SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For the quarterly period ended June 30, 2001
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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
---------------------------- -------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1550 Buckeye Drive, Milpitas, CA 95035
- ------------------------------------ -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 435-9600
--------------------
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 July 16, 2001 there were 11,683,480 shares of common stock, no par value,
issued and outstanding.
1
NANOMETRICS INCORPORATED
INDEX
Part I. Financial Information Page
----
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 2001 and December 31, 2000 .............................3
Consolidated Statements of Income -
Three months and six months ended
June 30, 2001 and 2000 ..........................................4
Consolidated Statements of Cash Flows -
Six months ended June 30, 2001 and 2000 .........................6
Notes to Consolidated Financial
Statements ......................................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ...................9
Item 3. Quantitative and Qualitative Disclosures
about Market Risk ..............................................10
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders ............11
Item 6. Exhibits and Reports on Form 8-K ...............................11
Signatures ..................................................................12
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
NANOMETRICS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share amounts)
June 30, December 31,
ASSETS 2001 2000
(Unaudited)
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 10,697 $ 16,934
Short-term investments 49,375 52,854
Accounts receivable, net of
allowances of $415 and $418 13,396 14,319
Inventories 18,710 15,753
Deferred income taxes 3,894 2,760
Prepaid expenses and other 1,800 3,351
--------- ---------
Total current assets 97,872 105,971
PROPERTY, PLANT AND EQUIPMENT, Net 43,400 37,223
DEFERRED INCOME TAXES 222 227
OTHER ASSETS 4,586 1,375
--------- ---------
TOTAL $ 146,080 $ 144,796
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,409 $ 4,625
Accrued payroll and related expenses 1,268 1,610
Deferred revenue 3,436 3,015
Other current liabilities 2,467 3,049
Income taxes payable 830 331
Current portion of debt obligations 398 921
--------- ---------
Total current liabilities 11,808 13,551
DEBT OBLIGATIONS 3,682 4,236
--------- ---------
Total liabilities 15,490 17,787
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock, no par value; 25,000,000 shares
authorized; 11,669,140 and 11,607,839 outstanding 96,768 95,929
Retained earnings 34,941 31,783
Accumulated other comprehensive loss (1,119) (703)
--------- ---------
Total shareholders' equity 130,590 127,009
--------- ---------
TOTAL $ 146,080 $ 144,796
========= =========
<FN>
See Notes to Consolidated Financial Statements
</FN>
3
NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
-------- -------- -------- --------
NET REVENUES:
Product sales $ 13,531 $ 14,926 $ 26,470 $ 30,131
Service 1,262 1,764 2,748 2,875
-------- -------- -------- --------
Total net revenues 14,793 16,690 29,218 33,006
-------- ------- -------- --------
COSTS AND EXPENSES:
Cost of product sales 5,661 5,878 10,952 12,312
Cost of service 1,345 1,627 2,811 3,022
Research and development 2,724 2,374 5,319 4,119
Selling 2,185 2,395 4,218 4,755
General and administrative 1,065 1,007 2,004 2,006
-------- -------- -------- --------
Total costs and expenses 12,980 13,281 25,304 26,214
-------- -------- -------- --------
INCOME FROM OPERATIONS 1,813 3,409 3,914 6,792
OTHER INCOME (EXPENSE):
Interest income 704 1,415 1,697 1,891
Interest expense (18) (20) (40) (41)
Other, net (1) 128 (410) 57
-------- -------- -------- --------
Total other income, net 685 1,523 1,247 1,907
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 2,498 4,932 5,161 8,699
PROVISION FOR INCOME TAXES 961 1,982 2,001 3,484
-------- -------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 1,537 2,950 3,160 5,215
CUMULATIVE EFFECT OF CHANGE IN REVE-
NUE RECOGNITION PRINCIPLE (SAB 101) - - - (1,364)
-------- -------- -------- --------
NET INCOME $ 1,537 $ 2,950 $ 3,160 $ 3,851
======== ======== ======== ========
BASIC NET INCOME (LOSS) PER SHARE:
Income before cumulative effect of change
in accounting principle $ 0.13 $ 0.26 $ 0.27 $ 0.50
Cumulative effect of change in revenue
recognition principle (SAB 101) - - - (0.13)
-------- -------- -------- --------
Net income $ 0.13 $ 0.26 $ 0.27 $ 0.37
======== ======== ======== ========
4
DILUTED NET INCOME (LOSS) PER SHARE:
Income before cumulative effect of change
in accounting principle $ 0.13 $ 0.24 $ 0.26 $ 0.45
Cumulative effect of change in revenue
recognition principle (SAB 101) - - - (0.12)
-------- -------- -------- --------
Net income $ 0.13 $ 0.24 $ 0.26 $ 0.33
======== ======== ======== ========
SHARES USED IN PER SHARE
COMPUTATION:
Basic 11,658 11,295 11,637 10,494
======== ======== ========= ========
Diluted 12,195 12,415 12,094 11,647
======== ======== ========= ========
<FN>
See Notes to Consolidated Financial Statements
</FN>
5
NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Six Months Ended
June 30,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,160 $ 3,851
Reconciliation of net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 558 256
Deferred rent - (13)
Deferred income taxes (1,158) (45)
Changes in assets and liabilities:
Accounts receivable 603 (3,337)
Inventories (3,466) (3,024)
Prepaid expenses and other 1,064 (2,082)
Accounts payable, accrued expenses and other current liabilities (1,929) 5,905
Income taxes payable 664 2,814
------------- -------------
Net cash (used in) provided by operating activities (504) 4,325
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (79,810) (64,518)
Sales/maturities of short-term investments 83,289 10,859
Purchases of property, plant and equipment (6,999) (135)
Other assets (2,226) -
------------- -------------
Net cash used in investing activities (5,746) (53,794)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing - 828
Repayments of debt obligations (665) (231)
Issuance of common stock 515 73,045
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Net cash (used in) provided by financing activities (150) 73,642
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 163 (30)
------------- -------------
NET CHANGE IN CASH AND EQUIVALENTS (6,237) 24,143
CASH AND CASH EQUIVALENTS, beginning of period 16,934 3,442
------------- -------------
CASH AND CASH EQUIVALENTS, end of period $ 10,697 $ 27,585
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 31 $ 39
============= =============
Cash paid for income taxes $ 2,619 $ 695
============= =============
<FN>
See Notes to Consolidated Financial Statements
</FN>
6
NANOMETRICS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Consolidated Financial Statements
The consolidated financial statements include the accounts of Nanometrics
Incorporated and its wholly-owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated.
While the quarterly financial statements are unaudited, the financial
statements included in this report reflect all adjustments (consisting only of
normal recurring adjustments) which 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):
June 30, December 31,
2001 2000
------------- --------------
Raw materials and subassemblies $ 10,088 $ 8,126
Work in process 4,666 1,434
Finished goods 3,956 6,193
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$ 18,710 $ 15,753
============= ==============
Note 3. Other Current Liabilities
Other current liabilities consist of the following (in thousands):
June 30, December 31,
2001 2000
------------- --------------
Commissions payable $ 262 $ 1,249
Accrued warranty 769 809
Other 1,436 991
------------- --------------
$ 2,467 $ 3,049
============== ==============
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Note 4. Shareholders' Equity
Net Income Per Share - The reconciliation of the share denominator used in the
basic and diluted net income per share computations is as follows (in
thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---------- ---------- ---------- ----------
Weighted average common shares
outstanding-shares used in basic
net income per share computation 11,658 11,295 11,637 10,494
Dilutive effect of common stock equivalents,
using the treasury stock method 537 1,120 457 1,153
---------- ---------- ---------- ----------
Shares used in dilutive net income
per share computation 12,195 12,415 12,094 11,647
========== ========== ========== ==========
During the three and six month periods ended June 30, 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 June 30, 2001, 630,034 common stock options with a weighted average exercise
price of $35.49 per share were excluded from the diluted net income per share
computations as their exercise prices were greater than the average market price
of the common shares for the period.
Note 5. Comprehensive Income
For the three months ended June 30, 2001 and 2000, comprehensive income,
which consisted of net income for the periods and changes in accumulated other
comprehensive income, was $1,749,000 and $2,756,000, respectively. For the six
months ended June 30, 2001 and 2000 comprehensive income was $2,711,000 and
$3,690,000, respectively.
Note 6. Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 141, Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all
business combinations initiated after June 30, 2001 be accounted for under the
purchase method and addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination. SFAS
No. 142 addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting for goodwill and
other intangible assets subsequent to their acquisition. SFAS No. 142 provides
that intangible assets with finite useful lives be amortized and that goodwill
and intangible assets with indefinite lives will not be amortized, but will
rather be tested at least annually for impairment. Nanometrics will adopt SFAS
No. 142 for its fiscal year beginning January 1, 2002. Upon adoption of SFAS No.
142, Nanometrics will stop the amortization of goodwill with an expected net
carrying value of $1,077,000 at the date of adoption and annual amortization of
$204,000 that resulted from business combinations completed prior to the
adoption of SFAS No. 141. Goodwill acquired subsequent to June 30, 2001 will not
be amortized.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Total net revenues for the three months ended June 30, 2001 were
$14,793,000, a decrease of $1,897,000 or 11% from the comparable period in 2000.
For the six months ended June 30, 2001, total revenues of $29,218,000 decreased
by $3,788,000 or 11% from the comparable period in 2000. Product sales of
$13,531,000 and $26,470,000 for the three months and six months ended June 30,
2001, respectively, decreased $1,395,000 or 9% and $3,661,000 or 12%,
respectively, as compared with the same periods during 2000. The lower levels of
product sales resulted from weaker demand for semiconductor process control
equipment, particularly in the U.S. and Far East. Service revenue of $1,262,000
and $2,748,000 for the three months and six months ended June 30, 2001,
respectively, decreased $502,000 or 28% and $127,000 or 4%, respectively, as
compared to the same periods in 2000 as a result of lower service sales,
particularly in the U.S. and the Far East.
Cost of product sales as a percentage of product sales increased to 42%
in the second quarter of 2001 from 39% in the second quarter of 2000 and stayed
consistent at 41% for the six months ended June 30, 2001 and 2000. Cost of
service as a percentage of service revenue increased to 107% in the second
quarter of 2001 from 92% in the second quarter of 2000, primarily as a result of
lower service sales in the second quarter of 2001. Cost of service as a
percentage of service revenue decreased to 102% in the six months ended June 30,
2001 from 105% for the same period in 2000.
Research and development expenses for the three month and six month
periods ended June 30, 2001 increased by $350,000 or 15% and $1,200,000 or 29%,
respectively, compared to the same periods in 2000 resulting primarily from
increased headcount and related expenses for the development of new and enhanced
products.
Selling expenses for the three month and six month periods ended June
30, 2001 decreased by $210,000 or 9% and $537,000 or 11%, respectively, compared
to the same periods in 2000 primarily because of decreased commission expenses
and other expenses associated with lower sales levels.
General and administrative expenses for the three months ended June 30,
2001 increased $58,000 or 6% compared to the same period in 2000. General and
administrative expenses for the six months ended June 30, 2001 decreased $2,000
compared to the same period in 2000.
Total other income, net for the three month and six month periods ended
June 30, 2001 decreased $838,000 or 55% and $660,000 or 35%, respectively, from
the comparable periods in 2000 due primarily to lower 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 $1,813,000 and net income was
$1,537,000 for the second quarter of 2001 compared to income from operations of
$3,409,000 and net income of $2,950,000 for the same period in 2000. For the
first six months of 2001, Nanometrics' income from operations was $3,914,000 and
net income was $3,160,000 which compared to income from operations of $6,792,000
and net income of $3,851,000 for the same period in 2000.
9
Liquidity and Capital Resources
At June 30, 2001, Nanometrics had working capital of $86,064,000
compared to $92,420,000 at December 31, 2000. The current ratio at June 30, 2001
was 8.3 to 1. We believe that working capital including cash, cash equivalents
and short-term investments of $60,072,000 at June 30, 2001 will be sufficient to
meet our needs through at least the next twelve months. Operating activities for
the first six months of 2001 used cash of $504,000 primarily from increases in
inventory balances and decreases in accounts payable, accrued expenses and other
current liabilities, while sales/maturities of short-term investments net of
purchases provided $3,479,000, capital expenditures used $6,999,000 and debt
repayment used $665,000.
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 its 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 Nanometrics' customer orders and shipments, (iii) competition,
including competitive pressures on product prices and changes in pricing by
Nanometrics' customers or suppliers, (iv) fluctuation 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 business, 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 Nanometrics' 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 June 30, 2001 would not have 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 a material impact on their value at June 30, 2001. We
also have fixed rate yen denominated debt obligations in Japan that have no
interest rate risk. At June 30, 2001, our total debt obligation was $4,080,000
with a long-term portion of $3,682,000. A hypothetical 10% change in interest
rates at June 30, 2001 would not have a material impact on our results of
operations.
10
NANOMETRICS INCORPORATED
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A. The annual meeting of shareholders was held on May 16, 2001.
B. The following directors were elected to the board of directors:
Vincent J. Coates
Nathaniel Brenner
Norman V. Coates
John D. Heaton
William G. Oldham
Edmond R. Ward
C. The following matters were voted upon at the annual meeting:
For Against Abstain
------- ------- -------
1. To elect the following directors
to serve until the next annual meeting
of shareholders or until their successors
are elected:
Vincent J. Coates, Chairman 9,896,379 0 31,908
Nathaniel Brenner, Director 9,896,379 0 31,908
Norman V. Coates, Director 9,896,379 0 31,908
John D. Heaton, Director 9,896,379 0 31,908
William G. Oldham, Director 9,896,379 0 31,908
Edmond R. Ward, Director 9,896,379 0 31,908
2. To ratify the appointment of
Deloitte & Touche LLP as independent
auditors for the fiscal year ending
December 31, 2001. 9,908,835 18,784 668
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits.
None
B. Reports on Form 8-K.
None
11
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
- ---------------------
Vincent J. Coates
Chairman of the Board
/s/ John Heaton
- -----------------------------
John Heaton
Chief Executive Officer
/s/ Paul B. Nolan
- -----------------------------
Paul B. Nolan
Chief Financial Officer
Dated: August 6, 2001
12