<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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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, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-26274
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INTEGRATED MEASUREMENT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0840631
(State or other jurisdiction of incorporation (I.R.S. Employer
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
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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 30, 2000, there were 7,808,300 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.)
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INTEGRATED MEASUREMENT SYSTEMS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART 1 FINANCIAL INFORMATION PAGE NUMBER
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations for the three months
ended March 31, 2000 and 1999 3
Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 5
Notes to the Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 8-11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 12
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 13
SIGNATURES 14
</TABLE>
2
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTEGRATED MEASUREMENTS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
SALES:
Systems $ 11,581 $ 7,548
Software 1,728 1,363
Service 2,413 2,311
--------- --------
NET SALES 15,722 11,222
--------- --------
COST OF SALES:
Systems 4,860 3,274
Software 320 152
Service 1,066 1,005
--------- --------
Total cost of sales 6,246 4,431
--------- --------
GROSS MARGIN 9,476 6,791
OPERATING EXPENSES:
Research, development and engineering 2,245 1,928
Selling, general and administrative 5,035 4,333
--------- --------
Total operating expenses 7,280 6,261
--------- --------
OPERATING INCOME 2,196 530
Other income, net 285 128
--------- --------
Income before income taxes 2,481 658
Provision for income taxes 794 224
--------- --------
NET INCOME $ 1,687 $ 434
========= ========
BASIC EARNINGS PER SHARE $ 0.22 $ 0.06
========= ========
DILUTED EARNINGS PER SHARE $ 0.20 $ 0.06
========= ========
Weighted average number of common shares outstanding for
basic earnings per share 7,720 7,448
Incremental shares from assumed conversion of employee stock options 840 290
--------- --------
Adjusted weighted average shares for diluted earnings per share 8,560 7,738
========= ========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS
3
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INTEGRATED MEASUREMENT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
As of As of
March 31, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 15,555 $ 7,507
Short-term investments 8,531 15,117
Trade receivables, less allowance for doubtful accounts
of $255 and $257 19,114 13,956
Inventories, net 12,830 13,176
Deferred income taxes 2,662 2,662
Prepaid expenses and other current assets 3,722 3,453
--------- --------
Total current assets 62,414 55,871
PROPERTY, PLANT AND EQUIPMENT, NET 10,311 10,737
SERVICE SPARE PARTS, NET 3,005 2,986
SOFTWARE DEVELOPMENT COSTS, NET 3,844 3,915
OTHER ASSETS, NET 784 915
--------- --------
Total assets $ 80,358 $ 74,424
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,320 $ 1,512
Payable to Cadence, net 111 27
Accrued compensation 2,089 2,608
Accrued warranty 1,393 1,182
Deferred revenue 3,178 2,193
Other current liabilities 1,156 947
Income taxes payable 997 818
Capital lease obligations - current 151 149
--------- --------
Total current liabilities 11,395 9,436
DEFERRED INCOME TAXES 1,390 1,390
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 174 213
DEFERRED COMPENSATION 1,664 1,565
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 7,803,057 and 7,588,600 78 76
Additional paid-in capital 44,399 42,173
Retained earnings 21,258 19,571
--------- --------
Total shareholders' equity 65,735 61,820
--------- --------
Total liabilities and shareholders' equity $ 80,358 $ 74,424
========= ========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS.
4
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INTEGRATED MEASUREMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,687 $ 434
Adjustments to reconcile net income to
Cash provided by operating activities:
Depreciation and amortization 1,660 1,410
Deferred compensation 95 7
Net change in receivable from/payable to Cadence 84 (91)
(Increase) decrease in trade receivables (5,158) 818
Decrease (increase) in inventories 346 (471)
Increase in other current assets (265) (274)
Net change in income taxes payable or receivable 817 --
Increase in deferred revenue 985 916
Increase (decrease) in accounts payable and accrued liabilities 709 (633)
---------- ---------
Net cash provided by operating activities 960 2,116
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of short-term investments 6,586 2,122
Purchases of equipment & service spare parts (666) (699)
Software development costs (385) (454)
---------- -------
Net cash provided by investing activities 5,535 969
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital leases (37) (96)
Proceeds from employee stock plans 1,590 228
---------- ----------
Net cash provided by financing activities 1,553 132
---------- ----------
Net increase in cash and cash equivalents 8,048 3,217
Beginning cash and cash equivalents balance 7,507 3,379
---------- ----------
Ending cash and cash equivalents balance $ 15,555 $ 6,596
========== ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Tax benefit from Cadence and IMS stock options $ 638 $ --
========== ==========
OTHER SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes (paid) refunded $ (106) $ 103
============ ==========
Interest paid $ (8) $ (14)
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS.
5
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INTEGRATED MEASUREMENT SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All numerical references are 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, 1999 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.
Certain reclassifications have been made to prior year amounts to
conform to the current year presentation.
(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,
2000 1999
---- ----
<S> <C> <C>
Raw materials. . . . . . . . . . . . . . . . . . $ 7,453 $ 7,443
Work-in-progress . . . . . . . . . . . . . . . . 2,331 2,184
Finished goods . . . . . . . . . . . . . . . . 3,046 3,549
--------- ---------
$ 12,830 $ 13,176
========= =========
</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, 2000 and 1999, 29,750 and 278,125 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
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(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:
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
TEST SYSTEMS VIRTUAL TEST CONSOLIDATED
-------------- -------------- ----------------
<S> <C> <C> <C>
Segment net sales $ 14,778 $ 944 $ 15,722
Segment operating income (loss) $ 2,552 $ (356) $ 2,196
</TABLE>
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
TEST SYSTEMS VIRTUAL TEST CONSOLIDATED
-------------- -------------- ----------------
<S> <C> <C> <C>
Segment net sales $ 10,259 $ 963 $ 11,222
Segment operating income (loss) $ 644 $ (114) $ 530
</TABLE>
(5) REVENUE RECOGNITION
Revenue from systems sales and software licenses is generally recognized as
the product ships and when no significant obligations remain. Contract
service and support revenues billed in advance are recorded as deferred
revenue and recognized ratably over the contractual period as the services
and support are performed. Revenue from other services, such as consulting
and training, is recognized as the related services are performed or when
certain milestones are achieved.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin, or SAB, No. 101 "Revenue Recognition in Financial
Statements." SAB 101 provides guidance for public companies on the
recognition, presentation and disclosure of revenue in their financial
statements. The semiconductor equipment industry and the accounting
profession are currently evaluating SAB 101 and the practical effects of its
implementation are still uncertain. The Company has historically recognized
revenue at the time its products are shipped which is the predominant method
used by companies in the semiconductor equipment industry. SAB 101 would
require the Company to recognize revenue at the time a shipped product has
been accepted by a customer. This change in the Company's revenue recognition
policy would have to be reported as a change in accounting principles
effective January 1, 2000. Implementation of this change has been deferred by
the SEC to the second quarter of 2000. The change may result in the
restatement of the Company's financial statements for the quarter ended March
31, 2000 to record a significant non-operating charge against net income
reflecting the deferral of revenue for shipments of the Company's products
previously reported as revenue in 1999 which had not been accepted by
customers as of December 31, 1999. This deferred revenue would be recognized
in subsequent periods when formal customer acceptance has been obtained.
While the Company is still evaluating the implementation of SAB 101, the
Company believes it will affect the timing and predictability of ongoing
revenue recognition and may require a portion of the Company's quarterly and
annual revenue in 2000 and beyond to be deferred.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS
QUARTERLY REPORT, AS WELL AS THE FINANCIAL STATEMENTS AND THE NOTES THERETO,
AND THE MANAGEMENT DISCUSSION AND ANALYSIS PRESENTED IN OUR ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999. 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. 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 OUR ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999.
OVERVIEW
We were founded in 1983 to design and develop integrated circuit validation
systems to test and measure complex electronic devices at the prototype
stage. We were acquired by Valid Logic Systems, Incorporated in 1989 and then
by Cadence in 1991 as a result of the merger of Valid Logic into Cadence. We
were operated as a separate subsidiary of Cadence. In July 1995, we completed
our initial public offering of common stock and in February 1997, completed
our secondary public offering of our common stock. Cadence sold shares in
each of those offerings, and as of March 31, 2000, continues to own
approximately 33% of our common stock.
Our net sales are comprised of validation systems sales, software sales,
including validation systems software and our virtual test software, and
service sales, which consist primarily of revenue derived from maintenance
and consulting contracts. Revenue from validation systems sales and software
licenses is generally recognized as the product ships and when no significant
obligations remain. Contract service and support revenues billed in advance
are recorded as deferred revenue and recognized ratably over the contractual
period as the services and support are performed. Revenue from other
services, such as consulting and training, is recognized as the related
services are performed or when specified milestones are achieved.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin, or SAB, No. 101 "Revenue Recognition in Financial
Statements." SAB 101 provides guidance for public companies on the
recognition, presentation and disclosure of revenue in their financial
statements. The semiconductor equipment industry and the accounting
profession are currently evaluating SAB 101 and the practical effects of its
implementation are still uncertain. We have historically recognized revenue
at the time our products are shipped which is the predominant method used by
companies in the semiconductor equipment industry. SAB 101 would require us
to recognize revenue at the time a shipped product has been accepted by a
customer. This change in our revenue recognition policy would have to be
reported as a change in accounting principles effective January 1, 2000.
Implementation of this change has been deferred by the SEC to the second
quarter of 2000. The change may result in the restatement of our financial
statements for the quarter ended March 31, 2000 to record a significant
non-operating charge against net income reflecting the deferral of revenue
for shipments of our products previously reported as revenue in 1999 which
had not been accepted by customers as of December 31, 1999. This deferred
revenue would be recognized in subsequent periods when formal customer
acceptance has been obtained. While we are still evaluating the
implementation of SAB 101, we believe it will affect the timing and
predictability of ongoing revenue recognition and may require a portion of
our quarterly and annual revenue in 2000 and beyond to be deferred.
We derive a substantial portion of our net sales from the sale of validation
systems which typically range in price from $200,000 to $1.8 million per unit
and may be priced as high as $2.3 million for a single unit. As a result, the
receipt of a single order, and the timing of the receipt and shipment of a
single order can have a significant impact on our net sales and results of
operations for a particular period. In addition, a substantial portion of our
net sales are typically realized during the last few weeks of each quarter. A
significant portion of our operating expenses are
8
<PAGE>
relatively fixed in nature, and planned expenditures are based in part on
anticipated orders. As a result, we may be unable to reduce such expenses in
a particular period if our sales goals for that period are not met. The
inability to reduce spending quickly enough to compensate for any revenue
shortfall would magnify the adverse impact of such revenue shortfall on our
results of operations.
RESULTS OF OPERATIONS
NET SALES
Net sales increased $4.5 million, or 40%, from $11.2 million for the three
months ended March 31, 1999 to $15.7 million for the three months ended March
31, 2000. Sales to Intel accounted for 45% of net sales, and sales to National
Semiconductor accounted for 24% of net sales for the three months ended March
31, 1999. Sales to Intel accounted for 45% of net sales, and sales to National
Semiconductor accounted for 12% of net sales for the three months ended March
31, 2000. No other customer accounted for more than 10% of net sales during
the three month periods ended March 31, 1999 and 2000. International sales
accounted for 20% of net sales for the three months ended March 31, 1999, and
15% for the three months ended March 31, 2000.
Systems sales increased $4.1 million, or 53%, from $7.5 million for the three
months ended March 31, 1999, to $11.6 million for the three months ended
March 31, 2000. This increase was almost entirely the result of higher sales
from Vanguard logic validation systems, Electra MX mixed-signal validation
systems and Orion memory validation systems, partially offset by lower sales
of ATS and XTS logic validation systems.
Software sales increased $365,000, or 27%, from $1.4 million for the three
months ended March 31, 1999 to $1.7 million for the three months ended March
31, 2000. Systems software sales increased $347,000, or 63%, from $551,000
for the three months ended March 31, 1999, to $898,000 for the three months
ended March 31, 2000. This increase in systems software sales was the direct
result of increased sales of Vanguard systems software. Virtual test software
sales remained relatively constant at $812,000 for the three months ended
March 31, 1999 and $830,000 for the three months ended March 31, 2000.
Service sales increased $102,000, or 4%, from $2.3 million for the three
months ended March 31, 1999, to $2.4 million for the three months ended March
31, 2000. Service sales have grown slower than systems sales from 1999 to
2000 as a result of an increase in our standard warranty period for our
systems, which has delayed the sale of maintenance contracts covering new
systems shipped during 1999 and the first quarter of 2000. In the fourth
quarter of 1998, we changed our standard warranty period from 90 days to 12
months and from 12 months to 24 months for Intel.
GROSS MARGIN
Gross margin was $6.8 million, or 61% of net sales for the three months
ended March 31, 1999, and $9.5 million, or 60% of net sales for the three
months ended March 31, 2000. The gross margin from sales of our validation
systems was 57% of systems sales for the three months ended March 31, 1999,
and 58% of systems sales for the three months ended March 31, 2000. Software
sales yielded gross margin of 89% of software sales for the three months
ended March 31, 1999, and 81% of software sales for the three months ended
March 31, 2000. Software gross margin was lower in the first quarter of 2000
due primarily to increased amortization of capitalized software development
costs. Service gross margin declined slightly from 57% of service sales for
the three months ended March 31, 1999, to 56% of service sales for the three
months ended March 31, 2000.
OPERATING EXPENSES
Research, development and engineering or R&D, expenses consist of employee
costs, costs of materials consumed, depreciation of equipment and engineering
related costs. R&D expenses increased from $1.9 million for the three months
ended March 31, 1999, to $2.2 million for the three months ended March 31,
2000. R&D expenses amounted to 17% of net sales for the three months ended
March 31, 1999, compared to 14% for the three months ended March 31, 2000.
The increase in R&D expenses primarily reflects increased spending on R&D
activities related to the enhancement of the Orion memory validation systems.
In addition, the amount we capitalized for
9
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software development costs declined from $454,000 for the three months ended
March 31, 1999, to $385,000 for the three months ended March 31, 2000. The
decrease in R&D expenses as a percentage of net sales was directly
attributable to the increase in net sales.
Selling, general and administrative, or SG&A, expenses consist of salaries
and commissions of sales personnel, marketing expenses, salaries of
administrative personnel and other general administrative expenses. SG&A
expenses increased from $4.3 million for the three months ended March 31,
1999, to $5.0 million for the three months ended March 31, 2000. As a
percentage of net sales, SG&A expenses decreased from 39% for the three
months ended March 31, 1999, to 32% for the three months ended March 31,
2000. The increase in SG&A expenses reflects payment of sales commissions on
higher sales volumes and payment of employee performance bonuses attributable
to our achievement of specified operating income targets. The decrease in
SG&A expenses as a percentage of net sales resulted directly from the
increase in net sales.
OTHER INCOME, NET
Other income, net was $128,000 for the three months ended March 31, 1999 and
$285,000 for the three months ended March 31, 2000. The increase in other
income, net was due to the impact of higher average cash and investment
balances on interest income.
PROVISION FOR INCOME TAXES
Our effective tax rate was 34% for the three months ended March 31, 1999, and
32% for the three months ended March 31, 2000. Our income tax position
includes the effects of available tax benefits in certain countries where we
do business, benefits for available net operating loss carryforwards, and tax
expense for subsidiaries with pre-tax income. While management currently
anticipates our effective tax rate to be approximately 32% for the year 2000,
this rate is very sensitive to the geographic and product mix of our 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 increased from
$434,000 or $0.06 per diluted share for the three months ended March 31,
1999, to $1.7 million or $0.20 per diluted share for the three months ended
March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, our principal sources of liquidity consisted of cash,
cash equivalents and short-term investments of approximately $24.1 million,
and funds available under an existing bank line of credit of $10.0 million.
Cash, cash equivalents and short-term investments increased by $1.5 million
from December 31, 1999. Since 1988, we have relied on cash generated from
operations and cash raised through public stock offerings as our principle
source of liquidity.
OPERATING ACTIVITIES
Our net cash flows from operating activities include cash received from
customers, payments to suppliers, payments to employees and interest received
and paid. Net cash provided by operating activities amounted to $2.1 million
for the three months ended March 31, 1999 and $960,000 for the three months
ended March 31, 2000. Trade receivables amounted to $14.0 million at December
31, 1999 and $19.1 million at March 31, 2000. This increase is due to the
normal seasonal increase in renewals of annual maintenance contracts by
customers and very strong
10
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international sales in the fourth quarter of 1999. International customers
typically pay slower. Inventories decreased from $13.2 million at December
31, 1999 to $12.8 million at March 31, 2000. This decrease was primarily due
to the combination of increased sales volume and focused inventory reduction
programs. Deferred revenue increased from $2.2 million at December 31, 1999,
to $3.2 million at March 31, 2000 as a result of the maintenance contract
renewals.
INVESTING ACTIVITIES
Investing activities provided net cash of $969,000 for the three months ended
March 31, 1999 and $5.5 million for the same period in 2000. The increased
level of net cash provided by investing activities for the three months ended
March 31, 2000 was directly attributable to a greater portion of our
investments being in debt securities with original maturities of three months
or less, or cash equivalents, than at December 31, 1999.
FINANCING ACTIVITIES
Financing activities provided net cash of $132,000 for the three months ended
March 31, 1999 and $1.6 million for the three months ended March 31, 2000.
Cash used for payments of certain capital leases obtained for computers and
equipment used in operations was $96,000 and $37,000 for the respective
periods ended March 31, 1999 and 2000. We received $228,000 for the quarter
ended March 31, 1999 and $1.6 million for the same period in 2000 from the
issuance of stock under our employee stock option and stock purchase plans.
We realized reductions in current income tax liabilities of $638,000 in the
three months ended March 31, 2000, resulting from the benefit of tax
deductions of employee gains upon exercise of Cadence and our employee stock
options. During the same period in 1999 no such benefits were recorded. The
compensation for tax purposes associated with stock option exercises are
typically not treated as expense for financial reporting purposes, and the
exercise of Cadence stock options does not increase the number of shares of
our common stock outstanding. The tax benefits available from the stock
option deduction may decrease in the future as employee holdings of Cadence
stock options decline due to option exercises and cancellations.
Additionally, the timing and magnitude of such decrease in tax benefits, if
realized, is uncertain as the number of employee stock options which are
exercised, and the amount of gains realized upon exercise, will be determined
by, among other factors, fluctuations in the market values of Cadence common
stock and our common stock.
We have obtained a $10.0 million revolving line of credit with U.S. National
Bank of Oregon, which is available for general corporate purposes as needed.
Under the agreement, we can borrow, with interest at the bank's prime lending
rate, or if lower, at certain margins above banker's acceptance or interbank
offering rates. There have been no borrowings against the line of credit to
date. The term of the agreement ends April 30, 2001.
We believe that existing funds, funds expected to be generated by operating
activities, and the available line of credit, will satisfy our anticipated
working capital and other general corporate purposes through at least the
next twelve months. We currently have no significant capital commitments
other than commitments under facility operating leases and vendor contracts
for development services, consulting services and parts. From time to time,
we may consider the acquisition of complementary businesses, products or
technologies. Presently, there are no significant understandings, commitments
or agreements with respect to any such acquisitions. Any such transactions,
if consummated, may require additional financing. No assurance can be given
that additional financing will be available or that, if available, such
financing will be obtainable on terms favorable to us.
YEAR 2000
During 1999 and 1998, we developed and executed our Year 2000 Readiness Plan
which included steps to monitor, test and implement corrective measures for
our critical vendors and suppliers, products and information systems. We
estimate the costs incurred during 1999 and 1998, including payments to third
parties and estimates of internal costs, for developing and implementing our
Year 2000 readiness plan were less than $300,000 and $200,000, respectively.
To date, we have not been impacted by any material Year 2000 issues.
11
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company's exposure to market risk for changes in interest rates relate
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. As of March 31, 2000, the
Company's investment portfolio includes marketable debt securities of $19.2
million. These securities are subject to interest rate risk, and will decline
in value if the interest rates increase. Due to the short duration of the
Company's investment portfolio, an immediate 10 percent increase in interest
rates would not have a material effect on the Company's financial condition
or the results of its operations.
FOREIGN CURRENCY EXCHANGE RATE RISK
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 maintain cash balances denominated in
currencies other than the U.S. Dollar in order to meet minimum operating
requirements of its foreign subsidiaries.
The Company has limited involvement with derivative financial instruments and
does not use them for trading purposes. Derivatives are used to manage
well-defined foreign currency risks. The Company enters into forward exchange
contracts to hedge the value of recorded short-term receivables and payables
denominated in a foreign currency. Accordingly, the impact of exchange rates
on the forward contracts will be substantially offset by the impact of such
changes on the underlying transactions. The effect of an immediate 10 percent
change in exchange rates on the forward exchange contracts and the underlying
hedged positions denominated in foreign currencies would not be material to
the Company's financial position or the results of its operations.
12
<PAGE>
PART II OTHER INFORMATION
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, 2000.
13
<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 12, 2000.
INTEGRATED MEASUREMENT SYSTEMS, INC.
(Registrant)
/s/ Fred Hall
------------------------------------
Fred Hall
Chief Financial Officer
(on behalf of the Registrant and as
Principal Financial Officer)
14
<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, 2000, AND THE BALANCE SHEET
AS OF MARCH 31, 2000, 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 15,555
<SECURITIES> 8,531
<RECEIVABLES> 19,369
<ALLOWANCES> 255
<INVENTORY> 12,830
<CURRENT-ASSETS> 62,414
<PP&E> 25,794
<DEPRECIATION> 15,483
<TOTAL-ASSETS> 80,358
<CURRENT-LIABILITIES> 11,395
<BONDS> 174
0
0
<COMMON> 78
<OTHER-SE> 65,657
<TOTAL-LIABILITY-AND-EQUITY> 80,358
<SALES> 13,309
<TOTAL-REVENUES> 15,722
<CGS> 5,180
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<OTHER-EXPENSES> 7,280
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<INCOME-PRETAX> 2,481
<INCOME-TAX> 794
<INCOME-CONTINUING> 1,687
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