10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2018

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. 001-36226

RUDOLPH TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	22-3531208
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

16 Jonspin Road, Wilmington, MA 01887

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (978) 253-6200

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of Each Class	Name of Exchange on Which Registered
Common Stock, $0.001 par value per share (including attached Series A Junior Participating Preferred Stock Purchase Rights)	New York Stock Exchange (NYSE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐     No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ☐     No ☒

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 ☒     No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒     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 a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐     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 30, 2018 of $29.60 was approximately $926,907,335.

The registrant had 30,907,380 shares of Common Stock outstanding as of January 23, 2019.

DOCUMENTS INCORPORATED BY REFERENCE

Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K incorporate by reference information from the definitive proxy statement for the registrant’s annual meeting of stockholders scheduled to be held on May 15, 2019.

TABLE OF CONTENTS

Item No.		Page
PART I
1.	Business	2
1A.	Risk Factors	13
1B.	Unresolved Staff Comments	22
2.	Properties	23
3.	Legal Proceedings	23
4.	Mine Safety Disclosures	23
PART II
5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24
6.	Selected Financial Data	26
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
7A.	Quantitative and Qualitative Disclosures About Market Risk	36
8.	Financial Statements and Supplementary Data	36
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	37
9A.	Controls and Procedures	37
9B.	Other Information	37
PART III
10.	Directors, Executive Officers and Corporate Governance	38
11.	Executive Compensation	38
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	38
13.	Certain Relationships and Related Transactions, and Director Independence	38
14.	Principal Accountant Fees and Services	38
PART IV
15.	Exhibits and Financial Statement Schedule	39
Signatures
Certifications
EX-3.2
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K of Rudolph Technologies, Inc. (the “Company” or “Rudolph”) are forward-looking statements, including those concerning our business momentum and future growth, acceptance of our products and services, our ability to deliver both products and services consistent with our customers’ demands and expectations and to strengthen our market position, our expectations of the semiconductor market outlook, future revenue, gross profits, research and development and engineering expenses, selling, general and administrative expenses, product introductions, technology development, manufacturing practices, cash requirements, our dependence on certain significant customers and anticipated trends and developments in and management plans for our business and the markets in which we operate, our anticipated revenue as a result of acquisitions, and our ability to be successful in managing our cost structure and cash expenditures. The statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as, but not limited to, “anticipate,” “believe,” “expect,” “intend,” “plan,” “should,” “may,” “could,” “will” and words or phrases of similar meaning, as they relate to our management or us.

The forward-looking statements contained herein reflect our expectations with respect to future events and are subject to certain risks, uncertainties and assumptions. Actual results may differ materially from those included in such forward-looking statements for a number of reasons including, but not limited to, the following: variations in the level of orders which can be affected by general economic conditions, seasonality and growth rates in the semiconductor manufacturing industry and in the markets served by our customers, the global economic and political climates, difficulties or delays in product functionality or performance, the delivery performance of sole source vendors, the timing of future product releases, failure to respond adequately to either changes in technology or customer preferences, changes in pricing by us or our competitors, our ability to manage growth, changes in management, risk of nonpayment of accounts receivable, changes in budgeted costs, our ability to leverage our resources to improve our position in our core markets, our ability to weather difficult economic environments, our ability to open new market opportunities and target high-margin markets, the strength/weakness of the back-end and/or front-end semiconductor market segments, our ability to successfully integrate acquired businesses into our business and fully realize, or realize within the expected time frame, the expected combination benefits from the acquisitions, and the “Risk Factors” set forth in Item 1A. You should carefully review the cautionary statements and “Risk Factors” contained in this Annual Report on Form 10-K. You should also review any additional disclosures and cautionary statements and “Risk Factors” we include from time to time in our quarterly reports on Form 10-Q, current reports on Form 8-K and other filings we make with the Securities and Exchange Commission (the “SEC”). The forward-looking statements reflect our position as of the date of this report and we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

1

PART I

Item 1. Business.

General

Rudolph Technologies, Inc. is a worldwide leader in the design, development, manufacture and support of process control tools that perform macro defect inspections and metrology, lithography systems, and process control analytical software used by semiconductor and advanced packaging device manufacturers. Rudolph’s proprietary products offer comprehensive solutions for all phases/segments of the semiconductor fabrication process. Our products that provide critical yield-enhancing information, which is used by microelectronic device manufacturers to drive down costs and to decrease the time to market of their devices. We provide process and yield management solutions used in bare silicon wafer production and wafer processing facilities, often referred to as “front-end” manufacturing and device packaging and test facilities, (or “back-end” manufacturing), respectively through a portfolio of standalone systems for macro-defect inspection, packaging lithography, probe card test and analysis, as well as transparent and opaque thin film measurements. All Rudolph systems feature sophisticated software and production-worthy automation. In addition, our advanced process control software portfolio includes powerful solutions for standalone tools, groups of tools, factory-wide, and enterprise-wide suites to enhance productivity and achieve significant cost savings. Rudolph’s systems are backed by worldwide customer service and applications support.

Rudolph continues to drive the technological innovation of its inspection and metrology products to deliver solutions that address the demanding needs across the front-end and back-end processes of semiconductor manufacturing. In 2018, Rudolph introduced two newly configured macro defect inspection tools, the second generation Dragonfly™G2 system and the NovusEdge™ tool for bare wafer inspection. The Dragonfly G2 systems use high-resolution, two-dimensional (2D) inspection technology for front-end and back-end applications as well as high-resolution three-dimensional (3D) inspection and metrology. Rudolph’s Clearfind™ technology is a patented option available for enhancing the detection of defects that often escape conventional illumination techniques by revealing organic materials, thereby reducing a source of yield-robbing interconnect failures that can occur within advanced packages.  The Dragonfly G2 system is a high-speed multi-dimensional tool that also features TrueBump™ technology to accurately measure the height of millions of micro bumps that may be deposited on a wafer in order to make electrical connections. This critical dimension must be accurately controlled to assure that eventual connections are reliably created. The new NovusEdge system provides macro level quality measurements for manufacturers of bare silicon wafers that are supplied to semiconductor manufacturers for subsequent processing. Certain defects, such as backside particles and hairline cracks on the edge of the wafer, were previously considered minor flaws.  However, the latest extreme ultra-violet (“EUV”) lithography systems are extremely sensitive to backside particles and manufacturing of large integrated circuit chips can have significant yield losses when edge cracks propagate into the chips near the wafer’s edge. The NovusEdge system is able to detect and classify wafers so that the wafer suppliers can assure their customers of the proper quality levels needed for subsequent processing and chip type.

These newly released products supplement Rudolph’s established product portfolio of extensive 2D and 3D process control solutions for a variety of device types of advanced packaging, such as second generation high bandwidth memory (“HBM2”) devices, double data rate Dynamic Random Access Memory (“DRAM”) (DDR4 and DDR5), 3D Not And (“NAND”) memory, advanced packaging for radio frequency (“RF”) modules, Complimentary Metaloxide Semiconductor (“CMOS”) image sensors, Microelectromechanical Systems (“MEMs”), etc. that are used in smartphones, wearable devices, tablets and personal computers, automotive, Internet of Things (“IoT”) and others. The need for more process monitoring and control continues to increase for semiconductor and related industries as the required levels of quality and reliability continue to rise. Predictive analytics can lower maintenance costs, rate of scrap wafers, unscheduled tool downtime and material costs. Rudolph’s established fault detection and classification software, which is also incorporated into tools manufactured by others companies, allows customers to seamlessly turn equipment data into actionable operational information. This collaboration is designed to enhance etch and deposition tool performance.

2

Industry Trends

Advanced Packaging refers to a variety of technologies that enable the miniaturization of electronic products, such as portable consumer devices, including smartphones, watches, and tablets. In electronics manufacturing, integrated circuit packaging is the final stage of semiconductor device fabrication, in which a single circuit made from semiconducting material (a die or chip) is encased in a molded package that provides external connections to a printed circuit board and also prevents physical damage to the chip and corrosion.  Advanced Packaging refers loosely to the conductors and other structures that often interconnect multiple die, feed them with electric power and create signal paths to and from the PC board, dissipate their heat, and protect them from damage.  Today, the drive to pack more functions into a small space and reduce their power requirements demands that chip packages do much more than ever before to combine multiple functions into a single molded package.

One example of the technology used in Advanced Packaging is the 3D integration of semiconductors and other devices. The technology involves stacking individual die in one integrated package. Through-silicon vias (“TSVs”) are vertical copper interconnects that are embedded from the bottom surface of a die to the top surface, which allows power and communication to be shared among the individually stacked components. This offers the advantages of shorter signal paths and, in turn, reduced power consumption, enhanced bandwidths, integration of heterogeneous components such as memory and logic chips, and smaller surface area. The processes required for 3D integration vary from one manufacturer to another and many continue to be optimized for yield and to ensure the functioning of individual stacked chips.

Fan-out wafer level packages are another advanced packaging technology using copper pillars/bumps to vertically connect a wide variety of stacked die for 2.5D, and 3D integration techniques and are considered the next disruptive technology for several reasons. First, fan-out wafer level packages significantly reduce the space needed inside an electronic device, such as a smartphone, by combining multiple chips/functions into a single package, often called a system in a package (“SIP”). Next, it improves the system’s performance by reducing power and signal conductor lengths, which previously were routed from package to package through a printed circuit (“PC”) board. Using thin redistribution layers to “fan out” power and signal connections to the larger contacts on the PC board eliminates the need for a ceramic or laminated substrate, which accounts for 35 percent of the packaging cost. Lastly, the technology is currently considered the preferred vehicle for next generation uses, such as system in package, and package on package formats.  As a result of the small overall form factor, fan-out wafer level packages provide the functionality needed in high-end mobile and wearable products.

The current and projected adoption of smart mobile devices with designed-in capability to enable multiple functions in a single device continues to grow. In reality, there are no longer single function devices, but instead, a combined single device provides multiple functions such as phone, GPS, camera, and internet browser.  Aided by a myriad of available “apps,” the potential uses seem endless. As a result, these added functions in mobile products are driving semiconductor advanced packaging and display manufacturers to implement next-generation technologies, such as 5G communications, to meet these requirements. These technology shifts encompass multiple high-value process steps that are creating opportunities for Rudolph solutions.

Panel Manufacturing. The current process to manufacture advanced packaging involves attaching known good die to a 300mm wafer, used as a temporary carrier when adding components such as redistribution layers (“RDLs”) and copper pillars.  SIP packages can often contain side-by-side die, meaning the package can be large and limit the number of packages being placed on a reconstituted wafer. In order to meet the growing demand at reduced average selling prices, manufacturers are looking to scalable technology. Advanced packaging facilities looking to improve Cost of Ownership (“COOs”) and increase productivity are transitioning from 300mm wafers to large rectangular panels, which can be as large as 600mm x 600mm. This larger size enables companies manufacturing large area packages to increase the number of devices being processed at each step as they are no longer limited to operating within the constraints of a round wafer. By responding to market opportunities and addressing the stringent demands of customers’ technical roadmaps, we believe that Rudolph is optimally positioned to capitalize on the emerging market of high volume panel manufacturing.  For example, the JetStep^® S lithography system, having emerged from the flat panel display market, is readily capable of processing RDLs on both glass and organic laminate panels in the semiconductor advanced packaging market. The Firefly™S Series, designed for high

3

resolution inspection, can provide location information to the JetStep S tool for each die, which greatly improves lithography throughput using Rudolph’s exclusive StepFast™ process. It also delivers a combination of defect detection and substrate flexibility in a single platform. It reduces capital investment requirements and provides a reliable pathway to transition from wafer to panel-based processes.

Technology

We believe that our expertise in engineering and our continued investment in research and development enable us to rapidly develop new technologies and products in order to quickly respond to emerging industry trends and competitive challenges. The breadth of our technology enables us to offer a diverse combination of process and process control solutions. Unique features have been designed into our lithography systems to meet our customers’ changing process requirements. Our metrology and inspection technologies provide process control for the majority of wafers processed today in a semiconductor wafer fab. In front-end processes, thin film metrology and defect detection and classification technologies allow yield enhancement for critical processes such as photolithography, diffusion, etch, CMP and outgoing quality control. Within the final manufacturing (back-end) processes, our 2D/3D advanced macro defect inspection provides our customers with critical quality assurance and process information. Defects may be created during probing, bumping, dicing, assembly processes (RDLs, TSVs, copper pillars, etc.) or general handling and can have a major impact on device and process quality. Lastly, we turn all of the data gathered into useful knowledge for our customers to make yield-enhancing decisions, which lower their cost of goods sold (“COGS”) and improve their margins.

Process Control Business

Macro Defect Inspection. Chip manufacturers deploy advanced macro defect inspection throughout the production line to monitor key process steps, gather process-enhancing information and ultimately, lower manufacturing costs. Field-established tools such as the F30^™ and NSX^® inspection systems are found in the wafer fab (front-end) and packaging (back-end) facilities around the world. These high-speed tools incorporate features such as wafer-less recipe creation, tool-to-tool correlation and multiple inspection resolutions. In addition to wafer frontside inspection, Rudolph’s NovusEdge system allows wafer edge and backside inspection in one integrated platform to enhance productivity and continuously improve fab yield. Using Discover^® yield management software, the vast amounts of data gathered through automated inspection can be analyzed and classified to determine trends and locate root causes that directly affect yield.

All-Surface Inspection. All-surface refers to inspection of the wafer frontside, edge, and backside as well as back-end die. The edge inspection process focuses on the area near the wafer edge, an area that poses difficulty for traditional wafer frontside inspection technology due to its varied topography and process variation. Edge bevel inspection looks for defects on the side edge of a wafer. Edge bead removal and edge exclusion metrology involve a topside surface measurement required exclusively in the photolithography process, primarily to determine if wafers have been properly aligned for the edge exclusion region. The primary reason for wafer backside inspection is to determine if contamination has been created that may spread throughout the wafer fab. For instance, it is critical that the wafer backside be free of defects prior to the photolithography process to prevent focus and exposure problems on the wafer frontside.

Residue Detection. Residue is difficult or impossible to see with conventional bright field or dark field imaging techniques using white light. Residue contaminants, such as residual photo resist, are often the root cause of field failures, which occur after the material has been exposed to normal operating conditions for extended periods. Rudolph’s established Clearfind^™ technology highlights residue on bumps and bond pads or RDL vias so that they are easy to detect. On metals, it eliminates the high-contrast graininess seen under conventional illumination, resulting in an obvious defect signal against a featureless background. This same graininess in conventional imaging can also cause false positives, which are especially costly at this stage of the process where secondary inspections must be initiated to verify real defects and allow the false defects to continue through packaging. Finally, Clearfind technology readily detects shorts and opens in metal lines when inspected with an underlying organic layer.

4

Automated Defect Classification and Pattern Analysis. Automating the defect detection and classification process is best done by a system that can mimic, or even extend, the response of the human eye, but at a much higher speed, with higher resolution and more consistency. To do this, our systems capture full-color whole wafer images using simultaneous dark and bright field illumination. The resulting bright and dark field images are compared to those from an “ideal” wafer having no defects. When a difference is detected, its image is broken down into mathematical vectors that allow rapid and accurate comparison with a library of known classified defects stored in the tool’s database. Patented and proprietary enhancements of this approach enable very fast and highly repeatable image classification. The system is pre-programmed with an extensive library of local, global, and color defects and can also store a virtually unlimited amount of new defect classes. This allows customers to define defects based on their existing defect classification system, provides more reliable automated rework decisions and enables more accurate statistical process control data. Reviewing defects off-line enables automated inspection systems to maintain their utilization for high throughput inspection. Using defect image files captured by automated inspection systems, operators are able to view high-resolution defect images to determine defects that cause catastrophic failure of a device, known as killer defects. Combining the review process with classifying defects enables faster analysis by grouping defects found together as one larger defect, a scratch for example, and defects of similar types across a wafer lot to be grouped based on size, repeating defects, and other user-defined specifications.

 Yield Analysis. Using wafer maps, charts and graphs, the massive amounts of data gathered through automated inspection can be analyzed to determine trends across bumps, die, wafers and lots. This analysis may determine where a process variation or deviation has occurred, allowing process engineers to make corrections or enhancements to increase yields. Defect data analysis is performed to identify, analyze and locate the source of defects and other manufacturing process excursions. Using either a single wafer map or a composite map created from multiple wafer maps, this analysis enables identification of defect patterns and distribution. When combined with inspection data from strategically-placed inspection points, this analysis may pinpoint the source of the defects so corrective action can be taken.

Optical Acoustic Metrology. Optical acoustic metrology involves the use of ultra-fast laser induced sonar for metal and opaque thin film measurement. This technology sends ultrasonic waves into multi-layer opaque films and then analyzes the resulting reflected acoustic waves (echoes) to simultaneously determine the thickness of each individual layer in complex multi-layer metal film stacks. The reflected signal’s amplitude and phase can be used to detect film properties, missing layers and interlayer problems. Since different phenomena affect amplitude and phase uniquely, a variety of process critical interlayer problems can be detected in a single measurement. The use of optical acoustics to measure multi-layer metal and opaque films was pioneered by scientists at Brown University (“Brown”) in collaboration with engineers at Rudolph. The proprietary optical acoustic technology in our PULSE Technology™ systems measures the thickness of single or multi-layer opaque films, with a huge range of less than 40 Angstroms to greater than five microns. It provides these measurements at a rate of up to 70 wafers per hour within one to two percent accuracy and typically greater than 99 percent repeatability. This range of thicknesses covers the majority of thick and thin metal films projected by the International Roadmap for Semiconductors. Our non-contact, non-destructive optical acoustic technology and small spot size enable our PULSE Technology systems to measure film properties directly on product wafers.

Opaque Film Metrology. The MetaPULSE^® systems allow customers to simultaneously measure the thickness and other properties of up to six metal or non-metallic opaque film layers without physically contacting product wafers in a non-destructive manner. PULSE Technology uses an ultra-fast laser to generate acoustic waves that pass down through a stack of opaque films such as those used in copper or aluminum interconnect processes, as well as the hard mask layer in 3D NAND chips, sending back to the surface a reflected signal (echo) that indicates film thickness, density, and other process critical parameters. We believe we are a leader in providing systems that can measure opaque thin-film stacks non-destructively with the speed and accuracy semiconductor device manufacturers demand in order to achieve high yields with the latest fabrication processes. The technology is ideal for characterizing copper interconnect structures. The MetaPULSE systems, used initially for fast and accurate measurements of metal interconnect in front-end wafer fabs, have now been chosen by back-end manufacturers to perform system measurements in new process applications such as RF filters and modules, driven by the need for on-product metrology as feature sizes decrease and pattern densities increase.

5

Ellipsometry. Ellipsometry is a non-contact, non-destructive optical technique for transparent thin film measurement. We have been an industry leader in ellipsometry technology for the last three decades. We hold patents on several ellipsometry technologies, including our proprietary technique that uses four lasers for multiple-angle of incidence, multiple wavelength ellipsometry. Laser ellipsometry technology enables our transparent film systems to provide the increasingly higher level of accuracy needed as thinner films and newer materials are introduced for future generations of semiconductor devices. We extended this same optical technology to characterize the scatterometry signal from patterned surfaces, allowing measurement of critical dimensions.

Reflectometry. For applications requiring broader spectral coverage, some of our ellipsometry tools are also equipped with a reflectometer. Reflectometry uses a white or ultraviolet light source to determine the properties of transparent thin films by analyzing the wavelength and intensity of light reflected from the surface of a wafer. This optical information is processed with software algorithms to determine film thickness and other material properties. By combining data from both the laser ellipsometer and broad spectrum reflectometer, it is possible to characterize films and film stacks that cannot be adequately analyzed by either method individually.

Transparent Film Metrology. Rudolph’s patented transparent film technology uses up to four lasers operating simultaneously at multiple angles and multiple wavelengths, providing powerful analysis and measurement capabilities. Unlike the white-light sources used in spectroscopic ellipsometers, laser light sources make our metrology tools inherently stable, increase measurement speed and accuracy, and reduce maintenance costs by minimizing the time required to re-qualify a light source when it is replaced. Rudolph’s S3000SX^™ System is targeted for transparent films in advanced semiconductor fabrication applications at the 28nm node and below. The S3000™ product family uses Rudolph’s proprietary Focused Beam Ellipsometry (“FBE”) and newly-designed Small Site Measurement Optics (“SSMO”) to measure the thickness of single layer and multi-layer films on product wafers, including device area at site sizes as small as 30x30 nanometers.  

Probe Card Test and Analysis. The combination of fast 3D-OCM (optical comparative metrology) technology with improved testing accuracy and repeatability is designed to reduce total test time for even the most advanced large area probe cards. The 3D capabilities enable users to analyze probe marks and probe tips in a rapid and information-rich format.

Lithography Business

Step and Repeat Technology. Rudolph steppers use projection optics to expose circuit patterns from a mask or reticle onto a substrate to expose images with optimal fidelity. These systems employ light from a mercury arc lamp that is transmitted through a mask or reticle containing display circuit patterns. Substrates are aligned on the system and the mask is imaged through a projection lens onto photoresist material coated on the substrate. The substrate is then moved, or “stepped,” to a second position to expose an adjacent area. Images can be “stitched” together precisely to form larger circuit patterns without any noticeable change in circuit performance. The system repeats the step and exposure process until the entire substrate is patterned. Once the exposure process has been completed, the substrate is developed with an alkali solution to reveal the underlying material. The imaged photoresist serves as a stencil barrier that allows for the processing of the underlying metal or insulating layers.  The substrates then continue through the etching, stripping and deposition processes until multi-layer circuits are completed.

Advanced Packaging Lithography Systems. In order to deal with increased input/output (“I/O”) resulting from devices with enhanced functionality, power distribution efficiency, and higher frequency, integrated device manufacturers (“IDMs”) and outsourced semiconductor assembly and test (“OSATs”) facilities must incorporate lithography capabilities to create RDLs for their advanced packaging technologies. However, the associated substrates and processes are significantly different than those used in front-end wafer processing. For advanced packaging, the lithography system must perform in a completely different application, with significantly different operating parameters. For example, most packaging is an additive process, while wafer processing is subtractive, and thick films, rather than thin films, are used to enable the creation of features. In order for equipment to effectively function in this environment, it must overcome these challenges. Rudolph’s JetStep Systems have been specifically designed to meet these challenges head on. The JetStep W Series is designed for wafers and

6

other round substrates while the JetStep S Series is designed for rectangular substrates (panels). Both systems boast a large printable field, which when combined with user-selectable wavelength options, maximizes throughput while not limiting resolution when needed. High-fidelity optics are able to image the fine features required while at the same time achieving superior depth of field to minimize non-flatness that is typical for advanced packaging applications. On-the-fly auto focus and an innovative reticle management system improve yield and utilization. These features result in a revolutionary lithography system specifically designed to meet advanced packaging challenges.

Flat Panel Display (“FPD”) Lithography. A critical aspect of any leading mobile device is the display. The display serves as the window to the user. Therefore, it must effectively present graphics from a variety of apps, such as detailed maps, high resolution photos, and streaming video in order to provide an enhanced user experience. To accomplish this, the display’s thin film transistor (“TFT”) backplane, which controls the individual pixels, must operate at a high frequency and not limit the pixel resolution.  As a result, the transistors must have high mobility and only use a small portion of the pixel aperture. The backplane is manufactured on a sheet of glass; like the packaging substrate, it is non-flat and tends to distort further during processing. Additionally, the displays are getting larger. Manufacturers are looking to utilize larger glass substrates, making throughput a challenge for the lithography equipment.  To overcome this, Rudolph’s JetStep G Series uses high-fidelity optics and the largest printable stepper field available, enabling more displays per exposure. This feature, combined with on-the-fly auto-focus and magnification compensation, maximizes throughput and yield.  Finally, our patented grid stage allows the system to be easily configurable to meet the customer desired substrate size.

Integrated Software Solutions

Process Control Software. We provide a wide range of advanced process control solutions, all designed to improve factory profitability, including run-to-run control, fault detection, classification and tool automation. Rudolph is a leading provider of Process Control Software in the semiconductor industry. Advanced process control (“APC”) employs software to automatically detect or predict tool failure (fault detection) as well as calculate recipe settings for a process that will drive the yielded output to meet and exceed the target, despite variations in the incoming material and minor instabilities within the process equipment.  Process control software enables the factory to increase capacity and yield while decreasing rework and scrap. It enables reduced production costs by lowering consumables, process engineering time and manufacturing cycle time.

Yield Management Software. Semiconductor manufacturers use yield management software (“YMS”) to obtain valuable process yield and equipment productivity information. The data necessary to generate productivity information comes from many different sources throughout the wafer fab: inspection and metrology systems, tool sensors, tool recipes, electrical tests and the fab environment. As the complexity and cost of manufacturing processes increase, the value of faster, better analysis to support critical manufacturing decisions grows. As a result, customers are demanding robust yield management systems that can analyze large, complex data sets quickly and effectively. Rudolph’s fully-integrated YMS are designed to analyze data from disparate sources and multiple sites to maximize productivity across the entire value chain.

7

Products

Rudolph markets and sells products to major analog, logic, memory, RF, CMOS Image Sensors, MEMs, and flat panel display manufacturers. These customers are IDMs, OSAT manufacturers, and foundries that are producing wafers and packages for fabless design companies. Our customers rely on us for versatile inspection, lithography and metrology systems as well as process control software solutions. These products are designed for high-volume production facilities and offer automated wafer handling for 200mm and 300mm configurations and panel handling up to 720 x 930mm. Our systems operate at high throughput in an ultra-clean operating mode with high reliability.

		PROCESS CONTROL SYSTEMS
				Location of Process
	First
Product	Introduced	Functionality		Front-end	Back-end
Dragonfly™G2 Inspection System	2018	—	2D/3D Advanced Packaging inspection and metrology	X	X
NovusEdge™ Wafer Inspection System	2018	—	Bare wafer edge and backside inspection	X
Dragonfly™ Inspection System	2016	—	2D/3D inspection and metrology	X	X
Firefly™ Inspection Series	2016	—	Sub-micron defect and residue inspection	X	X
AWX™ Series	2011	—	Unpatterned wafer inspection and process monitoring system	X	X
F30™ Inspection Module	2011	—	Front-side macro defect inspection system	X
Explorer® Inspection Platform	2009	—	Handling platform that supports a family of multi surface inspection tools, using one or more inspection modules	X
B30™ Inspection Module	2003	—	Defect inspection module for the wafer’s backside	X	X
E30™ Inspection Module	2003	—	Defect inspection module for the wafer’s edge	X	X
PrecisionWoRx®  System	2008	—	Probe card test and analysis system		X
S3000™ System	2006	—	Transparent thin film metrology system	X
MetaPULSE® System	1997	—	Opaque (metal) thin film metrology system	X	X
NSX® Inspection System	1997	—	2D/3D wafer, die and bump inspection system		X

8

		LITHOGRAPHY SYSTEMS
				Location of Process
	First
Product	Introduced		Functionality	Front-end	Back-end
JetStep® S Lithography System	2013	—	2x reduction step and repeat system for advanced packaging lithography on square or rectangular substrates up to Gen 3.5 size		X
JetStep® W Lithography System	2012	—	2x reduction step and repeat system for advanced packaging applications on wafers or round substrates		X
JetStep® G45 FPD Lithography System	2007	—	Step and repeat lithography printer for Gen 4.5 substrates	X
JetStep® G35 FPD Lithography System	2006	—	Step and repeat lithography printer for Gen 3.5 substrates	X

		INTEGRATED SOFTWARE SOLUTIONS SOFTWARE
				Location of Process
	First
Product	Introduced	Functionality		Front-end	Back-end
Equipment Sentinel™ Software	2015	—	Fault detection and classification software	X	X
Discover® Software	2007	—	Tool-centric yield management system	X	X
TrueADC® Enterprise Software	2007	—	Automatic defect classification software	X	X
Process Sentinel® Software	2006	—	Fab-wide spatial process control system	X
Yield Optimizer™ Software	2006	—	Yield enhancement model software	X
Discover® Enterprise Software	2005	—	Fabwide yield management system	X	X
GateWay™ Software	2003	—	Data collection and facilitation to FDC software	X	X

9

		INTEGRATED SOFTWARE SOLUTIONS SOFTWARE
				Location of Process
	First
Product	Introduced	Functionality		Front-end	Back-end
ProcessWORKS® Software	1998	—	Run-to-run process control software	X
RecipeWORKS™ Software	1998	—	Factory-level client-server based recipe management system	X	X
AutoShell® Software	1998	—	Equipment and factory automation software	X	X
Genesis® Software	1997	—	Off-line yield management system	X
ControlWORKS® Software	1994	—	Advanced equipment control software	X

Customers

Over 150 microelectronic device manufacturers have purchased Rudolph tools and software for installation at multiple sites. We support a diverse customer base in terms of both geographic location and type of device manufactured. Our customers are located in 20 countries. See Note 14 to our consolidated financial statements in this Annual Report on Form 10-K for information concerning our geographic information.

In 2018, sales to SK Hynix Inc. accounted for 12.2% of our revenue.  No individual end user customer accounted for more than 10% of our revenue in 2017 and 2016.  We do not have purchase contracts with any of our customers that obligate them to continue to purchase our products.

Research and Development

The markets for equipment and systems for manufacturing semiconductor devices and for performing macro-defect inspection, advanced packaging lithography and thin film transparent and opaque process control metrology are characterized by continuous technological development and product innovations. We believe that the rapid and ongoing development of new products and enhancements to existing products is critical to our success. Accordingly, we devote a significant portion of our technical, management and financial resources to research and development programs.  As of December 31, 2018, we employed 199 engineering personnel.

Our research and development expenditures in 2018, 2017 and 2016 were $49.1 million, $47.0 million and $45.0 million, respectively. We expect to continue our strong commitment to new product development and will continue to allocate significant resources to these efforts in the future.

Sales, Customer Service and Application Support

We maintain an extensive network of direct sales, customer service and application support offices in the United States, Europe and Asia.

We provide our customers with comprehensive support before, during and after the delivery of our products. For example, in order to facilitate the smooth integration of our tools into our customers’ operations, we often assign dedicated, site-specific field service and applications engineers to provide long-term support at selected customer sites. We also provide comprehensive service and applications training for customers at our training facilities in Bloomington, Minnesota and Budd Lake, New Jersey and at customer locations. In addition, we maintain a group of highly skilled applications scientists at strategically located facilities throughout the world and at selected customer locations.  As of December 31, 2018, we employed 282 sales and marketing, service and applications support personnel.

10

Manufacturing

Our principal manufacturing activities include assembly, final test and calibration. These activities are conducted in our manufacturing facilities in Bloomington, Minnesota and Wilmington, Massachusetts.  Our core manufacturing competencies include electrical, optical and mechanical assembly and testing, as well as the management of new product transitions. While we use standard components and subassemblies wherever possible, most mechanical parts, metal fabrications and critical components used in our products are engineered and manufactured to our specifications. We continue to rely on subcontractors and turnkey suppliers to fabricate components, build assemblies and perform other non-core activities in a cost-effective manner.  As of December 31, 2018, we employed 94 manufacturing personnel.

We rely on a number of limited source suppliers for certain parts and subassemblies. This reliance creates a potential inability to obtain an adequate supply of required components, and reduced control over pricing and time of delivery of components. An inability to obtain adequate supplies would require us to seek alternative sources of supply or might require us to redesign our systems to accommodate different components or subassemblies. To date, we have not experienced any significant delivery delays. However, if we were forced to seek alternative sources of supply, manufacture such components or subassemblies internally, or redesign our products, this could prevent us from shipping our products to our customers on a timely basis, which could have a material adverse effect on our operations.

Intellectual Property

We have a policy of seeking patents on inventions governing new products or technologies as part of our ongoing research, development, and manufacturing activities. As of December 31, 2018, we have been granted, or hold exclusive licenses to, 276 U.S. and foreign patents. The patents we own, jointly own or exclusively license have expiration dates ranging from 2019 to 2036. We also have 56 pending regular and provisional applications in the U.S. and other countries. Our patents and applications principally cover various aspects of macro-defect detection and classification, transparent thin film measurement, altered material characterization, lithography techniques and automation.

We have been granted patent licenses by organizations such as Brown and the University of Colorado.  These licenses are subject to rights retained by these organizations and, where applicable the United States government, for their own non-commercial uses. These patents relate to opto-acoustic metrology technology that underlies our opaque film products such as the MetaPULSE product family. The terms of these licenses are equal to the lives of the patents. We pay royalties to Brown and the University of Colorado based upon a percentage of our revenue from the sale of systems that incorporate the licensed technology. We continue to work with Brown and the University of Colorado on the development of advancements in relevant technical areas. We also continue to pursue intellectual property protection, including exclusive licenses to this technology. Note that third party licensees may terminate a license if we fail to pay royalties or if we materially breach our license agreements with those third parties.

Our pending patents may never be issued, and even if they are, these patents, our existing patents and the patents we license may not provide sufficiently broad protection to protect our proprietary rights, or they may prove to be unenforceable. To protect our proprietary rights, we also rely on a combination of copyrights, trademarks, trade secret laws, contractual provisions and licenses. There can be no assurance that any patents issued to or licensed by us will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide us with a competitive advantage.

The laws of some foreign countries do not protect our proprietary rights to the same degree as do the laws of the United States, and many U.S. companies have encountered substantial infringement problems in protecting their proprietary rights against infringement in such countries, some of which are countries in which we have sold and continue to sell products. There is a risk that our means of protecting our proprietary rights may not be adequate. For example, our competitors may independently develop similar technology or duplicate our products. If we fail to adequately protect our intellectual property, it would be easier for our competitors to sell competing products.

Competition

The market for semiconductor capital equipment is highly competitive. We face substantial competition from established companies in each of the markets that we serve. We principally compete with KLA Corporation, Camtek and Veeco Instruments.  We compete to a lesser extent with companies such as Nanometrics, Nova Measuring Instruments and Nikon.  Each of our products also competes with products that use different metrology and inspection techniques. Some of our competitors have greater financial, engineering, manufacturing and marketing resources, broader product offerings and service capabilities and larger installed customer bases than we do.

11

Significant competitive factors in the market for inspection and metrology systems include system performance, ease of use, reliability, cost of ownership, technical support and customer relationships. We believe that, while price and delivery are important competitive factors, the customers’ overriding requirement is for a product that meets their technical capabilities. To remain competitive, we believe we will need to maintain a high level of investment in research and development and process applications. No assurances can be given that we will continue to be competitive in the future.

Backlog

We schedule production of our systems based upon order backlog and informal customer forecasts. We use the term “backlog” to refer to only those orders to which the customer has been assigned a purchase order number and for which delivery is anticipated within 12 months. Because shipment dates may be changed and customers may cancel or delay orders with little or no penalty, our backlog as of any particular date may not be a reliable indicator of actual sales for any succeeding period. At December 31, 2018, we had a backlog of approximately $62.7 million compared with a backlog of approximately $87.8 million at December 31, 2017.

Employees

As of December 31, 2018, we had 651 employees. Our employees are not represented by any collective bargaining agreements, and we have never experienced a work stoppage. We believe our employee relations are good.

Available Information

We were incorporated in Delaware in 1999. The Internet website address of Rudolph Technologies, Inc. is http://www.rudolphtech.com. The information on our website is not incorporated into this Annual Report. The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (and any amendments to those reports) are made available free of charge, on or through our Internet website, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. All filings we make with the SEC are also available free of charge via EDGAR through the SEC’s website at http://www.sec.gov.

We also make available, free of charge, through the investors page on our corporate website, Rudolph Technologies’ corporate summary, Code of Business Conduct and Ethics and Financial Code of Ethics, charters of the committees of our Board of Directors, as well as other information and materials, including information about how to contact our Board of Directors, its committees and their members. To find this information and obtain copies, visit our website at http://www.rudolphtech.com.

12

Item 1A. Risk Factors.

Risks Related to Rudolph

Our operating results have varied, and will likely continue to vary significantly from quarter to quarter in the future, causing volatility in our stock price.

Our quarterly operating results have varied in the past and will likely continue to vary significantly from quarter to quarter in the future, causing volatility in our stock price. 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 products of our customers and changes in our product offerings;

• seasonal variations in customer demand;

• the timing, cancellation or delay of customer orders, shipments and acceptance;

• a significant portion of our revenue may be derived from the sale of a relatively small number of systems; accordingly, a small change in the number of systems we sell may cause significant changes in our operating results;

• 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 light of these factors and the cyclical nature of the semiconductor industry, we expect to continue to experience significant fluctuations in quarterly and annual operating results. Moreover, many of our expenses are fixed in the short-term which, together with the need for continued investment in research and development, marketing and customer support, limits our ability to reduce expenses quickly. As a result, declines in net sales could harm our business and the price of our common stock could substantially decline.

Our largest customers account for a substantial portion of our revenue, and our revenue and cash flows could decline considerably if one or more of these customers were to purchase significantly fewer of our systems or delay or cancel a large order.

Sales to end user customers that individually represent at least five percent of our revenue typically account for, in the aggregate, a considerable amount of our revenue. We operate in the highly concentrated, capital-intensive semiconductor device manufacturing industry. Historically, a substantial portion of our revenue in each quarter and year has been derived from sales to relatively few customers, and this trend is expected to continue. If any of our key customers were to purchase significantly fewer of our systems in the future, or if they delay or cancel a large order, our revenue and cash flows could meaningfully decline. We expect that we will continue to depend on a small number of large customers for a sizable portion of our revenue. 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.

Our customers may be unable to pay us for our products and services.

Our customers include some companies that may, from time to time, encounter financial difficulties. If a customer’s financial difficulties become severe, the customer may be unwilling or unable to pay our invoices in the ordinary course of business, which could adversely affect collections of both our accounts receivable balance and unbilled services. The bankruptcy of a customer with a substantial account balance owed to us could have a material adverse effect on our financial condition and results of operations. In addition, if a customer declares bankruptcy after paying us certain invoices, a court may determine that we are not properly entitled to that payment and may require repayment of some or all of the amount we received, which could adversely affect our financial condition and results of operations.

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 cash flows, and consequently, our business, financial condition, operating results and cash flows to fluctuate widely from period to period. This variation could cause our

13

stock price to decline. Our customers generally take a long time to evaluate our inspection and/or 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, but not limited to:

• the efforts of our sales force;

• 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, inspection or lithography 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 and receive payment, 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 to the time we recognize revenue, typically range from six to twenty-four 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, the performance of which they then evaluate 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 the 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 further fluctuations in our operating results and, possibly, in our stock price.

Most of our revenue has been derived from customers outside of the United States, subjecting us to operational, financial and political risks, such as unexpected changes in regulatory requirements, tariffs, political and economic instability, outbreaks of hostilities, and difficulties in managing foreign sales representatives and foreign branch operations, as well as risks associated with foreign currency fluctuations.

Due to the significant level of our international sales, we are subject to a number of material risks, including:

Compliance with foreign laws. Our business is subject to risks inherent in doing business internationally, including compliance with, inconsistencies among, and unexpected changes in, a wide variety of foreign laws and regulatory environments with which we are not familiar, including, among other issues, with respect to employees, protection of our intellectual property, and a wide variety of operational regulations and trade and export controls under domestic, foreign, and international law.

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 embargoes, excise taxes, tariffs or other restrictions imposed by their governments on trade with United States companies such as ourselves, particularly with respect to the ongoing trade negotiations between the United States and China. If the United States and China do not reach agreement on a trade policy, tariffs imposed by China may result in lower sales to customers in China as the costs of our products become more expensive to such customers. In addition, tariffs imposed by the United States will increase the cost of raw materials that we import from China.  Any restrictions of these types could result in a reduction in our sales to customers in these countries.

Political and economic instability. We are subject to various global risks related to political and economic instabilities in countries in which we derive sales. If terrorist activities, armed conflict, civil or military unrest or political instability occurs outside of the U.S., these events may result in reduced demand for our products. 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 experienced significant economic instability. An outbreak of hostilities or other political upheaval in China, Taiwan or South Korea, or an economic downturn in Japan or other countries, would likely harm the operations of our customers in these countries. The effect of these types of events on our revenue and cash flows could be material because we derive substantial revenue from sales to semiconductor device foundries in Taiwan such as Taiwan Semiconductor Manufacturing Company Ltd., from memory chip manufacturers in South Korea such as Samsung Electronics Co., Ltd., and from semiconductor device manufacturers in Japan such as Toshiba Corporation.

14

Difficulties in staffing and managing foreign branch operations. During periods of tension between the governments of the United States and certain other countries, it is often difficult for United States companies such as ourselves to staff and manage operations in such countries. Language and other cultural differences may also inhibit our sales and marketing efforts and create internal communication problems among our U.S. and foreign research and development teams, increasing the difficulty of managing multiple remote locations performing various development, quality assurance, and yield ramp analysis projects.

Currency fluctuations as compared to the U.S. Dollar. A substantial portion of our international sales are denominated in U.S. dollars. As a result, if the dollar rises in value in relation to foreign currencies, our systems will become more expensive to customers outside the United States and less competitive with systems produced by competitors outside the United States. These conditions could negatively impact our international sales. Foreign sales also expose us to collection risk in the event it becomes more expensive for our foreign customers to convert their local currencies into U.S. dollars. Additionally, in the event a larger portion of our revenue becomes denominated in foreign currencies, we would be subject to a potentially significant exchange rate risk.

If we deliver systems with defects, our credibility will be harmed and the sales and market acceptance of our systems will decrease.

Our systems are complex and have occasionally contained errors, defects and bugs when introduced. Defects may be created during probing, bumping, dicing or general handling, and can have a major impact on device and process quality. When this occurs, our credibility and the market acceptance and sales of our systems could be harmed. Further, if our systems contain errors, defects or bugs, computer viruses or malicious code as a result of cyber-attacks to our computer networks, we may be required to expend significant capital and resources to alleviate these problems. Defects could also lead to product liability as a result of product liability lawsuits against us or against our customers. We have agreed to indemnify our customers under certain circumstances against liability arising from defects in our systems. Our product liability insurance policy currently provides $2.0 million of aggregate coverage, with an overall umbrella limit of $20.0 million. In the event of a successful product liability claim, we could be obligated to pay damages significantly in excess of our product liability insurance limits.

If we are not successful in developing new and enhanced products for the semiconductor device manufacturing industry, we will lose sales and market share to our competitors.

We operate in an industry that is highly competitive and 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 lithography, inspection and metrology process control 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 expect to continue to make significant investments in our research and development activities. We may experience difficulties or delays in our development efforts with respect to new systems, and we may not ultimately be successful in our product enhancement efforts to improve and advance products or in responding effectively to technological change, as not all research and development activities result in viable commercial products. In addition, we cannot provide assurance that we will be able to develop new products for the most opportunistic new markets and applications. Any significant delay in releasing new systems could cause our products to become obsolete, adversely affect our reputation, give a competitor a first-to-market advantage or cause a competitor to achieve greater market share.

If new products developed by us do not gain general market acceptance, we will be unable to generate revenue and recover our research and development costs.

Inspection, lithography and 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 system design flaws. Further, our products are complex and often the applications to our customers’ businesses are unique. Any new systems we introduce may not achieve or sustain a significant degree of market acceptance and sales.

We expect to spend a significant amount of time and resources developing new systems and refining our 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 those systems. Our ability to commercially introduce and successfully market new systems are subject to a wide variety of challenges during the 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

15

that are placed may be canceled. As a result, if we do not achieve market acceptance of new products, we may be unable to generate sufficient revenue and cash flow to recover our research and development costs and our market share, revenue, operating results or stock price would be negatively impacted.

Even if we are able to develop new products that gain market acceptance, sales of these new products could impair our ability to sell existing products.

Competition from our new systems could have a negative effect on sales of our existing systems and the prices that we could charge for these systems. We may also divert sales and marketing resources from our current systems in order to successfully launch and promote our new or next generation systems. This diversion of resources could have a further negative effect on sales of our current systems and the value of inventory.

If our relationships with our large customers deteriorate, our product development activities could be adversely affected.

The success of our product development efforts depends on our ability to anticipate market trends and the price, performance and functionality requirements of semiconductor device manufacturers. In order to anticipate these trends and ensure that critical development projects proceed in a coordinated manner, we must continue to collaborate closely with our largest customers. Our relationships with these and other customers provide us with access to valuable information regarding trends in the semiconductor device industry, which enables us to better plan our product development activities. If our current relationships with our large customers are impaired, or if we are unable to develop similar collaborative relationships with important customers in the future, our product development activities could be adversely affected.

Our ability to reduce costs is limited by our ongoing need to invest in research and development and to provide customer support activities.

Our industry is characterized by the need for continual investment in research and development as well as customer service and support. As a result, our operating results could be materially affected if operating costs associated with our research and development as well as customer support activities increase in the future or we are unable to reduce those activities.

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 and trade secret law and confidentiality agreements to protect that technology. If we fail to adequately protect our intellectual property, it will give our competitors a significant advantage. We own or have licensed a number of patents relating to our transparent and opaque thin film metrology, lithography and macro-defect inspection systems, and have filed applications for additional patents.  Any of our pending patent applications may be rejected, and we may be unable to develop additional proprietary technology that is patentable in the future.

In addition, the patents that 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. Further, 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 and other third parties. Even though these agreements are in place, there can be no assurances that trade secrets and proprietary information will not be disclosed, that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets, or that we can fully protect our trade secrets and proprietary information. Violations by others of our confidentiality agreements and the loss of employees who have specialized knowledge and expertise could harm our competitive position and cause our sales and operating results to decline as a result of increased competition. Costly and time-consuming litigation might be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection might adversely affect our ability to continue our research or bring products to market.

16

Protection of our intellectual property rights, or the efforts of third parties to enforce their own intellectual property rights against us, may result in costly and time-consuming litigation, substantial damages, lost product sales and/or the loss of important intellectual property rights.

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. Any litigation, regardless of outcome, could be expensive and time consuming and could subject us to significant liabilities or require us to re-engineer our products or obtain expensive licenses from third parties. There can be no assurance that any patents issued to or licensed by us will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide us with a competitive advantage.

In addition, 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, on 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 revenue. 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 a license may not be available on commercially reasonable terms. Accordingly, the loss of important intellectual property rights could hinder our ability to sell our systems or to make the sale of these systems more expensive.

Our efforts to protect our intellectual property may be less effective in certain foreign countries where intellectual property rights are not as well protected as in the United States.

The laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States, and many U.S. companies have encountered substantial problems in protecting their proprietary rights against infringement abroad. For example, Taiwan is not a signatory of the Patent Cooperation Treaty, which is designed to specify rules and methods for defending intellectual property internationally. The publication of a patent in Taiwan prior to the filing of a patent in Taiwan would invalidate the ability of a company to obtain a patent in Taiwan. Similarly, in contrast to the United States where the contents of patents remain confidential during the patent application process, in Taiwan, the contents of a patent are published upon filing, which provides competitors an advance view of the contents of a patent application prior to the establishment of patent rights. Consequently, there is a risk that we may be unable to adequately protect our proprietary rights in certain foreign countries. If this occurs, it would be easier for our competitors to develop and sell competing products in these countries.

Some of 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.

The market for semiconductor capital equipment is highly competitive. We face substantial competition from established companies in each of the markets we serve. We principally compete with KLA Corporation, Camtek and Veeco Instruments. We compete to a lesser extent with companies such as Nanometrics, Nova Measuring Instruments and Nikon. Each of our products also competes with products that use different metrology, inspection or lithography techniques. Some of our competitors have greater financial, engineering, manufacturing and marketing resources, broader product offerings and service capabilities and larger installed customer bases than we do. As a result, these 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, in turn, could impair sales of our products. Further, there may be significant merger and acquisition activity among our competitors and potential competitors, which, in turn, 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. We believe that our global support and service infrastructure is sufficient to meet the needs of our customers and potential customers. However, some of our 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 our systems. 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

17

introduce new products with competitive prices and performance characteristics. These product introductions would likely require us to decrease the prices of our systems and increase the level of discounts that we grant our customers. Price reductions or lost sales as a result of these competitive pressures would reduce our total revenue and could adversely impact our financial results.

Because of the high cost of switching equipment vendors in our markets, it is sometimes difficult for us to win new customers from our competitors even if our systems are superior to theirs.

We believe that once a semiconductor device manufacturer has selected one vendor’s capital equipment for a production-line application, the manufacturer generally relies upon that capital equipment and, to the extent possible, subsequent generations of the same vendor’s equipment for the life of the application. Once a vendor’s equipment has been installed in a production line application, a semiconductor device manufacturer must often make substantial technical modifications and may experience production-line downtime in order to switch to another vendor’s equipment. Accordingly, unless our systems offer performance or cost advantages that outweigh a customer’s expense of switching to our systems, it will be difficult for us to achieve significant sales to that manufacturer once it has selected another vendor’s capital equipment for an application.

We must attract and retain experienced senior executives and other key personnel with knowledge of semiconductor device manufacturing and inspection, metrology or lithography equipment and related software 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 executive management, engineering, sales and marketing, customer support, finance and manufacturing personnel. The loss of any of these key personnel through resignations, retirement or other circumstances, each of whom would be extremely difficult to replace, could harm our business and operating results. Although we have employment and noncompetition agreements with key members of our senior management team, these individuals or other key employees may still leave us, which could have a material adverse effect on our business. 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.

We obtain some of the components and subassemblies included in our systems from 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.

We obtain some of the components and subassemblies included in our systems from a limited group of suppliers and do not have long-term contracts with many of our suppliers. Our dependence on limited source suppliers of components and our lack of long-term contracts with many of our suppliers expose 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 six months. In addition, the lead time required to qualify new suppliers for lasers and certain optics 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 could seriously harm our results of operations and cash flows.

Any prolonged disruption in the operations of our manufacturing facility could have a material adverse effect on our revenue.

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, or destruction, 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 results from operations and cash flows could be materially and adversely affected.

18

Our business is subject to cybersecurity risks.

Information technology systems are increasingly threatened by cybersecurity risks and cyber incidents or attacks. Cybersecurity attacks could include, but are not limited to, malicious software, viruses, attempts to gain unauthorized access, whether through malfeasance or error, either from within or outside of our organization, to our data or that of our customers or our customers’ customers which may be in our possession, and the unauthorized release, corruption or loss of the data, loss of the intellectual property, theft of the proprietary or licensed technology, whether ours, that of our customers or their customers, loss or damage to our data delivery systems, other electronic security breaches that could lead to disruptions in our critical systems, and increased costs to prevent, respond to or mitigate cybersecurity events. It is possible that our business, financial and other systems could be compromised, which might not be noticed for some period of time. Although we utilize various procedures and controls to mitigate our exposure to such risk, cybersecurity attacks are evolving and unpredictable and we cannot guarantee that any risk prevention measures implemented will be successful. The occurrence of such an attack could lead to financial losses and have a material adverse effect on our reputation, business, financial condition and results of operations.

Failure to adjust our orders for parts and subcomponents in an accurate and timely manner in response to changing market conditions or customer acceptance of our products could adversely affect our financial position and results of operations.

Our earnings could be negatively affected and our inventory levels could materially increase if we are unable to predict our inventory needs in an accurate and timely manner and adjust our orders for parts and subcomponents in the event that our needs increase or decrease materially due to unexpected increases or decreases in demand for our products. Any material increase in our inventories could result in an adverse effect on our financial position, while any material decrease in our ability to procure needed inventories could result in an inability to supply customer demand for our products, thus adversely affecting our revenue.

Our ability to fulfill our backlog may have an effect on our long term ability to procure contracts and fulfill current contracts.

Our ability to fulfill our backlog may be limited by our ability to devote sufficient financial and human capital resources and may be limited by available material supplies. If we do not fulfill our backlog in a timely manner, we may experience delays in product delivery, which would postpone receipt of revenue from those delayed deliveries. Additionally, if we are consistently unable to fulfill our backlog, this may be a disincentive to customers to award large contracts to us in the future until they are comfortable that we can effectively manage our backlog.

We may choose to acquire new and complementary businesses, products or technologies instead of developing them ourselves, and we may be unable to complete these acquisitions or may not be able to successfully integrate an acquired business in a cost-effective and non-disruptive manner.

Our success depends on our ability to continually enhance and broaden our product offerings in response to changing technologies, customer demands and competitive pressures. To this end, we have, from time to time, engaged in the process of identifying, analyzing and negotiating possible acquisition transactions, and, from time to time, acquiring one or more businesses, and we expect to continue to do so in the future. We may choose to acquire new and complementary businesses, products, technologies and/or services instead of developing them ourselves. We may, however, face competition for acquisition targets from larger and more established companies with greater financial resources, making it more difficult for us to complete acquisitions. We cannot provide any assurance that we will be successful in consummating future acquisitions on favorable terms or that we will realize the benefits that we anticipate from one or more acquisitions that we consummate. Integrating any business, product, technology or service into our current operations could be expensive and time-consuming and/or disrupt our ongoing business. Further, there are numerous risks associated with acquisitions and potential acquisitions, including, but not limited to:

• diversion of management’s attention from day-to-day operational matters and current products and customers;

• lack of synergy or the inability to successfully integrate the new business or to realize expected synergies;

• failure to commercialize the new technology or business;

• failure to meet the expected performance of the new technology or business;

• failure to retain key employees and customer or supplier relationships;

19

• lower-than-expected market opportunities or market acceptance of any new products; and

• unexpected reduction of sales of existing products as a result of the introduction of new products.

Our inability to consummate one or more acquisitions on favorable terms, or our failure to realize the intended benefits from one or more acquisitions, could have a material adverse effect on our business, liquidity, financial position and/or results of operations, including as a result of our incurrence of indebtedness and related interest expense and our assumption of unforeseen contingent liabilities. We might need to raise additional funds through public or private equity or debt financings to finance any acquisition. In that event, we could be forced to obtain financing on terms that are not favorable to us and, in the case of equity financing, that result in dilution to our stockholders. In addition, any impairment of goodwill or other intangible assets, amortization of intangible assets, write-down of other assets or charges resulting from the costs of acquisitions and purchase accounting could harm our business and operating results.

If we cannot effectively manage growth, our business may suffer.

Over the long-term, we intend to grow our business by increasing our sales efforts and completing strategic acquisitions. To effectively manage growth, we must, among other things:

• engage, train and manage a larger sales force and additional service personnel;

• expand the geographic coverage of our sales force;

• expand our information systems;

• identify and successfully integrate acquired businesses into our operations; and

• administer appropriate financial and administrative control procedures.

Growth of our business will likely place a significant strain on our management, financial, operational, technical, sales and administrative resources. Any failure to effectively manage our growth may cause our business to suffer and our stock price to decline.

Changes in tax rates or tax liabilities could affect results.

As a global company, we are subject to taxation in the United States and various other countries. Significant judgment is required to determine and estimate worldwide tax liabilities. Our future annual and quarterly tax rates could be affected by numerous factors, including changes in the (1) applicable tax laws; (2) composition of earnings in countries with differing tax rates; or (3) recoverability of our deferred tax assets and liabilities.  In addition, we are subject to regular examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be materially different from the treatment reflected in our historical income tax provisions and accruals, which could materially and adversely affect our results of operations.

The Organization for Economic Co-operation and Development (“OECD”), released guidance covering various topics, including country-by-country reporting, definitional changes to permanent establishment and Base Erosion and Profit Shifting (“BEPS”), an initiative that aims to standardize and modernize global tax policy. Depending on the final form of guidance adopted by OECD members and legislation ultimately enacted, if any, there may be significant consequences for us due to our international business activities.

Turmoil or fluctuations in the credit markets and the financial services industry may negatively impact our business, results of operations, financial condition or liquidity.

In the past, global credit markets and the financial services industry have experienced a period of unprecedented turmoil and upheaval characterized by the tightening of the credit markets, the weakening of the global economy and an unprecedented level of intervention from the United States and other governments. Adverse economic conditions, such as sustained periods of economic uncertainty or a crisis in the financial markets may have a material adverse effect on our liquidity and financial condition if our ability to obtain credit from the capital financial markets, or from trade creditors was impaired. In addition, a worsening economy or an economic crisis could also adversely impact our customers’ ability to

20

finance the purchase of systems from us or our suppliers’ ability to provide us with product, either of which may negatively impact our business and results of operations.

Risks Related to the Semiconductor Industry

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 are subject to significant variation due to the cyclical nature of the semiconductor device industry. 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 timing, length and severity of the up-and-down cycles in the semiconductor equipment industry are difficult to predict. In recent years, the industry has experienced significant downturns, generally in connection with declines in economic conditions. This cyclical nature of the industry in which we operate affects our ability to accurately predict future revenue and, thus, future expense levels. When cyclical fluctuations result in lower than expected revenue levels, operating results may be adversely affected and cost reduction measures may be necessary in order for us to remain competitive and financially sound. During a down cycle, we must be in a position to adjust our cost and expense structure to prevailing market conditions and to continue to motivate and retain our key employees. In addition, during periods of rapid growth, we must be able to increase manufacturing capacity and personnel to meet customer demand. We can provide no assurance that these objectives can be met in a timely manner in response to industry cycles. If we fail to respond to industry cycles, our business could be seriously harmed.

Our future rate of growth is highly dependent on the development and growth of the market for microelectronic device inspection, lithography and metrology equipment.

We target our products to address the needs of microelectronic device manufacturers for defect inspection, metrology and lithography.  If for any reason the market for microelectronic device inspection, lithography or metrology equipment fails to grow in the long term, we may be unable to maintain current revenue levels in the short term and maintain our historical growth in the long term. Growth in the inspection market is dependent to a large extent upon microelectronic manufacturers replacing manual inspection with automated inspection technology. Growth in the metrology market is dependent to a large extent upon new chip designs and capacity expansion of microelectronic manufacturers. Growth in the lithography market is dependent on the development of cost-effective packaging with high fine pitch RDLs, ultimately migrating to multi-die, large, form-factor packages. There can be no assurance that manufacturers will undertake these actions at the rate we expect.

Risks Related to our Stock

Provisions of our charter documents and of Delaware law could discourage potential acquisition proposals and/or delay, deter or prevent a change in control of our company.

Provisions of our certificate of incorporation and by-laws may inhibit changes in control of our company not approved by our Board of Directors. These provisions also limit the circumstances in which a premium can be paid for our common stock and in which a proxy contest for control of our board may be initiated. These provisions provide for:

• a prohibition on stockholder actions through written consent;

• a requirement that special meetings of stockholders be called only by our chief executive officer or Board of Directors;

• advance notice requirements for stockholder proposals and director nominations by stockholders;

• limitations on the ability of stockholders to amend, alter or repeal our by-laws; and

• the authority of our board to issue, without stockholder approval, preferred stock with such terms as the board may determine; and

• The authority of our board, without stockholder approval, to adopt a stockholder rights plan.

We are also entitled to avail ourselves of the protections of Section 203 of the Delaware General Corporation Law, which could inhibit changes in control of the Company.

21

Our stock price is volatile.

The market price of our common stock has fluctuated widely. From the beginning of 2014 through the end of 2018, our stock price fluctuated between a high of $34.55 per share and a low of $8.10 per share. Consequently, the current market price of our common stock may not be indicative of future market prices, and we may be unable to sustain or increase the value of an investment in our common stock. Factors affecting our stock price may include:

• variations in operating results from quarter to quarter;

• changes in earnings estimates by analysts or our failure to meet analysts’ expectations;

• changes in the market price per share of our public company customers;

• market conditions in the semiconductor and other industries into which we sell products;

• general economic conditions;

• political changes, hostilities or natural disasters such as hurricanes and floods;

• low trading volume of our common stock; and

• the number of firms making a market in our common stock.

In addition, the stock market has experienced periods of significant price and volume fluctuations. These fluctuations have particularly affected the market prices of the securities of high technology companies like ours. Any such market fluctuations in the future could adversely affect the market price of our common stock.

There are various risks related to the legal and regulatory environments in which we perform our operations and conduct our business that may expose us to risk.

We are faced with various risks that may be associated with our compliance with existing, new, different, inconsistent or conflicting laws, regulations and rules enacted by governments and/or their regulatory agencies in the countries in which we operate as well as rules and policies implemented at our customer sites. These laws, regulations, rules and policies could relate to any of an array of issues including, but not limited to, environmental, tax, intellectual property, trade secrets, product liability, contracts, antitrust, employment, securities, import/export and unfair competition. In the event that we fail to comply with or violate U.S. or foreign laws or regulations or customer policies, we could be subject to civil or criminal claims or proceedings that may result in monetary fines, penalties or other costs against us or our employees, which may adversely affect our operating results, financial condition, customer relations and ability to conduct our business.

Item 1B. Unresolved Staff Comments.

None.

22

Item 2. Properties.

Our principal executive office building is located at 16 Jonspin Road in Wilmington, Massachusetts.  We own and lease facilities for corporate, engineering, manufacturing, sales and service related purposes in the United States and six other countries - China, Japan, South Korea, Singapore, Taiwan and Scotland. The following table indicates the location, the general purpose and the square footage of our principal facilities. The expiration years of the leases covering the leased facilities are also indicated.

Location	Facility Purpose	Approximate Square Footage		Lease Expiration Year, Unless Owned
Wilmington, Massachusetts	Corporate, Engineering, Manufacturing and Service		50,000	2027
Budd Lake, New Jersey	Corporate, Engineering and Service		49,000	2023
Bloomington, Minnesota	Engineering, Manufacturing and Service		98,500	2029
Richardson, Texas	Engineering		21,000	Owned
Bohemia, New York	Engineering		6,000	2019
Snoqualmie, Washington	Engineering and Service		20,500	2020
Tianjin, China	Engineering		5,000	2019
Hsin-Chu, Taiwan	Sales and Service		10,500	2019
Takatsu, Japan	Sales and Service		4,000	2019
Sungnam-si, South Korea	Sales and Service		9,000	2021
Shanghai, China	Sales and Service		2,500	2020
Singapore	Sales and Service		2,500	2019
Scotland, United Kingdom	Sales and Service		1,000	2020

We also lease office space for other smaller sales and service offices in several locations throughout the world.

We believe that our existing facilities and capital equipment are adequate to meet our current requirements and that suitable additional or substitute space is available on commercially reasonable terms if needed.

Item 3. Legal Proceedings.

From time to time, we are subject to ordinary routine litigation incidental to our business. As of December 31, 2018, there are no legal proceedings pending or threatened against us that management believes are likely to have a material adverse effect on our consolidated financial position or otherwise.

Item 4. Mine Safety Disclosures.

None.

23

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “RTEC.” Set forth below is a line graph comparing the annual percentage change in the cumulative return to the stockholders of the Company’s common stock with the cumulative return of the NYSE Composite Index and the Research Data Group (“RDG”) Semiconductor Composite Index for the period commencing on December 31, 2013 and ending on December 31, 2018.

The information contained in the performance graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.

The graph assumes that $100 was invested on December 31, 2013 in the Company’s common stock in each index, and that all dividends were reinvested. No cash dividends have been declared or paid on the Company’s common stock. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns.

	12/13		12/14		12/15		12/16		12/17		12/18
RTEC		100.0		87.1		121.1		198.9		203.6		174.4
NYSE Composite		100.0		106.8		102.4		114.6		136.1		123.9
RDG Semiconductor Composite		100.0		128.3		118.0		157.4		217.0		197.0

24

As of January 23, 2019, there were 56 stockholders of record of our common stock and approximately 8,482 beneficial stockholders.

We have never declared or paid a cash dividend on our common stock and currently do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain our earnings, if any, for the development of our business and the share repurchase of our common stock.  The declaration of any future dividends by us is within the discretion of our Board of Directors and will be dependent on our earnings, financial condition and capital requirements as well as any other factors deemed relevant by our Board of Directors.

In October 2018, the Board of Directors approved a new share repurchase authorization, which allows us to repurchase up to $40 million worth of shares of our common stock.  The authorization provides for repurchases to be made in the open market or through negotiated transactions from time to time.  The share repurchase authorization has no expiration date and may be discontinued at any time. In addition, during the fourth quarter of 2018, we completed the purchase of the remaining shares available under the prior 3.0 million share repurchase authorization.  During the twelve months ended December 31, 2018, we repurchased 1.1 million shares of common stock under our two share repurchase authorizations and those shares were subsequently retired.  At December 31, 2018, there were $33.2 million available for future share repurchases.  For further information, see Note 16 in the accompanying Notes to the Consolidated Financial Statements.

In addition to the our share repurchase program, we withhold common stock shares associated with net share settlements to cover tax withholding obligations upon the vesting of restricted stock unit awards and stock option exercises under the Company’s equity incentive program. During the three and twelve months ended December 31, 2018, we withheld 45.5 thousand and 81.8 thousand shares through net share settlements, respectively.  For the three and twelve month periods ended December 31, 2018, net share settlements cost $0.9 million and $1.9 million, respectively. Please refer to Note 10 of the Notes to Consolidated Financial Statements for further discussion regarding our equity incentive plan.

The following table provides details of common stock purchased during the three month period ended December 31, 2018 (in thousands, except per share data):

Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program		Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
October 1, 2018 to October 31, 2018		710	$	20.12		709	$	40,000
November 1, 2018 to November 30, 2018		126	$	20.12		82	$	38,380
December 1, 2018 to December 31, 2018		269	$	19.16		268	$	33,239
Three Months Ended December 31, 2018		1,105				1,059
1  Includes shares withheld through net share settlements.

25

Item 6. Selected Financial Data.

The following selected financial data should be read in conjunction with our Consolidated Financial Statements and the related Notes thereto appearing elsewhere in this Annual Report on Form 10-K, and under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The balance sheet data as of December 31, 2018 and 2017 and the statement of operations data for the years ended December 31, 2018, 2017 and 2016 set forth below were derived from our audited consolidated financial statements included elsewhere in this Form 10-K. The balance sheet data as of 2016, 2015 and 2014, and the statement of operations data for the years ended December 31, 2015 and 2014 were derived from our audited consolidated financial statements not included herein.

	Year Ended December 31,
	2018			2017			2016			2015		2014
	(In thousands, except per share data)
Statement of Operations Data:
Revenue	$	273,784		$	255,098		$	232,780		$	221,690	$	181,218
Cost of revenue		125,505			120,503			109,229			102,284		85,730
Gross profit		148,279			134,595			123,551			119,406		95,488
Operating expenses:
Research and development		49,053			46,986			44,964			41,233		40,576
Selling, general and administrative		46,608			39,381			38,562			43,235		53,799
Amortization		1,534			1,940			2,320			2,145		2,422
Patent litigation income		—			(13,000	)		(14,643	)		—		—
Total operating expenses		97,195			75,307			71,203			86,613		96,797
Operating income (loss)		51,084			59,288			52,348			32,793		(1,309	)
Interest (income) expense, net		(2,206	)		(971	)		2,834			5,688		5,317
Other (income) expense, net		(56	)		457			(354	)		293		65
Income (loss) before provision (benefit) for income    taxes		53,346			59,802			49,868			26,812		(6,691	)
Provision (benefit) for income taxes		8,250			26,893			12,916			8,856		(2,051	)
Net income (loss)	$	45,096		$	32,909		$	36,952		$	17,956	$	(4,640	)
Earnings (loss) per share:
Basic	$	1.42		$	1.05		$	1.19		$	0.57	$	(0.14	)
Diluted	$	1.40		$	1.02		$	1.16		$	0.56	$	(0.14	)
Weighted average shares outstanding:
Basic		31,671			31,491			31,128			31,408		33,124
Diluted		32,200			32,162			31,790			32,166		33,124

	December 31,
	2018			2017			2016			2015 (1)			2014 (1)(2)(3)
Balance Sheet Data:
Cash and cash equivalents	$	112,388		$	67,770		$	37,859		$	44,554		$	43,114
Marketable securities		62,684			109,589			87,872			116,924			113,871
Working capital		305,916			279,775			226,668			197,266			245,707
Total assets		418,040			385,922			338,699			379,563			365,944
Convertible senior notes		—			—			—			57,846			54,080
Accumulated deficit		(6,773	)		(51,869	)		(84,706	)		(121,658	)		(139,614	)
Total stockholders’ equity		361,888			333,154			293,735			270,678			267,328

(1) Effective in the first quarter of 2016, the Company adopted Accounting Standards Update (ASU) No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs,” which requires entities to present debt issuance costs related to a debt liability as a direct deduction from the carrying amount of that debt liability on the balance sheet as opposed to being presented as a deferred charge.  Prior to adoption, the Company reported the unamortized debt issuance costs in “Other Assets” on the Consolidated Balance Sheets.

26

(2) Effective December 31, 2015, we early adopted provisions prescribed by the Financial Account Standards Board (FASB) in ASU No. 2015-17, “Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes.”  Consequently, we reclassified net current deferred income tax assets to net long term deferred income tax assets for each period presented.

(3) Working capital data for 2014 reflects reclassifications of a portion of deferred revenue to other non-current liabilities.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

We are a worldwide leader in the design, development, manufacture and support of process control tools that perform macro-defect inspections and metrology, lithography systems, and process control analytical software used by semiconductor and advanced packaging device manufacturers. We deliver comprehensive solutions throughout the semiconductor fabrication process with our families of proprietary products that provide critical yield-enhancing information, enabling microelectronic device manufacturers to drive down costs and time to market of their devices. We provide process and yield management solutions used in both wafer processing facilities, often referred to as “front-end” and device packaging and test facilities, or “back-end” manufacturing, through a portfolio of standalone systems for macro-defect inspection, lithography, probe card test and analysis, and transparent and opaque thin film measurements. All of our systems feature sophisticated software and production-worthy automation. In addition, our advanced process control software portfolio includes powerful solutions for standalone tools, groups of tools, or factory-wide suites to enhance productivity and achieve significant cost savings. Our systems are backed by worldwide customer service and applications support.

Our business is affected by the annual spending patterns of our customers on semiconductor capital equipment. The amount that our customers devote to capital equipment spending depends on a number of factors, including general worldwide economic conditions as well as other economic drivers such as personal computers, mobile devices, data centers, artificial intelligence and automotive sales. Current forecasts by industry analysts for the semiconductor device manufacturing industry project capital equipment spending to be down approximately 15%-18% for 2019 as compared to 2018. Our revenue and profitability tend to follow the trends of certain segments within the semiconductor market.

Historically, a significant portion of our revenue in each quarter and year has been derived from sales to relatively few customers, and we expect this trend to continue. For the years ended December 31, 2018, 2017 and 2016, aggregate sales to customers that individually represented at least five percent of our revenue accounted for 18.3%, 27.2%, and 34.5% of our revenue, respectively.

We do not have purchase contracts with any of our customers that obligate them to continue to purchase our products, and they could cease purchasing products from us at any time. A delay in purchase or cancellation by any of our large customers could cause quarterly revenue to vary significantly. In addition, during a given quarter, a significant portion of our revenue may be derived from the sale of a relatively small number of systems. The following table presents the average selling price range for our systems in 2018.

System	Average Selling Price Per System
Process control	$250,000 to $2.6 million
Lithography steppers	$2.6 million to $8.5 million

A significant portion of our revenue is derived from customers outside of the United States.  A substantial portion of our international sales are denominated in U.S dollars.  We expect that revenue generated from customers outside of the United States will continue to account for a significant percentage of our revenue.

The sales cycle for our systems typically ranges from six to twenty-four months and can be longer when our customers are evaluating new technology. Due to the length of these cycles, we invest significantly in research and development and sales and marketing in advance of generating revenue related to these investments.

27

Results of Operations

The following table sets forth, for the periods indicated, our results of operations as percentages of our revenue. Our results of operations are reported as one business segment.

	Year Ended December 31,
	2018			2017			2016
Revenue		100.0	%		100.0	%		100.0	%
Cost of revenue		45.8	%		47.2	%		46.9	%
Gross profit		54.2	%		52.8	%		53.1	%
Operating expenses:
Research and development		17.9	%		18.4	%		19.3	%
Selling, general and administrative		17.0	%		15.4	%		16.6	%
Amortization		0.6	%		0.8	%		1.0	%
Patent litigation income		—	%		(5.1	)%		(6.3	)%
Total operating expenses		35.5	%		29.5	%		30.6	%
Operating income		18.7	%		23.3	%		22.5	%
Interest (income) expense, net		(0.8	)%		(0.4	)%		1.2	%
Other expense (income), net		—	%		0.2	%		(0.2	)%
Income before provision for income taxes		19.5	%		23.5	%		21.5	%
Provision for income taxes		3.0	%		10.6	%		5.6	%
Net income		16.5	%		12.9	%		15.9	%

Results of Operations for 2018, 2017 and 2016

Revenue. Our revenue is derived from the sale of our systems, services, spare parts and software licensing. Our revenue was $273.8 million, $255.1 million and $232.8 million for the years ended December 31, 2018, 2017 and 2016, respectively. This represents an increase of 7.3% from 2017 to 2018 and an increase of 9.6% from 2016 to 2017.  The increase in revenue from 2017 to 2018 was due to an increase in capital spending by front-end memory manufacturers.  The increase in revenue from 2016 to 2017 was due to a significant increase in capital spending by front-end memory manufacturers, as well as continued strength in capital spending by back-end foundry and Advanced Packaging customers in the OSAT markets.

The following table lists, for the periods indicated, the different sources of our revenue in dollars (thousands) and as percentages of our total revenue:

	Year Ended December 31,
	2018				2017				2016
Systems and Software:
Process control	$	190,098	70	%	$	177,177	70	%	$	146,652	63	%
Lithography		14,975	5	%		14,234	5	%		18,949	8	%
Software licensing, support and maintenance		29,168	11	%		25,473	10	%		29,795	13	%
Parts		28,658	10	%		27,143	11	%		25,343	11	%
Services		10,885	4	%		11,071	4	%		12,041	5	%
Total revenue	$	273,784	100	%	$	255,098	100	%	$	232,780	100	%

Total systems and software revenue increased for the year ended December 31, 2018 as compared to the year ended December 31, 2017 due to increased demand for our products in front-end process control systems. The year-over-year increases in process control systems revenue totaled $12.9 million, primarily due to higher metrology system sales in the 2018 period.  Lithography system revenue increased $0.7 million, primarily due to the shipment of a JetStep G system offset by lower shipments of our JetStep W systems in 2018.  Licensing revenue from software increased $3.7 million primarily due to an increase in revenue from our process control and yield management software. The average selling price of similarly configured systems has been consistent and, therefore, did not have a material impact on our revenue for the same period.  Systems revenue generated by our latest product releases and major enhancements in each of our product families amounted to 74% of total revenue for 2018 compared to 70% of total revenue for 2017.  The year-over-year increase in parts and services revenue in absolute dollars from 2017 to 2018 was primarily due to increased spending by our customers on repairs of existing systems.  Parts and services revenue is generated from part sales, maintenance service contracts, system upgrades, as well as time and material billable service calls.

28

Total systems and software revenue increased for the year ended December 31, 2017 as compared to the year ended December 31, 2016 due to increased demand for our products in both front-end and back-end process control systems. The year-over-year increases in process control systems revenue totaled $30.5 million, which was partially offset by decreases in lithography systems and software revenue of $4.7 million and $4.3 million, respectively.  The increase in systems revenue was attributed to a greater number of process control units sold, which was partially offset by fewer lithography units sold.  Licensing revenue from software decreased $4.3 million primarily due to a decrease in revenue from our process control software. The average selling price of similarly configured systems has been consistent and, therefore, did not have a material impact on our revenue for the same period.  Systems revenue generated by our latest product releases and major enhancements in each of our product families amounted to 70% of total revenue for 2017 compared to 72% of total revenue for 2016.  The year-over-year increase in parts and services revenue in absolute dollars from 2016 to 2017 was primarily due to increased spending by our customers on repairs of existing systems.  Parts and services revenue is generated from part sales, maintenance service contracts, system upgrades, as well as time and material billable service calls.  

Deferred revenue of $6.8 million was recorded in the Consolidated Balance Sheets under the Caption “Current liabilities” and $1.3 million was recorded under the caption “Other non-current liabilities” at December 31, 2018.  Deferred revenue primarily consisted of $5.6 million for deferred maintenance agreements and $2.5 million for outstanding deliverables.  At December 31, 2017, deferred revenue of $6.2 million was recorded under the caption “Current liabilities” and $1.0 million was recorded under the caption “Other non-current liabilities”.  Deferred maintenance agreements of $4.7 million and outstanding deliverables of $2.5 million were the two main components of deferred revenue at December 31, 2017.

Gross Profit. Our gross profit has been and will continue to be affected by a variety of factors, including  manufacturing efficiencies, provision for excess and obsolete inventory, pricing by competitors or suppliers, new product introductions, production volume, customization and reconfiguration of systems, international and domestic sales mix, system and software product mix, and parts and services margins. Our gross profit was $148.3 million, $134.6 million and $123.6 million for the years ended December 31, 2018, 2017 and 2016, respectively.  Our gross profit represented 54.2%, 52.8% and 53.1% for the years ended December 31, 2018, 2017 and 2016, respectively.  The increase in gross profit as a percentage of revenue from 2017 to 2018 was primarily due to a change in our systems and software product sales mix and the sale of a lithography system that had previously been partially written down.  The decrease in gross profit as a percentage of revenue from 2016 to 2017 was primarily due to a change in our systems and software product sales mix.  

Operating Expenses

Our operating expenses consist of:

• Research and Development. The process control defect inspection and metrology, advanced packaging lithography, and data analysis systems and software market is characterized by continuous technological development and product innovations. We believe that the rapid and ongoing development of new products and enhancements of existing products, including the transition to copper and low-k dielectrics, wafer level packaging, the continuous shrinkage in critical dimensions, and the evolution of ultra-thin gate process control is critical to our success. Accordingly, we devote a significant portion of our technical, management and financial resources to research and development programs. 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, the cost of related supplies and legal costs to defend our patents. Our research and development expenses were $49.1 million, $47.0 million and $45.0 million in 2018, 2017 and 2016, respectively.  The year-over-year dollar increase from 2017 to 2018 was primarily due to increased compensation and development initiatives. These costs were partially offset by decreased litigation expenses.  The year-over-year dollar increase from 2016 to 2017 was primarily due to increased compensation and project costs.  We continue to maintain our commitment to investing in new product development and enhancement to existing products.

• Selling, General and Administrative. Selling, general and administrative expenses are primarily comprised of salaries and related costs for sales, marketing, and general administrative personnel, as well as commissions and other non-personnel related expenses. Our selling, general and administrative expenses were $46.6 million, $39.4 million and $38.6 million in 2018, 2017 and 2016, respectively.  The year-over-year dollar increase from 2017 to 2018 was primarily due to compensation costs resulting from headcount and salary increases.  In addition, the year-over-year increase was partially due to an increase in sales commissions and a loss recorded for the misappropriation of payroll taxes by a third party accountant.  The year-over-year dollar increase from 2016 to 2017 was primarily due to an increase in compensation costs.

29

• Amortization of Identifiable Intangible Assets.  Amortization of identifiable intangible assets was $1.5 million, $1.9 million and $2.3 million in 2018, 2017 and 2016, respectively.  The year-over-year decreases in amortization expense from 2017 to 2018 and from 2016 to 2017 were due to certain intangible assets becoming fully amortized during these periods.

• Patent Litigation Income. During the twelve months ended December 31, 2018, there was no patent litigation income.  During the twelve months ended December 31, 2017, we recorded income and received cash of $13.0 million from a comprehensive settlement regarding a patent infringement litigation with Camtek.  We received $13.0 million in the fourth quarter of 2017 and subsequently remitted $2.3 million of withholding tax to the Israel Tax Authority associated with the settlement and the prior year patent litigation judgment.  During the twelve months ended December 31, 2016, we recorded income and received cash from a patent litigation judgment of $14.6 million in conjunction with the final court ruling in the patent infringement litigation case against Camtek with the expiration of all opportunities to appeal.

Interest income (expense), net.  In 2018 and 2017, net interest income was $2.2 million and $1.0 million, respectively.  In 2016, net interest expense was $2.8 million.  The increase in net interest income from 2017 to 2018 was due to higher interest earned on our marketable securities.  The change in interest income (expense), net from 2016 to 2017, was primarily due to the redemption of the Senior Convertible Notes in July 2016.

Income taxes. The following table provides details of income tax (dollars in millions):

	Year Ended December 31,
	2018			2017			2016
Income before income taxes	$	53.3		$	59.8		$	49.9
Provision for income taxes	$	8.3		$	26.9		$	12.9
Effective tax rate		15.5	%		45.0	%		25.9	%

The income tax provision differs from the federal statutory income tax rate of 21% for 2018 primarily due to Foreign Derived Intangible Income Deduction (“FDII”) from the Tax Act of $2.2 million, tax benefits for research and development credits of $2.3 million, offset by a Section 162(m) limitation on the deductibility of executive compensation of $0.5 million and additional ASC 740-10 tax reserves of $0.6 million.

The income tax provision differs from the federal statutory income tax rate of 35% for 2017 primarily due to new regulations resulting from Public law No. 115-97, known as the Tax Cuts and Jobs Act (“Tax Act”) of $9.5 million, offset by tax benefits for research and development credits of $1.6 million, section 199 manufacturing deduction of $1.6 million and excess tax benefits on vesting of restricted stock of $1.6 million.

The income tax provision differs from the federal statutory income tax rate of 35% for 2016, primarily due to research and development credits of $0.7 million, section 199 manufacturing deduction of $1.2 million, the foreign taxes net of federal benefit of $1.6 million and deferred tax true-ups of $1.7 million from prior periods.

The Tax Act, which was enacted and signed into law on December 22, 2017, reduced the U.S. federal corporate tax rate from 35% to 21%, effective January 1, 2018. Also on December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for tax effects of the Tax Act. SAB 118 provides a measurement period of up to one year from the enactment date to complete the accounting. Any adjustments during this measurement period will be included in net earnings from continuing operations as an adjustment to income tax expense in the reporting period when such adjustments are determined. Based on the information available and current interpretation of the rules, we estimated the impact of the reduction in the corporate tax rate and remeasurement of certain deferred tax assets and liabilities. The provisional amount recorded in the fourth quarter of 2017 related to the remeasurement of our deferred tax balance resulted in additional income tax expense of $8.0 million. During the fourth quarter of 2018, we completed the accounting for such revaluation and recorded an additional $0.8 million in tax expense.  Despite the completion of our accounting for the Tax Act under SAB 118, many aspects of the law remain unclear and we expect ongoing guidance to be issued at both the federal and state levels. We will continue to monitor and assess the impact of any new developments.  The prior year provisional impact and current year finalization of the Tax Act summarized below, which is included as a component of the provision from income taxes is further described in Note 12 in the accompanying Notes to the Consolidated Financial Statements (dollars in millions).

30

	Year Ended December 31,
	2018		2017
Re-measurement of U.S. deferred tax assets and liabilities	$	—	$	8.0
Transition tax on non-U.S. subsidiaries’ earnings		0.1		1.5
Foreign tax credits applied against transition tax		—		(1.5	)
Valuation allowance for unused foreign tax credits		0.7		1.5
Total impact of the Tax Act on the provision for income taxes	$	0.8	$	9.5

Our future effective income tax rate depends on various factors, such as future impacts of the Tax Act, possible further tax legislation, the geographic composition of our pre-tax income, the amount of our pre-tax income as business activities fluctuate, non-deductible expenses incurred in connection with acquisitions and research and development credits as a percentage of aggregate pre-tax income.

Liquidity and Capital Resources

At December 31, 2018, we had $175.1 million of cash, cash equivalents and marketable securities and $305.9 million in working capital.  At December 31, 2017, our cash, cash equivalents and marketable securities totaled $177.4 million, while working capital amounted to $279.8 million.

Typically, during periods of revenue growth, changes in accounts receivable and inventories represent a use of cash as we incur costs and expend cash in advance of receiving cash from our customers. Similarly, during periods of declining revenue, changes in accounts receivable and inventories represent a source of cash as inventory purchases decline and revenue from prior periods are collected.

Net cash and cash equivalents provided by operating activities for the years ended December 31, 2018, 2017 and 2016 totaled $35.1 million, $64.2 million and $47.4 million, respectively.  During the year ended December 31, 2018, cash provided by operating activities was primarily due to net income, adjusted to exclude the effect of non-cash charges, of $64.3 million, an increase in accounts payable of $3.5 million, a decrease in income taxes of $1.1 million, a decrease in account receivable of $0.7 million and an increase in deferred revenue of $0.5 million, which were partially offset by an increase in inventories of $31.5 million, an increase in prepaid expenses and other assets of $3.1 million and a decrease in other liabilities of $0.4 million. The increase in inventories of $31.5 million was primarily due to increased sales projections of our latest products and new product initiatives.

During the year ended December 31, 2017, cash provided by operating activities was primarily due to net income, adjusted to exclude the effect of non-cash charges, of $65.9 million, an increase in other liabilities of $6.4 million, an increase in accounts payable of $3.2 million and a decrease in account receivable of $0.4 million, which were partially offset by an increase in income taxes of $4.7 million, an increase in inventory of $4.2 million, an increase in prepaid expenses and other assets of $1.7 million and a decrease in deferred revenue of $1.1 million.

During the year ended December 31, 2016, cash provided by operating activities was primarily due to net income, adjusted to exclude the effect of non-cash charges, of $57.7 million, a decrease in inventories of $4.0 million, a decrease in prepaid expenses and other assets of $2.0 million, an increase in accounts payable of $1.2 million and an increase in deferred revenue of $0.9 million, which were partially offset by an increase in accounts receivable of $9.3 million, a decrease in other liabilities of $6.1 million, and a net increase in income tax receivable of $3.0 million.

Net cash and cash equivalents provided by investing activities for the years ended December 31, 2018 and 2016 was $33.8 and $24.5 million, respectively.  Net cash and cash equivalents used in investing activities for the year ended December 31, 2017 totaled $32.5 million.  During the year ended December 31, 2018, net cash provided by investing activities included proceeds from sales of marketable securities of $186.3 million, which was partially offset by purchases of marketable securities of $140.0 million, purchases of property, plant and equipment of $7.5 million, and cash advanced on a convertible note receivable of $5.0 million.  During the year ended December 31, 2017, net cash used in investing activities included purchases of marketable securities of $164.7 million, purchases of property, plant and equipment of $10.2 million, and purchase of intangible assets of $1.0 million, which were partially offset by proceeds from sales of marketable securities of $143.3 million.  During the year ended December 31, 2016, net cash provided by investing activities included proceeds from sales of marketable securities of $175.5 million and proceeds from sale of property, plant and equipment of $1.2 million, which were partially offset by purchases of marketable securities of $146.9 million, purchases of property, plant and equipment of $3.3 million, and purchase of intangible assets of $2.0 million.  

31

Net cash used in financing activities was $23.9 million, $2.6 million and $78.9 million in 2018, 2017 and 2016, respectively.  During the year ended December 31, 2018, financing activities used cash to purchase shares of our common stock under share repurchase authorizations of $21.1 million, pay taxes related to shares withheld for share based compensation plans of $1.9 million and pay contingent consideration for acquired business of $1.5 million. These uses of cash were partially offset by proceeds from sales of shares through employee stock plans of $0.6 million.  During the year ended December 31, 2017, financing activities included the redemption of stock warrants of $1.0 million, tax payments related to shares withheld for share-based compensation plans of $1.4 million and payment of contingent consideration for acquired businesses of $0.8 million, which were partially offset by proceeds from sales of shares through employee stock plans of $0.6 million.  During the year ended December 31, 2016, financing activities included the redemption of senior convertible debt of $60.0 million, redemption of stock warrants of $9.5 million, purchase of shares under the share repurchase authorization of $8.0 million, tax payments related to shares withheld for share based compensation plans of $1.6 million and payment of contingent consideration for acquired business of $0.6 million, which were partially offset by proceeds from sales of shares through employee stock plans of $0.9 million.  

From time to time, we evaluate whether to acquire new or complementary businesses, products and/or technologies. We may fund all of or a portion of the price of these investments or acquisitions in cash, stock, or a combination of cash and stock.

We entered into a convertible loan agreement with Simax Precision Technologies Limited (“Simax”) on May 31, 2018.  Simax may borrow up to $15 million in multiple promissory notes from us, subject to limitations.  We expect to be a supplier of lithography modules to Simax which is focused on the manufacture, sale and service of lithography systems.  As of December 31, 2018, Simax has borrowed $5 million from us under the convertible loan agreement.  See Note 6 in the accompanying Notes to the Consolidated Financial Statements included in this Form 10-K for further information.

In October 2018, the Board of Directors approved a new share repurchase authorization, which allows us to repurchase up to $40 million worth of shares of our common stock.  The authorization provides for repurchases to be made in the open market or through negotiated transactions from time to time.  The share repurchase authorization has no expiration date and may be discontinued at any time. In addition, during the fourth quarter of 2018, we completed the purchase of the remaining shares available under the prior 3.0 million share repurchase authorization.  During the twelve months ended December 31, 2018, we repurchased 1.1 million shares of common stock under our two share repurchase authorizations and those shares were subsequently retired.  At December 31, 2018, there were $33.2 million available for future share repurchases.  For further information, see Note 16 in the accompanying Notes to the Consolidated Financial Statements.

We have a credit agreement with a bank that provides for a line of credit that is secured by the marketable securities we have with the bank.  We are permitted to borrow up to 70% of the value of eligible securities held at the time the line of credit is accessed.  As of December 31, 2018, the available line of credit was approximately $93.9 million with an available interest rate of 4.0%.  The credit agreement is available to us until such time that either party terminates the arrangement at its discretion.   To date, we have not utilized the line of credit.

Our future capital requirements will depend on many factors, including the timing and amount of our revenue and our investment decisions, which will affect our ability to generate additional cash. We expect that our existing cash, cash equivalents, marketable securities and availability under our line of credit will be sufficient to meet our anticipated cash requirements for working capital, capital expenditures and other cash needs for the next 12 months following the filing of this Form 10-K. 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.

Contractual Obligations

The following table summarizes our significant contractual obligations at December 31, 2018, and the effect such obligations are expected to have on our liquidity and cash flows in future periods. This table excludes the liability for unrecognized tax benefits that totaled approximately $5.5 million at December 31, 2018. We are currently unable to provide a reasonably reliable estimate of the amount or periods when cash settlement of this liability may occur.

32

	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating lease obligations	$	19,337	$	3,170	$	4,908	$	3,775	$	7,484
Open and committed purchase orders		71,752		50,015		21,737		—		—
Total	$	90,799	$	52,997	$	26,557	$	3,761	$	7,484

Off-Balance Sheet Arrangements

The Company does not have any significant off-balance sheet arrangements that have or are reasonably likely to have a material effect on our financial condition, results of operations or liquidity and capital resources.

Critical Accounting Policies

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. We review the accounting policies we use in reporting our financial results on a regular basis. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, accounts receivable, inventories, business acquisitions, intangible assets, share-based payments, income taxes and warranty obligations. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions. These estimates and judgments are regularly reviewed by management on an ongoing basis at the end of each quarter prior to the public release of our financial results. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition. Effective January 1, 2018, we adopted the requirements of ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” For additional information on the new standard and the impact to our results of operations, refer to Impact of Recent Accounting Pronouncements below and Note 2 of the Notes to the Consolidated Financial Statements.

Revenue is recognized when control of the promised goods or services are transferred to our customers in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services. We account for a contract when it has approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

We account for shipping and handling activities as the fulfillment of a promise to transfer goods to the customer and therefore record these activities under the caption “Cost of revenue.” Sales tax and any other taxes collected concurrent with revenue producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense.

Contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers or the expected cost plus margin.

Revenue from systems is recognized when we transfer control of the product to our customer. To indicate transfer of control, we must have a present right to payment, legal title must have passed to the customer and the customer must have the significant risks and rewards of ownership. We generally transfer control for system sales when the customer or the customer’s agent picks up the system at our facility. Payment for the majority of our systems have 80-90% of the invoice amount due within 30 days and the remaining amount due upon completion of installation, recalibration and qualification by the customer. We provide an assurance warranty on our systems for a period of twelve to fifteen months against defects in material and workmanship. We provide for the estimated cost of product warranties at the time revenue is recognized.

Depending on the terms of the systems arrangement, we may also defer the recognition of a portion of the consideration expected to be received because we have to satisfy a future obligation (e.g., installation, training and extended warranties). We use an observable price to determine the standalone selling price for separate performance obligations or a cost plus margin approach when one is not available.

33

Revenue from software licenses is recognized upfront at the point in time when the software is made available to the customer. Software licenses provide the customer with limited rights to use the software. Revenue from licensing support and maintenance is recognized as the support and maintenance are provided, which is over the contract period. Payment for software licensing, support and maintenance is generally due in 30 days.

Revenue from parts is recognized when we transfer control of the product, which typically occurs when we ship the product from our facilities to the customer. Payment for parts is generally due in 30 days.

Revenue from services primarily consists of service contracts, which provide additional maintenance coverage beyond our assurance warranty on our products, service labor, consulting and training. Revenue from service contracts is recognized ratably over the term of the service contract. Revenue from service labor, consulting and training is recognized as services are performed. Payment for services is generally due in 30 days.

We record contract liabilities when the customer has been billed in advance of completing our performance obligations. These amounts are recorded as deferred revenue in the Consolidated Balance Sheets.

Excess and Obsolete Inventory. We maintain reserves for our excess and obsolete inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future product life-cycles, product demand and market conditions. If actual product life-cycles, product demand and market conditions are less favorable than those originally projected by management, additional inventory write-downs may be required.

Long-Lived Assets and Acquired Intangible Assets. We periodically review long-lived assets, other than goodwill, for impairment whenever changes in events or circumstances indicate that the carrying amount of an asset may not be recoverable. Assumptions and estimates used in the determination of impairment losses, such as future cash flows and disposition costs, may affect the carrying value of long-lived assets and the impairment of such long-lived assets, if any, could have a material effect on our consolidated financial statements.  No such indicators were noted in 2018, 2017 or 2016.

Accounting for Income Taxes. As part of the process of preparing our consolidated financial statements, we are required to estimate our actual current tax exposure together with our temporary differences resulting from differing treatment of items for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. Significant management judgment is required in determining our provision for income taxes and any valuation allowance recorded against our deferred tax assets. The need for a valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred taxes will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to adjust the valuation allowance, which could materially impact our financial position and results of operations. At December 31, 2018 and 2017, we had recorded valuation allowances of $3.2 million and $2.4 million on certain of our deferred tax assets to reflect the deferred tax assets at the net amount that is more likely than not to be realized.  We evaluated the realizability of the deferred tax assets based on positive earnings as well as the projected earnings in future years and believe it is more likely than not that the substantial majority of our deferred tax asset will be realized in the future years.  We will continue to monitor the realizability of the deferred tax assets and evaluate the valuation allowance.

We recognize liabilities for uncertain tax positions based on a two-step process. The first step requires us to determine if the weight of available evidence indicates that the tax position has met the threshold for recognition; therefore, we must evaluate whether it is more likely than not that the position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step requires us to measure the tax benefit of the tax position taken, or expected to be taken, in an income tax return as the largest amount that is more than 50% likely of being realized when effectively settled. This measurement step is inherently difficult and requires subjective estimations of such amounts to determine the probability of various possible outcomes. We reevaluate the uncertain tax positions each quarter based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues, and new audit activity. Such a change in recognition or measurement could result in the recognition of a tax benefit or an additional charge to the tax provision in the period.

Although we believe the measurement of our liabilities for uncertain tax positions is reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals. If additional taxes are assessed as a result of an audit or litigation, it could have a material effect on our income tax provision and net income in the period or periods for which that determination is made.

34

Impact of Recent Accounting Pronouncements

Recently Adopted

Effective January 1, 2018, the we adopted ASU No. 2016-16, “Income Tax (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.”  This ASU, which is part of the simplification initiative of the FASB, is intended to reduce the complexity of U.S. GAAP and diversity in practice related to the tax consequences of certain types of intra-entity asset transfers, particularly those involving intellectual property.  The adoption of ASU No. 2016-16 did not have any impact on our consolidated financial position, results of operations, and cash flows.

Effective January 1, 2018, we adopted ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This ASU provides guidance on statement of cash flows presentation for eight specific cash flow issues where diversity in practice exists.  We retrospectively adopted ASU No. 2018-15 resulting in a reclassification related to contingent consideration payments made after a business combination. The reclassification of $0.2 million from cash flows from financing activities to cash flows from operating activities is reflected in our Consolidated Statement of Cash Flows for the twelve month ended December 31, 2017.  Adoption of additional guidance under ASU No. 2016-15 did not have a material impact on our consolidated financial position, results of operations, and cash flows.

Effective January 1, 2018, we adopted ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes nearly all existing revenue recognition guidance.  The core principle of this ASU is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.As a result of the adoption of ASU No. 2014-09, we changed our accounting policy for revenue recognition. Refer to Note 2 of the Notes to the Consolidated Financial Statements, “Summary of Significant Accounting Policies” for further information.

Recently Issued

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.”  This ASU is part of the FASB’s larger disclosure framework project intended to improve the effectiveness of financial statement footnote disclosure.  ASU No. 2018-13 modifies required fair value disclosures related primarily to level 3 investments.  This ASU is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods.  The adoption of ASU No. 2018-13 is not expected to have a material effect on our consolidated financial position, results of operations, and cash flows.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.”  This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.  An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost.  The ASU is effective for the fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.  The adoption of ASU No. 2018-07 is not expected to have a material effect on our consolidated financial position, results of operations, and cash flows.  

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”  The new guidance allows companies to reclassify stranded tax effects resulting from the Tax Act from accumulated other comprehensive income to retained earnings.  The guidance also requires certain new disclosures regardless of a company’s election.  The standard is effective for annual periods beginning after December 15, 2018 and for interim periods within those annual periods, with earlier adoption permitted.  The adoption of ASU No. 2018-02 is not expected to have a material effect on our consolidated financial position, results of operations, and cash flows.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.”  This ASU amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Accounting Standards Codification (“ASC”) 718.  The ASU is effective for the fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.  The adoption of ASU No. 2017-09 is not expected to have a material effect on our consolidated financial position, results of operations, and cash flows, if any.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”  This ASU eliminates Step 2 from the goodwill impairment test.   Accordingly, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to the reporting unit.  The ASU is effective for the fiscal years beginning

35

after December 15, 2019 and for interim periods within those fiscal years.  We are currently evaluating the effect the adoption of ASU No. 2017-04 will have on our consolidated financial position, results of operations, and cash flows, if any.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326),” which introduces new guidance for the accounting for credit losses on instruments within its scope.  Given the breadth of that scope, this ASU will impact both financial services and non-financial services entities.  The standard is effective for fiscal years beginning after December 15, 2020.  We are currently evaluating the effect the adoption of ASU No. 2016-13 will have on our consolidated financial position, results of operations, and cash flows, if any.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” ASU 2016-02 requires that lessees recognize virtually all of their leases on the balance sheet, by recording a right-of-use asset and lease liability. The provisions of this guidance are effective for annual periods beginning after December 31, 2018, and for interim periods therein. We expect to adopt ASU No. 2016-02 upon its effective date of January 1, 2019 using the modified retrospective method and we will also elect the package of practical expedients.  We anticipate the impact of adoption will be an increase to long-term assets and total liabilities of $14 million to $15 million as of January 1, 2019.

Recently issued accounting guidance not discussed above is not applicable or did not have, or is not expected to have, a material impact to the Company.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate and Credit Market Risk

We are exposed to changes in interest rates and market liquidity including our investments in certain available-for-sale securities. Our available-for-sale securities consist of fixed and variable rate income investments, such as municipal notes, municipal bonds and corporate bonds. We continually monitor our exposure to changes in interest rates, market liquidity and credit ratings of issuers for our available-for-sale securities. It is possible that we are at risk if interest rates, market liquidity or credit ratings of issuers change in an unfavorable direction. The magnitude of any gain or loss will be a function of the difference between the fixed or variable rate of the financial instrument and the market rate, and our financial condition and results of operations could be materially affected. Based on a sensitivity analysis performed on our financial investments held as of December 31, 2018, an immediate adverse change of 10% in interest rates (e.g. 3.00% to 3.30%) would result in an immaterial decrease in the fair value of our available-for-sale debt securities and would not have a material impact on our consolidated financial position, results of operations or cash flows.

Foreign Currency Risk

A substantial portion of our systems and software sales are denominated in U.S. dollars with the exception of Japan. As a result, we have relatively little exposure to foreign currency exchange risk with respect to these sales. Substantially all of our sales in Japan are denominated in Japanese yen. From time to time, we may enter into forward exchange contracts to economically hedge a portion, but not all, of the existing and anticipated foreign currency denominated transactions expected to occur within 12 months. The change in fair value of the forward exchange contracts is recognized under the caption “Other (income) expense” in the Consolidated Statements of Operations for each reporting period. As of December 31, 2018 and 2017, we had twenty-seven and thirty-one outstanding forward contracts with a total notional contract value of $6.7 million and $8.4 million, respectively. We do not use derivative financial instruments for trading or speculative purposes.

We have branch operations in Taiwan, Singapore and South Korea and wholly-owned subsidiaries in Europe, Japan and China.  Our international subsidiaries and branches operate primarily using local functional currencies.  Our exposure to foreign currency exchange rate fluctuations arise from intercompany balances between our U.S. headquarters and that of our foreign owned entities. Our intercompany balances are denominated in U.S. dollars. Since each foreign entity’s functional currency is generally denominated in its local currency, there is exposure to foreign exchange risk when the foreign entity’s intercompany balance is remeasured at a reporting date, resulting in transaction gains or losses. The intercompany balance, exposed to foreign currency risk, as of December 31, 2018 was approximately $20.7 million. A hypothetical change of 10% in the relative value of the U.S. dollar versus local functional currencies could result in approximately $2.4 million in foreign currency exchange losses / (gains) which would be recorded as non-operating expense under the caption “Other (income) expense” in our Consolidated Statements of Operations.  We cannot accurately predict future exchange rates or the overall impact of future exchange rate fluctuations on our business, results of operations and consolidated financial condition.

Item 8. Financial Statements and Supplementary Data.

The consolidated financial statements and related information required by this Item are set forth on the pages indicated in Item 15(a) of this Annual Report on Form 10-K.

36

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified in SEC rules and forms. These controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating disclosure controls and procedures, we have recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management is required to apply judgment in evaluating its controls and procedures.

We performed an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to assess the effectiveness of the design and operation of our disclosure controls and procedures under the Exchange Act as of December 31, 2018. Based on that evaluation, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective as of December 31, 2018 at the reasonable assurance level.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (“COSO”). Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2018.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Attestation Report of the Registered Public Accounting Firm

Our consolidated financial statements as of and for the year ended December 31, 2018 have been audited by Ernst & Young LLP, our independent registered public accounting firm, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Ernst & Young LLP has also audited our internal control over financial reporting as of December 31, 2018, as stated in its attestation report included elsewhere in this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the Company’s quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Item 9B. Other Information.

None.

37

PART III

Certain information required by Part III is omitted from this Annual Report on Form 10-K because we expect to file a definitive proxy statement within one hundred twenty (120) days after the end of our fiscal year pursuant to Regulation 14A (the “Proxy Statement”) for our Annual Meeting of Stockholders currently scheduled for May 15, 2019, and the information included in the Proxy Statement is incorporated herein by reference.

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this Item with respect to directors and executive officers is included under the headings “Proposal One: Election of Directors,” “Executive Officers” and “Corporate Governance Principles and Practices” in the Proxy Statement, which is incorporated herein by reference. Information regarding compliance with Section 16 of the Exchange Act is incorporated by reference to the information under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.

Code of Ethics. We have adopted a code of ethics that applies to our principal executive officer, principal financial officer and controller. This code of ethics is posted on our internet website address at http://www.rudolphtech.com.  We will post on our website any amendment to or waiver from a provision of our code of ethics as may be required, and within the time period specified, by applicable SEC rules.

Item 11. Executive Compensation.

The information required by this Item is included under the headings “Executive Compensation,” “Compensation of Directors,” “Compensation Committee Report on Executive Compensation,” “Stock Ownership/Retention Guidelines for Directors” and “Compensation Committee Interlocks and Insider Participation” in the Proxy Statement, which is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item is included under the headings “Security Ownership” and “Equity Compensation Plan Information” in the Proxy Statement, which is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item is included under the headings “Related Persons Transactions Policy” and “Board Independence” in the Proxy Statement, which is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services.

The information required by this Item is included under the heading “Proposal 3: Ratification of Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement, which is incorporated herein by reference.

38

PART IV

Item 15. Exhibits and Financial Statement Schedule.

(a) The following documents are filed as part of this Annual Report on Form 10-K:

1. Financial Statements

The consolidated financial statements and consolidated financial statement information required by this Item are included on pages F-1 through F-9 of this report. The Reports of Independent Registered Public Accounting Firm appear on pages F-2 through F-3 of this report.

2. Financial Statement Schedule

See Index to financial statements on page F-1 of this report.

3. Exhibits

Exhibits are as set forth in the “Exhibit Index”, provided below. Where so indicated, exhibits, which were previously filed, are incorporated by reference.

Exhibit No.	Description
3.1	Restated Certificate of Incorporation of Registrant, as amended (Conformed Version) (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q(SEC File No. 000-27965) filed on August 2, 2013).
3.2	Restated Bylaws of Registrant as amended, filed with this report.
10.1+	License Agreement, dated June 28, 1995, between the Registrant and Brown University Research Foundation (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1, as amended (SEC File No. 333-86821), filed on September 9, 1999).
10.2*	Form of Indemnification Agreement (incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1/A, as amended (SEC File No. 333-86821) filed on October 14, 1999).
10.3*	Management Agreement, dated as of July 24, 2000 by and between Rudolph Technologies, Inc. and Steven R. Roth as restated and amended on July 29, 2014 (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (SEC File No. 001-36226) filed on August 6, 2014).
10.4*	Employment Agreement, dated as of November 9, 2015, by and between Rudolph Technologies, Inc. and Michael Plisinski (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (SEC File No. 001-36226) filed on November 9, 2015). *
10.5*	Executive Change of Control Agreement, dated February 7, 2014, by and between Rudolph Technologies, Inc. and Richard Rogoff (incorporated by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K (SEC File No. 001-36226) filed on February 20, 2015.

+ Confidential treatment has been granted with respect to portions of this exhibit.

* Management contract, compensatory plan or arrangement.

39

Exhibit No.	Description
10.6*	Executive Change of Control Agreement, dated August 20, 2009, by and between Rudolph Technologies, Inc. and Robert A. Koch (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q (SEC File No. 000-27965) filed on November 06, 2009).
10.7*	Rudolph Technologies, Inc. 2009 Stock Plan (incorporated by reference to Appendix A of the Registrant’s revised Proxy Statement on Form DEFR14A (SEC File No. 000-27965) filed on May 8, 2009).
10.8*	Amended form of Employee Restricted Stock Unit Purchase Agreement pursuant to the Rudolph Technologies, Inc. 2009 Stock Plan (incorporated by reference to Exhibit 10.12 to the Registrant’s Current Report on Form 10-Q (SEC File No. 001-36226), filed on August 3, 2017).
10.9	Confirmation of Issuer Warrant Transaction, dated July 19, 2011, by and between Rudolph Technologies, Inc. and Credit Suisse International (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (SEC File No. 000-27965) filed on July 25, 2011).
10.10	Amendment to Confirmation of Issuer Warrant Transaction, dated July 22, 2011, by and between Rudolph Technologies, Inc. and Credit Suisse International (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K (SEC File No. 000-27965) filed on July 25, 2011).
10.11	Rudolph Technologies, Inc. 2018 Stock Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, (SEC File No. 001-36226) filed on May 16, 2018).
10.12	Form of Employee Performance Stock Unit Purchase Agreement pursuant to the Rudolph Technologies, Inc. 2018 Stock Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (SEC File No. 333-224969) filed on August 2, 2018).
10.13	Form of Employee Stock Option Agreement pursuant to the Rudolph Technologies, Inc. 2018 Stock Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (SEC File No. 001-36226) filed on August 2, 2018).
10.14	Rudolph Technologies, Inc. 2018 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-8, (SEC File No. 001-36226) filed on May 16, 2018.
21.1	Subsidiaries.
23.1	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
31.1	Rule 13a-14(a) Certification of Chief Executive Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Rule 13a-14(a) Certification of Chief Financial Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Management contract, compensatory plan or arrangement.

40

RUDOLPH TECHNOLOGIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND

FINANCIAL STATEMENT SCHEDULE

	Page
Consolidated Financial Statements:
Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2018 and 2017	F-4
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016	F-5
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016	F-6
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016	F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016	F-8
Notes to the Consolidated Financial Statements	F-9
Consolidated Financial Statement Schedule:
Schedule of Valuation and Qualifying Accounts	F-35

F-1

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Rudolph Technologies, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Rudolph Technologies, Inc. (the Company) as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 15, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2008.

Iselin, New Jersey

February 15, 2019

F-2

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Rudolph Technologies, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Rudolph Technologies, Inc. internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Rudolph Technologies, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 15, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility isto express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities lawsand the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Iselin, New Jersey

February 15, 2019

F-3

RUDOLPH TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

	December 31, 2018			December 31, 2017
ASSETS
Current Assets:
Cash and cash equivalents	$	112,388		$	67,770
Marketable securities		62,684			109,589
Accounts receivable, less allowance of $691 in 2018 and $460 in 2017		64,194			65,283
Inventories		96,820			67,521
Income taxes receivable		6,111			7,220
Prepaid expenses and other current assets		8,710			4,699
Total current assets		350,907			322,082
Property, plant and equipment, net		18,874			17,342
Goodwill		22,495			22,495
Identifiable intangible assets, net		7,448			8,632
Deferred income taxes		12,810			14,879
Other assets		5,506			492
Total assets	$	418,040		$	385,922
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	16,981		$	13,471
Accrued liabilities:
Payroll and related expenses		10,648			10,408
Royalties		611			494
Warranty		2,441			2,427
Deferred revenue		6,767			6,223
Other current liabilities		7,543			9,284
Total current liabilities		44,991			42,307
Other non-current liabilities		11,161			10,461
Total liabilities		56,152			52,768
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 shares authorized, no shares    issued and outstanding at December 31, 2018 and 2017		—			—
Common stock, $0.001 par value, 100,000 shares authorized, 30,906    and 31,604 issued and outstanding at December 31, 2018 and 2017,    respectively.		31			32
Additional paid-in capital		369,893			386,196
Accumulated other comprehensive loss		(1,263	)		(1,205	)
Accumulated deficit		(6,773	)		(51,869	)
Total stockholders’ equity		361,888			333,154
Total liabilities and stockholders’ equity	$	418,040		$	385,922

The accompanying notes are an integral part of these consolidated financial statements.

F-4

RUDOLPH TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Year Ended December 31
	2018			2017			2016
Revenue	$	273,784		$	255,098		$	232,780
Cost of revenue		125,505			120,503			109,229
Gross profit		148,279			134,595			123,551
Operating expenses:
Research and development		49,053			46,986			44,964
Selling, general and administrative		46,608			39,381			38,562
Amortization		1,534			1,940			2,320
Patent litigation income		—			(13,000	)		(14,643	)
Total operating expenses		97,195			75,307			71,203
Operating income		51,084			59,288			52,348
Interest (income) expense, net		(2,206	)		(971	)		2,834
Other expense (income), net		(56	)		457			(354	)
Income before provision for income taxes		53,346			59,802			49,868
Provision for income taxes		8,250			26,893			12,916
Net income	$	45,096		$	32,909		$	36,952
Earnings per share:
Basic	$	1.42		$	1.05		$	1.19
Diluted	$	1.40		$	1.02		$	1.16
Weighted average number of shares outstanding:
Basic		31,671			31,491			31,128
Diluted		32,200			32,162			31,790

The accompanying notes are an integral part of these consolidated financial statements.

F-5

RUDOLPH TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	Year Ended December 31,
	2018			2017			2016
Net income	$	45,096		$	32,909		$	36,952
Other comprehensive income (loss):
Change in net unrealized gains (losses) on investments, net of    tax		136			(89	)		(37	)
Change in currency translation adjustments		(194	)		1,663			(119	)
Total comprehensive income	$	45,038		$	34,483		$	36,796

The accompanying notes are an integral part of these consolidated financial statements.

F-6

RUDOLPH TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the years ended December 31, 2018, 2017 and 2016

(In thousands)

	Common Stock						Additional Paid-in			Accumulated Other Comprehensive			Accumulated
	Shares			Amount			Capital			Loss			Deficit			Total
Balance at December 31, 2015		30,949		$	31		$	394,928		$	(2,623	)	$	(121,658	)	$	270,678
Issuance of shares through share-based    compensation plans, net		713			—			850			—			—			850
Repurchase of common stock		(615	)		—			(8,044	)		—			—			(8,044	)
Net income		—			—			—			—			36,952			36,952
Share-based compensation		—			—			4,775			—			—			4,775
Tax benefit for share-based compensation    plans		—			—			792			—			—			792
Share-based compensation plan     withholdings		—			—			(1,587	)		—			—			(1,587	)
Redemption of stock warrants		80			—			(10,525	)		—			—			(10,525	)
Currency translation		—			—			—			(119	)		—			(119	)
Unrealized loss on investments		—			—			—			(37	)		—			(37	)
Balance at December 31, 2016		31,127			31			381,189			(2,779	)		(84,706	)		293,735
Issuance of shares through share-based    compensation plans, net		375			1			623			—			—			624
Net income		—			—			—			—			32,909			32,909
Share-based compensation		—			—			5,670			—			—			5,670
Cumulative effect of a change in accounting     for share-based compensation		—			—			72			—			(72	)		—
Share-based compensation plan     withholdings		—			—			(1,358	)		—			—			(1,358	)
Redemption of stock warrants		102			—			—			—			—			—
Currency translation		—			—			—			1,663			—			1,663
Unrealized loss on investments		—			—			—			(89	)		—			(89	)
Balance at December 31, 2017		31,604			32			386,196			(1,205	)		(51,869	)		333,154
Issuance of shares through share-based    compensation plans, net		363			—			624			—			—			624
Repurchase of common stock		(1,061	)		(1	)		(21,068	)		—			—			(21,069	)
Net income		—			—			—			—			45,096			45,096
Share-based compensation		—			—			6,062			—			—			6,062
Share-based compensation plan     withholdings		—			—			(1,921	)		—			—			(1,921	)
Currency translation		—			—			—			(194	)		—			(194	)
Unrealized gain on investments		—			—			—			136			—			136
Balance at December 31, 2018		30,906		$	31		$	369,893		$	(1,263	)	$	(6,773	)	$	361,888

The accompanying notes are an integral part of these consolidated financial statements

F-7

RUDOLPH TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
	2018			2017			2016
Cash flows from operating activities:
Net income	$	45,096		$	32,909		$	36,952
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Depreciation		4,848			3,990			3,677
Amortization of convertible note discount and issuance costs		—			—			2,154
Amortization of intangibles		1,534			1,940			2,320
Foreign currency exchange loss		255			457			592
Gain on disposal of property, plant and equipment		—			—			(946	)
Change in fair value of contingent consideration		1,010			133			170
Share-based compensation		6,062			5,670			4,775
Provision for doubtful accounts and inventory valuation		3,335			3,608			2,971
Deferred income taxes		2,163			17,207			5,011
Change in operating assets and liabilities:
Accounts receivable		706			430			(9,279	)
Income taxes		1,056			(4,727	)		(3,021	)
Inventories		(31,545	)		(4,218	)		4,003
Prepaid expenses and other assets		(3,101	)		(1,686	)		2,038
Accounts payable		3,512			3,198			1,169
Deferred revenue		545			(1,122	)		896
Other liabilities		(382	)		6,382			(6,057	)
Net cash and cash equivalents provided by operating activities		35,094			64,171			47,425
Cash flows from investing activities:
Purchases of marketable securities		(140,018	)		(164,661	)		(146,865	)
Proceeds from sales of marketable securities		186,332			143,349			175,460
Purchases of property, plant and equipment		(7,542	)		(10,210	)		(3,291	)
Cash advance on convertible note receivable		(5,000	)		—			—
Purchase of intangible assets		—			(1,000	)		(2,000	)
Proceeds from sale of property, plant & equipment		—			—			1,165
Net cash and cash equivalents provided by (used in) investing activities		33,772			(32,522	)		24,469
Cash flows from financing activities:
Payment of senior convertible debt		—			—			(60,000	)
Redemption of stock warrants		—			(1,025	)		(9,500	)
Purchases of common stock		(21,069	)		—			(8,044	)
Tax payments related to shares withheld for share-based compensation plans		(1,921	)		(1,358	)		(1,587	)
Payment of contingent consideration for acquired business		(1,543	)		(792	)		(622	)
Issuance of shares through share-based compensation plans		624			623			850
Net cash and cash equivalents used in financing activities		(23,909	)		(2,552	)		(78,903	)
Effect of exchange rate changes on cash and cash equivalents		(339	)		814			314
Net increase (decrease) in cash and cash equivalents		44,618			29,911			(6,695	)
Cash and cash equivalents at beginning of year		67,770			37,859			44,554
Cash and cash equivalents at end of year	$	112,388		$	67,770		$	37,859
Supplemental disclosure of cash flow information:
Income taxes paid, net	$	4,301		$	14,605		$	10,980
Interest paid	$	—		$	—		$	2,250
Litigation settlement received	$	—		$	13,000		$	14,643

The accompanying notes are an integral part of these consolidated financial statements.

F-8

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

1. Organization and Nature of Operations:

Rudolph Technologies, Inc. is a worldwide leader in the design, development, manufacture and support of process control tools that perform macro-defect inspections and metrology, lithography systems, and process control analytical software used by semiconductor and advanced packaging device manufacturers. The Company has branch sales and service offices in South Korea, Taiwan and Singapore and wholly-owned sales and service subsidiaries in the United States, Europe, Japan and China. The Company operates in a single reportable segment and is a provider of process characterization equipment and software for wafer fabs and advanced packaging facilities.

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:

Adoption of ASC Topic 606, “Revenue from Contracts with Customers”

On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.  Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.  The Company did not record a cumulative impact due to the adoption of Topic 606.

Revenue Recognition

Revenue is recognized when control of the promised goods or services are transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

The Company has elected to account for shipping and handling activities as the fulfillment of a promise to transfer goods to the customer and therefore records these activities under the caption “Cost of revenue.” Sales tax and any other taxes collected concurrent with revenue producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. These accounting policy elections are consistent with the manner in which the Company has historically recorded these items.

Contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers or the expected cost plus margin.

F-9

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

Disaggregated Revenue

The following table presents the Company’s revenue disaggregated by revenue source:

	Year Ended December 31,
	2018		2017		2016
Systems	$	205,073	$	191,411	$	165,601
Software licensing, support and maintenance		29,168		25,473		29,795
Parts		28,658		27,143		25,343
Services		10,885		11,071		12,041
Total revenue	$	273,784	$	255,098	$	232,780

The following table represents a disaggregation of revenue by timing of revenue:

	Year Ended December 31,
	2018
Point-in-time	$	257,124
Over-time		16,660
Total revenue	$	273,784

See Note 14 of the Notes to the Consolidated Financial Statements for additional discussion of the Company’s disaggregated revenue in detail.

Systems Revenue

Revenue from systems is recognized when the Company transfers control of the product to the customer. To indicate transfer of control, the Company must have a present right to payment, legal title must have passed to the customer and the customer must have the significant risks and rewards of ownership. The Company generally transfers control for system sales when the customer or the customer’s agent picks up the system at the Company’s facility. Payment for the majority of the Company’s systems have 80-90% of the invoice amount due within 30 days and the remaining amount due upon completion of installation, recalibration and qualification by the customer. The Company provides an assurance warranty on its systems for a period of twelve to fifteen months against defects in material and workmanship. The Company provides for the estimated cost of product warranties at the time revenue is recognized.

Depending on the terms of the systems arrangement, the Company may also defer the recognition of a portion of the consideration expected to be received because the Company has to satisfy a future obligation (e.g., installation, training and extended warranties). The Company uses an observable price to determine the standalone selling price for separate performance obligations or a cost plus margin approach when one is not available.

Software Licensing, Support and Maintenance Revenue

Revenue from software licenses provides the customer with a right to use the software as it exists when made available to the customer. Revenue from software licenses are recognized upfront at the point in time when the software is made available to the customer. Revenue from licensing support and maintenance is recognized as the support and maintenance are provided, which is over the contract period. Payment for software licensing, support and maintenance is generally due in 30 days.

Parts Revenue

Revenue from parts is recognized when the Company transfers control of the product, which typically occurs when the Company ships the product from its facilities to the customer. Payment for parts is generally due in 30 days.

Services Revenue

Revenue from services primarily consists of service contracts, which provide additional maintenance coverage beyond the Company’s assurance warranty on its products, service labor, consulting and training. Revenue from service contracts is

F-10

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

recognized ratably over the term of the service contract. Revenue from service labor, consulting and training is recognized as services are performed. Payment for services is generally due in 30 days.

Contract Liabilities

The Company records contract liabilities when the customer has been billed in advance of the Company completing its performance obligations. These amounts are recorded as deferred revenue in the Consolidated Balance Sheets.

Changes in deferred revenue were as follows:

	Year Ended December 31,
	2018
Balance, beginning of the period	$	7,206
Deferral of revenue		19,326
Recognition of deferred revenue		(18,452	)
Balance, ending of the period	$	8,080

Practical Expedients

The Company generally expenses sales commissions when incurred because the amortization period is one year or less. These costs are recorded within selling, general and administrative expenses.

The Company does not adjust the amount of consideration for the effects of a significant financing component as the payment terms are generally one year or less.

The Company does not disclose the value of remaining performance obligations for contracts with an original expected length of one year or less and contracts for which the Company recognizes revenue in the amount to which it has the right to invoice.

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 assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates made by management include the allowance for doubtful accounts, excess and obsolete inventory, fair value of assets acquired and liabilities assumed in a business combination (including contingent consideration), recoverability and useful lives of property, plant and equipment and identifiable intangible assets, recoverability of goodwill, recoverability of deferred tax assets, liabilities for product warranty, contingencies, including litigation reserves and share-based payments and liabilities for tax uncertainties. 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. Marketable Securities:

The Company determined that all of its investment securities are to be classified as available-for-sale. Available-for-sale debt 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 and, interest and dividends on available-for-sale securities are included in interest income and other, net. Available-for-sale securities are classified as current assets regardless of their maturity date if they are available for use in current operations. The Company reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, credit quality and the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated

F-11

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

recovery in market value. When a decline in fair value is determined to be other-than-temporary, unrealized losses on available-for-sale securities are charged against earnings. The specific identification method is used to determine the gains and losses on marketable securities.

For additional information on the Company’s marketable securities, see Note 4 of Notes to the Consolidated Financial Statements.

F. Allowance for Doubtful Accounts:

The Company evaluates the collectability of accounts receivable based on a combination of factors. 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, thereby reducing 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.

G. Inventories:

Inventories are stated at the lower of cost or net realizable value.  Net realizable value is the estimated selling prices in the ordinary course of business, less predictable costs of completion, disposal and transportation.  Cost is generally determined on a first-in, first-out basis, and includes material, labor and manufacturing overhead costs. The Company reviews and sets standard costs as needed, but at a minimum, on an annual basis, at current manufacturing costs in order to approximate actual costs.

The Company evaluates inventories for excess quantities and obsolescence. The Company establishes inventory reserves when conditions exist that suggest that inventory may be in excess of anticipated demand or is obsolete based upon assumptions about historical and future demand for the Company’s products and market conditions. In addition, inventories are evaluated for potential obsolescence due to the effect of known and anticipated engineering design changes. Once a reserve has been established, it is maintained until the item to which it relates is scrapped or sold.

H. 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 fifteen years for buildings, four to seven years for machinery and equipment, seven years for furniture 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.

I. 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 in 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.

J. Goodwill and Intangible Assets:

Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives. Goodwill and intangible assets with indefinite useful lives are not amortized but are tested for impairment at least annually and when there are indications of impairment. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. The Company has the option to first assess qualitative factors to determine whether the

F-12

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company elects this option and after assessing the totality of events or circumstances, the Company determines that it is not likely that the fair value of its reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The Company has not elected this option to date.  The Company estimates the fair value of its reporting unit using the market value of its common stock at October 31 multiplied by the number of outstanding common shares (market capitalization) and an implied control premium as if it were to be acquired by a single stockholder.  The Company also obtains information on completed sales of similar companies in the related industry to estimate the implied control premium for the Company.  If the results of the initial market capitalization test produce results that are below the reporting unit carrying value, the Company will also consider if the market capitalization is temporarily low and, if so, we may also perform a discounted cash flow test. The Company tested for goodwill impairment on October 31, 2018.  No impairments were noted.

For additional information on the Company’s goodwill and purchased intangible assets, see Note 5 of Notes to the Consolidated Financial Statements.

K. Concentration of Credit Risk:

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of accounts receivable, cash and cash equivalents and marketable securities. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for sales on credit. The Company maintains allowances for potential credit losses. The Company maintains cash and cash equivalents and marketable securities with higher credit quality issuers and monitors the amount of credit exposure to any one issuer.

L. Warranties:

The Company generally provides a warranty on its products for a period of twelve to fifteen months against defects in material and workmanship. The Company provides for the estimated cost of product warranties at the time revenue is recognized.

M. 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.  The Company does not record tax expense impact for foreign withholding taxes and outside basis differences on the undistributed earnings of its foreign operations as it is the Company’s intention to permanently re-invest undistributed earnings.

For additional information on the Company’s income taxes, see Note 12 of Notes to the Consolidated Financial Statements.

N. Translation of Foreign Currencies:

The Company has branch operations in Taiwan, Singapore and South Korea and wholly-owned subsidiaries in the United States, Europe, Japan and China. Its international subsidiaries and branches operate primarily through the use of local functional currencies.  A substantial portion of the Company’s international systems sales are denominated in U.S. dollars with the exception of Japan.  Consequently, we have relatively little exposure to foreign currency exchange risk with respect to these sales.

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 monthly exchange rates during the period. Net exchange gains or losses resulting from the translation of foreign financial statements and the effect of exchange rates on intercompany transactions of a long-term investment nature are recorded directly as a separate component of stockholders’ equity under the

F-13

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

caption, “Accumulated other comprehensive loss.” Any foreign currency gains or losses related to transactions are included in operating results. The Company had accumulated exchange losses resulting from the translation of foreign operation financial statements of $1,273 and $1,079 as of December 31, 2018 and 2017, respectively.

O. Share-based Compensation:

Share-based awards are measured based on the grant-date fair value of the award and recognized over the period from the service inception date through the date the employee is no longer required to provide service to earn the award. Effective upon the Company’s adoption of Accounting Standards Update (“ASU”) No. 2016-09, “Improvements to Employee Share-Based Payment Accounting” on January 1, 2017, forfeitures are accounted for as they occur. Prior to the adoption of ASU No. 2016-09, expected forfeitures were included in determining share-based compensation expense.

For additional information on the Company’s share-based compensation plans, see Note 10 of Notes to the Consolidated Financial Statements.

P. Research and Development Costs:

Expenditures for research and development are expensed as incurred.

Q. 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, approximate fair value due to their short maturities.  The estimated fair value of these obligations is based, primarily, on a market approach, comparing the Company’s interest rates to those rates the Company believes it would reasonably receive upon re-entry into the market.  Judgment is required to estimate the fair value using available market information and appropriate valuation methods.

For additional information on the Company’s fair value of financial instruments, see Note 3 of Notes to the Consolidated Financial Statements.

R. Derivative Instruments and Hedging Activities:

The Company, when it considers it to be appropriate, enters into forward contracts to hedge the economic exposures arising from foreign currency denominated transactions. At December 31, 2018 and 2017, these contracts included the future sale of Japanese Yen to purchase U.S. dollars. The foreign currency forward contracts were entered into by the Company’s Japanese subsidiary to hedge a portion of certain intercompany obligations. The forward contracts are not designated as hedges for accounting purposes and therefore, the change in fair value is recorded in selling, general and administrative expenses in the Consolidated Statements of Operations.  The Company records its forward contracts at fair value in either prepaid expenses and other current assets or other current liabilities in the Consolidated Balance Sheets.

The dollar equivalent of the U.S. dollar forward contracts and related fair values as of December 31, 2018 and 2017 were as follows:

	December 31,
	2018			2017
Notional amount		6,746			8,417
Fair value of asset (liability)		(32	)		45

During the year ended December 31, 2018, the Company recognized a loss of $81 on maturities of forward contracts.  For the years ended December 31, 2017 and 2016, the Company recorded gains of $105 and $417 on maturities of forward contracts, respectively.  The aggregate notional amounts of matured contracts were $8,465, $9,582 and $6,641 for 2018, 2017 and 2016, respectively.

F-14

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

S. Contingencies and Litigation

The Company is subject to the possibility of losses from various contingencies, including certain legal proceedings, lawsuits and other claims. The Company accrues for a loss contingency when it concludes that the likelihood of a loss is probable and the amount of the loss can be reasonably estimated. If the Company concludes that loss contingencies that could be material to any one of its financial statements are not probable, but are reasonably possible, or are probable, but cannot be estimated, then the Company discloses the nature of the loss contingencies, together with an estimate of the range of possible loss or a statement that such loss is not reasonably estimable. The Company expenses as incurred the costs of defending legal claims against the Company. The Company does not recognize gain contingencies until realized. See Note 9 of the Notes to the Consolidated Financial Statements, “Commitments and Contingencies” for a detailed description.

T. Recent Accounting Pronouncements:

Recently Adopted

Effective January 1, 2018, the Company adopted ASU No. 2016-16, “Income Tax (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.”  This ASU, which is part of the simplification initiative of the Financial Accounting Standards Board (“FASB”), is intended to reduce the complexity of U.S. GAAP and diversity in practice related to the tax consequences of certain types of intra-entity asset transfers, particularly those involving intellectual property.  The adoption of ASU No. 2016-16 did not have any impact on the Company’s consolidated financial position, results of operations, and cash flows.

Effective January 1, 2018, the Company adopted ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This ASU provides guidance on statement of cash flows presentation for eight specific cash flow issues where diversity in practice exists.  The Company retrospectively adopted ASU No. 2018-15 resulting in a reclassification related to contingent consideration payments made after a business combination. The reclassification of $0.2 million from cash flows from financing activities to cash flows from operating activities is reflected in the Consolidated Statement of Cash Flows for the twelve month period ended December 31, 2017.  Adoption of additional guidance under ASU No. 2016-15 did not have a material impact on the Company’s consolidated financial position, results of operations, and cash flows.

Effective January 1, 2018, the Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes nearly all existing revenue recognition guidance.  The core principle of this ASU is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.As a result of the adoption of ASU No. 2014-09, the Company changed its accounting policy for revenue recognition. Refer to Item B of this Note to the Consolidated Financial Statements, “Summary of Significant Accounting Policies” for further information.

Recently Issued

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.”  This ASU is part of the FASB’s larger disclosure framework project intended to improve the effectiveness of financial statement footnote disclosure.  ASU No. 2018-13 modifies required fair value disclosures related primarily to level 3 investments.  This ASU is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods.  The adoption of ASU No. 2018-13 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and cash flows.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.”  This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.  An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost.  The ASU is effective for the fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.  The adoption of ASU No. 2018-07 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and cash flows.  

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”  The new guidance allows

F-15

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

companies to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income to retained earnings.  The guidance also requires certain new disclosures regardless of a company’s election.  The standard is effective for annual periods beginning after December 15, 2018 and for interim periods within those annual periods, with earlier adoption permitted.  The adoption of ASU No. 2018-02 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and cash flows.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.”  This ASU amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Accounting Standards Codification (“ASC”) 718.  The ASU is effective for the fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.  The adoption of ASU No. 2017-09 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and cash flows, if any.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”  This ASU eliminates Step 2 from the goodwill impairment test.   Accordingly, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to the reporting unit.  The ASU is effective for the fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.  The Company is currently evaluating the effect the adoption of ASU No. 2017-04 will have on its consolidated financial position, results of operations, and cash flows, if any.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326),” which introduces new guidance for the accounting for credit losses on instruments within its scope.  Given the breadth of that scope, this ASU will impact both financial services and non-financial services entities.  The standard is effective for fiscal years beginning after December 15, 2020.  The Company is currently evaluating the effect the adoption of ASU No. 2016-13 will have on its consolidated financial position, results of operations, and cash flows, if any.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” ASU No. 2016-02 requires that lessees recognize virtually all of their leases on the balance sheet, by recording a right-of-use asset and lease liability. The provisions of this guidance are effective for annual periods beginning after December 31, 2018, and for interim periods therein. The Company expects to adopt ASU No. 2016-02 upon its effective date of January 1, 2019 using the modified retrospective method and the Company will also elect the package of practical expedients. The Company anticipates the impact of adoption will be an increase to long-term assets and total liabilities of $14,000 to $15,000 as of January 1, 2019.

Recently issued accounting guidance not discussed above is not applicable or did not have, or is not expected to have, a material impact to the Company.

3. Fair Value Measurements:

The Company applies a three-level valuation hierarchy for fair value measurements. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability. Level 3 inputs are unobservable inputs based on management’s assumptions used to measure assets and liabilities at fair value. A financial asset’s or liability’s fair value measurement classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

F-16

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

The following tables provide the assets and liabilities carried at fair value measured on a recurring basis at December 31, 2018 and December 31, 2017:

	Fair Value Measurements Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2018
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	62,684	$	—	$	62,684	$	—
Total assets	$	62,684	$	—	$	62,684	$	—
Liabilities:
Contingent consideration - acquisitions	$	2,060	$	—	$	—	$	2,060
Foreign currency forward contracts		32		—		32		—
Total liabilities	$	2,092	$	—	$	32	$	2,060
December 31, 2017
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	109,589	$	—	$	109,589	$	—
Foreign currency forward contracts		45		—		45		—
Total assets	$	109,634	$	—	$	109,634	$	—
Liabilities:
Contingent consideration - acquisitions	$	2,593	$	—	$	—	$	2,593
Total liabilities	$	2,593	$	—	$	—	$	2,593

The Company’s available-for-sale debt securities classified as Level 2 are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency.  The foreign currency forward contracts are primarily measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers.  Investment prices are obtained from third party pricing providers, which model prices utilizing the above observable inputs, for each asset class.

Level 3 liabilities consisted of contingent consideration related to an acquisition for which the Company uses a discounted cash flow model to value these liabilities.  The Level 3 assumptions used in the discounted cash flow model for the contingent consideration included projected revenue, timing of cash flows and estimates of discount rates of 9.2% and 8.6% for the years ended December 31, 2018 and 2017, respectively.  A significant decrease in the projected revenue or increase in discount rates could result in a significantly lower fair value measurement for the contingent consideration.  

F-17

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

This table presents a reconciliation of all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2018:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Balance at December 31, 2017	$	2,593
Total loss due to remeasurement included in selling, general and    administrative expense		1,010
Additions		—
Payments		(1,543	)
Transfer into (out of) Level 3		—
Balance at December 31, 2018	$	2,060

See Note 4 for additional discussion regarding the fair value of the Company’s marketable securities.

Fair Value of Other Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates fair value because of the short-term maturity of these instruments. The estimated fair value of these obligations is based, primarily, on a market approach, comparing the Company’s interest rates to those rates the Company believes it would reasonably receive upon re-entry into the market. Judgment is required to estimate the fair value using available market information and appropriate valuation methods.

The carrying amount of the convertible notes receivable approximates fair value based on current interest rates for instruments with similar characteristics. Convertible notes receivable are initially recognized at fair value. The Company does not subsequently adjust the fair value of these convertible notes receivable unless it is determined that the convertible note receivable is impaired. The Company considers the issuer’s financial condition, payment history, and other relevant factors when assessing the collectability of the convertible note and to reserve the portion of such convertible note for which collection does not appear likely. Interest income is recognized as earned.

4. Marketable Securities:

The Company has evaluated its investment policies and determined that all of its marketable securities, which are comprised of debt securities, are to be classified as available-for-sale.  The Company’s available-for-sale debt 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 on available-for-sale securities are included in “Other expense (income)” on the Consolidated Statements of Operations.  The Company records other-than-temporary impairment charges for its available-for-sale debt securities when it intends to sell the securities, it is more-likely-than not that it will be required to sell the securities before a recovery, or when it does not expect to recover the entire amortized cost basis of the securities.  The cost of securities sold is based on the specific identification method.

The Company has determined that the gross unrealized losses on its marketable securities at December 31, 2018 and 2017 are temporary in nature. The Company reviews its investment portfolio to identify and evaluate marketable securities that have indications of possible impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, credit quality and the Company’s ability and intent to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value.

F-18

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

At December 31, 2018 and 2017, marketable securities are categorized as follows:

	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value
December 31, 2018
Municipal notes and bonds	$	62,681	$	43	$	40	$	62,684
Total marketable securities	$	62,681	$	43	$	40	$	62,684
December 31, 2017
Municipal notes and bonds	$	109,750	$	—	$	161	$	109,589
Total marketable securities	$	109,750	$	—	$	161	$	109,589

The amortized cost and estimated fair value of marketable securities classified by the maturity date listed on the security, regardless of the Consolidated Balance Sheet classification, is as follows at December 31, 2018 and 2017:

	December 31, 2018				December 31, 2017
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	47,767	$	47,732	$	104,742	$	104,605
Due after one through five years		14,914		14,952		5,008		4,984
Due after five through ten years		—		—		—		—
Due after ten years		—		—		—		—
Total marketable securities	$	62,681	$	62,684	$	109,750	$	109,589

The following table summarizes the estimated fair value and gross unrealized holding losses of marketable securities, aggregated by investment instrument and period of time in an unrealized loss position, at December 31, 2018 and 2017.

	In Unrealized Loss Position For Less Than 12 Months				In Unrealized Loss Position For Greater Than 12 Months
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
December 31, 2018
Municipal notes and bonds	$	27,952	$	30	$	4,671	$	10
Total marketable securities	$	27,952	$	30	$	4,671	$	10
December 31, 2017
Municipal notes and bonds	$	98,805	$	161	$	—	$	—
Total marketable securities	$	98,805	$	161	$	—	$	—

See Note 3 for additional discussion regarding the fair value of the Company’s marketable securities.

5. Goodwill and Purchased Intangible Assets:

Goodwill

The gross amount of goodwill at both December 31, 2018 and 2017 was $215,367.  Reflecting an impairment charge of $192,872 in 2008, the carrying amount of goodwill totaled $22,495 and remained unchanged over both the years ended December 31, 2018 and 2017.

Purchased Intangible Assets

Purchased intangible assets as of December 31, 2018 and 2017 are as follows:

F-19

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

	Gross Carrying Amount		Accumulated Amortization		Net
December 31, 2018
Finite-lived intangibles:
Developed technology	$	66,177	$	59,692	$	6,485
Customer and distributor relationships		9,560		9,082		478
Trade names		4,361		3,876		485
Total identifiable intangible assets	$	80,098	$	72,650	$	7,448
December 31, 2017
Finite-lived intangibles:
Developed technology	$	65,827	$	58,522	$	7,305
Customer and distributor relationships		9,560		8,818		742
Trade names		4,361		3,776		585
Total identifiable intangible assets	$	79,748	$	71,116	$	8,632

Intangible asset amortization expense amounted to $1,534, $1,940 and $2,320 for the years ended December 31, 2018, 2017 and 2016, respectively. Assuming no change in the gross carrying value of identifiable intangible assets and estimated lives, estimated amortization expenses are $1,548 for 2019, $1,346 for 2020, $598 for 2021, $532 for 2022, and $515 for 2023.

6. Convertible Note Receivable:

The Company entered into a convertible loan agreement with Simax Precision Technologies Limited (“Simax”) on May 31, 2018. Simax may borrow from the Company up to $15,000 in multiple promissory notes. The Company expects to be a supplier of lithography modules to Simax which is focused on the manufacture, sale and service of lithography systems.

The convertible notes will bear a rate of interest of 4.25% per annum payable on a semi-annual basis. The convertible notes provide the Company with the option to convert the outstanding indebtedness into equity. If the Company does not elect to exercise its option to convert the notes, Simax will repay the principal amount outstanding and any outstanding interest in equal installments beginning on the fifth anniversary of the loan date and continuing on a quarterly basis over the next three years.

As of December 31, 2018, the Convertible notes receivable balance was $5,000 with accrued interest of $41.

7. Balance Sheet Details:

Inventories

Inventories are comprised of the following:

	December 31,
	2018		2017
Materials	$	61,025	$	39,765
Work-in-process		21,910		20,923
Finished goods		13,885		6,833
Total inventories	$	96,820	$	67,521

The Company has established reserves of $11,678 and $13,035 at December 31, 2018 and 2017, respectively, for slow moving and obsolete inventory.  During 2018, the Company recorded a net charge in cost of revenue of $3,042 for the write-down of inventory for excess parts, for older product lines and for parts that were rendered obsolete by design and engineering advancements. In 2018, the Company disposed of $4,398 of inventory.  During 2017, the Company recorded a

F-20

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

net charge in cost of revenue of $3,833 for the write-down of inventory for excess parts, for older product lines and for parts that were rendered obsolete by design and engineering advancements. In 2017, the Company disposed of $1,343 of inventory.  

Property, Plant and Equipment

Property, plant and equipment, net, is comprised of the following:

	December 31,
	2018			2017
Land and building	$	2,584		$	2,584
Machinery and equipment		29,097			29,870
Furniture and fixtures		3,226			3,201
Computer equipment and software		7,906			5,444
Leasehold improvements		9,448			9,472
		52,261			50,571
Accumulated depreciation		(33,387	)		(33,229	)
Total property, plant and equipment, net	$	18,874		$	17,342

Depreciation expense amounted to $4,848, $3,990 and $3,677 for the years ended December 31, 2018, 2017 and 2016, respectively.

Other assets

Other assets is comprised of the following:

	December 31,
	2018		2017
Convertible note receivable	$	5,000	$	—
Other		506		492
Total other assets	$	5,506	$	492

Other current liabilities

Other current liabilities is comprised of the following:

	December 31,
	2018		2017
Contingent consideration - acquisitions	$	1,422	$	634
Customer deposits		1,135		5,561
Accrued inventory		1,103		384
Intangible asset acquisition - Stella Alliance		150		100
Deferred rent		75		151
Other		3,658		2,454
Total other current liabilities	$	7,543	$	9,284

F-21

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

Other non-current liabilities

Other non-current liabilities is comprised of the following:

	December 31,
	2018		2017
Unrecognized tax benefits (including interest)	$	5,409	$	4,660
Contingent consideration - acquisitions		638		1,959
Deferred revenue		1,314		983
Deferred rent		1,405		750
Other		2,395		2,109
Total non-current liabilities	$	11,161	$	10,461

8. Debt Obligations:

On July 25, 2011, the Company issued $60,000 aggregate principal amount of 3.75% Convertible Senior Notes due 2016 (the “Notes”) at par. The Notes were issued pursuant to an indenture, dated as of July 25, 2011, between the Company and Bank of New York Mellon Trust Company, N.A., as Trustee, which included a form of Note. The Notes provided for the payment of interest semi-annually in arrears on January 15 and July 15 of each year, beginning January 15, 2012, at an annual rate of 3.75%.  Concurrently with the issuance of the Notes, the Company purchased a convertible note hedge and sold a warrant. Each of the convertible note hedge and warrant transactions were entered into with an affiliate of the initial purchaser of the Notes.

On July 15, 2016, the Company redeemed all of its outstanding 3.75% Convertible Senior Notes with an aggregate principle amount of $60,000. Under the terms of the indenture, holders of the Notes were paid cash up to the aggregate principal amount of the notes and were issued shares of common stock for the remainder of the conversion, with any fractional shares paid in cash. The conversion resulted in the issuance of 540 shares of common stock of the Company to the bondholders, but resulted in no dilution to Rudolph shareholders as these shares were covered by the convertible note hedge that was entered into by the Company in 2011 at the time of issuance of the Notes.

The sale of the warrant gave the holder the right to purchase 4,634 shares of the Company’s common stock at a strike price of $17.00 per share.  The warrant has a series of daily expiration dates beginning in October 2016 and ending in January 2017.  From October 13, 2016 to December 31, 2016, the holder exercised 4,248 warrants, which settled for 80 shares of the Company’s common stock and $10,525 payable in cash, of which $9,500 was paid as of December 31, 2016 and $1,025 was paid in January 2017, at a weighted average stock price of $19.82 per share.  The remaining 386 warrants were exercised in January 2017 by the holder for 102 shares of the Company’s common stock at a weighted average stock price of $23.13 per share.

The following table presents the amount of interest cost recognized relating to the Notes during the years ended December 31, 2018, 2017 and 2016.

	December 31,
	2018		2017		2016
Contractual interest coupon	$	—	$	—	$	1,186
Amortization of interest discount		—		—		1,893
Amortization of debt issuance costs		—		—		261
Total interest cost recognized	$	—	$	—	$	3,340

9. Commitments and Contingencies:

Intellectual Property Indemnification Obligations

The Company has entered into agreements with customers that include limited intellectual property indemnification obligations that are customary in the industry. These guarantees generally require the Company to compensate the other party

F-22

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

for certain damages and costs incurred as a result of third party intellectual property claims arising from these transactions. The nature of the intellectual property indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to its customers. Historically, the Company has not made any indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification guarantees.

Warranty Reserves

The Company generally provides a warranty on its products for a period of 12 to 15 months against defects in material and workmanship. The Company estimates the costs that may be incurred during the warranty period and records a liability in the amount of such costs at the time revenue is recognized. The Company’s estimate is based primarily on historical experience. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Settlements of warranty reserves are generally associated with sales that occurred during the 12 to 15 months prior to the year-end and warranty accruals are related to sales during the same year.

Changes in the Company’s warranty reserves are as follows:

	Year Ended December 31,
	2018			2017			2016
Balance, beginning of the period	$	2,427		$	1,788		$	1,894
Accruals		3,486			3,464			2,405
Usage		(3,472	)		(2,825	)		(2,511	)
Balance, end of the period	$	2,441		$	2,427		$	1,788

Legal Matters

From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business. As of December 31, 2018, there are no legal proceedings pending or threatened against the Company that management believes are likely to have a material adverse effect on the Company’s consolidated financial position or otherwise.

Lease Agreements

The Company rents space for its corporate headquarters, manufacturing and service operations and sales offices, which expire through 2029. Total rent expense for these facilities amounted to $3,311, $3,292 and $3,296 for the years ended December 31, 2018, 2017 and 2016, respectively.

The Company also leases certain equipment pursuant to operating leases, which expire through 2023.  Rent expense related to these leases amounted to $98, $111 and $99 for the years ended December 31, 2018, 2017 and 2016, respectively.

Total future minimum lease payments under noncancelable operating leases as of December 31, 2018 amounted to $3,170 for 2019, $2,801 for 2020, $2,107 for 2021, $2,051 for 2022, $1,725 for 2023 and $7,484 for all periods thereafter.

Royalty Agreements

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 $1,904, $1,117 and $586 for the years ended December 31, 2018, 2017 and 2016, respectively.

Open and Committed Purchase Orders

The Company has open and committed purchase orders of $71,752 as of December 31, 2018.

F-23

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

Line of Credit

The Company has a credit agreement with a bank that provides for a line of credit which is secured by the marketable securities the Company has with the bank.  The Company is permitted to borrow up to 70% of the value of eligible securities held at the time the line of credit is accessed.  The available line of credit as of December 31, 2018 was approximately $93,920 with an available interest rate of 4.0%.  The credit agreement is available to the Company until such time that either party terminates the arrangement at their discretion.  The Company has not utilized the line of credit to date.

10. Share-Based Compensation and Employee Benefit Plans:

Share-Based Compensation Plans

The Company’s share-based compensation plans are intended to attract and retain employees and to provide an incentive for them to assist the Company to achieve long-range performance goals and to enable them to participate in long-term growth of the Company. The Company settles restricted stock unit awards and stock option exercises with newly issued common shares.

The Company established the 2018 Stock Plan (the “2018 Plan”) effective May 16, 2018. The 2018 Plan provides for the grant of 3,240 stock awards and stock options 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. Shares of common stock available for future grants from a previous stock plan totaled 128 and were carried forward into the allocated balance of the 2018 Plan.  Restricted stock units granted under the 2018 Plan typically vest over a three to five-year period for employees and one year for directors; however, other vesting periods are allowable under the 2018 Plan. Restricted stock units granted to employees have time based or performance based vesting.  If options were to be granted under the 2018 Plan, they would typically grade vest over a five-year period and expire ten years from the date of grant.  As of December 31, 2018, there were shares of common stock available for issuance pursuant to future grants under the 2018 Plan totaling 3,332.

The Company established the 2009 Stock Plan (the “2009 Plan”) effective November 1, 2009. The 2009 Plan provided for the grant of 3,300 stock options and other stock awards 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. Shares of common stock available for future grants from a previous stock plan totaled 2,558 and were carried forward into the allocated balance of the 2009 Plan. Options granted under the 2009 Plan typically grade vested over a five-year period and expire ten years from the date of grant. Restricted stock units granted under the 2009 Plan typically vest over a three to five-year period for employees and one year for directors; however, other vesting periods are allowable under the 2009 Plan. Restricted stock units granted to employees have time based or performance based vesting.  In the second quarter of 2018, the 2009 Plan was terminated and therefore as of December 31, 2018, there were no shares of common stock available for issuance pursuant to future grants under the 2009 Plan.  As of December 31, 2017, there were 2,049 shares of common stock available for issuance pursuant to future grants under the 2009 Plan.  

The following table reflects share-based compensation expense by type of award:

	Year Ended December 31,
	2018			2017			2016
Share-based compensation expense:
Restricted stock units, including all performance and market     based awards	$	6,062		$	5,433		$	4,457
Stock options		—			237			318
Total share-based compensation		6,062			5,670			4,775
Tax effect on share-based compensation		1,362			2,052			1,743
Net effect on net income	$	4,700		$	3,618		$	3,032
Effect on earnings per share:
Basic	$	(0.15	)	$	(0.11	)	$	(0.10	)
Diluted	$	(0.15	)	$	(0.11	)	$	(0.10	)

F-24

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

Restricted Stock Unit Activity

A summary of the Company’s restricted stock unit activity with respect to the years ended December 31, 2016, 2017 and 2018 follows:

	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2015		1,169		$	11.40
Granted		429		$	13.20
Vested		(413	)	$	10.80
Forfeited		(49	)	$	11.14
Nonvested at December 31, 2016		1,136		$	12.30
Granted		280		$	22.70
Vested		(321	)	$	11.90
Forfeited		(81	)	$	13.78
Nonvested at December 31, 2017		1,014		$	14.88
Granted		283		$	27.99
Vested		(404	)	$	14.26
Forfeited		(99	)	$	17.79
Nonvested at December 31, 2018		794		$	19.51

Included in the number of shares granted in the table directly above are market performance-based restricted stock units (“MPRSUs”) granted to executives in the first quarters of 2018 and 2017.  The MPRSUs cliff vest at the end of the three years period and have a maximum potential to vest at 200% based on TSR performance. The related share-based compensation expense is determined based on the estimated fair value of the underlying shares on the date of grant and is recognized straight-line over the vesting term.

The following table provides details of the MPRSUs granted during the twelve month periods ended December 31, 2018 and 2017:

	Year Ended December 31,
	2018		2017
Granted	53		38
Maximum vest potential shares	105		76
Estimated fair value per share	$	30.76	$	25.30

As of December 31, 2018, there was $9,517 of total unrecognized compensation cost related to restricted stock units granted under the plans. That cost is expected to be recognized over a weighted average period of 2.1 years.

F-25

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

Stock Option Activity

A summary of the Company’s stock option activity with respect to the years ended December 31, 2016, 2017 and 2018 follows:

	Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2015		490		$	9.46
Granted		—			—
Exercised		(231	)		7.76
Expired		(44	)		14.74
Forfeited		—			—
Outstanding at December 31, 2016		215			10.19
Granted		—			—
Exercised		(142	)		9.14
Expired		—			—
Forfeited		—			—
Outstanding at December 31, 2017		73		$	12.22
Granted		—			—
Exercised		(26	)
Expired		—			—
Forfeited		—			—
Outstanding at December 31, 2018		47		$	12.22		4.0	$	384
Vested or expected to vest at December 31, 2018		47		$	12.22		4.0	$	384
Exercisable at December 31, 2018		47		$	12.22		4.0	$	384

The total intrinsic value of the stock options exercised during 2018, 2017 and 2016 was $384, $853 and $1,312, respectively.  All options outstanding and exercisable at December 31, 2018 had an exercise price of $12.22.  As of December 31, 2018, there was no unrecognized compensation cost related to stock options granted under the plans.

Non-Employee Stock Options

At December 31, 2018 and 2017, the fair value of outstanding stock options to non-employees was $126 and $268, respectively.

Employee Stock Purchase Plan

The Company established an Employee Stock Purchase Plan (the “ESPP”) effective November 1, 2018.  The Company’s prior employee stock purchase plan, effective November 1, 2009 was terminated in the fourth quarter of 2018.  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 Company common stock. The price the employee must pay for each share of stock will be 95% of the fair market value of Company common stock at the end of the applicable six-month purchase period. The ESPP is intended to qualify under Section 423 of the Internal Revenue Code and is a non-compensatory plan as defined by FASB ASC 718, “Stock Compensation.” No stock-based compensation expense attributable to employee stock purchase plan was recorded for the years ended December 31, 2018, 2017 and 2016.  Through the Company’s employee stock purchase plans, employees purchased 13, 11 and 15 shares during the twelve months ended December 31, 2018, 2017 and 2016, respectively.  As of December 31, 2018 and 2017, there were 1,500 and 2,251 shares available for issuance under the Company’s employee stock purchase plans, respectively.

F-26

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

401(k) Savings Plan

The Company has a 401(k) savings plan that allows employees to contribute up to 100% of their annual compensation to the Plan on a pre-tax or after tax basis, 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 $1,118, $1,047 and $1,017 for the years ended December 31, 2018, 2017 and 2016, respectively.

Profit Sharing Program

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, 2018, 2017 and 2016.

11. Other Expense (Income), Net:

Other expense (income), net is comprised of the following:

	Year Ended December 31,
	2018			2017		2016
Foreign currency exchange losses (gains), net	$	255		$	457	$	592
Gain on casualty insurance claim		(302	)		—		—
Other		(9	)		—		(946	)
Total other expense (income), net	$	(56	)	$	457	$	(354	)

12. Income Taxes:

The components of income tax expense are as follows:

	Year Ended December 31,
	2018			2017			2016
Current:
Federal	$	4,423		$	6,020		$	6,084
State		1,038			507			983
Foreign		626			3,159			838
		6,087			9,686			7,905
Deferred:
Federal		1,961			17,034			4,765
State		(73	)		643			184
Foreign		275			(470	)		62
		2,163			17,207			5,011
Total income tax expense	$	8,250		$	26,893		$	12,916

The income before tax is comprised of the following:

	Year Ended December 31,
	2018		2017		2016
Domestic operations	$	49,089	$	57,079	$	47,599
Foreign operations	$	4,257	$	2,723	$	2,269

F-27

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. federal income tax rate of 21% for the year ended December 31, 2018, and 35% for years ended December 31, 2017 and 2016 to income before provision for income taxes as follows:

	Year Ended December 31,
	2018			2017			2016
Federal income tax provision at statutory rate	$	11,203		$	20,931		$	17,454
State taxes, net of federal effect		747			573			822
Foreign taxes, net of federal effect		17			(238	)		(1,613	)
Domestic manufacturing benefit		—			(1,569	)		(1,244	)
FDII Deduction, related to the Tax Act		(2,217	)		—			—
GILTI income net of S250 deduction, related to the Tax Act		113			—			—
Section 162(m)		526			—			—
Research tax credit		(2,298	)		(1,559	)		(692	)
Deferred tax true-up		57			41			(1,644	)
Remeasurement of deferred tax balances, related to the Tax Act		(33	)		8,020			—
Transition tax on foreign earnings, related to the Tax Act		138			(106	)		—
Other		(3	)		800			(167	)
Provision for income taxes	$	8,250		$	26,893		$	12,916
Effective tax rate		15	%		45	%		26	%

The U.S. government enacted the Tax Act on December 22, 2017. The Tax Act makes broad and complex changes to the U.S. tax code that affected 2017, including, but not limited to, (1) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years and (2) bonus depreciation that will allow for full expensing of qualified property. The Tax Act also establishes new tax laws that affected 2018, including, but not limited to, (1) reduction of the U.S. federal corporate tax rate; (2) the creation of the Base Erosion and Anti-Abuse (“BEAT”), a new minimum tax; (3) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (4) a new provision designed to tax Global Intangible Low-Taxed Income (“GILTI”), which allows for the possibility of using foreign tax credits and a deduction of up to 50 percent to offset the income tax liability (subject to some limitations); (5) the repeal of the domestic production activity deduction; (6) limitations on the deductibility of certain executive compensation; (7) limitations on the use of foreign tax credits to reduce the U.S. income tax liability; and (8) a new provision designed to allow a benefit for the foreign-derived intangible income (“FDII”).  In 2018 we evaluated the effects and have determined what accounting policies needed to change and we have calculated the impact of the above provisions. 

At December 31, 2018, the Company has completed its accounting for the tax effects of enactment of the Tax Act and, therefore, recorded final adjustments as follows:

• Reduction of U.S. federal corporate tax rate: The Tax Act reduces the corporate tax rate to 21 percent, effective January 1, 2018. For certain of its deferred tax assets and deferred tax liabilities, the Company has recorded a provisional decrease of $8.0 million, respectively, with a corresponding net adjustment to deferred income tax expense of $8.0 million for the year ended December 31, 2017. During the fourth quarter of 2018, the Company completed the accounting for such revaluation and determined that no adjustment was required. Despite the completion of the Company’s accounting for the Tax Act under SAB 118, many aspects of the law remain unclear and the Company expects ongoing guidance to be issued at both the federal and state levels. The Company will continue to monitor and assess the impact of any new developments.

• Transition tax: The transition tax is a tax on previously deferred earnings and profits (“E&P”) of certain of its foreign subsidiaries. To determine the amount of the transition tax, the Company must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. The Company was able to make a reasonable estimate of the transition tax in the prior year ended on December

F-28

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

31, 2017 and recorded a provisional transition tax obligation of $1.5 million with a corresponding adjustment to current income tax expense. The Company also computed a Section 78 foreign tax credit from the post-1986 E&P of the relevant subsidiaries that resulted in a current income tax benefit of $1.5 million.  An additional $0.1 million was expensed in the third quarter of 2018 due to finalization of the prior year provisional Tax Act calculations.

• Valuation allowances: The Company, as of December 31, 2017, had to assess whether its valuation allowance analyses are affected by various aspects of the Tax Act. Since, as discussed herein, the Company has recorded provisional amounts related to certain portions of the Tax Act, any corresponding determination of the need for or change in a valuation allowance is also provisional. The Company concluded that with all the facts that are available at this point in time that that a full valuation allowance on all carry forward foreign tax credits were needed.  The Company recorded the valuation allowance as of December 31, 2017 in the amount of $1.5 million with a corresponding adjustment to current income tax expense.  Per the completion of the analysis in 2018, the Company concluded that a full valuation allowance of the foreign tax credits is still required against such deferred tax assets.  As of December 31, 2018, the Company’s foreign tax credit carry forwards have a full valuation allowance recorded in the amount of $2.2 million.

Deferred tax assets and liabilities are comprised of the following:

	December 31,
	2018			2017
Research and development credit carryforward	$	198		$	216
Reserves and accruals not currently deductible		1,969			1,883
Deferred revenue		1,201			1,075
Domestic net operating loss carryforwards		832			892
Foreign net operating loss and credit carryforwards		3,146			2,551
Intangibles		4,402			5,388
Share-based compensation		1,259			1,500
Inventory obsolescence reserve		2,774			3,260
Other		810			1,135
Gross deferred tax assets		16,591			17,900
Valuation allowance for deferred tax assets		(3,172	)		(2,447	)
Deferred tax assets after valuation allowance		13,419			15,453
Gross deferred tax liabilities		(609	)		(574	)
Net deferred tax assets	$	12,810		$	14,879

At December 31, 2018 and 2017, the Company had recorded valuation allowances of $3,172 and $2,447, respectively, on certain of the Company’s deferred tax assets to reflect the deferred tax assets at the net amount that is more likely than not to be realized.  The Company recorded a full valuation allowance on all foreign tax credits as of December 31, 2018 in the amount of $2,155, as well as increases to China net operating loss valuation allowance in the amount of $112 based on current year utilization and offset by write-downs of expired net operating losses.

In assessing the realizability of deferred tax assets, the Company uses a more likely than not standard. If it is determined that it is more-likely-than-not that deferred tax assets will not be realized, a valuation allowance must be established against the deferred tax assets. The ultimate realization of the assets is dependent on the generation of future taxable income during the periods in which the associated temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income and tax planning strategies when making this assessment.  In making the determination that it is more likely than not that the Company’s deferred tax assets will be realized as of December 31, 2018, the Company relied primarily on projected future taxable income.

At December 31, 2018, the Company had federal, state and foreign net operating loss carryforwards of $497, $205 and $990, respectively. The federal, state and foreign net operating loss carryforwards expire on various dates through December 31, 2032, December 31, 2032 and December 31, 2026, respectively.  At December 31, 2018, the Company had

F-29

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

federal and state research & development credits and foreign tax credit carryforwards of $0, $318 and $2,155, respectively.  The state research & development credits are set to expire at various dates through December 21, 2024. The foreign tax credit is set to expire at various dates through December 31, 2028.

A provision has not been made at December 31, 2018 for U.S. nor foreign withholding taxes recorded on approximately $7,914 of undistributed earnings of the Company’s foreign subsidiaries in Europe and Japan nor on any additional outside basis differences inherent in these entities because it is the present intention of management to permanently reinvest these undistributed earnings.  The estimated amount of additional tax would not be expected to have a significant impact on the Company’s results of operations.

The total amount of unrecognized tax benefits are as follows:

	December 31,
	2018			2017			2016
Balance, beginning of the period	$	4,880		$	4,827		$	5,236
Gross increases—tax positions in prior period		496			171			118
Gross decreases—tax positions in prior period		(61	)		(362	)		(735	)
Gross increases—current-period tax positions		213			244			208
Lapse of statute of limitations		—			—			—
Balance, end of the period	$	5,528		$	4,880		$	4,827

Included in the Company’s unrecognized tax benefit ending balance at December 31, 2018 and 2017 are unrecognized tax benefits of $4,995 and $4,403, respectively, which would be reflected as an adjustment to income tax expense if recognized.  The year over year increase from 2017 to 2018 is primarily due to additional unrecognized tax benefits related to federal tax exposures.  It is reasonably possible that certain amounts of unrecognized tax benefits may reverse in the next 12 months; however, the Company does not expect such reversals to have a significant impact on its results of operations or financial position.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2018, 2017 and 2016, the Company recognized approximately $199, $246 and $76, respectively, in interest and penalties expense associated with uncertain tax positions. As of December 31, 2018 and 2017, the Company had accrued interest and penalties expense related to unrecognized tax benefits of $1,445 and $1,190, respectively.

The Company is subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions.   The Company files U.S. federal, U.S. state and foreign tax returns. For U.S. federal tax purposes, the Company is generally no longer subject to tax examinations for years 2014 and prior. For U.S. state tax returns, the Company is generally no longer subject to tax examinations for years 2013 and prior. For foreign tax purposes, the Company is generally no longer subject to examination for tax periods 2013 and prior. Certain carryforward tax attributes generated in prior years remain subject to examination and adjustment.  The Company believes that adequate amounts have been reserved for any adjustments that may ultimately result from any future examinations of these years.

In the normal course of business, the Company is subject to tax audits in various jurisdictions, and such jurisdictions may assess additional income taxes or other taxes against it. Although the Company believes its tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from the Company’ s historical income tax provisions and accruals. The results of an audit or litigation could have a material adverse effect on the Company’ s results of operations or cash flows in the period or periods for which that determination is made.

13. Accumulated Other Comprehensive Loss:

Comprehensive income includes net income, foreign currency translation adjustments, and net unrealized gains and losses on available-for-sale debt securities.  See the Consolidated Statements of Comprehensive Income for the effect of the components of comprehensive income on the Company’s net income.

F-30

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

The components of accumulated other comprehensive loss, net of tax, are as follows:

	Foreign currency translation adjustments			Net unrealized (gains) losses on marketable securities			Accumulated other comprehensive loss (income)
Balance at December 31, 2016	$	2,742		$	37		$	2,779
Net current period other comprehensive income		(1,663	)		89			(1,574	)
Reclassifications		—			—			—
Balance at December 31, 2017		1,079			126			1,205
Net current period other comprehensive loss		194			(136	)		58
Reclassifications		—			—			—
Balance at December 31, 2018	$	1,273		$	(10	)	$	1,263

14. Segment Reporting and Geographic Information:

The Company is engaged in the design, development, manufacture and support of high-performance control metrology, defect inspection, advanced packaging lithography and data analysis systems used by microelectronics device manufacturers. The Company and its subsidiaries currently operate in a single operating segment: the design, development, manufacture and support of high-performance process control defect inspection and metrology, advanced packaging lithography and process control software systems used by microelectronics device manufacturers. Therefore the Company has one reportable segment. The Company’s chief operating decision maker is the Chief Executive Officer (the “CEO”). The CEO allocates resources and assesses performance of the business and other activities at the reportable segment level.

The following table lists the different sources of revenue:

	Year Ended December 31,
	2018				2017				2016
Systems and Software:
Process control	$	190,098	70	%	$	177,177	70	%	$	146,652	63	%
Lithography		14,975	5	%		14,234	5	%		18,949	8	%
Software licensing, support and maintenance		29,168	11	%		25,473	10	%		29,795	13	%
Parts		28,658	10	%		27,143	11	%		25,343	11	%
Services		10,885	4	%		11,071	4	%		12,041	5	%
Total revenue	$	273,784	100	%	$	255,098	100	%	$	232,780	100	%

F-31

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

The Company’s significant operations outside the United States include sales, service and application offices in Europe and Asia. For geographical revenue reporting, revenue is attributed to the geographic location in which the product is shipped. Revenue by geographic region is as follows:

	Year Ended December 31,
	2018		2017		2016
Revenue from third parties:
United States	$	43,944	$	36,104	$	30,876
Taiwan		45,312		63,079		68,211
South Korea		51,750		44,180		15,556
Singapore		14,371		12,775		35,517
Austria		719		2,601		2,049
Japan		22,361		18,943		11,875
Germany		14,913		15,580		9,759
China		63,243		35,925		33,720
Other Europe		11,541		21,167		18,720
Other Asia		5,630		4,744		6,497
Total revenue	$	273,784	$	255,098	$	232,780

In 2018, sales to SK Hynix Inc. accounted for 12.2% of the Company’s revenue.  No individual end user customer accounted for more than 10% of the Company’s revenue in 2017 and 2016.  The Company does not have purchase contracts with any of its customers that obligate them to continue to purchase its products.

At December 31, 2018 and 2017, no individual customer accounted for more than 10% of net accounts receivable.

Substantially all of the Company’s long-lived assets are located within the United States of America.

15. Earnings Per Share:

Basic earnings 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 stock equivalent shares outstanding during the period.   Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive.  In accordance with U.S. GAAP, these shares were not included in calculating diluted earnings per share.

For the year ended December 31, 2018, the weighted average number of restricted stock units and stock options excluded from the computation of diluted earnings per share were 52 and 0, respectively.  For the year ended December 31, 2017, the weighted average number of restricted stock units and stock options excluded from the computation of diluted earnings per share were 8 and 0, respectively.  For the year ended December 31, 2016, the weighted average number of restricted stock units and stock options excluded from the computation of diluted earnings per share were 0 and 39, respectively.

For the years ended December 31, 2017 and 2016, diluted earnings per share-weighted average shares outstanding included the effect resulting from assumed conversion of the Notes and warrants.  

F-32

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

The Company’s basic and diluted earnings per share amounts are as follows:

	December 31,
	2018		2017		2016
Numerator:
Net income	$	45,096	$	32,909	$	36,952
Denominator:
Basic earnings per share - weighted average shares    outstanding		31,671		31,491		31,128
Effect of potential dilutive securities:
Restricted stock units and stock options - dilutive    shares		529		670		467
Convertible senior notes - dilutive shares		—		—		103
Warrants - dilutive shares		—		1		92
Diluted earnings per share - weighted average shares    outstanding		32,200		32,162		31,790
Earnings per share:
Basic	$	1.42	$	1.05	$	1.19
Diluted	$	1.40	$	1.02	$	1.16

16. Shares Repurchase Authorization:

In October 2018, the Board of Directors approved a new share repurchase authorization, which allows the Company to repurchase up to $ 40,000 worth of shares of its common stock.  The authorization provides for repurchases to be made in the open market or through negotiated transactions from time to time.  The share repurchase authorization has no expiration date and may be discontinued at any time. In addition, during the fourth quarter of 2018, the Company completed the purchase of the remaining shares available under the prior 3,000 share repurchase authorization.  During the twelve months ended December 31, 2018, the Company repurchased 1,061 shares of common stock under its two share repurchase authorizations and those shares were subsequently retired.  At December 31, 2018, there were $33,239 available for future share repurchases.

The following table summarizes the Company’s stock repurchases for December 31, 2018, 2017 and 2016:

	Year Ended December 31,
	2018		2017		2016
Shares of common stock repurchased		1,061		—		615
Cost of stock repurchased	$	21,069	$	-	$	8,044
Average price paid per share	$	19.86	$	-	$	13.07

17. Quarterly Consolidated Financial Data (unaudited):

The following tables present certain unaudited consolidated quarterly financial information for the years ended December 31, 2018 and 2017. 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 periods presented. The results of operations for any quarter are not necessarily indicative of results for the full year or for any future period.

F-33

RUDOLPH TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In thousands, except per share data)

Year-over-year quarterly comparisons of the Company’s results of operations may not be meaningful, as the sequential quarterly comparisons set forth below tend to reflect the cyclical activity of the semiconductor industry as a whole. Other 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, and changes in tax rates.

	Quarters Ended
	March 31, 2018		June 30, 2018		September 30, 2018		December 31, 2018		Total
Revenue	$	73,096	$	77,476	$	60,432	$	62,780	$	273,784
Gross profit		42,421		41,736		31,454		32,668		148,279
Income before income taxes		17,674		17,290		8,368		10,014		53,346
Net income		15,130		14,697		7,187		8,082		45,096
Income per share:
Basic	$	0.48	$	0.46	$	0.23	$	0.26	$	1.42
Diluted	$	0.47	$	0.45	$	0.22	$	0.26	$	1.40
Weighted average number of shares outstanding:
Basic		31,662		31,859		31,901		31,268		31,671
Diluted		32,317		32,437		32,408		31,645		32,200

	Quarters Ended
	March 31, 2017		June 30, 2017		September 30, 2017		December 31, 2017			Total
Revenue	$	60,679	$	67,418	$	66,920	$	60,081		$	255,098
Gross profit		31,868		35,456		35,145		32,126			134,595
Income before income taxes		9,607		12,752		25,663		11,780			59,802
Net income (loss)		7,151		9,193		17,369		(804	)		32,909
Income (loss) per share:
Basic	$	0.23	$	0.29	$	0.55	$	(0.03	)	$	1.05
Diluted	$	0.22	$	0.29	$	0.54	$	(0.03	)	$	1.02
Weighted average number of shares outstanding:
Basic		31,290		31,501		31,571		31,597			31,491
Diluted		32,058		32,146		32,170		31,597			32,162

F-34

RUDOLPH TECHNOLOGIES, INC. AND SUBSIDIARIES

SCHEDULE OF 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 Expense			Charged to Other Accounts (net)			Deductions			Balance at End of Period
Year 2018:
Allowance for doubtful     accounts	$	460	$	293		$	—		$	62		$	691
Deferred tax valuation     allowance		2,447		725			—			—			3,172
Year 2017:
Allowance for doubtful     accounts	$	680	$	(222	)	$	—		$	(2	)	$	460
Deferred tax valuation     allowance		1,924		626			(103	)		—			2,447
Year 2016:
Allowance for doubtful     accounts	$	713	$	5		$	—		$	38		$	680
Deferred tax valuation     allowance		2,205		71			(352	)		—			1,924

F-35

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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. (Registrant)
By:	/s/  Michael P. Plisinski
	Michael P. Plisinski Chief Executive Officer
Date:	February 15, 2019

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

Signature	Title	Date
/s/ Michael P. Plisinski	Chief Executive Officer (Principal Executive Officer)	February 15, 2019
Michael P. Plisinski
/s/  Steven R. Roth	Senior Vice President, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	February 15, 2019
Steven R. Roth
/s/ Jeffrey A. Aukerman	Director	February 15, 2019
Jeffrey A. Aukerman
/s/  Leo Berlinghieri	Director	February 15, 2019
Leo Berlinghieri
/s/  Daniel H. Berry	Director	February 15, 2019
Daniel H. Berry
/s/  Vita A Cassese	Director	February 15, 2019
Vita A. Cassese
/s/  Thomas G. Greig	Director	February 15, 2019
Thomas G. Greig
/s/  David B. Miller	Director	February 15, 2019
David B. Miller
/s/  John R. Whitten	Director	February 15, 2019
John R. Whitten

EX-3.2

Exhibit 3.2

RESTATED BYLAWS

OF

RUDOLPH TECHNOLOGIES, INC.

(as amended January 27, 2009)

table of contents

Page

ARTICLE I CORPORATE OFFICES1

1.1 REGISTERED OFFICE1

1.2 OTHER OFFICES1

ARTICLE II MEETINGS OF STOCKHOLDERS1

2.1 PLACE OF MEETINGS1

2.2 ANNUAL MEETING1

2.3 SPECIAL MEETING1

2.4 NOTICE OF STOCKHOLDERS' MEETINGS2

2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES
AND STOCKHOLDER BUSINESS2

2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE5

2.7 QUORUM6

2.8 ADJOURNED MEETING; NOTICE6

2.9 CONDUCT OF BUSINESS6

2.10 VOTING7

2.11 WAIVER OF NOTICE8

2.12 RECORD DATE FOR STOCKHOLDER NOTICE;
VOTING; GIVING CONSENTS8

2.13 PROXIES8

2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE9

2.15 INSPECTORS OF ELECTIONS9

ARTICLE III DIRECTORS10

3.1 POWERS10

3.2 NUMBER OF DIRECTORS10

3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE
OF DIRECTORS10

3.4 RESIGNATION AND VACANCIES10

3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE11

3.6 REGULAR MEETINGS11

3.7 SPECIAL MEETINGS; NOTICE12

3.8 QUORUM12

3.9 WAIVER OF NOTICE12

3.10 ACTION BY UNANIMOUS CONSENT OF DIRECTORS12

3.11 FEES AND COMPENSATION OF DIRECTORS13

3.12 REMOVAL OF DIRECTORS13

ARTICLE IV COMMITTEES13

4.1 COMMITTEES OF DIRECTORS13

4.2 COMMITTEE MINUTES13

4.3 MEETINGS AND ACTION OF COMMITTEES14

i

ARTICLE V OFFICERS14

5.1 OFFICERS14

5.2 APPOINTMENT OF OFFICERS14

5.3 SUBORDINATE OFFICERS14

5.4 REMOVAL AND RESIGNATION OF OFFICERS;
FILLING VACANCIES14

5.5 CHAIRMAN OF THE BOARD15

5.6 CHIEF EXECUTIVE OFFICER15

5.7 PRESIDENT15

5.8 VICE PRESIDENTS15

5.9 SECRETARY16

5.10 CHIEF FINANCIAL OFFICER16

5.11 ASSISTANT SECRETARY16

5.12 ASSISTANT TREASURER17

5.13 REPRESENTATION OF SHARES OF OTHER
CORPORATIONS17

5.14 AUTHORITY AND DUTIES OF OFFICERS17

ARTICLE VI INDEMNITY17

6.1 THIRD PARTY ACTIONS17

6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION18

6.3 SUCCESSFUL DEFENSE18

6.4 PAYMENT OF EXPENSES IN ADVANCE19

6.5 CLAIMS19

6.6 INDEMNITY NOT EXCLUSIVE19

6.7 INSURANCE19

6.8 OTHER SOURCES19

6.9 THE CORPORATION20

6.10 EMPLOYEE BENEFIT PLANS20

6.11 CONTINUATION OF INDEMNIFICATION AND
ADVANCEMENT OF EXPENSES20

ARTICLE VII RECORDS AND REPORTS20

7.1 MAINTENANCE AND INSPECTION OF RECORDS20

7.2 INSPECTION BY DIRECTORS21

7.3 ANNUAL STATEMENT TO STOCKHOLDERS21

ARTICLE VIII GENERAL MATTERS21

8.1 CHECKS21

8.2 EXECUTION OF CORPORATE CONTRACTS
AND INSTRUMENTS22

8.3 STOCK CERTIFICATES; PARTLY PAID SHARES22

8.4 SPECIAL DESIGNATION ON CERTIFICATES22

8.5 LOST CERTIFICATES23

8.6 CONSTRUCTION; DEFINITIONS23

8.7 DIVIDENDS23

8.8 FISCAL YEAR23

ii

8.9 SEAL23

8.10 TRANSFER OF STOCK24

8.11 STOCK TRANSFER AGREEMENTS24

8.12 REGISTERED STOCKHOLDERS24

ARTICLE IX AMENDMENTS24

iii

Exhibit 3.2

RESTATED BYLAWS

OF

RUDOLPH TECHNOLOGIES, INC.

ARTICLE I

CORPORATE OFFICES

1.1 REGISTERED OFFICE

The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware.  The name of the registered agent of the corporation at such location is Prentice-Hall Corporation System, Inc.

1.2 OTHER OFFICES

The board of directors may at any time establish other offices at any place or places where the corporation is qualified to do business.

ARTICLE II

MEETINGS OF STOCKHOLDERS

2.1 PLACE OF MEETINGS

Meetings of stockholders shall be held at a place, if any, either within or without the State of Delaware, as may be designated by the board of directors from time to time or in the manner provided in these bylaws.

2.2 ANNUAL MEETING

If required by applicable law, an annual meeting of the stockholders shall be held each year for the purpose of electing directors and conducting such other proper business as may properly come before the meeting. The date, time and place, if any, of the annual meeting shall be determined by the board of directors.

2.3 SPECIAL MEETING

A special meeting of the stockholders may be called at any time by the board of directors, or by the chairman of the board, or by the chief executive officer, or by the president.

If a special meeting is called by any person or persons other than the board of directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by electronic transmission to the chairman of the board, the president or the secretary of the

corporation. No business may be transacted at such specialmeeting otherwise than specified in such notice.  The officer receiving therequest shall cause notice to be promptly given to the stockholders entitled tovotethat a meeting will be held at the time requested by the person or personscalling the meeting, not less than ten (10) nor more than sixty (60) days afterthe receipt of the request. Nothing contained in this paragraph of this Section2.3 shall be construed as limiting, fixing, or affecting the time when a meetingof stockholders called by action of the board of directors may be held.

2.4 NOTICE OF STOCKHOLDERS' MEETINGS

Whenever stockholders are required or permitted to take any action at a meeting, a notice of the meeting shall be given that shall state the place, if any, date and time of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called.  Unless otherwise provided by law, the certificate of incorporation or these by-laws, the notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting.  

2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS

(i) Advance Notice of Stockholder Nominations

Nominations of persons for election to the board of directors of the corporation may be made at an annual meeting of stockholders only by or at the direction of the board of directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who was a stockholder of record at the time the notice provided for in this Section 2.5 is delivered to the secretary of the corporation and who complies with the notice procedures set forth in this Section 2.5. For any nomination, other than a nomination made by or at the direction of the board of directors, to be properly brought before an annual meeting, such nomination shall be made pursuant to timely notice in writing to the secretary of the corporation.  To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not later than the close of business on the 90^th day, nor earlier than the close of business on the 120^th day, prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 70 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the corporation.  Such stockholder's notice shall set forth (a) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the corporation which are beneficially owned by such person, (iv) any other information relating to such person that is required by law to be disclosed in solicitations of proxies for election of directors, and (v) such person's written consent to being named as a nominee and to serving as a director if elected; and (b) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made: (i) the name and address, as they appear on the corporation's books, of such

2

stockholder, and of such beneficial owner, (ii) the class and number of shares of capital stock of the corporation which areowned beneficially and of record by such stockholder and such beneficial owner, (iii) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such nomination, (iv) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group that intends (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the corporation’s outstanding capital stock required to elect the nominee and/or (y) otherwise solicit proxies from stockholders in support of such nomination, and (v) a description of allarrangements or understandings between such stockholder and/or beneficial owner, if any, on the one hand, and each nominee and anyother person or persons (naming such person or persons), on the other hand, relating to thenomination.  

(ii) Advance Notice of Stockholders Business

At the annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (a) as specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder.  Business to be brought before the meeting by a stockholder shall not be considered properly brought if the stockholder has not given timely notice thereof in writing to the secretary of the corporation.  To be timely, a stockholder's notice must be delivered to the principal executive offices of the corporation not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day, prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 70 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the corporation.  A stockholder's notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend the bylaws of the corporation, the language of the proposed amendment), the reasons for conducting such business at the annual meeting, (ii) the name and address of the stockholder proposing such business and the beneficial owner, if any, on whose behalf the proposal is made, (iii) the class and number of shares of the corporation, which are owned beneficially or of record by the stockholder and beneficial owner, (iv) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business, (v) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group that intends (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the corporation’s outstanding capital stock required to adopt the proposal and/or (y) otherwise solicit proxies from stockholders in support of such proposal, (vi) any material interest of the stockholder or beneficial owner in such business, and (vii) any other information that is required by law to be provided by the stockholder in his capacity as proponent of a stockholder proposal.  

3

(iii) Special Meetings of Stockholders.  

Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting. Nominations of persons for election to the board of directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporation's notice of meeting (a) by or at the direction of the Board of Directors or any committee thereof or (b) provided that the board of directors has determined that directors shall be elected at such meeting, by any stockholder of the corporation who is a stockholder of record at the time of notice provided for in this Section 2.5 is delivered to the secretary of the corporation, who is entitled to vote at the meeting and upon such election and who complies with the notice procedures set forth in this Section 2.5.  In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the board of directors, any such stockholder entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to such position(s) as specified in the corporation's notice of meeting, if the stockholder's notice required by this Section 2.5 shall be delivered to the secretary at the principal executive offices of the corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the board of directors to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholder's notice as described above.

(iv) General

No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section 2.5, and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.5.  The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made, or that business was not properly brought before the meeting, in accordance with the procedures prescribed by these bylaws, and if he should so determine, he shall so declare at the meeting and the defective nomination or any such business not properly brought before the meeting shall be disregarded.  Notwithstanding the foregoing provisions of this Section 2.5, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the corporation to present a nomination or proposed business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the corporation.  For purposes of this Section 2.5, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.

For purposes of this Section 2.5, "public announcement" shall include disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news

4

service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”).

Notwithstanding the foregoing provisions of this Section 2.5, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.5.  Nothing in this Section 2.5 shall be deemed to affect any rights (a) of stockholders to request inclusion of proposals or nominations in the corporation's proxy statement pursuant to applicable rules or regulations promulgated under the Exchange Act or (b) of the holders of any series of preferred stock to elect directors pursuant to any applicable provisions of the certificate of incorporation.

2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE

Notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation.  An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

Without limiting the foregoing, any notice to stockholders given by the corporation shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given.  Any such consent shall be revocable by the stockholder by written notice to the corporation and shall also be deemed revoked if (1) the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent and (2) such inability becomes known to the secretary of the corporation, the transfer agent or other person responsible for the giving of notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.  Notice given by a form of electronic transmission in accordance with these bylaws shall be deemed given: (i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (iii) if by a posting on an electronic network, together with separate notice to the stockholder of such specific posting, upon the later of such posting and the giving of such separate notice; and (iv) if by another form of electronic transmission, when directed to the stockholder.  For purposes of these bylaws, “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

Without limiting the foregoing, any notice to stockholders given by the corporation may be given by a single written notice to stockholders who share an address if consented to by the stockholders at such address to whom such notice is given.  Any such consent shall be revocable by the stockholders by written notice to the corporation.  Any stockholder who fails to object in writing to the corporation, within 60 days of having been given written notice by the corporation of its intention to send the single notice as set forth in this Section 2.6 shall be deemed to have consented to receiving such single written notice.

5

2.7 QUORUM

The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation.  If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairman of the meeting or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented.  At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.

2.8 ADJOURNED MEETING; NOTICE

When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken.  At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting.  If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

2.9 CONDUCT OF BUSINESS

Meetings of stockholders shall be presided over by the chairman of the board of directors, if any, or in his or her absence by a person designated by the board of directors, or in the absence of a person so designated by the board of directors, by a chairman chosen at the meeting by the holders of a majority in voting power of the stock entitled to vote thereat, present in person or represented by proxy.  The secretary, or in his or her absence, an assistant secretary, or in the absence of the secretary and all assistant secretaries, a person whom the chairman of the meeting shall appoint, shall act as secretary of the meeting and keep a record of the proceedings thereof.

The board of directors shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient.  Subject to such rules and regulations of the board of directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting and matters which are to be voted on by ballot.

6

2.10 VOTING

The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 of these bylaws, subject to the provisions of Sections 217 and 218 of the Delaware General Corporation Law (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements).

Except as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.

Except as otherwise required by law or by the certificate of incorporation, each director shall be elected by the vote of the majority of the votes cast with respect to the director at any meeting for the election of directors at which a quorum is present; provided, however, that if the number of nominees exceeds the number of directors to be elected, the directors shall be elected by the vote of a plurality of the votes of shares represented in person or by proxy at any such meeting and entitled to vote on the election of directors. For purposes of this Bylaw, “a majority of the votes cast” shall mean that the number of shares cast “for” a director’s election exceeds the number of votes cast “against” that director’s election (with “abstentions” and “broker non-votes” not counted as a vote cast either “for” or “against” that director’s election).

If a nominee who is an incumbent director is not elected and no successor has been elected at such meeting, the director shall promptly tender his or her resignation to the Board of Directors. The Nominating and Governing Committee shall make a recommendation to the Board of Directors on whether to accept or reject the tendered resignation, or whether other action should be taken. The Board of Directors shall act on the tendered resignation, taking into account the Committee’s recommendation and publicly disclose (in a press release, a filing with the Securities and Exchange Commission or other broadly disseminated means of communication) its decision regarding the tendered resignation and the rationale behind the decision within 90 days from the date of the certification of the election results.

The Nominating and Governing Committee in making its recommendation, and the Board of Directors in making its decision, may each consider any factors or other information that it considers appropriate and relevant. The director who tenders his or her resignation shall not participate in the recommendation of the Nominating and Governing Committee or the decision of the Board of Directors with respect to his or her resignation. If such incumbent director’s resignation is not accepted by the Board of Directors, such director shall continue to serve until the end of his or her term and until his or her successor is duly elected, or his or her earlier resignation or removal. If a director’s resignation is accepted by the Board of Directors pursuant to this By-Law, or if a nominee for director is not elected and the nominee is not an incumbent director, then the Board of Directors, in its sole discretion, may fill any resulting vacancy, or may decrease the size of the Board of Directors, in each case, pursuant to the applicable provisions of Article III of these Bylaws.

All other elections and questions presented to the stockholders at a meeting at which a quorum is present shall, unless otherwise provided by the certificate of incorporation, these by-laws, the rules or regulations of any stock exchange applicable to the corporation, applicable law or pursuant to any regulation applicable to the corporation or its securities, be decided by the

7

affirmative vote of the holders of a majority in voting power of the shares of stock of the corporation which are present in person or represented by proxy and entitled to vote thereon.

2.11 WAIVER OF NOTICE

Whenever notice is required to be given under any provision of the Delaware General Corporation Law or of the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice.  Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.  Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws.

2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS

In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date which (i) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting, and (ii) in the case of any other action, shall not be more than sixty (60) days prior to such other action.  If no record date is fixed:  (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held and (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting.

2.13 PROXIES

Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period.  A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power.  A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by delivering to the secretary of the corporation a revocation of the proxy or a new proxy bearing a later date.  

8

2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE

The officer who has charge of the stock ledger of a corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder.  Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of meeting or (ii) during ordinary business hours at the principal place of business of the corporation.  The list of stockholders must also be open to examination at the meeting as required by applicable law.  Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders required by this Section 2.14 or to vote in person or by proxy at any meeting of stockholders.

2.15 INSPECTORS OF ELECTIONS

The corporation may, and shall if required by law, in advance of any meeting of stockholders, appoint one or more inspectors of election, who may be employees of the corporation, to act at the meeting or any adjournment thereof and to make a written report thereof.  The corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act.  In the event that no inspector so appointed or designated is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting.  Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability.  The inspector or inspectors so appointed or designated shall (i) ascertain the number of shares of capital stock of the corporation outstanding and the voting power of each such share, (ii) determine the shares of capital stock of the corporation represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares of capital stock of the corporation represented at the meeting and such inspectors’ count of all votes and ballots. Such certification and report shall specify such other information as may be required by law.  In determining the validity and counting of proxies and ballots cast at any meeting of stockholders of the corporation, the inspectors may consider such information as is permitted by applicable law.  No person who is a candidate for an office at an election may serve as an inspector at such election.

ARTICLE III

DIRECTORS

3.1 POWERS

Subject to the provisions of the Delaware General Corporation Law and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be

9

managed and all corporatepowers shall be exercised by or under the direction of the board of directors.

3.2 NUMBER OF DIRECTORS

The board of directors shall consist of such number of members as the board of directors may determine from time to time via board resolution, but in no event shall this number be less than three (3) members. Upon the closing of the first sale of the corporation’s common stock pursuant to a firmly underwritten registered public offering (the “IPO”), the directors shall be divided into three classes, with the term of office of the first class, which class shall initially consist of three directors, to expire at the first annual meeting of stockholders held after the IPO; the term of office of the second class, which shall initially consist of three directors, to expire at the second annual meeting of stockholders held after the IPO; the term of office of the third class, which class shall initially consist of two directors, to expire at the third annual meeting of stockholders held after the IPO; and thereafter for each such term to expire at each third succeeding annual meeting of stockholders held after such election.

No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.

3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS

A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, or until to such director’s earlier death, resignation, disqualification or removal from office.  Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws, wherein other qualifications for directors may be prescribed.  Elections of directors need not be by written ballot.

3.4 RESIGNATION AND VACANCIES

(a)Any director may resign at any time upon notice to the corporation.  Such resignation shall take effect at the time specified in such notice or, if the time be not specified, upon receipt thereof by the board of directors, the chairman of the board of directors or the secretary of the corporation, as the case may be.  Unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective.  When one or more directors shall resign from the board of directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies in accordance with this Section 3.4, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies.

(b)Unless otherwise provided in the certificate of incorporation or these bylaws:

(i)Vacancies and newly created directorships resulting from an increase in the authorized number of directors elected by all stockholders having the right to vote as a single class shall be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director;

10

(ii)Any director elected to fill a vacancy other than due to an increase in the size of the board of directors shall be of the same class as his or her predecessor.  If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible;

(iii)Whenever the holders of any class or series of stock are entitled to elect one or more directors by the provisions of the certificate of incorporation or these bylaws, vacancies and newly created directorships of such class or series shall be filled only by a majority of the directors elected by such class or series then in office, or by a sole remaining director so elected or, if there are no such directors, by the holders of the outstanding class or series of stock entitled to elect such directors.

Any director elected pursuant to this Section 3.4 shall hold office for a term expiring at the next annual meeting of stockholders at which the term of office of the class to which he or she has been elected expires and until such director's successor shall have been duly elected and qualified, or until such director's earlier death, disqualification, resignation or removal.  

3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE

The board of directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware.

Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of such board of directors, or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting pursuant to this section shall constitute presence in person at the meeting.

3.6 REGULAR MEETINGS

Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board.

3.7 SPECIAL MEETINGS; NOTICE

Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two (2) directors.

Notice of the time and place of special meetings shall be delivered to each director personally, by telephone, by first-class mail addressed to each director at that director's address as it is shown on the records of the corporation or by other means of electronic transmission.  If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally, by telephone or by other means of electronic transmission, it shall be delivered personally, by telephone or by such means of electronic transmission at least forty-eight (48) hours before the time of the holding of the meeting.  Any oral notice given personally or by telephone may be communicated either to the

11

director or to aperson at the office of the director who the person giving the notice has reasonto believe will promptly communicate it to the director.  The notice need notspecify the purpose or the place of the meeting, if the meeting is to be held atthe principal executive office of the corporation.

3.8 QUORUM

At all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute, the certificate of incorporation, or these bylaws. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.

3.9 WAIVER OF NOTICE

Whenever notice is required to be given under any provision of the Delaware General Corporation Law, the certificate of incorporation, or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice.  Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when such person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.  Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws.

3.10 ACTION BY UNANIMOUS CONSENT OF DIRECTORS

Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all the members of the board of directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings (or electronic transmissions) are filed with the minutes of proceedings of the board of directors or committee in accordance with applicable law.

3.11 FEES AND COMPENSATION OF DIRECTORS

Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors.

3.12 REMOVAL OF DIRECTORS

Except for such additional directors, if any, as are elected by the holders of any series of preferred stock as provided for or fixed pursuant to the certificate of incorporation, any director, or the entire board of directors, may be removed from office at any time, but only for cause and only by the affirmative vote of at least [66 2/3%] of the total voting power of the outstanding shares

12

of capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class.

ARTICLE IV

COMMITTEES

4.1 COMMITTEES OF DIRECTORS

The board of directors may designate one or more committees, with each committee to consist of one or more of the directors of the corporation.  The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.  In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member.  Any such committee, to the extent provided in the resolution of the board of directors, or in the bylaws of the corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority (i) approving or adopting or recommending to the stockholders, any action or matter expressly required by the Delaware General Corporation Law to be submitted to stockholders for approval or (ii) adopting, amending, or repealing any bylaws of the corporation; and, unless the board resolution establishing the committee, the bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law.

4.2 COMMITTEE MINUTES

Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required.

4.3 MEETINGS AND ACTION OF COMMITTEES

Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the board of directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee.  The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.

13

ARTICLE VOFFICERS

5.1 OFFICERS

The officers of the corporation shall be a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, a treasurer, one or more vice presidents, one or more assistant vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws.  Any number of offices may be held by the same person.

5.2 APPOINTMENT OF OFFICERS

The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall be appointed by the board of directors, subject to the rights, if any, of an officer under any contract of employment.

5.3 SUBORDINATE OFFICERS

The board of directors may appoint, or empower the president to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine.

5.4 REMOVAL AND RESIGNATION OF OFFICERS; FILLING VACANCIES

Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors.

Any officer may resign at any time by giving written notice to the corporation.  Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective.  Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.

Any vacancy occurring in any office of the corporation shall be filled by the board of directors.

5.5 CHAIRMAN OF THE BOARD

The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to the chairman of the board by the board of directors or as may be

14

prescribed by thesebylaws.  If there is no president and no one has been appointed chief executiveofficer, then the chairman of the board shall also be the chief executiveofficer of the corporation and shall have the powers and duties prescribed inSection 5.6 of these bylaws.

5.6 CHIEF EXECUTIVE OFFICER

The board of directors shall select a chief executive officer of the corporation who shall be subject to the control of the board of directors and have general supervision, direction and control of the business and the officers of the corporation.  The chief executive officer shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the board of directors.

5.7 PRESIDENT

The president shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws.  In addition and subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if no one has been appointed chief executive officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have the powers and duties described in Section 5.6.

5.8 VICE PRESIDENTS

In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president.  The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board.

5.9 SECRETARY

The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders.  The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof.

The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation.

15

The secretary shall give, or cause to be given, notice of all meetings ofthe stockholders and of the board of directors required to be given by law or bythese bylaws. The secretary shall keep the seal of the corporation, if one beadopted, in safe custody and shall have such other powers and perform such otherduties as may be prescribed by the board of directors or by these bylaws.

5.10 CHIEF FINANCIAL OFFICER

The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares.  The books of account shall at all reasonable times be open to inspection by any director.

The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board of directors.  The chief financial officer shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all his transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the board of directors or these bylaws.

The chief financial officer shall be the treasurer of the corporation unless the board of directors appoints some one other than the chief financial officer to be the treasurer of the corporation.

5.11 ASSISTANT SECRETARY

The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as may be prescribed by the board of directors or these bylaws.

5.12 ASSISTANT TREASURER

The assistant treasurer, or, if there is more than one, the assistant treasurers, in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the chief financial officer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the chief financial officer and shall perform such other duties and have such other powers as may be prescribed by the board of directors or these bylaws.

5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS

The chairman of the board, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf

16

of thiscorporation all rights incident to any and all shares or equity interests of any other corporationor entity standing in the name of this corporation.  The authority grantedherein may be exercised either by such person directly or by any other personauthorized to do so by proxy or power of attorney duly executed by such personhaving the authority.

5.14 AUTHORITY AND DUTIES OF OFFICERS

In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors or the stockholders.

ARTICLE VI

INDEMNITY

6.1 THIRD PARTY ACTIONS

The corporation shall, to the fullest extent permitted by law, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director or officer of the corporation, or, while a director or officer of the corporation, is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the corporation, which approval shall not be unreasonably withheld) actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful.  Notwithstanding the preceding sentence, except as otherwise provided in Section 6.5, the corporation shall be required to indemnify a director or officer in connection with a proceeding (or part thereof) commenced by such director or officer only if the commencement of such proceeding (or part thereof) by the director or officer was authorized in the specific case by the board of directors of the corporation.  The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the person's conduct was unlawful.

6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION

The corporation shall, to the fullest extent permitted by law, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation,

17

partnership,joint venture, trust or other enterprise against expenses (including attorneys'fees) and amounts paid in settlement (if such settlement is approved in advanceby the corporation, which approval shall not be unreasonably withheld) actuallyand reasonably incurred by such person in connection with the defense orsettlement of such action or suit if such person acted in good faith and inmanner such person reasonably believed to be in or not opposed to the bestinterests of the corporation, except that no indemnification shall be made inrespect of any claim, issue or matter as to which such person shall have beenadjudged to be liable to the corporation unless and only to the extent that theDelaware Court of Chancery or the court in which such action or suit was broughtshall determine upon application that, despite the adjudication of liability butin view of all the circumstances of the case, such person is fairly andreasonably entitled to indemnity for such expenses which the Delaware Court ofChancery or such other court shall deem proper.  Notwithstanding the preceding sentence, except as otherwise provided in Section 6.5, the corporation shall be required to indemnify a director or officer in connection with a proceeding (or part thereof) commenced by such director or officer only if the commencement of such proceeding (or part thereof) by the director or officer was authorized in the specific case by the board of directors of the corporation.  Notwithstanding any otherprovision of this Article VI, no person shall be indemnified hereunder for anyexpenses or amounts paid in settlement with respect to any action to recovershort-swing profits under Section 16(b) of the Exchange Act.

6.3 SUCCESSFUL DEFENSE

To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, such person shall be indemnified to the fullest extent permitted by law against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith.

6.4 PAYMENT OF EXPENSES IN ADVANCE

Expenses incurred in defending a civil or criminal action, suit or proceeding, by an individual who may be entitled to indemnification pursuant to Section 6.1 or 6.2, shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized in this Article VI.

6.5 CLAIMS

If a claim by a director or officer for indemnification (following the final disposition of such action, suit or proceeding) or advancement of expenses under this Article VI is not paid in full within thirty days after a written claim therefor by the person entitled to indemnification hereunder has been received by the corporation, such person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim.  In any such action the corporation shall have the burden of proving that such person is not entitled to the requested indemnification or advancement of expenses under applicable law.

18

6.6 INDEMNITY NOT EXCLUSIVE

The indemnification and advancement of expenses provided by or granted pursuant to the other sections of this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office.

6.7 INSURANCE

The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity or arising out of such person's status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of this Article VI.

6.8 OTHER SOURCES

The corporation’s obligation, if any, to indemnify or to advance expenses to any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such person may collect as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise.

6.9 THE CORPORATION

For purposes of this Article VI, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under and subject to the provisions of this Article VI (including, without limitation the provisions of [Section 6.4]) with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued.

6.10 EMPLOYEE BENEFIT PLANS

For purposes of this Article VI, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and

19

beneficiariesof an employee benefit plan shall be deemed to have acted in a manner "notopposed to the best interests of the corporation" as referred to in this ArticleVI.

6.11 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES

The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

ARTICLE VII

RECORDS AND REPORTS

7.1 MAINTENANCE AND INSPECTION OF RECORDS

The corporation shall, either at its principal executive offices or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, and other records.

Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom.  A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder.  In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent so to act on behalf of the stockholder.  The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business.

The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder.  Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held.  The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

7.2 INSPECTION BY DIRECTORS

Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his position as a director.  The Court of Chancery is hereby vested with the exclusive jurisdiction to determine

20

whether a directoris entitled to the inspection sought.  The Court may summarily order thecorporation to permit the director to inspect any and all books and records, thestock ledger, and the stock list and to make copies or extracts therefrom.  TheCourt may, in its discretion, prescribe any limitations or conditions withreference to the inspection, or award such other and further relief as the Courtmay deem just and proper.

7.3 ANNUAL STATEMENT TO STOCKHOLDERS

The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation.

ARTICLE VIII

GENERAL MATTERS

8.1 CHECKS

From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments.

8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS

The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

8.3 STOCK CERTIFICATES; PARTLY PAID SHARES

The shares of the corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares.  Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation.  Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the chief financial officer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form.  Any or all of the signatures on the certificate may be a facsimile.  In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by

21

the corporation with the same effect as if such person weresuch officer, transfer agent or registrar at the date of issue.

The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor.  Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated.  Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.

8.4 SPECIAL DESIGNATION ON CERTIFICATES

If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

8.5 LOST CERTIFICATES

Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and canceled at the same time.  The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

8.6 CONSTRUCTION; DEFINITIONS

Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these bylaws.   Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person.

22

8.7 DIVIDENDS

The directors of the corporation, subject to any restrictions contained in (i) the Delaware General Corporation Law or (ii) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock.  Dividends may be paid in cash, in property, or in shares of the corporation's capital stock.

The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve.  Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies.

8.8 FISCAL YEAR

The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors.

8.9 SEAL

The corporation may adopt a corporate seal, which shall be adopted and which may be altered by the board of directors, and may use the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

8.10 TRANSFER OF STOCK

Stock of the corporation shall be transferable in the manner prescribed by law and in these bylaws.  Shares of stock of the corporation shall only be transferred on the books of the corporation by the holder of record thereof or by such holder’s attorney duly authorized in writing, upon surrender to the corporation of the certificate or certificates representing such shares endorsed by the appropriate person or persons (or by delivery of duly executed instructions with respect to uncertificated shares), with such evidence of the authenticity of such endorsement or execution, transfer, authorization, and other matters as the corporation may reasonably require, and accompanied by all necessary stock transfer stamps.  No transfer of stock shall be valid as against the corporation for any purpose until it shall have been entered in the stock records of the corporation by an entry showing the names of the persons from and to whom it was transferred.

8.11 STOCK TRANSFER AGREEMENTS

The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the Delaware General Corporation Law.

8.12 REGISTERED STOCKHOLDERS

The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares,

23

and shallnot be bound to recognize any equitable or other claim to or interest in suchshare or shares on thepart of another person, whether or not it shall haveexpress or other notice thereof, except asotherwise provided by the laws ofthe State of Delaware.

ARTICLE IX

AMENDMENTS

Subject to the provisions of the corporation's certificate of incorporation, the bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors.  The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws.

24

EX-21.1

Exhibit 21.1

SUBSIDIARIES

Name	Jurisdiction
Rudolph Technologies Europe, B.V.		Netherlands
Rudolph Technologies Japan KK		Japan
Rudolph Technologies (Shanghai) Trading Co., Ltd.		China
Rudolph Technologies Germany GmbH		Germany
Azores Asia Limited		Hong Kong

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:

(1) Registration Statements (Forms S-8 No. 333-163240 and No. 333-172927) pertaining to the Rudolph Technologies, Inc. 2009 Stock Plan and the Rudolph Technologies, Inc. 2009 Employee Stock Purchase Plan, and

(2) Registration Statement (Form S-8 No. 333-224969) pertaining to the Rudolph Technologies, Inc. 2018 Stock Plan and the Rudolph Technologies, Inc. 2018 Employee Stock Purchase Plan;

of our reports dated February 15, 2019, with respect to the consolidated financial statements and schedule of Rudolph Technologies, Inc. and the effectiveness of internal control over financial reporting of Rudolph Technologies, Inc. included in this Annual Report (Form 10-K) of Rudolph Technologies, Inc. for the year ended December 31, 2018.

/s/ Ernst & Young LLP

Iselin, New Jersey

February 15, 2019

EX-31.1

Exhibit 31.1

Rule 13a-14(a) Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael P. Plisinski, certify that:

1. I have reviewed this annual report on Form 10-K of Rudolph Technologies,Inc.;

2. Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterial 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 thisreport;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 thisreport;

4. Theregistrant’sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andhave:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is beingprepared;

b.Designedsuchinternal control over financial reporting, or caused suchinternal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyaccepted accountingprinciples;

c.Evaluatedtheeffectivenessoftheregistrant’sdisclosurecontrolsandproceduresandpresentedinthisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;and

5. Theregistrant’sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontrol overfinancialreporting,totheregistrant’sauditorsandtheauditcommitteeoftheregistrant’sboardofdirectors(or persons performing the equivalentfunctions):

a.Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;and

b.Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantrole in the registrant’s internal control over financialreporting.

Date: February 15, 2019

By:	/s/ MICHAEL P.PLISINSKI
	Michael P. Plisinski
	Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

Rule 13a-14(a) Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of2002

I, Steven R. Roth, certify that:

1. I have reviewed this annual report on Form 10-K of Rudolph Technologies,Inc.;

2. Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterial 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 thisreport;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 thisreport;

4. Theregistrant’sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andhave:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is beingprepared;

b.Designedsuchinternal control over financial reporting, or caused suchinternal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyaccepted accountingprinciples;

c.Evaluatedtheeffectivenessoftheregistrant’sdisclosurecontrolsandproceduresandpresentedinthisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;and

5. Theregistrant’sothercertifyingofficer andIhavedisclosed,basedonourmostrecentevaluationofinternalcontrol overfinancialreporting,totheregistrant’sauditorsandtheauditcommitteeoftheregistrant’sboardofdirectors(or persons performing the equivalentfunctions):

a.Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;and

b.Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantrole in the registrant’s internal control over financialreporting.

Date: February 15, 2019

By:	/s/ STEVEN R. ROTH
	Steven R. Roth
	Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANTTO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I,MichaelP.Plisinski,certify,pursuantto18U.S.C.Section1350,asadoptedpursuanttoSection906oftheSarbanes- OxleyActof2002,thattheAnnualReportofRudolphTechnologies,Inc.onForm10-KfortheyearendedDecember31, 2018 fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the informationcontainedintheAnnualReportonForm10-Kfairlypresentsinallmaterialrespectsthefinancialcondition and results of operations of Rudolph Technologies,Inc.

Date: February 15, 2019

By:	/s/ MICHAEL P.PLISINSKI
	Michael P. Plisinski
	Chairman and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Steven R. Roth, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- OxleyActof2002,thattheAnnualReportofRudolphTechnologies,Inc.onForm10-KfortheyearendedDecember31, 2018 fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the informationcontainedintheAnnualReportonForm10-Kfairlypresentsinallmaterialrespectsthefinancialcondition and results of operations of Rudolph Technologies,Inc.

Date: February 15, 2019

By:	/s/ STEVEN R. ROTH
	Steven R. Roth
	Senior Vice President and Chief Financial Officer

XML

Document and Entity Information Document - USD ($)	12 Months Ended
	Dec. 31, 2018	Jan. 23, 2019	Jun. 30, 2018
Document And Entity Information [Abstract]
Entity Registrant Name	RUDOLPH TECHNOLOGIES INC
Trading Symbol	RTEC
Entity Central Index Key	0001094392
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Document Type	10-K
Document Period End Date	Dec. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	FY
Amendment Flag	false
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		30,907,380
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 926,907,335

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Current Assets:
Cash and cash equivalents	$ 112,388	$ 67,770
Marketable securities	62,684	109,589
Accounts receivable, less allowance of $691 in 2018 and $460 in 2017	64,194	65,283
Inventories	96,820	67,521
Income taxes receivable	6,111	7,220
Prepaid expenses and other current assets	8,710	4,699
Total current assets	350,907	322,082
Property, plant and equipment, net	18,874	17,342
Goodwill	22,495	22,495
Identifiable intangible assets, net	7,448	8,632
Deferred income taxes	12,810	14,879
Other assets	5,506	492
Total assets	418,040	385,922
Current liabilities:
Accounts payable	16,981	13,471
Accrued liabilities:
Payroll and related expenses	10,648	10,408
Royalties	611	494
Warranty	2,441	2,427
Deferred revenue	6,767	6,223
Other current liabilities	7,543	9,284
Total current liabilities	44,991	42,307
Other non-current liabilities	11,161	10,461
Total liabilities	56,152	52,768
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 shares authorized, no shares issued and outstanding at December 31, 2018 and 2017
Common stock, $0.001 par value, 100,000 shares authorized, 30,906 and 31,604 issued and outstanding at December 31, 2018 and 2017, respectively.	31	32
Additional paid-in capital	369,893	386,196
Accumulated other comprehensive loss	(1,263)	(1,205)
Accumulated deficit	(6,773)	(51,869)
Total stockholders’ equity	361,888	333,154
Total liabilities and stockholders’ equity	$ 418,040	$ 385,922

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Statement Of Financial Position [Abstract]
Allowance for Doubtful Accounts Receivable, Current	$ 691	$ 460
Preferred Stock, Par or Stated Value Per Share	$ 0.001	$ 0.001
Preferred Stock, Shares Authorized	5,000,000	5,000,000
Preferred Stock, Shares Issued	0	0
Preferred Stock, Shares Outstanding	0	0
Common Stock, Par or Stated Value Per Share	$ 0.001	$ 0.001
Common Stock, Shares Authorized	100,000,000	100,000,000
Common Stock, Shares, Issued	30,906,000	31,604,000
Common Stock, Shares, Outstanding	30,906,000	31,604,000

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Consolidated Statements Of Operations [Abstract]
Revenue	$ 273,784	$ 255,098	$ 232,780
Cost of revenue	125,505	120,503	109,229
Gross profit	148,279	134,595	123,551
Operating expenses:
Research and development	49,053	46,986	44,964
Selling, general and administrative	46,608	39,381	38,562
Amortization	1,534	1,940	2,320
Patent litigation income	0	(13,000)	(14,643)
Total operating expenses	97,195	75,307	71,203
Operating income	51,084	59,288	52,348
Interest (income) expense, net	(2,206)	(971)	2,834
Other expense (income), net	(56)	457	(354)
Income before provision for income taxes	53,346	59,802	49,868
Provision for income taxes	8,250	26,893	12,916
Net income	$ 45,096	$ 32,909	$ 36,952
Earnings per share:
Basic	$ 1.42	$ 1.05	$ 1.19
Diluted	$ 1.40	$ 1.02	$ 1.16
Weighted average number of shares outstanding:
Basic	31,671	31,491	31,128
Diluted	32,200	32,162	31,790

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Consolidated Statement Of Comprehensive Income [Abstract]
Net income	$ 45,096	$ 32,909	$ 36,952
Other comprehensive income (loss):
Change in net unrealized gains (losses) on investments, net of tax	136	(89)	(37)
Change in currency translation adjustments	(194)	1,663	(119)
Total comprehensive income	$ 45,038	$ 34,483	$ 36,796

XML

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Other Comprehensive Loss [Member]	Retained Earnings [Mmember]
Balance at Dec. 31, 2015	$ 270,678	$ 31	$ 394,928	$ (2,623)	$ (121,658)
Balance, Shares at Dec. 31, 2015		30,949
Issuance of shares through share-based compensation plans, net	850		850
Issuance of shares through share-based compensation plans, net, Shares		713
Repurchase of common stock	(8,044)		(8,044)
Repurchase of common stock, Shares		(615)
Net income	36,952				36,952
Share-based compensation	4,775		4,775
Tax benefit for share-based compensation plans	792		792
Share-based compensation plan withholdings	(1,587)		(1,587)
Redemption of stock warrants, shares		80
Redemption of stock warrants	(10,525)		(10,525)
Currency translation	(119)			(119)
Unrealized gain (loss) on investments	(37)			(37)
Balance at Dec. 31, 2016	293,735	$ 31	381,189	(2,779)	(84,706)
Balance, shares at Dec. 31, 2016		31,127
Redemption of stock warrants	10,525		10,525
Issuance of shares through share-based compensation plans, net	624	$ 1	623
Issuance of shares through share-based compensation plans, net, Shares		375
Net income	32,909				32,909
Share-based compensation	5,670		5,670
Cumulative effect of a change in accountingfor share-based compensation			72		(72)
Share-based compensation plan withholdings	(1,358)		(1,358)
Redemption of stock warrants, shares		102
Currency translation	1,663			1,663
Unrealized gain (loss) on investments	(89)			(89)
Balance at Dec. 31, 2017	333,154	$ 32	386,196	(1,205)	(51,869)
Balance, shares at Dec. 31, 2017		31,604
Issuance of shares through share-based compensation plans, net	624		624
Issuance of shares through share-based compensation plans, net, Shares		363
Repurchase of common stock	(21,069)	$ (1)	(21,068)
Repurchase of common stock, Shares		(1,061)
Net income	45,096				45,096
Share-based compensation	6,062		6,062
Share-based compensation plan withholdings	(1,921)		(1,921)
Currency translation	(194)			(194)
Unrealized gain (loss) on investments	136			136
Balance at Dec. 31, 2018	$ 361,888	$ 31	$ 369,893	$ (1,263)	$ (6,773)
Balance, shares at Dec. 31, 2018		30,906

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Cash flows from operating activities:
Net income	$ 45,096	$ 32,909	$ 36,952
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Depreciation	4,848	3,990	3,677
Amortization of convertible note discount and issuance costs			2,154
Amortization of intangibles	1,534	1,940	2,320
Foreign currency exchange loss	255	457	592
Gain on disposal of property, plant and equipment			(946)
Change in fair value of contingent consideration	1,010	133	170
Share-based compensation	6,062	5,670	4,775
Provision for doubtful accounts and inventory valuation	3,335	3,608	2,971
Deferred income taxes	2,163	17,207	5,011
Change in operating assets and liabilities:
Accounts receivable	706	430	(9,279)
Income taxes	1,056	(4,727)	(3,021)
Inventories	(31,545)	(4,218)	4,003
Prepaid expenses and other assets	(3,101)	(1,686)	2,038
Accounts payable	3,512	3,198	1,169
Deferred revenue	545	(1,122)	896
Other liabilities	(382)	6,382	(6,057)
Net cash and cash equivalents provided by operating activities	35,094	64,171	47,425
Cash flows from investing activities:
Purchases of marketable securities	(140,018)	(164,661)	(146,865)
Proceeds from sales of marketable securities	186,332	143,349	175,460
Purchases of property, plant and equipment	(7,542)	(10,210)	(3,291)
Cash advance on convertible note receivable	(5,000)
Purchase of intangible assets		(1,000)	(2,000)
Proceeds from sale of property, plant & equipment			1,165
Net cash and cash equivalents provided by (used in) investing activities	33,772	(32,522)	24,469
Cash flows from financing activities:
Payment of senior convertible debt			(60,000)
Redemption of stock warrants		(1,025)	(9,500)
Purchases of common stock	(21,069)		(8,044)
Tax payments related to shares withheld for share-based compensation plans	(1,921)	(1,358)	(1,587)
Payment of contingent consideration for acquired business	(1,543)	(792)	(622)
Issuance of shares through share-based compensation plans	624	623	850
Net cash and cash equivalents used in financing activities	(23,909)	(2,552)	(78,903)
Effect of exchange rate changes on cash and cash equivalents	(339)	814	314
Net increase (decrease) in cash and cash equivalents	44,618	29,911	(6,695)
Cash and cash equivalents at beginning of year	67,770	37,859	44,554
Cash and cash equivalents at end of year	112,388	67,770	37,859
Supplemental disclosure of cash flow information:
Income taxes paid, net	$ 4,301	14,605	10,980
Interest paid			2,250
Litigation settlement received		$ 13,000	$ 14,643

XML

Organization and Nature of Operations

12 Months Ended

Dec. 31, 2018

Organization And Nature Of Operations [Abstract]

Organization and Nature of Operations

1. Organization and Nature of Operations:

Rudolph Technologies, Inc. is a worldwide leader in the design, development, manufacture and support of process control tools that perform macro-defect inspections and metrology, lithography systems, and process control analytical software used by semiconductor and advanced packaging device manufacturers. The Company has branch sales and service offices in South Korea, Taiwan and Singapore and wholly-owned sales and service subsidiaries in the United States, Europe, Japan and China. The Company operates in a single reportable segment and is a provider of process characterization equipment and software for wafer fabs and advanced packaging facilities.

XML

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2018

Summary Of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

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:

Adoption of ASC Topic 606, “Revenue from Contracts with Customers”

On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.  Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.  The Company did not record a cumulative impact due to the adoption of Topic 606.

Revenue Recognition

Revenue is recognized when control of the promised goods or services are transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

The Company has elected to account for shipping and handling activities as the fulfillment of a promise to transfer goods to the customer and therefore records these activities under the caption “Cost of revenue.” Sales tax and any other taxes collected concurrent with revenue producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. These accounting policy elections are consistent with the manner in which the Company has historically recorded these items.

Contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers or the expected cost plus margin.

Disaggregated Revenue

The following table presents the Company’s revenue disaggregated by revenue source:

	Year Ended December 31,
	2018		2017		2016
Systems	$	205,073	$	191,411	$	165,601
Software licensing, support and maintenance		29,168		25,473		29,795
Parts		28,658		27,143		25,343
Services		10,885		11,071		12,041
Total revenue	$	273,784	$	255,098	$	232,780

The following table represents a disaggregation of revenue by timing of revenue:

	Year Ended December 31,
	2018
Point-in-time	$	257,124
Over-time		16,660
Total revenue	$	273,784

See Note 14 of the Notes to the Consolidated Financial Statements for additional discussion of the Company’s disaggregated revenue in detail.

Systems Revenue

Revenue from systems is recognized when the Company transfers control of the product to the customer. To indicate transfer of control, the Company must have a present right to payment, legal title must have passed to the customer and the customer must have the significant risks and rewards of ownership. The Company generally transfers control for system sales when the customer or the customer’s agent picks up the system at the Company’s facility. Payment for the majority of the Company’s systems have 80-90% of the invoice amount due within 30 days and the remaining amount due upon completion of installation, recalibration and qualification by the customer. The Company provides an assurance warranty on its systems for a period of twelve to fifteen months against defects in material and workmanship. The Company provides for the estimated cost of product warranties at the time revenue is recognized.

Depending on the terms of the systems arrangement, the Company may also defer the recognition of a portion of the consideration expected to be received because the Company has to satisfy a future obligation (e.g., installation, training and extended warranties). The Company uses an observable price to determine the standalone selling price for separate performance obligations or a cost plus margin approach when one is not available.

Software Licensing, Support and Maintenance Revenue

Revenue from software licenses provides the customer with a right to use the software as it exists when made available to the customer. Revenue from software licenses are recognized upfront at the point in time when the software is made available to the customer. Revenue from licensing support and maintenance is recognized as the support and maintenance are provided, which is over the contract period. Payment for software licensing, support and maintenance is generally due in 30 days.

Parts Revenue

Revenue from parts is recognized when the Company transfers control of the product, which typically occurs when the Company ships the product from its facilities to the customer. Payment for parts is generally due in 30 days.

Services Revenue

Revenue from services primarily consists of service contracts, which provide additional maintenance coverage beyond the Company’s assurance warranty on its products, service labor, consulting and training. Revenue from service contracts is recognized ratably over the term of the service contract. Revenue from service labor, consulting and training is recognized as services are performed. Payment for services is generally due in 30 days.

Contract Liabilities

The Company records contract liabilities when the customer has been billed in advance of the Company completing its performance obligations. These amounts are recorded as deferred revenue in the Consolidated Balance Sheets.

Changes in deferred revenue were as follows:

	Year Ended December 31,
	2018
Balance, beginning of the period	$	7,206
Deferral of revenue		19,326
Recognition of deferred revenue		(18,452	)
Balance, ending of the period	$	8,080

Practical Expedients

The Company generally expenses sales commissions when incurred because the amortization period is one year or less. These costs are recorded within selling, general and administrative expenses.

The Company does not adjust the amount of consideration for the effects of a significant financing component as the payment terms are generally one year or less.

The Company does not disclose the value of remaining performance obligations for contracts with an original expected length of one year or less and contracts for which the Company recognizes revenue in the amount to which it has the right to invoice.

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 assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates made by management include the allowance for doubtful accounts, excess and obsolete inventory, fair value of assets acquired and liabilities assumed in a business combination (including contingent consideration), recoverability and useful lives of property, plant and equipment and identifiable intangible assets, recoverability of goodwill, recoverability of deferred tax assets, liabilities for product warranty, contingencies, including litigation reserves and share-based payments and liabilities for tax uncertainties. 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. Marketable Securities:

The Company determined that all of its investment securities are to be classified as available-for-sale. Available-for-sale debt 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 and, interest and dividends on available-for-sale securities are included in interest income and other, net. Available-for-sale securities are classified as current assets regardless of their maturity date if they are available for use in current operations. The Company reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, credit quality and the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. When a decline in fair value is determined to be other-than-temporary, unrealized losses on available-for-sale securities are charged against earnings. The specific identification method is used to determine the gains and losses on marketable securities.

For additional information on the Company’s marketable securities, see Note 4 of Notes to the Consolidated Financial Statements.

F. Allowance for Doubtful Accounts:

The Company evaluates the collectability of accounts receivable based on a combination of factors. 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, thereby reducing 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.

G. Inventories:

Inventories are stated at the lower of cost or net realizable value.  Net realizable value is the estimated selling prices in the ordinary course of business, less predictable costs of completion, disposal and transportation.  Cost is generally determined on a first-in, first-out basis, and includes material, labor and manufacturing overhead costs. The Company reviews and sets standard costs as needed, but at a minimum, on an annual basis, at current manufacturing costs in order to approximate actual costs.

The Company evaluates inventories for excess quantities and obsolescence. The Company establishes inventory reserves when conditions exist that suggest that inventory may be in excess of anticipated demand or is obsolete based upon assumptions about historical and future demand for the Company’s products and market conditions. In addition, inventories are evaluated for potential obsolescence due to the effect of known and anticipated engineering design changes. Once a reserve has been established, it is maintained until the item to which it relates is scrapped or sold.

H. 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 fifteen years for buildings, four to seven years for machinery and equipment, seven years for furniture 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.

I. 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 in 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.

J. Goodwill and Intangible Assets:

Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives. Goodwill and intangible assets with indefinite useful lives are not amortized but are tested for impairment at least annually and when there are indications of impairment. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. The Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company elects this option and after assessing the totality of events or circumstances, the Company determines that it is not likely that the fair value of its reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The Company has not elected this option to date.  The Company estimates the fair value of its reporting unit using the market value of its common stock at October 31 multiplied by the number of outstanding common shares (market capitalization) and an implied control premium as if it were to be acquired by a single stockholder.  The Company also obtains information on completed sales of similar companies in the related industry to estimate the implied control premium for the Company.  If the results of the initial market capitalization test produce results that are below the reporting unit carrying value, the Company will also consider if the market capitalization is temporarily low and, if so, we may also perform a discounted cash flow test. The Company tested for goodwill impairment on October 31, 2018.  No impairments were noted.

For additional information on the Company’s goodwill and purchased intangible assets, see Note 5 of Notes to the Consolidated Financial Statements.

K. Concentration of Credit Risk:

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of accounts receivable, cash and cash equivalents and marketable securities. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for sales on credit. The Company maintains allowances for potential credit losses. The Company maintains cash and cash equivalents and marketable securities with higher credit quality issuers and monitors the amount of credit exposure to any one issuer.

L. Warranties:

The Company generally provides a warranty on its products for a period of twelve to fifteen months against defects in material and workmanship. The Company provides for the estimated cost of product warranties at the time revenue is recognized.

M. 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.  The Company does not record tax expense impact for foreign withholding taxes and outside basis differences on the undistributed earnings of its foreign operations as it is the Company’s intention to permanently re-invest undistributed earnings.

For additional information on the Company’s income taxes, see Note 12 of Notes to the Consolidated Financial Statements.

N. Translation of Foreign Currencies:

The Company has branch operations in Taiwan, Singapore and South Korea and wholly-owned subsidiaries in the United States, Europe, Japan and China. Its international subsidiaries and branches operate primarily through the use of local functional currencies.  A substantial portion of the Company’s international systems sales are denominated in U.S. dollars with the exception of Japan.  Consequently, we have relatively little exposure to foreign currency exchange risk with respect to these sales.

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 monthly exchange rates during the period. Net exchange gains or losses resulting from the translation of foreign financial statements and the effect of exchange rates on intercompany transactions of a long-term investment nature are recorded directly as a separate component of stockholders’ equity under the caption, “Accumulated other comprehensive loss.” Any foreign currency gains or losses related to transactions are included in operating results. The Company had accumulated exchange losses resulting from the translation of foreign operation financial statements of $1,273 and $1,079 as of December 31, 2018 and 2017, respectively.

O. Share-based Compensation:

Share-based awards are measured based on the grant-date fair value of the award and recognized over the period from the service inception date through the date the employee is no longer required to provide service to earn the award. Effective upon the Company’s adoption of Accounting Standards Update (“ASU”) No. 2016-09, “Improvements to Employee Share-Based Payment Accounting” on January 1, 2017, forfeitures are accounted for as they occur. Prior to the adoption of ASU No. 2016-09, expected forfeitures were included in determining share-based compensation expense.

For additional information on the Company’s share-based compensation plans, see Note 10 of Notes to the Consolidated Financial Statements.

P. Research and Development Costs:

Expenditures for research and development are expensed as incurred.

Q. 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, approximate fair value due to their short maturities.  The estimated fair value of these obligations is based, primarily, on a market approach, comparing the Company’s interest rates to those rates the Company believes it would reasonably receive upon re-entry into the market.  Judgment is required to estimate the fair value using available market information and appropriate valuation methods.

For additional information on the Company’s fair value of financial instruments, see Note 3 of Notes to the Consolidated Financial Statements.

R. Derivative Instruments and Hedging Activities:

The Company, when it considers it to be appropriate, enters into forward contracts to hedge the economic exposures arising from foreign currency denominated transactions. At December 31, 2018 and 2017, these contracts included the future sale of Japanese Yen to purchase U.S. dollars. The foreign currency forward contracts were entered into by the Company’s Japanese subsidiary to hedge a portion of certain intercompany obligations. The forward contracts are not designated as hedges for accounting purposes and therefore, the change in fair value is recorded in selling, general and administrative expenses in the Consolidated Statements of Operations.  The Company records its forward contracts at fair value in either prepaid expenses and other current assets or other current liabilities in the Consolidated Balance Sheets.

The dollar equivalent of the U.S. dollar forward contracts and related fair values as of December 31, 2018 and 2017 were as follows:

	December 31,
	2018			2017
Notional amount		6,746			8,417
Fair value of asset (liability)		(32	)		45

During the year ended December 31, 2018, the Company recognized a loss of $81 on maturities of forward contracts.  For the years ended December 31, 2017 and 2016, the Company recorded gains of $105 and $417 on maturities of forward contracts, respectively.  The aggregate notional amounts of matured contracts were $8,465, $9,582 and $6,641 for 2018, 2017 and 2016, respectively.

S. Contingencies and Litigation

The Company is subject to the possibility of losses from various contingencies, including certain legal proceedings, lawsuits and other claims. The Company accrues for a loss contingency when it concludes that the likelihood of a loss is probable and the amount of the loss can be reasonably estimated. If the Company concludes that loss contingencies that could be material to any one of its financial statements are not probable, but are reasonably possible, or are probable, but cannot be estimated, then the Company discloses the nature of the loss contingencies, together with an estimate of the range of possible loss or a statement that such loss is not reasonably estimable. The Company expenses as incurred the costs of defending legal claims against the Company. The Company does not recognize gain contingencies until realized. See Note 9 of the Notes to the Consolidated Financial Statements, “Commitments and Contingencies” for a detailed description.

T. Recent Accounting Pronouncements:

Recently Adopted

Effective January 1, 2018, the Company adopted ASU No. 2016-16, “Income Tax (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.”  This ASU, which is part of the simplification initiative of the Financial Accounting Standards Board (“FASB”), is intended to reduce the complexity of U.S. GAAP and diversity in practice related to the tax consequences of certain types of intra-entity asset transfers, particularly those involving intellectual property.  The adoption of ASU No. 2016-16 did not have any impact on the Company’s consolidated financial position, results of operations, and cash flows.

Effective January 1, 2018, the Company adopted ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This ASU provides guidance on statement of cash flows presentation for eight specific cash flow issues where diversity in practice exists.  The Company retrospectively adopted ASU No. 2018-15 resulting in a reclassification related to contingent consideration payments made after a business combination. The reclassification of $0.2 million from cash flows from financing activities to cash flows from operating activities is reflected in the Consolidated Statement of Cash Flows for the twelve month period ended December 31, 2017.  Adoption of additional guidance under ASU No. 2016-15 did not have a material impact on the Company’s consolidated financial position, results of operations, and cash flows.

Effective January 1, 2018, the Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes nearly all existing revenue recognition guidance.  The core principle of this ASU is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.As a result of the adoption of ASU No. 2014-09, the Company changed its accounting policy for revenue recognition. Refer to Item B of this Note to the Consolidated Financial Statements, “Summary of Significant Accounting Policies” for further information.

Recently Issued

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.”  This ASU is part of the FASB’s larger disclosure framework project intended to improve the effectiveness of financial statement footnote disclosure.  ASU No. 2018-13 modifies required fair value disclosures related primarily to level 3 investments.  This ASU is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods.  The adoption of ASU No. 2018-13 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and cash flows.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.”  This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.  An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost.  The ASU is effective for the fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.  The adoption of ASU No. 2018-07 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and cash flows.  

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”  The new guidance allows companies to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income to retained earnings.  The guidance also requires certain new disclosures regardless of a company’s election.  The standard is effective for annual periods beginning after December 15, 2018 and for interim periods within those annual periods, with earlier adoption permitted.  The adoption of ASU No. 2018-02 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and cash flows.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.”  This ASU amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Accounting Standards Codification (“ASC”) 718.  The ASU is effective for the fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.  The adoption of ASU No. 2017-09 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and cash flows, if any.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”  This ASU eliminates Step 2 from the goodwill impairment test.   Accordingly, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to the reporting unit.  The ASU is effective for the fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.  The Company is currently evaluating the effect the adoption of ASU No. 2017-04 will have on its consolidated financial position, results of operations, and cash flows, if any.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326),” which introduces new guidance for the accounting for credit losses on instruments within its scope.  Given the breadth of that scope, this ASU will impact both financial services and non-financial services entities.  The standard is effective for fiscal years beginning after December 15, 2020.  The Company is currently evaluating the effect the adoption of ASU No. 2016-13 will have on its consolidated financial position, results of operations, and cash flows, if any.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” ASU No. 2016-02 requires that lessees recognize virtually all of their leases on the balance sheet, by recording a right-of-use asset and lease liability. The provisions of this guidance are effective for annual periods beginning after December 31, 2018, and for interim periods therein. The Company expects to adopt ASU No. 2016-02 upon its effective date of January 1, 2019 using the modified retrospective method and the Company will also elect the package of practical expedients. The Company anticipates the impact of adoption will be an increase to long-term assets and total liabilities of $14,000 to $15,000 as of January 1, 2019.

Recently issued accounting guidance not discussed above is not applicable or did not have, or is not expected to have, a material impact to the Company.

XML

Fair Value Measurements

12 Months Ended

Dec. 31, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements

3. Fair Value Measurements:

The Company applies a three-level valuation hierarchy for fair value measurements. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability. Level 3 inputs are unobservable inputs based on management’s assumptions used to measure assets and liabilities at fair value. A financial asset’s or liability’s fair value measurement classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following tables provide the assets and liabilities carried at fair value measured on a recurring basis at December 31, 2018 and December 31, 2017:

	Fair Value Measurements Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2018
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	62,684	$	—	$	62,684	$	—
Total assets	$	62,684	$	—	$	62,684	$	—
Liabilities:
Contingent consideration - acquisitions	$	2,060	$	—	$	—	$	2,060
Foreign currency forward contracts		32		—		32		—
Total liabilities	$	2,092	$	—	$	32	$	2,060
December 31, 2017
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	109,589	$	—	$	109,589	$	—
Foreign currency forward contracts		45		—		45		—
Total assets	$	109,634	$	—	$	109,634	$	—
Liabilities:
Contingent consideration - acquisitions	$	2,593	$	—	$	—	$	2,593
Total liabilities	$	2,593	$	—	$	—	$	2,593

The Company’s available-for-sale debt securities classified as Level 2 are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency.  The foreign currency forward contracts are primarily measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers.  Investment prices are obtained from third party pricing providers, which model prices utilizing the above observable inputs, for each asset class.

Level 3 liabilities consisted of contingent consideration related to an acquisition for which the Company uses a discounted cash flow model to value these liabilities.  The Level 3 assumptions used in the discounted cash flow model for the contingent consideration included projected revenue, timing of cash flows and estimates of discount rates of 9.2% and 8.6% for the years ended December 31, 2018 and 2017, respectively.  A significant decrease in the projected revenue or increase in discount rates could result in a significantly lower fair value measurement for the contingent consideration.  

This table presents a reconciliation of all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2018:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Balance at December 31, 2017	$	2,593
Total loss due to remeasurement included in selling, general and    administrative expense		1,010
Additions		—
Payments		(1,543	)
Transfer into (out of) Level 3		—
Balance at December 31, 2018	$	2,060

See Note 4 for additional discussion regarding the fair value of the Company’s marketable securities.

Fair Value of Other Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates fair value because of the short-term maturity of these instruments. The estimated fair value of these obligations is based, primarily, on a market approach, comparing the Company’s interest rates to those rates the Company believes it would reasonably receive upon re-entry into the market. Judgment is required to estimate the fair value using available market information and appropriate valuation methods.

The carrying amount of the convertible notes receivable approximates fair value based on current interest rates for instruments with similar characteristics. Convertible notes receivable are initially recognized at fair value. The Company does not subsequently adjust the fair value of these convertible notes receivable unless it is determined that the convertible note receivable is impaired. The Company considers the issuer’s financial condition, payment history, and other relevant factors when assessing the collectability of the convertible note and to reserve the portion of such convertible note for which collection does not appear likely. Interest income is recognized as earned.

XML

Marketable Securities

12 Months Ended

Dec. 31, 2018

Marketable Securities [Abstract]

Marketable Securities

4. Marketable Securities:

The Company has evaluated its investment policies and determined that all of its marketable securities, which are comprised of debt securities, are to be classified as available-for-sale.  The Company’s available-for-sale debt 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 on available-for-sale securities are included in “Other expense (income)” on the Consolidated Statements of Operations.  The Company records other-than-temporary impairment charges for its available-for-sale debt securities when it intends to sell the securities, it is more-likely-than not that it will be required to sell the securities before a recovery, or when it does not expect to recover the entire amortized cost basis of the securities.  The cost of securities sold is based on the specific identification method.

The Company has determined that the gross unrealized losses on its marketable securities at December 31, 2018 and 2017 are temporary in nature. The Company reviews its investment portfolio to identify and evaluate marketable securities that have indications of possible impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, credit quality and the Company’s ability and intent to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value.

At December 31, 2018 and 2017, marketable securities are categorized as follows:

	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value
December 31, 2018
Municipal notes and bonds	$	62,681	$	43	$	40	$	62,684
Total marketable securities	$	62,681	$	43	$	40	$	62,684
December 31, 2017
Municipal notes and bonds	$	109,750	$	—	$	161	$	109,589
Total marketable securities	$	109,750	$	—	$	161	$	109,589

The amortized cost and estimated fair value of marketable securities classified by the maturity date listed on the security, regardless of the Consolidated Balance Sheet classification, is as follows at December 31, 2018 and 2017:

	December 31, 2018				December 31, 2017
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	47,767	$	47,732	$	104,742	$	104,605
Due after one through five years		14,914		14,952		5,008		4,984
Due after five through ten years		—		—		—		—
Due after ten years		—		—		—		—
Total marketable securities	$	62,681	$	62,684	$	109,750	$	109,589

The following table summarizes the estimated fair value and gross unrealized holding losses of marketable securities, aggregated by investment instrument and period of time in an unrealized loss position, at December 31, 2018 and 2017.

	In Unrealized Loss Position For Less Than 12 Months				In Unrealized Loss Position For Greater Than 12 Months
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
December 31, 2018
Municipal notes and bonds	$	27,952	$	30	$	4,671	$	10
Total marketable securities	$	27,952	$	30	$	4,671	$	10
December 31, 2017
Municipal notes and bonds	$	98,805	$	161	$	—	$	—
Total marketable securities	$	98,805	$	161	$	—	$	—

See Note 3 for additional discussion regarding the fair value of the Company’s marketable securities.

XML

Goodwill and Purchased Intangible Assets

12 Months Ended

Dec. 31, 2018

Identifiable Intangible Assets [Abstract]

Goodwill and Purchased Intangible Assets

5. Goodwill and Purchased Intangible Assets:

Goodwill

The gross amount of goodwill at both December 31, 2018 and 2017 was $215,367.  Reflecting an impairment charge of $192,872 in 2008, the carrying amount of goodwill totaled $22,495 and remained unchanged over both the years ended December 31, 2018 and 2017.

Purchased Intangible Assets

Purchased intangible assets as of December 31, 2018 and 2017 are as follows:

	Gross Carrying Amount		Accumulated Amortization		Net
December 31, 2018
Finite-lived intangibles:
Developed technology	$	66,177	$	59,692	$	6,485
Customer and distributor relationships		9,560		9,082		478
Trade names		4,361		3,876		485
Total identifiable intangible assets	$	80,098	$	72,650	$	7,448
December 31, 2017
Finite-lived intangibles:
Developed technology	$	65,827	$	58,522	$	7,305
Customer and distributor relationships		9,560		8,818		742
Trade names		4,361		3,776		585
Total identifiable intangible assets	$	79,748	$	71,116	$	8,632

Intangible asset amortization expense amounted to $1,534, $1,940 and $2,320 for the years ended December 31, 2018, 2017 and 2016, respectively. Assuming no change in the gross carrying value of identifiable intangible assets and estimated lives, estimated amortization expenses are $1,548 for 2019, $1,346 for 2020, $598 for 2021, $532 for 2022, and $515 for 2023.

XML

Convertible Note Receivable

12 Months Ended

Dec. 31, 2018

Receivables [Abstract]

Convertible Note Receivable

6. Convertible Note Receivable:

The Company entered into a convertible loan agreement with Simax Precision Technologies Limited (“Simax”) on May 31, 2018. Simax may borrow from the Company up to $15,000 in multiple promissory notes. The Company expects to be a supplier of lithography modules to Simax which is focused on the manufacture, sale and service of lithography systems.

The convertible notes will bear a rate of interest of 4.25% per annum payable on a semi-annual basis. The convertible notes provide the Company with the option to convert the outstanding indebtedness into equity. If the Company does not elect to exercise its option to convert the notes, Simax will repay the principal amount outstanding and any outstanding interest in equal installments beginning on the fifth anniversary of the loan date and continuing on a quarterly basis over the next three years.

As of December 31, 2018, the Convertible notes receivable balance was $5,000 with accrued interest of $41.

XML

Balance Sheet Details

12 Months Ended

Dec. 31, 2018

Balance Sheet Detail [Abstract]

Balance Sheet Details

7. Balance Sheet Details:

Inventories

Inventories are comprised of the following:

	December 31,
	2018		2017
Materials	$	61,025	$	39,765
Work-in-process		21,910		20,923
Finished goods		13,885		6,833
Total inventories	$	96,820	$	67,521

The Company has established reserves of $11,678 and $13,035 at December 31, 2018 and 2017, respectively, for slow moving and obsolete inventory.  During 2018, the Company recorded a net charge in cost of revenue of $3,042 for the write-down of inventory for excess parts, for older product lines and for parts that were rendered obsolete by design and engineering advancements. In 2018, the Company disposed of $4,398 of inventory.  During 2017, the Company recorded a net charge in cost of revenue of $3,833 for the write-down of inventory for excess parts, for older product lines and for parts that were rendered obsolete by design and engineering advancements. In 2017, the Company disposed of $1,343 of inventory.  

Property, Plant and Equipment

Property, plant and equipment, net, is comprised of the following:

	December 31,
	2018			2017
Land and building	$	2,584		$	2,584
Machinery and equipment		29,097			29,870
Furniture and fixtures		3,226			3,201
Computer equipment and software		7,906			5,444
Leasehold improvements		9,448			9,472
		52,261			50,571
Accumulated depreciation		(33,387	)		(33,229	)
Total property, plant and equipment, net	$	18,874		$	17,342

Depreciation expense amounted to $4,848, $3,990 and $3,677 for the years ended December 31, 2018, 2017 and 2016, respectively.

Other assets

Other assets is comprised of the following:

	December 31,
	2018		2017
Convertible note receivable	$	5,000	$	—
Other		506		492
Total other assets	$	5,506	$	492

Other current liabilities

Other current liabilities is comprised of the following:

	December 31,
	2018		2017
Contingent consideration - acquisitions	$	1,422	$	634
Customer deposits		1,135		5,561
Accrued inventory		1,103		384
Intangible asset acquisition - Stella Alliance		150		100
Deferred rent		75		151
Other		3,658		2,454
Total other current liabilities	$	7,543	$	9,284

Other non-current liabilities

Other non-current liabilities is comprised of the following:

	December 31,
	2018		2017
Unrecognized tax benefits (including interest)	$	5,409	$	4,660
Contingent consideration - acquisitions		638		1,959
Deferred revenue		1,314		983
Deferred rent		1,405		750
Other		2,395		2,109
Total non-current liabilities	$	11,161	$	10,461

XML

Debt Obligations

12 Months Ended

Dec. 31, 2018

Debt Disclosure [Abstract]

Debt Obligations

8. Debt Obligations:

On July 25, 2011, the Company issued $60,000 aggregate principal amount of 3.75% Convertible Senior Notes due 2016 (the “Notes”) at par. The Notes were issued pursuant to an indenture, dated as of July 25, 2011, between the Company and Bank of New York Mellon Trust Company, N.A., as Trustee, which included a form of Note. The Notes provided for the payment of interest semi-annually in arrears on January 15 and July 15 of each year, beginning January 15, 2012, at an annual rate of 3.75%.  Concurrently with the issuance of the Notes, the Company purchased a convertible note hedge and sold a warrant. Each of the convertible note hedge and warrant transactions were entered into with an affiliate of the initial purchaser of the Notes.

On July 15, 2016, the Company redeemed all of its outstanding 3.75% Convertible Senior Notes with an aggregate principle amount of $60,000. Under the terms of the indenture, holders of the Notes were paid cash up to the aggregate principal amount of the notes and were issued shares of common stock for the remainder of the conversion, with any fractional shares paid in cash. The conversion resulted in the issuance of 540 shares of common stock of the Company to the bondholders, but resulted in no dilution to Rudolph shareholders as these shares were covered by the convertible note hedge that was entered into by the Company in 2011 at the time of issuance of the Notes.

The sale of the warrant gave the holder the right to purchase 4,634 shares of the Company’s common stock at a strike price of $17.00 per share.  The warrant has a series of daily expiration dates beginning in October 2016 and ending in January 2017.  From October 13, 2016 to December 31, 2016, the holder exercised 4,248 warrants, which settled for 80 shares of the Company’s common stock and $10,525 payable in cash, of which $9,500 was paid as of December 31, 2016 and $1,025 was paid in January 2017, at a weighted average stock price of $19.82 per share.  The remaining 386 warrants were exercised in January 2017 by the holder for 102 shares of the Company’s common stock at a weighted average stock price of $23.13 per share.

The following table presents the amount of interest cost recognized relating to the Notes during the years ended December 31, 2018, 2017 and 2016.

	December 31,
	2018		2017		2016
Contractual interest coupon	$	—	$	—	$	1,186
Amortization of interest discount		—		—		1,893
Amortization of debt issuance costs		—		—		261
Total interest cost recognized	$	—	$	—	$	3,340

XML

Commitments and Contingencies

12 Months Ended

Dec. 31, 2018

Commitments And Contingencies [Abstract]

Commitments and Contingencies

9. Commitments and Contingencies:

Intellectual Property Indemnification Obligations

The Company has entered into agreements with customers that include limited intellectual property indemnification obligations that are customary in the industry. These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of third party intellectual property claims arising from these transactions. The nature of the intellectual property indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to its customers. Historically, the Company has not made any indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification guarantees.

Warranty Reserves

The Company generally provides a warranty on its products for a period of 12 to 15 months against defects in material and workmanship. The Company estimates the costs that may be incurred during the warranty period and records a liability in the amount of such costs at the time revenue is recognized. The Company’s estimate is based primarily on historical experience. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Settlements of warranty reserves are generally associated with sales that occurred during the 12 to 15 months prior to the year-end and warranty accruals are related to sales during the same year.

Changes in the Company’s warranty reserves are as follows:

	Year Ended December 31,
	2018			2017			2016
Balance, beginning of the period	$	2,427		$	1,788		$	1,894
Accruals		3,486			3,464			2,405
Usage		(3,472	)		(2,825	)		(2,511	)
Balance, end of the period	$	2,441		$	2,427		$	1,788

Legal Matters

From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business. As of December 31, 2018, there are no legal proceedings pending or threatened against the Company that management believes are likely to have a material adverse effect on the Company’s consolidated financial position or otherwise.

Lease Agreements

The Company rents space for its corporate headquarters, manufacturing and service operations and sales offices, which expire through 2029. Total rent expense for these facilities amounted to $3,311, $3,292 and $3,296 for the years ended December 31, 2018, 2017 and 2016, respectively.

The Company also leases certain equipment pursuant to operating leases, which expire through 2023.  Rent expense related to these leases amounted to $98, $111 and $99 for the years ended December 31, 2018, 2017 and 2016, respectively.

Total future minimum lease payments under noncancelable operating leases as of December 31, 2018 amounted to $3,170 for 2019, $2,801 for 2020, $2,107 for 2021, $2,051 for 2022, $1,725 for 2023 and $7,484 for all periods thereafter.

Royalty Agreements

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 $1,904, $1,117 and $586 for the years ended December 31, 2018, 2017 and 2016, respectively.

Open and Committed Purchase Orders

The Company has open and committed purchase orders of $71,752 as of December 31, 2018.

Line of Credit

The Company has a credit agreement with a bank that provides for a line of credit which is secured by the marketable securities the Company has with the bank.  The Company is permitted to borrow up to 70% of the value of eligible securities held at the time the line of credit is accessed.  The available line of credit as of December 31, 2018 was approximately $93,920 with an available interest rate of 4.0%.  The credit agreement is available to the Company until such time that either party terminates the arrangement at their discretion.  The Company has not utilized the line of credit to date.

XML

Share-Based Compensation and Employee Benefit Plans

12 Months Ended

Dec. 31, 2018

Share Based Compensation And Employee Benefit Plans [Abstract]

Share-Based Compensation and Employee Benefit Plans

10. Share-Based Compensation and Employee Benefit Plans:

Share-Based Compensation Plans

The Company’s share-based compensation plans are intended to attract and retain employees and to provide an incentive for them to assist the Company to achieve long-range performance goals and to enable them to participate in long-term growth of the Company. The Company settles restricted stock unit awards and stock option exercises with newly issued common shares.

The Company established the 2018 Stock Plan (the “2018 Plan”) effective May 16, 2018. The 2018 Plan provides for the grant of 3,240 stock awards and stock options 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. Shares of common stock available for future grants from a previous stock plan totaled 128 and were carried forward into the allocated balance of the 2018 Plan.  Restricted stock units granted under the 2018 Plan typically vest over a three to five-year period for employees and one year for directors; however, other vesting periods are allowable under the 2018 Plan. Restricted stock units granted to employees have time based or performance based vesting.  If options were to be granted under the 2018 Plan, they would typically grade vest over a five-year period and expire ten years from the date of grant.  As of December 31, 2018, there were shares of common stock available for issuance pursuant to future grants under the 2018 Plan totaling 3,332.

The Company established the 2009 Stock Plan (the “2009 Plan”) effective November 1, 2009. The 2009 Plan provided for the grant of 3,300 stock options and other stock awards 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. Shares of common stock available for future grants from a previous stock plan totaled 2,558 and were carried forward into the allocated balance of the 2009 Plan. Options granted under the 2009 Plan typically grade vested over a five-year period and expire ten years from the date of grant. Restricted stock units granted under the 2009 Plan typically vest over a three to five-year period for employees and one year for directors; however, other vesting periods are allowable under the 2009 Plan. Restricted stock units granted to employees have time based or performance based vesting.  In the second quarter of 2018, the 2009 Plan was terminated and therefore as of December 31, 2018, there were no shares of common stock available for issuance pursuant to future grants under the 2009 Plan.  As of December 31, 2017, there were 2,049 shares of common stock available for issuance pursuant to future grants under the 2009 Plan.  

The following table reflects share-based compensation expense by type of award:

	Year Ended December 31,
	2018			2017			2016
Share-based compensation expense:
Restricted stock units, including all performance and market     based awards	$	6,062		$	5,433		$	4,457
Stock options		—			237			318
Total share-based compensation		6,062			5,670			4,775
Tax effect on share-based compensation		1,362			2,052			1,743
Net effect on net income	$	4,700		$	3,618		$	3,032
Effect on earnings per share:
Basic	$	(0.15	)	$	(0.11	)	$	(0.10	)
Diluted	$	(0.15	)	$	(0.11	)	$	(0.10	)

Restricted Stock Unit Activity

A summary of the Company’s restricted stock unit activity with respect to the years ended December 31, 2016, 2017 and 2018 follows:

	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2015		1,169		$	11.40
Granted		429		$	13.20
Vested		(413	)	$	10.80
Forfeited		(49	)	$	11.14
Nonvested at December 31, 2016		1,136		$	12.30
Granted		280		$	22.70
Vested		(321	)	$	11.90
Forfeited		(81	)	$	13.78
Nonvested at December 31, 2017		1,014		$	14.88
Granted		283		$	27.99
Vested		(404	)	$	14.26
Forfeited		(99	)	$	17.79
Nonvested at December 31, 2018		794		$	19.51

Included in the number of shares granted in the table directly above are market performance-based restricted stock units (“MPRSUs”) granted to executives in the first quarters of 2018 and 2017.  The MPRSUs cliff vest at the end of the three years period and have a maximum potential to vest at 200% based on TSR performance. The related share-based compensation expense is determined based on the estimated fair value of the underlying shares on the date of grant and is recognized straight-line over the vesting term.

The following table provides details of the MPRSUs granted during the twelve month periods ended December 31, 2018 and 2017:

	Year Ended December 31,
	2018		2017
Granted	53		38
Maximum vest potential shares	105		76
Estimated fair value per share	$	30.76	$	25.30

As of December 31, 2018, there was $9,517 of total unrecognized compensation cost related to restricted stock units granted under the plans. That cost is expected to be recognized over a weighted average period of 2.1 years.

Stock Option Activity

A summary of the Company’s stock option activity with respect to the years ended December 31, 2016, 2017 and 2018 follows:

	Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2015		490		$	9.46
Granted		—			—
Exercised		(231	)		7.76
Expired		(44	)		14.74
Forfeited		—			—
Outstanding at December 31, 2016		215			10.19
Granted		—			—
Exercised		(142	)		9.14
Expired		—			—
Forfeited		—			—
Outstanding at December 31, 2017		73		$	12.22
Granted		—			—
Exercised		(26	)
Expired		—			—
Forfeited		—			—
Outstanding at December 31, 2018		47		$	12.22		4.0	$	384
Vested or expected to vest at December 31, 2018		47		$	12.22		4.0	$	384
Exercisable at December 31, 2018		47		$	12.22		4.0	$	384

The total intrinsic value of the stock options exercised during 2018, 2017 and 2016 was $384, $853 and $1,312, respectively.  All options outstanding and exercisable at December 31, 2018 had an exercise price of $12.22.  As of December 31, 2018, there was no unrecognized compensation cost related to stock options granted under the plans.

Non-Employee Stock Options

At December 31, 2018 and 2017, the fair value of outstanding stock options to non-employees was $126 and $268, respectively.

Employee Stock Purchase Plan

The Company established an Employee Stock Purchase Plan (the “ESPP”) effective November 1, 2018.  The Company’s prior employee stock purchase plan, effective November 1, 2009 was terminated in the fourth quarter of 2018.  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 Company common stock. The price the employee must pay for each share of stock will be 95% of the fair market value of Company common stock at the end of the applicable six-month purchase period. The ESPP is intended to qualify under Section 423 of the Internal Revenue Code and is a non-compensatory plan as defined by FASB ASC 718, “Stock Compensation.” No stock-based compensation expense attributable to employee stock purchase plan was recorded for the years ended December 31, 2018, 2017 and 2016.  Through the Company’s employee stock purchase plans, employees purchased 13, 11 and 15 shares during the twelve months ended December 31, 2018, 2017 and 2016, respectively.  As of December 31, 2018 and 2017, there were 1,500 and 2,251 shares available for issuance under the Company’s employee stock purchase plans, respectively.

401(k) Savings Plan

The Company has a 401(k) savings plan that allows employees to contribute up to 100% of their annual compensation to the Plan on a pre-tax or after tax basis, 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 $1,118, $1,047 and $1,017 for the years ended December 31, 2018, 2017 and 2016, respectively.

Profit Sharing Program

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, 2018, 2017 and 2016.

XML

Other Expense (Income), Net

12 Months Ended

Dec. 31, 2018

Other Income Expense [Abstract]

Other Expense (Income), Net

11. Other Expense (Income), Net:

Other expense (income), net is comprised of the following:

	Year Ended December 31,
	2018			2017		2016
Foreign currency exchange losses (gains), net	$	255		$	457	$	592
Gain on casualty insurance claim		(302	)		—		—
Other		(9	)		—		(946	)
Total other expense (income), net	$	(56	)	$	457	$	(354	)

XML

Income Taxes

12 Months Ended

Dec. 31, 2018

Income Taxes [Abstract]

Income Taxes

12. Income Taxes:

The components of income tax expense are as follows:

	Year Ended December 31,
	2018			2017			2016
Current:
Federal	$	4,423		$	6,020		$	6,084
State		1,038			507			983
Foreign		626			3,159			838
		6,087			9,686			7,905
Deferred:
Federal		1,961			17,034			4,765
State		(73	)		643			184
Foreign		275			(470	)		62
		2,163			17,207			5,011
Total income tax expense	$	8,250		$	26,893		$	12,916

The income before tax is comprised of the following:

	Year Ended December 31,
	2018		2017		2016
Domestic operations	$	49,089	$	57,079	$	47,599
Foreign operations	$	4,257	$	2,723	$	2,269

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. federal income tax rate of 21% for the year ended December 31, 2018, and 35% for years ended December 31, 2017 and 2016 to income before provision for income taxes as follows:

	Year Ended December 31,
	2018			2017			2016
Federal income tax provision at statutory rate	$	11,203		$	20,931		$	17,454
State taxes, net of federal effect		747			573			822
Foreign taxes, net of federal effect		17			(238	)		(1,613	)
Domestic manufacturing benefit		—			(1,569	)		(1,244	)
FDII Deduction, related to the Tax Act		(2,217	)		—			—
GILTI income net of S250 deduction, related to the Tax Act		113			—			—
Section 162(m)		526			—			—
Research tax credit		(2,298	)		(1,559	)		(692	)
Deferred tax true-up		57			41			(1,644	)
Remeasurement of deferred tax balances, related to the Tax Act		(33	)		8,020			—
Transition tax on foreign earnings, related to the Tax Act		138			(106	)		—
Other		(3	)		800			(167	)
Provision for income taxes	$	8,250		$	26,893		$	12,916
Effective tax rate		15	%		45	%		26	%

The U.S. government enacted the Tax Act on December 22, 2017. The Tax Act makes broad and complex changes to the U.S. tax code that affected 2017, including, but not limited to, (1) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years and (2) bonus depreciation that will allow for full expensing of qualified property. The Tax Act also establishes new tax laws that affected 2018, including, but not limited to, (1) reduction of the U.S. federal corporate tax rate; (2) the creation of the Base Erosion and Anti-Abuse (“BEAT”), a new minimum tax; (3) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (4) a new provision designed to tax Global Intangible Low-Taxed Income (“GILTI”), which allows for the possibility of using foreign tax credits and a deduction of up to 50 percent to offset the income tax liability (subject to some limitations); (5) the repeal of the domestic production activity deduction; (6) limitations on the deductibility of certain executive compensation; (7) limitations on the use of foreign tax credits to reduce the U.S. income tax liability; and (8) a new provision designed to allow a benefit for the foreign-derived intangible income (“FDII”).  In 2018 we evaluated the effects and have determined what accounting policies needed to change and we have calculated the impact of the above provisions. 

At December 31, 2018, the Company has completed its accounting for the tax effects of enactment of the Tax Act and, therefore, recorded final adjustments as follows:

• Reduction of U.S. federal corporate tax rate: The Tax Act reduces the corporate tax rate to 21 percent, effective January 1, 2018. For certain of its deferred tax assets and deferred tax liabilities, the Company has recorded a provisional decrease of $8.0 million, respectively, with a corresponding net adjustment to deferred income tax expense of $8.0 million for the year ended December 31, 2017. During the fourth quarter of 2018, the Company completed the accounting for such revaluation and determined that no adjustment was required. Despite the completion of the Company’s accounting for the Tax Act under SAB 118, many aspects of the law remain unclear and the Company expects ongoing guidance to be issued at both the federal and state levels. The Company will continue to monitor and assess the impact of any new developments.

• Transition tax: The transition tax is a tax on previously deferred earnings and profits (“E&P”) of certain of its foreign subsidiaries. To determine the amount of the transition tax, the Company must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. The Company was able to make a reasonable estimate of the transition tax in the prior year ended on December 31, 2017 and recorded a provisional transition tax obligation of $1.5 million with a corresponding adjustment to current income tax expense. The Company also computed a Section 78 foreign tax credit from the post-1986 E&P of the relevant subsidiaries that resulted in a current income tax benefit of $1.5 million.  An additional $0.1 million was expensed in the third quarter of 2018 due to finalization of the prior year provisional Tax Act calculations.

• Valuation allowances: The Company, as of December 31, 2017, had to assess whether its valuation allowance analyses are affected by various aspects of the Tax Act. Since, as discussed herein, the Company has recorded provisional amounts related to certain portions of the Tax Act, any corresponding determination of the need for or change in a valuation allowance is also provisional. The Company concluded that with all the facts that are available at this point in time that that a full valuation allowance on all carry forward foreign tax credits were needed.  The Company recorded the valuation allowance as of December 31, 2017 in the amount of $1.5 million with a corresponding adjustment to current income tax expense.  Per the completion of the analysis in 2018, the Company concluded that a full valuation allowance of the foreign tax credits is still required against such deferred tax assets.  As of December 31, 2018, the Company’s foreign tax credit carry forwards have a full valuation allowance recorded in the amount of $2.2 million.

Deferred tax assets and liabilities are comprised of the following:

	December 31,
	2018			2017
Research and development credit carryforward	$	198		$	216
Reserves and accruals not currently deductible		1,969			1,883
Deferred revenue		1,201			1,075
Domestic net operating loss carryforwards		832			892
Foreign net operating loss and credit carryforwards		3,146			2,551
Intangibles		4,402			5,388
Share-based compensation		1,259			1,500
Inventory obsolescence reserve		2,774			3,260
Other		810			1,135
Gross deferred tax assets		16,591			17,900
Valuation allowance for deferred tax assets		(3,172	)		(2,447	)
Deferred tax assets after valuation allowance		13,419			15,453
Gross deferred tax liabilities		(609	)		(574	)
Net deferred tax assets	$	12,810		$	14,879

At December 31, 2018 and 2017, the Company had recorded valuation allowances of $3,172 and $2,447, respectively, on certain of the Company’s deferred tax assets to reflect the deferred tax assets at the net amount that is more likely than not to be realized.  The Company recorded a full valuation allowance on all foreign tax credits as of December 31, 2018 in the amount of $2,155, as well as increases to China net operating loss valuation allowance in the amount of $112 based on current year utilization and offset by write-downs of expired net operating losses.

In assessing the realizability of deferred tax assets, the Company uses a more likely than not standard. If it is determined that it is more-likely-than-not that deferred tax assets will not be realized, a valuation allowance must be established against the deferred tax assets. The ultimate realization of the assets is dependent on the generation of future taxable income during the periods in which the associated temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income and tax planning strategies when making this assessment.  In making the determination that it is more likely than not that the Company’s deferred tax assets will be realized as of December 31, 2018, the Company relied primarily on projected future taxable income.

At December 31, 2018, the Company had federal, state and foreign net operating loss carryforwards of $497, $205 and $990, respectively. The federal, state and foreign net operating loss carryforwards expire on various dates through December 31, 2032, December 31, 2032 and December 31, 2026, respectively.  At December 31, 2018, the Company had federal and state research & development credits and foreign tax credit carryforwards of $0, $318 and $2,155, respectively.  The state research & development credits are set to expire at various dates through December 21, 2024. The foreign tax credit is set to expire at various dates through December 31, 2028.

A provision has not been made at December 31, 2018 for U.S. nor foreign withholding taxes recorded on approximately $7,914 of undistributed earnings of the Company’s foreign subsidiaries in Europe and Japan nor on any additional outside basis differences inherent in these entities because it is the present intention of management to permanently reinvest these undistributed earnings.  The estimated amount of additional tax would not be expected to have a significant impact on the Company’s results of operations.

The total amount of unrecognized tax benefits are as follows:

	December 31,
	2018			2017			2016
Balance, beginning of the period	$	4,880		$	4,827		$	5,236
Gross increases—tax positions in prior period		496			171			118
Gross decreases—tax positions in prior period		(61	)		(362	)		(735	)
Gross increases—current-period tax positions		213			244			208
Lapse of statute of limitations		—			—			—
Balance, end of the period	$	5,528		$	4,880		$	4,827

Included in the Company’s unrecognized tax benefit ending balance at December 31, 2018 and 2017 are unrecognized tax benefits of $4,995 and $4,403, respectively, which would be reflected as an adjustment to income tax expense if recognized.  The year over year increase from 2017 to 2018 is primarily due to additional unrecognized tax benefits related to federal tax exposures.  It is reasonably possible that certain amounts of unrecognized tax benefits may reverse in the next 12 months; however, the Company does not expect such reversals to have a significant impact on its results of operations or financial position.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2018, 2017 and 2016, the Company recognized approximately $199, $246 and $76, respectively, in interest and penalties expense associated with uncertain tax positions. As of December 31, 2018 and 2017, the Company had accrued interest and penalties expense related to unrecognized tax benefits of $1,445 and $1,190, respectively.

The Company is subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions.   The Company files U.S. federal, U.S. state and foreign tax returns. For U.S. federal tax purposes, the Company is generally no longer subject to tax examinations for years 2014 and prior. For U.S. state tax returns, the Company is generally no longer subject to tax examinations for years 2013 and prior. For foreign tax purposes, the Company is generally no longer subject to examination for tax periods 2013 and prior. Certain carryforward tax attributes generated in prior years remain subject to examination and adjustment.  The Company believes that adequate amounts have been reserved for any adjustments that may ultimately result from any future examinations of these years.

In the normal course of business, the Company is subject to tax audits in various jurisdictions, and such jurisdictions may assess additional income taxes or other taxes against it. Although the Company believes its tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from the Company’ s historical income tax provisions and accruals. The results of an audit or litigation could have a material adverse effect on the Company’ s results of operations or cash flows in the period or periods for which that determination is made.

XML

Accumulated Other Comprehensive Loss

12 Months Ended

Dec. 31, 2016

Accumulated Other Comprehensive Loss [Abstract]

Accumulated Other Comprehensive Loss

13. Accumulated Other Comprehensive Loss:

Comprehensive income includes net income, foreign currency translation adjustments, and net unrealized gains and losses on available-for-sale debt securities.  See the Consolidated Statements of Comprehensive Income for the effect of the components of comprehensive income on the Company’s net income.

The components of accumulated other comprehensive loss, net of tax, are as follows:

	Foreign currency translation adjustments			Net unrealized (gains) losses on marketable securities			Accumulated other comprehensive loss (income)
Balance at December 31, 2016	$	2,742		$	37		$	2,779
Net current period other comprehensive income		(1,663	)		89			(1,574	)
Reclassifications		—			—			—
Balance at December 31, 2017		1,079			126			1,205
Net current period other comprehensive loss		194			(136	)		58
Reclassifications		—			—			—
Balance at December 31, 2018	$	1,273		$	(10	)	$	1,263

XML

Segment Reporting and Geographic Information

12 Months Ended

Dec. 31, 2018

Segment Reporting And Geographic Information [Abstract]

Segment Reporting and Geographic Information

14. Segment Reporting and Geographic Information:

The Company is engaged in the design, development, manufacture and support of high-performance control metrology, defect inspection, advanced packaging lithography and data analysis systems used by microelectronics device manufacturers. The Company and its subsidiaries currently operate in a single operating segment: the design, development, manufacture and support of high-performance process control defect inspection and metrology, advanced packaging lithography and process control software systems used by microelectronics device manufacturers. Therefore the Company has one reportable segment. The Company’s chief operating decision maker is the Chief Executive Officer (the “CEO”). The CEO allocates resources and assesses performance of the business and other activities at the reportable segment level.

The following table lists the different sources of revenue:

	Year Ended December 31,
	2018				2017				2016
Systems and Software:
Process control	$	190,098	70	%	$	177,177	70	%	$	146,652	63	%
Lithography		14,975	5	%		14,234	5	%		18,949	8	%
Software licensing, support and maintenance		29,168	11	%		25,473	10	%		29,795	13	%
Parts		28,658	10	%		27,143	11	%		25,343	11	%
Services		10,885	4	%		11,071	4	%		12,041	5	%
Total revenue	$	273,784	100	%	$	255,098	100	%	$	232,780	100	%

The Company’s significant operations outside the United States include sales, service and application offices in Europe and Asia. For geographical revenue reporting, revenue is attributed to the geographic location in which the product is shipped. Revenue by geographic region is as follows:

	Year Ended December 31,
	2018		2017		2016
Revenue from third parties:
United States	$	43,944	$	36,104	$	30,876
Taiwan		45,312		63,079		68,211
South Korea		51,750		44,180		15,556
Singapore		14,371		12,775		35,517
Austria		719		2,601		2,049
Japan		22,361		18,943		11,875
Germany		14,913		15,580		9,759
China		63,243		35,925		33,720
Other Europe		11,541		21,167		18,720
Other Asia		5,630		4,744		6,497
Total revenue	$	273,784	$	255,098	$	232,780

In 2018, sales to SK Hynix Inc. accounted for 12.2% of the Company’s revenue.  No individual end user customer accounted for more than 10% of the Company’s revenue in 2017 and 2016.  The Company does not have purchase contracts with any of its customers that obligate them to continue to purchase its products.

At December 31, 2018 and 2017, no individual customer accounted for more than 10% of net accounts receivable.

Substantially all of the Company’s long-lived assets are located within the United States of America.

XML

Earnings Per Share

12 Months Ended

Dec. 31, 2018

Earnings Loss Per Share [Abstract]

Earnings Per Share

15. Earnings Per Share:

Basic earnings 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 stock equivalent shares outstanding during the period.   Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive.  In accordance with U.S. GAAP, these shares were not included in calculating diluted earnings per share.

For the year ended December 31, 2018, the weighted average number of restricted stock units and stock options excluded from the computation of diluted earnings per share were 52 and 0, respectively.  For the year ended December 31, 2017, the weighted average number of restricted stock units and stock options excluded from the computation of diluted earnings per share were 8 and 0, respectively.  For the year ended December 31, 2016, the weighted average number of restricted stock units and stock options excluded from the computation of diluted earnings per share were 0 and 39, respectively.

For the years ended December 31, 2017 and 2016, diluted earnings per share-weighted average shares outstanding included the effect resulting from assumed conversion of the Notes and warrants.  

The Company’s basic and diluted earnings per share amounts are as follows:

	December 31,
	2018		2017		2016
Numerator:
Net income	$	45,096	$	32,909	$	36,952
Denominator:
Basic earnings per share - weighted average shares    outstanding		31,671		31,491		31,128
Effect of potential dilutive securities:
Restricted stock units and stock options - dilutive    shares		529		670		467
Convertible senior notes - dilutive shares		—		—		103
Warrants - dilutive shares		—		1		92
Diluted earnings per share - weighted average shares    outstanding		32,200		32,162		31,790
Earnings per share:
Basic	$	1.42	$	1.05	$	1.19
Diluted	$	1.40	$	1.02	$	1.16

XML

Share Repurchase Authorization

12 Months Ended

Dec. 31, 2018

Share Repurchase Program [Abstract]

Share Repurchase Authorization

16. Shares Repurchase Authorization:

In October 2018, the Board of Directors approved a new share repurchase authorization, which allows the Company to repurchase up to $ 40,000 worth of shares of its common stock.  The authorization provides for repurchases to be made in the open market or through negotiated transactions from time to time.  The share repurchase authorization has no expiration date and may be discontinued at any time. In addition, during the fourth quarter of 2018, the Company completed the purchase of the remaining shares available under the prior 3,000 share repurchase authorization.  During the twelve months ended December 31, 2018, the Company repurchased 1,061 shares of common stock under its two share repurchase authorizations and those shares were subsequently retired.  At December 31, 2018, there were $33,239 available for future share repurchases.

The following table summarizes the Company’s stock repurchases for December 31, 2018, 2017 and 2016:

	Year Ended December 31,
	2018		2017		2016
Shares of common stock repurchased		1,061		—		615
Cost of stock repurchased	$	21,069	$	-	$	8,044
Average price paid per share	$	19.86	$	-	$	13.07

XML

Quarterly Consolidated Financial Data (unaudited)

12 Months Ended

Dec. 31, 2018

Quarterly Consolidated Financial Data Unaudited [Abstract]

Quarterly Consolidated Financial Data (unaudited)

17. Quarterly Consolidated Financial Data (unaudited):

The following tables present certain unaudited consolidated quarterly financial information for the years ended December 31, 2018 and 2017. 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 periods presented. The results of operations for any quarter are not necessarily indicative of results for the full year or for any future period.

Year-over-year quarterly comparisons of the Company’s results of operations may not be meaningful, as the sequential quarterly comparisons set forth below tend to reflect the cyclical activity of the semiconductor industry as a whole. Other 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, and changes in tax rates.

	Quarters Ended
	March 31, 2018		June 30, 2018		September 30, 2018		December 31, 2018		Total
Revenue	$	73,096	$	77,476	$	60,432	$	62,780	$	273,784
Gross profit		42,421		41,736		31,454		32,668		148,279
Income before income taxes		17,674		17,290		8,368		10,014		53,346
Net income		15,130		14,697		7,187		8,082		45,096
Income per share:
Basic	$	0.48	$	0.46	$	0.23	$	0.26	$	1.42
Diluted	$	0.47	$	0.45	$	0.22	$	0.26	$	1.40
Weighted average number of shares outstanding:
Basic		31,662		31,859		31,901		31,268		31,671
Diluted		32,317		32,437		32,408		31,645		32,200

	Quarters Ended
	March 31, 2017		June 30, 2017		September 30, 2017		December 31, 2017			Total
Revenue	$	60,679	$	67,418	$	66,920	$	60,081		$	255,098
Gross profit		31,868		35,456		35,145		32,126			134,595
Income before income taxes		9,607		12,752		25,663		11,780			59,802
Net income (loss)		7,151		9,193		17,369		(804	)		32,909
Income (loss) per share:
Basic	$	0.23	$	0.29	$	0.55	$	(0.03	)	$	1.05
Diluted	$	0.22	$	0.29	$	0.54	$	(0.03	)	$	1.02
Weighted average number of shares outstanding:
Basic		31,290		31,501		31,571		31,597			31,491
Diluted		32,058		32,146		32,170		31,597			32,162

XML

Schedule of Valuation and Qualifying Accounts

12 Months Ended

Dec. 31, 2018

Valuation And Qualifying Accounts [Abstract]

Schedule of Valuation and Qualifying Accounts Disclosure

SCHEDULE OF 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 Expense			Charged to Other Accounts (net)			Deductions			Balance at End of Period
Year 2018:
Allowance for doubtful     accounts	$	460	$	293		$	—		$	62		$	691
Deferred tax valuation     allowance		2,447		725			—			—			3,172
Year 2017:
Allowance for doubtful     accounts	$	680	$	(222	)	$	—		$	(2	)	$	460
Deferred tax valuation     allowance		1,924		626			(103	)		—			2,447
Year 2016:
Allowance for doubtful     accounts	$	713	$	5		$	—		$	38		$	680
Deferred tax valuation     allowance		2,205		71			(352	)		—			1,924

XML

Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2018

Summary Of Significant Accounting Policies [Abstract]

Consolidation

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.

Revenue Recognition

B. Revenue Recognition:

Adoption of ASC Topic 606, “Revenue from Contracts with Customers”

On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.  Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.  The Company did not record a cumulative impact due to the adoption of Topic 606.

Revenue Recognition

Revenue is recognized when control of the promised goods or services are transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

The Company has elected to account for shipping and handling activities as the fulfillment of a promise to transfer goods to the customer and therefore records these activities under the caption “Cost of revenue.” Sales tax and any other taxes collected concurrent with revenue producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. These accounting policy elections are consistent with the manner in which the Company has historically recorded these items.

Contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers or the expected cost plus margin.

Disaggregated Revenue

The following table presents the Company’s revenue disaggregated by revenue source:

	Year Ended December 31,
	2018		2017		2016
Systems	$	205,073	$	191,411	$	165,601
Software licensing, support and maintenance		29,168		25,473		29,795
Parts		28,658		27,143		25,343
Services		10,885		11,071		12,041
Total revenue	$	273,784	$	255,098	$	232,780

The following table represents a disaggregation of revenue by timing of revenue:

	Year Ended December 31,
	2018
Point-in-time	$	257,124
Over-time		16,660
Total revenue	$	273,784

See Note 14 of the Notes to the Consolidated Financial Statements for additional discussion of the Company’s disaggregated revenue in detail.

Systems Revenue

Revenue from systems is recognized when the Company transfers control of the product to the customer. To indicate transfer of control, the Company must have a present right to payment, legal title must have passed to the customer and the customer must have the significant risks and rewards of ownership. The Company generally transfers control for system sales when the customer or the customer’s agent picks up the system at the Company’s facility. Payment for the majority of the Company’s systems have 80-90% of the invoice amount due within 30 days and the remaining amount due upon completion of installation, recalibration and qualification by the customer. The Company provides an assurance warranty on its systems for a period of twelve to fifteen months against defects in material and workmanship. The Company provides for the estimated cost of product warranties at the time revenue is recognized.

Depending on the terms of the systems arrangement, the Company may also defer the recognition of a portion of the consideration expected to be received because the Company has to satisfy a future obligation (e.g., installation, training and extended warranties). The Company uses an observable price to determine the standalone selling price for separate performance obligations or a cost plus margin approach when one is not available.

Software Licensing, Support and Maintenance Revenue

Revenue from software licenses provides the customer with a right to use the software as it exists when made available to the customer. Revenue from software licenses are recognized upfront at the point in time when the software is made available to the customer. Revenue from licensing support and maintenance is recognized as the support and maintenance are provided, which is over the contract period. Payment for software licensing, support and maintenance is generally due in 30 days.

Parts Revenue

Revenue from parts is recognized when the Company transfers control of the product, which typically occurs when the Company ships the product from its facilities to the customer. Payment for parts is generally due in 30 days.

Services Revenue

Revenue from services primarily consists of service contracts, which provide additional maintenance coverage beyond the Company’s assurance warranty on its products, service labor, consulting and training. Revenue from service contracts is recognized ratably over the term of the service contract. Revenue from service labor, consulting and training is recognized as services are performed. Payment for services is generally due in 30 days.

Contract Liabilities

The Company records contract liabilities when the customer has been billed in advance of the Company completing its performance obligations. These amounts are recorded as deferred revenue in the Consolidated Balance Sheets.

Changes in deferred revenue were as follows:

	Year Ended December 31,
	2018
Balance, beginning of the period	$	7,206
Deferral of revenue		19,326
Recognition of deferred revenue		(18,452	)
Balance, ending of the period	$	8,080

Practical Expedients

The Company generally expenses sales commissions when incurred because the amortization period is one year or less. These costs are recorded within selling, general and administrative expenses.

The Company does not adjust the amount of consideration for the effects of a significant financing component as the payment terms are generally one year or less.

The Company does not disclose the value of remaining performance obligations for contracts with an original expected length of one year or less and contracts for which the Company recognizes revenue in the amount to which it has the right to invoice.

Estimates

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 assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates made by management include the allowance for doubtful accounts, excess and obsolete inventory, fair value of assets acquired and liabilities assumed in a business combination (including contingent consideration), recoverability and useful lives of property, plant and equipment and identifiable intangible assets, recoverability of goodwill, recoverability of deferred tax assets, liabilities for product warranty, contingencies, including litigation reserves and share-based payments and liabilities for tax uncertainties. Actual results could differ from those estimates.

Cash and Cash Equivalents

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.

Marketable Securities

E. Marketable Securities:

The Company determined that all of its investment securities are to be classified as available-for-sale. Available-for-sale debt 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 and, interest and dividends on available-for-sale securities are included in interest income and other, net. Available-for-sale securities are classified as current assets regardless of their maturity date if they are available for use in current operations. The Company reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, credit quality and the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. When a decline in fair value is determined to be other-than-temporary, unrealized losses on available-for-sale securities are charged against earnings. The specific identification method is used to determine the gains and losses on marketable securities.

For additional information on the Company’s marketable securities, see Note 4 of Notes to the Consolidated Financial Statements.

Allowance for Doubtful Accounts

F. Allowance for Doubtful Accounts:

The Company evaluates the collectability of accounts receivable based on a combination of factors. 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, thereby reducing 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.

Inventories

G. Inventories:

Inventories are stated at the lower of cost or net realizable value.  Net realizable value is the estimated selling prices in the ordinary course of business, less predictable costs of completion, disposal and transportation.  Cost is generally determined on a first-in, first-out basis, and includes material, labor and manufacturing overhead costs. The Company reviews and sets standard costs as needed, but at a minimum, on an annual basis, at current manufacturing costs in order to approximate actual costs.

The Company evaluates inventories for excess quantities and obsolescence. The Company establishes inventory reserves when conditions exist that suggest that inventory may be in excess of anticipated demand or is obsolete based upon assumptions about historical and future demand for the Company’s products and market conditions. In addition, inventories are evaluated for potential obsolescence due to the effect of known and anticipated engineering design changes. Once a reserve has been established, it is maintained until the item to which it relates is scrapped or sold.

Property Plant and Equipment

H. 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 fifteen years for buildings, four to seven years for machinery and equipment, seven years for furniture 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.

Impairment of Long-Lived Assets

I. 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 in 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.

Goodwill and Intangible Assets

J. Goodwill and Intangible Assets:

Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives. Goodwill and intangible assets with indefinite useful lives are not amortized but are tested for impairment at least annually and when there are indications of impairment. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. The Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company elects this option and after assessing the totality of events or circumstances, the Company determines that it is not likely that the fair value of its reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The Company has not elected this option to date.  The Company estimates the fair value of its reporting unit using the market value of its common stock at October 31 multiplied by the number of outstanding common shares (market capitalization) and an implied control premium as if it were to be acquired by a single stockholder.  The Company also obtains information on completed sales of similar companies in the related industry to estimate the implied control premium for the Company.  If the results of the initial market capitalization test produce results that are below the reporting unit carrying value, the Company will also consider if the market capitalization is temporarily low and, if so, we may also perform a discounted cash flow test. The Company tested for goodwill impairment on October 31, 2018.  No impairments were noted.

For additional information on the Company’s goodwill and purchased intangible assets, see Note 5 of Notes to the Consolidated Financial Statements.

Concentration of Credit Risk

K. Concentration of Credit Risk:

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of accounts receivable, cash and cash equivalents and marketable securities. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for sales on credit. The Company maintains allowances for potential credit losses. The Company maintains cash and cash equivalents and marketable securities with higher credit quality issuers and monitors the amount of credit exposure to any one issuer.

Warranties

L. Warranties:

The Company generally provides a warranty on its products for a period of twelve to fifteen months against defects in material and workmanship. The Company provides for the estimated cost of product warranties at the time revenue is recognized.

Income Taxes

M. 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.  The Company does not record tax expense impact for foreign withholding taxes and outside basis differences on the undistributed earnings of its foreign operations as it is the Company’s intention to permanently re-invest undistributed earnings.

For additional information on the Company’s income taxes, see Note 12 of Notes to the Consolidated Financial Statements.

Translation of Foreign Currencies

N. Translation of Foreign Currencies:

The Company has branch operations in Taiwan, Singapore and South Korea and wholly-owned subsidiaries in the United States, Europe, Japan and China. Its international subsidiaries and branches operate primarily through the use of local functional currencies.  A substantial portion of the Company’s international systems sales are denominated in U.S. dollars with the exception of Japan.  Consequently, we have relatively little exposure to foreign currency exchange risk with respect to these sales.

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 monthly exchange rates during the period. Net exchange gains or losses resulting from the translation of foreign financial statements and the effect of exchange rates on intercompany transactions of a long-term investment nature are recorded directly as a separate component of stockholders’ equity under the caption, “Accumulated other comprehensive loss.” Any foreign currency gains or losses related to transactions are included in operating results. The Company had accumulated exchange losses resulting from the translation of foreign operation financial statements of $1,273 and $1,079 as of December 31, 2018 and 2017, respectively.

Share-based Compensation

O. Share-based Compensation:

Share-based awards are measured based on the grant-date fair value of the award and recognized over the period from the service inception date through the date the employee is no longer required to provide service to earn the award. Effective upon the Company’s adoption of Accounting Standards Update (“ASU”) No. 2016-09, “Improvements to Employee Share-Based Payment Accounting” on January 1, 2017, forfeitures are accounted for as they occur. Prior to the adoption of ASU No. 2016-09, expected forfeitures were included in determining share-based compensation expense.

For additional information on the Company’s share-based compensation plans, see Note 10 of Notes to the Consolidated Financial Statements.

Research and Development Costs

P. Research and Development Costs:

Expenditures for research and development are expensed as incurred.

Fair Value of Financial Instruments

Q. 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, approximate fair value due to their short maturities.  The estimated fair value of these obligations is based, primarily, on a market approach, comparing the Company’s interest rates to those rates the Company believes it would reasonably receive upon re-entry into the market.  Judgment is required to estimate the fair value using available market information and appropriate valuation methods.

For additional information on the Company’s fair value of financial instruments, see Note 3 of Notes to the Consolidated Financial Statements.

Derivative Instruments and Hedging Activities

R. Derivative Instruments and Hedging Activities:

The Company, when it considers it to be appropriate, enters into forward contracts to hedge the economic exposures arising from foreign currency denominated transactions. At December 31, 2018 and 2017, these contracts included the future sale of Japanese Yen to purchase U.S. dollars. The foreign currency forward contracts were entered into by the Company’s Japanese subsidiary to hedge a portion of certain intercompany obligations. The forward contracts are not designated as hedges for accounting purposes and therefore, the change in fair value is recorded in selling, general and administrative expenses in the Consolidated Statements of Operations.  The Company records its forward contracts at fair value in either prepaid expenses and other current assets or other current liabilities in the Consolidated Balance Sheets.

The dollar equivalent of the U.S. dollar forward contracts and related fair values as of December 31, 2018 and 2017 were as follows:

	December 31,
	2018			2017
Notional amount		6,746			8,417
Fair value of asset (liability)		(32	)		45

During the year ended December 31, 2018, the Company recognized a loss of $81 on maturities of forward contracts.  For the years ended December 31, 2017 and 2016, the Company recorded gains of $105 and $417 on maturities of forward contracts, respectively.  The aggregate notional amounts of matured contracts were $8,465, $9,582 and $6,641 for 2018, 2017 and 2016, respectively.

Contingencies and Litigation

S. Contingencies and Litigation

The Company is subject to the possibility of losses from various contingencies, including certain legal proceedings, lawsuits and other claims. The Company accrues for a loss contingency when it concludes that the likelihood of a loss is probable and the amount of the loss can be reasonably estimated. If the Company concludes that loss contingencies that could be material to any one of its financial statements are not probable, but are reasonably possible, or are probable, but cannot be estimated, then the Company discloses the nature of the loss contingencies, together with an estimate of the range of possible loss or a statement that such loss is not reasonably estimable. The Company expenses as incurred the costs of defending legal claims against the Company. The Company does not recognize gain contingencies until realized. See Note 9 of the Notes to the Consolidated Financial Statements, “Commitments and Contingencies” for a detailed description.

Recent Accounting Pronouncements

T. Recent Accounting Pronouncements:

Recently Adopted

Effective January 1, 2018, the Company adopted ASU No. 2016-16, “Income Tax (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.”  This ASU, which is part of the simplification initiative of the Financial Accounting Standards Board (“FASB”), is intended to reduce the complexity of U.S. GAAP and diversity in practice related to the tax consequences of certain types of intra-entity asset transfers, particularly those involving intellectual property.  The adoption of ASU No. 2016-16 did not have any impact on the Company’s consolidated financial position, results of operations, and cash flows.

Effective January 1, 2018, the Company adopted ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This ASU provides guidance on statement of cash flows presentation for eight specific cash flow issues where diversity in practice exists.  The Company retrospectively adopted ASU No. 2018-15 resulting in a reclassification related to contingent consideration payments made after a business combination. The reclassification of $0.2 million from cash flows from financing activities to cash flows from operating activities is reflected in the Consolidated Statement of Cash Flows for the twelve month period ended December 31, 2017.  Adoption of additional guidance under ASU No. 2016-15 did not have a material impact on the Company’s consolidated financial position, results of operations, and cash flows.

Effective January 1, 2018, the Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes nearly all existing revenue recognition guidance.  The core principle of this ASU is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.As a result of the adoption of ASU No. 2014-09, the Company changed its accounting policy for revenue recognition. Refer to Item B of this Note to the Consolidated Financial Statements, “Summary of Significant Accounting Policies” for further information.

Recently Issued

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.”  This ASU is part of the FASB’s larger disclosure framework project intended to improve the effectiveness of financial statement footnote disclosure.  ASU No. 2018-13 modifies required fair value disclosures related primarily to level 3 investments.  This ASU is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods.  The adoption of ASU No. 2018-13 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and cash flows.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.”  This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.  An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost.  The ASU is effective for the fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.  The adoption of ASU No. 2018-07 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and cash flows.  

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”  The new guidance allows companies to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income to retained earnings.  The guidance also requires certain new disclosures regardless of a company’s election.  The standard is effective for annual periods beginning after December 15, 2018 and for interim periods within those annual periods, with earlier adoption permitted.  The adoption of ASU No. 2018-02 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and cash flows.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.”  This ASU amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Accounting Standards Codification (“ASC”) 718.  The ASU is effective for the fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.  The adoption of ASU No. 2017-09 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and cash flows, if any.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”  This ASU eliminates Step 2 from the goodwill impairment test.   Accordingly, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to the reporting unit.  The ASU is effective for the fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.  The Company is currently evaluating the effect the adoption of ASU No. 2017-04 will have on its consolidated financial position, results of operations, and cash flows, if any.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326),” which introduces new guidance for the accounting for credit losses on instruments within its scope.  Given the breadth of that scope, this ASU will impact both financial services and non-financial services entities.  The standard is effective for fiscal years beginning after December 15, 2020.  The Company is currently evaluating the effect the adoption of ASU No. 2016-13 will have on its consolidated financial position, results of operations, and cash flows, if any.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” ASU No. 2016-02 requires that lessees recognize virtually all of their leases on the balance sheet, by recording a right-of-use asset and lease liability. The provisions of this guidance are effective for annual periods beginning after December 31, 2018, and for interim periods therein. The Company expects to adopt ASU No. 2016-02 upon its effective date of January 1, 2019 using the modified retrospective method and the Company will also elect the package of practical expedients. The Company anticipates the impact of adoption will be an increase to long-term assets and total liabilities of $14,000 to $15,000 as of January 1, 2019.

Recently issued accounting guidance not discussed above is not applicable or did not have, or is not expected to have, a material impact to the Company.

XML

Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

Schedule of Disaggregation of Revenue

The following table presents the Company’s revenue disaggregated by revenue source:

	Year Ended December 31,
	2018		2017		2016
Systems	$	205,073	$	191,411	$	165,601
Software licensing, support and maintenance		29,168		25,473		29,795
Parts		28,658		27,143		25,343
Services		10,885		11,071		12,041
Total revenue	$	273,784	$	255,098	$	232,780

The following table represents a disaggregation of revenue by timing of revenue:

	Year Ended December 31,
	2018
Point-in-time	$	257,124
Over-time		16,660
Total revenue	$	273,784

Schedule of Changes in Deferred Revenue

Changes in deferred revenue were as follows:

	Year Ended December 31,
	2018
Balance, beginning of the period	$	7,206
Deferral of revenue		19,326
Recognition of deferred revenue		(18,452	)
Balance, ending of the period	$	8,080

Forward Contracts and Related Fair Values

The dollar equivalent of the U.S. dollar forward contracts and related fair values as of December 31, 2018 and 2017 were as follows:

	December 31,
	2018			2017
Notional amount		6,746			8,417
Fair value of asset (liability)		(32	)		45

XML

Fair Value Measurements - (Tables)

12 Months Ended

Dec. 31, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements, Recurring and Nonrecurring

The following tables provide the assets and liabilities carried at fair value measured on a recurring basis at December 31, 2018 and December 31, 2017:

	Fair Value Measurements Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2018
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	62,684	$	—	$	62,684	$	—
Total assets	$	62,684	$	—	$	62,684	$	—
Liabilities:
Contingent consideration - acquisitions	$	2,060	$	—	$	—	$	2,060
Foreign currency forward contracts		32		—		32		—
Total liabilities	$	2,092	$	—	$	32	$	2,060
December 31, 2017
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	109,589	$	—	$	109,589	$	—
Foreign currency forward contracts		45		—		45		—
Total assets	$	109,634	$	—	$	109,634	$	—
Liabilities:
Contingent consideration - acquisitions	$	2,593	$	—	$	—	$	2,593
Total liabilities	$	2,593	$	—	$	—	$	2,593

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation

This table presents a reconciliation of all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2018:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Balance at December 31, 2017	$	2,593
Total loss due to remeasurement included in selling, general and    administrative expense		1,010
Additions		—
Payments		(1,543	)
Transfer into (out of) Level 3		—
Balance at December 31, 2018	$	2,060

XML

Marketable Securities - (Tables)

12 Months Ended

Dec. 31, 2018

Marketable Securities [Abstract]

Schedule of Marketable Securities by Category

At December 31, 2018 and 2017, marketable securities are categorized as follows:

	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value
December 31, 2018
Municipal notes and bonds	$	62,681	$	43	$	40	$	62,684
Total marketable securities	$	62,681	$	43	$	40	$	62,684
December 31, 2017
Municipal notes and bonds	$	109,750	$	—	$	161	$	109,589
Total marketable securities	$	109,750	$	—	$	161	$	109,589

Schedule of Amortized Cost and Estimated Fair Value of Marketable Securities Classified by Maturity Date

The amortized cost and estimated fair value of marketable securities classified by the maturity date listed on the security, regardless of the Consolidated Balance Sheet classification, is as follows at December 31, 2018 and 2017:

	December 31, 2018				December 31, 2017
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	47,767	$	47,732	$	104,742	$	104,605
Due after one through five years		14,914		14,952		5,008		4,984
Due after five through ten years		—		—		—		—
Due after ten years		—		—		—		—
Total marketable securities	$	62,681	$	62,684	$	109,750	$	109,589

Summary of Estimated Fair Value and Gross Unrealized Holding Losses of Marketable Securities in Unrealized Loss Position

The following table summarizes the estimated fair value and gross unrealized holding losses of marketable securities, aggregated by investment instrument and period of time in an unrealized loss position, at December 31, 2018 and 2017.

	In Unrealized Loss Position For Less Than 12 Months				In Unrealized Loss Position For Greater Than 12 Months
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
December 31, 2018
Municipal notes and bonds	$	27,952	$	30	$	4,671	$	10
Total marketable securities	$	27,952	$	30	$	4,671	$	10
December 31, 2017
Municipal notes and bonds	$	98,805	$	161	$	—	$	—
Total marketable securities	$	98,805	$	161	$	—	$	—

XML

Goodwill and Purchased Intangible Assets - (Tables)

12 Months Ended

Dec. 31, 2018

Identifiable Intangible Assets [Abstract]

Schedule of Purchased Intangible Assets

Purchased intangible assets as of December 31, 2018 and 2017 are as follows:

	Gross Carrying Amount		Accumulated Amortization		Net
December 31, 2018
Finite-lived intangibles:
Developed technology	$	66,177	$	59,692	$	6,485
Customer and distributor relationships		9,560		9,082		478
Trade names		4,361		3,876		485
Total identifiable intangible assets	$	80,098	$	72,650	$	7,448
December 31, 2017
Finite-lived intangibles:
Developed technology	$	65,827	$	58,522	$	7,305
Customer and distributor relationships		9,560		8,818		742
Trade names		4,361		3,776		585
Total identifiable intangible assets	$	79,748	$	71,116	$	8,632

XML

Balance Sheet Details (Tables)

12 Months Ended

Dec. 31, 2018

Balance Sheet Detail [Abstract]

Schedule of Inventories

Inventories are comprised of the following:

	December 31,
	2018		2017
Materials	$	61,025	$	39,765
Work-in-process		21,910		20,923
Finished goods		13,885		6,833
Total inventories	$	96,820	$	67,521

Schedule of Property, Plant and Equipment, Net

Property, plant and equipment, net, is comprised of the following:

	December 31,
	2018			2017
Land and building	$	2,584		$	2,584
Machinery and equipment		29,097			29,870
Furniture and fixtures		3,226			3,201
Computer equipment and software		7,906			5,444
Leasehold improvements		9,448			9,472
		52,261			50,571
Accumulated depreciation		(33,387	)		(33,229	)
Total property, plant and equipment, net	$	18,874		$	17,342

Schedule of Other Assets

Other assets is comprised of the following:

	December 31,
	2018		2017
Convertible note receivable	$	5,000	$	—
Other		506		492
Total other assets	$	5,506	$	492

Schedule of Other Current Liabilities

Other current liabilities is comprised of the following:

	December 31,
	2018		2017
Contingent consideration - acquisitions	$	1,422	$	634
Customer deposits		1,135		5,561
Accrued inventory		1,103		384
Intangible asset acquisition - Stella Alliance		150		100
Deferred rent		75		151
Other		3,658		2,454
Total other current liabilities	$	7,543	$	9,284

Schedule of Other Non-Current Liabilities

Other non-current liabilities is comprised of the following:

	December 31,
	2018		2017
Unrecognized tax benefits (including interest)	$	5,409	$	4,660
Contingent consideration - acquisitions		638		1,959
Deferred revenue		1,314		983
Deferred rent		1,405		750
Other		2,395		2,109
Total non-current liabilities	$	11,161	$	10,461

XML

Debt Obligations - (Tables)

12 Months Ended

Dec. 31, 2018

Debt Disclosure [Abstract]

Schedule of Interest Cost Recognized Relating to Notes

The following table presents the amount of interest cost recognized relating to the Notes during the years ended December 31, 2018, 2017 and 2016.

	December 31,
	2018		2017		2016
Contractual interest coupon	$	—	$	—	$	1,186
Amortization of interest discount		—		—		1,893
Amortization of debt issuance costs		—		—		261
Total interest cost recognized	$	—	$	—	$	3,340

XML

Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2018

Commitments And Contingencies [Abstract]

Schedule of Changes in Warranty Reserves

Changes in the Company’s warranty reserves are as follows:

	Year Ended December 31,
	2018			2017			2016
Balance, beginning of the period	$	2,427		$	1,788		$	1,894
Accruals		3,486			3,464			2,405
Usage		(3,472	)		(2,825	)		(2,511	)
Balance, end of the period	$	2,441		$	2,427		$	1,788

XML

Share-Based Compensation and Employee Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2018

Summary of Share-based Compensation Expense by Type of Award

The following table reflects share-based compensation expense by type of award:

	Year Ended December 31,
	2018			2017			2016
Share-based compensation expense:
Restricted stock units, including all performance and market     based awards	$	6,062		$	5,433		$	4,457
Stock options		—			237			318
Total share-based compensation		6,062			5,670			4,775
Tax effect on share-based compensation		1,362			2,052			1,743
Net effect on net income	$	4,700		$	3,618		$	3,032
Effect on earnings per share:
Basic	$	(0.15	)	$	(0.11	)	$	(0.10	)
Diluted	$	(0.15	)	$	(0.11	)	$	(0.10	)

Summary of Nonvested Restricted Stock Unit Activity

A summary of the Company’s restricted stock unit activity with respect to the years ended December 31, 2016, 2017 and 2018 follows:

	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2015		1,169		$	11.40
Granted		429		$	13.20
Vested		(413	)	$	10.80
Forfeited		(49	)	$	11.14
Nonvested at December 31, 2016		1,136		$	12.30
Granted		280		$	22.70
Vested		(321	)	$	11.90
Forfeited		(81	)	$	13.78
Nonvested at December 31, 2017		1,014		$	14.88
Granted		283		$	27.99
Vested		(404	)	$	14.26
Forfeited		(99	)	$	17.79
Nonvested at December 31, 2018		794		$	19.51

Summary of Company's Stock Option Activity

A summary of the Company’s stock option activity with respect to the years ended December 31, 2016, 2017 and 2018 follows:

	Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2015		490		$	9.46
Granted		—			—
Exercised		(231	)		7.76
Expired		(44	)		14.74
Forfeited		—			—
Outstanding at December 31, 2016		215			10.19
Granted		—			—
Exercised		(142	)		9.14
Expired		—			—
Forfeited		—			—
Outstanding at December 31, 2017		73		$	12.22
Granted		—			—
Exercised		(26	)
Expired		—			—
Forfeited		—			—
Outstanding at December 31, 2018		47		$	12.22		4.0	$	384
Vested or expected to vest at December 31, 2018		47		$	12.22		4.0	$	384
Exercisable at December 31, 2018		47		$	12.22		4.0	$	384

Market Performance Based Restricted Stock Units [Member]

Summary of Nonvested Restricted Stock Unit Activity

The following table provides details of the MPRSUs granted during the twelve month periods ended December 31, 2018 and 2017:

	Year Ended December 31,
	2018		2017
Granted	53		38
Maximum vest potential shares	105		76
Estimated fair value per share	$	30.76	$	25.30

XML

Other Expense (Income), Net (Tables)

12 Months Ended

Dec. 31, 2018

Other Income Expense [Abstract]

Schedule of Other Expense (Income), Net

Other expense (income), net is comprised of the following:

	Year Ended December 31,
	2018			2017		2016
Foreign currency exchange losses (gains), net	$	255		$	457	$	592
Gain on casualty insurance claim		(302	)		—		—
Other		(9	)		—		(946	)
Total other expense (income), net	$	(56	)	$	457	$	(354	)

XML

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Income Taxes [Abstract]

Schedule of Components of Income Tax Expense (Benefit)

The components of income tax expense are as follows:

	Year Ended December 31,
	2018			2017			2016
Current:
Federal	$	4,423		$	6,020		$	6,084
State		1,038			507			983
Foreign		626			3,159			838
		6,087			9,686			7,905
Deferred:
Federal		1,961			17,034			4,765
State		(73	)		643			184
Foreign		275			(470	)		62
		2,163			17,207			5,011
Total income tax expense	$	8,250		$	26,893		$	12,916

Schedule of Income before Income Tax, Domestic and Foreign

The income before tax is comprised of the following:

	Year Ended December 31,
	2018		2017		2016
Domestic operations	$	49,089	$	57,079	$	47,599
Foreign operations	$	4,257	$	2,723	$	2,269

Schedule of Effective Income Tax Rate Reconciliation

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. federal income tax rate of 21% for the year ended December 31, 2018, and 35% for years ended December 31, 2017 and 2016 to income before provision for income taxes as follows:

	Year Ended December 31,
	2018			2017			2016
Federal income tax provision at statutory rate	$	11,203		$	20,931		$	17,454
State taxes, net of federal effect		747			573			822
Foreign taxes, net of federal effect		17			(238	)		(1,613	)
Domestic manufacturing benefit		—			(1,569	)		(1,244	)
FDII Deduction, related to the Tax Act		(2,217	)		—			—
GILTI income net of S250 deduction, related to the Tax Act		113			—			—
Section 162(m)		526			—			—
Research tax credit		(2,298	)		(1,559	)		(692	)
Deferred tax true-up		57			41			(1,644	)
Remeasurement of deferred tax balances, related to the Tax Act		(33	)		8,020			—
Transition tax on foreign earnings, related to the Tax Act		138			(106	)		—
Other		(3	)		800			(167	)
Provision for income taxes	$	8,250		$	26,893		$	12,916
Effective tax rate		15	%		45	%		26	%

Schedule of Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities are comprised of the following:

	December 31,
	2018			2017
Research and development credit carryforward	$	198		$	216
Reserves and accruals not currently deductible		1,969			1,883
Deferred revenue		1,201			1,075
Domestic net operating loss carryforwards		832			892
Foreign net operating loss and credit carryforwards		3,146			2,551
Intangibles		4,402			5,388
Share-based compensation		1,259			1,500
Inventory obsolescence reserve		2,774			3,260
Other		810			1,135
Gross deferred tax assets		16,591			17,900
Valuation allowance for deferred tax assets		(3,172	)		(2,447	)
Deferred tax assets after valuation allowance		13,419			15,453
Gross deferred tax liabilities		(609	)		(574	)
Net deferred tax assets	$	12,810		$	14,879

Schedule of Unrecognized Tax Benefits Roll Forward

The total amount of unrecognized tax benefits are as follows:

	December 31,
	2018			2017			2016
Balance, beginning of the period	$	4,880		$	4,827		$	5,236
Gross increases—tax positions in prior period		496			171			118
Gross decreases—tax positions in prior period		(61	)		(362	)		(735	)
Gross increases—current-period tax positions		213			244			208
Lapse of statute of limitations		—			—			—
Balance, end of the period	$	5,528		$	4,880		$	4,827

XML

Accumulated Other Comprehensive Loss (Tables)

12 Months Ended

Dec. 31, 2016

Accumulated Other Comprehensive Loss [Abstract]

Components of Accumulated Other Comprehensive Loss, Net of Tax

The components of accumulated other comprehensive loss, net of tax, are as follows:

	Foreign currency translation adjustments			Net unrealized (gains) losses on marketable securities			Accumulated other comprehensive loss (income)
Balance at December 31, 2016	$	2,742		$	37		$	2,779
Net current period other comprehensive income		(1,663	)		89			(1,574	)
Reclassifications		—			—			—
Balance at December 31, 2017		1,079			126			1,205
Net current period other comprehensive loss		194			(136	)		58
Reclassifications		—			—			—
Balance at December 31, 2018	$	1,273		$	(10	)	$	1,263

XML

Segment Reporting and Geographic Information - (Tables)

12 Months Ended

Dec. 31, 2018

Segment Reporting And Geographic Information [Abstract]

Schedule of Revenue from External Customers by Products and Services

The following table lists the different sources of revenue:

	Year Ended December 31,
	2018				2017				2016
Systems and Software:
Process control	$	190,098	70	%	$	177,177	70	%	$	146,652	63	%
Lithography		14,975	5	%		14,234	5	%		18,949	8	%
Software licensing, support and maintenance		29,168	11	%		25,473	10	%		29,795	13	%
Parts		28,658	10	%		27,143	11	%		25,343	11	%
Services		10,885	4	%		11,071	4	%		12,041	5	%
Total revenue	$	273,784	100	%	$	255,098	100	%	$	232,780	100	%

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area

For geographical revenue reporting, revenue is attributed to the geographic location in which the product is shipped. Revenue by geographic region is as follows:

	Year Ended December 31,
	2018		2017		2016
Revenue from third parties:
United States	$	43,944	$	36,104	$	30,876
Taiwan		45,312		63,079		68,211
South Korea		51,750		44,180		15,556
Singapore		14,371		12,775		35,517
Austria		719		2,601		2,049
Japan		22,361		18,943		11,875
Germany		14,913		15,580		9,759
China		63,243		35,925		33,720
Other Europe		11,541		21,167		18,720
Other Asia		5,630		4,744		6,497
Total revenue	$	273,784	$	255,098	$	232,780

XML

Earnings Per Share - (Tables)

12 Months Ended

Dec. 31, 2018

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

The Company’s basic and diluted earnings per share amounts are as follows:

	December 31,
	2018		2017		2016
Numerator:
Net income	$	45,096	$	32,909	$	36,952
Denominator:
Basic earnings per share - weighted average shares    outstanding		31,671		31,491		31,128
Effect of potential dilutive securities:
Restricted stock units and stock options - dilutive    shares		529		670		467
Convertible senior notes - dilutive shares		—		—		103
Warrants - dilutive shares		—		1		92
Diluted earnings per share - weighted average shares    outstanding		32,200		32,162		31,790
Earnings per share:
Basic	$	1.42	$	1.05	$	1.19
Diluted	$	1.40	$	1.02	$	1.16

XML

Share Repurchase Authorization (Tables)

12 Months Ended

Dec. 31, 2018

Share Repurchase Program [Abstract]

Summary of Stock Repurchases

The following table summarizes the Company’s stock repurchases for December 31, 2018, 2017 and 2016:

	Year Ended December 31,
	2018		2017		2016
Shares of common stock repurchased		1,061		—		615
Cost of stock repurchased	$	21,069	$	-	$	8,044
Average price paid per share	$	19.86	$	-	$	13.07

XML

Quarterly Consolidated Financial Data (unaudited) (Tables)

12 Months Ended

Dec. 31, 2018

Quarterly Consolidated Financial Data Unaudited [Abstract]

Schedule of Consolidated Quarterly Financial Information

The following tables present certain unaudited consolidated quarterly financial information for the years ended December 31, 2018 and 2017

	Quarters Ended
	March 31, 2018		June 30, 2018		September 30, 2018		December 31, 2018		Total
Revenue	$	73,096	$	77,476	$	60,432	$	62,780	$	273,784
Gross profit		42,421		41,736		31,454		32,668		148,279
Income before income taxes		17,674		17,290		8,368		10,014		53,346
Net income		15,130		14,697		7,187		8,082		45,096
Income per share:
Basic	$	0.48	$	0.46	$	0.23	$	0.26	$	1.42
Diluted	$	0.47	$	0.45	$	0.22	$	0.26	$	1.40
Weighted average number of shares outstanding:
Basic		31,662		31,859		31,901		31,268		31,671
Diluted		32,317		32,437		32,408		31,645		32,200

	Quarters Ended
	March 31, 2017		June 30, 2017		September 30, 2017		December 31, 2017			Total
Revenue	$	60,679	$	67,418	$	66,920	$	60,081		$	255,098
Gross profit		31,868		35,456		35,145		32,126			134,595
Income before income taxes		9,607		12,752		25,663		11,780			59,802
Net income (loss)		7,151		9,193		17,369		(804	)		32,909
Income (loss) per share:
Basic	$	0.23	$	0.29	$	0.55	$	(0.03	)	$	1.05
Diluted	$	0.22	$	0.29	$	0.54	$	(0.03	)	$	1.02
Weighted average number of shares outstanding:
Basic		31,290		31,501		31,571		31,597			31,491
Diluted		32,058		32,146		32,170		31,597			32,162

XML

Summary of Significant Accounting Policies - Schedule of Disaggregation of Revenue by Revenue Source (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Disaggregation Of Revenue [Line Items]
Total revenue	$ 273,784	$ 255,098	$ 232,780
Systems Revenue [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	205,073	191,411	165,601
Software Revenue [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	29,168	25,473	29,795
Parts Revenue [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	28,658	27,143	25,343
Service Revenue [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	$ 10,885	$ 11,071	$ 12,041

XML

Summary of Significant Accounting Policies - Schedule of Disaggregation of Revenue by Timing of Revenue (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Disaggregation Of Revenue [Line Items]
Total revenue	$ 273,784	$ 255,098	$ 232,780
Transferred at Point in Time [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	257,124
Transferred over Time [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	$ 16,660

XML

Summary of Significant Accounting Policies - Additional Information (Details)	12 Months Ended
	Dec. 31, 2018 USD ($) Contract	Dec. 31, 2017 USD ($) Contract	Dec. 31, 2016 USD ($) Contract	Jan. 01, 2019 USD ($)
Summary Of Significant Accounting Policies [Line Items]
Property plant and equipment method	straight-line method
Accumulated exchange losses resulting from translation of foreign operation financial statements	$ 1,273,000	$ 1,079,000
Derivative instruments, (loss) gain recognized in income, net	$ (81,000)	$ 105,000	$ 417,000
Number of Foreign Currency Derivatives Held | Contract	8,465	9,582	6,641
Cash flows from financing activities	$ 23,909,000	$ 2,552,000	$ 78,903,000
Cash flows from operating activities	$ 35,094,000	64,171,000	$ 47,425,000
ASU 2016-15 [Member] | Reclassification [Member]
Summary Of Significant Accounting Policies [Line Items]
Cash flows from financing activities		200,000
Cash flows from operating activities		$ 200,000
Building [Member]
Summary Of Significant Accounting Policies [Line Items]
Property plant and equipment estimated useful lives	15 years
Furniture and Fixtures [Member]
Summary Of Significant Accounting Policies [Line Items]
Property plant and equipment estimated useful lives	7 years
Computer Equipment [Member]
Summary Of Significant Accounting Policies [Line Items]
Property plant and equipment estimated useful lives	3 years
Minimum [Member] | ASU 2016-02 [Member] | Subsequent Event [Member]
Summary Of Significant Accounting Policies [Line Items]
Long-term assets and total liabilities				$ 14,000,000
Minimum [Member] | Machinery and Equipment [Member]
Summary Of Significant Accounting Policies [Line Items]
Property plant and equipment estimated useful lives	4 years
Maximum [Member] | ASU 2016-02 [Member] | Subsequent Event [Member]
Summary Of Significant Accounting Policies [Line Items]
Long-term assets and total liabilities				$ 15,000,000
Maximum [Member] | Machinery and Equipment [Member]
Summary Of Significant Accounting Policies [Line Items]
Property plant and equipment estimated useful lives	7 years
Systems Revenue [Member]
Summary Of Significant Accounting Policies [Line Items]
Number of days for payment due from customer	30 days
Systems Revenue [Member] | Minimum [Member]
Summary Of Significant Accounting Policies [Line Items]
Percentage of invoice amount due	80.00%
Assurance warranty period against defects	12 months
Systems Revenue [Member] | Maximum [Member]
Summary Of Significant Accounting Policies [Line Items]
Percentage of invoice amount due	90.00%
Assurance warranty period against defects	15 months
Software Revenue [Member]
Summary Of Significant Accounting Policies [Line Items]
Number of days for payment due from customer	30 days
Parts Revenue [Member]
Summary Of Significant Accounting Policies [Line Items]
Number of days for payment due from customer	30 days
Service Revenue [Member]
Summary Of Significant Accounting Policies [Line Items]
Number of days for payment due from customer	30 days

XML

Summary of Significant Accounting Policies - Schedule of Changes in Deferred Revenue (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($)
Revenue From Contract With Customer [Abstract]
Balance, beginning of the period	$ 7,206
Deferral of revenue	19,326
Recognition of deferred revenue	(18,452)
Balance, ending of the period	$ 8,080

XML

Summary of Significant Accounting Policies - Forward Contracts and Related Fair Values (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Derivative Instruments And Hedging Activities Disclosure [Abstract]
Notional amount	$ 6,746	$ 8,417
Fair value of asset (liability)	$ (32)	$ 45

XML

Fair Value Measurements - Schedule of Assets and Liabilities Carried at Fair Value Measured on a Recurring Basis (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Municipal notes and bonds	$ 62,684	$ 109,589
Foreign currency forward contracts		45
Total assets	62,684	109,634
Contingent consideration - acquisitions	2,060	2,593
Foreign currency forward contracts	32
Total liabilities	2,092	2,593
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Municipal notes and bonds	0	0
Foreign currency forward contracts		0
Total assets	0	0
Contingent consideration - acquisitions	0	0
Foreign currency forward contracts	0
Total liabilities	0	0
Significant Other Observable Inputs (Level 2) [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Municipal notes and bonds	62,684	109,589
Foreign currency forward contracts		45
Total assets	62,684	109,634
Contingent consideration - acquisitions	0	0
Foreign currency forward contracts	32
Total liabilities	32	0
Significant Unobservable Inputs (Level 3) [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Municipal notes and bonds	0	0
Foreign currency forward contracts		0
Total assets	0	0
Contingent consideration - acquisitions	2,060	2,593
Foreign currency forward contracts	0
Total liabilities	$ 2,060	$ 2,593

XML

Fair Value Measurements - Additional Information (Details)	Dec. 31, 2018	Dec. 31, 2017
Significant Unobservable Inputs (Level 3) [Member] | Measurement Input Discount Rate [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Estimated discount rates	0.092	0.086

XML

Fair Value Measurements - Reconciliation for All Liabilities Measured at Fair Value on Recurring Basis Using Significant Unobservable Inputs (level 3) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($)
Fair Value Disclosures [Abstract]
Balance at December 31, 2017	$ 2,593
Total loss due to remeasurement included in selling, general and administrative expense	1,010
Additions	0
Payments	(1,543)
Transfer into (out of) Level 3	0
Balance at December 31, 2018	$ 2,060

XML

Marketable Securities - Schedule of Marketable Securities by Category (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 62,681	$ 109,750
Gross Unrealized Holding Gains	43	0
Gross Unrealized Holding Losses	40	161
Fair Value	62,684	109,589
Municipal Notes and Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	62,681	109,750
Gross Unrealized Holding Gains	43	0
Gross Unrealized Holding Losses	40	161
Fair Value	$ 62,684	$ 109,589

XML

Marketable Securities - Schedule of Amortized Cost and Estimated Fair Value of Marketable Securities Classified by Maturity Date (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Available For Sale Securities Debt Maturities Fair Value [Abstract]
Amortized Cost, Due within one year	$ 47,767	$ 104,742
Amortized Cost, Due after one through five years	14,914	5,008
Amortized Cost, Due after five through ten years	0	0
Amortized Cost, Due after ten years	0	0
Amortized Cost, Total marketable securities	62,681	109,750
Fair Value, Due within one year	47,732	104,605
Fair Value, Due after one through five years	14,952	4,984
Fair Value, Due after five through ten years	0	0
Fair Value, Due after ten years	0	0
Fair Value, Total marketable securities	$ 62,684	$ 109,589

XML

Marketable Securities - Summary of Estimated Fair Value and Gross Unrealized Holding Losses of Marketable Securities in Unrealized Loss Position (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Schedule of Available-for-sale Securities [Line Items]
In Unrealized Loss Position For Less Than 12 Months, Fair Value	$ 27,952	$ 98,805
In Unrealized Loss Position For Less Than 12 Months, Gross Unrealized Losses	30	161
In Unrealized Loss Position For Greater Than 12 Months, Fair Value	4,671	0
In Unrealized Loss Position For Greater Than 12 Months, Gross Unrealized Losses	10	0
Municipal Notes and Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
In Unrealized Loss Position For Less Than 12 Months, Fair Value	27,952	98,805
In Unrealized Loss Position For Less Than 12 Months, Gross Unrealized Losses	30	161
In Unrealized Loss Position For Greater Than 12 Months, Fair Value	4,671	0
In Unrealized Loss Position For Greater Than 12 Months, Gross Unrealized Losses	$ 10	$ 0

XML

Goodwill and Purchased Intangible Assets - Additional Information (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Identifiable Intangible Assets [Abstract]
Goodwill, gross	$ 215,367	$ 215,367
Goodwill impairment charge	192,872	192,872
Goodwill	22,495	22,495
Amortization	1,534	$ 1,940	$ 2,320
Future amortization expense, next twelve month	1,548
Future amortization expense, 2020	1,346
Future amortization expense, 2021	598
Future amortization expense, 2022	532
Future amortization expense, 2023	$ 515

XML

Goodwill and Purchased Intangible Assets - Schedule of Purchased Intangible Assets (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Finite Lived Intangible Assets [Line Items]
Finite-lived intangibles, Gross Carrying Amount	$ 80,098	$ 79,748
Finite-lived intangibles, Accumulated Amortization	72,650	71,116
Finite-lived intangibles, Net	7,448	8,632
Developed Technology [Member]
Finite Lived Intangible Assets [Line Items]
Finite-lived intangibles, Gross Carrying Amount	66,177	65,827
Finite-lived intangibles, Accumulated Amortization	59,692	58,522
Finite-lived intangibles, Net	6,485	7,305
Customer and Distributor Relationships [Member]
Finite Lived Intangible Assets [Line Items]
Finite-lived intangibles, Gross Carrying Amount	9,560	9,560
Finite-lived intangibles, Accumulated Amortization	9,082	8,818
Finite-lived intangibles, Net	478	742
Trade Names [Member]
Finite Lived Intangible Assets [Line Items]
Finite-lived intangibles, Gross Carrying Amount	4,361	4,361
Finite-lived intangibles, Accumulated Amortization	3,876	3,776
Finite-lived intangibles, Net	$ 485	$ 585

XML

Convertible Note Receivable - Additional Information (Details) - USD ($)	May 31, 2018	Dec. 31, 2018
Loans And Leases Receivable Disclosure [Line Items]
Convertible notes receivable		$ 5,000,000
Accrued interest		$ 41,000
Convertible Loan Agreement [Member] | Simax Precision Technologies Limited [Member]
Loans And Leases Receivable Disclosure [Line Items]
Funds available in multiple promissory notes	$ 15,000,000
Convertible notes rate of interest	4.25%
Term of repayment for principal amount and outstanding interest	3 years

XML

Balance Sheet Details - Schedule of Inventories (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Inventory Details [Abstract]
Materials	$ 61,025	$ 39,765
Work-in-process	21,910	20,923
Finished goods	13,885	6,833
Total inventories	$ 96,820	$ 67,521

XML

Balance Sheet Details - Additional Information (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Balance Sheet Detail [Abstract]
Inventory valuation reserves	$ 11,678	$ 13,035
Inventory Write-down	3,042	3,833
Inventory Disposal	4,398	1,343
Depreciation	$ 4,848	$ 3,990	$ 3,677

XML

Balance Sheet Details - Schedule of Property, Plant and Equipment, Net (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	$ 52,261	$ 50,571
Accumulated depreciation	(33,387)	(33,229)
Total property, plant and equipment, net	18,874	17,342
Land and Building [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	2,584	2,584
Machinery and Equipment [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	29,097	29,870
Furniture and Fixtures [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	3,226	3,201
Computer Equipment and Software [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	7,906	5,444
Leasehold Improvements [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	$ 9,448	$ 9,472

XML

Balance Sheet Details - Schedule of Other Assets (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Other Assets [Abstract]
Convertible notes receivable	$ 5,000
Other	506	$ 492
Total other assets	$ 5,506	$ 492

XML

Balance Sheet Details - Schedule of Other Current Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Other Liabilities Current [Abstract]
Contingent consideration - acquisitions	$ 1,422	$ 634
Customer deposits	1,135	5,561
Accrued inventory	1,103	384
Intangible asset acquisition - Stella Alliance	150	100
Deferred rent	75	151
Other	3,658	2,454
Total other current liabilities	$ 7,543	$ 9,284

XML

Balance Sheet Details - Schedule of Other Non-Current Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Other Liabilities Noncurrent [Abstract]
Unrecognized tax benefits (including interest)	$ 5,409	$ 4,660
Contingent consideration - acquisitions	638	1,959
Deferred revenue	1,314	983
Deferred rent	1,405	750
Other	2,395	2,109
Total non-current liabilities	$ 11,161	$ 10,461

XML

Debt Obligations - Additional Information (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Jul. 15, 2016	Jul. 25, 2011
Aggregate principal amount			$ 60,000	$ 60,000
Debt instrument interest rate			3.75%	3.75%
Issuance of shares of common stock on conversion		540
Warrant or right to purchase shares of common stock	386			4,634
Warrant or right to purchase shares of common stock, strike price	$ 17.00
Exercised warrants settled in shares	102	4,248
Exercised warrants payable in cash		$ 10,525
Exercised warrants paid in cash	$ 1,025	$ 9,500
Weighted average stock price	$ 23.13	$ 19.82
Common Stock [Member]
Exercised warrants settled in shares		80

XML

Debt Obligations - Schedule of Interest Cost Recognized Relating to Notes (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Debt Disclosure [Abstract]
Contractual interest coupon			$ 1,186
Amortization of interest discount			1,893
Amortization of debt issuance costs			261
Total interest cost recognized			$ 3,340

XML

Commitments and Contingencies - Additional Information (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Commitments And Contingencies [Line Items]
Operating leases, rent expense	$ 3,311	$ 3,292	$ 3,296
Lease agreements expiration year	2029
Operating leases, equipment	$ 98	111	99
Operating leases, future minimum payments due	3,170
Operating leases, future minimum payments, due in two years	2,801
Operating leases, future minimum payments, due in three years	2,107
Operating leases, future minimum payments, due in four years	2,051
Operating leases, future minimum payments, due in five years	1,725
Operating leases, future minimum payments, due thereafter	7,484
Royalty expense	1,904	$ 1,117	$ 586
Purchase commitment, remaining minimum amount committed	$ 71,752
Percentage of maximum borrowing capacity of value of eligible securities	70.00%
Available line of credit	$ 93,920
Available interest rate on line of credit	4.00%
Equipment [Member]
Commitments And Contingencies [Line Items]
Lease agreements expiration year	2023
Minimum [Member]
Commitments And Contingencies [Line Items]
Warranty period	12 months
Maximum [Member]
Commitments And Contingencies [Line Items]
Warranty period	15 months

XML

Commitments and Contingencies - Schedule of Changes in Warranty Reserves (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Commitments And Contingencies [Abstract]
Balance, beginning of the period	$ 2,427	$ 1,788	$ 1,894
Accruals	3,486	3,464	2,405
Usage	(3,472)	(2,825)	(2,511)
Balance, end of the period	$ 2,441	$ 2,427	$ 1,788

XML

Share-Based Compensation and Employee Benefit Plans - Additional Information (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	May 16, 2018	Dec. 31, 2015	Nov. 01, 2009
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Share authorized available for grants						3,300,000
Common stock available for future grant	2,558,000
Share based compensation shares for issuance	0	2,049,000
Total intrinsic value of stock options exercised	$ 384,000	$ 853,000	$ 1,312,000
Options outstanding exercise price	$ 12.22	$ 12.22	$ 10.19		$ 9.46
Options exercisable exercise price	$ 12.22
Unrecognized compensation cost - option	$ 0
Fair value of outstanding stock options to non-employees	$ 126,000	$ 268,000
Price of common stock as percentage of fair market value	95.00%
Stock based compensation expense	$ 6,062,000	$ 5,670,000	$ 4,775,000
Shares purchased under ESPP	13,000	11,000	15,000
Employee Stock Purchase Plan available	1,500,000	2,251,000
Percentage of contribution for annual compensation	100.00%
Percentage of match of all employee contribution	50.00%
Total matching contribution to plan	$ 1,118,000	$ 1,047,000	$ 1,017,000
Defined contribution plan, employer contribution under profit sharing program	0	0	0
Employee Stock Purchase Plan [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock based compensation expense	$ 0	0	0
Maximum [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Eligible compensation deduction percentage on pay for purchase of common stock	15.00%
Percentage of match on employee salary	6.00%
Stock Option [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options vesting period	5 years
Options expiration period	10 years
Stock based compensation expense		$ 237,000	$ 318,000
Restricted Stock Units (RSUs) [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Total unrecognized compensation cost related to restricted stock units granted	$ 9,517,000
Unrecognized compensation cost related to restricted stock units, weighted average period	2 years 1 month 6 days
Restricted Stock Units (RSUs) [Member] | Minimum [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options vesting period	3 years
Restricted Stock Units (RSUs) [Member] | Maximum [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options vesting period	5 years
Restricted Stock Units (RSUs) [Member] | Director [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options vesting period	1 year
Market Performance Based Restricted Stock Units [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options vesting period	3 years
Maximum potential market performance-based restricted stock units to vest percentage	200.00%
2018 Plan [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Share authorized available for grants				3,240,000
Common stock available for future grant	128,000
Share based compensation shares for issuance	3,332,000
2018 Plan [Member] | Stock Option [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options vesting period	5 years
Options expiration period	10 years
2018 Plan [Member] | Restricted Stock Units (RSUs) [Member] | Minimum [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options vesting period	3 years
2018 Plan [Member] | Restricted Stock Units (RSUs) [Member] | Maximum [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options vesting period	5 years
2018 Plan [Member] | Restricted Stock Units (RSUs) [Member] | Director [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options vesting period	1 year

XML

Share-Based Compensation and Employee Benefit Plans - Summary of Share-based Compensation Expense by Type of Award (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Total share-based compensation	$ 6,062	$ 5,670	$ 4,775
Tax effect on share-based compensation	1,362	2,052	1,743
Net effect on net income	$ 4,700	$ 3,618	$ 3,032
Basic	$ (0.15)	$ (0.11)	$ (0.10)
Diluted	$ (0.15)	$ (0.11)	$ (0.10)
Restricted Stock Units, Including All Performance and Market Based Awards [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Total share-based compensation	$ 6,062	$ 5,433	$ 4,457
Stock Option [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Total share-based compensation		$ 237	$ 318

XML

Share-Based Compensation - Summary of Nonvested Restricted Stock Unit Activity (Details) - $ / shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Restricted Stock Units Activity [Abstract]
Number of Shares, Nonvested beginning balance	1,014,000	1,136,000	1,169,000
Number of Shares, Granted	283,000	280,000	429,000
Number of Shares, Vested	(404,000)	(321,000)	(413,000)
Number of Shares, Forfeited	(99,000)	(81,000)	(49,000)
Number of Shares, Nonvested ending balance	794,000	1,014,000	1,136,000
Weighted Average Grant Date Fair Value, Nonvested beginning balance	$ 14.88	$ 12.30	$ 11.40
Weighted Average Grant Date Fair Value, Granted	27.99	22.70	13.20
Weighted Average Grant Date Fair Value, Vested	14.26	11.90	10.80
Weighted Average Grant Date Fair Value, Forfeited	17.79	13.78	11.14
Weighted Average Grant Date Fair Value, Nonvested ending balance	$ 19.51	$ 14.88	$ 12.30

XML

Share-Based Compensation and Employee Benefit Plans - Summary of MPRSUs Granted (Details) - $ / shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Granted	283,000	280,000	429,000
Market Performance Based Restricted Stock Units [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Granted	53,000	38,000
Maximum vest potential shares	105,000	76,000
Estimated fair value per share	$ 30.76	$ 25.30

XML

Share-Based Compensation and Employee Benefit Plans - Summary of Company's Stock Option Activity (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Share Based Compensation [Abstract]
Shares, Outstanding, Beginning balance	73	215	490
Shares, Granted	0	0	0
Shares, Exercised	(26)	(142)	(231)
Shares, Expired	0	0	(44)
Shares, Forfeited	0	0	0
Shares, Outstanding, Ending balance	47	73	215
Shares, Vested or expected to vest	47
Shares, Exercisable	47
Weighted Average Exercise Price, Beginning balance	$ 12.22	$ 10.19	$ 9.46
Weighted Average Exercise Price, Granted	0	0	0
Weighted Average Exercise Price, Exercised	0	9.14	7.76
Weighted Average Exercise Price, Expired	0	0	14.74
Weighted Average Exercise Price, Forfeited	0	0	0
Weighted Average Exercise Price, Ending balance	12.22	$ 12.22	$ 10.19
Weighted Average Exercise Price, Vested or expected to vest	12.22
Weighted Average Exercise Price, Exercisable	$ 12.22
Weighted Average Remaining Contractual Term, Outstanding	4 years
Weighted Average Remaining Contractual Term, Vested or expected to vest	4 years
Weighted Average Remaining Contractual Term, Exercisable	4 years
Aggregate Intrinsic Value, Outstanding	$ 384
Aggregate Intrinsic Value, Vested or expected to vest	384
Aggregate Intrinsic Value, Exercisable	$ 384

XML

Other Expense (Income), Net - Schedule of Other Expense (Income), Net (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Other Income Expense [Abstract]
Foreign currency exchange losses (gains), net	$ 255	$ 457	$ 592
Gain on casualty insurance claim	(302)	0	0
Other	(9)	0	(946)
Total other expense (income), net	$ (56)	$ 457	$ (354)

XML

Income Taxes - Schedule of Components of Income Tax Expense (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Current:
Federal	$ 4,423	$ 6,020	$ 6,084
State	1,038	507	983
Foreign	626	3,159	838
Current Income Tax Expense (Benefit)	6,087	9,686	7,905
Deferred:
Federal	1,961	17,034	4,765
State	(73)	643	184
Foreign	275	(470)	62
Deferred Income Tax Expense (Benefit)	2,163	17,207	5,011
Total income tax expense	$ 8,250	$ 26,893	$ 12,916

XML

Income Taxes - Schedule of Income before Income Tax, Domestic and Foreign (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Income Taxes [Abstract]
Domestic operations	$ 49,089	$ 57,079	$ 47,599
Foreign operations	$ 4,257	$ 2,723	$ 2,269

XML

Income Taxes - Additional Information (Details) - USD ($)	3 Months Ended		12 Months Ended
	Dec. 31, 2018	Sep. 30, 2018	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Income Tax Examination [Line Items]
U.S. federal income tax rate, percent			21.00%	35.00%	35.00%
Tax cuts and jobs act description			The U.S. government enacted the Tax Act on December 22, 2017. The Tax Act makes broad and complex changes to the U.S. tax code that affected 2017, including, but not limited to, (1) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years and (2) bonus depreciation that will allow for full expensing of qualified property. The Tax Act also establishes new tax laws that affected 2018, including, but not limited to, (1) reduction of the U.S. federal corporate tax rate; (2) the creation of the Base Erosion and Anti-Abuse (“BEAT”), a new minimum tax; (3) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (4) a new provision designed to tax Global Intangible Low-Taxed Income (“GILTI”), which allows for the possibility of using foreign tax credits and a deduction of up to 50 percent to offset the income tax liability (subject to some limitations); (5) the repeal of the domestic production activity deduction; (6) limitations on the deductibility of certain executive compensation; (7) limitations on the use of foreign tax credits to reduce the U.S. income tax liability; and (8) a new provision designed to allow a benefit for the foreign-derived intangible income (“FDII”). In 2018 we evaluated the effects and have determined what accounting policies needed to change and we have calculated the impact of the above provisions.
Remeasurement of deferred				$ 8,000,000
Provisional adjustment to deferred income tax expense				8,000,000
Adjustment to deferred income tax expense	$ 0
Transition tax expense		$ 100,000		1,500,000
Section 78 FTC				1,500,000
Tax reform FTC valuation allowance				1,500,000
Deferred tax assets, valuation allowance	3,172,000		$ 3,172,000	2,447,000
Operating loss carryforward, federal	497,000		497,000
Operating loss carryforward, state	205,000		205,000
Operating loss carryforward, foreign	990,000		990,000
Federal RD credit carryforward	0		0
State RD Credit Carryforward	318,000		318,000
Foreign RD credit carryforward	2,155,000		2,155,000
Undistributed earnings of foreign subsidiaries	7,914,000		7,914,000
Unrecognized tax benefit adjustment to income tax expense	4,995,000		4,995,000	4,403,000
Unrecognized tax benefits, income tax penalties and interest expense			199,000	246,000	$ 76,000
Unrecognized tax benefits, income tax penalties and interest accrued	1,445,000		1,445,000	$ 1,190,000
Foreign [Member]
Income Tax Examination [Line Items]
Tax credit carry forwards valuation allowance	2,155,000		$ 2,155,000
Operating loss carryforwards expiration date			Dec. 31, 2026
Foreign [Member] | Research and Development Credit [Member]
Income Tax Examination [Line Items]
Tax credit carryforward expiration date			Dec. 31, 2028
Foreign [Member] | China [Member]
Income Tax Examination [Line Items]
Operating loss valuation allowance	$ 112,000		$ 112,000
Federal [Member]
Income Tax Examination [Line Items]
Operating loss carryforwards expiration date			Dec. 31, 2032
State [Member]
Income Tax Examination [Line Items]
Operating loss carryforwards expiration date			Dec. 31, 2032
State [Member] | Research and Development Credit [Member]
Income Tax Examination [Line Items]
Tax credit carryforward expiration date			Dec. 21, 2024

XML

Income Taxes - Schedule of Effective Income Tax Rate Reconciliation (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Income Taxes [Abstract]
Federal income tax provision at statutory rate	$ 11,203	$ 20,931	$ 17,454
State taxes, net of federal effect	747	573	822
Foreign taxes, net of federal effect	17	(238)	(1,613)
Domestic manufacturing benefit		(1,569)	(1,244)
FDII Deduction, related to the Tax Act	(2,217)
GILTI income net of S250 deduction, related to the Tax Act	113
Section 162(m)	526
Research tax credit	(2,298)	(1,559)	(692)
Deferred tax true-up	57	41	(1,644)
Remeasurement of deferred tax balances, related to the Tax Act	(33)	8,020
Transition tax on foreign earnings, related to the Tax Act	138	(106)
Other	(3)	800	(167)
Total income tax expense	$ 8,250	$ 26,893	$ 12,916
Effective tax rate	15.00%	45.00%	26.00%

XML

Income Taxes - Schedule of Effective Income Tax Rate Reconciliation (Parenthetical) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($)
Income Taxes [Abstract]
GILTI income deduction, related to Tax Act	$ 250

XML

Income Taxes - Schedule of Deferred Tax Assets and Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Income Taxes [Abstract]
Research and development credit carryforward	$ 198	$ 216
Reserves and accruals not currently deductible	1,969	1,883
Deferred revenue	1,201	1,075
Domestic net operating loss carryforwards	832	892
Foreign net operating loss and credit carryforwards	3,146	2,551
Intangibles	4,402	5,388
Share-based compensation	1,259	1,500
Inventory obsolescence reserve	2,774	3,260
Other	810	1,135
Gross deferred tax assets	16,591	17,900
Valuation allowance for deferred tax assets	(3,172)	(2,447)
Deferred tax assets after valuation allowance	13,419	15,453
Gross deferred tax liabilities	(609)	(574)
Net deferred tax assets	$ 12,810	$ 14,879

XML

Income Taxes - Schedule of Unrecognized Tax Benefits Roll Forward (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Income Taxes [Abstract]
Balance, beginning of the period	$ 4,880	$ 4,827	$ 5,236
Gross increases—tax positions in prior period	496	171	118
Gross decreases—tax positions in prior period	(61)	(362)	(735)
Gross increases—current-period tax positions	213	244	208
Lapse of statute of limitations	0	0	0
Balance, end of the period	$ 5,528	$ 4,880	$ 4,827

XML

Accumulated Other Comprehensive Loss - Components of Accumulated Other Comprehensive Loss, Net of Tax (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning Balance	$ (333,154)	$ (293,735)
Ending balance	(361,888)	(333,154)
Foreign Currency Translation Adjustments [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning Balance	1,079	2,742
Net current period other comprehensive income (loss)	194	(1,663)
Reclassifications	0	0
Ending balance	1,273	1,079
Net Unrealized (Gains) Losses on Marketable Securities [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning Balance	126	37
Net current period other comprehensive income (loss)	(136)	89
Reclassifications	0	0
Ending balance	(10)	126
Accumulated Other Comprehensive Loss (Income) [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning Balance	1,205	2,779
Net current period other comprehensive income (loss)	58	(1,574)
Reclassifications	0	0
Ending balance	$ 1,263	$ 1,205

XML

Segment Reporting and Geographic Information - Additional Information (Details)	12 Months Ended
	Dec. 31, 2018 Segment Customer	Dec. 31, 2017 Customer	Dec. 31, 2016
Segment Reporting Information [Line Items]
Number of reportable segments | Segment	1
Customer Concentration Risk [Member] | Revenue [Member]
Segment Reporting Information [Line Items]
Segment reporting, disclosure of major customer		No individual end user customer accounted for more than 10% of the Company’s revenue in 2017 and 2016. The Company does not have purchase contracts with any of its customers that obligate them to continue to purchase its products.	No individual end user customer accounted for more than 10% of the Company’s revenue in 2017 and 2016. The Company does not have purchase contracts with any of its customers that obligate them to continue to purchase its products.
Customer Concentration Risk [Member] | Revenue [Member] | SK Hynix Inc. [Member]
Segment Reporting Information [Line Items]
Concentration risk, percentage	12.20%
Customer Concentration Risk [Member] | Accounts Receivable [Member]
Segment Reporting Information [Line Items]
Concentration risk, percentage	10.00%	10.00%
Number of major customer | Customer	0	0

XML

Segment Reporting and Geographic Information - Schedule of Revenue from External Customers by Products and Services (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Segment Reporting Information [Line Items]
Revenues	$ 273,784	$ 255,098	$ 232,780
Sales [Member] | Product [Member]
Segment Reporting Information [Line Items]
Concentration risk, percentage	100.00%	100.00%	100.00%
Process Control [Member]
Segment Reporting Information [Line Items]
Revenues	$ 190,098	$ 177,177	$ 146,652
Process Control [Member] | Sales [Member] | Product [Member]
Segment Reporting Information [Line Items]
Concentration risk, percentage	70.00%	70.00%	63.00%
Lithography [Member]
Segment Reporting Information [Line Items]
Revenues	$ 14,975	$ 14,234	$ 18,949
Lithography [Member] | Sales [Member] | Product [Member]
Segment Reporting Information [Line Items]
Concentration risk, percentage	5.00%	5.00%	8.00%
Software Revenue [Member]
Segment Reporting Information [Line Items]
Revenues	$ 29,168	$ 25,473	$ 29,795
Software Revenue [Member] | Sales [Member] | Product [Member]
Segment Reporting Information [Line Items]
Concentration risk, percentage	11.00%	10.00%	13.00%
Parts Revenue [Member]
Segment Reporting Information [Line Items]
Revenues	$ 28,658	$ 27,143	$ 25,343
Parts Revenue [Member] | Sales [Member] | Product [Member]
Segment Reporting Information [Line Items]
Concentration risk, percentage	10.00%	11.00%	11.00%
Service Revenue [Member]
Segment Reporting Information [Line Items]
Revenues	$ 10,885	$ 11,071	$ 12,041
Service Revenue [Member] | Sales [Member] | Product [Member]
Segment Reporting Information [Line Items]
Concentration risk, percentage	4.00%	4.00%	5.00%

XML

Segment Reporting and Geographic Information - Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Segment Reporting Information [Line Items]
Revenues	$ 273,784	$ 255,098	$ 232,780
United States [Member]
Segment Reporting Information [Line Items]
Revenues	43,944	36,104	30,876
Taiwan [Member]
Segment Reporting Information [Line Items]
Revenues	45,312	63,079	68,211
South Korea [Member]
Segment Reporting Information [Line Items]
Revenues	51,750	44,180	15,556
Singapore [Member]
Segment Reporting Information [Line Items]
Revenues	14,371	12,775	35,517
Austria [Member]
Segment Reporting Information [Line Items]
Revenues	719	2,601	2,049
Japan [Member]
Segment Reporting Information [Line Items]
Revenues	22,361	18,943	11,875
Germany [Member]
Segment Reporting Information [Line Items]
Revenues	14,913	15,580	9,759
China [Member]
Segment Reporting Information [Line Items]
Revenues	63,243	35,925	33,720
Other Europe [Member]
Segment Reporting Information [Line Items]
Revenues	11,541	21,167	18,720
Other Asia [Member]
Segment Reporting Information [Line Items]
Revenues	$ 5,630	$ 4,744	$ 6,497

XML

Earnings Per Share - Additional Information (Details) - shares shares in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Stock Option [Member]
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted earnings per share	0	0	39
Restricted Stock Units (RSUs) [Member]
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted earnings per share	52	8	0

XML

Earnings Per Share - Schedule of Earnings Per Share, Basic and Diluted (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Earnings Per Share [Abstract]
Net income	$ 8,082	$ 7,187	$ 14,697	$ 15,130	$ (804)	$ 17,369	$ 9,193	$ 7,151	$ 45,096	$ 32,909	$ 36,952
Basic earnings per share - weighted average shares outstanding	31,268	31,901	31,859	31,662	31,597	31,571	31,501	31,290	31,671	31,491	31,128
Restricted stock units and stock options - dilutive shares									529	670	467
Convertible senior notes - dilutive shares									0	0	103
Warrants - dilutive shares									0	1	92
Diluted earnings per share - weighted average shares outstanding	31,645	32,408	32,437	32,317	31,597	32,170	32,146	32,058	32,200	32,162	31,790
Basic	$ 0.26	$ 0.23	$ 0.46	$ 0.48	$ (0.03)	$ 0.55	$ 0.29	$ 0.23	$ 1.42	$ 1.05	$ 1.19
Diluted	$ 0.26	$ 0.22	$ 0.45	$ 0.47	$ (0.03)	$ 0.54	$ 0.29	$ 0.22	$ 1.40	$ 1.02	$ 1.16

XML

Share Repurchase Authorization - Additional Information (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2016	Oct. 31, 2018
Shares Repurchase Authorization [Line Items]
Stock repurchase, number of shares authorized to be repurchased	3,000,000
Shares of common stock repurchased	1,061,000	615,000
Amount available for future repurchase	$ 33,239,000
Common Stock [Member]
Shares Repurchase Authorization [Line Items]
Shares of common stock repurchased	1,061,000
Number of share repurchases programs	2
Maximum [Member]
Shares Repurchase Authorization [Line Items]
Stock repurchase, authorized amount			$ 40,000,000

XML

Share Repurchase Authorization - Summary of Stock Repurchases (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2016
Share Repurchase Program [Abstract]
Shares of common stock repurchased	1,061,000	615,000
Cost of stock repurchased	$ 21,069	$ 8,044
Average price paid per share	$ 19.86	$ 13.07

XML

Quarterly Consolidated Financial Data (unaudited) - Schedule of Consolidated Quarterly Financial Information (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Quarterly Consolidated Financial Data Unaudited [Abstract]
Revenue	$ 62,780	$ 60,432	$ 77,476	$ 73,096	$ 60,081	$ 66,920	$ 67,418	$ 60,679	$ 273,784	$ 255,098
Gross profit	32,668	31,454	41,736	42,421	32,126	35,145	35,456	31,868	148,279	134,595	$ 123,551
Income before income taxes	10,014	8,368	17,290	17,674	11,780	25,663	12,752	9,607	53,346	59,802	49,868
Net income	$ 8,082	$ 7,187	$ 14,697	$ 15,130	$ (804)	$ 17,369	$ 9,193	$ 7,151	$ 45,096	$ 32,909	$ 36,952
Income (loss) per share:
Basic	$ 0.26	$ 0.23	$ 0.46	$ 0.48	$ (0.03)	$ 0.55	$ 0.29	$ 0.23	$ 1.42	$ 1.05	$ 1.19
Diluted	$ 0.26	$ 0.22	$ 0.45	$ 0.47	$ (0.03)	$ 0.54	$ 0.29	$ 0.22	$ 1.40	$ 1.02	$ 1.16
Weighted average number of shares outstanding:
Basic	31,268	31,901	31,859	31,662	31,597	31,571	31,501	31,290	31,671	31,491	31,128
Diluted	31,645	32,408	32,437	32,317	31,597	32,170	32,146	32,058	32,200	32,162	31,790

XML

Valuation and Qualifying Accounts - Schedule of Valuation and Qualifying Accounts (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Allowance For Doubtful Accounts [Member]
Valuation And Qualifying Accounts Disclosure [Line Items]
Balance at Beginning of Period	$ 460	$ 680	$ 713
Charged to (Recovery of) Costs and Expense	293	(222)	5
Deductions	62	(2)	38
Balance at End of Period	691	460	680
Deferred Tax Valuation Allowance [Member]
Valuation And Qualifying Accounts Disclosure [Line Items]
Balance at Beginning of Period	2,447	1,924	2,205
Charged to (Recovery of) Costs and Expense	725	626	71
Charged to Other Accounts (net)		(103)	(352)
Balance at End of Period	$ 3,172	$ 2,447	$ 1,924