-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QR/TmeCG3nOUMidyyvhk2Jr3bwTfw58R8U+Li2IagVs/IfQvjpj6ersC44xoCWzF LXoztLU0IqCX/8xo4k4ZHg== /in/edgar/work/20000804/0000940180-00-000931/0000940180-00-000931.txt : 20000921 0000940180-00-000931.hdr.sgml : 20000921 ACCESSION NUMBER: 0000940180-00-000931 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000804 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RUDOLPH TECHNOLOGIES INC CENTRAL INDEX KEY: 0001094392 STANDARD INDUSTRIAL CLASSIFICATION: [3823 ] IRS NUMBER: 221628009 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27965 FILM NUMBER: 686426 BUSINESS ADDRESS: STREET 1: ONE RUDOLPH RD CITY: FLANDERS STATE: NJ ZIP: 07836 BUSINESS PHONE: 9736911300 MAIL ADDRESS: STREET 1: ONE RUDOLPH RD CITY: FLANDERS STATE: NJ ZIP: 07836 10-Q 1 0001.txt QUARTERLY REPORT - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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) DELAWARE 22-3531208 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number)
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. - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Page PART I FINANCIAL INFORMATION ---- 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
1 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements RUDOLPH TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands) (Unaudited)
June 30, December 31, 2000 1999 -------- ------------ 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 ======== ========
The accompanying notes are an integral part of these financial statements. 2 RUDOLPH TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 2000 1999 2000 1999 ---------- --------- ---------- --------- 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
The accompanying notes are an integral part of these financial statements. 3 RUDOLPH TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
Six Months Ended June 30, ---------------- 2000 1999 ------- ------- 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 ======= =======
The accompanying notes are an integral part of these financial statements. 4 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
June 30, December 31, 2000 1999 -------- ------------ Materials............................................ $ 7,322 $ 4,729 Work-in-process...................................... 6,682 4,937 Finished goods....................................... 1,640 1,737 ------- ------- Total Inventories.................................. $15,644 $11,403 ======= =======
NOTE 4. Property, Plant & Equipment
June 30, December 31, 2000 1999 -------- ------------ 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 ======= =======
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 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:
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2000 1999 2000 1999 ----------- ---------- ----------- ---------- 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)
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 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:
Six Months Three Months Ended Ended June 30, June 30, ---------------------------------- 2000 1999 2000 1999 --------- ---------------- ------- 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 ========= ======== ======= =======
Customers comprising 10% or more of revenue:
Six Months Ended June 30, ------------------ 2000 1999 -------- -------- A........................................................ 25.1% 37.3% B........................................................ 11.4% 7.0% C........................................................ -- 14.0%
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 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 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 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 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 11 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. 12 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. 13 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. 14 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. 15 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. 16 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 17 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 32,584 0 18,730 338 15,644 67,690 4,906 1,699 78,191 9,040 0 0 0 15 69,071 78,191 36,997 36,997 17,203 17,203 10,166 38 (1,044) 10,672 (755) 0 0 0 0 11,427 0.78 0.72
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