SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 September 30, 2000
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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
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
310 DeGuigne Drive, Sunnyvale, CA 94086
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 746-1600
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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At October 12, 2000 there were 11,532,238 shares of common stock, no par value,
issued and outstanding.
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NANOMETRICS INCORPORATED
INDEX
Part I. Financial Information Page
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Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999 ............... 3
Consolidated Statements of Income -
Three months and nine months ended
September 30, 2000 and 1999 ............................ 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 2000 and 1999 .......... 5
Notes to Consolidated Financial
Statements ............................................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .......... 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk ...................................... 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K ....................... 10
Signatures ............................................................... 11
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
NANOMETRICS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share amounts)
(Unaudited)
Sept. 30, Dec. 31,
2000 1999
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14,411 $ 3,442
Short-term investments 59,542 14,698
Accounts receivable, net of
allowances of $422 and $425 19,896 11,435
Inventories 11,370 9,460
Deferred income taxes 2,015 1,722
Prepaid expenses and other 2,783 1,196
-------- --------
Total current assets 110,017 41,953
PROPERTY, PLANT AND EQUIPMENT, Net 26,291 2,998
DEFERRED INCOME TAXES 88 135
OTHER ASSETS 1,304 1,324
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TOTAL ASSETS $137,700 $ 46,410
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,186 $ 2,412
Accrued payroll and related expenses 1,940 751
Other current liabilities 2,394 1,721
Income taxes payable 772 464
Current portion of debt obligations 1,122 584
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Total current liabilities 10,414 5,932
DEFERRED RENT 15 35
DEBT OBLIGATIONS 1,815 2,288
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Total liabilities 12,244 8,255
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SHAREHOLDERS' EQUITY:
Common stock, no par value; 25,000,000 shares
authorized; 11,514,643 and 9,163,998 outstanding 95,050 17,277
Retained earnings 30,405 20,608
Accumulated other comprehensive income 1 270
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Total shareholders' equity 125,456 38,155
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $137,700 $ 46,410
======== ========
See Notes to Consolidated Financial Statements
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<TABLE>
NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET REVENUES:
Product sales $ 19,119 $ 8,717 $ 50,563 $ 20,450
Service 1,539 1,104 4,414 3,083
-------- -------- -------- --------
Total net revenues 20,658 9,821 54,977 23,533
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of product sales 7,612 3,976 20,433 9,512
Cost of service 1,474 1,176 4,495 3,297
Research and development 2,438 1,099 6,557 3,209
Selling 2,544 1,519 7,300 4,105
General and administrative 983 730 2,988 2,095
-------- -------- -------- --------
Total costs and expenses 15,051 8,500 41,773 22,218
-------- -------- -------- --------
INCOME FROM OPERATIONS 5,607 1,321 13,204 1,315
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest income 1,137 171 3,028 483
Interest expense (19) (22) (60) (63)
Other, net (102) 67 (113) (26)
-------- -------- -------- --------
Total other income, net 1,016 216 2,855 394
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR
INCOME TAXES 6,623 1,537 16,059 1,709
PROVISION FOR INCOME TAXES 2,583 637 6,262 706
-------- -------- -------- --------
NET INCOME $ 4,040 $ 900 $ 9,797 $ 1,003
======== ======== ======== ========
NET INCOME PER SHARE:
Basic $ .35 $ .10 $ .91 $ .11
======== ======== ======== ========
Diluted $ .33 $ .10 $ .83 $ .11
======== ======== ======== ========
SHARES USED IN PER SHARE
COMPUTATION:
Basic 11,393 8,823 10,794 8,760
======== ======== ======== ========
Diluted 12,100 9,347 11,798 9,242
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
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<TABLE>
NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,797 $ 1,003
Reconciliation of net income to net
cash provided by operating activities:
Depreciation and amortization 422 159
Deferred rent (20) 20
Deferred income taxes (246) 19
Changes in assets and liabilities
Accounts receivable (8,706) (1,201)
Inventories (1,995) 1,906
Prepaid expenses and other current assets (1,693) 1,286
Accounts payable accrued and other current liabilities 3,693 501
Income taxes payable 3,960 211
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Net cash provided by operating activities 5,212 3,904
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (109,127) (16,790)
Sales/maturities of short-term investments 64,282 14,827
Purchases of property, plant and equipment (23,734) (100)
Other assets -- --
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Net cash used in investing activities (68,579) (2,063)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing 576 --
Repayments of long-term debt (347) (1,106)
Issuance of common stock 74,143 753
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Net cash provided by (used in) financing activities 74,372 (353)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH (36) 24
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NET CHANGE IN CASH AND EQUIVALENTS 10,969 1,512
CASH AND EQUIVALENTS, beginning of period 3,442 1,518
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CASH AND EQUIVALENTS, end of period $ 14,411 $ 3,030
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 57 $ 63
========= =========
Cash paid for income taxes $ 3,352 $ --
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
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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 statements are 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 1999 Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which provides the SEC staff's views on selected revenue
recognition issues. The guidance in SAB 101 must be adopted during the fourth
quarter of fiscal 2000 and the effects, if any, are required to be recorded
through a retroactive, cumulative-effect adjustment as of the beginning of the
fiscal year, with a restatement of all prior interim quarters in the year. Our
management has not completed its evaluation of the effects, if any, that SAB 101
will have on the Company's income statement presentation, operating results or
financial position.
Note 2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following (in thousands):
September 30, December 31,
2000 1999
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Raw materials and subassemblies $ 7,777 $ 3,775
Work in process 2,459 1,092
Finished goods 1,134 4,593
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$11,370 $ 9,460
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Note 3. Other Current Liabilities
Other current liabilities consist of the following (in thousands):
September 30, December 31,
2000 1999
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Commissions payable $ 424 $ 247
Accrued warranty 655 482
Other 1,315 992
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$2,394 $1,721
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Note 4. Shareholders' Equity
Secondary Offering - In March 2000, Nanometrics completed a public offering and
issued 2,012,500 shares of its Common Stock to the public at a price of $38.50
per share. Nanometrics received net proceeds of approximately $72.4 million in
cash.
Net Income Per Share - The reconciliation of the share denominator used in the
basic and diluted net income per share computations are as follows (in
thousands):
Three Months Ended Nine Months Ended
September 30 September 30
--------------- ---------------
2000 1999 2000 1999
------ ------ ------ ------
Weighted average common shares
outstanding-shares used in basic
net income per share computation 11,393 8,823 10,794 8,760
Dilutive effect of common stock
equivalents, using the treasury
stock method 707 524 1,004 482
------ ------ ------ ------
Shares used in dilutive net income
per share computation 12,100 9,347 11,798 9,242
====== ====== ====== ======
During the three and nine month periods ended September 30, 2000 and
1999, Nanometrics had common stock options outstanding which could potentially
dilute basic net income per share in the future, but were excluded from the
computation of diluted net income per share as the common stock options'
exercise prices were greater than the average market price of the common shares
for the period. At September 30, 2000, 17,500 such common stock options with a
weighted average exercise price of $47.63 per share were excluded from the
diluted net income per share computations as their exercise prices were greater
than the average market price of the common shares for the period.
Note 5. Comprehensive Income
For the three months ended September 30, 2000 and 1999, comprehensive
income, which consisted of net income for the periods and changes in accumulated
other comprehensive income, was $3,933,000 and $1,293,000, respectively. For the
nine months ended September 30, 2000 and 1999, comprehensive income was
$9,528,000 and $1,281,000, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Total net revenues for the three months ended September 30, 2000 were
$20,658,000, an increase of $10,837,000 or 110% from the comparable period in
1999. For the nine months ended September 30, 2000, total net revenues of
$54,977,000 increased by $31,444,000 or 134% from the comparable period in 1999.
Product sales of $19,119,000 for the three months ended September 30, 2000,
increased $10,402,000 or 119% as compared with the same period in 1999. Product
sales of $50,563,000 for the nine months ended September 30, 2000, increased
$30,113,000 or 147% as compared with the same period in 1999. The higher level
of product sales resulted from increased shipments of Nanometrics' products in
the U.S. and Far East due primarily to stronger demand in the semiconductor
industry. Service revenue of $1,539,000 and $4,414,000 for the three months and
nine months ended September 30, 2000, respectively, increased $435,000 or 39%
and $1,331,000 or 43%, respectively, as compared to the same periods in 1999
primarily as a result of higher service sales in the U.S. and the Far East.
Cost of product sales as a percentage of product sales decreased to 40%
in the third quarter of 2000 from 46% in the third quarter of 1999 and decreased
to 40% in the nine months ended September 30, 2000 from 47% for the same period
in 1999 primarily because of higher sales volume in 2000 resulting in lower per
unit manufacturing costs. Cost of service as a percentage of service revenue
decreased to 96% in the third quarter of 2000 from 107% in the third quarter of
1999 and decreased to 102% in the nine months ended September 30, 2000 from 107%
for the same period in 1999 primarily as a result of higher service sales in the
U.S. and the Far East.
Research and development expenses for the three month and nine month
periods ended September 30, 2000 increased $1,339,000 or 122% and $3,348,000 or
104% respectively, compared to the same periods in 1999 resulting primarily from
increased headcount and related expenses for the development of new and enhanced
products.
Selling expenses for the three month and nine month periods ended
September 30, 2000 increased by $1,025,000 or 67% and $3,195,000 or 78%
respectively, compared to the same periods in 1999 primarily because of
increased headcount, commission expenses and other expenses associated with
higher sales levels.
General and administrative expenses for the three month and nine month
periods ended September 30, 2000 increased $253,000 or 35% and $893,000 or 43%
respectively, compared to the same periods in 1999 primarily as a result of
higher spending associated with the increased level of operations.
Total other income, net for the three month and nine month periods
ended September 30, 2000 increased $800,000 or 370% and $2,461,000 or 625%
respectively, from the comparable periods in 1999 due primarily to higher
interest income resulting from higher average short-term investments generated
from the net proceeds received from the public offering of common stock in March
2000.
As a result of the above, Nanometrics' income from operations was
$5,607,000 and net income was $4,040,000 for the third quarter of 2000 compared
to income from operations of $1,321,000 and net income of $900,000 for the same
period in 1999. For the first nine months of 2000, Nanometrics' income from
operations was $13,204,000 and net income was $9,797,000 which compared to
income from operations of $1,315,000 and net income of $1,003,000 for the same
period in 1999.
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Liquidity and Capital Resources
At September 30, 2000, Nanometrics had working capital of $99,603,000
compared to $36,021,000 at December 31, 1999. The current ratio at September 30,
2000 was 10.6 to 1. We believe working capital including cash and short-term
investments of $73,953,000 will be sufficient to meet our needs at least through
the next twelve months. Operating activities for the first nine months of 2000
provided cash of $5,212,000 primarily from net income offset to some extent by
higher accounts receivable, while the net purchases of short-term investments
used $44,845,000, capital expenditures used $23,734,000 primarily for the
purchase of a building, debt repayment used $347,000 and issuance of common
stock provided $74,143,000 which resulted primarily from a public offering of
Common Stock in March 2000.
Forward Looking Statements
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 demand for Nanometrics' products, which is affected by
factors including the cyclicality of the semiconductor, magnetic recording head
and flat panel display industries served by Nanometrics, patterns of capital
spending by customers, technological changes in the markets served by
Nanometrics and its customers, market acceptance of products of both Nanometrics
and its customers, the timing, cancellation or delay of customer orders and
shipments, competition, including competitive pressure on product prices and
changes in pricing by Nanometrics' customers or suppliers, fluctuation 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 Nanometrics' products, the timing of
new product announcements and releases of products by Nanometrics or its
competitors, including our ability to design, introduce and manufacture new
products on a timely and cost effective basis, the size and timing of
acquisitions of business, products or technologies, fluctuations in the
availability and cost of components and subassemblies, the outcome of patent
infringement discussions and the factors set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Risk
Factors" in the 1999 Annual Report on Form 10-K. Nanometrics 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, which include changes in foreign
currency exchange rates and interest rates. We do not use derivative financial
instruments. Instead, we actively manage the balances of current assets and
liabilities denominated in foreign currencies to minimize currency fluctuation
risk. As a result, a hypothetical 10% change in the foreign currency exchange
rates at September 30, 2000 would not have a material impact on our results of
operations. Our investments in marketable securities are subject to interest
rate risk but due to the short-term nature of these investments, interest rate
changes would not have a material impact on their value at September 30, 2000.
We also have fixed rate yen denominated debt obligations in Japan that have no
interest rate risk. At September 30, 2000, our total debt obligation was
$2,937,000 with a long-term portion of $1,815,000. A hypothetical 10% change in
interest rates at September 30, 2000 would not have a material impact on our
results of operations.
9
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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.
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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 of the Board
/s/ John Heaton
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John Heaton
Chief Executive Officer
/s/ Paul B. Nolan
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Paul B. Nolan
Chief Financial Officer
Dated: November 14, 2000
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