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 quarterly period ended June 30, 2003
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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
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES NO X
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As of August 1, 2003, there were 12,022,643 shares of common stock, no par
value, issued and outstanding.
1
NANOMETRICS INCORPORATED
INDEX
Part I. Financial Information Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 2003 and December 31, 2002 . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations -
Three months and six months ended
June 30, 2003 and 2002 . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 2003 and 2002 . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . 10
Item 3. Quantitative and Qualitative Disclosures
about Market Risk . . . . . . . . . . . . . . . . . . . . 12
Item 4. Controls and Procedures . . . . . . . . . . . . . . . . . 12
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders . . . 13
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Certifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share amounts)
(Unaudited)
June 30, December 31,
2003 2002
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,746 $ 7,967
Short-term investments 25,911 28,899
Accounts receivable, net of
allowances of $566 in 2003 and 2002 8,770 9,021
Inventories 22,976 25,847
Deferred income taxes 863 6,840
Prepaid expenses and other 3,073 2,803
--------- ---------
Total current assets 66,339 81,377
PROPERTY, PLANT AND EQUIPMENT, Net 49,599 50,050
INTANGIBLE ASSETS 1,524 1,748
OTHER ASSETS 1,350 1,513
--------- ---------
TOTAL $ 118,812 $ 134,688
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,469 $ 1,708
Accrued payroll and related expenses 1,072 1,004
Deferred revenue 168 1,396
Other current liabilities 976 1,574
Income taxes payable 6 139
Current portion of debt obligations 976 780
--------- ---------
Total current liabilities 4,667 6,601
DEFERRED INCOME TAXES 863 858
LONG-TERM DEBT OBLIGATIONS 2,747 3,123
--------- ---------
Total liabilities 8,277 10,582
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock, no par value; 50,000,000 shares
authorized; 12,019,142 and 12,006,641 outstanding 99,976 99,911
Retained earnings 10,808 24,475
Accumulated other comprehensive loss (249) (280)
--------- ---------
Total shareholders' equity 110,535 124,106
--------- ---------
TOTAL $ 118,812 $ 134,688
========= =========
See Notes to Condensed Consolidated Financial Statements
3
NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
-------- -------- -------- --------
NET REVENUES:
Product sales $ 7,865 $ 7,136 $ 15,300 $ 13,997
Service 1,869 1,256 3,784 2,420
-------- -------- -------- --------
Total net revenues 9,734 8,392 19,084 16,417
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of product sales 4,828 3,029 8,487 5,821
Cost of service 1,607 1,454 3,493 2,711
Research and development 3,469 3,053 6,842 6,439
Selling 2,712 2,696 5,598 4,918
General and administrative 1,151 1,248 2,334 2,163
-------- -------- -------- --------
Total costs and expenses 13,767 11,480 26,754 22,052
-------- -------- -------- --------
LOSS FROM OPERATIONS (4,033) (3,088) (7,670) (5,635)
OTHER INCOME (EXPENSE):
Interest income 76 143 170 308
Interest expense (23) (25) (47) (47)
Other, net (35) 210 (32) 118
-------- -------- -------- --------
Total other income, net 18 328 91 379
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (4,015) (2,760) (7,579) (5,256)
PROVISION (BENEFIT) FOR INCOME TAXES 68 (1,058) 6,088 (2,007)
-------- -------- -------- --------
NET LOSS $ (4,083) $ (1,702) $(13,667) $ (3,249)
======== ======== ======== ========
NET LOSS PER SHARE:
Basic and diluted $ (0.34) $ (0.14) $ (1.14) $ (0.28)
======== ======== ======== ========
SHARES USED IN PER SHARE
COMPUTATION:
Basic and diluted 12,008 11,837 12,008 11,814
======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements
4
NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Six Months Ended
June 30,
2003 2002
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(13,667) $ (3,249)
Reconciliation of net loss to net cash
used in operating activities:
Depreciation and amortization 1,222 1,099
Deferred income taxes 5,982 (2,511)
Changes in assets and liabilities:
Accounts receivable 263 (1,924)
Inventories 2,888 519
Prepaid expenses and other (260) 1,645
Accounts payable, accrued expenses and other current liabilities (1,850) (1,474)
Income taxes payable (129) 226
-------- --------
Net cash used in operating activities (5,551) (5,669)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (26,012) (36,772)
Sales/maturities of short-term investments 29,000 --
Purchases of property, plant and equipment (526) (1,804)
-------- --------
Net cash provided by (used in) investing activities 2,462 (38,576)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing -- 329
Repayments of debt obligations (188) (479)
Issuance of common stock 65 656
-------- --------
Net cash (used in) provided by financing activities (123) 506
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (9) 169
-------- --------
NET CHANGE IN CASH AND EQUIVALENTS (3,221) (43,570)
CASH AND CASH EQUIVALENTS, beginning of period 7,967 47,227
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 4,746 $ 3,657
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 50 $ 51
======== ========
Cash paid for income taxes $ 41 $ 6
======== ========
See Notes to Condensed Consolidated Financial Statements
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
inter-company accounts and transactions have been eliminated.
While the quarterly condensed 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 sheets. 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' 2002 Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
Note 2. Significant Accounting Policies
Income Taxes - Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes and
operating loss and tax credit carryforwards measured by applying currently
enacted tax laws. A valuation allowance is provided when necessary to reduce
deferred tax assets to an amount that is more likely than not to be realized.
During the quarter ended March 31, 2003, Nanometrics recorded a valuation
allowance of $6,020,000 and will continue to provide a full valuation allowance
against deferred tax assets for the foreseeable future.
Short-Term Investments - Short-term investments consist of United
States Treasury bills and are stated at fair value based on quoted market
prices. Short-term investments are classified as available-for-sale based on
Nanometrics' intended use. The difference between amortized cost and fair value
representing unrealized holding gains or losses are recorded as a component of
shareholders' equity as accumulated other comprehensive loss and was not
significant as of June 30, 2003. Gains and losses on sales of short-term
investments are determined on a specific identification basis.
Note 3. 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,
2003 2002
------- -------
Raw materials and subassemblies $12,841 $18,353
Work in process 4,339 4,733
Finished goods 5,796 2,761
------- -------
Total inventories $22,976 $25,847
======= =======
6
Note 4. Other Current Liabilities
Other current liabilities consist of the following (in thousands):
June 30, December 31,
2003 2002
------ ------
Commissions payable $ 187 $ 291
Accrued warranty 258 261
Accrued professional services 137 169
Other 394 853
------ ------
Total other current liabilities $ 976 $1,574
====== ======
Note 5. Shareholders' Equity
Net Loss Per Share - The reconciliation of the share denominator used in
the basic and diluted net loss per share computations is as follows (in
thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
------ ------ ------ ------
Weighted average common shares
outstanding-shares used in basic
net income per share computation 12,008 11,837 12,008 11,814
Dilutive effect of common stock equivalents,
using the treasury stock method -- -- -- --
------ ------ ------ ------
Shares used in diluted net income
per share computation 12,008 11,837 12,008 11,814
====== ====== ====== ======
During the three and six month periods ended June 30, 2003 and June 30,
2002, respectively, diluted net loss per share excludes common equivalent shares
outstanding of 2,659,000 and 2,901,000, respectively, as their effect is
anti-dilutive.
Note 6. Comprehensive Loss
Comprehensive loss, which consists of net loss for the periods and
changes in accumulated other comprehensive loss, was a loss of $3,748,000 for
the three months ended June 30, 2003 compared to a loss of $542,000 for the
three months ended June 30, 2002. For the six months ended June 30, 2003, the
comprehensive loss was $13,636,000 compared to a comprehensive loss of
$2,033,000 for the six months ended June 30, 2002. Substantially all of the
accumulated other comprehensive loss consists of accumulated translation
adjustments for all periods presented.
7
Note 7. Warranties
Nanometrics sells the majority of its products with a one-year repair or
replacement warranty and records a provision for estimated claims at the time of
sale. Components of the warranty accrual, which was included in the accompanying
consolidated balance sheets as other current liabilities, was as follows (in
thousands):
Balance as of December 31, 2002 $ 261
Actual warranty costs (124)
Revision to existing warranty (150)
Provision for warranty (six months ended June 30, 2003) 271
-----
Balance as of June 30, 2003 $ 258
=====
Note 8. Stock-Based Compensation
Nanometrics accounts for stock-based compensation using the intrinsic
value method in accordance with the provision of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, as allowed by
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock
Based Compensation as amended by SFAS No. 148, Accounting for Stock Based
Compensation-Transition and Disclosures, an Amendment of FASB Statement No. 123.
Under the intrinsic value method, Nanometrics does not recognize any
compensation expense, as the exercise price of all stock options is equal to the
fair market value at the time the options are granted. Had compensation expense
been recognized using the fair value-based methods under SFAS No. 123,
Nanometrics' pro forma consolidated loss and loss per share would have been as
follows (in thousands, except per share amounts):
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
------- ------- -------- -------
Net Loss
As reported $(4,083) $(1,702) $(13,667) $(3,249)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related income tax effects (1,525) (1,155) (5,724) (2,204)
------- ------- -------- -------
Pro forma $(5,608) $(2,857) $(19,391) $(5,453)
======= ======= ======== =======
Basic and diluted net loss per share:
As reported $ (0.34) $ (0.14) $ (1.14) $ (0.28)
Pro forma $ (0.47) $ (0.24) $ (1.61) $ (0.46)
During June 2003, Nanometrics issued 1,399,000 options to purchase
shares of common stock at a weighted average exercise price of $5.70. The
options were issued more than six months and one day after the cancellation of
options in connection with an offer to exchange certain stock options in
December 2002.
In May 2003, Nanometrics' shareholders approved the adoption of the
Company's 2003 Employee Stock Purchase Plan and the reservation of 750,000
shares of common stock for issuance under this plan. Under the plan, eligible
employees are allowed to have salary withholdings of up to 10% of their base
compensation to purchase shares of common stock at a price equal to 85% of the
lower of the market value of the stock at the beginning or end of each six-month
offering period, subject to an annual limitation. The first offering period will
begin October 2003.
8
Note 9. Intangible Assets
Intangible assets are recorded at cost, less accumulated amortization.
Intangible assets as of June 30, 2003 consist of (in thousands):
Gross Net
Carrying Accumulated Intangible
Amount Amortization Assets
------ ------------ ------
Technology $2,709 $1,289 $1,420
Other 250 146 104
------ ------ ------
Total $2,959 $1,435 $1,524
====== ====== ======
Amortization expense for the three month and six month periods ended June 30,
2003 was $102,000 and $224,000, respectively, and is primarily recorded as cost
of product sales. The estimated future amortization expense as of June 30, 2003
is as follows (in thousands):
Fiscal Years
------------
2003 (remaining six months) $ 202
2004 397
2005 285
2006 256
2007 256
Thereafter 128
----------
Total amortization $ 1,524
==========
9
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 our products, which may be affected
by several factors including the cyclicality of the semiconductor, magnetic
recording head, flat panel display and other industries that we serve, patterns
of capital spending by our customers, technological changes in the markets we
serve, and market acceptance of our products and our customers' products; (ii)
the timing, cancellation or delay of our customers' orders and shipments; (iii)
competition, including competitive pressures on product prices and changes in
pricing by our customers or suppliers; (iv) fluctuations in foreign currency
exchange rates, particularly the Japanese yen; (v) the proportion of sales we
make directly to our customers versus sales through distributors and
representatives; (vi) market acceptance of new and enhanced versions of our
products; (vii) the timing of our new product announcements and releases,
including our ability to design, introduce and manufacture new products in a
timely and cost effective manner, as well as the announcements and releases by
our competitors; and (viii) the size and timing of acquisitions of businesses,
products or technologies and fluctuations in the availability and cost of
components and subassemblies of our 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' 2002 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.
Overview
We are a leader in the design, manufacture, marketing and support of thin
film metrology systems for the semiconductor, flat panel display and magnetic
recording head industries. Our systems precisely measure a wide range of film
types deposited on substrates during manufacturing in order to control
manufacturing processes and increase production yields.
Critical Accounting Policies
Income Tax Assets and Liabilities - We account for income taxes based on
Statement of Financial Accounting Standards (SFAS) No. 109 Accounting for Income
Taxes, whereby deferred tax assets and liabilities must be recognized using
enacted tax rates for the effect of temporary differences between the book and
tax accounting for assets and liabilities. Also, deferred tax assets must be
reduced by a valuation allowance if it is more likely than not that a portion of
the deferred tax assets will not be realized in the future. We evaluate the
deferred tax assets on a quarterly basis to determine whether or not a valuation
allowance is appropriate. Factors used in this determination include future
expected income and the underlying asset or liability which generated the
temporary tax difference.
10
Our income tax provision is based on estimates of our effective income
tax rate for the year. The effective tax rate is generally estimated based on
the geographic distribution of profits, the tax rates in different regions and
the availability of tax credits. If actual results differ from our estimates, it
may be necessary to record a valuation allowance on deferred tax assets or to
adjust our effective tax rate, which could have a material effect on our
financial results.
Results of Operations
Total net revenues for the three months ended June 30, 2003 were
$9,734,000, an increase of $1,342,000 or 16% from the comparable period in 2002.
For the six months ended June 30, 2003, total net revenues of $19,084,000
increased $2,667,000 or 16% from the comparable period in 2002. Product sales of
$7,865,000 and $15,300,000 for the three months and six months ended June 30,
2003, respectively, increased $729,000 or 10% and $1,303,000 or 9%,
respectively, as compared with the same periods during 2002. Sales of automated
and tabletop systems increased in the second quarter of 2003 from their second
quarter 2002 levels. The increase in product sales resulted from demand for
semiconductor process control equipment and flat panel display equipment,
primarily in the Far East. Service revenue of $1,869,000 and $3,784,000 for the
three months and six months ended June 30, 2003, respectively, increased
$613,000 or 49% and $1,364,000 or 56%, respectively, as compared to the same
periods in 2002 primarily due to higher sales of parts and services,
particularly in the U.S. and the Far East, due in part to a larger installed
base of systems that have passed their warranty periods.
Cost of product sales as a percentage of product sales increased to 61%
in the second quarter of 2003 from 42% in the second quarter of 2002 and
increased to 55% in the six months ended June 30, 2003 from 42% for the same
period in 2002 due in part to lower sales prices on older products and an
increase in manufacturing capacity added to our U.S. facility. The increased
manufacturing capacity is part of a strategic move to internalize the production
of key parts and components, allowing us to have greater control over their
development, delivery, quality and cost. Cost of service as a percentage of
service revenue decreased to 86% in the second quarter of 2003 from 116% in the
second quarter of 2002 and decreased to 92% in the six months ended June 30,
2003 from 112% for the same period in 2002 due to higher service revenues, which
exceeded our cost of service.
Research and development expenses for the three month and six month
periods ended June 30, 2003 increased by $416,000 or 14% and $403,000 or 6%,
respectively, compared to the same periods in 2002 resulting primarily from
increased headcount and related expenses for the development of new and enhanced
products.
Selling expenses for the three months and six month periods ended June
30, 2003 increased by $16,000 or 1% and $680,000 or 14%, respectively, compared
to the same periods in 2002 primarily due to higher headcount levels, higher
commissions and other expenses incurred promoting our products particularly in
the first quarter of 2003.
General and administrative expenses for the three months ended June 30,
2003 decreased $97,000 or 8% from the same period in 2002 due in part to lower
salary and consulting expenses resulting from shutdown days taken during the
quarter. General and administrative expenses for the six months ended June 30,
2003 increased $171,000 or 8% compared to the same period in 2002 due primarily
to higher regulatory compliance and patent related costs particularly in the
first quarter of 2003.
Total other income, net for the three month and six month periods ended
June 30, 2003 decreased $310,000 or 95% and $288,000 or 76%, respectively, from
the comparable periods in 2002 due primarily to lower interest income, resulting
from lower investment balances and lower interest rates and foreign currency
transaction loss.
A provision for income taxes of $6,088,000 was recorded for the six-month
period ended June 30, 2003, which primarily represents a charge to record a
valuation allowance against deferred income tax assets. This charge was taken
primarily as a result of pretax losses incurred over the past several quarters
coupled with uncertainty about future expected income in the current market
environment, making it more likely than not that the deferred tax asset will not
be realized.
As a result of the factors discussed above, our loss from operations was
$4,033,000 and net loss was $4,083,000 for the second quarter of 2003 compared
to a loss from operations of $3,088,000 and a net loss of $1,702,000 for the
same period in 2002. For the first six months of 2003, our loss from operations
was $7,670,000 and net loss was
11
$13,667,000 which compared to a loss from operations of $5,635,000 and a net
loss of $3,249,000 for the same period in 2002.
Liquidity and Capital Resources
At June 30, 2003, our cash, cash equivalents and short-term investments
totaled $30,657,000. Our short-term investments are invested primarily in U.S.
Treasury Bills. At June 30, 2003, Nanometrics had working capital of $61,672,000
compared to $74,776,000 at December 31, 2002. The current ratio at June 30, 2002
was 14.2 to 1. We believe that working capital including cash, cash equivalents
and short-term investments will be sufficient to meet our needs through at least
the next twelve months.
Operating activities for the first six months of 2003 used cash of
$5,551,000 primarily from the net loss, lower accounts payable resulting from
lower levels of materials purchases and lower deferred revenue. These uses of
cash were offset to some extent by lower inventory levels as we continued to
limit our purchases of inventory during the quarter in an effort to reduce our
use of cash. Investing activities provided $2,462,000 primarily due to sales of
short-term investments of $29,000,000 offset to some extent by purchases of
short-term investments in the amount of $26,012,000 and capital expenditures of
$526,000 used to continue to internalize our manufacturing capacity in the U.S.
Financing activities used $123,000 primarily due to repayment of debt
obligations in Japan.
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 June 30, 2003 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, 2003. We
also have fixed rate yen denominated debt obligations in Japan that have no
interest rate risk. At June 30, 2003, our total debt obligation was $3,723,000
with a long-term portion of $2,747,000. A hypothetical 10% change in interest
rates at June 30, 2003 would not have a material impact on our results of
operations.
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the periodic reports filed
by us with the Securities and Exchange Commission (the "Commission") is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Commission and that such information is
accumulated and communicated to our management. In designing and evaluating the
disclosure controls and procedures, our management recognized that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
Based on their most recent evaluation, which was completed within 90 days
prior to the filing date of this quarterly report on Form 10-Q, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures (as defined in Rule 13a-14 of the Securities Exchange
Act of 1934, as amended) are effective. There were not any significant changes
in internal controls or in other factors that could significantly affect these
internal controls subsequent to the date of their most recent evaluation.
12
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 14, 2003.
B. The following directors were elected to the board of directors:
Vincent J. Coates
Nathaniel Brenner
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 10,295,950 0 259,722
Nathaniel Brenner, Director 10,490,074 0 65,598
John D. Heaton, Director 10,297,350 0 258,322
William G. Oldham, Director 10,484,374 0 71,298
Edmond R. Ward, Director 10,483,874 0 71,798
2. To ratify the appointment of Deloitte &
Touche LLP as independentauditors for
the fiscal year ending December 31, 2003. 10,526,492 24,820 4,360
3. To approve the adoption of the Company's
2003 Employee Stock Purchase Plan (the "Plan")
and to approve the reservation of 750,000
shares of common stock for issuance under the Plan. 7,280,455 114,647 10,784
ITEM 5. Other Information
In compliance with Section 202 of the Sarbanes-Oxley Act of 2002, the Audit
Committee of the Board of Directors of Nanometrics has preapproved the
continuing provision of certain non-audit services by Deloitte & Touche LLP,
Nanometrics' independent auditor. Such services include tax and tax-related
services.
ITEM 6. Exhibits and Reports on Form 8-K
A. Exhibits.
See Exhibit Index attached hereto.
B. Reports on Form 8-K.
A current report on Form 8-K was furnished on July 24, 2003 with an
attached press release.
13
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
/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 11, 2003
14
I, John D. Heaton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Nanometrics
Incorporated;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant 's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: August 11, 2003 By: /s/ John D. Heaton
---------------------------------
Name: John D. Heaton
Title: Chief Executive Officer
15
I, Paul B. Nolan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Nanometrics
Incorporated;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant 's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: August 11, 2003 By: /s/ Paul B. Nolan
------------------------------
Name: Paul B. Nolan
Title: Chief Financial Officer
16
Exhibit Index
Exhibit No. Exhibit Title
- ----------- -------------
3.1* Amended and restated Articles of Incorporation of the
Registrant
3.2** Bylaws
99.1 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* Incorporated by reference to Registrant's Annual Report on Form 10-K
for the year ended December 31, 2002 (File No. 000-13470) filed with
the Securities and Exchange Commission on March 28, 2003.
** Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997 (File No. 000-13470) filed
with the Securities and Exchange Commission on April 1, 1998.
17