<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[x] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1996 or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
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.)
310 DeGuigne Drive, Sunnyvale, California 94086
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (408) 746-1600
_________________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
--------------------------
Title of Class
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 10, 1997: $14,795,550 based upon the last sales
price reported for such date. For purposes of this disclosure, shares of common
stock held by officers, directors or persons who hold more than 5% of the
outstanding shares of common stock of the Registrant have been excluded in that
such persons may be deemed to be "affiliates" as that term is defined under the
rules and regulations promulgated under the Securities Exchange Act of 1934, as
amended. This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
The number of shares outstanding of the Registrant's common stock as
of March 11, 1996 was 8,262,192.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to
the definitive Proxy Statement for the Annual Meeting of Shareholders of the
Company to be held May 15, 1997 which will be filed with the Securities and
Exchange Commission no later than 120 days after December 31, 1996.
<PAGE>
NANOMETRICS INCORPORATED
ANNUAL REPORT - - FORM 10-K
TABLE OF CONTENTS
PAGE
----
Part I
Item 1. Business............................................ I-1
Item 2. Properties.......................................... I-8
Item 3. Legal Proceedings................................... I-8
Item 4. Submission of Matters to a Vote of Security Holders. I-8
Part II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters................................ II-1
Item 6. Selected Consolidated Financial Data................ II-2
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ II-3
Item 8. Financial Statements and Supplementary Data......... II-9
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ II-24
Part III
Item 10. Directors and Executive Officers of the Registrant.. III-1
Item 11. Executive Compensation.............................. III-1
Item 12. Security Ownership of Certain Beneficial Owners
and Management..................................... III-1
Item 13. Certain Relationships and Related Transactions...... III-1
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K........................................ IV-1
Signatures.......................................................... V-1
(ii)
<PAGE>
PART I
ITEM 1. BUSINESS
--------
INTRODUCTION
- ------------
Nanometrics Incorporated ("Nanometrics" or the "Company"), incorporated
in California in 1975, designs, manufactures, markets and services optical
microscope-based measurement and inspection stations. The primary market served
by the Company is the semiconductor industry, which utilizes these instruments
to monitor processes employed in the fabrication of integrated circuits on
wafers, flat panel displays (FPDs) and magnetic recording heads (MRHs).
Nanometrics pioneered many developments in measurement and inspection and today
is a leading producer of automated instruments used to measure physical
dimensions of circuit elements. All of the Company's products contain
proprietary computer software and patented features.
Since 1977, the majority of the Company's revenues have been from the
sale of semiconductor measurement systems utilizing optical instrumentation.
Newer versions of Nanometrics' optical measurement systems utilize wide-range,
high sensitivity optics that allow the totally automated measurement of most
films used in integrated circuits, FPDs and MRHs manufacturing today.
Nanometrics' business has experienced growth because more intensive
inspection is required as a result of the semiconductor industry's rapid
transition to smaller and more complex integrated circuits on larger substrates.
As devices have become more dense and as the number of process steps have
increased, the Company has responded with more efficient and automatic operator-
free measurement systems. In October 1994, a new Fully Automated Film Thickness
Measurement System, the NanoSpec 8000 was introduced to the market and began
shipping to customers in the second quarter of 1995. In December 1994, as a
result of R&D performed at its wholly-owned subsidiary in Japan, the Company
introduced another major Automated Film Thickness Measurement System, the
NanoSpec 5500, aimed at large flat panel display manufacturing. These systems
have undergone continuous development since their introduction, to meet current
and future requirements of modern highly automated and high-throughput
fabrication facilities.
I-1
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PRODUCTS
- --------
Nanometrics offers a range of products to address the varying needs of
its customers for film thickness measurement and inspection. Current products
are as follows:
NANOSPEC/AFT FILM THICKNESS SYSTEMS.
- --------------------------------------
These optical microscope-based systems measure the dielectric film
thickness and chemical composition of film materials on integrated circuits,
selectively and non-destructively. They measure the spectrum of the optical
interference pattern in small areas of the die to determine the thickness and
optical constants of different transparent films at chosen sites. A wide range
of "thick" and "thin" films can be measured, including silicon dioxide, silicon
nitride, polysilicon and photoresist on silicon, gallium arsenide, glass, metal
and other substrates. Since its introduction in 1977, the NanoSpec/AFT has gone
through several model changes which have enhanced and improved performance based
on customer needs. With an installed base of over 4200 units, the NanoSpec/AFT
continues to be a leading product line of the Company.
Fast, Automated Measurement and Analysis Systems
------------------------------------------------
In October 1994, Nanometrics introduced a new Fully Automated Film
Thickness Measurement System, the NanoSpec 8000, which can be programmed to run
operator-free and is designed to meet the speed, measurement, performance and
reliability requirements which are essential to high level factory control of
today's semiconductor mega-fabs and magnetic head production. The Company
believes that this system offers the lowest cost of ownership of any system
available today due to its high throughput (greater than 100 wafers per hour),
small footprint in costly clean room space, robust construction and competitive
price. It features fully automated operation and high efficiency optics, which
allow fast measurement in small spots and mapping of most films used in the
manufacture of integrated circuits. Reliable wafer handling robotics and stage
systems are also incorporated in the NanoSpec 8000. These mechanisms use well-
accepted principles which typically show more than 10,000 hours mean time
between failure based on actual experience in field operation. The first
shipments of the NanoSpec 8000 were made in the second quarter of 1995, with
more than 30 units having been shipped through the end of 1996.
For some time, semiconductor fabricators have wanted to monitor the
chemical composition of films which can determine the electronic performance of
finished micro-chip circuits. To achieve this capability, in early 1995
Nanometrics and J.A. Woollam Company made an agreement to incorporate Woollam's
spectroscopic ellipsometer into the Model 8000. The Woollam ellipsometer adds
unique and powerful capabilities to the Model 8000, allowing both the
measurement and analysis of the chemical composition of films on advanced
semiconductor wafers. The integration of this important capability was completed
in the second quarter of 1996. The tool, designated the NanoSpec 8000XSE, was
shown for the first time in July 1996 at SEMICON/West, the world's largest
semiconductor equipment trade show.
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Also, in early 1995, SEMATECH, a consortium of large U.S. semiconductor
manufacturers, selected Nanometrics to design and build a tool that could handle
and measure film thickness on 300mm wafers. The previous standard wafer sizes
ranged from 100mm to 200mm in diameter, was handled by the Model 8000. The
selection of Nanometrics is part of a project SEMATECH was launching to develop
tools for the eventual industry shift to the manufacture of ICs on 300mm
semiconductor wafers. These larger diameter wafers are designed to allow lower
production cost since many more chips per wafer can be simultaneously
manufactured. In response to their selection, Nanometrics unveiled the NanoSpec
8300 in July 1995 at the SEMICON/West trade show. The Model 8300 is the
semiconductor industry's first 300mm film thickness measuring system. The system
is capable of handling both 200mm and 300mm (eight to twelve inch) diameter
wafers. In addition, the NanoSpec 8300 incorporates both a spectroscopic
ellipsometer and spectrophotometer, enabling the system to accurately measure
and analyze virtually any dielectric film used in semiconductor manufacture
today. The production version of the Model 8300, the NanoSpec 8300X was
completed in July, 1996 and introduced to the industry at SEMICON/West that same
month. The first production versions of the 8300 were shipped in the second
quarter 1996 and installed in customer facilities.
At the Semicon Japan trade show held in Tokyo in December 1994, the
Company introduced a new film thickness metrology system for flat panel
displays, the Model 5500. The flat panel display industry, including displays
for lap-top computers, is projected to grow rapidly. Flat panel displays utilize
transparent films which must be accurately measured. The Model 5500 was
developed by the Company's Japanese subsidiary, which has been working closely
with a number of Japanese flat panel display manufacturers over the last several
years. The Model 5500 is fully automated and accommodates substrates up to 650 x
550 mm. Virtually all optically transparent films used in the manufacture of
flat panel displays can be measured. The first shipments of the Model 5500 took
place in the first quarter of 1995 and 12 units have been shipped through the
end of 1996.
Table-Top Systems
-----------------
The company believes that it manufactures the widest range of film
thickness systems of compact design to fit on a work table. In 1992, Nanometrics
introduced and began shipping two additions to the NanoSpec/AFT family of Semi
Automatic Table-Top Film Thickness Measurement Systems, the Models 4000 and
4100. These tools utilize the advanced IBM OS/2 /(TM)/ software platform and a
revolutionary high-sensitivity ultraviolet/visible light optical system, an
industry first. These products provide semiconductor manufacturers with the
ability to measure certain films and film properties important for fabrication
of the latest fast, very large scale integrated (VLSI) circuits. The Model 4150,
an enhanced version of the Model 4100 introduced in the middle of 1994, provides
automated stage and focusing systems for hands-off uniformity maps. The Model
4000 is a lower cost system that provides manual stage and focusing controls. In
1994, the Company's Japanese subsidiary introduced two table-top systems, the
Models 5000 and 5100 specifically engineered to meet the needs of the Japanese
market. These systems are modified versions of the Models 4000 and 4150,
respectively. In June, 1996 Nanometrics Japan Ltd. introduced a new enhanced
table top system, the NanoSpec 6100. First shipments of this new product were
made in the last quarter 1996. The lowest priced FT system manufactured by
Nanometrics Japan is the Model 3000 which was introduced in 1995. The Company
believes that it has a significant share of the semi-automatic film thickness
measurement market for table-top systems.
I-3
<PAGE>
The Company offers unique capability because of its design of
programmable algorithms to the software platforms of its table top products.
This provides the semiconductor process engineer with the freedom and
flexibility to create custom measurement programs to characterize the unique
films and multi-layer film stacks which have become common design elements in
modern VLSI circuits. The programmable measurement algorithms also broaden the
instruments' markets by allowing the measurement of specialized films used in
the thin magnetic head and flat panel display equipment manufacturing
industries.
NANOLINE LINEWIDTH MEASURING SYSTEMS
------------------------------------
The Nanoline Model 50-2C is a
table-top instrument used for semi-automated measurement of linewidths and
pattern overlay alignment on semiconductor wafers. This system is composed of a
scanning microdensitometer microscope subsystem, a CRT display and a computer.
The technology is well proven and is effective in measuring linewidths down to
.8 microns on both wafers and photomasks. First Nanolines were introduced in
1979 and more than 1000 units have been shipped worldwide to semiconductor
fabrication facilities.
Backlog
- -------
As of December 31, 1996, the Company's backlog was approximately
$3,603,000, compared with approximately $6,211,000 at December 31, 1995. The
decrease from last year was primarily due to the timing of some large orders
that were not received until January 1997. The Company's backlog as of the
January 31, 1997 was $9,230,000. The majority of this backlog is expected to be
shipped in 1997. Historically, order cancellations and order rescheduling have
not been significant. However, there can be no assurance that orders presently
in backlog will not be cancelled or rescheduled.
Marketing and Customers
- -----------------------
Nanometrics sells its semiconductor equipment products worldwide to
many of the major integrated circuit, flat panel display and magnetic head
manufacturers, including those which manufacture components for use in their own
products. Limited sales are also made to manufacturers of semiconductor
equipment and photomasks. No single customer represented 10% or more of the
Company's total revenues in 1996. Sales to one customer represented
approximately 10% of total revenue in 1995 and 11% of total revenue in 1994.
The Company sells its products by means of direct sales and through
independent sales representatives whose territories cover the United States and
Canada. The majority of the Company's domestic sales representatives have sold
the Company's products for at least five years.
Export sales, which exclude sales by the Company's foreign subsidiary in
Japan, constituted approximately 21%, 25% and 30% of total revenues for 1996,
1995 and 1994, respectively. The Company's products are sold and distributed in
Japan by its wholly-owned subsidiary, Nanometrics Japan, Ltd. The Company's
products are sold in Europe to Intertrade Scientific ("ITS") an independent
dealer organization, which has offices in the United Kingdom, France, Germany
and Italy, which functions as a distributor and buys the Company's products for
resale to its customers. Direct
I-4
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exports of the Company's semiconductor equipment to foreign customers and
shipments to its subsidiary require general export licenses. See Note 10 of
Notes to Consolidated Financial Statements for information regarding total
revenues, operating income (loss) and identifiable assets of the Company's
foreign operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Factors that May Affect Future Operating
Results-International Operations."
The Company believes that the market for its products is well-defined,
and most sales are made to established customers. Marketing activities include
participation in numerous domestic and foreign trade shows, advertising in trade
magazines and periodic direct mailings.
Service
- -------
Nanometrics provides warranty and post-warranty service from its
corporate office in California. The Company also has service operations based in
Arizona, Massachusetts, Texas and Pennsylvania. In Europe, local service and
spare parts are provided by ITS. In the Far East, service is provided in Japan
by Nanometrics Japan, Ltd., in Korea by Nanometrics Korea Ltd. and the Company's
distributors and representatives provide service in other countries. In
addition, in 1996, the Company opened a sales and service office in Taiwan to
provide stronger support to a growing customer base in that country.
Nanometrics provides a one year warranty on parts and labor for products
sold domestically and in foreign markets. Revenues from post-warranty services
(Service Revenue), including sales of replacement parts, represented
approximately 19%, 20% and 29% of 1996, 1995 and 1994 total consolidated net
revenues, respectively.
Competition
- -----------
Competition in the markets for the Company's film thickness measurement
and inspection systems is strong as domestic and foreign manufacturers continue
to introduce competitive products, including automated film thickness
measurement and inspection systems. The Company is a leading supplier of
spectrophotometric film thickness measurement systems to the semiconductor
industry; however, its measurement and inspection systems face intense
competitive pressure from numerous manufacturers. Many of the Company's
competitors have strong financial resources, broad product lines, large customer
service organizations and large established customer bases.
Nanometrics believes that the principal competitive factors in its
markets are the technical capabilities and characteristics of systems offered
(including automation and software capability), proven product reliability,
quality of service, name recognition, and price. The Company believes that it
competes favorably with respect to these factors, but continues to develop and
design new and improved products in order to remain competitive. During 1996,
the Company invested $2.8 million in research and development or approximately
9% of total consolidated net revenues.
The Company conducts some manufacturing of its products in Japan, where
modifications are required to better serve the needs of the local Japanese
markets and to address intense competition for sales.
I-5
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Manufacturing
- -------------
The Company's manufacturing activities consist of assembling and testing
components and subassemblies obtained from outside suppliers. Accordingly, the
Company's manufacturing operations are not capital equipment intensive, but
reflect the Company's reliance on systems engineering and software development.
Some components and subassemblies of the Company's principal products
are technically advanced and available from only one or two suppliers, which in
some cases are not U.S. companies. As a partial safeguard against interruption
or termination of supplies, the Company attempts to maintain its inventory of
such items in quantities estimated to be sufficient to permit time for product
redesign, if necessary. However, the Company could be adversely affected if a
sole source of supply was terminated and product redesign could not be completed
in the time estimated or involved other unanticipated problems.
The Company has manufacturing operations in Japan through its Japanese
subsidiary. The Company currently ships product kits to its Japanese
subsidiary, which are then assembled, tested and shipped to customers.
Research and Development
- ------------------------
The Company's current research and development efforts are directed
toward enhancing existing products and developing and introducing new products
to achieve technological leadership and to appeal to a wider range of customers.
The Company is working to develop potential applications of new and emerging
technologies, including improved methods of measurement. These efforts are
conducted at its facilities in California and also at its Japanese subsidiary.
Expenditures for research and development during 1996, 1995 and 1994 were $2.8
million, $2.6 million and $2.4 million and represented 9%, 12% and 18% of total
consolidated net revenues, respectively.
Patents and Trademarks
- ----------------------
Nanometrics actively pursues a program of filing patent applications to
seek protection of technologically sensitive features of its products. The
Company holds numerous United States patents and additional patents in Japan and
Europe. Additionally, the Company has several patent applications pending in the
United States and abroad which cover various features of its optical systems.
The United States patents, issued during the period 1980 to 1996, will expire
from 1997 to 2013.
The validity of the Company's patents has not been adjudicated by any
court. Competitors may bring legal challenges to the validity of one or more of
these patents, or attempt to circumvent the patents. While the Company does not
anticipate any challenges to the validity of its patents, there can be no
assurance that either of such activities by competitors will not be successful.
The Company has licensed some of its technology to other manufacturers in the
past. Although the Company believes that its patents are valuable, the Company
also depends on its trade secrets and the innovative skills of its technical
personnel to maintain its competitive position.
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Executive Officers of the Registrant
- ------------------------------------
The executive officers of the Company are as follows:
Name Age Position with the Company
---- --- -------------------------
Vincent J. Coates 72 Chairman of the Board, Chief Executive
Officer, Secretary
John Heaton 37 Director, President and Chief Operating Officer
Paul B. Nolan 42 Vice President and Chief Financial Officer
Mr. Vincent Coates has been Chairman of the Board since the Company was
founded. He served as President from the founding through July 1988 except for
the period January 1986 through February 1987 when he served exclusively as
Chief Executive Officer. He is currently the Chief Executive Officer of the
Company and was elected Secretary in February 1989.
Mr. Heaton joined the Company in September 1990 and in March 1994 he was
elected Vice President. In July 1995 he was appointed to the Board of Directors.
In 1996 he was elected President and Chief Operating Officer. Mr. Heaton served
as Equipment Engineer at National Semiconductor prior to joining the Company.
Mr. Nolan joined the Company in March 1989 and in March 1994 he was
elected Vice President and Chief Financial Officer. Mr. Nolan served as Senior
Financial Analyst at Harris Corporation prior to joining the Company.
Mr. Vincent Coates is the father of Mr. Norman Coates, a director of the
Company. There are no other family relationships among any of the executive
officers and directors of the Company. All directors hold office until the next
annual meeting of shareholders of the Company and until their successors have
been elected and qualified. Officers are elected by and serve at the discretion
of the Board of Directors.
Employees
- ---------
At December 31, 1996, the Company employed 134 persons worldwide on a
full-time basis, including 30 in research and development, 29 in manufacturing
and manufacturing support, 61 in marketing, sales and field service and 14 in
general administration and finance. None of these employees is represented by a
union and the Company has never experienced a work stoppage as a result of union
actions. Many of the Company's employees have specialized skills of value to the
Company. Nanometrics' future success will depend in large part upon its ability
to attract and retain highly skilled technical, managerial, financial and
marketing personnel, who are in great demand in the industry. Nanometrics
considers its employee relations to be good.
I-7
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ITEM 2. PROPERTIES
----------
The Company's principal manufacturing and administrative facility is
located in Sunnyvale, California in a leased building with approximately 35,000
square feet. The lease on this building began in May 1992 and expires in April
1997. See Note 7 of Notes to Consolidated Financial Statements. During 1995, the
Company's Japanese subsidiary also leased some sales and service facilities.
Rent expenses for the Company's facilities was approximately $483,000 in 1996.
The Company owns a 15,000 square foot facility near Narita International
Airport in Japan. This facility is utilized by the Company's Japanese subsidiary
for sales, service, engineering and manufacturing processes which are specific
to the Japanese market.
ITEM 3. LEGAL PROCEEDINGS
-----------------
Some customers using certain products of the Company have received
notices of infringement from Technivision Corporation/Jerome Lemelson alleging
that equipment used in the manufacture of semiconductor products infringes his
patents. Certain of these customers have notified the Company that they may seek
indemnification from the Company for any damages and expenses resulting from
this matter. Certain of the Company's customers are engaged in litigation with
Mr. Lemelson involving a number of his patents, and are challenging the validity
of these patents and whether these patents are infringed. Recently, a U.S.
District Court Magistrate in Reno, Nevada recommended that a patent lawsuit
filed by Mr. Lemelson be dismissed. Following that, a District Judge in Las
Vegas, Nevada adopted a recommendation by the Magistrate that a summary judgment
sought by the defendant in this lawsuit be granted. Mr. Lemelson filed motions
seeking reconsideration of the defendant's motion. The District Judge heard
arguments on this matter and took Mr. Lemelson's motion under advisement.
Although the ultimate outcome of these matters is not presently determinable,
management believes that the resolution of all such pending matters will not
have a material adverse affect on the Company's financial position or results of
operations although there can be no assurance of such.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1996.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
---------------------------------------------
RELATED SHAREHOLDER MATTERS
---------------------------
The Company's Common Stock had been traded on The Nasdaq National Stock
Market under the symbol "NANO" since the Company's initial public offering in
1984, until February 24, 1995 when the Nasdaq Stock Market Inc. began listing
the Company's Common Stock on the Nasdaq SmallCap Market using the symbol
"NANOC" under a temporary exception which required that the Company maintain a
minimum market value of $1 million on its public float. On August 9, 1995 the
Company's common stock began trading again on the Nasdaq National Stock Market
under the symbol "NANO". The following table sets forth, for the periods
indicated, the range of high and low sale prices as reported on the Nasdaq
National Market. December 27 and December 29 were the last trading days of the
1996 and 1995 fiscal years.
Year ended December 31, 1996 1995
- ----------------------- ---- ----
High Low High Low
First Quarter $8.63 $5.25 $ 2.19 $0.44
Second Quarter 7.19 4.88 6.50 1.44
Third Quarter 6.00 4.00 10.50 5.00
Fourth Quarter 6.13 4.19 9.25 4.25
As of March 11, 1997, there were approximately 144 shareholders of
record and approximately 2,000 beneficial shareholders. The last sale price
reported on the Nasdaq National Market on February 12, 1997 was $6.88 per share.
The Company has never paid cash dividends. It is the present policy of
the Company's Board of Directors to retain earnings to finance expansion of the
Company's operations, and the Company does not expect to pay dividends in the
foreseeable future.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------
<TABLE>
<CAPTION>
The following table summarize certain selected consolidated financial
data. See Consolidated Financial Statements included herein.
<S> <C> <C> <C> <C> <C>
Years Ended December 31,
- -----------------------------------------------------------------------------------------
Statement of 1996 1995 1994 1993 1992
- ------------ ---- ---- ---- ---- ----
Operations Data ( In thousands, except per share data)
- ---------------
Total net revenues $30,336 $22,759 $13,579 $16,570 $15,213
======= ======= ======= ======= =======
Gross margin $16,139 $11,164 $ 5,589 $ 7,768 $ 6,479
======= ======= ======= ======= =======
Operating income(loss) $ 6,213 $ 2,641 $(2,231) $ 216 $ (838)
======= ======= ======= ======= =======
Income (loss) before
cumulative effect of
accounting change $ 3,993 $ 4,277 $(2,074) $ 555 $ (416)
Cumulative effect of
accounting change (1) - - - (200) -
------- ------- ------- ------- -------
Net income (loss) $ 3,993 $ 4,277 $(2,074) $ 355 $ (416)
======= ======= ======= ======= =======
Income (loss) per
common and
equivalent share:
Income (loss) before
cumulative effect of
accounting change $ .47 $ .52 $ (.28) $ .08 $ (.06)
Cumulative effect of
accounting change - - - (.03) -
------- ------- ------- ------- -------
Net income (loss) $ .47 $ .52 $ (.28) $ .05 $ (.06)
======= ======= ======= ======= =======
Weighted average
common and
equivalent shares
outstanding 8,524 8,280 7,304 7,016 6,949
======= ======= ======= ======= =======
Balance Sheet Data:
- ------------------
Working Capital $22,613 $18,338 $10,205 $11,809 $11,308
Total Assets 29,964 25,167 15,786 18,414 17,404
Long-term Debt 3,296 3,528 421 578 961
Shareholders' Equity 22,060 17,574 12,995 14,427 13,533
</TABLE>
(1) Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", and recognized the
cumulative effect of adoption of the change in accounting for income taxes of
$200,000 ($0.03 per share).
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
RESULTS OF OPERATIONS
Total revenues for 1996 were $30.3 million, a 33% increase from 1995.
The increase in total revenues resulted primarily from increased worldwide sales
of the Company's flagship NanoSpec 8000 product family and of the fully
automated Model 5500 flat panel display metrology system particularly in the Far
East. The Company experienced a 77% increase in domestic revenues to $14.4
million for 1996 from $8.2 million in 1995 while international revenues
increased 9% to $15.9 million for 1996 from 14.6 million in 1995. The increase
in international revenue was partially offset by the impact of the strengthening
of the US dollar against the Japanese yen on sales in Japan. Total revenues for
1995 were $22.8 million, a 68% increase from 1994 total revenues of $13.6
million which resulted primarily from the introduction and sales of the NanoSpec
8000 product family and the Model 5500 in 1995. Domestic revenues increased 119%
to $8.2 million in 1995 from $3.7 million in 1994 while international revenues
increased 48% to $14.6 million in 1995 from $9.9 million in 1994.
Cost of product sales as a percentage of net product sales decreased to
41% in 1996 from 45% in 1995 primarily because of higher prices resulting from
strong demand for the Company's products and a continued decline in fixed
operating costs as a percent of higher sales. Cost of product sales as a
percentage of net product sales decreased to 45% in 1995 from 53% in 1994 as a
result of a shift in product mix and a decline in fixed operating costs as a
percent of higher sales. The Company may experience fluctuations in gross
margins as a result of competitive pressures, changes in product mix, product
introductions and transitions, varying production levels, and fluctuations in
material and labor costs among other factors.
Service revenues increased to $5.7 million in 1996 from $4.6 million in
1995 and $3.9 million in 1994. The increase in 1996 resulted from continued
higher levels of service and accessory sales in the U.S. and Japan as the
Company's installed base of systems has increased. Cost of service as a
percentage of service revenue was 71% in 1996, slightly lower than 73% in both
1995 and in 1994.
Research and development expenses for 1996 were higher than 1995 levels
by $123,000 or 5%. Research and development expenses for 1995 were higher than
1994 levels by $226,000 or 9%. These increases were primarily due to additional
personnel hired to develop new products and features. The Company continues to
be committed to the development of new and enhanced products and believes that
new product introductions will play an important and necessary role in obtaining
future revenues. The Company expects that spending for research and development
in 1997 will be comparable to 1996 levels.
Selling expenses increased $984,000 in 1996 or 27% when compared to 1995
as a result of higher sales commission expenses from increased sales and the
addition of sales personnel in the U.S. and the Far East. Selling expenses
increased $766,000 in 1995 or 26% when compared to 1994 as a result of both
higher sales commission expenses from increased sales and startup costs in
establishing new domestic and foreign sales offices in 1995. During 1996 selling
expenses represented 15% of
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<PAGE>
total consolidated revenues, compared to 16% and 22% in 1995 and 1994,
respectively. This decrease, particularly from 1994, was due primarily to fixed
selling expenses growing at a slower rate than revenues in 1996.
General and administrative expenses in 1996 increased by $296,000 or 14%
compared to 1995 due primarily to the addition of a managing director and
related expenses in Japan. General and administrative expenses during 1995
decreased by $289,000 or 12% when compared to 1994. The general and
administrative expenses in 1994 were higher than in 1995 primarily because of a
$517,000 write-off of a doubtful receivable in 1994. During 1996 general and
administrative expenses represented 8% of total consolidated revenues, compared
to 10% and 18% in 1995 and 1994, respectively.
Other income decreased $380,000 or 46% in 1996 compared to 1995 as a
result of more favorable exchange rate results in 1995. Other income increased
$639,000 or 345% in 1995 compared to 1994 as a result of higher interest income
and more favorable exchange rate results.
The Company's provision for income taxes in 1996 was $2.7 million and
the effective tax rate was 40%. The effective tax rate exceeds the U.S.
statutory rate primarily due to state income taxes and realization of foreign
sales corporation benefit. The effective income tax rate differed from the U.S.
statutory rate because the results for 1995 included a $2.3 million favorable
income tax adjustment to reverse the valuation allowance for certain deferred
tax assets in accordance with SFAS 109. The effective income tax rate differed
from the U.S. statutory rate during 1994 as a result of non-deductible expenses
and an increase in the valuation allowance for deferred tax assets. See Note 5
of Notes to Consolidated Financial Statements.
The Company reported an operating profit of $6,213,000 and net income of
$3,993,000 or $.47 per share in 1996 compared to an operating profit of
$2,641,000 and net income of $4,277,000 or $.52 per share in 1995 and an
operating loss of $2,231,000 and net loss of $2,074,000 or $.28 per share in
1994. The impact of inflation on the Company's results of operations has not
been significant.
During each quarter, the Company sells a relatively small number of
systems, and therefore a slight change in the timing of shipments can have a
significant impact on quarterly results of operations. The Company's backlog at
the beginning of each quarter generally does not include all systems sales
needed to achieve expected revenues for that quarter. Consequently, the Company
is often dependent on obtaining orders for systems to be shipped in the same
quarter that the order is received. Moreover, customers may reschedule
shipments, and production difficulties could delay shipments. Accordingly, the
Company's results of operations are subject to significant variability from
quarter to quarter and could be adversely affected for a particular quarter if
shipments for that quarter were lower than anticipated. Because a relatively
small group of customers may account for a significant percentage of the
Company's sales in any given period, the loss of any single customer could have
a short-term adverse effect on the Company's results of operations.
II-4
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During 1996, operating activities provided cash of $356,000 primarily
from higher net income partially offset by higher working capital requirements.
Financing activities provided cash of $358,000 primarily from the sale of shares
under the employee stock purchase and option plans. Investing activities used
cash of $2.6 million, primarily from the purchase of short-term investments in
the U.S. During 1995, operating activities provided cash of $2.3 million
primarily from higher net income partially offset by higher working capital
requirements. Financing activities provided cash of $4.2 million primarily from
a loan of $4.7 million from a bank in Japan using the Company's building and
adjacent land in Japan as collateral. Investing activities used cash of $4.1
million, primarily from the investment of proceeds of the bank financing in
short-term investments in the U.S. During 1994, operating activities used cash
of $2.0 million and financing activities used cash of $385,000. The Company
reduced its short-term investments by $3.4 million in 1994 to meet these cash
flow requirements.
The Company believes that its working capital, including cash and short-
term investments of approximately $8.4 million, will be sufficient to meet its
needs at least through the end of 1997. At December 31, 1996, the Company had
$22.6 million in working capital and its current ratio was 6.0 to 1.
Outstanding borrowings at December 31, 1996 totalled approximately $3.6
million of which $347,000 is due within one year. See Note 6 of Notes to
Consolidated Financial Statements.
The Company has evaluated in the past and will continue to evaluate the
acquisition of products, technologies or businesses that are complementary to
the Company's business. These activities may result in product and business
investments.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
This Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Action of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, including, but not
limited to, the statements regarding the Company backlog, outcome of legal
proceedings, expected research and development expenses. These forward-looking
statements inherently involve risks and uncertainties. The Company's actual
results could differ materially from the results anticipated in such forward-
looking statements. Factors that could cause or contribute to such differences
include, without limitation, the factors set forth below as well as and
elsewhere in this report.
The following risk factors should be considered by shareholders of and
by potential investors in the Company in evaluating the Company, its business,
financial condition and business prospects.
Significant Fluctuations in Operating Results. The Company's operating
results have fluctuated significantly in the past and may fluctuate
significantly in the future. The Company anticipates that factors affecting its
future operating results will include the cyclicality of the semiconductor
industry and the markets served by the Company's customers, the size and timing
of
II-5
<PAGE>
orders, patterns of capital spending by customers, the proportion of direct
sales and sales through distributors and representatives, the proportion of
international sales to net sales, changes in pricing by the Company, its
competitors, customers or suppliers, market acceptance of new and enhanced
versions of the Company's products, the timing of new product announcements and
releases of products by the Company or its competitors, delays, cancellations or
rescheduling of orders due to customer financial difficulties or otherwise
lengthy sales cycles. Gross margins may vary materially based on a variety of
factors including the mix and average selling prices of product sales and the
cost associated with new product introductions.
Limited Systems Sales; Backlog. The Company derives a substantial
portion of its sales from the sale of a relatively small number of systems which
typically range in purchase price from approximately $40,000 to $400,000. As a
result, the timing of recognition of revenue for a single transaction could have
a material adverse affect on the Company's sales and operating results. The
Company's backlog at the beginning of a quarter typically does not include all
sales required to achieve the Company's sales objective for that quarter.
Moreover, all customer purchase orders are subject to cancellation or
rescheduling by the customer with limited or no penalties. Therefore, backlog at
any particular date is not necessarily representative of actual sales for any
succeeding period. The Company's net sales and operating results for a quarter
may depend upon the Company obtaining orders for systems to be shipped in the
same quarter that the order is received. The Company's business and financial
results for a particular period could be materially adversely affected if an
anticipated order for even one system is not received in time to permit shipment
during such period.
Highly Competitive Industry. The semiconductor capital equipment
industry is intensely competitive. A substantial investment is required by
customers to install and integrate capital equipment into a semiconductor
production line. As a result, once a semiconductor manufacturer has selected a
particular vendor's capital equipment, the Company believes that the
manufacturer generally relies upon that equipment for the specific production
line application and frequently will attempt to consolidate its other capital
equipment requirements with the same vendor. Accordingly, the Company expects to
experience difficulty in selling to a particular customer for a significant
period of time if that customer selects a competitor's capital equipment. The
Company currently experiences intense competition worldwide from a number of
foreign and domestic manufacturers, including Tencor Instruments and Therma-
Wave, some of which have substantially stronger financial resources than the
Company. The Company expects its competitors to continue to develop enhancements
to and future generations of competitive products that may offer improved price
or performance features.
New product introductions and enhancements by the Company's competitors
could cause a significant decline in sales or loss of market acceptance of the
Company's systems in addition to intense price competition or otherwise make the
Company's systems or technology obsolete or noncompetitive. Increased
competitive pressure could lead to reduced demand and lower prices for the
Company's products, thereby materially adversely affecting the Company's
operating results. There can be no assurance that the Company will be able to
compete successfully in the future.
II-6
<PAGE>
International Operations. A significant portion of the Company's total
revenues are derived from customers outside the United States, and the Company
anticipates that international revenues will continue to be significant in the
future. The Company's international operations are subject to risks inherent in
the conduct of international business, including unexpected changes in
regulatory requirements, exchange rates, export license requirements, tariffs
and other barriers, political and economic instability, limited intellectual
property protection, difficulties in collecting payments due from sales agents
or customers, difficulties in managing distributors or representatives,
difficulties in staffing and managing foreign subsidiary operations and
potentially adverse tax consequences. In addition, the Company does not
currently engage in currency exchange rate hedging transactions and there can be
no assurance that fluctuations in currency exchange rates in the future will not
have a material adverse impact on the Company's business, operating results and
financial conditions.
Rapid Technological Change; Importance of Timely Product Introduction.
The semiconductor manufacturing industry is subject to rapid technological
change and new product introductions and enhancements. The Company's ability to
remain competitive will depend in part upon its ability to develop new and
enhanced systems and to introduce these systems at competitive prices and in a
timely and cost effective manner to enable customers to integrate the systems
into their operations either prior to or upon commencement of volume product
manufacturing. In addition, new product introductions or enhancements by the
Company's competitors could cause a decline in sales or loss of market
acceptance of the Company's existing products. Increased competitive pressure
could also lead to intensified price-based competition resulting in lower prices
and margins, which would materially adversely affect the Company's business,
financial conditions and results of operations. The success of the Company in
developing, introducing and selling new and enhanced systems depends upon a
variety of factors, including product selections, timely and efficient
completion of product design and development, timely and efficient
implementation of manufacturing and assembly processes, effective sales and
marketing and product performance in the field. Because new product development
commitments must be made well in advance of sales, new product decisions must
anticipate both the future demand for the products under development and the
equipment required to produce such products. There can be no assurance that the
Company will be successful in selecting, developing, manufacturing and marketing
new products or in enhancing existing products.
Intellectual Property Rights. Although the Company attempts to protect
its intellectual property rights through patents, copyrights, trade secrets and
other measures, it believes that its financial performance will depend more upon
the innovation, technological expertise and marketing abilities of its employees
than upon such protection. There can be no assurance that any of the Company's
pending patent applications will be issued or that foreign intellectual property
laws will protect the Company's intellectual property rights. There can be no
assurance that any patent issued to the Company will not be challenged,
invalidated or circumvented or that the rights granted thereunder will provide
competitive advantages to the Company. Furthermore, there can be no assurance
that others will not independently develop similar products, duplicate the
Company's product, or, if patents are issued to the Company, design around the
patents issued to the Company. Although there are currently no pending claims or
lawsuits against the Company regarding any possible infringement claims, there
can be no assurance that infringement claims by third parties or claims for
indemnification resulting from infringement claims will not be asserted in the
future or that such assertions, if proven to have merit, will not materially
adversely affect the Company's business,
II-7
<PAGE>
financial condition and results of operations. If any such claims are asserted
against the Company, the Company may seek to obtain a license under the third
party's intellectual property rights. There can be no assurance that a license
will be available on reasonable terms or at all. The Company could decide, in
the alternative, to resort to litigation to challenge such claim. Such
challenges could be extremely expensive and time consuming and could materially
adversely affect the Company's business, financial condition and results of
operations. In addition, some customers of the Company have received notices of
infringement from Technivision Corporation/Jerome Lemelson alleging that
equipment used in the manufacture of semiconductor products infringes their
patents. A number of these customers have notified the Company that they may
seek indemnification from the Company for any damages and expenses resulting
from this matter. Certain of the Company's customers have engaged in litigation
with Mr. Lemelson involving a number of his patents and some of these cases have
settled. Although the ultimate outcome of these matters is not presently
determinable, the Company believes that the resolution of all such pending
matters will not have a material adverse effect on the Company's financial
position or results of operations, however, there can be no assurance of this.
Sole or Limited Sources of Supply; Reliance on Subcontractors;
Complexity in Manufacturing Processes. Certain components, subassemblies and
services necessary for the manufacture of the Company's systems are obtained
from a sole supplier or limited group of suppliers. The Company does not
maintain any long-term supply agreements with any of its suppliers. The Company
is relying increasingly on outside vendors to manufacture many components and
subassemblies. The Company's reliance on sole or a limited group of suppliers
and the Company's increasing reliance on subcontractors involve several risks,
including a potential inability to obtain an adequate supply of required
components and reduced control of pricing and timely delivery of components and
subassemblies. Because the manufacture of certain of these components and
subassemblies is an extremely complex process and requires long lead times,
there can be no assurance that delays or shortages caused by suppliers will not
occur in the future. Certain of the Company's suppliers have relatively limited
financial and other resources. Any inability to obtain adequate deliveries or
any other circumstance that would restrict the Company's ability to ship its
products, could damage relationships with current and prospective customers and
could have a material adverse effect on the Company's business and results of
operations.
Cyclicality of Semiconductor Industry. The semiconductor industry has
been characterized by cyclicality. The industry has experienced significant
economic downturns at various times in the last decade, characterized by
diminished product demand, accelerated erosion of average selling prices and
production over-capacity. The Company may experience substantial period-to-
period fluctuations in future operating results due to general industry
conditions or events occurring in the general economy.
Management of Growth. The Company's business is currently experiencing
a period of growth that has placed and is expected to continue to place a
significant strain on the Company's personnel and resources. The Company's
ability to manage future growth, if any, will depend on its ability to continue
to implement and improve operational, financial and management information and
controls systems on a timely basis, together with maintaining effective cost
controls, and any failure to do so could have a material adverse effect on the
Company's business, operating results and financial condition.
II-8
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The financial statements filed herewith are listed in the index in Item
14.
II-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Nanometrics Incorporated:
We have audited the accompanying consolidated balance sheets of Nanometrics
Incorporated and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. Our audits also
included the consolidated financial statement schedule listed in the Index at
Item 14.(a)2. These financial statements and the financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and the financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Nanometrics Incorporated and
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles. Also, in
our opinion, the financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
February 19, 1997
II-10
<PAGE>
NANOMETRICS INCORPORATED
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- -------------------------------------------------------------------------------
ASSETS 1996 1995
CURRENT ASSETS:
Cash and equivalents $ 1,725 $ 3,625
Short-term investments 6,657 4,458
Accounts receivable, less allowance
for doubtfull accounts of $419 and
$380 in 1996 and 1995, respectively 11,100 7,567
Inventories 5,078 3,955
Deferred income taxes 1,648 2,069
Prepaid expenses and other 882 428
------- -------
Total current assets 27,090 22,102
PROPERTY, PLANT AND EQUIPMENT, Net 2,600 2,900
OTHER ASSETS 274 165
------- -------
TOTAL $29,964 $25,167
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,563 $ 1,172
Accrued payroll and related expenses 533 486
Other current liabilities 763 1,155
Income taxes payable 1,271 398
Current portion of long-term debt 347 553
------- -------
Total current liabilities 4,477 3,764
LONG-TERM DEBT, Net of current portion 3,296 3,528
DEFERRED INCOME TAXES 131 301
------- -------
Total liabilities 7,904 7,593
------- -------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Common stock, no par value;
25,000,000 shares authorized;
8,258,061 and 7,883,910 outstanding 11,833 10,983
Retained earnings 10,387 6,394
Accumulated translation adjustment (160) 197
------- -------
Total shareholders' equity 22,060 17,574
------- -------
TOTAL $29,964 $25,167
======= =======
See notes to consolidated financial statements.
II-11
<PAGE>
NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- -------------------------------------------------------------------------------
NET REVUES: 1996 1995 1994
Product sales $24,603 $18,117 $ 9,655
Service 5,733 4,642 3,924
------- ------- -------
Total net revenues 30,336 22,759 13,579
------- ------- -------
COSTS AND EXPENSES:
Cost of product sales 10,109 8,189 5,128
Cost of service 4,088 3,406 2,862
Research and development 2,754 2,631 2,405
Selling 4,696 3,712 2,946
General and administrative 2,476 2,180 2,469
------- ------- -------
Total costs and expenses 24,123 20,118 15,810
------- ------- -------
OPERATING INCOME (LOSS) 6,213 2,641 (2,231)
------- ------- -------
OTHER INCOME (EXPENSE):
Interest income 390 302 93
Interest expense (92) (152) (49)
Other, net 146 674 141
------- ------- -------
Total other income, net 444 824 185
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES 6,657 3,465 (2,046)
PROVISION (BENEFIT) FOR INCOME TAXES 2,664 (812) 28
------- ------- -------
NET INCOME (LOSS) $ 3,993 $ 4,277 $(2,074)
======= ======= =======
EARNINGS PER COMMON AND EQUIVALENT
SHARE $ 0.47 $ 0.52 $ (0.28)
======= ======= =======
COMMON AND EQUIVALENT SHARES USED IN
PER SHARE COMPUTATION 8,524 8,280 7,304
======= ======= =======
See notes to consolidated financial statements.
II-12
<PAGE>
NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED TOTAL
---------------------- RETAINED TRANSLATION SHAREHOLDERS'
SHARES AMOUNT EARNINGS ADJUSTMENT EQUITY
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1994 7,119,303 $ 9,859 $ 4,191 $ 377 $14,427
Issuance of common stock under
employee stock purchase plan 11,975 8 - - 8
Issuance of common stock under
stock option plan 239,700 151 - - 151
Accumulated translation adjustment - - - 483 483
Net loss - - (2,074) - (2,074)
--------- ------- ------- ----- -------
BALANCES, December 31, 1994 7,370,978 10,018 2,117 860 12,995
Issuance of common stock under
employee stock purchase plan 26,504 29 - - 29
Issuance of common stock under
stock option plan 486,428 322 - - 322
Tax benefit of stock option
transactions - 614 - - 614
Accumulated translation adjustment - - - (663) (663)
Net income _ _ 4,277 - 4,277
--------- ------- ------- ----- -------
BALANCES, December 31, 1995 7,883,910 10,983 6,394 197 17,574
Issuance of common stock under
employee stock purchase plan 25,627 115 - - 115
Issuance of common stock under
stock option plan 348,524 233 - - 233
Tax benefit of stock option
transactions - 502 - - 502
Accumulated translation adjustment - - - (357) (357)
Net income - - 3,993 - 3,993
--------- ------- ------- ----- -------
BALANCES, December 31, 1996 8,258,061 $11,833 $10,387 $(160) $22,060
========= ======= ======= ===== =======
See notes to consolidated statements.
</TABLE>
II-13
<PAGE>
NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,993 $ 4,277 $ (2,074)
Reconciliation of net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 309 318 332
Deferred income taxes 263 (1,826) 306
Changes in assets and liabilities:
Accounts receivable (4,031) (2,886) 811
Inventories (1,228) 766 (494)
Prepaid expense and other (458) (202) (125)
Accounts payable, accruals and other
current liabilities 111 782 (526)
Income taxes payable 1,397 1,050 (285)
-------- -------- --------
Net cash provided by (used in)
operating activities 356 2,279 (2,055)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (12,522) (8,786) (3,250)
Sales/maturities of short-term investments 10,321 4,821 6,688
Purchases of property, plant and equipment (270) (117) (31)
Other assets (128) (60) 11
-------- -------- --------
Net cash provided by (used in)
investing activities (2,599) (4,142) 3,418
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 762 4,700 -
Repayments of long-term borrowings (752) (822) (544)
Sale of shares under employee stock purchase and
option plans 348 351 159
-------- -------- --------
Net cash provided by (used in)
financing activities 358 4,229 (385)
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (15) (876) (53)
-------- -------- --------
NET CHANGE IN CASH AND EQUIVALENTS (1,900) 1,490 925
CASH AND EQUIVALENTS, beginning of year 3,625 2,135 1,210
-------- -------- --------
CASH AND EQUIVALENTS, end of year $ 1,725 $ 3,625 $ 2,135
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 118 $ 135 $ 50
======== ======== ========
Cash paid for income taxes $ 715 $ 157 $ 161
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
II-14
<PAGE>
NANOMETRICS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Nanometrics Incorporated (the "Company") designs,
manufactures, markets and services optical microscope-based measurement and
inspection systems used primarily for manufacturing process control during the
fabrication of wafers used to make integrated circuits and flat panel displays.
In addition, the Company produces analytical instruments for general use in
biological and industrial research. The Company's products are primarily sold
to semiconductor and flat panel display manufacturers in the United States, Asia
and Europe, and its business is dependent on the demand for semiconductors and
electronic products using flat panel displays (such as portable computers).
Basis of Presentation - The consolidated financial statements include the
Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions are eliminated.
Although for presentation purposes the Company has indicated its year end as
December 31, its fiscal year actually ends on the Saturday nearest to December
31. The Company's fiscal years for 1996, 1995 and 1994 ended on December 28,
1996, December 30, 1995, and December 31, 1994. Fiscal 1996, 1995 and 1994 each
contained 52 weeks.
Financial Statement Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates include provisions for
doubtful accounts, warranty costs and lower of cost or market valuation
reserves. Actual results could differ from those estimates.
Cash and Equivalents - Cash and equivalents include cash and highly liquid debt
instruments with original maturities of three months or less when purchased.
Short-Term Investments - The Company's short-term investments consist of United
States Treasury bills with maturities at the date of acquisition of more than
three months.
While the Company's intent is to hold debt securities to maturity, they are
classified as available-for-sale because the sale of such securities may be
required prior to maturity. Available-for-sale securities at December 31, 1996
are stated at cost which approximates fair market value.
Concentration of Credit Risk - Financial instruments which potentially subject
the Company to concentrations of credit risk consist primarily of cash and
equivalents, short-term investments and accounts receivable. The Company
invests its cash and short-term investments generally in United States Treasury
bills that are primarily held by one broker. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral
for sales on credit. The Company maintains reserves for potential credit losses
and such losses have historically been within management's expectations.
II-15
<PAGE>
Inventories - Inventories are stated at the lower of cost (first-in, first-out)
or market.
Property, Plant and Equipment - Property, plant and equipment are stated at
cost. Depreciation is computed using straight line and accelerated methods over
the estimated useful lives of the assets ranging from three to 45 years.
Leasehold improvements are amortized over the shorter of the estimated useful
lives of the improvements or the lease term.
Stock-Based Compensation - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Revenue Recognition - Revenues from product sales are recognized at the time of
shipment. Revenue from service contracts is recognized ratably over the period
of the contract. The Company 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.
Fair Value of Financial Instruments - Financial instruments include cash
equivalents, short-term investments, and long-term obligations. Cash
equivalents are stated at fair market value based on quoted market prices. The
short-term investments are stated at cost which approximates fair market value.
The recorded carrying amount of the Company's long-term obligations approximates
fair market value.
Foreign Currency - The functional currencies of the Company's foreign
subsidiaries are the local currencies. Accordingly, translation adjustments for
the subsidiaries have been included in shareholders' equity. Gains and losses
from transactions denominated in currencies other than the functional currency
of the Company or its subsidiaries are included in other income and consist of
gains of $39,000, $623,000 and $65,000 for 1996, 1995 and 1994, respectively.
Income Taxes -The Company accounts for income taxes under an asset and liability
approach for financial accounting and reporting of 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 net operating loss and tax credit
carryforwards.
Common and Equivalent Per Share Data - Common and equivalent per share data is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding. Common equivalent shares include dilutive common
stock options (using the treasury stock method) and shares issuable under the
employee stock purchase plan. Common stock equivalents are excluded from the
computation in loss periods as they are antidilutive.
Reclassifications - Certain prior year amounts in the accompanying financial
statements have been reclassified to conform to the current year presentation.
II-16
<PAGE>
2. INVENTORIES
Inventories at December 31 consist of the following:
1996 1995
(IN THOUSANDS)
Finished goods $ 1,809 $ 1,398
Work in process 1,414 830
Raw materials and subassemblies 1,855 1,727
------- -------
$ 5,078 $ 3,955
======= =======
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 consist of the following:
1996 1995
(IN THOUSANDS)
Land $ 908 $ 1,014
Building 2,753 3,000
Machinery and equipment 1,510 1,667
Leasehold improvements 397 392
Furnitures and fixtures 281 251
------- -------
5,849 6,324
Accumulated depreciation and amortization (3,249) (3,424)
------- -------
$ 2,600 $ 2,900
======= =======
4. OTHER CURRENT LIABILITIES
Other current liabilities at December 31 consist of the following:
1996 1995
(IN THOUSANDS)
Commissions payable $ 269 $ 317
Accrued warranty 303 198
Trade-in allowances - 293
Other accrued liabilities 191 347
------- -------
$ 763 $ 1,155
======= =======
5. INCOME TAXES
Income (loss) before income taxes for the years ended December 31 consists
of the following:
1996 1995 1994
(IN THOUSANDS)
Domestic $ 6,305 $ 1,964 $(2,331)
Foreign 352 1,501 285
------- ------- -------
Total $ 6,657 $ 3,465 $(2,046)
======= ======= =======
II-17
<PAGE>
The provision (benefit) for income taxes consists of the following:
1996 1995 1994
(IN THOUSANDS)
Current:
Federal $ 1,583 $ 477 $ (304)
State 354 137 5
Foreign 304 461 21
------- ------- -------
2,241 1,075 (278)
------- ------- -------
Deferred:
Federal 287 (1,302) 304
State 186 (557) -
Foreign (50) (28) 2
------- ------- -------
423 (1,887) 306
------- ------- -------
Provision (benefit) for
income taxes $ 2,664 $ (812) $ 28
======= ======= =======
Significant components of the Company's net deferred tax asset (liability)
at December 31 are as follows:
1996 1995
(IN THOUSANDS)
Deferred tax assets:
Reserves and accruals not currently
deductible $ 1,466 $ 1,234
Capitalized inventory costs 182 244
Net operating loss carryforwards - 230
Tax credit carryforwards - 561
------- -------
Total deferred tax assets 1,648 2,269
------- -------
Valuation allowance - (200)
------- -------
1,648 2,069
------- -------
Deferred tax liabilities:
Depreciation (56) (50)
Other (75) (251)
------- -------
Total deferred tax liabilities (131) (301)
------- -------
Net deferred tax asset $ 1,517 $ 1,768
======= =======
During the year ended December 31, 1996, the Company determined that it was not
likely to realize certain foreign tax credit carryforward benefits and wrote
these deferred tax assets off against the related valuation allowance.
II-18
<PAGE>
Following is a summary of differences between income taxes computed by applying
the statutory federal income tax rate to income (loss) before income taxes and
the provision for income taxes:
1996 1995 1994
(IN THOUSANDS)
Income taxes (benefit) computed
at 35% U.S. statutory rate $ 2,330 $ 1,213 $ (716)
State income taxes 356 - -
Foreign taxes higher than
U.S. taxes 60 225 -
Foreign sales corporation benefit (205) (66) -
Nondeductible expenses 87 84 82
Change in valuation allowance - (2,339) 662
Other, net 36 71 -
------- ------- -------
Provision (benefit) for
income taxes $ 2,664 $ (812) $ 28
======= ======= =======
6. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
BANK LOAN DESCRIPTION 1996 1995
(IN THOUSANDS)
1995 working capital bank loan $ 2,949 $ 3,675
1996 working capital bank loan 649 -
Real estate bank loan - 232
Building construction bank loan - 174
------- -------
Total 3,643 4,081
Current portion (347) (553)
------- -------
Long-term debt $ 3,296 $ 3,528
======= =======
The 1995 working capital bank loan was obtained by the Company's Japanese
subsidiary. The loan is secured by receivables of the Japanese subsidiary and
is guaranteed by the parent, Nanometrics Incorporated. The loan is denominated
in Japanese yen ((Yen)340,000,000 at December 31, 1996) and bears interest at
the rate of 3.3% per annum. The loan is payable in quarterly installments with
unpaid principal and interest due May 2005.
In 1996, a working capital bank loan was obtained by the Company's Japanese
subsidiary. A portion of the borrowing proceeds were used to repay the
remaining balances of the real estate and building construction loans. The loan
is secured by land and building. The loan is denominated in Japanese yen
((Yen)80,000,000 at December 31, 1996) and bears interest at the rate of 3.4%
per annum. The loan is payable in quarterly installments beginning May 1998
with unpaid principal and interest due May 2006.
II-19
<PAGE>
At December 31, 1996, future annual maturities of long-term debt (excluding
current portion) are as follows (in thousands):
1998 $ 409
1999 430
2000 430
Thereafter 2,027
-------
$ 3,296
=======
7. COMMITMENTS AND CONTINGENCIES
The Company leases manufacturing and administrative facilities and certain
equipment under noncancellable operating leases. The Company's current primary
facility lease expires in April 1997 and includes a renewal option for a five
year extension. Rent expense for 1996, 1995 and 1994, was approximately
$483,000, $420,000 and $500,000, respectively. Future minimum lease payments
for each of the years ending December 31 are as follows (in thousands):
1997 $ 200
1998 49
1999 49
2000 35
2001 4
-------
$ 337
=======
The Company is party to various claims, legal actions and complaints in the
normal course of business. Although the ultimate outcome of these matters is
not presently determinable, management believes that the resolution of all such
pending matters will not have a material adverse effect on the Company's
financial position or results of operations.
8. SHAREHOLDERS' EQUITY
Common Stock
The authorized capital stock of the Company consists of 25,000,000 common
shares, of which 22,500,000 shares have been designated "Common Stock" and
2,500,000 shares have been allocated to all other series of common shares,
collectively designated "Junior Common."
Stock Option Plans
Under the 1991 Stock Option Plan (the Option Plan), the Company may grant
options to purchase up to 1,500,000 shares of common stock to employees and
consultants at prices not less than the fair market value at date of grant
for incentive stock options and not less than 50% of fair market value for
nonstatutory stock options. These options generally expire five years from
the date of grant and become exercisable ratably generally over a period of
three years as set forth in the stock option agreements.
Under the 1991 Directors' Stock Option Plan (the Directors' Plan),
nonemployee directors of the Company are automatically granted options to
purchase 10,000 shares of common stock at the fair market value at the date
of grant each year that such person remains a director of the Company.
Options granted
II-20
<PAGE>
under the plan become exercisable ratably over a period of
three years and expire five years from the date of grant. The total shares
authorized under the plan are 300,000.
Option activity under the plans is summarized as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-------------------------------
WEIGHTED
SHARES NUMBER OF AVERAGE
AVAILABLE SHARES EXERCISE PRICE
<S> <C> <C> <C>
Balances, January 1, 1994 1,198,000 1,435,700 $ 0.81
Exercised - (239,700) 0.63
Granted (468,500) 468,500 0.65
Cancelled 212,000 (380,800) 1.23
--------- ---------
Balances, December 31, 1994 (780,710
exercisable at a weighted average price
of $0.65) 941,500 1,283,700 0.66
Exercised - (486,428) 0.66
Granted (weighted average fair value of $3.20) (636,700) 636,700 4.76
Cancelled 122,500 (204,400) 0.73
--------- ---------
Balances, December 31, 1995 (372,312
exercisable at a weighted average price
of $0.63) 427,300 1,229,572 2.77
Exercised - (348,524) 0.67
Granted (weighted average fair value of $3.61) (308,500) 308,500 5.36
Cancelled 91,607 (91,607) 3.69
--------- ---------
Balances, December 31, 1996 210,407 1,097,941 $ 4.08
========= =========
</TABLE>
Additional information regarding options outstanding as of December 31, 1996 is
as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- -------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$ 0.56 - $ 0.75 251,073 3.1 $ 0.63 162,756 $ 0.63
$ 0.88 - $ 2.06 117,668 3.9 1.99 43,297 1.88
$ 4.31 - $10.00 729,200 4.4 5.61 142,461 5.83
--------- -------
$ 0.56 - $10.00 1,097,941 4.0 $ 4.08 348,514 $ 2.91
========= =======
</TABLE>
Employee Stock Purchase Plan
Under the 1986 Employee Stock Purchase Plan, (the Purchase 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-
II-21
<PAGE>
month offering period, subject to an annual limitation. Stock issued under the
plan was 11,975, 26,504 and 25,627 shares in 1994, 1995 and 1996 at weighted
average prices of $0.66, $1.10 and $4.49, respectively. The weighted average per
share fair value of the 1995 and 1996 awards was $5.19 and $5.16, respectively.
At December 31, 1996, 97,319 shares were reserved for future issuances under the
Purchase Plan.
Additional Stock Plan Information
As discussed in Note 1, the Company continues to account for its stock-based
awards using the intrinsic value method in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and its related
interpretations. Accordingly, no compensation expense has been recognized in
the financial statements for employee stock arrangements.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," (SFAS 123) requires the disclosure of pro forma net income and
earnings per share had the Company adopted the fair value method as of the
beginning of fiscal 1995. Under SFAS 123, the fair value of stock-based awards
to employees is calculated through the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The Company's
calculations were made using the Black-Scholes option pricing model with the
following weighted average assumptions: expected life, four years from the date
of grant; stock volatility, 90% in 1995 and 1996; risk free interest rates, 6.3%
in 1995 and 6.0% in 1996; and no dividends during the expected term. The
Company's calculations are based on a single option valuation approach and
forfeitures are recognized at a historical rate of 29% per year. If the
computed fair values of the 1995 and 1996 awards had been amortized to expense
over the vesting period of the awards, pro forma net income would have been
$4,116,000 ($0.51 per share) in 1995 and $3,576,000 ($0.43 per share) in 1996.
However, the impact of outstanding nonvested stock options granted prior to 1995
has been excluded from the pro forma calculation; accordingly, the 1995 and 1996
pro forma adjustments are not indicative of future period pro forma adjustments,
when the calculation will apply to all applicable stock options.
9. PROFIT-SHARING AND RETIREMENT AND BONUS PLANS
No contributions were made by the Company in 1996, 1995 and 1994 to the
Company's discretionary profit-sharing and retirement plan. The Company paid
$523,000 and $188,000 in 1996 and 1995, respectively, under formal discretionary
cash bonus plans which cover all eligible employees. No such cash bonuses were
paid in 1994.
10. MAJOR CUSTOMER AND GEOGRAPHIC INFORMATION
In 1996, no sales to a single customer accounted for 10% or more of total
revenues. Sales to one customer represented approximately 10% of total revenues
in 1995 and 11% of total revenues in 1994. At December 31, 1996, no single
customer accounted for 10% or more of accounts receivable. At December 31,
1995, one customer's balance accounted for 11% of accounts receivable.
II-22
<PAGE>
Export sales constituted approximately 21%, 25% and 30% of total revenues for
1996, 1995 and 1994, respectively. The majority of these export sales have been
to Asia and Europe. Transfers between geographic areas are recorded at amounts
generally above cost. Identifiable assets of geographic areas represent those
assets used in the Company's operations in each area. The following table
summarizes selected geographic financial information of the Company at December
31.
1996 1995 1994
(IN THOUSANDS)
Net revenues:
United States $20,781 $13,876 $ 7,770
Japan 9,454 8,883 5,809
Korea 101 - -
------- ------- -------
$30,336 $22,759 $13,579
======= ======= =======
Export sales:
Asia $ 4,997 $ 3,020 $ 1,847
Europe 1,235 2,326 1,493
Other 128 370 708
------- ------- -------
$ 6,360 $ 5,716 $ 4,048
======= ======= =======
Transfers between United States
and Japan eliminated in
consolidation $ 4,118 $ 2,564 $ 1,529
======= ======= =======
Operating income (loss):
United States $ 5,280 $ 741 $(3,013)
Japan 1,324 1,900 782
Korea (391) - -
------- ------- -------
$ 6,213 $ 2,641 $(2,231)
======= ======= =======
Identifiable assets:
United States $20,805 $15,799 $ 8,391
Japan 9,040 9,368 7,395
Korea 119 - -
------- ------- -------
$29,964 $25,167 $15,786
======= ======= =======
* * * * *
II-23
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
II-24
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section entitled "Election of Directors" appearing in the Registrant's proxy
statement for the annual meeting of shareholders to be held on May 15, 1997 sets
forth certain information with respect to the directors of the Registrant and is
incorporated herein by reference. Certain information with respect to persons
who are or may be deemed to be executive officers of the Registrant is set forth
under the caption "Business-Executive Officers of the Registrant" in Part I of
this report.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" appearing in the Registrant's
proxy statement for the annual meeting of shareholders to be held on May 15,
1997, sets forth certain information with respect to the compensation of
management of the Registrant and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The section entitled "Election of Directors" appearing in the Registrant's proxy
statement for the annual meeting of shareholders to be held on May 15, 1997,
sets forth certain information with respect to the ownership of the Registrant's
Common Stock and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Transactions with Management" appearing in the
Registrant's proxy statement for the annual meeting of shareholders to be held
on May 15, 1997, sets forth certain information with respect to certain business
relationships and transactions between the Registrant and its directors and
officers and is incorporated herein by reference.
III-1
<PAGE>
PART IV
ITEM 14. EXHIBITS FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements. The following Consolidated Financial Statements of
Nanometrics Incorporated and Independent Auditors' Report are filed as part
of this Annual Report.
Independent Auditors' Report
Consolidated Balance Sheets, at December 31, 1996 and 1995
For the years ended December 31, 1996, 1995 and 1994:
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statements Schedules. The following consolidated financial
statement schedules of Nanometrics Incorporated are filed as part of this
Report and should be read in conjunction with the Consolidated Financial
Statements of Nanometrics Incorporated.
Financial Statement Schedules for the years ended December 31, 1996, 1995 and
1994.
Schedule Page
- -------- ----
II - Valuation and Qualifying Accounts .............. S-1
Schedules not filed herein are omitted because of the absence of
conditions under which they are required or because the information
called for is shown in the consolidated financial statements or notes
hereto.
(b) Reports on Form 8-K:
None
IV-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
3. Exhibits.
3.1.(1) Restated and Amended Articles of Incorporation of Registrant filed July 7, 1982.
3.2.(1) Certificate of Amendment of Articles of Incorporation filed January 31, 1983.
3.3.(1) Certificate of Amendment of Articles of Incorporation filed July 28, 1983.
3.4.(1) Certificate of Amendment of Certificate of Determination of
Preferences of Series B Common Stock filed September 13, 1983.
3.5.(1) Certificate of Amendment of Articles of Incorporation filed September
13, 1983.
10.1(1) 1981 Incentive Stock Option Plan, with form of Stock Option Agreement.
10.2(1) Employee's Profit Sharing Plan, as amended.
10.3(1) Purchase Agreement dated November 9, 1982 between Registrant and Warner-Lambert Technologies, Inc. and letter
Agreement dated November 9, 1982 between Registrant, Warner-Lambert Technologies, Inc., Vincent J. Coates and
Leonard Welter.
10.4(2) Amendment to and Restatement of Redemption Agreement dated March 4,
1993 between Vincent J. Coates and Registrant.
10.6(3) 1991 Stock Option Plan.
10.7(4) 1991 Director Option Plan.
21 Subsidiaries of Registrant.
23 Independent Auditors' Consent (See page IV-4).
24 Power of Attorney (see page V-1).
27 Financial Data Schedule
</TABLE>
IV-2
<PAGE>
1) Incorporated by reference to exhibits filed with Registrant's Registration
Statement on Form S-1 (File No. 2-93949), which became effective November
28, 1984.
2) Incorporated by reference to exhibit 10.10 filed with Registrant's Form
10-K dated March 29, 1993.
3) Incorporated by reference to exhibit 4.1 filed with Registrant's
Registration Statement on Form S-8 (file number 33-43913) filed on
November 14, 1991.
4) Incorporated by reference to exhibit 4.2 filed with Registrant's
Registration Statement on Form S-8 (file number 33-43913) filed on
November 14, 1991.
IV-3
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos. 33-
8518, 33-8519 and 33-43913 of Nanometrics Incorporated on Form S-8 of our report
dated February 19, 1997, appearing in this Annual Report on Form 10-K of
Nanometrics Incorporated for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
San Jose, California
March 24, 1997
IV-4
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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
Date: March 27, 1997 By: /s/VINCENT J. COATES
Vincent J. Coates, Chairman and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Vincent J. Coates, jointly and severally,
his attorneys-in-fact, each with full power of substitution, for him in any and
all capacities, to sign any amendments to this Report on Form 10-K, and to file
the same with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/VINCENT J. COATES Chairman of the Board and March 27, 1997
- ----------------------- Chief Executive Officer
(Vincent J. Coates) (Principal Executive Officer)
/s/PAUL B. NOLAN Chief Financial Officer March 27, 1997
- ----------------------- (Principal Accounting and
(Paul B. Nolan) Financial Officer)
/s/JOHN D. HEATON Director, President and March 27, 1997
- ----------------------- Chief Operating Officer
(John D. Heaton)
/s/NORMAN V. COATES Director March 27, 1997
- -----------------------
(Norman V. Coates)
/s/NATHANIEL BRENNER Director March 27, 1997
- -----------------------
(Nathaniel Brenner)
/s/KANEGI NAGAI Director March 27, 1997
- -----------------------
(Kanegi Nagai)
/s/CLIFFORD F. SMEDLEY Director March 27, 1997
- -----------------------
(Clifford F. Smedley)
</TABLE>
V-1
<PAGE>
SCHEDULE II
NANOMETRICS INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
Balance at Charged To Deductions- Balance
beginning costs and write-offs at end
Year Ended of period expenses of accounts* of period
---------- ------------ ------------- ---------
<S> <C> <C> <C> <C>
December 31, 1996... $380,000 $ 39,000 $ 0 $419,000
December 31, 1995... $270,000 $110,000 $ 0 $380,000
December 31, 1994... $260,000 $527,000 $517,000 $270,000
</TABLE>
* Includes recoveries of past due accounts previously written off.
S-1
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Nanometrics Japan Ltd.
Nanometrics Korea Ltd.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000704532
<NAME> NANOMETRICS INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,725
<SECURITIES> 6,657
<RECEIVABLES> 11,519
<ALLOWANCES> 419
<INVENTORY> 5,078
<CURRENT-ASSETS> 27,090
<PP&E> 2,600
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,964
<CURRENT-LIABILITIES> 4,477
<BONDS> 3,296
0
0
<COMMON> 11,833
<OTHER-SE> 10,227
<TOTAL-LIABILITY-AND-EQUITY> 29,964
<SALES> 24,603
<TOTAL-REVENUES> 30,336
<CGS> 10,109
<TOTAL-COSTS> 14,197
<OTHER-EXPENSES> 9,926
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,657
<INCOME-TAX> 2,664
<INCOME-CONTINUING> 3,993
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,993
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
</TABLE>
