<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1998 or
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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
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(Exact name of registrant as specified in its charter)
California 94-2276314
- --------------------------------- ----------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
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 April 12, 1998 there were 8,609,784 shares of common stock, no par value,
issued and outstanding.
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NANOMETRICS INCORPORATED
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page
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<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1998 (Unaudited) and December 31, 1997............. 3
Condensed Consolidated Statements of Income -
Three months ended March 31, 1998
and 1997 (Unaudited).......................................... 4
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1998
and 1997 (Unaudited).......................................... 5
Notes to Condensed Consolidated Financial
Statements.................................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K............................... 10
Signatures................................................................ 11
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
March 31,
1998 December 31,
ASSETS (unaudited) 1997
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<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 2,902 $ 3,656
Short-term investments 9,592 9,595
Accounts receivable, less allowance for
doubtful accounts of $412 and $413 9,829 10,225
Inventories 9,674 7,138
Deferred income taxes 2,111 2,094
Prepaid expenses and other 1,327 1,075
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Total current assets 35,435 33,783
PROPERTY, PLANT AND EQUIPMENT, Net 2,200 2,187
OTHER ASSETS 1,069 273
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TOTAL $38,704 $36,243
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,148 $ 1,889
Accrued payroll and related expenses 984 596
Other current liabilities 2,330 1,493
Income taxes payable 1,159 565
Current portion of long-term debt 555 604
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Total current liabilities 7,176 5,147
LONG-TERM DEBT, Net of current portion 2,441 2,568
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Total liabilities 9,617 7,715
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SHAREHOLDERS' EQUITY:
Common stock, no par value; 25,000,000 shares
authorized; 8,608,116 and 8,521,484 outstanding 13,489 13,151
Retained earnings 16,399 16,144
Accumulated translation adjustment (801) (767)
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Total shareholders' equity 29,087 28,528
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TOTAL $38,704 $36,243
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
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<S> <C> <C>
NET REVENUES:
Product sales $ 9,618 $7,301
Service 920 958
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Total net revenues 10,538 8,259
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COSTS AND EXPENSES:
Cost of product sales 3,629 2,737
Cost of service 985 863
Research and development 1,231 674
Acquired in-process research and development 2,036 -
Selling 1,572 1,263
General and administrative 785 636
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Total costs and expenses 10,238 6,173
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INCOME FROM OPERATIONS 300 2,086
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OTHER INCOME (EXPENSE):
Interest income 161 115
Interest expense (26) (25)
Other, net (9) (11)
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Total other income, net 126 79
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INCOME BEFORE PROVISION
FOR INCOME TAXES 426 2,165
PROVISION FOR INCOME TAXES 171 891
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NET INCOME $ 255 $1,274
======= ======
NET INCOME PER SHARE:
Basic $0.03 $0.15
======= ======
Diluted $0.03 $0.15
======= ======
SHARES USED IN PER SHARE COMPUTATION:
Basic 8,545 8,260
======= ======
Diluted 8,978 8,673
======= ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 255 $ 1,274
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 49 77
Purchase of in-process technology 2,036 -
Deferred taxes (898) (460)
Changes in assets and liabilities:
Accounts receivable (1,282) 90
Other receivables - (48)
Inventories (959) (274)
Prepaid expenses and other (277) (25)
Accounts payable and other liabilities 574 254
Income taxes payable 699 (724)
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Net cash provided by operating activities 197 164
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (1,951) (2,940)
Sales/maturities of short-term investments 1,954 1,958
Capital expenditures (85) (47)
Product line acquisition (3,038) -
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Net cash used in investing activities (3,120) (1,029)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (115) (81)
Issuance of common stock 338 11
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Net cash provided by (used in) financing activities 223 (70)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,946 1,179
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NET CHANGE IN CASH AND EQUIVALENTS (754) 244
CASH AND EQUIVALENTS, beginning of period 3,656 1,725
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CASH AND EQUIVALENTS, end of period $ 2,902 $ 1,969
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 26 $ 25
======= =======
Cash paid for income taxes $ 359 $ 1,622
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
NANOMETRICS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Condensed Consolidated Financial Statements
The condensed consolidated financial statements include the accounts of
Nanometrics Incorporated and its wholly-owned subsidiaries. All significant
intercompany 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 1997 Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
Note 2. Inventories
Inventories are stated at the lower of cost (first-in,first-out) or market and
consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
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<S> <C> <C>
Raw materials and subassemblies $5,942 $2,934
Work in process 2,705 1,528
Finished goods 1,027 2,676
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$9,674 $7,138
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</TABLE>
Note 3. Product Line Acquisition
On March 30, 1998 the Company entered into an agreement with Optical
Specialties, Inc. ("OSI") to purchase a metrology system product line and
related assets used to measure the critical dimensions and overlay registration
errors observed in submicron lithography. Under the agreement, the Company paid
approximately $3.2 million in cash for the assets and in-process technology.
The purchase price was allocated on the basis of the estimated fair value of the
assets acquired and liabilities assumed as follows (in thousands):
<TABLE>
<S> <C>
Fair value of tangible assets acquired $1,923
In-process research and development 2,036
Liabilities assumed (734)
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Purchase consideration $3,225
======
</TABLE>
In addition, during the three months ended March 31, 1998, the Company hired
certain former employees of OSI and incurred approximately $350,000 in related,
non-recurring hiring expenses (such expenses are classified in the statement of
income according to the employees' function).
6
<PAGE>
Note 4. Net Income Per Share
The reconciliation of the share denominator used in the basic and diluted net
income per share computations for the three months ended March 31 are as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Weighted average common shares outstanding-shares
used in basic net income per share computations 8,545 8,260
Dilutive effect of common stock equivalents,
using the treasury stock method 433 413
----- -----
Shares used in diluted net income per share computation 8,978 8,673
===== =====
</TABLE>
During the three months ended March 31, 1998 and 1997, the Company had common
stock options outstanding which could potentially dilute basic net income per
share in the future, but were excluded from the computation of diluted net
income per share as the common stock options' exercise prices were greater than
the average market price of the common shares for the period. At March 31,
1998, 334,500 such common stock options with a weighted average exercise price
of $10.23 per share were excluded from the diluted net income per share
computation.
Note 5. Recently Adopted Accounting Standard
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income," which requires an
enterprise to report the change in net assets during the period from nonowner
sources ("comprehensive income"). For the three months ended March 31, 1998 and
1997, comprehensive income, which consisted of net income for the periods and
changes in accumulated translation adjustments, was $221,000 and $1,094,000,
respectively.
Note 6. Recently Issued Accounting Standard
In June 1997, the Financial Accounting Standards Board issued 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. This statement is effective for fiscal year 1998 and
adoption will not affect the Company's financial position, results of operations
or cash flows.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Total net revenues for the first quarter of 1998 were $10,538,000, an increase
of $2,279,000 or 28% from the same quarter in 1997. Product sales of $9,618,000
increased $2,317,000 or 32% for the first quarter of 1998 compared to the same
period in 1997 resulting from increased demand for the Company's automated
products especially from customers in the U.S., Japan and Taiwan. Service
revenue of $920,000 decreased $38,000 or 4% for the first quarter of 1998
compared to the same period in 1997. This decrease in service revenue is
primarily attributable to decreased sales of accessories in the U.S. and the Far
East in 1998.
Cost of product sales as a percentage of product sales increased slightly to
38% in the first quarter of 1998 from 37% in the first quarter of 1997 because
of the costs related to the addition of eight employees, in the first quarter of
1998, who are responsible for manufacturing the Company's new Metra product
line. Cost of service as a percentage of service revenue increased to 107% in
the first quarter of 1998 from 90% in the first quarter of 1997. This increase
was primarily attributable to the costs related to the addition of eleven
employees, in the first quarter of 1998, who are responsible for servicing the
Company's new Metra product line.
Research and development expenses for the first quarter of 1998 increased
$557,000 or 83% compared to the same period in 1997. This increase was mainly
due to the costs related to the addition of eight employees, in the first
quarter of 1998, who are responsible for research and development of the
Company's new Metra product line.
In the first quarter of 1998, the Company paid approximately $3.2 million for
the assets and in-process technology related to OSI's Metra product line. Of
this purchase price, $2,036,000 related to the value of in-process technology
that had no alternative future use and was charged to expense in the
accompanying statement of income for the three months ended March 31, 1998.
Selling expenses for the first quarter of 1998 increased by $309,000 or 24%
compared to the same period in 1997 primarily because of the costs related to
the addition of seven employees, in the first quarter of 1998, who are
responsible for sales and marketing the Company's new Metra product line.
General and administrative expenses for the first quarter of 1998 increased by
$149,000 or 23% primarily as a result of spending associated with the increased
level of operations.
Other income increased $47,000 or 59% during the first quarter of 1998
compared to the same period in 1997 due primarily to higher interest income in
1998, resulting from higher average levels of cash and short-term investments.
The Company's effective tax rate decreased to 40.1% in the first quarter of
1998 from 41.2% in the first quarter of 1997 primarily due to proportionately
higher income in jurisdictions with lower statutory tax rates.
Income from operations of $300,000 and net income of $255,000 in the first
quarter of 1998 included pre-tax charges of $2,036,000 for the write-off of in-
process research and development relating to the Metra overlay registration
product line acquired from OSI and $350,000 in non-recurring hiring expenses for
certain OSI employees. Excluding these charges, income from operations was
$2,686,000 and net income was $1,687,000 in the first quarter of 1998 compared
to income from operations of $2,086,000 and net income of $1,274,000 for the
same period in 1997.
8
<PAGE>
Liquidity and Capital Resources
- -------------------------------
At March 31, 1998, the Company had working capital of $28,259,000 compared to
$28,636,000 at December 31, 1997. The current ratio at March 31, 1998 was 4.9
to 1. The Company believes working capital including cash and short-term
investments of $12,494,000 will be sufficient to meet its needs at least through
the next twelve months. Operating activities for the first three months of 1998
provided cash of $197,000 primarily from net income adjusted for the in-process
technology purchase of the Metra product line, while the purchase of short-term
investments net of sales/maturities provided $3,000, capital expenditures used
$85,000, purchase of the Metra product line used $3,038,000, debt repayment used
$115,000 and issuance of common stock provided $338,000.
The foregoing Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934. These statements involve risks and uncertainties and
actual results could differ materially as a result of a number of factors
including customer demand for the Company's products, which is affected by
factors including the cyclicality of the semiconductor, magnetic recording head
and flat panel display industries served by the Company, patterns of capital
spending by customers, technological changes in the markets served by the
Company and its customers, market acceptance of products of both the Company and
its customers, the timing, cancellation or delay of customer orders and
shipments, competition, including competitive pressures on product prices and
changes in pricing by the Company's customers or suppliers, fluctuations in
foreign currency exchange rates, particularly the Japanese yen, the proportion
of direct sales versus sales through distributors and representatives, 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, including the Company's ability to design, introduce and
manufacture new products on a timely and cost effective basis, the size and
timing acquisitions of businesses, products or technologies and fluctuations in
the availability and cost of components and subassemblies and the factors set
forth under "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Risk Factors" in the 1997 Annual Report on Form 10-K.
The Company undertakes no obligation to update forward looking statements made
in this report to reflect events or circumstances after the date of this report
or to update reasons why actual results could differ from those anticipated in
such forward-looking statements.
9
<PAGE>
NANOMETRICS INCORPORATED
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Ex 27 - Financial Data Schedule
B. Reports on Form 8-K.
None.
10
<PAGE>
NANOMETRICS INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NANOMETRICS INCORPORATED
(Registrant)
/s/ Vincent J. Coates
- ------------------------------------
Vincent J. Coates
Chairman of the Board
/s/ John Heaton
- -------------------------------------
John Heaton
Chief Executive Officer
/s/ Paul B. Nolan
- --------------------------------------
Paul B. Nolan
Chief Financial Officer
Dated: May 14, 1998
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,902
<SECURITIES> 9,592
<RECEIVABLES> 10,241
<ALLOWANCES> 412
<INVENTORY> 9,674
<CURRENT-ASSETS> 35,435
<PP&E> 5,216
<DEPRECIATION> 3,016
<TOTAL-ASSETS> 38,704
<CURRENT-LIABILITIES> 7,176
<BONDS> 2,441
0
0
<COMMON> 13,489
<OTHER-SE> 15,598
<TOTAL-LIABILITY-AND-EQUITY> 38,704
<SALES> 9,618
<TOTAL-REVENUES> 10,538
<CGS> 3,629
<TOTAL-COSTS> 4,614
<OTHER-EXPENSES> 5,624
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 426
<INCOME-TAX> 171
<INCOME-CONTINUING> 255
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 255
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
