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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, 2002
-------------
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
- ------------------------------- -------------------
(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
-------
As of July 22, 2002, there were 11,863,695 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, 2002 and December 31, 2001 . . . . . . . . . . . 3
Consolidated Statements of Operations -
Three months and six months ended
June 30, 2002 and 2001 . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 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 . . . . . . . . . . . . . . . . . . . . 10
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders . . . 11
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . 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 2002 2001
(Unaudited)
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 3,657 $ 47,227
Short-term investments 36,772 --
Accounts receivable, net of
allowances of $565 and $562 11,592 9,131
Inventories 26,272 26,311
Deferred income taxes 6,652 3,974
Prepaid expenses and other 760 2,474
--------- ---------
Total current assets 85,705 89,117
PROPERTY, PLANT AND EQUIPMENT, Net 50,198 48,412
DEFERRED INCOME TAXES 66 225
OTHER ASSETS 4,531 4,601
--------- ---------
TOTAL $ 140,500 $ 142,355
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,918 $ 2,906
Accrued payroll and related expenses 1,114 1,148
Deferred revenue 2,525 2,261
Other current liabilities 1,370 1,981
Income taxes payable 342 272
Current portion of debt obligations 1,153 378
--------- ---------
Total current liabilities 8,422 8,946
OTHER LONG-TERM OBLIGATIONS -- 250
DEBT OBLIGATIONS 3,426 3,314
--------- ---------
Total liabilities 11,848 12,510
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock, no par value; 50,000,000 shares
authorized; 11,858,194 and 11,787,033 outstanding 99,371 98,531
Retained earnings 29,494 32,743
Accumulated other comprehensive loss (213) (1,429)
--------- ---------
Total shareholders' equity 128,652 129,845
--------- ---------
TOTAL $ 140,500 $ 142,355
========= =========
See Notes to Consolidated Financial Statements
3
NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- --------
NET REVENUES:
Product sales $ 7,136 $ 13,531 $ 13,997 $ 26,470
Service 1,256 1,262 2,420 2,748
-------- -------- -------- --------
Total net revenues 8,392 14,793 16,417 29,218
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of product sales 3,029 5,661 5,821 10,952
Cost of service 1,454 1,345 2,711 2,811
Research and development 3,053 2,724 6,439 5,319
Selling 2,696 2,185 4,918 4,218
General and administrative 1,248 1,065 2,163 2,004
-------- -------- -------- --------
Total costs and expenses 11,480 12,980 22,052 25,304
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS (3,088) 1,813 (5,635) 3,914
OTHER INCOME (EXPENSE):
Interest income 143 704 308 1,697
Interest expense (25) (18) (47) (40)
Other, net 210 (1) 118 (410)
-------- -------- -------- --------
Total other income, net 328 685 379 1,247
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (2,760) 2,498 (5,256) 5,161
PROVISION (BENEFIT) FOR INCOME TAXES (1,058) 961 (2,007) 2,001
-------- -------- -------- --------
NET INCOME (LOSS) $ (1,702) $ 1,537 $ (3,249) $ 3,160
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE:
Basic $ (0.14) $ 0.13 $ (0.28) $ 0.27
======== ======== ======== ========
Diluted $ (0.14) $ 0.13 $ (0.28) $ 0.26
======== ======== ======== ========
SHARES USED IN PER SHARE
COMPUTATION:
Basic 11,837 11,658 11,814 11,637
======== ======== ======== ========
Diluted 11,837 12,195 11,814 12,094
======== ======== ======== ========
See Notes to Consolidated Financial Statements
4
NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Six Months Ended
June 30,
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (3,249) $ 3,160
Reconciliation of net income (loss) to net cash
used in operating activities:
Depreciation and amortization 1,099 558
Deferred income taxes (2,511) (1,158)
Changes in assets and liabilities:
Accounts receivable (1,924) 603
Inventories 519 (3,466)
Prepaid expenses and other 1,645 1,064
Accounts payable, accrued expenses and other current liabilities (1,474) (1,929)
Income taxes payable 226 664
-------- --------
Net cash used in operating activities (5,669) (504)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (36,772) (79,810)
Sales/maturities of short-term investments -- 83,289
Purchases of property, plant and equipment (1,804) (6,999)
Other assets -- (2,226)
-------- --------
Net cash used in investing activities (38,576) (5,746)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing 329 --
Repayments of debt obligations (479) (665)
Issuance of common stock 656 515
-------- --------
Net cash (used in) provided by financing activities 506 (150)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 169 163
-------- --------
NET CHANGE IN CASH AND EQUIVALENTS (43,570) (6,237)
CASH AND CASH EQUIVALENTS, beginning of period 47,227 16,934
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 3,657 $ 10,697
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 51 $ 31
======== ========
Cash paid for income taxes $ 6 $ 2,619
======== ========
See Notes to Consolidated Financial Statements
5
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' 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):
June 30, December 31,
2002 2001
------- -------
Raw materials and subassemblies $13,025 $18,279
Work in process 6,399 2,387
Finished goods 6,848 5,645
------- -------
Total inventories $26,272 $26,311
======= =======
Note 3. Other Current Liabilities
Other current liabilities consist of the following (in thousands):
June 30, December 31,
2002 2000
--------- ---------
Commissions payable $ 120 $ 288
Accrued warranty 261 435
Accrued professional services 96 210
Other 893 1,048
--------- ---------
Total other current liabilities $ 1,370 $ 1,981
========= =========
Note 4. Shareholders' Equity
Net Income (Loss) Per Share - The reconciliation of the share
denominator used in the basic and diluted net income (loss) per share
computations is as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
------ ------ ------ ------
Weighted average common shares
outstanding-shares used in basic
net income per share computation 11,837 11,658 11,814 11,637
Dilutive effect of common stock equivalents,
using the treasury stock method -- 537 -- 457
Shares used in diluted net income ------ ------ ------ ------
per share computation 11,837 12,195 11,814 12,094
====== ====== ====== ======
6
During the three and six month periods ended June 30, 2001, Nanometrics
had common equivalent shares 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.
During the three and six month periods ended June 30, 2002, diluted net loss per
share excludes common equivalent shares outstanding, as their effect is
antidilutive.
Note 5. Comprehensive Income (Loss)
Comprehensive income (loss), which consists of net income (loss) for
the periods and changes in accumulated other comprehensive income, was a loss of
$542,000 for the three months ended June 30, 2002 compared to income of
$1,749,000 for the three months ended June 30, 2001. For the six months ended
June 30, 2002 the comprehensive loss was $2,033,000 compared to comprehensive
income of $2,711,000 for the six months ended June 30, 2001.
Note 6. New Accounting Pronouncements
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 six months ended June 30, 2002.
Nanometrics completed its transitional impairment test and determined that no
impairment was indicated.
In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated
with Exit or Disposal Activities, which addresses accounting for restructuring
and similar costs. SFAS 146 supersedes previous accounting guidance, principally
Emerging Issues Task Force Issue No. 94-3. Nanometrics will adopt the provisions
of SFAS 146 for restructuring activities initiated after December 31, 2002. SFAS
146 requires that the liability for costs associated with an exit or disposal
activity be recognized when the liability is incurred. Under Issue 94-3, a
liability for an exit cost was recognized at the date of the Company's
commitment to an exit plan. SFAS 146 also establishes that the liability should
initially be measured and recorded at fair value. Accordingly, SFAS 146 may
affect the timing of recognizing future restructuring costs as well as the
amounts recognized.
7
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; (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'
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 three months ended June 30, 2002 were
$8,392,000, a decrease of $6,401,000 or 43% from the comparable period in 2001.
Unit sales of automated, integrated and tabletop systems were each down from
their 2001 levels. For the six months ended June 30, 2002, total revenues of
$16,417,000 decreased by $12,801,000 or 44% from the comparable period in 2001.
Product sales of $7,136,000 and $13,997,000 for the three months and six months
ended June 30, 2002, respectively, decreased $6,395,000 or 47% and $12,473,000
or 47%, respectively, as compared with the same periods during 2001. The lower
levels of product sales resulted from weaker demand for semiconductor process
control equipment, particularly in the U.S. and 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 $1,256,000 and $2,420,000 for the three months and six months ended June 30,
2002, respectively, decreased $6,000 and $328,000 or 0.5% and 12%, respectively,
as compared to the same periods in 2001 as a result of lower spare parts sales,
particularly in the U.S. and the Far East due in part to the decline in the
semiconductor market discussed above.
Cost of product sales as a percentage of product sales was unchanged at
42% in the second quarter of 2002 compared to the second quarter of 2001 and
unchanged at 41% in the six months ended June 30, 2002
8
compared to the same period in 2001. Cost of service as a percentage of service
revenue increased to 116% in the second quarter of 2002 from 107% in the second
quarter of 2001 and increased to 112% in the six months ended June 30, 2002 from
102% for the same period in 2001 resulting from lower service sales in the U.S.
and Far East in 2002.
Research and development expenses for the three month and six month
periods ended June 30, 2002 increased by $329,000 or 12% and $1,120,000 or 21%,
respectively, compared to the same periods in 2001 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, 2002 increased by $511,000 or 23% and $700,000 or 17%, respectively,
compared to the same periods in 2001 primarily because of increased headcount
and related expenses.
General and administrative expenses for the three month and six month
periods ended June 30, 2002 increased $183,000 or 17% and $159,000 or 8%
compared to the same periods in 2001 due primarily to information technology
implementation expenses in 2002.
Total other income, net for the three month and six month periods ended
June 30, 2002 decreased $357,000 or 52% and $868,000 or 70%, respectively, from
the comparable periods in 2001 due primarily to lower interest income, resulting
from lower investment balances and lower interest rates.
As a result of the factors discussed above, Nanometrics' loss from
operations was $3,088,000 and net loss was $1,702,000 for the second quarter of
2002 compared to income from operations of $1,813,000 and net income of
$1,537,000 for the same period in 2001. For the first six months of 2002,
Nanometrics' loss from operations was $5,635,000 and net loss was $3,249,000
which compared to income from operations of $3,914,000 and net income of
$3,160,000 for the same period in 2001.
Liquidity and Capital Resources
At June 30, 2002, our cash, cash equivalents and short-term investments
totaled $40,429,000. These funds are invested primarily in U.S. Treasury Bills.
At June 30, 2002, Nanometrics had working capital of $77,283,000 compared to
$80,171,000 at December 31, 2001. The current ratio at June 30, 2002 was 10.2 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 2002 used
cash of $5,669,000 primarily from the net loss, higher deferred tax levels,
lower accounts payable and higher accounts receivable resulting from increases
in days outstanding, offset to some extent by lower prepaid expenses. Investing
activities used $38,576,000 primarily due to purchases of short-term investments
in the amount of $36,772,000 and capital expenditures of $1,804,000 used to
continue our efforts in improving our facilities and expanding our manufacturing
capacity. Financing activities provided $506,000 primarily due to $329,000 in
short-term borrowings and $656,000 generated from stock issuances, offset by
$479,000 from repayment of debt obligations related to mortgages in Japan.
9
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, 2002 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, 2002. We
also have fixed rate yen denominated debt obligations in Japan that have no
interest rate risk. At June 30, 2002, our total debt obligation was $4,579,000
with a long-term portion of $3,426,000. A hypothetical 10% change in interest
rates at June 30, 2002 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 15, 2002.
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
Papken Der Torossian
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 6,658,141 0 1,450,072
Nathaniel Brenner, Director 7,839,789 0 268,424
John D. Heaton, Director 6,896,227 0 1,211,986
William G. Oldham, Director 7,848,789 0 259,424
Edmond R. Ward, Director 7,834,539 0 273,674
Papken Der Torossian, Director 7,833,039 0 275,174
2. To ratify the appointment of Deloitte &
Touche LLP as independent auditors for
the fiscal year ending December 31, 2002. 8,061,609 43,084 3,520
3. To approve an amendment to and restatement
of the Company's Articles of Incorporation to,
among other things, increase the number of
authorized shares of common stock of the
Company from 25,000,000 to 50,000,000. 7,386,714 708,123 13,376
4. To approve an amendment to the Company's
2000 Employee Stock Option Plan (the
"2000 Plan") to, among other things,
increase the number of shares of common
stock of the Company reserved for issuance
under the 2000 Plan by 1,200,000 shares. 4,767,351 2,244,702 17,805
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 and Touche LLP,
Nanometrics' independent auditors. Such services include tax and tax-related
services.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits.
Exhibit 99.1 Certification of Chief Executive Officer and Chief
Financial Officer
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 13, 2002
12