<PAGE>
UNITED STATES 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 QUARTER ENDED MARCH 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-26274
INTEGRATED MEASUREMENT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0840631
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9525 S.W. GEMINI DRIVE, BEAVERTON, OR 97008
(Address of principal executive offices) (zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (503) 626-7117
NO CHANGE
Former name, former address, and former
fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
At April 27, 1999, there were 7,460,241 shares of Integrated Measurement
Systems, Inc. common stock, $0.01 par value, outstanding.
(Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.)
<PAGE>
INTEGRATED MEASUREMENT SYSTEMS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C> <C>
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income for the three months
ended March 31, 1999 and 1998 3
Balance Sheets as of March 31, 1999 and December 31, 1998 4
Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 5
Notes to the Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 8-11
PART II OTHER INFORMATION
Item 2. Changes in Securities. 12
Item 6. Exhibits and Reports on Form 8-K. 12
SIGNATURES 13
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTEGRATED MEASUREMENTS SYSTEMS, INC. AND SUBSIDIARIES
STATEMENTS OF INCOME
(In thousands, except net income per share)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
SALES:
Systems $ 7,548 $ 4,958
Software 1,363 1,295
Service 2,311 2,239
--------- --------
NET SALES 11,222 8,492
--------- --------
COST OF SALES:
Systems 3,274 1,729
Software 152 145
Service 1,005 971
--------- --------
Total cost of sales 4,431 2,845
--------- --------
GROSS MARGIN 6,791 5,647
OPERATING EXPENSES:
Research, development and engineering 1,928 1,744
Selling, general and administrative 4,333 4,049
--------- --------
Total operating expenses 6,261 5,793
--------- --------
OPERATING INCOME (LOSS) 530 (146)
Other income, net 128 218
--------- --------
Income before income taxes 658 72
Provision for income taxes 224 24
--------- --------
NET INCOME $ 434 $ 48
--------- --------
--------- --------
BASIC EARNINGS PER SHARE $ 0.06 $ 0.01
--------- --------
--------- --------
DILUTED EARNINGS PER SHARE $ 0.06 $ 0.01
--------- --------
--------- --------
Weighted average number of common shares outstanding for
basic earnings per share 7,448 7,535
Incremental shares from assumed conversion of employee stock options 290 187
--------- --------
Adjusted weighted average shares for diluted earnings per share 7,738 7,722
--------- --------
--------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS
3
<PAGE>
INTEGRATED MEASUREMENT SYSTEMS, INC. AND SUBSIDIARIES
BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
As of As of
March 31, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,596 $ 3,379
Short-term investments 5,508 7,630
Trade receivables, less allowance for doubtful accounts
of $413 and $413 13,159 13,977
Inventories, net 15,414 14,943
Deferred income taxes 1,453 1,453
Prepaid expenses and other current assets 2,678 2,381
--------- --------
Total current assets 44,808 43,763
PROPERTY, PLANT AND EQUIPMENT, NET 11,006 11,063
SERVICE SPARE PARTS, NET 3,478 3,692
SOFTWARE DEVELOPMENT COSTS, NET 3,545 3,457
DEFERRED INCOME TAXES 219 219
OTHER ASSETS, NET 1,123 1,220
--------- --------
Total assets $ 64,179 $ 63,414
--------- --------
--------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,466 $ 1,828
Payable to Cadence, net 415 506
Accrued compensation 1,549 1,718
Accrued warranty 450 296
Deferred revenue 2,924 2,008
Other current liabilities 818 1,408
Income taxes payable 531 197
Capital lease obligations - current 336 394
--------- --------
Total current liabilities 8,489 8,355
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 325 363
DEFERRED COMPENSATION 1,161 1,154
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, authorized 10,000,000 shares;
none issued and outstanding - -
Common stock, $.01 par value, authorized 15,000,000 shares;
issued and outstanding 7,460,116 and 7,425,951 75 74
Additional paid-in capital 39,705 39,478
Retained earnings 14,424 13,990
--------- --------
Total shareholders' equity 54,204 53,542
--------- --------
Total liabilities and shareholders' equity $ 64,179 $ 63,414
--------- --------
--------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS.
4
<PAGE>
INTEGRATED MEASUREMENT SYSTEMS, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 434 $ 48
Adjustments to reconcile net income to
cash provided by (used in) operating activities:
Depreciation and amortization 1,410 961
Provision for deferred income taxes -- 82
Deferred compensation 7 102
Decrease (increase) in trade receivables 818 (1,446)
Increase in inventories (471) (1,713)
(Increase) decrease in other current assets (274) 186
Increase in deferred revenue 916 817
Decrease in accounts payable and accrued liabilities (724) (13)
---------- ---------
Net cash provided by (used in) operating activities 2,116 (976)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of short-term investments 2,122 --
Purchases of short-term investments -- (5,729)
Purchases of equipment & service spare parts (699) (1,245)
Software development costs (454) (527)
---------- ---------
Net cash provided by (used in) investing activities 969 (7,501)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital leases (96) (33)
Proceeds from employee stock plans 228 236
---------- ---------
Net cash provided by financing activities 132 203
---------- ---------
Net increase (decrease) in cash and cash equivalents 3,217 (8,274)
Beginning cash and cash equivalents balance 3,379 17,464
---------- ---------
Ending cash and cash equivalents balance $ 6,596 $ 9,190
---------- ---------
---------- ---------
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Tax benefit from Cadence and IMS stock options $ -- $ 510
---------- ---------
---------- ---------
OTHER SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes refunded (paid) $ 103 $ (56)
---------- ---------
---------- ---------
Interest paid $ (14) $ (6)
---------- ---------
---------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS.
5
<PAGE>
INTEGRATED MEASUREMENT SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
(1) BASIS OF PRESENTATION
The interim financial statements included herein have been prepared,
without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the management of the
Company believes that the disclosures are adequate to make the
information presented not misleading. Interim financial statements are
by necessity somewhat tentative; judgments are used to estimate interim
amounts for items that are normally determinable only on an annual
basis. The financial information as of December 31, 1998 is derived
from the Company's audited financial statements.
The interim period information presented herein includes normally
recurring adjustments, which are, in the opinion of the management of
the Company, only necessary for a fair statement of the results of the
respective interim periods. Results of operations for interim periods
are not necessarily indicative of results to be expected for an entire
year.
(2) INVENTORIES
Inventories, consisting principally of computer hardware, electronic
sub-assemblies and test equipment, are valued at the lower of cost
(first-in, first-out) or market. Costs used for inventory valuation
purposes include material, labor and manufacturing overhead.
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Raw materials. . . . . . . . . . . . . $ 9,562 $ 9,265
Work-in-progress . . . . . . . . . . . 2,143 2,608
Finished goods . . . . . . . . . . . . 3,709 3070
--------- ---------
$ 15,414 $ 14,943
--------- ---------
--------- ---------
</TABLE>
(3 ) EARNINGS PER SHARE
Earnings per share amounts presented in the accompanying Statements of
Income have been calculated in accordance with Statement of Accounting
Standards No. 128, "Earnings per Share." For the three month periods
ended March 31, 1999 and 1998, 278,125 and 94,750 outstanding common
stock options, respectively, were not included in the computation of
diluted earnings per share because the options' exercise prices were
greater than the average market price of the common stock.
6
<PAGE>
(4) SEGMENT DISCLOSURES
Disclosures about the Company's business segments, as required by SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," are as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1999
-----------------------------------------
TEST SYSTEMS VIRTUAL TEST CONSOLIDATED
------------ ------------ ------------
<S> <C> <C> <C>
Segment net sales $ 10,259 $ 963 $ 11,222
Segment operating income (loss) $ 644 $ (114) $ 530
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------
TEST SYSTEMS VIRTUAL TEST CONSOLIDATED
------------ ------------ ------------
<S> <C> <C> <C>
Segment net sales $ 7,336 $ 1,156 $ 8,492
Segment operating income (loss) $ (97) $ (49) $ (146)
</TABLE>
(5) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting
and reporting standards for all derivative instruments. SFAS 133 is
effective for fiscal years beginning after June 15, 1999. The Company
does not have any derivative instruments and, accordingly, the adoption
of SFAS 133 is not expected to impact the Company's financial position
or results of operations.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(All numerical references are in thousands, except for percentages and per share
data)
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS
QUARTERLY REPORT, AS WELL AS THE COMPANY'S FINANCIAL STATEMENTS AND THE NOTES
THERETO, AND THE MANAGEMENT DISCUSSION AND ANALYSIS PRESENTED IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998. THIS QUARTERLY
REPORT, INCLUDING THE FOLLOWING DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTAINS CERTAIN STATEMENTS, TREND ANALYSIS AND OTHER
INFORMATION THAT CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, AS AMENDED, WHICH MAY
INVOLVE RISKS AND UNCERTAINTIES. SUCH FORWARD LOOKING STATEMENTS INCLUDE, BUT
ARE NOT LIMITED TO, STATEMENTS INCLUDING THE WORDS "ANTICIPATE," "BELIEVE,"
"PLAN," "ESTIMATE," "EXPECT," "INTEND" AND OTHER SIMILAR EXPRESSIONS. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN DUE
TO NUMEROUS FACTORS INCLUDING, BUT NOT LIMITED TO, THOSE DISCUSSED IN THE
FOLLOWING DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, AS WELL AS THOSE DISCUSSED ELSEWHERE HEREIN AND IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998.
RESULTS OF OPERATIONS
NET SALES
Net sales is comprised of systems sales (including sales of engineering Test
Stations), software sales (including Test Station software and Virtual Test
Software) and service sales, which consists primarily of revenue derived from
maintenance and consulting contracts. Net sales of $11,222 for the three months
ended March 31, 1999 reflected an increase of $2,730 or 32% from the first
quarter of 1998. The improvement in net sales reflects increased capital
spending by several of the Company's customers, particularly Intel.
International sales increased to 20% versus 12% of net sales for the three
months ended March 31, 1999 and 1998, respectively. In the first quarter of
1999 sales to customers in the Asia-Pacific region were slightly lower while
European sales were significantly improved over the same period in 1998.
Shipments of the new Vanguard Test Station accounted for 23% of net sales.
Sales to Intel comprised 45% of first quarter 1999 sales compared to 11% of
sales for the same quarter in 1998. Sales to National Semiconductor accounted
for 24% of first quarter 1999 net sales.
GROSS MARGIN
The Company's gross margin of $6,791 in the first quarter of 1999 represents
an increase of 20% from $5,647 for the same period of 1998, as a direct
result of the increase in net sales discussed above. As a percentage of net
sales, gross margin decreased to 61% for the three months ended March 31,
1999 from 66% for the three months ended March 31, 1998. The year-to-year
decrease in gross margin percent is due to several factors. The Company
experienced increased price pressure for its XTS/ATS Test Station products,
resulting in higher discounts on these older products than in the past.
Second, product warranty costs increased following an increase in the
standard warranty period offered to customers from 90 days to one year, and
in some instances two years. Third, the Company realized increased costs from
inventory scrap and obsolescence resulting both from new product scrap that
generally occurs at the beginning of a product's life cycle, and increased
obsolescence exposure associated with last time buys of proprietary parts for
older generation products. The Company expects the increased warranty,
inventory scrap and obsolescence costs to continue to similarly impact gross
margins during the remainder of 1999. Management believes that the higher
margin new products, Vanguard, Orion and Digital Virtual Tester, will
constitute a greater percentage of total revenues in future quarters, and
therefore the gross margin percentage is expected to improve from first
quarter levels during the remainder of 1999.
8
<PAGE>
OPERATING EXPENSES
Research, development and engineering (R&D) expenses increased to $1,928 for the
three months ended March 31, 1999 from $1,744 for the first quarter of 1998. R&D
expenses amounted to 17% of net sales in the three months ended March 31, 1999,
compared to 21% in the three months ended March 31, 1998. The increase in R&D
expenses in absolute dollar terms reflects spending on R&D activities related
to the development of the orion memory test station products following the
acquisition of performic in September, 1998. Also contributing to the increase
was a reduction in the amount capitalized for software development costs in the
first quarter of 1999 to $454 from $527 in the first quarter of 1998. The
decrease in R&D expenses as a percentage of net sales was directly attributable
to the increase in net sales discussed above.
Selling, general and administrative (SG&A) expenses of $4,333 for the first
quarter of 1999 were 7% higher than the same quarter in 1998. As a percentage
of net sales, SG&A expenses decreased to 39% in the three months ended March
31, 1999 from 48% in the three months ended March 31, 1998. The increase in
the dollar amount of SG&A expenses was the direct result of the Company's
efforts to establish direct sales efforts in Japan and Europe, partially
offset by expense reductions associated with the Company's restructuring
implemented in the last half of 1998. The decrease in SG&A expenses as a
percent of net sales resulted directly from the increase in net sales
discussed above.
OTHER INCOME, NET
Other income, net, decreased to $128 in the three months ended March 31, 1999,
from $218 in the quarter ended March 31, 1997. This decrease reflects less
interest income earned as a result of lower average cash and short-term
investment balances.
INCOME TAXES
The Company's effective tax rate was 34% for the three-month period ended March
31, 1999 and 35% for the three months ended March 31, 1998. The Company's income
tax position combines the effects of available tax benefits in certain countries
where the Company does business, benefits for available net operating loss
carryforwards, and tax expense for subsidiaries with pre-tax income. The
Company's effective tax rate is sensitive to the geographic and product mix of
the Company's net sales, and therefore could be higher or lower in the future
depending upon actual net sales realized.
NET INCOME
As a result of the various factors discussed above, net income for the first
quarter of 1999 increased to $434 or $0.06 per share compared to $48 or $0.01
per share for the corresponding period in 1998.
FUTURE OPERATING RESULTS
Results of operations for the periods discussed above should not be considered
indicative of the results to be expected in any future period, and fluctuations
in operating results may also result in fluctuations in the market price of the
Company's common stock. Like most high technology and high growth companies, the
Company faces certain business risks that could have adverse effects on the
Company's results of operations.
Sales of the Company's products to Intel and a limited number of other customers
are expected to continue to account for a high percentage of net sales over the
foreseeable future. Any sudden reduction or loss of orders from Intel or any
other major customer would have a material adverse effect on the Company's
financial condition and results of operations.
Like most high technology and high growth companies, the Company faces certain
other business risks that could have adverse effects on the Company's results
of operations, including, but not limited to the following. The Company is
9
<PAGE>
dependent on high-dollar customer orders, deriving a substantial portion of its
net sales from the sale of Test Stations which typically range in price from
$0.5 million to $1.5 million per unit and may be priced as high as $2.0 million
or more for a single unit.
A substantial amount of the Company's net sales are typically realized in the
last few days of each quarter. During 1997 and 1998, the Company's quarterly net
sales were negatively impacted by customer decisions to delay or cancel plans to
place orders for the Company's Test Station products in the last few days of the
quarter. The timing and sales price of a single order can have a significant
impact on the Company's net sales and results of operations for a particular
period. The Company's net sales and results of operations may be negatively
impacted if an order is received too late in a given period to permit product
shipment and the recognition of revenue during that period.
A significant portion of the Company's operating expenses are relatively fixed
and planned expenditures are based, in part, on anticipated orders. In addition,
the need for continued expenditures for research, development and engineering
makes it difficult to reduce expenses in a particular quarter if the Company's
sales goals for that quarter are not met. The inability to reduce the Company's
expenses quickly enough to compensate for any revenue shortfall would magnify
the adverse impact of any revenue shortfall on the Company's results of
operations.
The Company purchases some key components from sole or single source vendors,
for which alternative sources are not readily available. A few of these
suppliers are small independent companies and could expose the Company to
increased risk of temporary shortages for certain key components. The Company's
future operating results and financial condition are also subject to influences
driven by rapid technological changes, a highly competitive industry, a lengthy
sales cycle, and the cyclical nature of general economic conditions.
Future operating results will depend on many factors, including demand for the
Company's products, the introduction of new products by the Company and by its
competitors, industry acceptance of Virtual Test software, the level and timing
of available shippable orders and backlog, the duration and severity of the
economic downturn in Asia, and the business risks discussed above. There can be
no assurance that the Company's net sales will grow or that such growth will be
sustained in future periods or that the Company will remain profitable in any
future period.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's exposure to market risk for changes in interest rates relates
primarily to its investment portfolio. The Company mitigates its risk by
diversifying its investments among high credit quality securities in
accordance with the Company's investment policy.
Interest expense is affected by the general level of U.S. interest rates
and/or LIBOR. Increases in interest expense resulting from an increase in
interest rates would be offset by a corresponding increase in interest earned
on the Company's investments.
The Euro is the functional currency of the Company's subsidiaries in France,
Germany and Switzerland. The Yen is the functional currency of the Company's
subsidiary in Japan. The Company does not currently enter into foreign
exchange forward contracts to hedge certain balance sheet exposures and
intercompany balances against future movements in foreign exchange rates. The
Company does maintain cash balances denominated in currencies other than the
U.S. Dollar in order to meet minimum operating requirements of its foreign
subsidiaries. If foreign exchange rates were to weaken against the U.S.
Dollar, the Company believes that the fair value of these foreign currency
amounts would decline by an immaterial amount.
YEAR 2000
The Company has developed its Year 2000 Readiness Plan including steps to
review, test and implement corrective measures for the Company's products and
information systems. In addition, the Company has identified its most critical
vendors and suppliers, and is collecting sufficient information from each of
them to monitor their Year 2000 readiness.
To-date, the Company has completed testing of its currently offered products.
Based on these tests, the Company believes them to be free of any problems
associated with the Year 2000. The Company has tested selected earlier-version
products for Year 2000 readiness, and believes them to be free of any problems
associated with the Year 2000. The Company will continue to selectively perform
Year 2000 readiness testing on specific customer configurations as requested
during the next several quarters. Based upon testing to-date, the Company does
not believe additional product testing will result in the discovery of any
materially adverse Year 2000 readiness issues.
The Company has completed review of its Year 2000 readiness with respect to its
information systems. The review has not identified any significant information
systems Year 2000 issues beyond those that will be corrected through
implementation of previously planned systems upgrades. Vendors for the Company's
information systems have represented those systems, with the planned upgrades,
to be Year 2000 compliant. The Company plans to test those systems for Year 2000
Readiness as the upgrades are implemented and expects to complete such testing
by June 30, 1999.
The Company estimates the costs in 1998, including payments to third parties and
estimates of internal costs, for developing and implementing its Year 2000
readiness plan were less than $200,000. The Company expects
10
<PAGE>
additional implementation costs in 1999 to be less than $300,000. Costs
incurred during the first quarter of 1999 were not significant.
The Company has not developed a most reasonably likely worst case scenario.
However, it is developing contingency plans in the event mission-critical
third-party vendors or other significant third parties fail to adequately
address Year 2000 issues. Such plans principally involve identifying alternative
vendors or, in the extreme, adding inventory safety stocks. There can be no
assurance that any such plans will fully mitigate any such failures or problems.
In addition, there are mission-critical third parties, such as utilities,
transportation and telecommunication companies where alternative arrangements or
sources are limited or unavailable.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company's principal sources of liquidity consisted of
cash and short-term investments of approximately $12.1 million, and funds
available under an existing bank line of credit of $10.0 million.
The Company's operating activities generated cash during the three months ended
March 31, 1999 of $2.1 million, compared to using cash of $976 for the same
period last year. This improvement in operating cash flows was primarily
attributable to increased collections of trade receivables, especially from
customers granted extended payment terms during 1998.
The Company's trade receivables decreased to $13.2 million at March 31,1999 from
$14.0 million at December 31, 1998, in part as a result of collections from
customers in accordance with extended payment terms granted during 1998.
Inventories increased by 3% during the first quarter of 1999 to $15.4 million at
March 31, 1999, compared to $14.9 million at December 31, 1998. The increase is
due to the procurement of inventory materials for Vanguard and Orion Test
Stations in anticipation of planned increases in shipment volumes later in 1999.
Deferred revenue increased to $2.9 million at March 31, 1999 compared to $2.0
million at December 31, 1998. This increase reflects the normal seasonal
increase in renewals of annual maintenance contracts by customers.
During the first quarter of 1999, the Company continued to invest in equipment
and capitalized software development costs. Payments for purchases of equipment
amounted to $699, while capitalization of software development costs amounted to
$454.
The Company believes that cash on hand, short-term investments, and cash
generated from operations, as well as cash available from the Company's existing
$10.0 million short-term line of credit, will be sufficient to meet the
Company's working capital and other cash requirements for at least the next
twelve months. Management is continually evaluating opportunities to develop and
introduce new products, and to acquire complementary businesses or technologies.
At present, the Company has no understandings, commitments or agreements with
respect to any such opportunities. Any transactions resulting from such
opportunities, if consummated, may necessitate funding from other sources. There
can be no assurance that such funding will be available or that, if available,
such funding will be obtainable on terms favorable to the company.
11
<PAGE>
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the quarter ended March 31, 1999, the Company made no sales of
securities that were not registered under the Securities Act of 1933.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (exhibit reference numbers refer to Item 601 of Regulation S-K)
27. Financial Data Schedule
(b) Reports on Form 8-K:
No report on Form 8-K was filed during the quarter ended March 31, 1999.
12
<PAGE>
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 on May 14, 1999.
INTEGRATED MEASUREMENT SYSTEMS, INC.
(Registrant)
/s/ FRED HALL
-------------------------------------
Fred Hall
Chief Financial Officer
(on behalf of the Registrant and as
Principal Financial Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INCOME
STATEMENT FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1999, AND THE BALANCE
SHEET AS OF MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,596
<SECURITIES> 5,508
<RECEIVABLES> 13,572
<ALLOWANCES> 413
<INVENTORY> 15,414
<CURRENT-ASSETS> 44,808
<PP&E> 24,083
<DEPRECIATION> 13,077
<TOTAL-ASSETS> 64,179
<CURRENT-LIABILITIES> 8,489
<BONDS> 325
0
0
<COMMON> 75
<OTHER-SE> 54,129
<TOTAL-LIABILITY-AND-EQUITY> 64,179
<SALES> 8,911
<TOTAL-REVENUES> 11,222
<CGS> 3,426
<TOTAL-COSTS> 4,431
<OTHER-EXPENSES> 6,261
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> 658
<INCOME-TAX> 224
<INCOME-CONTINUING> 434
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 434
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
