of a number of variables,
such as (i) customer demand for Nanometrics' products, which may be affected by
several factors including the cyclicality of the semiconductor, magnetic
recording head and flat panel display industries served by Nanometrics, patterns
of capital spending by customers, technological changes in the markets served by
Nanometrics and its customers, and market acceptance of products of both
Nanometrics and its customers, (ii) the timing, cancellation or delay of
customer orders and shipments, (iii) competition, including competitive
pressures on product prices and changes in pricing by Nanometrics' customers or
suppliers, (iv) fluctuations in foreign currency exchange rates, particularly
the Japanese yen, (v) the proportion of sales Nanometrics makes directly to its
customers versus sales through distributors and representatives, (vi) market
acceptance of new and enhanced versions of Nanometrics' products, (vii) the
timing of new product announcements and releases of products by Nanometrics or
its competitors, including our ability to design, introduce and manufacture new
products on a timely and cost effective basis, (viii) the size and timing of
acquisitions of businesses, products or technologies and fluctuations in the
availability and cost of components and subassemblies of Nanometrics' products,
and (ix) the factors set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Risk Factors" in the 2000 Annual
Report on Form 10-K. Nanometrics undertakes no obligation to update forward
looking statements made in this report to reflect events or circumstances after
the date of this report or to update reasons why actual results could differ
from those anticipated in such forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, which include changes in foreign
currency exchange rates and interest rates. We do not use derivative financial
instruments. Instead, we actively manage the balances of current assets and
liabilities denominated in foreign currencies to minimize currency fluctuation
risk. As a result, a hypothetical 10% change in the foreign currency exchange
rates at March 31, 2001 would not have had a material impact on our results of
operations. Our investments in marketable securities are subject to interest
rate risk but due to the short-term nature of these investments, interest rate
changes would not have had a material impact on their value at March 31, 2001.
We also have fixed rate yen denominated debt obligations in Japan that have no
interest rate risk. At March 31, 2001, our total debt obligation was $4,130,000
with a long-term portion of $3,737,000. A hypothetical 10% change in interest
rates at March 31, 2001 would not have had a material impact on our results of
operations.
9
NANOMETRICS INCORPORATED
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
None
B. Reports on Form 8-K.
None
10
NANOMETRICS INCORPORATED
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.
NANOMETRICS INCORPORATED
(Registrant)
/s/ Vincent J. Coates
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Vincent J. Coates
Chairman of the Board
/s/ John Heaton
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John Heaton
Chief Executive Officer
/s/ Paul B. Nolan
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Paul B. Nolan
Chief Financial Officer
Dated: May 8, 2001
11