<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
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Act of 1934
For the quarterly period ended September 30, 1997
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Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _______________
Commission file number 0-13470
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NANOMETRICS INCORPORATED
- -------------------------------------------------------
(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, CA 94086
- ---------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 746-1600
--------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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At October 13, 1997 there were 8,392,425 shares of common stock, no par value,
issued and outstanding.
1
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NANOMETRICS INCORPORATED
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page
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<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996.............................. 3
Consolidated Statements of Income -
Three months and nine months ended
September 30, 1997 and 1996........................................... 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997
and 1996.............................................................. 5
Notes to Consolidated Financial
Statements............................................................ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................... 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K................................... 9
Signatures................................................................... 10
</TABLE>
2
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
NANOMETRICS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
September 30, December 31,
1997 1996
(Unaudited)
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ASSETS
CURRENT ASSETS: $ 1,798 $ 1,725
Cash and equivalents
Short-term investments 9,622 6,657
Accounts receivable, less allowance for
doubtful accounts of $416 and $419 10,422 11,100
Inventories 6,250 5,078
Prepaid and deferred income taxes 1,918 1,648
Prepaid expenses and other 417 882
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Total current assets 30,427 27,090
PROPERTY, PLANT AND EQUIPMENT, NET 2,393 2,600
OTHER 274 274
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TOTAL $33,094 $29,964
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,469 $ 1,563
Accrued payroll and related expenses 710 533
Other current liabilities 1,266 763
Income taxes payable 51 1,271
Current portion of long-term debt 330 347
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Total current liabilities 3,826 4,477
LONG-TERM DEBT 2,888 3,296
DEFERRED INCOME TAXES 37 131
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Total liabilities 6,751 7,904
SHAREHOLDERS' EQUITY:
Common stock, no par value; 25,000,000 shares
authorized; 8,357,195 and 8,258,061 outstanding 12,132 11,833
Retained earnings 14,537 10,387
Accumulated translation adjustment (326) (160)
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Total shareholders' equity 26,343 22,060
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TOTAL $33,094 $29,964
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See Notes to Consolidated Financial Statements
3
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NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
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NET REVENUES:
Product sales $8,433 6,481 $23,475 $18,026
Service 983 1,258 2,899 4,338
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Total net revenues 9,416 7,739 26,374 22,364
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COSTS AND EXPENSES:
Cost of product sales 3,019 2,589 8,658 7,491
Cost of service 988 998 2,725 3,046
Research and development 772 713 2,111 2,048
Selling 1,508 1,158 4,397 3,424
General and administrative 716 639 1,965 1,791
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Total costs and expenses 7,003 6,097 19,856 17,800
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INCOME FROM OPERATIONS 2,413 1,642 6,518 4,564
OTHER INCOME (EXPENSES)
Interest income 132 95 373 280
Interest expense (36) (30) (85) (91)
Other, net (32) 48 (38) 113
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Total other income, net 64 113 250 302
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INCOME BEFORE PROVISION
FOR INCOME TAXES 2,477 1,755 6,768 4,866
PROVISION FOR INCOME TAXES 973 728 2,618 2,044
------ ------ ------- -------
NET INCOME $1,504 1,027 4,150 $ 2,822
====== ====== ======= =======
NET INCOME PER COMMON
AND EQUIVALENT SHARE $ .17 .12 .47 .33
====== ====== ======= =======
COMMON AND EQUIVALENT SHARES
USED IN PER SHARE COMPUTATION $9,002 8,514 8,780 8,549
====== ====== ======= =======
See Notes to Consolidated Financial Statements
</TABLE>
4
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NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,150 $ 2,822
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 161 227
Deferred income taxes 367 425
Changes in assets and liabilities:
Accounts receivable (10) (2,039)
Inventories (1,230) (1,106)
Prepaid expenses and other (501) (572)
Accounts payable and other liabilities 624 575
Income taxes payable (1,221) 683
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Net cash provided by operating activities 2,340 1,015
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (13,547) (10,546)
Sales/maturities of short-term investments 10,583 6,877
Capital expenditures (64) (254)
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Net cash used in investing activities (3,028) (3,923)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings -- 762
Repayments of long-term borrowings (251) (688)
Issuance of common stock 299 185
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Net cash provided by financing activities 48 259
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 713 (19)
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NET CHANGE IN CASH AND EQUIVALENTS 73 (2,668)
CASH AND EQUIVALENTS, at beginning of period 1,725 3,625
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CASH AND EQUIVALENTS, at end of period $ 1,798 $ 957
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest 85 $ 91
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Cash paid for income taxes $ 4,161 $ 767
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</TABLE>
See Notes to Consolidated Financial Statements
5
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NANOMETRICS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 Consolidated Financial Statements
The consolidated financial statements include the accounts of Nanometrics
Incorporated and its wholly owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated.
While the quarterly financial information is unaudited, the financial
statements included in this report reflect all adjustments (consisting only of
normal recurring adjustments) which the Company considers necessary for a fair
presentation of the results of operations for the interim periods covered and of
the financial condition of the Company 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 the Company's 1996 Form 10-K filed with the Securities and Exchange
Commission.
Note 2. Net Income Per Common and Equivalent Share
Net income per share is based on the weighted average number of common and
dilutive common equivalent shares outstanding during the period. Common
equivalent shares include dilutive common stock options (using the treasury
stock method) and shares issuable under the employee stock purchase plan.
Note 3. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
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<S> <C> <C>
Raw materials and subassemblies $3,945 $1,855
Work in process 1,376 1,414
Finished goods 929 1,809
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$6,250 $5,078
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</TABLE>
Note 4. Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued a
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share". The Company is required to adopt SFAS 128 in the fourth quarter of
fiscal 1997 and will restate at that time earnings per share (EPS) data for
prior periods to conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income by the weighted average of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
If SFAS 128 had been in effect during the current and prior year periods,
basic EPS would have been $ 0.18 and $ 0.13 for the quarters ended September 30,
1997 and 1996, respectively, and $ 0.50 and $ 0.35 for the year to date periods,
respectively. Diluted EPS under SFAS 128 would not have been different than
primary EPS currently reported for the periods.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income", which requires that an enterprise report, by
major components and as a single total, the change in its net assets during the
period from nonowner sources; and SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which establishes annual and interim
reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
Adoption of these statements will not impact the Company's consolidated
financial position, results of operations or cash flows. Both statements are
effective for fiscal years beginning after December 15, 1997, with earlier
application permitted.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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Total net revenues increased by 17.9% from $22.4 million for the nine months
ended September 30, 1996 to $26.4 million for the nine months ended September
30, 1997. Product sales increased by 30.2% from $18.0 million for the nine
months ended September 30, 1996 to $23.5 million for the nine months ended
September 30, 1997. The increases in product sales resulted from stronger
worldwide demand for, and increased shipments of, the Company's products,
especially its automated products. Service revenue decreased 33.2% from $4.3
million for the nine months ended September 30, 1996 to $2.9 million for the
nine months ended September 30, 1997. The decrease in service revenue is
primarily attributable to lower sales of parts, services and upgrades in the
U.S. and Asia in 1997 due in part to increased functionality and reliability of
the Company's new products.
The product gross profit percentage of product sales increased from 53.4%
for the nine months ended September 30, 1996 to 63.1% for the nine months ended
September 30, 1997. The increase was caused primarily by higher sales volumes
in 1997 resulting in lower per unit manufacturing costs. The service gross
profit percentage decreased from 29.8% for the nine months ended September 30,
1996 to 6.0% for the nine months ended September 30, 1997. The decrease was
primarily attributable to the decline in the sales of accessories and upgrades
while fixed service costs increased to support the Company's growing installed
base of systems at customer locations in 1997.
Research and development expenses increased 3.1% from $2.0 million for the
nine months ended September 30, 1996 to $2.1 million for the nine months ended
September 30, 1997 to support the continued development of new products and
product enhancements.
Selling expenses increased 28.4% from $3.4 million for the nine months ended
September 30, 1996 to $4.4 million for the nine months ended September 30, 1997
primarily because of higher commission expenses resulting from higher sales, the
addition of sales and marketing staff and the opening of an office in Scotland
during the past 12 months.
General and administrative expenses increased 9.7% from $1.8 million for the
nine months ended September 30, 1996 to $2.0 million for the nine months ended
September 30, 1997 as a result of higher spending associated with the increase
in total net revenues.
Other income, net, decreased 17.2% from $302,000 for the nine months ended
September 30, 1996 to $250,000 for the nine months ended September 30, 1997 due
primarily to higher royalty income and exchange rate gains in the prior year.
The Company's effective income tax rate decreased from 42.0% for the nine
months ended September 30, 1996 to 38.7% for the nine months ended September 30,
1997 primarily due to an increased benefit from the Company's foreign sales
corporation.
The Company reported income from operations of $2,413,000 and net income of
$1,504,000 for the third quarter of 1997 compared to income from operations of
$1,642,000 and net income of $1,027,000 for the same period in 1996. For the
first nine months of 1997, the Company reported income from operations of
$6,518,000 and net income of $4,150,000 which compared to income from operations
of $4,564,000 and net income of $2,822,000 for the same period in 1996.
7
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Liquidity and Capital Resources
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At September 30, 1997, the Company had working capital of $26,601,000
compared to $22,613,000 at December 31, 1996. The current ratio at September
30, 1997 was 8.0 to 1. The Company believes working capital including cash and
short-term investments of $11,420,000 will be sufficient to meet its needs at
least through the next twelve months. Operating activities for the first nine
months of 1997 provided cash of $2,340,000 primarily from profits, which were
offset to some extent by increased inventories and income tax payments, while
the net purchases of short-term investments used $2,964,000, capital
expenditures used $64,000, debt repayment used $251,000 and issuance of common
stock provided $299,000. Exchange rate changes favorably impacted cash for the
first nine months of 1997 by $713,000.
The foregoing Management 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. These statements involve risks and uncertainties as set
forth under "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Risk Factors" in the 1995 Annual Report. The Company's
actual results could differ materially from the results anticipated in such
forward-looking statements.
8
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NANOMETRICS INCORPORATED
PART II
OTHER INFORMATION
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
A. Exhibits
27 Financial Data Schedule
B. Reports on Form 8-K.
None.
9
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NANOMETRICS INCORPORATED
SIGNATURE
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
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Vincent J. Coates
Chairman and Chief Executive Officer
/s/ Paul B. Nolan
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Paul B. Nolan
Chief Financial Officer
Dated: November 7, 1997
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,798
<SECURITIES> 9,622
<RECEIVABLES> 10,422
<ALLOWANCES> 416
<INVENTORY> 6,250
<CURRENT-ASSETS> 30,427
<PP&E> 2,393
<DEPRECIATION> 3,324
<TOTAL-ASSETS> 33,094
<CURRENT-LIABILITIES> 3,826
<BONDS> 2,888
0
0
<COMMON> 12,132
<OTHER-SE> 14,211
<TOTAL-LIABILITY-AND-EQUITY> 33,094
<SALES> 23,475
<TOTAL-REVENUES> 26,374
<CGS> 8,658
<TOTAL-COSTS> 11,383
<OTHER-EXPENSES> 8,473
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> 6,768
<INCOME-TAX> 2,618
<INCOME-CONTINUING> 4,150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,150
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
</TABLE>
