SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2002
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, NJ 07836
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 691-1300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.001 Par Value
(Title of Class)
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] No [_]
The aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price of the registrant’s stock price on June 28, 2002 of $24.93 was approximately $256,967,571.
The registrant had 16,331,107 shares of Common Stock outstanding as of January 31, 2003.
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated by reference in Part III of this Annual Report on Form 10-K: portions of registrant's proxy statement for its annual meeting of stockholders to be held on May 21, 2003.
EXPLANATORY NOTE
This amendment to the Rudolph Technologies, Inc. Annual Report on Form 10-K for the year ended December 31, 2002 is being filed for the sole purpose of providing the dollar amount under the heading “Income Taxes Receivable” in the Consolidated Statements of Cash Flows for the year 2000 that was inadvertently omitted from the Annual Report on Form 10-K filed on March 31, 2003. The reference to Item 15(a) in Item 8 of the Annual Report on Form 10-K filed on March 31, 2003 shall be to Item 15(a), as amended by this Annual Report on Form 10-K/A. No other changes have been made to the Rudolph Technologies, Inc. Annual Report on Form 10-K for the year ended December 31, 2002.
TABLE OF CONTENTS
| Item No. |
PART IV |
| 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K |
| Signature |
| Certifications |
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this Annual Report on Form 10-K:
1. Financial Statements
See Index to financial statements of this report.
2. Financial Statement Schedule
See Index to financial statements of this report.
3. Exhibits
(b) Reports on Form 8-K
On October 9, 2002, Rudolph filed a Current Report on Form 8-K to disclose the closing of its acquisition of ISOA, Inc. that occurred on September 25, 2002.
On November 14, 2002, Rudolph filed a Current Report on Form 8-K which contained Certifications that were furnished to the Securities and Exchange Commission pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
On March 31, 2003, Rudolph filed a Current Report on Form 8-K which contained Certifications that were furnished to the Securities and Exchange Commission pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(c) The following is a list of exhibits. Where so indicated, exhibits, which were previously filed, are incorporated by reference.
Exhibit
No. Description
3.1 Restated Certificate of Incorporation of Registrant (incorporated herein by reference to Exhibit (3.1(b))
to the Registrant's Registration Statement on Form S-1, as amended (SEC File No. 333-86871 filed on
September 9, 1999).
3.2 Amended and Restated Bylaws of Registrant (incorporated herein by reference to Exhibit (3.2(b)) to the
Registrant's Registration Statement on Form S-1, as amended (SEC File No. 333-86871), filed on
September 9, 1999).10.1+ License Agreement, dated June 28, 1995, between the Registrant and Brown University Research
Foundation (incorporated herein by reference to Exhibit (10.1) to the Registrant's Registration
Statement on Form S-1, as amended (SEC File No. 333-86871), filed on September 9, 1999).10.2 Form of Indemnification Agreement (incorporated herein by reference to Exhibit (10.3) to the
Registrant's Registration Statement on Form S-1, as amended (SEC File No. 333-86871), filed on
September 9, 1999).10.3 Amended 1996 Non-Qualified Stock Option Plan (incorporated herein by reference to Exhibit 10.15 to
Registrant's quarterly report on Form 10-Q, filed on November 14, 2001).10.4 Form of 1999 Stock Plan (incorporated herein by reference to Exhibit (10.4) to the Registrant's
Registration Statement on Form S-1, as amended (SEC File No. 333-86871), filed on September 9,
1999).10.5 Form of 1999 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit (10.5) to the
Registrant's Registration Statement on Form S-1, as amended (SEC File No. 333-86871), filed on
September 9, 1999).10.6 Management Agreement, dated as of July 24, 2000, by and between Rudolph Technologies, Inc. and
Paul F. McLaughlin (incorporated herein by reference to Exhibit 10.12 to Registrant's quarterly report
on Form 10-Q, filed on November 3, 2000).10.7 Management Agreement, dated as of July 24, 2000, by and between Rudolph Technologies, Inc. and
Robert Loiterman (incorporated herein by reference to Exhibit 10.13 to Registrant's quarterly report on
Form 10-Q, filed on November 3, 2000).10.8 Management Agreement, dated as of July 24, 2000 by and between Rudolph Technologies, Inc. and
Steven R. Roth (incorporated herein by reference to Exhibit 10.14 to Registrant's quarterly report on
Form 10-Q, filed on November 3, 2000).10.9 Registration Agreement, dated June 14, 1996 by and among the Registrant, 11, L.L.C., Riverside
Rudolph, L.L.C., Dr. Richard F. Spanier, Paul F. McLaughlin (incorporated herein by reference to
Exhibit (10.9) to the Registrant's Registration Statement on Form S-1, as amended (SEC File No.
333-86871), filed on September 9, 1999).10.10 Stockholders Agreement, dated June 14, 1996 by and among the Registrant, Administration of Florida,
Liberty Partners Holdings 11, L.L.C., Riverside Dr. Richard F. Spanier, Paul McLaughlin, Dale
Moorman, Thomas Cooper and (incorporated herein by reference to Exhibit (10.10) to the Registrant's
Form S-1, as amended (SEC File No. 333-86871), filed on September 9, 1999.10.11 Agreement and Plan of Merger among Rudolph Technologies, Inc., Oasis Acquisition, Inc., ISOA, Inc.
and certain shareholders of ISOA, Inc. dated July 22, 2002 (incorporated by reference to an exhibit to
the Company’s Current Report on Form 8-K as filed with the Commission on October 9, 2002).21.1 Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Notice regarding consent of Arthur Andersen LLP.
23.3 Consent of KPMG LLP, Independent Accountants.
99.1 Letter to Commission Pursuant to Temporary Note 3T.
+ Confidential treatment has been granted with respect to portions of this exhibit.
RUDOLPH TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants
To the Stockholders and Board of Directors of Rudolph Technologies, Inc.:
We have audited the 2002 consolidated financial statements of Rudolph Technologies, Inc. and subsidiaries as listed in the accompanying index. In connection with our audit of the 2002 consolidated financial statements, we also have audited the 2002 financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit. The 2001 consolidated financial statements and 2001 financial statement schedule of Rudolph Technologies, Inc. and subsidiaries as listed in the accompanying index were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those consolidated financial statements and financial statement schedule in their report dated January 25, 2002.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2002 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Rudolph Technologies, Inc. and subsidiaries as of December 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related 2002 financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Short Hills, New Jersey
January 29, 2003
Report of Independent Public Accountants
To the Stockholders and Board of Directors of Rudolph Technologies, Inc.:
We have audited the accompanying consolidated balance sheet of Rudolph Technologies, Inc. (a Delaware corporation) and subsidiary as of December 31, 2001, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Rudolph Technologies, Inc. and subsidiary as of December 31, 2001, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed under Item 14 (a)2 is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a basic part of the financial statements. This schedule for the year ended December 31, 2001 has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 25, 2002
This is a copy of the audit report previously issued by Arthur Andersen LLP ("Andersen") in connection with our filing on Form 10-K for the year ended December 31, 2001. This audit report has not been reissued by Andersen, nor has Andersen consented to its inclusion, in connection with this filing on Form 10-K. See exhibit 23.2 for further discussion.
Report of Independent Accountants
To the Stockholders and Board of Directors of Rudolph Technologies, Inc.
In our opinion, the consolidated statements of income, of cash flows and of changes in stockholders’ equity for the year ended December 31, 2000 present fairly, in all material respects, the results of operations and cash flows of Rudolph Technologies, Inc. and subsidiary for the year ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the 2000 financial statement schedule listed in the accompanying index appearing under Item 14(a)(2), presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 2B to the consolidated financial statements, during the year ended December 31, 2000 the Company changed its method of recognizing revenue.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
January 26, 2001
RUDOLPH TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| December 31, | ||||
2001 | 2002 | |||
ASSETS | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ 94,642 | $ 42,047 | ||
| Short-term investments | -- | 31,223 | ||
| Accounts receivable, less allowance of $328 in 2001 and $250 in 2002 | 13,523 | 16,142 | ||
| Inventories | 22,695 | 30,488 | ||
| Income taxes receivable | 917 | 1,336 | ||
| Deferred income taxes | 1,864 | 1,286 | ||
| Prepaid expenses and other current assets | 654 | 1,411 | ||
| Total current assets | 134,295 | 123,933 | ||
| Property, plant and equipment, net | 5,221 | 7,454 | ||
| Goodwill | 413 | 13,209 | ||
| Identifiable intangible assets, net | 1,768 | 11,256 | ||
| Deferred income taxes | 5,790 | 5,299 | ||
| Other assets | 311 | 812 | ||
| Total assets | $147,798 | $161,963 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||
| Current liabilities: | ||||
| Accounts payable | $789 | $2,587 | ||
| Accrued liabilities: | ||||
| Commissions | 180 | 111 | ||
| Payroll and related expenses | 727 | 2,684 | ||
| Warranty | 972 | 1,120 | ||
| Income taxes payable | -- | 1,157 | ||
| Deferred revenue | 1,489 | 5,475 | ||
| Other current liabilities | 1,491 | 4,748 | ||
| Total current liabilities | 5,648 | 17,882 | ||
| Commitments and contingencies | ||||
| Stockholders' equity: | ||||
| Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding at December 31, 2001 and 2002 | ||||
| -- | -- | |||
| Common stock, $0.001 par value, 50,000,000 shares authorized, 16,136,003 and 16,330,840 issued and outstanding at December 31, 2001 and 2002, respectively | ||||
| 16 | 16 | |||
| Additional paid-in capital | 134,315 | 137,668 | ||
| Accumulated other comprehensive loss | (304) | (295) | ||
| Retained earnings | 8,123 | 6,692 | ||
| Total stockholders' equity | 142,150 | 144,081 | ||
| Total liabilities and stockholders' equity | $147,798 | $161,963 | ||
The accompanying notes are an integral part of these consolidated financial statements.
RUDOLPH TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except share and per share data)
Year Ended December 31, | ||||||
2000 | 2001 | 2002 | ||||
| Revenues | $88,107 | $79,398 | $57,445 | |||
| Cost of revenues | 41,854 | 39,798 | 33,576 | |||
| Gross profit | 46,253 | 39,600 | 23,869 | |||
| Operating expenses: | ||||||
| Research and development | 9,022 | 11,625 | 11,828 | |||
| In-process research and development | -- | -- | 3,500 | |||
| Selling, general and administrative | 14,463 | 12,171 | 11,025 | |||
| Amortization | 339 | 339 | 412 | |||
| Total operating expenses | 23,824 | 24,135 | 26,765 | |||
| Operating income (loss) | 22,429 | 15,465 | (2,896) | |||
| Interest income and other, net | 2,174 | 2,774 | 2,050 | |||
Income (loss) before provision (benefit) for income taxes and | ||||||
| 24,603 | 18,239 | (846) | ||||
| Provision (benefit) for income taxes | (431) | 6,499 | 585 | |||
| Income (loss) before cumulative effect of a change in accounting principle | 25,034 | 11,740 | (1,431) | |||
| Cumulative effect of a change in accounting principle (net of tax of $924) | 1,458 | -- | -- | |||
| Net income (loss) | $23,576 | $11,740 | $(1,431) | |||
| Basic earnings (loss) per share: | ||||||
| Income (loss) before cumulative effect of a change in accounting principle | $1.69 | $0.74 | $(0.09) | |||
| Cumulative effect of a change in accounting principle | (0.09) | -- | -- | |||
| Net income (loss) | $1.60 | $0.74 | $(0.09) | |||
| Diluted earnings (loss) per share: | ||||||
| Income (loss) before cumulative effect of a change in accounting principle | $1.58 | $0.71 | $(0.09) | |||
| Cumulative effect of a change in accounting principle | (0.09) | -- | -- | |||
| Net income (loss) | $1.49 | $0.71 | $(0.09) | |||
| Weighted average number of shares outstanding: | ||||||
| Basic | 14,773,295 | 15,899,933 | 16,215,237 | |||
| Diluted | 15,805,188 | 16,531,461 | 16,215,237 | |||
The accompanying notes are an integral part of these consolidated financial statements.
RUDOLPH TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 2000, 2001 and 2002
(In thousands, except share data)
Accumulated | Retained | ||||||||||||
Additional | |||||||||||||
Common Stock | Comprehensive | ||||||||||||
Shares | Amount | Total | |||||||||||
| Balance at December 31, 1999 | 14,684,706 | $15 | $85,025 | $(237) | $(27,193) | $57,610 | |||||||
| Proceeds from sales of shares through employee stock plans | 187,179 | -- | 672 | -- | -- | 672 | |||||||
| Net income | -- | -- | -- | -- | 23,576 | 23,576 | $23,576 | ||||||
| Tax benefit of exercise of employee stock options | -- | -- | 1,688 | -- | -- | 1,688 | |||||||
| Currency translation | -- | -- | -- | (38) | -- | (38) | (38) | ||||||
| Comprehensive income | $23,538 | ||||||||||||
| Balance at December 31, 2000 | 14,871,885 | 15 | 87,385 | (275) | (3,617) | 83,508 | |||||||
| Issuance of common stock, net of expenses | 1,000,000 | 1 | 42,031 | -- | -- | 42,032 | |||||||
| Proceeds from sales of shares through employee stock plans | 264,118 | -- | 2,364 | -- | -- | 2,364 | |||||||
| Net income | -- | -- | -- | -- | 11,740 | 11,740 | $11,740 | ||||||
| Tax benefit of exercise of employee stock options | -- | -- | 2,535 | -- | -- | 2,535 | |||||||
| Currency translation | -- | -- | -- | (29) | -- | (29) | (29) | ||||||
| Comprehensive income | $11,711 | ||||||||||||
| Balance at December 31, 2001 | 16,136,003 | 16 | 134,315 | (304) | 8,123 | 142,150 | |||||||
| Proceeds from sales of shares through employee stock plans and other | 194,837 | -- | 2,468 | -- | -- | 2,468 | |||||||
| Net loss | -- | -- | -- | -- | (1,431) | (1,431) | $(1,431) | ||||||
| Tax benefit of exercise of employee stock options | -- | -- | 885 | -- | -- | 885 | |||||||
| Currency translation | -- | -- | -- | (417) | -- | (417) | (417) | ||||||
| Unrealized gain on investments, net of income tax expense of $132 | -- | -- | -- | 426 | -- | 426 | 426 | ||||||
| Comprehensive loss | $(1,422) | ||||||||||||
| Balance at December 31, 2002 | 16,330,840 | $16 | $ 137,668 | $(295) | $6,692 | $144,081 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
RUDOLPH TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31, | ||||||
2000 | 2001 | 2002 | ||||
| Cash flows from operating activities: | ||||||
| Net income (loss) | $23,576 | $11,740 | $(1,431) | |||
| Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by (used in) operating activities: | ||||||
| Amortization | 339 | 339 | 412 | |||
| In-process research and development | -- | -- | 3,500 | |||
| Depreciation | 661 | 1,027 | 1,233 | |||
| Tax benefit for sale of shares through employee stock plans | 1,688 | 2,535 | 885 | |||
| Provision for (recovery of) doubtful accounts | 143 | (115) | (78) | |||
| Deferred income taxes | (7,150) | 1,808 | 252 | |||
| Decrease (increase) in assets, net of acquired business: | ||||||
| Accounts receivable | (17,815) | 13,709 | (860) | |||
| Income taxes receivable | (1,349) | 432 | (419) | |||
| Inventories | (12,400) | 1,067 | (6,215) | |||
| Prepaid expenses and other assets | (46) | (221) | (1,497) | |||
| Increase (decrease) in liabilities, net of acquired business: | ||||||
| Accounts payable | 1,347 | (2,726) | 135 | |||
| Accrued liabilities | 1,178 | (1,659) | 1,996 | |||
| Income taxes payable | -- | -- | 1,157 | |||
| Deferred revenue | 4,345 | (3,510) | 3,986 | |||
| Other current liabilities | 857 | (1,468) | (1,713) | |||
| Net cash and cash equivalents provided by (used in) operating activities | (4,626) | 22,958 | 1,343 | |||
| Cash flows from investing activities: | ||||||
| Purchase of business, net of cash acquired | -- | -- | (25,069) | |||
| Purchases of short-term investments | -- | -- | (30,797) | |||
| Purchases of property, plant and equipment | (1,388) | (2,431) | (618) | |||
| Proceeds from disposal of property, plant and equipment | 16 | -- | -- | |||
| Net cash and cash equivalents used in investing activities | (1,372) | (2,431) | (56,484) | |||
| Cash flows from financing activities: | ||||||
| Proceeds from sale of common stock, net of expenses | -- | 42,032 | -- | |||
| Proceeds from sales of shares through employee stock plans and other | 672 | 2,364 | 2,468 | |||
| Net cash and cash equivalents provided by financing activities | 672 | 44,396 | 2,468 | |||
| Effect of exchange rate changes on cash and cash equivalents | (14) | (17) | 78 | |||
| Net increase (decrease) in cash and cash equivalents | (5,340) | 64,906 | (52,595) | |||
| Cash and cash equivalents at beginning of period | 35,076 | 29,736 | 94,642 | |||
| Cash and cash equivalents at end of period | $29,736 | $94,642 | $42,047 | |||
| Supplemental disclosures of cash flow information: | ||||||
| Cash paid during the period for: | ||||||
| Income taxes | $5,454 | $2,030 | $-- | |||
The accompanying notes are an integral part of these consolidated financial statements.
RUDOLPH TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
1. Organization and Nature of Operations:
Rudolph Technologies, Inc. (the "Company") designs, develops, manufactures and supports high-performance process control equipment used in semiconductor device manufacturing. The Company has branch sales and service offices in China, Korea, Taiwan and Singapore and a wholly-owned sales and service subsidiary in Europe. The Company operates in a single segment and supports a wide variety of applications in the areas of diffusion, etch, lithography, CVD, PVD, and CMP.
On September 25, 2002, the Company acquired all of the outstanding stock of ISOA, Inc., a Texas corporation (ISOA), through a merger of Oasis Acquisition, Inc., a wholly owned subsidiary of the Company, with and into ISOA, with ISOA as the surviving corporation, renamed Yield Metrology Group (YMG). YMG had licensed its technology for use in the semiconductor industry and recently began transitioning to a semiconductor capital equipment supplier. YMG’s core technologies are knowledge-based algorithms used in wafer macro-defect detection and classification. The purchase consideration for YMG, including direct acquisition costs, was $25.2 million in cash. The transaction was accounted for using the purchase method of accounting for business combinations (See Note 3).
2. Summary of Significant Accounting Policies:
A. Consolidation:
The consolidated financial statements reflect the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
B. Revenue Recognition and Change in Accounting Principle
Effective January 1, 2000, the Company changed its method of accounting for revenue recognition to comply with Securities and Exchange Commission's Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). Revenue is now recognized upon shipment provided that there is persuasive evidence of an arrangement, delivery has occurred, the sales price is fixed or determinable, and collection of the related receivable is reasonably assured. Certain sales of the Company's products are sold and accounted for as multiple element arrangements, consisting of the sale of the product and installation. The Company generally recognizes revenue upon delivery of the product, which is prior to installation, as the actions required to perform the installation are deemed to be perfunctory. Installation is deemed to be perfunctory based on the Company's sales and installation history for similar products and customers and the fact that other vendors can and have performed the installation. When customer acceptance is subjective and not obtained prior to shipment, the Company defers a portion of the product revenue until such time as positive affirmation of acceptance has been obtained from the customer. Customer acceptance is generally based on the Company's products meeting published performance specifications. The amount of revenue allocated to the shipment of products is done on a residual method basis. Under this method, the total arrangement value is allocated first to undelivered contract elements, based on their fair values, with the remainder being allocated to product revenue. The fair value of installation services is based upon billable hourly rates and the estimated time to complete the service. Revenue related to undelivered installation services is deferred until such time as installation is completed at the customer's site. Previously, the Company had recognized revenue upon shipment of equipment to customers, which usually preceded installation and final customer acceptance, provided final customer acceptance and collection of the related receivable were probable. The effect of the change was to decrease revenue by $2.1 million for the year ended December 31, 2000.
Revenues from parts sales are recognized at the time of shipment. Revenue from service contracts is recognized ratably over the period of the contract. A provision for the estimated cost of fulfilling warranty obligations is recorded at the time the related revenue is recognized.
Sales contracts with distributors contain fixed prices, current payment terms and are not subject to distributor's resale or any other contingencies. Accordingly, sales of finished products to distributors are recognized as revenue at the time of shipment. Distributors do not maintain inventory of our products, other than a small quantity of spare parts for warranty and maintenance purposes.
C. Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management include allowance for doubtful accounts, inventory obsolescence, recoverability and useful lives of property, plant and equipment, and identifiable intangible assets, recoverability of goodwill, recoverability of deferred tax assets and liabilities for product warranty. Actual results could differ from those estimates.
D. Cash and Cash Equivalents:
Cash and cash equivalents include cash and highly liquid debt instruments with original maturities of three months or less when purchased.
E. Allowance For Doubtful Accounts:
The Company evaluates the collectibility of accounts receivable based on a combination of factors. In the cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligation the Company records a specific allowance against amounts due, and thereby reduces the net recognized receivable to the amount management reasonably believes will be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are outstanding, industry and geographic concentrations, the current business environment and historical experience.
F. Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market. Demonstration units, which are available for sale, are stated at their manufacturing costs and reserves are recorded to adjust the demonstration units to their net realizable value.
G. Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment is computed using the straight-line method over the estimated useful lives of the assets which are thirty years for buildings, seven years for machinery and equipment and furnitures and fixtures, and three years for computer equipment. Leasehold improvements are amortized using the straight-line method over the lesser of the lease term or the estimated useful life of the related asset. Repairs and maintenance costs are expensed as incurred and major renewals and betterments are capitalized.
H. Impairment of Long-Lived Assets:
Long-lived assets, such as property, plant, and equipment, and identifiable acquired intangible assets with definite useful lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset, which is generally based on discounted cash flows.
I. Goodwill and Acquired Intangible Assets:
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that the purchase method of accounting be used for all business combinations completed after June 30, 2001. SFAS No. 141 also specifies the criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead they will be tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
The Company has adopted the provisions of SFAS No. 141 for acquisitions initiated after June 30, 2001, and SFAS No. 142 effective January 1, 2002. In connection therewith, the Company determined that it has one reporting unit. Goodwill acquired in business combinations completed before July 1, 2001 has been amortized through December 31, 2001. Effective January 1, 2002, as part of the adoption of SFAS No. 142, the Company is no longer amortizing goodwill. SFAS No. 142 requires that the Company perform an assessment of whether there is an indication that goodwill is impaired based on the provisions of SFAS No. 142. To the extent an indication exists that the goodwill may be impaired, the Company must measure the impairment loss, if any. Under SFAS No. 142, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. The Company performed an assessment to determine whether goodwill was impaired as of January 1, 2002, the date of adoption, and as of December 31, 2002, and determined that there was no impairment to its goodwill balance at these dates. The Company will test for impairment at December 31 each year. Amortization expense related to goodwill was immaterial for the years ended December 31, 2000 and 2001.
J. Concentration of Credit Risk:
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of accounts receivable and cash. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for sales on credit. The Company maintains reserves for potential credit losses. The Company maintains cash and cash equivalents with higher credit quality financial institutions and monitors the amount of credit exposure to any one financial institution.
K. Warranties:
The Company generally provides a warranty on its products for a period of twelve to fifteen months against defects in material and workmanship. Warranty expense amounted to $1,349, $915 and $1,225 for the years ended December 31, 2000, 2001 and 2002, respectively. The Company has established reserves of $972 and $1,120 at December 31, 2001 and 2002, respectively, for anticipated future warranty costs.
L. 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 consolidated financial statements or tax returns. A valuation allowance is recorded to reduce a deferred tax asset to that portion which more likely than not will be realized. Additionally, tax assets are separated into current and non-current amounts based on the classification of the related assets for financial reporting purposes.
M. Translation of Foreign Currencies:
The Company has foreign branches in China, Korea, Taiwan and Singapore, and a wholly-owned subsidiary in Europe which use their local currency as their functional currency. Assets and liabilities are translated at exchange rates in effect at the balance sheet date, and income and expense accounts and cash flow items are translated at average exchange rates during the period. Resulting translation adjustments are recorded directly as a separate component of stockholders' equity under the caption, "Accumulated other comprehensive loss." Foreign exchange rate gains and losses included in operating results are not material for all periods presented.
N. Stock-based Compensation:
At December 31, 2002, the Company has stock-based employee compensation plans which are described more fully in Note 9. The Company accounts for its stock option plans in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. No stock-based employee compensation cost is reflected in net income (loss), as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The Company has adopted the disclosure standards of SFAS No. 123, "Accounting for Stock-Based Compensation," which requires the Company to provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method of accounting for stock options as defined in SFAS No. 123 had been applied. The following table illustrates the effect on net income (loss) and per share amounts if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:
Year Ended December 31, | ||||||
| 2000 | 2001 | 2002 | ||||
| Net income (loss), as reported | $ 23,576 | $ 11,740 | $ (1,431) | |||
| Deduct: Total stock-based employee compensation expense determined under fair value based method, net of related income tax benefits | 1,697 | 3,345 | 4,376 | |||
| Pro forma net income (loss) | $ 21,879 | $ 8,395 | $ (5,807) | |||
| Net income (loss) per share: | ||||||
| Basic-as reported | $ 1.60 | $ 0.74 | $ (0.09) | |||
| Basic-pro forma | $ 1.49 | $ 0.53 | $ (0.36) | |||
| Diluted-as reported | $ 1.49 | $ 0.71 | $ (0.09) | |||
| Diluted-pro forma | $ 1.40 | $ 0.51 | $ (0.36) | |||
The fair value of each stock option granted during the year is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
| Employee Stock Options | 2000 | 2001 | 2002 | |||
Expected life (years) | 5.0 | 5.0 | 5.0 | |||
Expected volatility | 109.0% | 95.0% | 85.0% | |||
Expected dividend yield | 0.0% | 0.0% | 0.0% | |||
Risk-free interest rate | 5.2% | 3.5% | 3.8% | |||
Weighted average fair value of options granted during the year | $ 28.39 | $ 23.16 | $ 9.24 |
Employee Stock Purchase Plan Shares | 2000 | 2001 | 2002 | |||
Expected life (years) | 0.5 | 0.5 | 0.5 to 2.0 | |||
Expected volatility | 109.0% | 95.0% | 85.0% | |||
Expected dividend yield | 0.0% | 0.0% | 0.0% | |||
Risk-free interest rate | 5.2% | 3.5% | 1.7% | |||
Weighted average fair value of options granted during the year | $ 24.50 | $ 11.40 | $ 9.84 |
O. Software Development Costs:
The Company accounts for software development costs in accordance with SFAS No. 86, "Accounting for Costs of Computer Software to Be Sold, Leased or Marketed." SFAS No. 86 requires that certain software product development costs incurred after technological feasibility has been established, be capitalized and amortized, commencing upon the general release of the software product to the Company's customers, over the economic life of the software product. Annual amortization of capitalized costs is computed using the greater of: (i) the ratio of current gross revenues for the software product over the total of current and anticipated future gross revenues for the software product or (ii) the straight-line basis. Software product development costs incurred prior to the product reaching technological feasibility are expensed as incurred and included in research and development costs. Capitalized costs to date have been immaterial and, accordingly, SFAS No. 86 has no significant impact on the financial position or results of operations of the Company.
P. Fair Value of Financial Instruments:
The carrying amounts of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates fair value due to their short maturities.
Q. Risks Inherent in the Business:
The Company sells its products to the semiconductor device industry and believes that changes in any of the following areas could have a material adverse effect on the Company's financial position, results of operations or cash flows: advances and trends in new technologies and industry standards; competitive pressures in the form of new products or price reductions on current products; changes in product mix; changes in the overall demand for products and services offered by the Company; changes in customer relationships; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; risks associated with changes in domestic and international economic and/or political conditions or regulations; dependency on suppliers and availability of necessary product components and the Company's ability to attract and retain employees necessary to support its growth.
R. Recent Accounting Pronouncements:
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (effective for fiscal years beginning after June 15, 2002). SFAS No. 143 addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and retirement of assets. The Company is currently evaluating the impact of SFAS No. 143, but does not expect that its adoption on January 1, 2003 will have a material effect on its financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The Company is required to adopt the provisions of SFAS No. 146 effective for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS No. 146 will impact the types and timing of costs associated with any future exit activities.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34." This Interpretation elaborates on the disclosures to be made by a guarantor in its interim annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002 and are not expected to have a material effect on the Company’s financial statements. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123." This Statement amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. The Company expects to continue to account for stock options under APB Opinion No. 25. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the notes to these consolidated financial statements.
3. Business Combinations:
On September 25, 2002, the Company acquired all of the outstanding stock of ISOA, Inc., a Texas corporation (ISOA), through a merger of Oasis Acquisition, Inc., a wholly owned subsidiary of the Company, with and into ISOA, with ISOA as the surviving corporation, renamed Yield Metrology Group (YMG). YMG is a spin-off from Texas Tech University's International Center for Informatics Research. Over the past 16 years, YMG has licensed its technology for use in the semiconductor industry and recently began transitioning to a semiconductor capital equipment supplier. YMG's core technologies are knowledge-based algorithms used in wafer macro-defect detection and classification. Customers in Asia, Europe and the U.S. are currently using its recently introduced WaferView family of tools. The Company believes YMG's technology will significantly expand its product offering and provide additional value to our customers. YMG will continue to maintain its offices in Richardson, Texas. The transaction was accounted for using the purchase method of accounting for business combinations and, accordingly, the results of operations of YMG have been included in the Company's consolidated financial statements since the date of acquisition.
The purchase consideration for YMG, including direct acquisition costs, was $25,235 in cash. The purchase price has been allocated to the net assets acquired and liabilities assumed based upon their respective fair market values.
The allocation of the purchase consideration to the assets acquired and liabilities assumed follows:
| Cash | $ 166 | |
| Accounts receivable | 1,623 | |
| Inventories | 1,413 | |
| Property, plant and equipment | 2,838 | |
| Other assets | 445 | |
| Accounts payable and accrued liabilities | (1,684) | |
| Deferred taxes | (817) | |
| Other liabilities | (4,945) | |
| Identifiable intangible assets | 13,400 | |
| Goodwill | 12,796 | |
| $ 25,235 |
The excess of the purchase price over the fair value of the net assets acquired and liabilities assumed was allocated to goodwill. The total goodwill of $12,796, none of which is deductible for tax purposes, is not being amortized in accordance with SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Intangible Assets." All remaining and future acquired goodwill will be subject to an impairment test each year using a fair-value-based approach pursuant to SFAS No. 142. Identifiable intangible assets include patented technology and in-process research and development (IPRD). The Company is amortizing the patented technology of approximately $9,900 on a straight-line basis over its estimated remaining useful life of 16 years. The amount allocated to IPRD of $3,500 is related to automated defect inspection technology to be used in stand alone and integrated metrology equipment. Such amount was charged to expense at the acquisition date as the IPRD had not reached technological feasibility and had no alternative future use.
The Company used the income approach to estimate the fair value of the developed technology and IPRD. The income approach measures the value of an asset by the present value of its future economic benefits. Value indications are developed in this technique by discounting expected cash flows to their present value at a rate of return that incorporates the risk-free rate for the use of funds, the expected rate of inflation and risks associated with the asset. The discount rate selected is generally based on rates of return available from alternative investments of similar type and risk as of September 25, 2002. The income approach was deemed to be an appropriate method of valuation for these assets, since the income approach focuses on the ability of the assets to generate future earnings.
The following unaudited pro forma consolidated financial information presents the combined results of operations of the Company and YMG as if the acquisition occurred at the beginning of the periods presented, after giving effect to certain adjustments, including amortization expense. Due to the non-recurring nature of the $3,500 IPRD charge, this amount has not been included in the unaudited pro forma consolidated financial information. The unaudited pro forma consolidated financial information does not necessarily reflect the results of operations that would have occurred had the acquisition been completed as of the dates indicated or of the results that may be obtained in the future (in thousands except per share information).
(Unaudited) | ||||
| 2001 | 2002 | |||
| Revenues | $ 83,565 | $ 63,686 | ||
| Net income | $ 11,083 | $ 1,258 | ||
| Earnings per share: | ||||
Basic | $ 0.70 | $ 0.08 | ||
Diluted | $ 0.66 | $ 0.08 | ||
4. Short-Term Investments:
The Company has evaluated its investment policies consistent with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and determined that all of its investment securities are to be classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in stockholders' equity under the caption "Accumulated other comprehensive loss." Realized gains and losses, interest and dividends on available-for-sale securities are included in interest income and other, net. Net gains and losses of $169 are included in the consolidated statements of income (loss) for 2002. Gross unrealized gains on available-for-sale securities were $562 and gross unrealized losses on available-for-sale securities were $4 as of December 31, 2002.
At December 31, 2002, these short-term investments are categorized as follows:
| Amortized | Gross Unrealized | Gross Unrealized | Fair | |||||
| Cost | Holding Gains | Holding Losses | Value | |||||
| Treasury notes and obligations of U.S. Government agencies | ||||||||
| $ 23,793 | $ 276 | $ -- | $ 24,069 | |||||
| Asset-backed securities | 1,119 | 41 | -- | 1,160 | ||||
| Corporate bonds | 3,722 | 170 | (2) | 3,890 | ||||
| Mortgage-backed securities | 2,031 | 75 | (2) | 2,104 | ||||
Total short-term investments | $ 30,665 | $ 562 | $ (4) | $ 31,223 |
The estimated fair value of short-term investments classified by the maturity date listed on the security, regardless of the consolidated balance sheet classification, is as follows at December 31, 2002:
| Amortized Cost | Fair Value | |||
| Due within one year | $ 831 | $ 842 | ||
| Due after one through five years | 24,612 | 24,902 | ||
| Due after five through ten years | 3,628 | 3,829 | ||
| Due after ten years | 1,594 | 1,650 | ||
Total short-term investments | $ 30,665 | $ 31,223 |
5. Identifiable Intangible Assets and Goodwill:
Effective July 1, 2001, the Company adopted SFAS No. 141, which requires all business combinations be accounted for using the purchase method. Effective January 1, 2002, the Company adopted SFAS No. 142, which eliminated the requirement to amortize goodwill and indefinite-lived intangible assets. The following information provides the required disclosures of SFAS No. 141 and SFAS No. 142:
Identifiable intangible assets:
Identifiable intangible assets as of December 31, 2002 are as follows:
| Weighted Average Useful Life | Gross Carrying Amount | Accumulated Amortization | Net | ||||
| Purchased technology | 12 years | $ 22,731 | $ 21,220 | $ 1,511 | |||
| Patented technology (Note 3) | 16 years | 9,900 | 155 | 9,745 | |||
Total | $ 32,631 | $ 21,375 | $ 11,256 |
Intangible asset amortization expense amounted to $258, $258 and $412 for the years ended December 31, 2000, 2001 and 2002, respectively. Assuming no change in the gross carrying value of identifiable intangible assets, the estimated amortization expense for each of the next five years is $876.
Goodwill:
The changes in the carrying amount of goodwill are as follows:
Balance as of December 31, 2000 | $ 494 | |
Goodwill amortization | 81 | |
Balance as of December 31, 2001 | 413 | |
Goodwill acquired (Note 3) | 12,796 | |
Balance as of December 31, 2002 | $ 13,209 |
6. Property, Plant and Equipment:
Property, plant and equipment, net is comprised of the following:
December 31, | ||||
2001 | 2002 | |||
| Land and building | $ 2,611 | $ 4,968 | ||
| Machinery and equipment | 1,410 | 1,502 | ||
| Furniture and fixtures | 1,181 | 1,393 | ||
| Computer equipment | 2,139 | 2,770 | ||
| Leasehold improvements | 789 | 979 | ||
| 8,130 | 11,612 | |||
| Accumulated depreciation | (2,909) | (4,158) | ||
| Property, plant and equipment, net | $ 5,221 | $ 7,454 | ||
Depreciation expense amounted to $661, $1,027 and $1,233 for the years ended December 31, 2000, 2001, and 2002, respectively.
7. Inventories:
Inventories are comprised of the following:
| December 31, | ||||
2001 | 2002 | |||
| Materials | $ 15,048 | $ 16,530 | ||
| Work-in-process | 5,637 | 11,622 | ||
| Finished goods | 2,010 | 2,336 | ||
Total inventories | $ 22,695 | $ 30,488 | ||
The Company has established reserves of $1,426 and $1,697 at December 31, 2001 and 2002, for slow moving and obsolete inventory.
8. Commitments and Contingencies:
The Company rents space for its manufacturing and service operations and sales offices. Total rent expense for these facilities amounted to $797, $1,169 and $1,126 for the years ended December 31, 2000, 2001 and 2002, respectively.
The Company also leases certain equipment pursuant to operating leases, which expire through 2006. Rent expense related to these leases amounted to $52, $169 and $80 for the years ended December 31, 2000, 2001 and 2002, respectively.
Total future minimum lease payments under noncancelable operating leases as of December 31, 2002 amounted to $1,024, $958, $670, $429 and $429 for the years 2003 to 2007, respectively.
Under various licensing agreements, the Company is obligated to pay royalties based on net sales of products sold. There are no minimum annual royalty payments. Royalty expense amounted to $3,285, $2,924 and $1,763 for the years ended December 31, 2000, 2001 and 2002, respectively.
9. Employee Benefit and Stock Option Plans:
In 1996, the Company adopted the 1996 Stock Option Plan (the "Option Plan"). Under the Option Plan, the Company was authorized to grant options to purchase up to 1,069,902 shares of common stock. All of the outstanding options became 100% vested upon the initial public offering of the Company on November 12, 1999. As of December 31, 2001 and 2002, there were no shares of common stock reserved for future grants under the Option Plan.
The Company established an Employee Stock Purchase Plan (the "ESPP") effective August 31, 1999. Under the terms of the ESPP, eligible employees may have up to 15% of eligible compensation deducted from their pay and applied to the purchase of shares of Common Stock. The price the employee must pay for each share of stock will be 85% of the lower of the fair market value of the Common Stock at the beginning of the twenty four month offering period or at the end of the applicable six month purchase period. The ESPP qualifies as a non-compensatory plan under section 423 of the Internal Revenue Code. As of December 31, 2001 and 2002, there were 520,099 and 779,413 shares available for issuance under the ESPP, respectively.
The Company established the 1999 Stock Plan (the "1999 Plan") effective August 31, 1999. The 1999 Plan provides for the grant of 2,000,000 stock options and stock purchase rights, subject to annual increases, to employees, directors and consultants at an exercise price equal to or greater than the fair market value of the common stock on the date of grant. Options granted under the 1999 Plan vest over a five year period and expire ten years from the date of grant. As of December 31, 2001 and 2002, there were 472,492 and 349,139 shares of common stock reserved for future grants under the 1999 Plan, respectively.
The following tables summarize the stock option activity for the years ended December 31, 2000, 2001 and 2002:
Options Outstanding | ||||||
| Number of Shares | Weighted Average Exercise Price per Share | Number of Shares Exercisable | ||||
| Balance at December 31, 1999 | 1,531,662 | $ 9.21 | 678,311 | |||
| Granted | 247,500 | 36.19 | ||||
| Exercised | (152,727) | 1.17 | ||||
| Canceled | (110,483) | 19.35 | ||||
Balance at December 31, 2000 | 1,515,952 | 13.68 | 690,326 | |||
| Granted | 936,425 | 31.53 | ||||
| Exercised | (221,789) | 7.59 | ||||
| Canceled | (101,848) | 22.47 | ||||
Balance at December 31, 2001 | 2,128,740 | 21.73 | 667,769 | |||
| Granted | 506,500 | 13.41 | ||||
| Exercised | (153,594) | 5.07 | ||||
| Canceled | (60,427) | 27.09 | ||||
Balance at December 31, 2002 | 2,421,219 | $ 20.92 | 952,952 | |||
Stock option information as of December 31, 2002 is as follows:
Options Outstanding | Options Vested and Exercisable | |||||||
| Options Outstanding | Weighted Average Remaining Contract Life | Weighted Average Exercise Price per Share | Number Exercisable | ||||
| $ 0.56 - $ 0.73 | 276,605 | 5.50 | $ 0.70 | 276,605 | ||||
| 10.11 - 16.00 | 1,058,585 | 8.16 | 16.00 | 327,313 | ||||
| 17.48 - 39.69 | 671,065 | 8.50 | 28.90 | 193,052 | ||||
40.00 - 50.75 | 414,964 | 8.09 | 40.91 | 155,982 | ||||
| $ 0.56 - $ 50.75 | 2,421,219 | 7.94 | $ 18.25 | 952,952 | ||||
The Company has a 401(k) savings plan to provide retirement and incidental benefits for its employees. As allowed under Section 401(k) of the Internal Revenue Code, the Plan provides tax-deferred salary deductions for eligible employees. Employees may contribute from 1.0% to 15.0% of their annual compensation to the Plan, limited to a maximum annual amount as set periodically by the Internal Revenue Service. The Plan provides a 50% match of all employee contributions up to 6 percent of the employee's salary. Company matching contributions to the Plan totaled $188, $200 and $276 for the years ended December 31, 2000, 2001 and 2002, respectively.
In addition, the Company has a profit sharing program, wherein a percentage of pre-tax profits, at the discretion of the Board of Directors, is provided to all employees who have completed a stipulated employment period. The Company did not make contributions to this program for the years ended December 31, 2000, 2001 and 2002.
10. Income Taxes:
The components of income tax expense (benefit) are as follows:
Year Ended December 31, | ||||||
2000 | 2001 | 2002 | ||||
| Current: | ||||||
Federal | $ 5,062 | $ 3,963 | $ 478 | |||
State | 733 | 728 | 108 | |||
Foreign | -- | -- | -- | |||
5,795 | 4,691 | 586 | ||||
| Deferred: | ||||||
Federal | (4,962) | 2,132 | 8 | |||
State | (1,264) | 386 | 130 | |||
Foreign | -- | (710) | (139) | |||
(6,226) | 1,808 | (1) | ||||
Total income tax expense (benefit) | $ (431) | $ 6,499 | $ 585 | |||
Income before income tax was generated principally by domestic operations in 2000 and 2001. Income (loss) before income tax of $930 and ($1,773) was generated by domestic and foreign operations, respectively in 2002.
Deferred tax assets are comprised of the following:
| December 31, | |||||
2001 | 2002 | ||||
| Amortization of intangibles | $ 5,427 | $ 1,222 | |||
| Deferred revenue | 52 | 21 | |||
| Domestic net operating loss caryforwards | -- | 2,875 | |||
| Foreign net operating loss carryforwards | 710 | 850 | |||
| Research and development credit carryforward | -- | 326 | |||
| Inventory obsolescence reserve | 532 | 634 | |||
| Fixed assets | 154 | 170 | |||
| Warranty | 325 | 376 | |||
| Accounts receivable | 122 | 93 | |||
| Employee stock options | 207 | 109 | |||
| Other | 125 | (91) | |||
Net deferred tax asset | $ 7,654 | $ 6,585 | |||
The provision (benefit) for income taxes differs from the amount of income tax determined by applying the applicable U.S. income tax rate of 34% to income (loss) before provision (benefit) for income taxes and cumulative effect of a change in accounting principle as follows:
| December 31, | ||||||
2000 | 2001 | 2002 | ||||
| Federal income tax provision at statutory rate | $ 8,611 | $ 6,201 | $ (288) | |||
| State taxes, net of federal effect | (345) | 1,114 | 201 | |||
| Change in valuation allowance | (8,600) | - | - | |||
| In-process research and development write-off | - | - | 1,190 | |||
| Research tax credit | (360) | (466) | (374) | |||
| Other | 263 | (350) | (144) | |||
| Provision (benefit) for income taxes | $ (431) | $ 6,499 | $ 585 | |||
| Effective tax rate (benefit) | (2%) | 36% | (69%) | |||
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. During 1998, the net deferred tax asset was reduced to zero with a valuation allowance as a result of recurring losses and with the uncertainty regarding the Company's ability to generate sufficient taxable income. In 2000, based on industry and internal forecasts combined with the successful completion of its initial public offering and the reduction of debt, the Company reduced the deferred tax valuation allowance by $8,600, for certain deferred tax assets that more likely than not would be realized. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of its deferred tax assets at December 31, 2002. However, the deferred tax assets considered realizable at December 31, 2002, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.
In connection with the Company’s acquisition of YMG in 2002, the Company acquired patented technology which gives rise to a deferred tax liability of $3,500 as of December 31, 2002. The Company also acquired U.S. and state net operating loss (NOL) carryforwards in connection with the YMG acquisition which, as of December 31, 2002, give rise to deferred tax assets totaling $2,900. These NOL carryforwards of $7,700 expire between 2013 and 2022 for U.S. purposes, and between 2003 and 2007 for state purposes. The annual utilization of these NOL carryforwards is limited under certain provisions of the Internal Revenue Code. The foreign NOL carryforwards of $2,400 as of December 31, 2002 may generally be carried forward indefinitely.
12. Geographic Reporting and Customer Concentration:
Year Ended December 31, | ||||||
2000 | 2001 | 2002 | ||||
| Revenues from third parties: | ||||||
United States | $ 39,902 | $ 36,749 | $ 34,152 | |||
Asia | 34,765 | 29,084 | 17,271 | |||
Europe | 10,695 | 11,546 | 5,945 | |||
Other | 2,745 | 2,019 | 77 | |||
Total | $ 88,107 | $ 79,398 | $ 57,445 | |||
| Customers comprising 10% or more of the Company's total revenue | ||||||
| for the period indicated: | ||||||
A | 19.4% | 33.4% | 46.8% | |||
B | 21.9% | 14.8% | 6.8% | |||
| Accounts receivable of customers comprising 10% or more of | ||||||
| the Company's total revenue for the period indicated: | ||||||
A | $ 3,955 | $ 3,199 | $ 9,582 | |||
B | $ 3,122 | $ 1,562 | $ 13 | |||
Substantially all of the assets of the Company are within the United States of America.
13. Earnings (Loss) Per Share:
The Company has adopted SFAS No. 128, "Earnings per Share", which requires the presentation of basic earnings (loss) per share and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) gives effect to all potential dilutive common shares outstanding during the period. The computation of diluted earnings (loss) per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect.
The computations of basic and diluted earnings (loss) per share for the years ended December 31, 2000, 2001 and 2002 are as follows:
| Income | Shares | Per-Share | ||||
(Numerator) | (Denominator) | Amount | ||||
| For the year ended December 31, 2000 | ||||||
| Basic earnings per share: | ||||||
Net income | $ 23,576 | 14,773,295 | $ 1.60 | |||
Effect of dilutive stock options | -- | 1,031,893 | (0.11) | |||
| Diluted earnings per share: | ||||||
Net income | $ 23,576 | 15,805,188 | $ 1.49 | |||
| For the year ended December 31, 2001 | ||||||
| Basic earnings per share: | ||||||
Net income | $ 11,740 | 15,899,933 | $ 0.74 | |||
Effect of dilutive stock options | -- | 631,528 | (0.03) | |||
| Diluted earnings per share: | ||||||
Net income | $ 11,740 | 16,531,461 | $ 0.71 | |||
| For the year ended December 31, 2002 | ||||||
| Basic loss per share: | ||||||
Net loss | $ (1,431) | 16,215,237 | $ (0.09) | |||
Effect of dilutive stock options | -- | -- | -- | |||
| Diluted loss per share: | ||||||
Net loss | $ (1,431) | 16,215,237 | $ (0.09) |
For the years ended December 31, 2000 and 2001, the Company had outstanding options to purchase 184,750 and 420,136 shares of common stock, respectively, which were excluded from the calculation due to the anti-dilutive nature of these instruments. For the year ended December 31, 2002, all outstanding stock options, totaling 2,421,219, were excluded from the computation of diluted loss per share because the effect in the period would be anti-dilutive.
14. Quarterly Consolidated Financial Data (unaudited):
The following tables present certain unaudited consolidated quarterly financial information for each of the eight quarters ended December 31, 2002. In the opinion of the Company's management, this quarterly information has been prepared on the same basis as the consolidated financial statements and includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the information for the period presented. The results of operations for any quarter are not necessarily indicative of results for the full year or for any future period.
The Company's business is not seasonal; therefore year-over-year quarterly comparisons of the Company's results of operations may not be as meaningful as the sequential quarterly comparisons set forth below which tend to reflect the cyclical activity of the semiconductor industry as a whole. Quarterly fluctuations in expenses are related directly to sales activity and volume and may also reflect the timing of operating expenses incurred throughout the year. The quarter ended September 30, 2002, includes a one-time expense of $3,500 for the write-off of in-process research and development acquired from the acquisition of YMG.
Quarters Ended | ||||||||||
| March 31, | June 30, | September 30, | December 31, | |||||||
2002 | 2002 | 2002 | 2002 | Total | ||||||
| Revenues | $ 12,038 | $ 13,118 | $ 15,199 | $ 17,090 | $ 57,445 | |||||
| Gross profit | 5,163 | 5,381 | 6,233 | 7,092 | 23,869 | |||||
| Income (loss) before income taxes | 694 | 1,019 | (3,071) | 512 | (846) | |||||
| Net income (loss) | 447 | 656 | (3,091) | 557 | (1,431) | |||||
| Net income (loss) per share: | ||||||||||
Basic | $ 0.03 | $ 0.04 | $ (0.19) | $ 0.03 | $ (0.09) | |||||
Diluted | $ 0.03 | $ 0.04 | $ (0.19) | $ 0.03 | $ (0.09) | |||||
| Weighted average number of | ||||||||||
| shares outstanding: | ||||||||||
Basic | 16,145,675 | 16,179,502 | 16,226,346 | 16,322,014 | 16,215,237 | |||||
Diluted | 16,845,390 | 16,722,438 | 16,226,346 | 16,550,990 | 16,215,237 | |||||
Quarters Ended | ||||||||||
| March 31, | June 30, | September 30, | December 31, | |||||||
2001 | 2001 | 2001 | 2001 | Total | ||||||
| Revenues | $ 30,561 | $ 23,088 | $ 15,058 | $ 10,691 | $ 79,398 | |||||
| Gross profit | 16,748 | 11,999 | 6,735 | 4,118 | 39,600 | |||||
| Income before income taxes | 9,691 | 6,533 | 1,257 | 758 | 18,239 | |||||
| Net income | 6,101 | 4,117 | 859 | 663 | 11,740 | |||||
| Net income per share: | ||||||||||
Basic | $ 0.40 | $ 0.26 | $ 0.05 | $ 0.04 | $ 0.74 | |||||
Diluted | $ 0.38 | $ 0.25 | $ 0.05 | $ 0.04 | $ 0.71 | |||||
| Weighted average number of | ||||||||||
| shares outstanding: | ||||||||||
Basic | 15,363,284 | 16,039,391 | 16,081,194 | 16,111,965 | 15,899,933 | |||||
Diluted | 16,057,313 | 16,712,286 | 16,649,058 | 16,697,575 | 16,531,461 | |||||
RUDOLPH TECHNOLOGIES, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Column A | Column B | Column C | Column D | Column E | ||||||
Description | Balance at Beginning of Period | Charged to (Recovery of) Costs and Expenses | Charged to Other Accounts (net) | Deductions | Balance at End of Period | |||||
| Year 2002: | ||||||||||
| Allowance for doubtful accounts | $ 328 | $ (78) | $ -- | $ -- | $ 250 | |||||
| Inventory valuation | 1,426 | 271 | -- | -- | 1,697 | |||||
| Warranty | 972 | 1,225 | -- | 1,077 | 1,120 | |||||
| Year 2001: | ||||||||||
| Allowance for doubtful accounts | 443 | (115) | -- | -- | 328 | |||||
| Inventory valuation | 960 | 466 | -- | -- | 1,426 | |||||
| Warranty | 1,072 | 915 | -- | 1,015 | 972 | |||||
| Year 2000: | ||||||||||
| Allowance for doubtful accounts | 300 | 143 | -- | -- | 443 | |||||
| Deferred tax asset valuation | ||||||||||
| allowance | 8,600 | (8,600) | -- | -- | -- | |||||
| Inventory valuation | 575 | 385 | -- | -- | 960 | |||||
| Warranty | 475 | 1,349 | -- | 752 | 1,072 | |||||
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 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.
Date: April 9, 2003
| RUDOLPH TECHNOLOGIES, INC. |
| By: /s/ Paul F. McLaughlin |
| Paul F. McLaughlin |
| Chairman and Chief Executive Officer |
RUDOLPH TECHNOLOGIES, INC.
SARBANES-OXLEY ACT SECTION 302(a) CERTIFICATION
I, Paul F. McLaughlin, certify that:
1. I have reviewed this annual report on Form 10-K/A of Rudolph Technologies, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: April 9, 2003
| By: /s/ Paul F. McLaughlin |
| Paul F. McLaughlin |
| Chairman and Chief Executive Officer |
I, Steven R. Roth, certify that:
1. I have reviewed this annual report on Form 10-K/A of Rudolph Technologies, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: April 9, 2003
| By: /s/ Steven R. Roth |
| Steven R. Roth |
| Senior Vice President, Chief Financial Officer |
EXHIBIT INDEX
Exhibit
No. Description
3.1 Restated Certificate of Incorporation of Registrant (incorporated herein by reference to Exhibit (3.1(b))
to the Registrant's Registration Statement on Form S-1, as amended (SEC File No. 333-86871 filed on
September 9, 1999).3.2 Amended and Restated Bylaws of Registrant (incorporated herein by reference to Exhibit (3.2(b) to the
Registrant's Registration Statement on Form S-1, as amended (SEC File No. 333-86871), filed on
September 9, 1999.10.1+ License Agreement, dated June 28, 1995, between the Registrant and Brown University Research
Foundation (incorporated herein by reference to Exhibit (10.1) to the Registrant's Registration
Statement on Form S-1, as amended (SEC File No. 333-86871), filed on September 9, 1999).10.2 Form of Indemnification Agreement (incorporated herein by reference to Exhibit (10.3) to the
Registrant's Registration Statement on Form S-1, as amended (SEC File No. 333-86871), filed on
September 9, 1999).10.3 Amended 1996 Non-Qualified Stock Option Plan (incorporated herein by reference to Exhibit 10.15 to
Registrant's quarterly report on Form 10-Q, filed on November 14, 2001).10.4 Form of 1999 Stock Plan (incorporated herein by reference to Exhibit (10.4) to the Registrant's
Registration Statement on Form S-1, as amended (SEC File No. 333-86871), filed on September 9,
1999).10.5 Form of 1999 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit (10.5) to the
Registrant's Registration Statement on Form S-1, as amended (SEC File No. 333-86871), filed on
September 9, 1999).10.6 Management Agreement, dated as of July 24, 2000, by and between Rudolph Technologies, Inc. and
Paul F. McLaughlin (incorporated herein by reference to Exhibit 10.12 to Registrant's quarterly report
on Form 10-Q, filed on November 3, 2000).10.7 Management Agreement, dated as of July 24, 2000, by and between Rudolph Technologies, Inc. and
Robert Loiterman (incorporated herein by reference to Exhibit 10.13 to Registrant's quarterly report on
Form 10-Q, filed on November 3, 2000).10.8 Management Agreement, dated as of July 24, 2000 by and between Rudolph Technologies, Inc. and
Steven R. Roth (incorporated herein by reference to Exhibit 10.14 to Registrant's quarterly report on
Form 10-Q, filed on November 3, 2000).10.9 Registration Agreement, dated June 14, 1996 by and among the Registrant, 11, L.L.C., Riverside
Rudolph, L.L.C., Dr. Richard F. Spanier, Paul F. McLaughlin (incorporated herein by reference to
Exhibit (10.9) to the Registrant's Registration Statement on Form S-1, as amended (SEC File No.
333-86871), filed on September 9, 1999).10.10 Stockholders Agreement, dated June 14, 1996 by and among the Registrant, Administration of Florida,
Liberty Partners Holdings 11, L.L.C., Riverside Dr. Richard F. Spanier, Paul McLaughlin, Dale
Moorman, Thomas Cooper and (incorporated herein by reference to Exhibit (10.10) to the Registrant's
Form S-1, as amended (SEC File No. 333-86871), filed on September 9, 1999.10.11 Agreement and Plan of Merger among Rudolph Technologies, Inc., Oasis Acquisition, Inc., ISOA, Inc.
and certain shareholders of ISOA, Inc. dated July 22, 2002 (incorporated by reference to an exhibit to
the Company’s Current Report on Form 8-K as filed with the Commission on October 9, 2002).21.1 Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Notice regarding consent of Arthur Andersen LLP, Independent Accountants.
23.3 Consent of KPMG LLP, Independent Accountants.
99.1 Letter to Commission Pursuant to Temporary Note 3T.
+ Confidential treatment has been granted with respect to portions of this exhibit.
Exhibit 21.1
SUBSIDIARIES
Name Jurisdiction
Yield Metrology Group Texas
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-92443) and Form S-3 (No. 333-54860) of Rudolph Technologies, Inc. of our report dated January 26, 2001 relating to the consolidated financial statements and financial statement schedule, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
March 27, 2003
Exhibit 23.2
NOTICE REGARDING CONSENT OF ARTHUR ANDERSEN LLP
Section 11(a) of the Securities Act of 1933, as amended (the "Securities Act"), provides that if part of a registration statement at the time it becomes effective contains an untrue statement of a material fact, or omits a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring a security pursuant to such registration statement (unless it is proved that at the time of such acquisition such person knew of such untruth or ommission) may assert a claim against, among others, an accountant who has consented to be named as having certified any part of the registration statement or as having prepared any report for use in connection with the registration statement.
On May 23, 2002, the Board of Directors of Rudolph Technologies, Inc. (the "Company"), upon recommendation of its Audit Committee, decided to end the engagement of Arthur Andersen LLP ("Arthur Andersen") as the Company’s independent public accountants, effective after Arthur Andersen’s review of the Company’s financial results for the quarter ended March 31, 2002 and the filing of the Company’s Form 10-Q for such quarter, and authorized the engagement of KPMG LLP to serve as the Company’s independent public accountants for the fiscal year ending December 31, 2002. For additional information, see the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission ("SEC") on May 31, 2002.
After reasonable efforts, the Company has been unable to obtain Arthur Andersen’s written consent to the incorporation by reference into the Company’s registration statements (Form S-8 No. 333-91443) and the related prospectuses (the "Registration Statements") of Arthur Andersen’s audit report with respect to the Company’s consolidated financial statements as of December 31, 2001 and for the year then ended. Under these circumstances, Rule 437a under the Securities Act permits the Company to file this Annual Report on Form 10-K, which is incorporated by reference into the Registration Statements, without a written consent from Arthur Andersen, however, with respect to transactions in the Company’s securities pursuant to the registration statements that occurred subsequent to the date of this Annual Report on Form 10-K is filed with the SEC, Arthur Andersen will not have any liability under Section 119(a) of the Securities Act for any untrue statements of a material fact contained in the financial statmenets audited by Arthur Andersen or any ommissions of a material fact required to be stated therein. Accordingly, you would be unable to assert a claim against Arthur Andersen under Section 11(a) of the Securities Act.
Exhibit 23.3
Independent Accountants’ Consent
The Board of Directors
Rudolph Technologies, Inc.:
We consent to the incorporation by reference in the registration statement (No. 333-92443) on Form S-8 and registration statement (No. 333-54860) on Form S-3 of Rudolph Technologies, Inc. of our report dated January 29, 2003, with respect to the consolidated balance sheet of Rudolph Technolgies, Inc. as of December 31, 2002, and the related consolidated statement of income (loss), stockholders’ equity, and cash flows for the year then ended, and the related 2002 financial statement schedule, which report appears in this December 31, 2002 annual report on Form 10-K of Rudolph Technologies, Inc.
/s/ KPMG LLP
Short Hills, New Jersey
March 27, 2003
Exhibit 99.1
LETTER TO COMMISSION PURSUANT TO TEMPORARY NOTE 3T
RUDOLPH TECHNOLOGIES, INC.
One Rudolph Road
Flanders, NJ 07836
LETTER TO COMMISSION PURSUANT TO TEMPORARY NOTE 3T
March 26, 2002
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0408
Ladies and Gentlemen:
Pursuant to Temporary Note 3T to Article 3 of Regulation S-X, Rudolph Technologies, Inc. has obtained a letter of representation from Arthur Andersen LLP ("Andersen") stating that the December 31, 2001 audit was subject to their quality control system for the U.S. accounting and auditing practice to provide reasonable assurance that the engagement was conducted in compliance with professional standards, that there was appropriate continuity of Andersen personnel working on the audit and appropriate availability of national office consultation. Availability of personnel at foreign affiliates of Andersen was not relevant to this audit.
Very truly yours,
Rudolph Technologies, Inc.
/s/ Steven R. Roth
Steven R. Roth
Senior Vice President, Chief Financial Officer