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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
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(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2003
OR
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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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
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
YES NO X
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At November 4, 2003 there were 12,103,415 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 -
September 30, 2003 and December 31, 2002 ................ 3
Condensed Consolidated Statements of Operations -
Three months and nine months ended
September 30, 2003 and 2002 ............................. 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 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 1. Legal Proceedings ....................................... 14
Item 2. Changes in Securities and Use of Proceeds ............... 14
Item 3. Defaults Upon Senior Securities ......................... 14
Item 4. Submission of Matters to a Vote of Security Holders ..... 14
Item 5. Other Information ....................................... 14
Item 6. Exhibits and Reports on Form 8-K ........................ 14
Signatures ................................................................ 15
Certifications ............................................................ 16
Exhibit Index ............................................................. 18
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
(Unaudited)
September 30, December 31,
2003 2002
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,062 $ 7,967
Short-term investments 22,938 28,899
Accounts receivable, net of allowances of $569 and $566 10,797 9,021
Inventories 23,113 25,847
Deferred income taxes 862 6,840
Prepaid expenses and other 3,100 2,803
--------- ---------
Total current assets 67,872 81,377
PROPERTY, PLANT AND EQUIPMENT, Net 49,830 50,050
INTANGIBLE ASSETS 1,423 1,748
OTHER ASSETS 1,378 1,513
--------- ---------
TOTAL ASSETS $ 120,503 $ 134,688
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,276 $ 1,708
Accrued payroll and related expenses 1,624 1,004
Deferred revenue 1,509 1,396
Other current liabilities 1,077 1,574
Income taxes payable 14 139
Current portion of debt obligations 1,487 780
--------- ---------
Total current liabilities 7,987 6,601
DEFERRED INCOME TAXES 1,081 858
DEBT OBLIGATIONS 2,737 3,123
--------- ---------
Total liabilities 11,805 10,582
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock, no par value; 50,000,000 shares
authorized; 12,092,415 and 12,006,641 outstanding 100,516 99,911
Retained earnings 7,813 24,475
Accumulated other comprehensive loss 369 (280)
--------- ---------
Total shareholders' equity 108,698 124,106
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 120,503 $ 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 Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
-------- -------- -------- --------
NET REVENUES:
Product sales $ 8,514 $ 6,637 $ 23,814 $ 20,634
Service 1,617 1,932 5,401 4,352
-------- -------- -------- --------
Total net revenues 10,131 8,569 29,215 24,986
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of product sales 4,539 3,063 13,026 8,884
Cost of service 1,425 1,666 4,918 4,377
Research and development 3,357 3,688 10,199 10,127
Selling 2,867 2,718 8,465 7,636
General and administrative 1,130 1,349 3,464 3,512
-------- -------- -------- --------
Total costs and expenses 13,318 12,484 40,072 34,536
-------- -------- -------- --------
LOSS FROM OPERATIONS (3,187) (3,915) (10,857) (9,550)
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest income 60 125 230 433
Interest expense (24) (25) (71) (72)
Other, net 208 (61) 176 57
-------- -------- -------- --------
Total other income, net 244 39 335 418
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (2,943) (3,876) (10,522) (9,132)
PROVISION (BENEFIT) FOR INCOME TAXES 53 (2,060) 6,141 (4,067)
-------- -------- -------- --------
NET LOSS $ (2,996) $ (1,816) $(16,663) $ (5,065)
======== ======== ======== ========
NET LOSS PER SHARE:
Basic and diluted $ (0.25) $ (0.15) $ (1.39) $ (0.43)
======== ======== ======== ========
SHARES USED IN PER SHARE
COMPUTATION:
Basic and diluted 12,033 11,886 12,016 11,838
======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements
4
NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Nine Months Ended
September 30,
2003 2002
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(16,663) $ (5,065)
Reconciliation of net loss to net cash
used in operating activities:
Depreciation and amortization 1,859 1,725
Deferred income taxes 5,982 (2,841)
Changes in assets and liabilities
Accounts receivable (1,355) 504
Inventories 3,118 (487)
Prepaid expenses and other current assets (86) (6)
Accounts payable accrued and other current liabilities 655 (1,175)
Income taxes payable (126) 126
-------- --------
Net cash used in operating activities (6,616) (7,219)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (49,039) (36,989)
Sales/maturities of short-term investments 55,000 35,000
Purchases of property, plant and equipment (748) (2,710)
-------- --------
Net cash provided by (used in) investing activities 5,213 (4,699)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (361) (611)
Issuance of common stock 605 894
-------- --------
Net cash provided by financing activities 244 283
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 254 (164)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (905) (11,799)
CASH AND CASH EQUIVALENTS, beginning of period 7,967 47,227
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 7,062 $ 35,428
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 72 $ 76
======== ========
Cash paid for income taxes $ 146 $ 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 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' 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 September 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):
September 30, December 31,
2003 2002
------- -------
Raw materials and subassemblies $12,989 $18,353
Work in process 4,702 4,733
Finished goods 5,422 2,761
------- -------
Total inventories $23,113 $25,847
======= =======
6
Note 4. Other Current Liabilities
Other current liabilities consist of the following (in thousands):
September 30, December 31,
2003 2002
------ ------
Commissions payable $ 129 $ 291
Accrued warranty 332 261
Accrued professional services 111 169
Other 505 853
------ ------
Total other current liabilities $1,077 $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 are as follows (in
thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
------ ------ ------ ------
Weighted average common shares
outstanding-shares used in basic
net loss per share computation 12,033 11,886 12,016 11,838
Dilutive effect of common stock equivalents,
using the treasury stock method -- -- -- --
------ ------ ------ ------
Shares used in dilutive net loss
per share computation 12,033 11,886 12,016 11,838
====== ====== ====== ======
During the three- and nine-month periods ended September 30, 2003 and
September 30, 2002, respectively, diluted net loss per share excludes common
equivalent shares outstanding of 2,851,000 and 2,936,000, as their effect is
anti-dilutive.
Note 6. Comprehensive Loss
Comprehensive loss, which consisted of net loss for the periods and
changes in accumulated other comprehensive loss, was a loss of $2,378,000 and
$2,182,000 for the three months ended September 30, 2003 and 2002, respectively.
For the nine months ended September 30, 2003 and 2002, the comprehensive loss
was $16,014,000 and $4,215,000, respectively. 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 (132)
Revision to existing warranty (195)
Provision for warranty (nine months ended September 30, 2003) 398
-----
Balance as of September 30, 2003 $ 332
=====
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 SFAS 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 Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
-------- -------- -------- --------
Net Loss
As reported $ (2,996) $ (1,816) $(16,663) $ (5,065)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related income tax effects (1,362) (1,171) (7,086) (3,375)
-------- -------- -------- --------
Pro forma $ (4,358) $ (2,987) $(23,749) $ (8,440)
======== ======== ======== ========
Basic and diluted net loss per share:
As reported $ (0.25) $ (0.15) $ (1.39) $ (0.43)
Pro forma $ (0.36) $ (0.25) $ (1.98) $ (0.71)
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 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
began October 2003.
8
Note 9. Intangible Assets
Intangible assets are recorded at cost, less accumulated amortization.
Intangible assets as of September 30, 2003 consist of (in thousands):
Gross Net
Carrying Accumulated Intangible
Amount Amortization Assets
------ ------------ ------
Technology $2,709 $1,378 $1,331
Other 250 158 92
------ ------ ------
Total $2,959 $1,536 $1,423
====== ====== ======
Amortization expense for the three-month and nine-month periods ended September
30, 2003 was $101,000 and $325,000, respectively. The estimated future
amortization expense as of September 30, 2003 is as follows (in thousands):
Fiscal Years
2003 (remaining three months) $ 101
2004 397
2005 285
2006 256
2007 256
Thereafter 128
-------
Total amortization $ 1,423
=======
Note 10. New Accounting Pronouncements
In January 2003, the Emerging Issues Task Force ("EITF"), published
EITF Issue 00-21 ("EITF 00-21"), "Revenue Arrangements with Multiple
Deliverables", which requires companies to determine whether an arrangement
involving multiple deliverables contains more than one unit of accounting. In
applying EITF 00-21, revenue arrangements with multiple deliverables should be
divided into separate units of accounting if the deliverables in the arrangement
meet certain criteria. Arrangement consideration should be allocated among the
separate units of accounting based on their relative fair values. This issue is
effective for revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. There was no impact on our results of operations or
financial position as a result of adopting EITF 00-21.
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, as amended and Section 21E of the Securities Exchange Act of 1934,
as amended. 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'
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
Our critical accounting policies include those set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Policies" in Nanometrics' 2002 Annual Report on
Form 10-K.
10
New Accounting Pronouncements
In January 2003, the Emerging Issues Task Force ("EITF"), published
EITF Issue 00-21 ("EITF 00-21"), "Revenue Arrangements with Multiple
Deliverables", which requires companies to determine whether an arrangement
involving multiple deliverables contains more than one unit of accounting. In
applying EITF 00-21, revenue arrangements with multiple deliverables should be
divided into separate units of accounting, if the deliverables in the
arrangement meet criteria. Arrangement consideration should be allocated among
the separate units of accounting based on their relative fair values. This issue
is effective for revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. There was no impact on our results of operations or
financial position as a result of adopting EITF 00-21.
Results of Operations
Total net revenues for the three months ended September 30, 2003 were
$10,131,000, an increase of $1,562,000 or 18% from the comparable period in
2002. For the nine months ended September 30, 2003, total net revenues of
$29,215,000 increased by $4,229,000 or 17% from the comparable period in 2002.
Product sales of $8,514,000 for the three months ended September 30, 2003,
increased $1,877,000 or 28% as compared with the same period in 2002. Product
sales of $23,814,000 for the nine months ended September 30, 2003, increased
$3,180,000 or 15% as compared with the same period in 2002. Unit sales of
automated and integrated systems increased in the third quarter of 2003 from
their third quarter 2002 levels. The increase in product sales resulted from
demand for semiconductor process control equipment and flat panel display
equipment, primarily in the U.S. and Far East. Service revenue of $1,617,000 for
the three months ended September 30, 2003 decreased $315,000 or 16% from the
same period in 2002 as customers began to spend more of their budgets on the
purchase of new systems and less on the maintenance of older systems. Service
revenue of $5,401,000 for the nine months ended September 30, 2003 increased
$1,049,000 or 24% compared to the same period in 2002 primarily due to higher
sales of parts and services, particularly in the U.S. and the Far East during
the first half of 2003.
Cost of product sales as a percentage of product sales increased to 53%
in the third quarter of 2003 from 46% in the third quarter of 2002 and increased
to 55% in the nine months ended September 30, 2003 from 43% for the same period
in 2002 due in part to lower sales prices on older products and costs associated
with an increase in manufacturing capacity added to our U.S. facility. The
increased manufacturing capacity is part of a strategic plan 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 increased slightly to 88% in the third quarter of 2003 from
86% in the third quarter of 2002. Cost of service as a percentage of service
revenue decreased to 91% in the nine months ended September 30, 2003 from 101%
for the same period in 2002 due primarily to higher service revenues, which
exceeded our cost of service.
Research and development expenses for the three months ended September
30, 2003 decreased $331,000 or 9% primarily as a result of lower materials
expenses incurred during the current phase in the development of new and
enhanced products. Research and development expenses for the nine months ended
September 30, 2003 increased $72,000 or 1% compared to the same period in 2002.
Selling expenses for the three-month and nine-month periods ended
September 30, 2003 increased by $149,000 or 5% and $829,000 or 11%,
respectively, compared to the same periods in 2002 primarily because of higher
headcount levels and other expenses incurred promoting our products.
General and administrative expenses for the three-month and nine-month
periods ended September 30, 2003 decreased $219,000 or 16% and $48,000 or 1%,
respectively, compared to the same periods in 2002. The higher expenses in 2002
were due in part to information technology implementation expenses.
Total other income, net for the three months ended September 30, 2003
increased $205,000 or 526% due primarily to foreign currency transaction gain.
Total other income, net for the nine months ended September 30, 2003 decreased
$83,000 or 20%, from the comparable period in 2002 due primarily to lower
interest income, resulting from lower investment balances and lower interest
rates.
A provision for income taxes of $6,020,000 was recorded in the first
quarter of 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
11
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, Nanometrics' loss from
operations was $3,187,000 and net loss was $2,996,000 for the third quarter of
2003 compared to a loss from operations of $3,915,000 and a net loss of
$1,816,000 for the same period in 2002. For the first nine months of 2003,
Nanometrics' loss from operations was $10,857,000 and the net loss was
$16,663,000 which compared to a loss from operations of $9,550,000 and a net
loss of $5,065,000 for the same period in 2002.
Liquidity and Capital Resources
At September 30, 2003, our cash, cash equivalents and short-term
investments totaled $30,000,000. These funds are invested primarily in U.S.
Treasury Bills. At September 30, 2003, Nanometrics had working capital of
$59,885,000 compared to $74,776,000 at December 31, 2002. The current ratio at
September 30, 2003 was 8.5 to 1. We believe working capital including cash and
short-term investments will be sufficient to meet our needs through at least the
next twelve months.
Operating activities for the first nine months of 2003 used cash of
$6,616,000 primarily from the net loss and higher accounts receivable resulting
from increased sales and the timing of shipments and receipts. These uses of
cash were offset to some extent by lower inventory levels as we continued to
limit our purchases of inventory in an effort to reduce our use of cash.
Investing activities provided $5,213,000 primarily due to sales of short-term
investments of $55,000,000 offset to some extent by purchases of short-term
investments in the amount of $49,039,000 and capital expenditures of $748,000
used to continue the process of internalizing our manufacturing capacity in the
United States. Financing activities provided $244,000 generated primarily by
stock issuances from the exercise of stock options by employees.
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 September 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
September 30, 2003. We also have fixed rate yen denominated debt obligations in
Japan that have no interest rate risk. At September 30, 2003, our total debt
obligation was $4,224,000 with a long-term portion of $2,737,000. A hypothetical
10% change in interest rates at September 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.
12
Based on their most recent evaluation, which was completed within 90
days of the filing 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 Rules 13a-14 and 15d-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.
13
NANOMETRICS INCORPORATED
PART II: OTHER INFORMATION
ITEM 1. Legal Proceedings
Not applicable.
ITEM 2. Changes in Securities and Use of Proceeds
Not applicable.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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 to Nanometrics 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 October 23, 2003 with an
attached press release.
14
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: November 11, 2003
15
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 we 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 these 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 officers 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 officers 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: November 11, 2003 By: /s/ John D. Heaton
------------------------------
Name: John D. Heaton
Title: Chief Executive Officer
16
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 we 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 these 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 officers 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 officers 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: November 11, 2003 By: /s/ Paul B. Nolan
------------------------------
Name: Paul B. Nolan
Title: Chief Financial Officer
17
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.
18