<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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: September 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
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Commission File No. 000-27965
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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 October
30, 2000 was 14,849,574.
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<PAGE>
PART I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
at September 30, 2000 and December 31, 1999.................... 2
Condensed Consolidated Statements of Operations
for the three and nine months ended September 30, 2000 and
1999........................................................... 3
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 2000 and 1999.......... 4
Notes to Condensed Consolidated Financial Statements........... 5
Management's Discussion and Analysis of Financial Condition and
Item 2. Results of Operations.......................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk..... 16
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 18
</TABLE>
1
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
RUDOLPH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash............................................... $31,033 $ 35,076
Accounts receivable................................ 23,435 9,472
Inventories........................................ 20,018 11,403
Prepaid expenses and other current assets.......... 1,086 525
------- --------
Total current assets............................. 75,572 56,476
Net property, plant and equipment.................... 3,237 3,106
Intangibles.......................................... 2,605 2,859
Deferred taxes....................................... 5,290 2,312
Other assets......................................... 280 194
------- --------
Total assets..................................... $86,984 $ 64,947
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities........... $ 7,936 $ 4,536
Other current liabilities.......................... 3,316 2,723
------- --------
Total current liabilities........................ 11,252 7,259
Other long-term libilities........................... 65 78
------- --------
Total liabilities................................ 11,317 7,337
------- --------
Commitments and contingencies
Stockholders' equity
Common stock....................................... 15 15
Additional paid-in capital......................... 85,372 85,025
Other comprehensive loss........................... (257) (237)
Accumulated deficit................................ (9,463) (27,193)
------- --------
Total stockholders' equity....................... 75,667 57,610
------- --------
Total liabilities and stockholders' equity........... $86,984 $ 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 Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues..................... $ 24,649 $ 10,050 $ 61,646 $ 25,220
Cost of revenues............. 11,511 4,742 28,714 12,115
----------- ---------- ----------- ----------
Gross profit............... 13,138 5,308 32,932 13,105
----------- ---------- ----------- ----------
Operating Expenses:
Research and development... 2,384 1,499 6,090 3,596
Selling, general and
administrative............ 3,755 2,224 10,046 5,761
Amortization............... 85 66 254 197
----------- ---------- ----------- ----------
Total operating
expenses................ 6,224 3,789 16,390 9,554
----------- ---------- ----------- ----------
Operating income............. 6,914 1,519 16,542 3,551
Interest expense/(income) and
other, net.................. (578) 1,141 (1,622) 3,260
----------- ---------- ----------- ----------
Income before income taxes... 7,492 378 18,164 291
Provision for income taxes... 1,189 28 434 121
----------- ---------- ----------- ----------
Net income................... 6,303 350 17,730 170
Preferred stock dividends.... -- 154 -- 423
----------- ---------- ----------- ----------
Net income/(loss) available
to common shareholders...... $ 6,303 $ 196 $ 17,730 $ (253)
=========== ========== =========== ==========
Net income/(loss) per share:
Basic...................... $ 0.43 $ 0.03 $ 1.20 $ (0.04)
Diluted.................... $ 0.40 $ 0.02 $ 1.12 $ (0.04)
Weighted average shares
outstanding:
Basic...................... 14,801,773 7,103,365 14,744,316 6,880,504
Diluted.................... 15,797,230 9,149,067 15,817,643 6,880,504
</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>
Nine Months
Ended
September 30,
-----------------
2000 1999
-------- -------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss)......................................... $ 17,730 $ 170
Adjustment to reconcile net income (loss) to net cash used
in operating activities
Amortization............................................ 254 216
Depreciation............................................ 479 417
Provision for doubtful accounts......................... 102 --
Deferred income taxes................................... (3,685) --
Decrease (increase) in assets:
Accounts receivable................................... (14,078) (3,568)
Inventories........................................... (8,614) (306)
Prepaid expenses and other............................ 26 (380)
Increase (decrease) in liabilities:
Accounts payable...................................... 2,564 342
Accrued liabilities................................... 774 341
Other liabilities..................................... 635 1,486
-------- -------
Net cash used in operating activities............... (3,813) (1,282)
-------- -------
Cash flows from investing activities:
Purchase of property, plant and equipment................. (611) (625)
Proceeds from disposal of property, plant and equipment... 16 35
-------- -------
Net cash used in investing activities............... (595) (590)
-------- -------
Cash flows from financing activities:
Principal borrowings on long-term debt.................... -- 2,345
Principal payments on long-term debt...................... -- (1,875)
Net borrowing under lines of credit....................... -- 1,000
Capital contribution...................................... -- --
Exercises of employee stock options and employee stock
purchase plan............................................ 347 248
-------- -------
Net cash provided by financing activities........... 347 1,718
-------- -------
Effect of exchange rate changes on cash..................... 18 8
-------- -------
Net decrease in cash and cash equivalents................... (4,043) (146)
Cash and cash equivalents at beginning of period............ 35,076 431
-------- -------
Cash and cash equivalents at end of period.................. $ 31,033 $ 285
======== =======
</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 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 nine month period ended September 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 $402
and $300 as of September 30, 2000 and December 31, 1999, respectively.
NOTE 3. Inventories
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Materials......................................... $10,429 $ 4,729
Work-in-process................................... 8,215 4,937
Finished goods.................................... 1,374 1,737
------- -------
Total Inventories............................... $20,018 $11,403
======= =======
</TABLE>
NOTE 4. Property, Plant & Equipment
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Land and building................................. $ 1,625 $ 1,613
Machinery and equipment........................... 871 865
Furnitures and fixtures........................... 423 269
Computer equipment................................ 1,357 964
Leasehold improvements............................ 835 811
------- -------
5,111 4,522
Accumulated Depreciation.......................... (1,874) (1,416)
------- -------
Net property, plant and equipment................. $ 3,237 $ 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 and comprehensive income for
the Company is due to currency translation adjustments. The effects of income
taxes on comprehensive income was not material.
5
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share Data)
For the three and nine months ended September 30, 2000 comprehensive income
amounted to $6,281 and $17,710, respectively. Comprehensive income for the
three and nine months ended September 30, 1999 was $313 and $40, respectively.
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 nine months
ended September 30, 2000 and stock options and stock warrants for the three and
nine months ended September 30, 1999.
During the three and nine months ended September 30, 2000 and the three
months ended September 30, 1999, there were stock options with exercise prices
above the average fair market value of the Company's common stock for the
respective periods which were excluded from the computation of diluted earnings
per share due to the anti-dilutive nature of these options. The weighted
average number of stock options excluded from the computation of diluted
earnings per share during the three and nine months ended September 30, 2000
and the three months ended September 30, 1999 were 139,367, 57,537 and 693,951,
respectively. Stock options to purchase 693,951 shares of common stock and
warrants to purchase 2,072,703 shares of common stock which were outstanding
during the nine month period ended September 30, 1999 were excluded from the
computation of diluted loss per share due to the anti-dilutive nature of these
options and warrants.
The Company's basic and diluted net income (loss) per share amounts are as
follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income/(loss) available to
common shareholders.......... $ 6,303 $ 196 $ 17,730 $ (253)
=========== ========== =========== ==========
Denominator:
Basic net income/(loss) per
share--weighted average
shares outstanding........... 14,801,773 7,103,365 14,744,316 6,880,504
Effect of potential dilutive
securities:
Employee stock options--
dilutive shares............ 995,457 -- 1,073,327 --
Stock warrants.............. -- 2,045,702 -- --
----------- ---------- ----------- ----------
Diluted net income/(loss) per
share--weighted average
shares outstanding........... 15,797,230 9,149,067 15,817,643 6,880,504
=========== ========== =========== ==========
Net income/(loss) per share:
Basic......................... $ 0.43 $ 0.03 $ 1.20 $ (0.04)
Diluted....................... $ 0.40 $ 0.02 $ 1.12 $ (0.04)
</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
6
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share Data)
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.
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 valuation allowance
that was established in prior years.
A portion of the valuation allowance at December 31, 1999 was reversed and
recorded as a benefit, thereby reducing the provision for income taxes in the
amount of $1,664 and $6,464 for the three and nine months ended September 30,
2000, respectively.
NOTE 9. Geographic Reporting and Customer Concentration:
Revenue by geographic region:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September Ended September
30, 30,
--------------- ---------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
United States.................................. $ 9,633 $ 7,046 $27,048 $13,435
Asia........................................... 12,066 2,005 23,339 5,730
Europe......................................... 2,948 1,008 9,251 4,277
Other.......................................... 2 (9) 2,008 1,778
------- ------- ------- -------
Total...................................... $24,649 $10,050 $61,646 $25,220
======= ======= ======= =======
</TABLE>
7
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share Data)
Customers comprising 10% or more of revenue:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
--------------
2000 1999
------ ------
<S> <C> <C>
A......................................................... 22.9% 34.2%
B......................................................... 21.8% 7.4%
</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; however, such a change could result in a
substantial deferral of revenue and therefore have a material effect on the
Company's financial position and results of operations.
8
<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. 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 this current report on
Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31,
1999.
Results of Operations for the Three and Nine Month Periods Ended September 30,
2000 and 1999
Revenues. Our revenues are derived from the sale of our metrology systems,
services and spare parts. Our revenues were $24.6 million and $61.6 million for
the three and nine month periods ended September 30, 2000, compared to $10.1
million and $25.2 million for the same periods of the prior year, representing
an increase of 145% 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.
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 $13.1 million and $32.9 million for the three and nine month
periods ended September 30, 2000, compared to $5.3 million and $13.1 million
for the same periods in the prior year. Our gross profit represented 53% for
both the three and nine month periods ended September 30, 2000, compared to 53%
and 52% for the same periods in the prior year. Gross profit margins from 1999
to 2000 have remained relatively flat. 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 $2.4 million and $6.1 million for the three and nine
month periods ended September 30, 2000, compared to $1.5 million and $3.6
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 nine
month periods ended September 30, 2000, compared to 15% and 14% for the same
periods of the prior year. The dollar increase in research and development
expenses resulted from higher personnel related and parts cost associated with
new product development and facilities expansion. The decrease in research and
development expense as a percentage of revenues resulted from higher revenues
in the three and nine month periods ended September 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 $3.8 million and $10.0 million
for the three and nine month periods ended September 30, 2000, compared to $2.2
million and $5.8 million for the same periods of the prior year. Selling,
general and administrative expense represented 15% and 16% of revenues for the
three and nine month periods ended September 30, 2000, compared to 22% and 23%
for the same periods of the prior year. The dollar increase in selling, general
and administrative expense 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 in selling, general
and administrative expense as a percentage of revenues resulted from higher
revenues in the three and nine month periods ended September 30, 2000.
9
<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 $0.3 million for the three and nine month periods ended
September 30, 2000, compared to $0.1 million and $0.2 million for the same
periods in the prior year.
Interest and other expense/(income), net. Interest and other income, net was
$0.6 million and $1.6 million for the three and nine month periods ended
September 30, 2000, compared to interest and other expense, net of $1.1 million
and $3.3 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". For the three and nine month periods ended September 30,
2000, we recorded tax benefits of $1.7 million and $6.5 million, respectively
in connection with the reversal of the deferred tax valuation allowance.
Excluding the impact of the valuation allowance reversal, we anticipate our
effective tax rate for the year to be approximately 38%. The provision for
income taxes of $0.1 million in the nine months ended September 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 $0.2 and $0.4 million for the three and nine month periods
ended September 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; however, such a change could result in a
substantial deferral of revenue and therefore have a material effect on the
Company's financial position and results of operations.
Liquidity and Capital Resources
At September 30, 2000, we had $31.0 million of cash and cash equivalents and
$64.3 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.
10
<PAGE>
Net cash of $3.8 million was used in operating activities during the nine-
month period ended September 30, 2000 compared to $1.3 million used in
operating activities during the nine-month period ended September 30, 1999. The
net cash used in operating activities during the nine-month period ended
September 30, 2000 was primarily a result of having to fund an increase in
accounts receivable of $14.1 million and an increase in inventories of $8.6
million, which more than offset net income of $17.7 million. The net cash used
in operating activities during the nine-month period ended September 30, 1999
was primarily the result of having to fund an increase in accounts receivable
of $3.6 million, partially offset by an increase in other liabilities of $1.5
million. Net cash used in investing activities includes capital expenditures of
$0.6 million during the nine-month period ended September 30, 2000 primarily
for the purchase and installation of enterprise requirements planning software
and related computer equipment necessary for our operations. Net cash used in
investing activities during the nine-month period ended September 30, 1999 of
$0.6 million was primarily for leasehold improvements of our manufacturing
facility. Net cash provided by financing activities during the nine-month
period ended September 30, 2000 was due to the exercise of employee stock
options and employee stock purchase plan.
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.
Factors that May Affect Future Results
Our operating results have in the past varied and probably will in the future
continue to vary significantly from quarter to quarter, causing volatility in
our stock price
Our quarterly 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.
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.
Our revenue may vary significantly each quarter due to relatively small
fluctuations in our unit sales
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.
11
<PAGE>
Variations in the amount of time it takes for us to sell our systems may cause
fluctuations in our operating results, which could cause our stock price to
decline
Variations in the length of our sales cycles could cause our revenue, and
thus our business, financial condition and operating results, to fluctuate
widely from period to period. This variation could cause our stock price to
decline. 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.
Cyclicality in the semiconductor device industry has led to substantial
decreases in demand for our systems and may from time to time continue to do
so
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.
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
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could adversely affect our reputation, give a competitor a first-to-market
advantage or cause a competitor to achieve greater market share.
Even if we are able to successfully develop new products, 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.
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 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.
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
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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.
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.
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 in the
past. These weaknesses adversely affected 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 since 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.
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.
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-- 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. 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.
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.
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
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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.
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.
Successful infringement claims by third parties could result in substantial
damages, lost product sales and the loss of important intellectual property
rights by us
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.
Protection of our intellectual property rights, or the efforts of third
parties to enforce their own intellectual property rights against us, has in
the past resulted and may in the future result in costly and time-consuming
litigation
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.
We manufacture all of our systems at a single facility, and any prolonged
disruption in the operations of that facility could have a material adverse
effect on our revenue
We produce all of our systems in our manufacturing facility located in
Ledgewood, New Jersey. Our manufacturing processes are highly complex and
require sophisticated and costly equipment and a specially designed facility.
As a result, any prolonged disruption in the operations of our manufacturing
facility, whether due to technical or labor difficulties, destruction of or
damage as a result of a fire or any other reason, could seriously harm our
ability to satisfy our customer order deadlines. If we cannot timely deliver
our systems, our revenue could be adversely affected.
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 September 30, 2000, our investments consisted
primarily of commercial paper that matures in less than three months.
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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
<TABLE>
<C> <S>
10.12 Management Agreement, dated as of July 24, 2000, by and between
Rudolph Technologies, Inc. and Paul F. McLaughlin
10.13 Management Agreement, dated as of July 24, 2000, by and between
Rudolph Technologies, Inc. and Robert M. Loiterman
10.14 Management Agreement, dated as of July 24, 2000, by and between
Rudolph Technologies, Inc. and Steven R. Roth
27 Financial Data Schedule
</TABLE>
(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.
Date: November 3, 2000
/s/ Paul F. McLaughlin
By: _________________________________
Paul F. McLaughlin
Chairman and Chief Executive
Officer
Date: November 3, 2000
/s/ Steven R. Roth
By: _________________________________
Steven R. Roth
Vice President, Chief Financial
Officer
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