SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2002 or Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _______________ Commission file number 0-13470 ------------------------ 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 ____ At April 22, 2002 there were 11,828,196 shares of common stock, no par value, issued and outstanding.
NANOMETRICS INCORPORATED INDEX Part I. Financial Information Page ---- Item 1. Financial Statements Consolidated Balance Sheets - March 31, 2002 and December 31, 2001 . . . . . . . . . . . . . 3 Consolidated Statements of Operations - Three months ended March 31, 2002 and 2001 . . . . . . . . . . 4 Consolidated Statements of Cash Flows - Three months ended March 31, 2002 and 2001 . . . . . . . . 5 Notes to Consolidated Financial Statements . . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . 9 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 10 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2
PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS NANOMETRICS INCORPORATED CONSOLIDATED BALANCE SHEETS (Amounts in thousands except share amounts) <TABLE> <CAPTION> March 31, December 31, 2002 2001 ASSETS (Unaudited) ---------- ---------- CURRENT ASSETS: <S> <C> <C> Cash and cash equivalents $ 41,428 $ 47,227 Short-term investments 1,989 - Accounts receivable, net of allowances of $561 and $562 10,009 9,131 Inventories 25,785 26,311 Deferred income taxes 5,378 3,974 Prepaid expenses and other 727 2,474 ---------- ---------- Total current assets 85,316 89,117 PROPERTY, PLANT AND EQUIPMENT, Net 49,423 48,412 DEFERRED INCOME TAXES 81 225 GOODWILL 1,077 1,077 OTHER ASSETS 3,414 3,524 ---------- ---------- TOTAL $ 139,311 $ 142,355 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 858 $ 2,906 Accrued payroll and related expenses 1,398 1,148 Deferred revenue 2,574 2,261 Other current liabilities 2,301 1,981 Income taxes payable 102 272 Current portion of debt obligations 374 378 ---------- ---------- Total current liabilities 7,607 8,946 OTHER LONG-TERM OBLIGATIONS - 250 DEBT OBLIGATIONS 3,178 3,314 ---------- ---------- Total liabilities 10,785 12,510 ---------- ---------- SHAREHOLDERS' EQUITY: Common stock, no par value; 25,000,000 shares authorized; 11,801,199 and 11,787,033 outstanding 98,703 98,531 Retained earnings 31,196 32,743 Accumulated other comprehensive loss (1,373) (1,429) ---------- ---------- Total shareholders' equity 128,526 129,845 ---------- ---------- TOTAL $ 139,311 $ 142,355 ========== ========== </TABLE> See Notes to Consolidated Financial Statements 3
NANOMETRICS INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands except per share amounts) (Unaudited) Three Months Ended March 31, 2002 2001 ---- ---- NET REVENUES: Product sales $ 6,861 $ 12,939 Service 1,164 1,486 ---------- ---------- Total net revenues 8,025 14,425 ---------- ---------- COSTS AND EXPENSES: Cost of product sales 2,792 5,291 Cost of service 1,257 1,466 Research and development 3,386 2,595 Selling 2,222 2,033 General and administrative 915 939 ---------- ---------- Total costs and expenses 10,572 12,324 ---------- ---------- INCOME (LOSS) FROM OPERATIONS (2,547) 2,101 ---------- ---------- OTHER INCOME (EXPENSE): Interest income 165 993 Interest expense (22) (22) Other, net (92) (409) ---------- ---------- Total other income, net 51 562 ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES (2,496) 2,663 PROVISION (BENEFIT) FOR INCOME TAXES (949) 1,040 ---------- ---------- NET INCOME (LOSS) $ (1,547) $ 1,623 ========== ========== NET INCOME (LOSS) PER SHARE: Basic $ (0.13) $ 0.14 ========== ========== Diluted $ (0.13) $ 0.14 ========== ========== SHARES USED IN PER SHARE COMPUTATION: Basic 11,790 11,616 ========== ========== Diluted 11,790 11,992 ========== ========== See Notes to Consolidated Financial Statements 4
NANOMETRICS INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, 2002 2001 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: <S> <C> <C> Net income (loss) $ (1,547) $ 1,623 Reconciliation of net income (loss) to net cash provided by operating activities: Depreciation and amortization 493 240 Deferred income taxes (1,235) 326 Changes in assets and liabilities: Accounts receivable (935) 1,487 Inventories 484 (1,277) Prepaid expenses and other 1,704 777 Accounts payable accrued and other current liabilities (1,085) (444) Income taxes payable (102) 400 ---------- ---------- Net cash provided by (used in) operating activities (2,223) 3,132 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of short-term investments (1,989) (76,866) Sales/maturities of short-term investments - 68,589 Purchases of property, plant and equipment (1,463) (2,849) Other assets - (627) ---------- ---------- Net cash used in investing activities (3,452) (11,753) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of debt obligations (393) (574) Issuance of common stock 102 96 ---------- ---------- Net cash used in financing activities (291) (478) ---------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 167 122 ---------- ---------- NET CHANGE IN CASH AND EQUIVALENTS (5,799) (8,977) CASH AND CASH EQUIVALENTS, beginning of period 47,227 16,934 ---------- ---------- CASH AND CASH EQUIVALENTS, end of period $ 41,428 $ 7,957 ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 26 $ 32 ========== ========== Cash paid for income taxes $ 6 $ 333 ========== ========== SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Common stock issued as partial proceeds in a business combination $ - $ 214 ========== ========== </TABLE> 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 intercompany accounts and transactions have been eliminated. While the quarterly consolidated financial statements are unaudited, the financial statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) which Nanometrics considers necessary for a fair presentation of the results of operations for the interim periods covered and of our financial condition at the date of the interim balance sheet. The operating results for interim periods are not necessarily indicative of the operating results that may be expected for the entire year. The information included in this report should be read in conjunction with the information included in Nanometrics' 2001 Annual Report on Form 10-K filed with the Securities and Exchange Commission. Note 2. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following (in thousands): March 31, December 31, 2002 2001 ---- ---- Raw materials and subassemblies $ 17,577 $ 18,279 Work in process 2,129 2,387 Finished goods 6,079 5,645 -------- -------- Total inventories $ 25,785 $ 26,311 ======== ======== Note 3. Other Current Liabilities Other current liabilities consist of the following (in thousands): March 31, December 31, 2002 2001 ---- ---- Commission payable $ 105 $ 288 Accrued warranty 361 435 Accrued professional services 151 210 Customer deposits 716 - Other 968 1,048 -------- -------- Total other current liabilities $ 2,301 $ 1,981 ======== ======== 6
Note 4. Shareholders' Equity Net Income Per Share - The reconciliation of the share denominator used in the basic and diluted net income per share computations are as follows (in thousands): Three Months Ended March 31, 2002 2001 ------ ------ Weighted average common shares outstanding-shares used in basic net income per share computations 11,790 11,616 Dilutive effect of common stock equivalents, using the treasury stock method - 376 ------ ------ Shares used in diluted net income per share computation 11,790 11,992 ====== ====== At March 31, 2002, common stock equivalents were excluded from the diluted net income per share computation as their effect is anti-dilutive. During the three months ended March 31, 2001, Nanometrics had common stock options outstanding which could potentially dilute basic net income per share in the future, but were excluded from the computation of diluted net income per share as the common stock options' exercise prices were greater than the average market price of the common shares for the period. Note 5. Comprehensive Income (Loss) Comprehensive income (loss), which consisted of net income (loss) and changes in accumulated other comprehensive income, was a loss of $1,491,000 for the three months ended March 31, 2002 compared to income of $995,000 for the same period in 2001. Note 6. New Accounting Pronouncement In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. SFAS No. 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives will not be amortized, but will rather be tested at least annually for impairment. Effective January 1, 2002, Nanometrics adopted SFAS No. 142. Nanometrics ceased amortizing goodwill with a net carrying value of $1,077,000 and annual amortization of $204,000 that resulted from business combinations completed prior to the adoption of SFAS No. 141. The adoption of the non-amortization provisions of SFAS No. 142 was not material for the three months ended March 31, 2002. Nanometrics completed its transitional impairment test and determined that no impairment was indicated. 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 Nanometrics' products, which may be affected by several factors including the cyclicality of the semiconductor, magnetic recording head and flat panel display industries served by Nanometrics, patterns of capital spending by its customers, technological changes in the markets served by Nanometrics and its customers, and market acceptance of products of both Nanometrics and its customers; (ii) the timing, cancellation or delay of Nanometrics' customer orders and shipments; (iii) competition, including competitive pressures on product prices and changes in pricing by Nanometrics' customers or suppliers; (iv) fluctuations in foreign currency exchange rates, particularly the Japanese yen; (v) the proportion of sales Nanometrics makes directly to its customers versus sales through distributors and representatives; (vi) market acceptance of new and enhanced versions of Nanometrics' products; (vii) the timing of new product announcements and releases of products by Nanometrics or its competitors, including our ability to design, introduce and manufacture new products on a timely and cost effective basis; (viii) the size and timing of acquisitions of businesses, products or technologies and fluctuations in the availability and cost of components and subassemblies of Nanometrics' products. In some cases, forward-looking statements can be identified by words such as "believe," "expect," "anticipate," "plan," "potential," "continue" or similar expressions. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain risk factors, including those set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors That May Affect Future Operating Results" in Nanometrics' 2001 Annual Report on Form 10-K. We believe that it is important to communicate our expectations to our investors. However, there may be events in the future that we are not able to predict accurately or over which we have no control. You should be aware that the occurrence of the events described in such risk factors and elsewhere in this report could materially and adversely affect our business, operating results and financial condition. All forward-looking statements included in this report are based on information available to us on the date hereof. We undertake no obligation to update forward-looking statements made in this report to reflect events or circumstances after the date of this report or to update reasons why actual results could differ from those anticipated in such forward-looking statements. Results of Operations Total net revenues for the first quarter of 2002 were $8,025,000, a decrease of $6,400,000 or 44% from the same quarter in 2001. Product sales of $6,861,000 decreased $6,078,000 or 47% for the first quarter of 2002 compared to the same period in 2001. Unit sales of automated, integrated and tabletop systems were each down from their 2001 levels. The decrease in product sales resulted from weaker demand for semiconductor process control metrology equipment, particularly in the U.S. and the Far East. We believe that this reduced demand was attributable primarily to overcapacity in the semiconductor industry as well as the economic slowdown in the U.S. and Japan. Service revenue of $1,164,000 decreased $322,000 or 22% in the first quarter of 2002 compared to the same period in 2001 primarily due to lower spare parts sales in the U.S and the Far East due in part to the decline in the semiconductor market discussed above. 8
Cost of product sales as a percentage of product sales was 41% in the first quarter of 2002, unchanged from the first quarter of 2001. Cost of service as a percentage of service revenue increased to 108% in the first quarter of 2001 from 99% in the first quarter of 2001 primarily as a result of lower service sales in the U.S and in the Far East. Research and development expenses for the first quarter of 2002 increased $791,000 or 30% compared to the same period in 2001 resulting primarily from increased headcount and related expenses for the development of new and enhanced products. Selling expenses for the first quarter of 2002 increased by $189,000 or 9% compared to the same period in 2001 primarily because of a higher headcount level and related expenses. General and administrative expenses for the first quarter of 2002 decreased by $24,000 or 3% compared to the same period in 2001 primarily as a result of lower spending associated with the decreased level of operations. Total other income, net decreased $511,000 or 91% during the first quarter of 2002 compared to the same period in 2001 due primarily to lower interest income. Nanometrics' loss from operations was $2,547,000 and the net loss was $1,547,000 or $0.13 per diluted share in the first quarter of 2002 compared to income from operations of $2,101,000 and net income of $1,623,000 or $0.14 per diluted share in the first quarter of 2001. Liquidity and Capital Resources At March 31, 2002, our cash, cash equivalents and short-term investments totaled $43,417,000. These funds are invested primarily in U.S. Treasury Bills. At March 31, 2002, Nanometrics had working capital of $77,709,000 compared to $80,171,000 at December 31, 2001. The current ratio at March 31, 2002 was 11.2 to 1. We believe that our working capital, including cash, cash equivalents and short-term investments will be sufficient to meet our needs at least through the next twelve months. Operating activities for the first three months of 2002 used cash of $2,223,000 primarily from the net loss, lower accounts payable and higher accounts receivable resulting from increases in days outstanding, offset to some extent by lower inventory levels and lower prepaid expenses. Investing activities used $3,452,000 primarily due to purchases of short-term investments of $1,989,000 and capital expenditures of $1,463,000 used to continue our efforts in improving our facilities and expanding our manufacturing capacity. Financing activities used $291,000 primarily due to repayment of debt obligations of $393,000 related to mortgages in Japan, offset by $102,000 generated from stock issuances. We have evaluated and will continue to evaluate the acquisition of products, technologies or businesses that are complementary to our business. These activities may result in product and business investments, which may affect our cash position and working capital balances. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to financial market risks, which include changes in foreign currency exchange rates and interest rates. We do not use derivative financial instruments. Instead, we actively manage the balances of current assets and liabilities denominated in foreign currencies to minimize currency fluctuation risk. As a result, a hypothetical 10% change in the foreign currency exchange rates at March 31, 2002 would not have had a material impact on our results of operations. Our investments in marketable securities are subject to interest rate risk but due to the short-term nature of these investments, interest rate changes would not have had a material impact on their value at March 31, 2002. We also have fixed rate yen denominated debt obligations in Japan that have no interest rate risk. At March 31, 2002, our total debt obligation was $3,552,000 with a long-term portion of $3,178,000. A hypothetical 10% change in interest rates at March 31, 2002 would not have had a material impact on our results of operations. 9
NANOMETRICS INCORPORATED PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. Exhibits. None B. Reports on Form 8-K. None 10
NANOMETRICS INCORPORATED SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NANOMETRICS INCORPORATED (Registrant) /s/ Vincent J. Coates - ------------------------ 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: May 7, 2002 11