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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: June 30, 2000
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 000-27965
RUDOLPH TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 22-3531208
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
One Rudolph Road
Flanders, New Jersey 07836
(Address of Principal Executive Offices)
(Zip Code)
(973) 691-1300
Registrants telephone number, including area code
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 [_]
The number of outstanding shares of the Registrant's Common Stock on July
25, 2000 was 14,795,272.
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<TABLE>
<CAPTION>
Page
PART I FINANCIAL INFORMATION ----
<C> <S> <C>
Item 1. Financial Statements...........................................
Condensed Consolidated Balance Sheets at June 30, 2000 and
December 31, 1999............................................. 2
Condensed Consolidated Statements of Operations for the three
and six months ended June 30, 2000 and 1999................... 3
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 2000 and 1999........................... 4
Notes to Condensed Consolidated Financial Statements........... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk..... 15
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 16
</TABLE>
1
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
RUDOLPH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash................................................... $ 32,584 $ 35,076
Accounts receivable.................................... 18,392 9,472
Inventories............................................ 15,644 11,403
Prepaid expenses and other current assets.............. 1,070 525
-------- --------
Total current assets................................. 67,690 56,476
Net property, plant and equipment........................ 3,207 3,106
Intangibles.............................................. 2,690 2,859
Deferred taxes........................................... 4,400 2,312
Other assets............................................. 204 194
-------- --------
Total assets......................................... $ 78,191 $ 64,947
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities............... $ 6,035 $ 4,536
Other current liabilities.............................. 3,005 2,723
-------- --------
Total current liabilities............................ 9,040 7,259
Other long-term libilities............................... 65 78
-------- --------
Total liabilities.................................... 9,105 7,337
Commitments and contingencies
Stockholders' equity
Common stock........................................... 15 15
Additional paid-in capital............................. 85,072 85,025
Other comprehensive loss............................... (235) (237)
Accumulated deficit.................................... (15,766) (27,193)
-------- --------
Total stockholders' equity........................... 69,086 57,610
-------- --------
Total liabilities and stockholders' equity............... $ 78,191 $ 64,947
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2000 1999 2000 1999
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues......................... $ 20,003 $ 8,638 $ 36,997 $ 15,170
Cost of revenues................. 9,234 4,144 17,203 7,373
---------- --------- ---------- ---------
Gross profit................. 10,769 4,494 19,794 7,797
---------- --------- ---------- ---------
Operating Expenses:
Research and development....... 1,966 1,054 3,706 2,097
Selling, general and
administrative................ 3,212 1,933 6,291 3,537
Amortization................... 85 65 169 131
---------- --------- ---------- ---------
Total operating expenses..... 5,263 3,052 10,166 5,765
---------- --------- ---------- ---------
Operating income............. 5,506 1,442 9,628 2,032
Interest and other
expense/(income), net........... (545) 1,084 (1,044) 2,119
---------- --------- ---------- ---------
Income (loss) before income
taxes....................... 6,051 358 10,672 (87)
Provision (benefit) for income
taxes........................... (2,525) -- (755) 93
---------- --------- ---------- ---------
Net income/(loss)................ 8,576 358 11,427 (180)
Preferred stock dividends........ -- 136 -- 269
---------- --------- ---------- ---------
Net income/(loss) available to
common shareholders............. $ 8,576 $ 222 $ 11,427 $ (449)
========== ========= ========== =========
Net income/(loss) per share:
Basic.......................... $ 0.58 $ 0.03 $ 0.78 $ (0.07)
Diluted........................ $ 0.54 $ 0.03 $ 0.72 $ (0.07)
Weighted average shares
outstanding:
Basic.......................... 14,730,631 6,794,223 14,707,850 6,767,415
Diluted........................ 15,756,738 8,839,925 15,820,062 6,767,415
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
----------------
2000 1999
------- -------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss)........................................... $11,427 $ (180)
Adjustment to reconcile net income (loss) to net cash used
in operating activities
Amortization.............................................. 169 131
Depreciation.............................................. 301 274
Provision for doubtful accounts........................... 38 --
Deferred income taxes..................................... (2,795) --
Decrease (increase) in assets:
Accounts receivable..................................... (8,973) (1,187)
Inventories............................................. (4,240) (587)
Prepaid expenses and other assets....................... 163 (82)
Increase (decrease) in liabilities:
Accounts payable........................................ 886 318
Accrued liabilities..................................... 531 427
Other liabilities....................................... 340 336
------- -------
Net cash used in operating activities....................... (2,153) (550)
------- -------
Cash flows from investing activities:
Purchase of property, plant and equipment................. (404) (538)
Proceeds from disposal of property, plant and equipment... 16 27
------- -------
Net cash used in investing activities....................... (388) (511)
------- -------
Cash flows from financing activities:
Principal borrowings on long-term debt.................... -- 2,345
Principal payments on long-term debt...................... -- (1,250)
Net borrowing under lines of credit....................... -- (300)
Capital contribution...................................... -- 248
Exercises of employee stock options....................... 47 --
------- -------
Net cash provided by financing activities................... 47 1,043
------- -------
Effect of exchange rate changes on cash..................... 2 (1)
------- -------
Net decrease in cash and cash equivalents................... (2,492) (19)
Cash and cash equivalents at beginning of period............ 35,076 431
------- -------
Cash and cash equivalents at end of period.................. $32,584 $ 412
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
NOTE 1. Basis of Presentation
The accompanying unaudited financial statements have been prepared by
Rudolph Technologies, Inc. and in the opinion of management reflect all
adjustments, consisting only of normal recurring accruals, necessary for their
fair presentation in accordance with generally accepted accounting principles.
Preparing financial statements requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual amounts could differ materially from those amounts.
The results for the three and six month period ended June 30, 2000 are not
necessarily indicative of results to be expected for the entire year. This
financial information should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
NOTE 2. Accounts Receivable
Accounts receivable are net of the allowance for doubtful accounts of $338
and $300 as of June 30, 2000 and December 31, 1999, respectively.
NOTE 3. Inventories
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Materials............................................ $ 7,322 $ 4,729
Work-in-process...................................... 6,682 4,937
Finished goods....................................... 1,640 1,737
------- -------
Total Inventories.................................. $15,644 $11,403
======= =======
</TABLE>
NOTE 4. Property, Plant & Equipment
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Land and Building................................. $ 1,613 $ 1,613
Machinery and equipment........................... 871 865
Furnitures and fixtures........................... 365 269
Computer equipment................................ 1,221 964
Leasehold improvements............................ 836 811
------- -------
4,906 4,522
Accumulated Depreciation............................ (1,699) (1,416)
------- -------
Net property, plant and equipment................... $ 3,207 $ 3,106
======= =======
</TABLE>
NOTE 5. Comprehensive Income
The disclosures required by Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" (SFAS 130) have been
included below. The difference between net income/(loss) and comprehensive
income for the Company is due to currency translation adjustments. The effects
of income taxes on comprehensive income was not material.
For the three and six months ended June 30, 2000 comprehensive income
amounted to $8,570 and $11,429, respectively. Comprehensive income for the
three months ended June 30, 1999 was $217 and there was a comprehensive loss of
$273 for the six months ended June 30, 1999.
5
<PAGE>
NOTE 6. Income (Loss) Per Share
Basic income (loss) per share, is calculated using the weighted average
number of shares of common stock outstanding during the period. Diluted
earnings per share is computed in the same manner and also gives effect to all
dilutive common equivalent shares outstanding during the period. Dilutive
common equivalent shares consist of stock options for the three and six months
ended June 30, 2000 and stock options and stock warrants for the three and six
months ended June 30, 1999.
Stock options of 960,521 and stock warrants of 2,072,703 outstanding during
the six month period ended June 30, 1999 were excluded from the computation of
diluted loss per share because the effect in the period with a net loss would
be anti-dilutive.
The Company's basic and diluted net income (loss) per share amounts are as
follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income/(loss) available to
common shareholders.......... $ 8,576 $ 222 $ 11,427 $ (449)
=========== ========== =========== ==========
Denominator:
Basic net income/(loss) per
share--weighted average
shares outstanding........... 14,730,631 6,794,223 14,707,850 6,767,415
Effect of potential dilutive
securities:
Employee stock options--
dilutive shares.............. 1,026,107 -- 1,112,212 --
Stock warrants............... -- 2,045,702 -- --
----------- ---------- ----------- ----------
Diluted net income/(loss) per
share--weighted average
shares outstanding........... 15,756,738 8,839,925 15,820,062 6,767,415
=========== ========== =========== ==========
Net income/(loss) per share:
Basic......................... $ 0.58 $ 0.03 $ 0.78 $ (0.07)
Diluted....................... $ 0.54 $ 0.03 $ 0.72 $ (0.07)
</TABLE>
NOTE 7. Contingencies
The Company is presently involved in a patent interference proceeding with
Therma-Wave, Inc. in the United States Patent Office. In this proceeding, the
Company is defending its patent rights with respect to some of the multiple
angle, multiple wavelength ellipsometry technology it uses in its transparent
thin film measurement systems. Therma-Wave requested that the proceeding be
initiated in 1993 by filing a reissue application for one of its own patents,
in which it sought to broaden the original issued claims. The proceeding was
initiated by the Patent Office in June 1998.
Preliminary motions and statements have been filed. In November, 1999 the
patent office denied the Company's request to dismiss the proceedings. If the
Company loses the interference, a reissue patent will be granted to Therma-
Wave permitting Therma-Wave to assert patent rights against the ellipsometers
the Company uses in its transparent thin film measurement systems. In that
event, the Company could assert a defense of intervening rights against Therma-
Wave's reissued patent since the Company relied on the restricted claims of
Therma-Wave's original patent. If the intervening rights defense and other
defenses fail, the Company would either have to pay future royalties to Therma-
Wave or redesign its SpectraLASER and other transparent thin film measurement
systems. Management is unable to estimate the ultimate resolution of this
matter. However, should the Company be required to pay royalties or redesign
its products, it could have a material adverse effect on the Company's
business, financial condition and results of operations.
In addition, from time to time the Company is subject to legal proceedings
and claims in the ordinary course of business. Other than the Therma-Wave, Inc.
patent interference proceeding discussed above, we are not involved in any
material legal proceedings.
6
<PAGE>
NOTE 8. Income Taxes
The Company accounts for income taxes using the asset and liability approach
for deferred taxes which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. Based on our
recent increase in revenues combined with industry and internal forecasts, the
Company expects future taxable income will be sufficient for the realization of
the deferred tax assets and therefore, reversed the partial deferred tax
valuation allowance which was established in prior years.
NOTE 9. Geographic Reporting and Customer Concentration
Revenue by geographic region:
<TABLE>
<CAPTION>
Six Months
Three Months Ended Ended
June 30, June 30,
----------------------------------
2000 1999 2000 1999
--------- ---------------- -------
<S> <C> <C> <C> <C>
United States............................. $ 9,005 $ 2,783 $17,415 $ 6,389
Asia...................................... 7,526 2,939 13,272 3,725
Europe.................................... 3,470 2,023 6,303 3,269
Other..................................... 2 893 7 1,787
--------- -------- ------- -------
Total................................... $ 20,003 $ 8,638 $36,997 $15,170
========= ======== ======= =======
</TABLE>
Customers comprising 10% or more of revenue:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
2000 1999
-------- --------
<S> <C> <C>
A........................................................ 25.1% 37.3%
B........................................................ 11.4% 7.0%
C........................................................ -- 14.0%
</TABLE>
NOTE 10. Recent Accounting Pronouncements
During June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative
Investments and Hedging Activities" ("SFAS 133"). Based on the Company's
current operations, management has concluded that SFAS 133 will have no impact
on the Company's operations or financial position.
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101--Revenue Recognition in Financial Statements ("SAB
101"). SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company is required to adopt SAB 101 in the fourth quarter of 2000. The
Company is assessing whether any of these interpretations of generally accepted
accounting principles will cause the Company to report a change in accounting
principle. While management believes that its revenue recognition policies
conform with the generally accepted accounting principles that have been used
consistently in practice in the capital equipment industry, certain issues
raised in SAB 101, including delivery and performance revenue recognition
criteria, could be interpreted to cause a change in accounting principle by the
Company and many other companies in the capital equipment industry. At this
time, the effect of SAB 101 on the Company's operating results in any period
cannot be fully determined.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain statements in this current report on Form 10-Q are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21C of the Securities Exchange Act of 1934. These statements would
include without limitation, the statement that we believe that any future costs
associated with Year 2000 compliance will not be material, discussed below in
the paragraph titled "Year 2000 Issue". Additional forward looking statements
may be identified by the words "anticipate", "believe", "expect", "intend",
"will" and similar expressions, as they relate to us or our management.
The forward looking statements contained herein reflect our current views
with respect to future events and are subject to certain risks, uncertainties
and assumptions. Actual results may differ materially from those projected in
such forward looking statements for a number of factors, risks and
uncertainties, including the risk factors set forth in our Annual Report on
Form 10-K for the year ended December 31, 1999.
Results of Operations for the Three and Six Month Periods Ended June 30, 2000
and 1999
Revenues. Our revenues are derived from the sale of our metrology systems,
services and spare parts. Our revenues were $20.0 million and $37.0 million for
the three and six month periods ended June 30, 2000, compared to $8.6 million
and $15.2 million for the same periods of the prior year, representing an
increase of 132% and 144% for the respective periods. This change was primarily
due to increases in unit volume shipments to existing customers and expanded
sales of new products. Revenues from international customers represented 55%
and 53% for the three and six month periods ended June 30, 2000, compared to
57% and 58% for the same periods in the prior year.
Cost of Revenues and Gross Profit. Cost of revenues consists of the labor,
material and overhead costs of manufacturing our systems, spare parts cost and
the cost associated with our worldwide service support infrastructure. Our
gross profit was $10.8 million and $19.8 million for the three and six month
periods ended June 30, 2000, compared to $4.5 million and $7.8 million for the
same periods in the prior year. Our gross profit represented 54% for both the
three and six month periods ended June 30, 2000, compared to 52% and 51% for
the same periods in the prior year. The increase in gross profit margin from
1999 to 2000 resulted from improved manufacturing efficiencies, as a result of
outsourcing and cycle time reduction initiatives and higher revenues, which
cover a larger portion of fixed costs. The increase in gross profit dollars was
the result of higher unit sales.
Research and Development. Research and development expenditures consist
primarily of salaries and related expenses of employees engaged in research,
design and development activities. They also include consulting fees, prototype
equipment expenses and the cost of related supplies. Our research and
development expenses were $2.0 million and $3.7 million for the three and six
month periods ended June 30, 2000, compared to $1.1 million and $2.1 million
for the same periods in the prior year. As a percentage of revenue, research
and development expense represented 10% for both the three and six month
periods ended June 30, 2000, compared to 12% and 14% for the same periods of
the prior year. The increase in dollars resulted from higher personnel related
and parts cost associated with new product development and facilities
expansion. The decrease in research and development as a percentage of revenues
resulted from higher revenues in the three and six month periods ended June 30,
2000.
Selling, General and Administrative. Selling, general and administrative
expense is primarily comprised of salaries and related costs for sales,
marketing, and general and administrative personnel, as well as commissions,
royalties for licensed technology and other non-personnel related expenses. Our
selling, general and administrative expense was $3.2 million and $6.3 million
for the three and six month periods ended June 30, 2000, compared to $1.9
million and $3.5 million for the same periods of the prior year. Selling,
general and administrative expense represented 16% and 17% of revenues for the
three and six month periods ended June 30, 2000, compared to 22% and 23% for
the same periods of the prior year. The increase in dollars is due primarily to
increased commissions, royalties on licensed technology, costs associated with
our direct sales force in Europe, which was established in the third quarter of
1999, and higher compensation expense related to corporate incentive plans. The
decrease as a percentage of revenues resulted from higher revenues in the three
and six month periods ended June 30, 2000.
8
<PAGE>
Amortization. Amortization expense is related to the core technology and
goodwill we acquired from our predecessor company in 1996. Amortization expense
was $0.1 million and $0.2 million for the three and six month periods ended
June 30, 2000, compared to $0.1 million for both the same periods in the prior
year.
Interest and other expense/(income), net. Interest and other income, net was
$0.5 million and $1.0 million for the three and six month periods ended June
30, 2000, compared to interest and other expense, net of $1.1 million and $2.1
million for the same periods in the prior year. Interest income earned by us
during 2000 was the result of investing the net proceeds from our initial
public offering not immediately needed to support our operations. In November
1999, we retired all of our outstanding debt with a portion of the proceeds of
our initial public offering, thereby reducing interest expense during 2000.
Income Taxes. We use the liability method of accounting for income taxes
prescribed by Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. During the second quarter 2000, we recorded a $4.8 million
tax benefit in connection with the reversal of the deferred tax valuation
allowance. This reversal will effect our tax rate for the remainder of the
year, reducing the effective rate to as low as 8 to 12 percent. Excluding the
impact of the valuation allowance reversal, we anticipate our effective tax
rate for the year would be approximately 38%. The provision for income taxes of
$0.1 million in the six months ended June 30, 1999 is primarily the result of
state tax obligations resulting from the acquisition of our predecessor company
in 1996 that could not be applied against tax net operating losses.
Preferred Stock Dividends. We accrued cumulative dividends on our 8%
preferred stock of $0.1 and $0.3 million for the three and six month periods
ended June 30, 1999. In November 1999, we retired all of our outstanding
preferred stock with a portion of the proceeds of our initial public offering
and paid all accrued dividends.
Recent Accounting Pronouncements
During June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative
Investments and Hedging Activities" ("SFAS 133"). Based on the Company's
current operations, management has concluded that the future adoption of SFAS
133 will have no impact on the Company's operations or financial position.
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101--Revenue Recognition in Financial Statements ("SAB
101"). SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company is required to adopt SAB 101 in the fourth quarter of 2000. The
Company is assessing whether any of these interpretations of generally accepted
accounting principles will cause the Company to report a change in accounting
principle. While management believes that its revenue recognition policies
conform with the generally accepted accounting principles that have been used
consistently in practice in the capital equipment industry, certain issues
raised in SAB 101, including delivery and performance revenue recognition
criteria, could be interpreted to cause a change in accounting principle by the
Company and many other companies in the capital equipment industry. At this
time, the effect of SAB 101 on the Company's operating results in any period
cannot be fully determined.
Liquidity and Capital Resources
At June 30, 2000, we had $32.6 million of cash and cash equivalents and
$58.7 million in working capital. At December 31, 1999 we had $35.1 million of
cash and cash equivalents and $49.2 million in working capital.
Net cash of $2.2 million was used in operating activities during the six-
month period ended June 30, 2000 compared to $0.6 million used in operating
activities during the six-month period ended June 30, 1999. The net cash used
in operating activities during the six-month period ended June 30, 2000 was
primarily a result of having to fund an increase in accounts receivable of $9.0
million and an increase in inventories of $4.2 million,
9
<PAGE>
which more than offset net income of $8.6 million. The net cash used in
operating activities during the six-month period ended June 30, 1999 was
primarily the result of the net loss of $0.2 million and uses of working
capital, particularly increases in accounts receivable and inventories. Net
cash used in investing activities includes capital expenditures of $0.4 million
during the six-month period ended June 30, 2000 primarily for the purchase and
installation of enterprise resource planning software and related computer
equipment necessary for our operations. Net cash used in investing activities
during the six-month period ended June 30, 1999 of $0.5 million was primarily
for leasehold improvements of our manufacturing facility. Net cash provided by
financing activities during the six-month period ended June 30, 2000 was due to
the exercise of employee stock options.
Our future capital requirements will depend on many factors, including the
timing and amount of our revenues and our investment commitments, which will
affect our ability to generate additional cash. Thereafter, if cash generated
from operations and financing activities is insufficient to satisfy our working
capital requirements, we may seek additional funding through bank borrowings,
sales of securities or other means. There can be no assurance that we will be
able to raise any such capital on terms acceptable to us or at all.
Year 2000 Issue
To date, we have not incurred material costs associated with Year 2000
compliance nor any disruption with vendors or operations. Furthermore, we
believe that any future costs associated with Year 2000 compliance will not be
material.
Factors that May Affect Future Results
Fluctuations in Operating Results
Our operating results have varied significantly in the past and may continue
to do so in the future, which could cause our stock price to decline. Some of
the factors that may influence our operating results and subject our stock to
extreme price and volume fluctuations include: changes in customer demand for
our systems, which is influenced by economic conditions in the semiconductor
device industry, demand for products that use semiconductors, market acceptance
of our systems and those of our customers and changes in our product offerings;
seasonal variations in customer demand, including the tendency of European
sales to slow significantly in the third quarter of each year; the timing,
cancellation or delay of customer orders and shipments; product development
costs, including increased research, development, engineering and marketing
expenses associated with our introduction of new products and product
enhancements; and the levels of our fixed expenses, including research and
development costs associated with product development, relative to our revenue
levels.
We may not be able to maintain profitability in the future, which may cause
our business to suffer and the price of our common stock to substantially
decline. During any quarter, a significant portion of our revenue may be
derived from the sale of a relatively small number of systems. Our transparent
film measurement systems range in price from approximately $200,000 to $1.0
million per system and our opaque film measurement systems range in price from
approximately $900,000 to $1.6 million per system. Accordingly, a small change
in the number of systems we sell may also cause significant changes in our
operating results. This, in turn, could cause fluctuations in the market price
of our common stock.
In addition, continued investments in research, development and engineering
and the development of worldwide sales, marketing and customer satisfaction
organization will result in significantly higher fixed costs. There can be no
assurance that we will be able to achieve a rate of growth or level of sales in
any future period commensurate with our level of expenses. The impact of these
and other factors on our operating results in any future period cannot be
forecast with any degree of certainty. Due to the foregoing factors, we are
likely to experience in some future quarter or quarters operating results which
may be below the expectations of analysts and investors. In such event, the
price of our Common Stock would likely be materially adversely affected.
10
<PAGE>
Semiconductor Equipment Industry Volatility
Our operating results will be subject to significant variation due to the
cyclical nature of the semiconductor device industry. Downturns in the
semiconductor industry will likely lead to proportionately greater downturns in
our revenues. Our business depends upon the capital expenditures of
semiconductor device manufacturers, which, in turn, depend upon the current and
anticipated market demand for semiconductors and products using semiconductors.
The semiconductor device industry is cyclical and has historically experienced
periodic downturns, which have often resulted in substantial decreases in the
semiconductor device industry's demand for capital equipment, including its
thin film metrology equipment. There is typically a six to twelve month lag
between a change in the economic condition of the semiconductor device industry
and the resulting change in the level of capital expenditures by semiconductor
device manufacturers. In most cases, the resulting decrease in capital
expenditures has been more pronounced than the precipitating downturn in
semiconductor device industry revenues. Any future downturn in the
semiconductor device industry will seriously harm our business, financial
condition and results of operations.
Acceptance by Customers of New Technology
If we are not able to successfully develop new products, or if these
products do not gain general market acceptance we will not be able to generate
revenues and recover our research and development costs. Metrology product
development is inherently risky because it is difficult to foresee developments
in semiconductor device manufacturing technology, coordinate technical
personnel and identify and eliminate metrology system design flaws. We recently
developed our MatrixMetrology systems, which are thin film metrology systems
specifically designed for use in the CMP, etch, diffusion and other portions of
the semiconductor device manufacturing process where we do not currently have
significant market share. Any new systems introduced by us may not achieve a
significant degree of market acceptance or, once accepted, may fail to sell
well for any significant period.
We expect to spend a significant amount of time and resources to develop new
systems and refine existing systems. In light of the long product development
cycles inherent in our industry, these expenditures will be made well in
advance of the prospect of deriving revenue from the sale of new systems. Our
ability to commercially introduce and successfully market new systems is
subject to a wide variety of challenges during this development cycle,
including start-up bugs, design defects and other matters that could delay
introduction of these systems. In addition, since our customers are not
obligated by long-term contracts to purchase our systems, our anticipated
product orders may not materialize, or orders that do materialize may be
cancelled. As a result, if we do not achieve market acceptance of new products,
we may not be able to realize sufficient sales of our systems in order to
recoup research and development expenditures.
Even if we are able to develop new products that gain market acceptance,
sales of new products could impair our ability to sell existing product lines.
Competition from our new MatrixMetrology systems could have a negative effect
on sales of our other transparent thin film metrology systems, including our
SpectraLASER and FOCUS systems, and the prices we could charge for these
systems. We may also divert sales and marketing resources from our current
systems in order to successfully promote our new MatrixMetrology systems. This
diversion of resources could have a further negative effect on sales of our
current systems.
Customer Concentration
Our largest customers account for a significant portion of our revenues, and
our revenues would significantly decline if one or more of these customers were
to purchase significantly fewer of our systems or they delayed or cancelled a
large order. Historically, a significant portion of our revenues in each
quarter and year has been derived from sales to relatively few customers, and
we expect this trend to continue. If any of our key customers were to purchase
significantly fewer of our systems in the future, or if a large order were
delayed or cancelled, our revenues would significantly decline. There are only
a limited number of mostly large
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companies operating in the highly concentrated, capital intensive semiconductor
device manufacturing industry. Accordingly, we expect that we will continue to
depend on a small number of large customers for a significant portion of our
revenues for at least the next several years. In addition, as large
semiconductor device manufacturers seek to establish closer relationships with
their suppliers, we expect that our customer base will become even more
concentrated.
Sole or Limited Sources of Supply
We obtain some of the components and subassemblies included in our systems
from a single source or a limited group of suppliers, and the partial or
complete loss of one of these suppliers could cause production delays and a
substantial loss of revenue. Coherent, Inc. is our sole supplier of the lasers
we use in some of our systems, and we also obtain some of the other components
and subassemblies included in our systems from a single supplier or a limited
group of suppliers. We do not have long-term contracts with many of our
suppliers. Our dependence on sole source suppliers of components exposes us to
several risks, including a potential inability to obtain an adequate supply of
components, price increases, late deliveries and poor component quality.
Disruption or termination of the supply of these components could delay
shipments of our systems, damage our customer relationships and reduce our
sales. From time to time in the past, we have experienced temporary
difficulties in receiving shipments from our suppliers. The lead time required
for shipments of some of our components can be as long as four months. In
addition, the lead time required to qualify new suppliers for lasers could be
as long as a year, and the lead time required to qualify new suppliers of other
components could be as long as nine months. If we are unable to accurately
predict our component needs, or if our component supply is disrupted, we may
miss market opportunities by not being able to meet the demand for our systems.
Further, a significant increase in the price of one or more of these components
or subassemblies included in our systems could seriously harm our results of
operations.
Dependence on Product Development
If we are not successful in developing new and enhanced products for the
semiconductor device manufacturing industry we will lose market share to our
competitors. We operate in an industry that is subject to evolving industry
standards, rapid technological changes, rapid changes in consumer demands and
the rapid introduction of new, higher performance systems with shorter product
life cycles. To be competitive in our demanding market, we must continually
design, develop and introduce in a timely manner new film metrology systems
that meet the performance and price demands of semiconductor device
manufacturers. We must also continue to refine our current systems so that they
remain competitive. We may experience difficulties or delays in our development
efforts with respect to new systems, and we may not ultimately be successful in
developing them. Any significant delay in releasing new systems could adversely
affect our reputation, give a competitor a first-to-market advantage or cause a
competitor to achieve greater market share.
Dependence upon Personnel
We must attract and retain key personnel with knowledge of semiconductor
device manufacturing and metrology equipment to help support our future growth,
and competition for such personnel in our industry is high. Our success depends
to a significant degree upon the continued contributions of our key management,
engineering, sales and marketing, customer support, finance and manufacturing
personnel. The loss of any of these key personnel, who would be extremely
difficult to replace, could harm our business and operating results. During
downturns in our industry, we have often experienced significant employee
attrition, and we may experience further attrition in the event of a future
downturn. Although we have employment and noncompetition agreements with key
members of our senior management team, these individuals or other key employees
may nevertheless leave us. We do not have key person life insurance on any of
our executives. In addition, to support our future growth, we will need to
attract and retain additional qualified employees. Competition for such
personnel in our industry is intense, and we may not be successful in
attracting and retaining qualified employees.
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Lengthy Sales Cycle
Our customers generally take a long time to evaluate our film metrology
systems and many people are involved in the evaluation process. We expend
significant resources educating and providing information to our prospective
customers regarding the uses and benefits of our systems in the semiconductor
fabrication process. The length of time it takes for us to make a sale depends
upon many factors, including: the efforts of our sales force and our
independent sales representatives and distributors; the complexity of the
customer's fabrication processes; the internal technical capabilities and
sophistication of the customer; the customer's budgetary constraints; and the
quality and sophistication of the customer's current metrology equipment.
Because of the number of factors influencing the sales process, the period
between our initial contact with a customer and the time when we recognize
revenue from that customer, if ever, varies widely in length. Our sales cycles,
including the time it takes for us to build a product to customer
specifications after receiving an order, typically range from six to 15 months.
Sometimes our sales cycles can be much longer, particularly with customers in
Japan. During these cycles, we commit substantial resources to our sales
efforts in advance of receiving any revenue, and we may never receive any
revenue from a customer despite our sales efforts. If we do make a sale, our
customers often purchase only one of our systems, and then evaluate its
performance for a lengthy period before purchasing any more of our systems. The
number of additional products a customer purchases, if any, depends on many
factors, including a customer's capacity requirements. The period between a
customer's initial purchase and any subsequent purchases can vary from six
months to a year or longer, and variations in the length of this period could
cause fluctuations in our operating results and possibly in our stock price.
International Sales
Due to our significant level of international sales, we are subject to
operational, financial and political risks such as unexpected changes in
regulatory requirements, tariffs, political and economic instability, outbreaks
of hostilities, adverse tax consequences and difficulties in managing foreign
sales representatives and foreign branch operations. We anticipate that
international sales will continue to account for a significant portion of our
revenue for at least the next five years. Due to the significant level of our
international sales, we are subject to material risks which include:
--Unexpected changes in regulatory requirements, including tariffs and
other market barriers. The semiconductor device industry is a high-
visibility industry in many of the European and Asian countries in which
we sell our products. Because the governments of these countries have
provided extensive financial support to our semiconductor device
manufacturing customers in these countries, we believe that our customers
could be disproportionately affected by any trade embargos, excise taxes
or other restrictions imposed by their governments on trade with United
States companies such as ourselves. Any such restrictions could lead to a
reduction in our sales to customers in these countries.
--Political and economic instability. There is considerable political
instability in Taiwan related to its disputes with China and in South
Korea related to its disputes with North Korea. In addition, several
Asian countries, particularly Japan, have recently experienced
significant economic instability. An outbreak of hostilities or other
political upheaval in Taiwan or South Korea, or an economic downturn in
Japan, would likely harm the operations of our customers in these
countries, causing our sales to suffer. The effect of such events on our
revenues could be material because we derive substantial revenues from
sales to semiconductor device foundries in Taiwan such as TSMC and UMC,
from memory chip manufacturers in South Korea such as Hyundai and
Samsung, and from semiconductor device manufacturers in Japan such as NEC
and Toshiba.
--Difficulties in staffing and managing foreign branch operations. During
periods of tension between the governments of the United States and other
countries, it is often difficult for United States companies such as
ourselves to staff and manage operations in such countries. We have only
recently established a direct sales force in Europe, and we are
continuing to build our sales infrastructure in that region.
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Because our European sales operations are new and our sales employees in
Europe have only recently begun working for us, these operations could be
particularly susceptible to any periods of tension that may arise between
the United States and any European country in which we operate.
Because we derive a significant portion of our revenues from sales in Asia,
our sales and results of operations could be adversely affected by the
instability of Asian economies. Countries in the Asia Pacific region, including
Japan, Korea and Taiwan, each of which accounted for a significant portion of
our business in that region, have experienced currency, banking and equity
market weaknesses over the last 24 months. These weaknesses began to adversely
affect our sales to semiconductor device and capital equipment manufacturers
located in these regions in the fourth quarter of 1997, and continued to
adversely affect our sales in 1998 and the first half of 1999. Although we have
recently received an increased level of orders from customers in the Asia
Pacific region, we expect that turbulence in the Asian markets could adversely
affect our sales in future periods.
Highly Competitive Industry
Our current and potential competitors have significantly greater resources
than we do, and increased competition could impair sales of our products or
cause us to reduce our prices. We operate in the highly competitive
semiconductor capital equipment industry and face competition from a number of
companies, many of which have greater financial, engineering, manufacturing,
marketing and customer support resources and broader product offerings than we
do. As a result, our competitors may be able to respond more quickly to new or
emerging technologies or market developments by devoting greater resources to
the development, promotion and sale of products which could impair sales of our
products. Moreover, there has been significant merger and acquisition activity
among our competitors and potential competitors, particularly during the recent
downturn in the semiconductor device and semiconductor capital equipment
industries. These transactions by our competitors and potential competitors may
provide them with a competitive advantage over us by enabling them to rapidly
expand their product offerings and service capabilities to meet a broader range
of customer needs. Many of our customers and potential customers in the
semiconductor device manufacturing industry are large companies that require
global support and service for their semiconductor capital equipment. While we
believe that our global support and service infrastructure is sufficient to
meet the needs of our customers and potential customers, our larger competitors
have more extensive infrastructures than we do, which could place us at a
disadvantage when competing for the business of global semiconductor device
manufacturers.
Many of our competitors are investing heavily in the development of new
systems that will compete directly with ours. We have from time to time
selectively reduced prices on our systems in order to protect our market share,
and competitive pressures may necessitate further price reductions. We expect
our competitors in each product area to continue to improve the design and
performance of their products and to introduce new products with competitive
prices and performance characteristics. Such product introductions by our
competitors would likely cause us to decrease the prices of our systems and
increase the level of discounts we grant our customers.
Intellectual Property Rights
We may fail to adequately protect our intellectual property and, therefore,
lose our competitive advantage. Our future success and competitive position
depend in part upon our ability to obtain and maintain proprietary technology
for our principal product families, and we rely, in part, on patent, trade
secret and trademark law to protect that technology. If we fail to adequately
protect our intellectual property, it will be easier for our competitors to
sell competing products. We own or have licensed a number of patents relating
to our transparent and opaque thin film metrology systems, and have filed
applications for additional patents. Any of our pending patent applications may
be rejected, and we may not in the future be able to develop additional
proprietary technology that is patentable. In addition, the patents we do own
or that have been issued or licensed to us may not provide us with competitive
advantages and may be challenged by third parties. Third parties may also
design around these patents.
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In addition to patent protection, we rely upon trade secret protection for
our confidential and proprietary information and technology. We routinely enter
into confidentiality agreements with our employees. However, in the event that
these agreements may be breached, we may not have adequate remedies. Our
confidential and proprietary information and technology might also be
independently developed by or become otherwise known to third parties.
Our commercial success depends in part on our ability to avoid infringing or
misappropriating patents or other proprietary rights owned by third parties.
From time to time we may receive communications from third parties asserting
that our products or systems infringe, or may infringe, the proprietary rights
of these third parties. These claims of infringement may lead to protracted and
costly litigation which could require us to pay substantial damages or have the
sale of our products or systems stopped by an injunction. Infringement claims
could also cause product or system delays or require us to redesign our
products or systems, and these delays could result in the loss of substantial
revenues. We may also be required to obtain a license from the third party or
cease activities utilizing the third party's proprietary rights. We may not be
able to enter into such a license or such license may not be available on
commercially reasonable terms. The loss of important intellectual property
rights could therefore prevent our ability to sell our systems, or make the
sale of such systems more expensive for us.
We may be required to initiate litigation in order to enforce any patents
issued to or licensed by us, or to determine the scope or validity of a third
party's patent or other proprietary rights. In addition, we may be subject to
lawsuits by third parties seeking to enforce their own intellectual property
rights. Any such litigation, regardless of outcome, could be expensive and time
consuming, and could subject us to significant liabilities or require us to re-
engineer our product or obtain expensive licenses from third parties.
Volatility of Stock Price
The stock market in general, and the stock prices of technology companies in
particular, have recently experienced volatility which has often been unrelated
to the operating performance of any particular company or companies. If market
or industry-based fluctuations continue, our stock price could decline
regardless of our actual operating performance and investors could lose a
substantial part of their investments. The market price of our common stock
will likely fluctuate in response to a number of factors including the
following: our failure to meet the performance estimates of securities
analysts; changes in financial estimates of our revenues and operating results
by securities analysts; the timing of announcements by us or our competitors of
significant contracts or acquisitions; and general stock market conditions.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily
to our investment portfolio. We do not use derivative financial instruments in
our investment portfolio. We place our investments with high credit quality
issuers and by policy, are averse to principal loss and ensure the safety and
preservation of our invested funds by limiting default risk, market risk and
reinvestment risk. As of June 30, 2000, our investments consisted primarily of
commercial paper that matures in less than three months.
Foreign Currency Risk
We do not use foreign currency forward exchange contracts or purchased
currency options to hedge local currency cash flows or for trading purposes.
All sales arrangements with international customers are denominated in U.S.
dollars. We have branch operations in Taiwan and Korea which are subject to
currency fluctuations. These foreign branches are limited in their operations
and level of investment so that the risk of currency fluctuations is not
expected to be material.
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PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
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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
RUDOLPH TECHNOLOGIES, INC.
/s/ Paul F. McLaughlin
By: _________________________________
Paul F. McLaughlin
Chairman and Chief Executive
Officer
/s/ Steven R. Roth
By: _________________________________
Steven R. Roth
Vice President, Chief Financial
Officer
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