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, 2002 or
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
(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
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 22, 2002 there were 11,828,196 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
Consolidated Balance Sheets -
March 31, 2002 and December 31, 2001 . . . . . . . . . . . . . 3
Consolidated Statements of Operations -
Three months ended March 31, 2002 and 2001 . . . . . . . . . . 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 2002 and 2001 . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . 8
Item 3. Quantitative and Qualitative Disclosures
about Market Risk . . . . . . . . . . . . . . . . . . . . . . 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
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share amounts)
March 31, December 31,
2002 2001
ASSETS (Unaudited)
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CURRENT ASSETS:
Cash and cash equivalents $ 41,428 $ 47,227
Short-term investments 1,989 -
Accounts receivable, net of allowances of $561 and $562 10,009 9,131
Inventories 25,785 26,311
Deferred income taxes 5,378 3,974
Prepaid expenses and other 727 2,474
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Total current assets 85,316 89,117
PROPERTY, PLANT AND EQUIPMENT, Net 49,423 48,412
DEFERRED INCOME TAXES 81 225
GOODWILL 1,077 1,077
OTHER ASSETS 3,414 3,524
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TOTAL $ 139,311 $ 142,355
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 858 $ 2,906
Accrued payroll and related expenses 1,398 1,148
Deferred revenue 2,574 2,261
Other current liabilities 2,301 1,981
Income taxes payable 102 272
Current portion of debt obligations 374 378
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Total current liabilities 7,607 8,946
OTHER LONG-TERM OBLIGATIONS - 250
DEBT OBLIGATIONS 3,178 3,314
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Total liabilities 10,785 12,510
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SHAREHOLDERS' EQUITY:
Common stock, no par value; 25,000,000 shares
authorized; 11,801,199 and 11,787,033 outstanding 98,703 98,531
Retained earnings 31,196 32,743
Accumulated other comprehensive loss (1,373) (1,429)
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Total shareholders' equity 128,526 129,845
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TOTAL $ 139,311 $ 142,355
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See Notes to Consolidated Financial Statements
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NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share amounts)
(Unaudited)
Three Months Ended
March 31,
2002 2001
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NET REVENUES:
Product sales $ 6,861 $ 12,939
Service 1,164 1,486
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Total net revenues 8,025 14,425
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COSTS AND EXPENSES:
Cost of product sales 2,792 5,291
Cost of service 1,257 1,466
Research and development 3,386 2,595
Selling 2,222 2,033
General and administrative 915 939
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Total costs and expenses 10,572 12,324
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INCOME (LOSS) FROM OPERATIONS (2,547) 2,101
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OTHER INCOME (EXPENSE):
Interest income 165 993
Interest expense (22) (22)
Other, net (92) (409)
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Total other income, net 51 562
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INCOME (LOSS) BEFORE INCOME TAXES (2,496) 2,663
PROVISION (BENEFIT) FOR INCOME TAXES (949) 1,040
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NET INCOME (LOSS) $ (1,547) $ 1,623
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NET INCOME (LOSS) PER SHARE:
Basic $ (0.13) $ 0.14
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Diluted $ (0.13) $ 0.14
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SHARES USED IN PER SHARE COMPUTATION:
Basic 11,790 11,616
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Diluted 11,790 11,992
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See Notes to Consolidated Financial Statements
4
NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Three Months Ended
March 31,
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,547) $ 1,623
Reconciliation of net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 493 240
Deferred income taxes (1,235) 326
Changes in assets and liabilities:
Accounts receivable (935) 1,487
Inventories 484 (1,277)
Prepaid expenses and other 1,704 777
Accounts payable accrued and other current liabilities (1,085) (444)
Income taxes payable (102) 400
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Net cash provided by (used in) operating activities (2,223) 3,132
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (1,989) (76,866)
Sales/maturities of short-term investments - 68,589
Purchases of property, plant and equipment (1,463) (2,849)
Other assets - (627)
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Net cash used in investing activities (3,452) (11,753)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt obligations (393) (574)
Issuance of common stock 102 96
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Net cash used in financing activities (291) (478)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 167 122
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NET CHANGE IN CASH AND EQUIVALENTS (5,799) (8,977)
CASH AND CASH EQUIVALENTS, beginning of period 47,227 16,934
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CASH AND CASH EQUIVALENTS, end of period $ 41,428 $ 7,957
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 26 $ 32
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Cash paid for income taxes $ 6 $ 333
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SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Common stock issued as partial proceeds in a business combination $ - $ 214
========== ==========
See Notes to Consolidated Financial Statements
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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 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' 2001 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,
2002 2001
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Raw materials and subassemblies $ 17,577 $ 18,279
Work in process 2,129 2,387
Finished goods 6,079 5,645
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Total inventories $ 25,785 $ 26,311
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Note 3. Other Current Liabilities
Other current liabilities consist of the following (in thousands):
March 31, December 31,
2002 2001
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Commission payable $ 105 $ 288
Accrued warranty 361 435
Accrued professional services 151 210
Customer deposits 716 -
Other 968 1,048
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Total other current liabilities $ 2,301 $ 1,981
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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 are as follows (in
thousands):
Three Months Ended
March 31,
2002 2001
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Weighted average common shares outstanding-shares
used in basic net income per share computations 11,790 11,616
Dilutive effect of common stock equivalents,
using the treasury stock method - 376
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Shares used in diluted net income per share computation 11,790 11,992
====== ======
At March 31, 2002, common stock equivalents were excluded from the diluted
net income per share computation as their effect is anti-dilutive. During the
three months ended March 31, 2001, 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.
Note 5. Comprehensive Income (Loss)
Comprehensive income (loss), which consisted of net income (loss) and changes
in accumulated other comprehensive income, was a loss of $1,491,000 for the
three months ended March 31, 2002 compared to income of $995,000 for the same
period in 2001.
Note 6. New Accounting Pronouncement
In June 2001, the Financial Accounting Standards Board ("FASB") 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. Effective
January 1, 2002, Nanometrics adopted SFAS No. 142. Nanometrics ceased amortizing
goodwill with a net carrying value of $1,077,000 and annual amortization of
$204,000 that resulted from business combinations completed prior to the
adoption of SFAS No. 141. The adoption of the non-amortization provisions of
SFAS No. 142 was not material for the three months ended March 31, 2002.
Nanometrics completed its transitional impairment test and determined that no
impairment was indicated.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This report including the following 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. Such forward-looking
statements are based upon current expectations and beliefs that involve risks
and uncertainties, such as our plans, objectives and intentions, regarding,
among other things: (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) 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.
In some cases, forward-looking statements can be identified by words such as
"believe," "expect," "anticipate," "plan," "potential," "continue" or similar
expressions. Forward-looking statements also include the assumptions underlying
or relating to any of the foregoing statements. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain risk factors, including those set forth in "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Factors That May Affect Future Operating Results" in Nanometrics' 2001 Annual
Report on Form 10-K. We believe that it is important to communicate our
expectations to our investors. However, there may be events in the future that
we are not able to predict accurately or over which we have no control. You
should be aware that the occurrence of the events described in such risk factors
and elsewhere in this report could materially and adversely affect our business,
operating results and financial condition.
All forward-looking statements included in this report are based on
information available to us on the date hereof. We undertake 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.
Results of Operations
Total net revenues for the first quarter of 2002 were $8,025,000, a decrease
of $6,400,000 or 44% from the same quarter in 2001. Product sales of $6,861,000
decreased $6,078,000 or 47% for the first quarter of 2002 compared to the same
period in 2001. Unit sales of automated, integrated and tabletop systems were
each down from their 2001 levels. The decrease in product sales resulted from
weaker demand for semiconductor process control metrology equipment,
particularly in the U.S. and the Far East. We believe that this reduced demand
was attributable primarily to overcapacity in the semiconductor industry as well
as the economic slowdown in the U.S. and Japan. Service revenue of $1,164,000
decreased $322,000 or 22% in the first quarter of 2002 compared to the same
period in 2001 primarily due to lower spare parts sales in the U.S and the Far
East due in part to the decline in the semiconductor market discussed above.
8
Cost of product sales as a percentage of product sales was 41% in the first
quarter of 2002, unchanged from the first quarter of 2001. Cost of service as a
percentage of service revenue increased to 108% in the first quarter of 2001
from 99% in the first quarter of 2001 primarily as a result of lower service
sales in the U.S and in the Far East.
Research and development expenses for the first quarter of 2002 increased
$791,000 or 30% compared to the same period in 2001 resulting primarily from
increased headcount and related expenses for the development of new and enhanced
products.
Selling expenses for the first quarter of 2002 increased by $189,000 or 9%
compared to the same period in 2001 primarily because of a higher headcount
level and related expenses.
General and administrative expenses for the first quarter of 2002 decreased
by $24,000 or 3% compared to the same period in 2001 primarily as a result of
lower spending associated with the decreased level of operations.
Total other income, net decreased $511,000 or 91% during the first quarter
of 2002 compared to the same period in 2001 due primarily to lower interest
income.
Nanometrics' loss from operations was $2,547,000 and the net loss was
$1,547,000 or $0.13 per diluted share in the first quarter of 2002 compared to
income from operations of $2,101,000 and net income of $1,623,000 or $0.14 per
diluted share in the first quarter of 2001.
Liquidity and Capital Resources
At March 31, 2002, our cash, cash equivalents and short-term investments
totaled $43,417,000. These funds are invested primarily in U.S. Treasury Bills.
At March 31, 2002, Nanometrics had working capital of $77,709,000 compared to
$80,171,000 at December 31, 2001. The current ratio at March 31, 2002 was 11.2
to 1. We believe that our working capital, including cash, cash equivalents and
short-term investments will be sufficient to meet our needs at least through the
next twelve months. Operating activities for the first three months of 2002 used
cash of $2,223,000 primarily from the net loss, lower accounts payable and
higher accounts receivable resulting from increases in days outstanding, offset
to some extent by lower inventory levels and lower prepaid expenses. Investing
activities used $3,452,000 primarily due to purchases of short-term investments
of $1,989,000 and capital expenditures of $1,463,000 used to continue our
efforts in improving our facilities and expanding our manufacturing capacity.
Financing activities used $291,000 primarily due to repayment of debt
obligations of $393,000 related to mortgages in Japan, offset by $102,000
generated from stock issuances.
We have evaluated and will continue to evaluate the acquisition of products,
technologies or businesses that are complementary to our business. These
activities may result in product and business investments, which may affect our
cash position and working capital balances.
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, 2002 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, 2002.
We also have fixed rate yen denominated debt obligations in Japan that have no
interest rate risk. At March 31, 2002, our total debt obligation was $3,552,000
with a long-term portion of $3,178,000. A hypothetical 10% change in interest
rates at March 31, 2002 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 7, 2002
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