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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 FORM 10-K (Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________to _________
Commission file number 000-30941
AXCELIS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
55 Cherry Hill Drive
(978) 787-4000
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 15, 2001: $1,065,447,427
Number of shares outstanding of the issuer's Common Stock, $0.001 par value,
as of March 15, 2001: 97,125,340
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive Proxy Statement for Axcelis Technologies, Inc.'s Annual
Meeting of Stockholders to be held on June 28, 2001 are incorporated by
reference into Part III of this Form 10-K.
FORWARD LOOKING STATEMENTS:
Certain information contained or incorporated by reference in this Annual Report
on Form 10-K is forward-looking in nature. All statements included or incorporated
by reference in this Annual Report on Form 10-K or made by management of Axcelis
Technologies, Inc., other than statements of historical fact, are forward-looking
statements. Examples of forward-looking statements include statements regarding
Axcelis' future financial results, operating results, business strategies, projected
costs, products, competitive positions and plans and objectives of management for
future operations. We use terminology such as "anticipates," "believes," "plans,"
"expects," "future," "intends," may," "will," "should," "estimates," "predicts,"
"potential," "continue," and similar expressions to identify such forward-looking
statements. Our actual results could differ materially from the results contemplated
by these forward-looking statements due to a number of factors, including those discussed
in Exhibit 99 to this Form 10-K and elsewhere in this Form 10-K. This Form 10-K also
contains forward-looking statements attributed to third parties relating to their
estimates regarding the growth of our markets. Forward-looking statements are subject
to known and unknown risks, uncertainties, and other factors that may cause our actual
results, as well as those of the markets we serve, levels of activity, performance,
achievements and prospects to be materially different from those expressed or implied
by the forward-looking statements. PART I Item 1: Business Overview of Our Business We are a leading producer of ion implantation, dry strip and
photostabilization equipment used in the fabrication of semiconductors in the United
States, Europe and Asia Pacific. We have recently introduced rapid thermal processing
equipment, which is used in semiconductor manufacturing primarily before and after the
ion implantation process. In addition, we provide extensive aftermarket service and
support, including spare parts, equipment upgrades, maintenance services and customer
training. We have a 50-50 joint venture with Sumitomo Heavy Industries, Ltd. in Japan.
This joint venture, which is known as Sumitomo Eaton Nova Corporation, or SEN, licenses
technology from us for ion implantation, has exclusive rights to the territory of Japan
and is the leading producer of ion implantation equipment in Japan. Industry Overview Semiconductors are used in personal computers, telecommunication equipment,
digital consumer electronics, wireless communication products and other applications.
Most semiconductors are built on a wafer of silicon. The transistor formation process
creates the electrically active junction for the semiconductor within the silicon wafer,
and those junctions create, typically, either transistors or capacitors. Later, metal
interconnections are formed on top of the silicon that connect the transistor or
capacitor components. Semiconductor manufacturers seek efficiency improvements through increased equipment
utilization, higher manufacturing yields, the addition of manufacturing equipment in existing
fabrication facilities and the construction of new fabrication facilities. During the period
from early 1999 through 2000, semiconductor manufacturers met the increased demand for chips
mostly by building new fabrication facilities, and by making additional equipment purchases
to expand existing fabrication facilities. Periodically, and historically every seven or eight years, the semiconductor industry
adopts a larger wafer size to achieve greater economics. By increasing the wafer size,
semiconductor manufacturers can produce more chips per wafer, thus reducing the overall
manufacturing cost per chip. The more advanced wafer fabrication facilities are currently
using wafers with a diameter of 200 millimeters. Currently, the industry has started a
transition to 300 millimeter wafers. Some semiconductor manufacturers have launched pilot
and production lines using 300 millimeter wafers. It is anticipated that additional manufacturers
will add new 300 millimeter production capabilities over the next two to five years, which
will lead to increased demand for equipment with 300 millimeter equipment. Given the magnitude of the investment needed to build a new fabrication facility,
which today exceeds $1 billion, and the very large volume of product each fab can produce,
independent semiconductor manufacturers, or foundries, have emerged to serve semiconductor
producers who design but do not manufacture chips and are typically smaller companies. In
addition, foundries manufacture semiconductors for large producers who choose to outsource
part of their demand. Foundries, which are predominantly located in Taiwan and Singapore,
have become significant purchasers of semiconductor equipment. Ion Implantation Systems Ion implantation is a principal step in the manufacturing process for semiconductors.
An ion implanter is a large, technically advanced machine that injects charged ions, or
dopants, such as arsenic, boron or phosphorus, into a silicon wafer through an accurately
controlled electric field, with a precisely defined amount of energy ranging between several
hundred and three million volts. Certain areas of the silicon wafer are blocked off by a
material known as photoresist so that the dopants will only enter the wafer where needed.
The dopants change the electrical properties of the silicon wafer to create the active
components of a chip. The amount of energy determines the depth to which the dopant penetrates
the wafer, and the amount of dopant or dose determines how much the electrical properties of
the silicon wafer are changed. There are three types of ion implantation machines: high energy, high current and high
tilt/medium current. Each type injects ions either at greater density, creating more ions per
area (such as in high current tools), or with more energy, driving the ions deeper into the
silicon (such as in high energy tools). Typically, a wafer will receive from 10 to up to 35
ion implants as it is manufactured, depending on the complexity of the device. The industry
trend is to design and build more complex, highly integrated chips which require more implants
to create. We have designed our products to enhance the manufacturers' flexibility in combining
machines during the implant process. A high energy implanter is typically used to implant dopant deep in the wafer, which
allows improved isolation of adjoining circuits on the same chip. As a result, in recent years
the use of high energy implanters has expanded into the manufacture of virtually all types of
chips. They are used in the manufacture of smaller, more complex chips, such as those used in
cellular phones and other hand held devices because they enable more functionality with less
power consumption. They are also increasingly used in the manufacture of chips that are used
in personal computers because they permit greater computing power from a chip of a given size. For implants that require high dose and medium to very shallow depth, a high current
implanter is most often used. In some applications, very shallow, high-dose implants result
in faster chips, an important feature for microprocessors, digital signal processors and other chips. Most ion implant steps occur with the ion beam perpendicular to the wafer. A high
tilt/medium current implanter, however, is primarily used for the implant step that requires
the ion beam to be positioned at an angle to the wafer to implant dopants below preexisting
features. The use of the high tilt/medium current implanter extends into some high energy
applications to allow customers greater flexibility in selecting the most optimal combination
of implanters for their needs. We manufacture a complete line of high energy, high current and high tilt/medium current
implanters. The following chart lists our principal products: Our implanters have been designed with a process overlap that allows customers to tailor the
combination of high energy, high current and high tilt/medium current implanters to their specific
needs. High energy and high current implanters can be used to cover most high tilt/medium current
applications, and the high tilt/medium current implanter can be used for some high energy applications.
All of our ion implantation systems share certain of the same modular subsystems for efficiency and
convenience. The subsystems for wafer handling robot, ion source, vacuum system and operator interface
are common among our three implanters. This common platform reduces our design and production time and
costs, and overall cost of ownership for our customers by minimizing training, spare parts inventory
and maintenance. Our GSD/HE product is the industry's only ion implantation product to be rated "best product"
and was the "Grand Award" winner among semiconductor capital equipment products, an award sponsored
by Semiconductor International, an industry publication. We have recently introduced our LED implanter, which extends the energy range of our GSD/200E(2)
implanter to lower energies than can be achieved with traditional high current implanters. These machines
respond to the demand for high dose, ultra shallow implants that increase chip speed at acceptable
machine throughput rates. Our high tilt/medium current ion implanter complements our high energy and high current
implanters. Our 8250HT targets high tilt applications that cannot be performed with high energy
or high current implanters and extends into some high energy applications to allow customers a
flexible combination of implanters. We target our 8250HT high tilt/medium current machine for
the relatively few steps that our high energy and high current machines cannot complete. The
most important step is an angular implant designed to insert dopants below preexisting features
on the wafer. Our recently introduced MC3 high tilt/medium current implanter is designed to process
300 millimeter wafers. During the past three years, we have also produced a small number of ion implanters used
in the production of laptop computer screens and other flat panel displays. Surface Preparation Products Dry Strip and Photostabilization Systems. We entered the dry strip and
photostabilization product markets through our acquisition of Fusion Systems, Inc. in August
1997. Fusion pioneered the development of photostabilization in 1983. In the process steps
prior to ion implantation, a light sensitive, polymer-based liquid, called photoresist, is
spread in a uniformly thin film on the wafer. Photostabilization uses ultraviolet light
to harden the photoresist in order to provide better performance for the subsequent implant
step. After the implant step, the used photoresist must be removed. The primary means of
removing excess photoresist and residue is called dry strip. Our dry strip machines, often
called ashers, use microwave energy to turn process gases into plasma, which then acts on
the surface of the wafer to remove the photoresist and unwanted residue. Dry strip and
photostabilization are also used for surface preparation processes throughout the wafer fab. The following chart lists our principal products in each category: Our FusionGemini dual chamber platform is the foundation for both our dry
strip and our photostabilizer products. Fusion pioneered photostabilization technology, and
we believe that our products remain the industry standard. Our dry strip tools are capable
of removing bulk photoresist from the wafer, as well as the residue left behind after bulk
strip. This reduces or eliminates the need for further wet chemical stripping by eliminating
the use of hazardous chemicals traditionally used for this step. Manufacturing cost is further
reduced by the fact that our ashers do not require side access, conserving expensive cleanroom
space. Our Fusion ES3 dry strip product, a 300 millimeter dry strip machine, was tested by
Sematech, an industry association of semiconductor manufacturers, and met Sematech's 300 millimeter
requirements. Satisfaction of Sematech's standard requirements indicates that our Fusion ES3 product
has achieved a level of performance required by many semiconductor manufacturers. Our photostabilizers are used by a majority of integrated circuit manufacturers worldwide
because of our proprietary ultraviolet light source and the high throughput of the FusionGemini
dual chamber platform. Our recently introduced Fusion PS3 machine has 300 millimeter wafer
capability and we believe that it is the only 300 millimeter production-ready photostabilizer
available on the market. It has been installed in 300 millimeter pilot production facilities. Rapid Thermal Processing Systems. We introduced our rapid thermal processing
products in 1999. At a number of points during the manufacturing process, silicon wafers need to
be heated rapidly, often to 900 degrees centigrade or higher, in order to complete chemical or
electronic reactions. This heating process is referred to as rapid thermal processing, or RTP. Our RTP machine employs a patented design to process a single wafer in a hot wall vertical
reactor. The reactor has three zones that are heated by heating coils, as well as an actively
cooled base, which create a uniform temperature gradient from top to bottom. The resulting stable
temperature profile is inherently repeatable, accurate and reliable. Rapid heating and cooling of
the wafer is achieved by simply adjusting the vertical position of the wafer within the reactor.
Most other RTP equipment manufacturers use more expensive lamp-based RTP systems, which require
frequent lamp replacement and require expensive control systems. For this reason, we believe our
RTP machines have lower overall operating costs than these lamp-based systems. The following chart lists our principal RTP products: Our Summit series of RTP systems has a flexible design, offering both single
and dual chamber systems. Its engineering incorporates recent developments in furnace design,
temperature measurement, emission correction techniques and wafer handling. Our recently introduced
Summit 300 has 300 millimeter wafer capability. Post Sales Support and Services. We offer our customers extensive post sales
service and support throughout the lifecycle of the equipment we manufacture. We believe that more
than 3,200 of our products, including products shipped by SEN, are in use worldwide. The service
and support that we provide include spare parts, equipment upgrades, maintenance services and
customer training. We offer service at 66 locations in ten countries; 13 of these are combined
sales and service offices, and the balance are service-only offices, mostly located in our principal
customers' fabrication facilities. Our customer support network includes over 500 sales and marketing personnel and service
engineers, including field service engineers, spare parts support staff and applications engineers.
An additional 300 persons located at our three manufacturing facilities work with our customers
to provide advanced equipment support, applications support, customer training and documentation. Most of our customers maintain spare parts inventories for our machines. In 1997, we launched
a web-based spare parts management and replenishment tracking program, or SMART, to facilitate internet
communication and e-commerce with our customers. The implementation of our SMART program has helped us
to achieve reduced order fulfillment costs and cycle times resulting in an expanded customer base for
this service offering . Our process technology center in Beverly, Massachusetts is available to customers for developing
and testing advanced ion implantation and RTP processes, and our process technology center in Rockville,
Maryland is available to customers for developing and testing dry strip and photostabilization processes.
At these facilities, we also make available to our customers advanced testing and analysis equipment. In
addition, we are constructing a 140,000 square foot addition to the Beverly facility, which will house
an advanced process development, product demonstration and customer training center for all of the equipment
we produce. The ability to provide prompt and effective field support is critical to our sales efforts, due
to the substantial operational and financial commitments made by customers that purchase our systems.
Our customer support programs, combined with our research and development efforts, have served to
encourage use of our systems in production applications and have accelerated penetration of certain
key accounts. Sales and Marketing We primarily sell our equipment and services through our direct sales force. We have 13
sales offices in seven countries. Aftermarket service and support is also offered at all of these
offices. In the United States, we conduct sales and marketing activities from seven locations.
Outside of the United States, our sales offices are located in Taiwan, South Korea, Germany, Singapore,
Italy and France. In addition, isolated sales are made in smaller markets through distributors and
manufacturers representatives. We have over 500 sales and marketing personnel and service engineers.
Our sales objective is to work closely with customers to secure purchase orders for multiple systems
as they expand existing facilities and build new wafer facilities. We believe that our marketing efforts
are enhanced by the technical expertise of our research and development personnel. In Japan, we market our products through two channels: one, we sell our ion implant products only
through our SEN joint venture, which sells its machines and services directly to semiconductor fabricators;
and two, we sell our photostabilizers, dry strip and rapid thermal processing products to semiconductor
fabricators through an exclusive distribution agreement with Sumitomo Heavy Industries, Ltd. entered into
in 1999. The distribution agreement also provides for the parties to discuss the manufacture and sale of
these products through SEN if the parties agree that sales volume will justify manufacturing these products
in Japan in the future. The distribution arrangement expires in 2002 and thereafter is renewable from year
to year, unless either party has given the other party six months prior written notice. International sales, including export sales from our U.S. manufacturing facilities to foreign
customers and sales by our foreign subsidiaries and branches, accounted for 69.4% of total net sales
in 2000, 53.5% of total net sales in 1999, and 49.4% in 1998. Substantially all of our sales are
denominated in U.S. dollars. SEN's sales are denominated in Japanese yen. Customers In 2000, the top 20 semiconductor manufacturers accounted for approximately 79% of total
semiconductor industry capital spending. These manufacturers are from the four largest semiconductor
manufacturing regions in the world: the United States, Asia Pacific (Taiwan, South Korea and Singapore),
Japan and Europe. We and SEN serve all of the 20 largest semiconductor manufacturers. We believe that
more than 3,200 of our products, including products shipped by SEN, are in use worldwide. Net sales to our ten largest customers accounted for 56.3%, 59.1% and 37.6% of net sales,
respectively, in 2000, 1999 and 1998. We expect that sales of our products to relatively few customers
will continue to account for a high percentage of net sales for the foreseeable future. In 2000, net
sales to STMicroelectronics N.V., accounted for 13.9%, of our net sales. No other customer accounted
for as much as 10% of our net sales in 2000. In 1999, net sales to STMicroelectronics N.V., Motorola,
Inc and Texas Instruments Incorporated accounted for 15.9%, 10.6% and 10.5%, respectively, of our net
sales. In 1998, no single customer accounted for as much as 9.0% of our net sales. SEN Joint Venture In 1982, we established our SEN joint venture with Sumitomo Heavy Industries, Ltd. to
provide us with additional manufacturing capacity for our ion implant products and local access to
the Japanese semiconductor equipment market. Under our arrangements with Sumitomo Heavy Industries,
Ltd., our ion implant products may be sold in Japan only through the joint venture. SEN may sell its
products outside Japan only with our consent and through us as exclusive distributor. There are
isolated sales of our equipment into Japan to our non-Japanese customers and isolated sales of SEN
equipment outside of Japan primarily to its Japanese customers and their joint ventures. SEN
manufactures ion implantation equipment at its Toyo, Japan location under the license from us described
below. From time to time, we sell ion implantation equipment and other products to SEN. In 2000, our
net sales of products to SEN amounted to $11.9 million. As part of the joint venture arrangement, we have entered into a separate license agreement
with SEN, last renewed in 1996, under which we have granted SEN an exclusive license in Japan to
use our current and future ion implantation technology and to manufacture, use and sell products
using our current and future ion implantation patents. We have also granted SEN a non-exclusive
license to sell ion implantation products outside of Japan. We received royalty income from SEN
under the license agreement of $13.5 million in 2000, $3.8 million in 1999, and $4.0 million in
1998. The license agreement expires on December 31, 2004 and is automatically renewable for
successive five year periods unless either party has provided one year's prior notice of termination. SEN has the right to use the name "EATON" as part of its corporate name under a corporate
name agreement with Eaton that has been assigned to us. We have the right, however, to terminate
that agreement at any time upon 60 days' notice and we are obligated under our trademark license
agreement with Eaton to terminate the corporate name agreement on December 31, 2004. SEN also has
the right to use in Japan the trademarks "EATON" and "NOVA" on its ion implantation products under
SEN's separate trademark license agreement with Eaton that also has been assigned to us. SEN does
not, however, have the right to use "EATON" in logo format. The SEN trademark license agreement
requires SEN to pay us semiannual royalties equal to 0.5% of net sales. SEN must maintain quality
and reliability standards, and we are entitled to terminate our trademark agreement with SEN at
any time for cause and we are obligated under our trademark license agreement with Eaton to terminate
the SEN trademark license agreement on December 31, 2004. Research and Development Our industry continues to experience rapid technological change, requiring us to
frequently introduce new products and enhancements. Our ability to remain competitive in this
market will depend in part upon our ability to develop new and enhanced systems and to introduce
these systems at competitive prices and on a timely and cost effective basis. We devote a significant portion of our personnel and financial resources to research and
development programs and seek to maintain close relationships with our customers to remain responsive
to their product needs. We have also sought to reduce the development cycle for new products through
a collaborative process whereby our engineering, manufacturing and marketing personnel work closely
together with one another and with our customers at an earlier stage in the process. We also use 3D,
computer-aided design, finite element analysis and other computer-based modeling methods to test
new designs. We conduct our research and development programs at our facilities in Beverly,
Massachusetts and in Rockville, Maryland. SEN also conducts research and development in Toyo, Japan. Our product development efforts have led to numerous industry breakthroughs, including the
first production high current implantation system, the first production high energy implanter and
the first photostabilizer. Our expenditures for research and development during 2000, 1999 and 1998 were $68.8 million,
$51.6 million and $78.7 million, respectively, or 10.1%, 13.0% and 29.6% of net sales, respectively.
The increase in research and development expenditures in 2000 as compared to 1999 primarily reflected
our research focus to develop products capable of processing 300 millimeter wafers. We expect in
future years that research and development expenditures will continue to represent a substantial
percentage of net sales. Manufacturing We manufacture our products at facilities in Beverly, Massachusetts and in Rockville,
Maryland. In addition, SEN manufactures products at its facility in Toyo, Japan. Our Beverly, Massachusetts facility manufactures our high energy, high current and high
tilt/medium current ion implantation and rapid thermal processing systems. In 1999, we completed
an 80,000 square foot expansion of this facility. We manufacture photoresist removal and curing
systems in our Rockville, Maryland facility, including our photostabilizer and dry strip product
lines. Our manufacturing facilities employ advanced manufacturing methods and technologies,
including lean manufacturing, Six Sigma controls and processes and web-enabled inventory purchase
systems. We manufacture our products in cleanroom environments that are similar to the cleanrooms
used by semiconductor manufacturers for wafer fabrication. Most of our systems are designed and
tailored to meet the customer's specifications as outlined in the sales contract. To ensure that the customer's specifications are satisfied, per contract terms, the
systems are tested at our facilities prior to shipment, normally with the customer present,
under conditions that substantially replicate the customer's production environment and the
customer's criteria are confirmed to have been met. These environmental conditions include
power requirements, toxic gas usage, air handling requirements including humidity and temperature,
equipment bay configuration, wafer characteristics and other factors. These procedures are intended
to reduce installation and production qualification times and the amount of particulates and other
contaminants in the assembled system, which in turn improves yield and reduces downtime for the customer. After testing, the system is disassembled and packaged to maintain cleanroom standards
during shipment. Installation is itself not a complex process and does not require specialized
skills. It is typically performed by a team of assemblers from the customer and ourselves. It
includes placing and leveling the equipment at its installation site, connecting it to sources
of gas, water and electricity and recalibrating it to specifications that had previously been
tested and met. We purchase materials, components and subassemblies, such as pumps, machine components,
power supplies and other electrical components, from various suppliers. These items are either
standard products or built to our specifications. Some of the components and subassemblies
included in our products are obtained either from a sole source or a limited group of suppliers,
which could result in disruptions to our operations. We have installed a web-based supply chain
system in order to increase efficiency and cut costs associated with obtaining materials and
components. This system electronically exchanges information with our vendors as to purchase
orders, forecasts and automatic delivery updates. We recognize sales at the time of shipment to the customer. We have a demonstrated
history of customer acceptance subsequent to shipment and installation of our systems. We
believe that the customer's post delivery acceptance provisions and installation process are
routine from a commercial standpoint because the process is a replication of pre-shipment
procedures. We have never failed to successfully complete a system installation. However,
should an installation not be successfully completed, our contractual provisions do not provide
for forfeitures, refunds or other purchase price concessions beyond those prescribed by the
provisions of the Uniform Commercial Code applicable generally to these transactions. Competition The semiconductor equipment market is highly competitive and is characterized by a
small number of large participants. We compete in four principal product markets primarily at
the front-end of the semiconductor manufacturing process: ion implantation, dry strip, photostabilization
and rapid thermal processing. Preexisting relationships have a significant influence on a customer's
choice of equipment supplier. Other significant competitive factors in the semiconductor equipment
market include price/cost of ownership, performance, customer support, breadth of product line,
distribution and financial viability. Ion Implantation. In high energy equipment, our principal competitor is Varian
Semiconductor Equipment Associates, Inc. ("Varian"). In high current products, we and Applied Materials
Inc. have substantial market shares. In high tilt/medium current equipment, where we have a small market
share, Varian has a commanding market position. SEN is the largest manufacturer of ion implantation
equipment in Japan and competes with Nissin Electric Co., Ltd., Ulvac Technologies, Inc., Varian and
Applied Materials Inc. for sales in that market. Dry Strip, Photostabilization and Rapid Thermal Processing. Our principal
competitors in the dry strip product market are, Mattson Technology Inc., and GaSonics International
Corp., recently acquired by Novellus Systems, Inc. and our principal competitor in photostabilization
is Ushio Inc. Our chief competitor in the rapid thermal processing equipment market is Applied
Materials Inc. Intellectual Property We rely on patent, copyright, trademark and trade secret protection, as well as
contractual restrictions, in the United States and in other countries to protect our proprietary
rights in our products and our business. As of February 28, 2001, we had 142 patents in the
United States and 271 patents in other countries, as well as 472 patent applications (75 in
the United States and 397 in other countries) on file with various patent agencies worldwide.
We intend to file additional patent applications as appropriate. Although patents are important
to our business, we do not believe that we are substantially dependent on any single patent or
any group of patents. We have trademarks, both registered and unregistered, that are maintained to provide
customer recognition for our products in the marketplace. We have a license from Eaton to use
the Eaton trademark and logo for a fixed period of time in connection with the sale of
semiconductor manufacturing equipment. We have agreements with third parties, mostly as licensor, that provide for the licensing
of patented or proprietary technology. These agreements include royalty-bearing licenses and
technology cross-licenses. Our license agreement with SEN is described above under "SEN Joint
Venture". No other license is material to us. There has been substantial litigation regarding patent and other intellectual property
rights in semiconductor-related industries. On January 8, 2001, we filed suit in federal
district court in Boston, Massachusetts against Applied Materials, Inc., alleging infringement
of Axcelis' U.S. Patent No. 4,667,111, tortious interference with contract and prospective
advantageous business relationships, and unfair competition and trade practices. U.S Patent
No. 4.667,111 recently survived re-examination before the United States Patent and Trademark
Office, the request for re-examination being made by Applied Materials, Inc. We can give no assurance that we, our licensors, licensees, customers or suppliers
will not be subject to claims of patent infringement or claims to invalidate our patents,
and that any such claim will not be successful and require us to pay substantial damages or
delete certain features from our products or both. Backlog As of December 31, 2000, our backlog was $211.0 million, as compared to $93.8
million, and $27.8 million, respectively, for year end 1999 and 1998. Our policy is to
include in backlog only those orders for which we have accepted purchase orders. All orders
are subject to cancellations or rescheduling by customers with limited or no penalties. Due
to possible changes in system delivery schedules, cancellations of orders and delays in
systems shipments, our backlog at any particular date is not necessarily indicative of our
actual sales for any succeeding period. In addition, our backlog at the beginning of a
quarter typically does not include all orders required to achieve our sales objectives for
that quarter and is not a reliable indicator of our future sales. Employees As of December 31, 2000, we had 2,056 full-time and 242 temporary employees
worldwide, of which 1,991 were employed in North America, 178 in Asia and 129 in Western
Europe. All of our employees have entered into confidentiality and noncompetition agreements
with us. At that date, none of our employees based in the United States was represented by a
union, and we have never experienced a work stoppage, slowdown or strike. Our employees based
in Germany are subject to collective bargaining agreements. We consider our relationship with
our employees to be good. Environmental We are subject to environmental laws and regulations in the countries in which we
operate that regulate, among other things: air emissions; water discharges; and the generation,
use, storage, transportation, handling and disposal of solid and hazardous wastes produced by
our manufacturing, research and development and sales activities. As with other companies engaged
in like businesses, the nature of our operations exposes us to the risk of environmental
liabilities, claims, penalties and orders. We believe, however, that our operations are in
substantial compliance with applicable environmental laws and regulations and that there are
no pending environmental matters that would have a material impact on our business. . Item 2: Properties We have a total of 39 properties, of which 23 are located in the United States and the
remainder are located in Asia and Europe, including offices in Taiwan, Singapore, South Korea,
Italy, Germany, France and the United Kingdom. Of these properties, two are owned and 37 are
leased. We own our 54,600 square foot corporate headquarters in Beverly, Massachusetts located
adjacent to our Beverly manufacturing facility. Our manufacturing facilities are listed below: Our Japanese joint venture manufactures ion implantation products in a 300,300 square foot owned
facility located in Toyo, Japan. The Beverly facility includes an 11,000 square foot demonstration line, which is used to develop
next-generation application solutions for specific customers, as well as to demonstrate the full
range of our integrated process equipment. We also have a process technology center in Rockville,
Maryland that is available to customers for developing and testing dry strip and photostabilization
processes. We are building a 140,000 square foot facility in Beverly, Massachusetts which will house an
advanced process development, product demonstration and customer training center with all of the
equipment we produce. In 1998, as part of our restructuring, we closed our Austin, Texas ion
implant manufacturing facility and transferred production to our Beverly, Massachusetts facility.
On May 18, 2000, we sold our Austin facility for net proceeds of $11.0 million, a price that
approximated book value. We do not believe there is any material, long-term, excess capacity in our facilities,
although utilization is subject to change based on customer demand. We believe that our
manufacturing facilities and equipment generally are well-maintained, in good operating
condition, suitable for our purposes, and adequate for our present operations. Our Beverly,
Massachusetts and Rockville, Maryland facilities are ISO 9001 certified. Item 3: Legal Proceedings On January 8, 2001, Axcelis filed a lawsuit against Applied
Materials, Inc. in the United States District Court for the District of Massachusetts. The
complaint alleges that Applied's medium current/high energy ion implanter machine infringes
an Axcelis patent for ion implantation equipment using radio frequency linear accelerator
technology. Axcelis has also alleged that Applied unlawfully interfered with Axcelis'
existing and future contracts. On January 18, 2001, Axcelis filed a motion for a preliminary
injunction, asking the court to stop Applied from manufacturing, selling or offering to sell
its medium current/high energy ion implanter machine and to order Applied to remove all
Axcelis patented technology from implanters that Applied may have placed in chipmakers' plants
for process development trials. The parties are engaged in the process of discovery and, based
on the scheduling order entered by the court, a trial is scheduled for the third quarter of 2001.
The Company believes its claims are meritorious and intends to pursue the matter vigorously.
Although there can be no assurance of a favorable outcome, the Company does not believe that
this matter will have a material adverse effect on the Company's financial condition or results
of operations. Item 4: Submission of Matters to a Vote of Security Holders None Executive Officers and Key Management Executive Officers Brian R. Bachman has been the Company's Chief Executive Officer and Vice
Chairman since May 2000. From December 1995 to July 2000 he was Senior Vice President and
Group Executive-Hydraulics, Semiconductor Equipment and Specialty Controls of Eaton Corporation.
From 1991 to 1995, he was Vice President and General Manager for the Standard Products Business
Group of Philips Semiconductor. He is a member of the Board of Directors of Keithley Instruments, Inc.
He also serves on Northwestern University's Kellogg McCormick Master of Management in Manufacturing
Program Advisory Board. Mary G. Puma has been the Company's President and Chief Operating Officer since
May 2000. Prior to her current position, she served as the Company's Vice President from February
1999 to May 2000. In 1998, she became General Manager and Vice President of the Company's Implant
Systems Division. In May 1996, she joined Eaton as General Manager of the commercial controls
division. Prior to joining Eaton, Ms. Puma spent 15 years in various marketing and general
management positions for General Electric Company. Kevin M. Bisson has been the Company's Vice President and Controller since
June 2000 and has served as the Director of Finance from January 2000 to May 2000. Prior to
joining Axcelis, Mr. Bisson was Director of Finance for Hamilton Sundstrand Corporation, a
subsidiary of United Technologies Corporation, from 1999 and he held various other financial
management positions at UTC since 1989. Michael L. Dreyer has served as our Vice President-General Manager, Fusion
Systems Division since September 2000. Prior to joining Axcelis, Mr. Dreyer served Motorola,
Inc. since 1989 in various management positions, most recently as Process, Equipment and
Technology Engineering Manager of Motorola's MOS12 Wafer Fab in Chandler, Arizona. Michael J. Luttati has been the Company's Senior Vice
President--General Manager, Implant Systems Division since July 2000 and was our General Manager
of implant systems since 1999. Prior to joining the Company, Mr. Luttati served as Vice
President, North America Sales Operations of Teradyne Inc. from 1996 to 1998 and, from
1983 to 1996, he held several other sales and marketing positions with Teradyne. Ted S. Miller has been our Vice President and General Manager-Global
Customer Service since July 2000 and was the Company's Director of Global Customer Service
since the beginning of 2000. Prior to joining the Company, Mr. Miller most recently served
as Division Marketing Manager, Global Customer Service at Teradyne, Inc. and since 1980,
he held various other marketing and other positions at Teradyne, including ten years
experience in the semiconductor service segment. Robert A. Mionis has served as our Senior Vice President-Worldwide Operations
since July 2000 and was our Director of Worldwide Operations since March 1999 and was the
Company's Global Operations Director for our implant systems operations from May 1998. Prior
to joining Axcelis, Mr. Mionis served AlliedSignal Corporation as Director of Operations and
GE Aerospace in various management positions. Cornelius F. Moses III has been the Company's Executive Vice President and
Chief Financial Officer since October 2000. Prior to that, Mr. Moses was Senior Vice President,
Chief Financial Officer of Bradlees, Inc. from 1995. From 1990 to 1995, Mr. Moses had various
positions with Ames Department Stores, Inc., most recently as Senior Vice President, Finance. Kevin O'Connor has been our Senior Vice President-Human Resources since July
2000. Mr. O'Connor was the principal of a consulting firm providing human resources advice to
several privately held technology firms in the United States from March 2000 until July 2000.
From December 1996 until March 2000, he was Vice President-Global Human Resources for Iomega
Corporation. From 1993 until December 1996, Mr. O'Connor was Vice President,
Human Resources-Americas/Asia for Dell Computer Corporation. Key Management Craig Halterman has been our Vice President and Chief Information Officer since July
2000 and was our Director of Information Technology since the beginning of 2000. Prior to joining
our company, Mr. Halterman was Information Technology Director at Honeywell/Allied Signal in its
space and defense systems business since 1997. Prior to that, Mr. Halterman held various information
technology positions at The Dow Chemical Co., Thompson Consumer Electronics, General Electric Co. and
RCA Consumer Electronics. Charles F. Lesko has been our Vice President of Sales since June 2000. He joins Axcelis
from Teradyne where he held several significant positions in sales and sales management for the last 10
years. Most recently, he held the position of Western US Sales Manager where he was responsible for
global sales and support to many of the leading semiconductor manufacturers throughout the world. Prior
to Teradyne, Mr. Lesko held various sales management and engineering positions at companies including
Dupont and Pepsico. John M. Poate has been our Vice President and Chief Technology Officer since June 2000.
Prior to joining us, Dr. Poate was Dean of the College of Science and Technology of the New Jersey
Institute of Technology, and was Dean of the College of Liberal Arts since 1997. From 1971 to 1997,
he held several senior research positions, including head of silicon processing research, with Bell
Laboratories. PART II Item 5: Market for Registrant's Common Equity and Related Stockholder Matters Our common stock has traded on the Nasdaq stock market under the symbol
ACLS since our initial public offering on July 11, 2000. The following table sets forth the high
and low closing sale prices as reported on the Nasdaq stock market during the last two quarters.
As of March 15, 2001, we had approximately 11,372 stockholders of record. Other than the $300
million cash dividend paid to Eaton out of the proceeds from our initial public offering, Axcelis
has not paid and does not anticipate paying cash dividends in the future. Item 6: Selected Financial Data The following selected consolidated statements of operations data for
each of the three years ended December 31, 2000, 1999 and 1998 and the consolidated balance sheet
data as of December 31, 2000 and 1999 has been derived from the audited consolidated financial statements
contained in Item 8 of Part II of this Form 10-K. The selected consolidated statements of operations
data for the year ended December 31, 1997 and the consolidated balance sheet data as of December 31,
1998 has been derived from the audited financial statements contained in our registration statement
on Form S-1 filed on May 5, 2000, as amended. The selected consolidated statements of operations
data for the year ended December 31, 1996 and the consolidated balance sheets data as of December
31, 1997 and 1996 have been derived from our unaudited consolidated financial data. The historical financial information set forth below may not be indicative of our future
performance and should be read together with "Management's Discussion and Analysis" and our
historical consolidated financial statements and notes to those statements included in Items
7 and 8 of Part II of this Form 10-K. During fiscal 2000, the Company paid a dividend of $300 million ($3.75 per share) to
Eaton Corporation. In addition, refer to "Separation from Eaton Corporation" and "Basis of
Presentation" below for discussion of comparability of operating results. Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations The following discussion should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this Annual Report on Form 10-K. The following
discussion contains forward-looking statements, including, without limitation, that involve risks
and uncertainties. Our actual results could differ materially from the results contemplated by
these forward-looking statements due to certain factors, including those discussed in this
Management's Discussion and Analysis under the heading "Outlook," and in Exhibit 99 to this
Form 10-K and elsewhere in this Annual Report on Form 10-K. Overview We are a leading producer of ion implantation, dry strip and photostabilization
equipment used in the fabrication of semiconductors. We have recently introduced rapid thermal
processing equipment, which is used in semiconductor manufacturing primarily before and after
the ion implantation process. In addition, we provide extensive aftermarket service and support,
including spare parts, equipment upgrades, maintenance services and customer training. We have a
50-50 joint venture with Sumitomo Heavy Industries, Ltd. in Japan. Separation from Eaton Corporation Prior to the initial public offering on July 10, 2000, we were a wholly owned
subsidiary of Eaton Corporation (Eaton). On June 30, 2000, Eaton substantially completed the
transfer to us of all of the assets of its semiconductor equipment operations that were not
previously owned by us, and we assumed the related liabilities. On December 29, 2000, Eaton
completed the divestiture of its investment in Axcelis by distributing its remaining 82%
ownership interest in Axcelis in the form of a spin-off to Eaton shareholders. We also entered
into various other agreements with Eaton which provide for transitional services and support,
including those associated with voice and data transmissions and other data-related operations,
accounts receivable, accounts payable, fixed assets, payroll, general accounting, financial
accounting consolidation, cash management, human resources, tax, legal and real estate. Under
these agreements, we reimbursed Eaton for its direct and indirect costs of providing these services
until completion of the divestiture, and thereafter, for a limited time, we will reimburse Eaton
for its costs plus an additional fee. The transition periods covered by these agreements generally
expire by December 29, 2001. The agreements do not necessarily reflect the costs of obtaining
these services from unrelated third parties or of providing the applicable services in-house.
However, management believes that purchasing these services from Eaton provides an efficient
means of obtaining these services during the transition period. We must also negotiate new
agreements with various third parties as a separate, standalone entity. There can be no assurance
that the terms we will be able to negotiate for these agreements will be as favorable as those we
have enjoyed as part of Eaton. Basis of Presentation On June 30, 2000, Eaton substantially completed the transfer of all the assets and
related liabilities of its semiconductor equipment operations to us. Prior to the transfer, the
financial statements of the semiconductor equipment operations were presented on a combined basis.
Prior to the initial public offering, Eaton did not account for or operate Axcelis as a separate,
stand-alone entity and, as a result, the financial information included herein may not reflect our
consolidated financial position, operating results and cash flows during the periods presented prior
to the initial public offering or in the future, if it had been a separate, stand-alone entity. Results of Operations The following table sets forth our results of operations as a percentage
of net sales for the periods indicated: Fiscal year ended December 31, 2000 in comparison to the fiscal year
ended December 31, 1999 Net Sales Net sales were $680.4 million in fiscal 2000, an increase of $283.1 million, or 71.3%,
as compared to net sales of $397.3 million in fiscal 1999. The increase in net sales was
attributable to continued high levels of capital spending by our semiconductor manufacturing
customers, resulting in increased demand for our products and services. Sales of ion implant products and services accounted for $534.4 million in total sales in
fiscal 2000, an increase of $212.4 million, or 66.0%, as compared to $322.0 million in fiscal
1999. Sales of other products and services, including dry strip products, photostabilization
products and rapid thermal processing systems, accounted for $146.0 million in total sales in
fiscal 2000, an increase of $70.7 million, or 94.0%, as compared to $75.3 million in fiscal 1999. Gross Profit Gross profit was $299.3 million in fiscal 2000, an increase of $142.2 million, or 90.5%,
as compared to gross profit of $157.1 million in fiscal 1999. The increase in gross profit was
primarily attributable to increased products and services sales volume. Gross profit as a percentage
of net sales increased to 44.0% in fiscal 2000 from 39.5% in fiscal 1999. This increase was due
primarily to improved capacity utilization as a result of higher sales volume and, to a lesser extent,
to a more favorable product mix of dry strip and photostabilization products. Research and development Research and development expense was $68.8 million in fiscal 2000, an increase of $17.2 million,
or 33.3%, as compared to $51.6 million in fiscal 1999. As a percentage of net sales, research and
development expense decreased to 10.1% in fiscal 2000 from 13.0% in fiscal 1999, as costs were spread
over a higher revenue base. We continue to invest significantly in both current product enhancements
and new product development. Selling Selling expense was $56.4 million in fiscal 2000, an increase of $18.5 million, or 48.7%, as
compared to $37.9 million in fiscal 1999. The increase in selling expense was primarily due to
increased headcount and related expenses associated with increased sales volume. As a percentage
of net sales, selling expense decreased to 8.3% in fiscal 2000 as compared to 9.5% in fiscal 1999,
as costs were spread over a higher revenue base. General and Administrative General and administrative expense, including the allocation of Eaton general corporate expenses
to our business, was $60.2 million in fiscal 2000, an increase of $14.3 million, or 31.1%, as compared
with $45.9 million in fiscal 1999. The increase in general and administrative expense was primarily
attributable to increased spending for additional headcount and related expenses to support the growth
in sales as well as higher expenses related to transitioning to a stand-alone public company. As a
percentage of net sales, general and administrative expense decreased to 8.9% in fiscal 2000 as compared
with 11.6% in fiscal 1999 as these costs were spread over a higher revenue base. Amortization of Goodwill and Intangible Assets Amortization of goodwill and intangible assets was $9.3 million in fiscal 2000, consistent with
fiscal 1999. Income from Operations Income from operations was $104.6 million in fiscal 2000 as compared to $12.3 million in fiscal
1999, primarily as a result of the factors described above. Other Income (Expense) Total other income was $39.6 million in fiscal 2000 as compared to $7.2 million in fiscal 1999.
Other income consists primarily of royalty income and equity income from SEN. Royalty income, primarily
from SEN, was $15.1 million in fiscal 2000 as compared to $5.9 million in fiscal 1999. Equity income
attributable to SEN was $19.6 million in fiscal 2000 compared to $1.3 million in fiscal 1999. Both
increases in fiscal 2000 were due to increased SEN sales volume due primarily to the recovery in the
Japanese semiconductor market, which began in late 1999. Interest income of $5.8 million in fiscal
2000 was earned from the net proceeds from the initial public offering and significantly higher cash
balances generated from operating activities. Income Taxes Income taxes were $45.2 million in fiscal 2000 as compared with $5.1 million in fiscal 1999.
Our effective income tax rate was 31.3% in fiscal 2000 as compared to 26.2% in fiscal 1999. The tax
rate in both periods differs from the U.S. federal statutory rate primarily due to state taxes,
undistributed nontaxable equity income from SEN, credits from increased research activities and
increased foreign sales corporation benefits. See Note 13 to the Consolidated Financial Statements
contained in Item 8 of this Form 10-K. Net Income (Loss) Net income increased to $99.1 million in fiscal 2000 from $14.4 million fiscal 1999, principally
as a result of the factors discussed above. Fiscal year ended December 31, 1999 in comparison to the fiscal year ended December 31, 1998 Net Sales Net sales in 1999 were $397.3 million, an increase of $131.6 million, or 49.5%, as
compared to net sales of $265.7 million in 1998. The increase in net sales was attributable
to the increased demand for our principal products and services resulting from the semiconductor
industry's recovery, which began in the second half of 1999. Our third quarter 1999 net sales
increased 125.4% over the third quarter of 1998, and fourth quarter 1999 net sales increased
193.7% over the fourth quarter of 1998. Sales of our ion implant systems and services accounted for $322.0 million in total sales in
1999 as compared to $219.9 million in 1998, an increase of 46.4% over 1998. Sales of other products
and services, including dry strip products, photostabilization products and rapid thermal processing
systems, accounted for $75.3 million in total sales in fiscal 1999, an increase of $29.5 million, or
64.4%, as compared to $45.8 million in fiscal 1998. Gross Profit Gross profit was $157.1 million in 1999, an increase of $92.9 million, or 144.6%, as compared
with gross profit of $64.2 million in 1998. Of this increase, $31.9 million resulted from increased
sales while $43.6 million was due primarily to improved capacity utilization resulting from higher
product sales volume. In addition, gross profit in 1998 was reduced by $17.4 million of
restructuring charges for inventory writedowns. The increase in gross profit as a percentage of net
sales to 39.5% in 1999 from 24.2% in 1998 was due to improved capacity utilization, increased sales
and the absence of restructuring charges in 1999. Research and Development Research and development expense was $51.6 million in 1999, a decrease of $27.1 million, or
34.4%, as compared to $78.7 million in 1998. As a percentage of net sales, research and development
expense was 13.0% in 1999 and 29.6% in 1998. Approximately $17.2 million of the decrease in expense
was attributable primarily to synergy savings associated with the closing of our Austin, Texas
facility and the subsequent transfer of Austin's ion implant engineering activities to our Beverly,
Massachusetts facility. The balance of the decrease was attributable to a reallocation of our
research and development efforts following our 1998 restructuring and the completion of certain
research projects. Selling Selling expense was $37.9 million in 1999, a decline of $4.2 million, or 9.9%, as compared
to $42.1 million in 1998. The reduction in selling expense between years was driven principally
by headcount savings attributable to our cost reduction strategy that was initiated in the second
quarter of 1998 and continued into the second quarter of 1999. As a percentage of net sales,
selling expense decreased to 9.5% in 1999 as compared to 15.9% in 1998. General and Administrative General and administrative expense, including the allocation of Eaton general corporate
expenses to our business, was $45.9 million in 1999, a decrease of $1.2 million, or 2.4%, as
compared with $47.1 million in 1998. As a percentage of net sales, general and administrative
expense decreased to 11.6% in 1999 as compared with 17.7% in 1998 as these costs were spread
over a higher revenue base. The allocation of Eaton general corporate expense was $15.0 million
in 1999 as compared to $14.8 million in 1998. Amortization of Goodwill and Intangible Assets Amortization of goodwill and intangible assets was $9.3 million in 1999, consistent with 1998. Income (Loss) from Operations Income from operations was $12.3 million in 1999 as compared to a loss from operations of
$137.9 million in 1998, primarily as a result of the factors described above. Other Income (Expense) Total other income was $7.2 million in 1999, an increase of $2.4 million, or 51.3%, as
compared to $4.8 million in 1998. Other income primarily consisted of royalty income and equity
income from SEN. Royalty income, more than half of which was from SEN, was $5.9 million in 1999,
as compared to $7.9 million in 1998, or a decrease of 26.4%. The decrease in 1999 was due to
income in 1998 from a large one-time royalty payment from an unrelated party. Equity income
attributable to SEN was $1.3 million in 1999 as compared to a loss of $2.1 million in 1998.
This increase primarily reflects a 19.4% increase in SEN sales volume in 1999 as compared to
1998 as a result of improvements in the Japanese semiconductor market. Income Taxes (Credit) Income tax expense was $5.1 million in 1999 as compared with an income tax credit of
$51.1 million in 1998, which was generated by our loss from operations in that year. The effective
tax rate for 1999 was 26.2% which included a credit for research activities, as compared to an
effective tax rate of 38.4% in 1998. See Note 13 to the consolidated financial statements. Net Income (Loss) Net income increased to $14.4 million in 1999 as compared to a loss of $82.0 million in
1998, principally as a result of the factors discussed above. Liquidity and Capital Resources Cash and cash equivalents at December 31, 2000 were $168.2 million,
compared to $3.5 million at December 31, 1999. The significant increase in cash between years
was due mainly to higher net income of $99.1 million, net proceeds received from the initial
public offering of $348.6 million, partially offset by the payment of a $300 million dividend
to Eaton, and the sale of our Austin, Texas facility for $11.0 million. Net working capital
was $297.3 million at December 31, 2000 as compared to net working capital of $169.8 million
as of December 31, 1999. The increases in cash, accounts receivable and inventory were the
primary causes of the increase in working capital, all of which increased primarily as a result
of higher business volume in fiscal 2000. Cash provided by operating activities was $99.7 million for fiscal 2000 as compared to net
cash used of $39.1 million for fiscal 1999. The cash provided by operating activities for fiscal
2000 was primarily the result of improved earnings performance and working capital management.
Cash provided by financing activities consisted primarily of net proceeds from the initial public
offering of $348.6 million offset by the payment of a $300.0 million cash dividend to Eaton. Capital expenditures were $21.8 million in fiscal 2000 and $16.9 million in fiscal 1999.
The amount of future capital requirements will depend on a number of factors, including the
timing and rate of the expansion of our business. We anticipate increased capital expenditures
to support our worldwide sales growth including the expansion of our Beverly, Massachusetts facility. Axcelis' liquidity is affected by many factors. Some of these factors are based on normal
operations of the business and others relate to the uncertainties of global economies and the
semiconductor equipment industry. Although our cash requirements fluctuate based on the timing
and extent of these factors, we believe that our existing cash and cash equivalents will be
sufficient to satisfy our anticipated cash requirements for at least the next twelve months. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement revises accounting and reporting
standards for derivative instruments, including derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133, as amended by SFAS No. 137 and SFAS
No. 138, is effective for fiscal quarters of fiscal years beginning after June 15, 2000.
Axcelis will adopt the standard in the first quarter of fiscal 2001 and does not expect the
adoption to have a material impact on its financial condition or results of operations. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements". SAB 101, which was
subsequently amended by SAB No. 101A and SAB 101B (collectively referred to as SAB 101)
provides guidance on the recognition, presentation and disclosure of revenue in financial
statements. Axcelis has concluded that its revenue recognition policy continues to be
appropriate and in accordance with generally accepted accounting principles and SAB 101. Outlook The growth in our business from 1998 to 1999 and from
1999 to 2000 should not be read as an indication of our performance in 2001. The semiconductor
industry is highly cyclical and has experienced periodic downturns that have had a severe
adverse impact on the semiconductor industry and on suppliers to the semiconductor industry,
including us. Our business depends in significant part upon capital expenditures by
semiconductor manufacturers, especially manufacturers that are opening new or expanding
existing fabrication facilities. The level of capital expenditures by these manufacturers
depends upon the current and anticipated market demand for semiconductors and the products
utilizing them, the available manufacturing capacity in manufacturers' fabrication facilities,
and the ability of manufacturers to increase productivity in existing facilities without
incurring additional capital expenditures. If existing fabrication facilities are not
expanded or new facilities are not built as rapidly as anticipated, demand for our systems
may decline, and we may be unable to generate significant new orders for our systems, which
would adversely affect our sales levels. We derive most of our revenues from the sale of a
relatively small number of expensive products to a small number of customers. The list prices
on these products range from $150,000 to over $4.0 million. At our current sales level, each
sale, or failure to make a sale, could have a material effect on us in a particular quarter. In addition, the continued requirements for investments in engineering, research and
development and marketing necessary to develop new products and to maintain extensive
customer service and support capabilities limit our ability to reduce expenses during
downturns in proportion to declining sales. We are also exposed to the risks associated with an apparent slowdown in the U.S.
economy. Concerns about inflation, decreased consumer confidence, reduced corporate
profits and a slowdown in the sale of electronic goods suggest slower growth in the U.S.
economy. A slowing domestic economy may materially and adversely affect our business,
financial condition and results of operations. Exhibit 99 hereto contains additional information about important factors that
may cause our actual results to differ from our past performance and from performance
contemplated by any forward-looking statements in this Annual Report. That information
is incorporated herein by reference. Item 7a: Quantitative and Qualitative Disclosures about Market Risk Interest Rate Sensitivity Axcelis' exposure to market risk for changes in interest rates relates primarily
to our investment portfolio, which consists entirely of cash-equivalents as of December
31, 2000. The primary objective of our investment activities is to preserve principal
while maximizing yields without significantly increasing risk. This is accomplished by
investing in marketable high investment grade securities, and by limiting exposure to
any one issue or issuer. We do not use derivative financial instruments in managing our
investment portfolio and, due to the nature of our investments, we do not expect our
operating results or cash flows to be affected to any significant degree by any change
in market interest rates. As of December 31, 2000, all investments mature within 60
days and are carried at cost, which approximates fair market value. Foreign Currency Exchange Risk Prior to our separation from Eaton, our exposure to foreign currency exchange
rate risk was managed on an enterprise-wide basis as part of Eaton's risk management
strategy. Having now separated from Eaton, we will manage our exchange rate risk on
an independent basis. Currently, substantially all of our sales are billed in U.S.
dollars, thereby reducing the impact of fluctuations in foreign exchange rates on our
results. Our investment in SEN and our royalty and equity income from SEN are subject
to foreign currency exchange risks. Item 8: Financial Statements and Supplementary Data Response to this Item is submitted as a separate section
of this report immediately following Item 14. Item 9: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure None PART III Item 10: Directors and Executive Officers of the Registrant The information required by Item 10 of Form 10-K is incorporated
by reference from the information contained in the sections captioned "Election of Directors"
and "Section 16(a) Beneficial Ownership Reporting Compliance" in Axcelis' Proxy
Statement for the Annual Meeting of Stockholders to be held June 28, 2001 (the "Proxy Statement"),
a copy of which will be filed with the Securities and Exchange Commission on or prior to April
30, 2001, and the remainder of such information is set forth under the heading "Executive Officers"
at the end of Part I of this report. Item 11: Executive Compensation The information required by Item 11 of Form 10-K is incorporated
by reference from the information contained in the section captioned "Executive Compensation"
in the Proxy Statement. Item 12: Security Ownership of Certain Beneficial Owners and Management The information required by Item 12 of Form 10-K is incorporated by
reference from the information contained in the section captioned "Share Ownership" in the Proxy
Statement. Item 13: Certain Relationships and Related Transactions The information required by Item 13 of Form 10-K is incorporated by
reference from the information contained in the sections captioned "Executive Agreements"
and "Compensation Committee Interlocks and Insider Participation" in the Proxy Statement. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as part of this Report: (1) Financial Statements:
 
Report of Ernst & Young LLP - Independent Auditors
 
Consolidated Statements of Operations-For the fiscal years ended December 31, 2000,
1999 and 1998
 
Consolidated Balance Sheets-December 31, 2000 and 1999
 
Consolidated Statements of Cash Flows-For the fiscal years ended December 31, 2000,
1999 and 1998
 
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
  All other schedules for which provision is made in the applicable regulation of the Securities
and Exchange Commission are not required under the related instructions or are inapplicable,
and therefore have been omitted. (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter
ended December 31, 2000. (c) Exhibits The exhibits filed as part of this Form 10-K are listed on the Exhibit
Index immediately preceding such Exhibits, which Exhibit Index is incorporated herein
by reference. (d) Financial Statement Schedules The response to this portion of Item 14 is submitted as a separate section of this
report. Employee Stock Purchase Plan Although the Company registered interests in its Employee Stock Purchase Plan on Form
S-8 on November 13, 2000, the plan had no activity during 2000 and therefore no financial
statements relating to the Plan are being filed on Form 11-K for 2000 or being included in
this Form 10-K for 2000 pursuant to Rule 15d-21. Report of Ernst & Young LLP, Independent Auditors Board of Directors and Stockholders Axcelis Technologies, Inc. We have audited the accompanying consolidated balance sheets of Axcelis Technologies,
Inc. (the "Company") as of December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 2000. Our audits also included the financial statement
schedule listed in the Index at Item 14 (a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express an opinion
on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Axcelis Technologies,
Inc. at December 31, 2000 and 1999, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States. Also, in our opinion,
the related financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the information set
forth therein. /s/ ERNST & YOUNG LLP Boston, Massachusetts Axcelis Technologies, Inc.
See accompanying Notes to Consolidated Financial Statements Axcelis Technologies, Inc.
See accompanying Notes to Consolidated Financial Statements. Axcelis Technologies, Inc.
See accompanying Notes to Consolidated Financial Statements. Axcelis Technologies, Inc.
See accompanying Notes to Consolidated Financial Statements Axcelis Technologies, Inc. Note 1. Nature of Business and Basis of Presentation
Axcelis Technologies, Inc. ("Axcelis" or the "Company"), a wholly owned
subsidiary of Eaton Corporation ("Eaton") prior to July 10, 2000, is a leading producer
of ion implantation, dry strip and photostabilization equipment used in the fabrication
of semiconductors in the United States, Europe and Asia Pacific. The Company has recently
introduced rapid thermal processing equipment, which is used in semiconductor manufacturing
primarily before and after the ion implantation process. In addition, the Company provides
extensive aftermarket service and support, including spare parts, equipment upgrades,
maintenance services and customer training. The Company has a 50-50 joint venture with
Sumitomo Heavy Industries, Ltd. in Japan. This joint venture, which is known as Sumitomo
Eaton Nova Corporation, or SEN, licenses technology from the company for ion implantation,
has exclusive rights to the territory of Japan and is the leading producer of ion implantation
equipment in Japan. On April 26, 2000, Eaton announced its plan to reorganize its semiconductor equipment
operations into an independent, publicly-held company, Axcelis Technologies, Inc. On June
30, 2000, Eaton substantially completed the transfer of all the assets and related liabilities
of its semiconductor equipment operations to the Company. Prior to the transfer, the financial
statements of the semiconductor equipment operations were presented on a combined basis. On July
10, 2000, the Company commenced its initial public offering (IPO) of 15,500,000 shares of common
stock. On July 20, 2000, the IPO was completed when the underwriters of the IPO exercised their
over-allotment option to purchase an additional 1,550,000 shares. A portion of the net proceeds
of the offering of $348.6 million was used to pay a previously declared $300 million dividend to
Eaton. Eaton owned approximately 82 percent of Axcelis' outstanding common stock. On October 25, 2000,
Eaton announced that its board of directors had declared a stock dividend of all remaining shares
of Axcelis held by Eaton. The dividend was distributed on December 29, 2000. The distribution
was made on the basis of 1.179023 shares of Axcelis for each Eaton common share outstanding. Axcelis' legal separation from Eaton occurred on June 30, 2000, at which time the Company began
to operate independently from Eaton. Subsequent to June 30, 2000, the Company's financial statements
are prepared on a consolidated basis. Although prior periods have been prepared on a combined basis,
all statements presented are referred to as consolidated statements for simplicity. For periods prior
to the separation date, the consolidated financial statements reflect historical results of operations
and cash flows of Eaton's semiconductor equipment operations during each respective period, and include
allocations of certain Eaton expenses, as discussed in Note 16 to the consolidated financial statements.
Beginning in the third quarter of fiscal year 2000, Axcelis' consolidated financial statements no longer
include an allocated portion of Eaton's corporate services and infrastructure costs. However, the
Company has continued to incur amounts payable to Eaton in connection with transitional agreements,
under which Eaton provides services, such as voice and data transmissions and other data-related
operations, accounts receivable, accounts payable, fixed assets, payroll, general accounting,
financial accounting consolidation, cash management, human resources, tax, legal and real estate. Note 2. Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Axcelis and its subsidiaries.
All significant intercompany balances and transactions are eliminated in consolidation. The equity
method is used to account for the 50% investment in SEN. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could differ from those
estimates. Foreign Currency The functional currency for all operations outside the United States is the local currency.
Financial statements for these operations are translated into United States dollars at year-end rates
as to assets and liabilities and average exchange rates as to revenues and expenses. The resulting
translation adjustments are recorded in stockholders' equity as an element of accumulated comprehensive
income (loss). Foreign currency transaction gains and losses recorded in the consolidated statements
of operations are not material for all periods presented. Cash and Cash Equivalents Cash and cash equivalents are highly liquid investments (primarily time deposits) acquired with
a remaining maturity of three months or less at the time of acquisition. Prior to Axcelis' initial
public offering, Eaton managed cash and cash equivalents on a centralized basis. Cash receipts associated
with Axcelis' business were transferred to Eaton and Eaton funded Axcelis' cash disbursements. The
amount for cash and cash equivalents at December 31, 1999 substantially relates to cash and highly
liquid short-term investments maintained for working capital purposes, primarily at international
locations. Inventories Inventories are carried at lower of cost, determined using the first-in, first-out (FIFO)
method, or market. Shipping and Handling Costs Shipping and handling costs are included in cost of products sold. Long-Lived Assets Depreciation and amortization are computed by the straight-line method for financial statement
purposes. The historical cost of buildings is depreciated over forty years and machinery and
equipment principally over three to ten years. Substantially all goodwill is amortized over fifteen
years. Intangible assets, consisting of developed technology, are amortized over seven years. Goodwill and other long-lived assets are reviewed for impairment losses whenever events or changes
in circumstances indicate the carrying amount may not be recoverable. Events or circumstances that
would result in an impairment review primarily include operations reporting losses or a significant
change in the use of an asset. The asset would be considered impaired when the future net undiscounted
cash flows generated by the asset are less than its carrying value. An impairment loss would be
recognized based on the amount by which the carrying value of the asset exceeds its fair value. Concentration of Credit Risk Financial instruments, which potentially expose Axcelis to concentrations of credit risk,
consist principally of accounts receivable and cash equivalents. Axcelis' customers consist of
semiconductor manufacturers located throughout the world. Axcelis performs ongoing credit evaluations
of its customers' financial condition and generally requires no collateral to secure accounts receivable.
Axcelis maintains a reserve for potentially uncollectible accounts receivable based on its assessment
of the collectibility of accounts receivable. Financial Instruments Axcelis has no material financial instruments outstanding at December 31, 1000 used to
manage foreign exchange or interest rate risk. In 1998, Statement of Financial Accounting Standard
No. 133, "Accounting for Derivative Instruments and Hedging Activities", was issued. This Statement
requires all derivatives to be recognized on the balance sheet at fair value. Axcelis must adopt the
standard by the first quarter of 2001. It expects that the adoption of the standard will have an
immaterial effect on financial position and operating results, if any. Revenue Recognition Axcelis recognizes sales at the time of shipment of the system to the customer. The costs of
installation at the customer's site are accrued at the time of shipment. Management believes the
customer's post delivery acceptance provisions and installation process have been established to be
routine, commercially inconsequential and perfunctory because the process is a replication of the
pre-shipment procedures. The majority of Axcelis' systems are designed and tailored to meet the customer's
specifications as outlined in the contract between the customer and Axcelis. To ensure that the customer's
specifications are satisfied, per contract terms, the systems are tested at Axcelis' facilities prior
to shipment, normally with the customer present, under conditions that substantially replicate the
customer's production environment and the customer's criteria are confirmed to have been met. Axcelis
has never failed to successfully complete a system installation. Should an installation not be
successfully completed, the contractual provisions do not provide for forfeiture, refund or other
purchase price concession beyond those prescribed by the provisions of the Uniform Commercial Code
applicable generally to such transactions. Installation is non-complex and does not require specialized
skills, and the related costs are predictable and insignificant to the total purchase price. Axcelis
has a demonstrated history of customer acceptance subsequent to shipment and installation of these
systems. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
(SAB) No. 101, "Revenue Recognition". SAB No. 101, which was subsequently amended by Staff Accounting
Bulletin No. 101A (collectively referred to as SAB 101), articulates certain of the SEC staff's views
in applying generally accepted accounting principles to revenue recognition in financial statements.
Axcelis has concluded that its revenue recognition policy continues to be appropriate and in accordance
with generally accepted accounting principles and SAB 101. Income Taxes Axcelis' results historically have been included in Eaton's consolidated U.S. and state income
tax returns and in tax returns of certain Eaton foreign subsidiaries. The provision for income taxes
in Axcelis' consolidated financial statements has been determined on a separate-return basis. Deferred
tax assets and liabilities are recognized for the expected tax consequences of temporary differences
between the tax bases of assets and liabilities and their reported amounts. Through December 29, 2000, Eaton accounted and paid for all United States income taxes. Axcelis'
taxable income (loss) related to its United States operations was included in Eaton's consolidated
income tax returns for 1999 and 1998 and will be included in Eaton's 2000 tax returns. Consistent with the terms of the tax sharing agreement with Eaton, the consolidated statements
of operations include an allocation of Eaton's United States income taxes (credit) in amounts generally
equivalent to the provisions which would have resulted had the Company filed separate income tax returns
for the years presented. The Company has also been allocated United States deferred income taxes based
on the estimated differences between the book and tax bases of its assets and liabilities. Several of Axcelis' operations outside the United States account and pay for income taxes related
to their operations. For those operations which have not accounted and paid for income taxes related
to their operations, the consolidated statements of operations include an allocation of Eaton's
foreign income taxes in amounts generally equivalent to the provisions which would have resulted
had Axcelis filed separate income tax returns for the years presented. These operations have also
been allocated foreign deferred income taxes based on the estimated differences between the book
and tax bases of their assets and liabilities. Stock-Based Compensation Axcelis applies the intrinsic value based method described in Accounting Principles Board
Opinion (APB) No. 25 to account for stock options granted to employees. Under this method, no
compensation expense is recognized on the grant date, since on that date the option price equals
the market price of the underlying common shares. Net Income (Loss) Per Share Basic net income per share is calculated based on the weighted average shares of common
stock outstanding during the period. Diluted net income per share is calculated based on the
weighted average shares of common stock outstanding, plus the dilutive effect of stock options,
calculated using the treasury stock method. Note 3. Restructuring Charges Due to the decline of the semiconductor capital equipment market in 1998, Axcelis took
actions in the third quarter of 1998 to restructure its business and recorded restructuring
charges of $42.4 million ($27.5 million aftertax). Several specific actions comprised the overall restructuring efforts, including workforce
reductions, asset write-downs and other restructuring actions. The charge for workforce reductions,
primarily severance and other related employee benefits, included the termination of approximately
475 employees, primarily manufacturing personnel. Approximately half of the workforce reductions
related to the closing of the Austin, Texas plant. The charge for asset write-downs included $17.4
million for inventory, which was written down to estimated market value, and is included in cost
of products sold. The ion implantation equipment manufacturing facility in Austin, Texas was
closed and production was transferred to Beverly, Massachusetts. The write-down of this plant
to estimated selling price represented approximately $2.1 million of the restructuring charge.
The phase-out of production was concluded in the first quarter of 1999. Further, the Thermal
Processing Systems product line, located in Peabody, Massachusetts, was merged into the Fusion
Systems division in Rockville, Maryland and the Flat Panel Equipment product line was merged
into the Implant Systems division in Beverly, Massachusetts. A summary of the various components of the restructuring liabilities follows (in thousands of dollars): During 2000, the Company disposed of the Austin plant for proceeds of approximately
$11 million. The net gain on disposal was not material. Note 4. Accounts Receivable The components of accounts receivable follow (in thousands): Note 5. Inventories The components of inventories follow (in thousands): Note 6. Property, Plant & Equipment The components of property, plant and equipment follow (in thousands): Note 7. Goodwill & Other Intangible Assets The components of goodwill and intangible assets follow (in thousands): Note 8. Defined Contribution Plan During 2000, the Company established the Axcelis Long-Term Investment Plan,
a defined contribution plan that became effective on January 1, 2001. All
regular employees are eligible to participate and may contribute up to 17%
of their eligible compensation, subject to limitations set by federal income
tax regulations. The Company will match 50% of contributions for the first 6%
of eligible pay contributed by the employee. No expense was recognized in 2000
under this plan. Prior to the Company's separation from Eaton, Axcelis employees participated
in defined benefit and defined contribution plans of Eaton. Expense recorded
during 2000, 1999 and 1998 for all defined benefit and defined contribution plans
was $9.2 million, $5.1 million and $6.9 million, respectively. In connection with
the separation on December 29, 2000, Axcelis employees participating in Eaton's
domestic pension plan fully vested, and the pension obligation for these employees
remained with Eaton. Axcelis continues to provide pension benefits to employees in
certain foreign locations, primarily Germany, and post-retirement benefits other than
pension benefits are provided to a limited number of its United States employees.
The obligations related to these plans are not significant. Note 9. Stock Option Plans Axcelis Stock Option Plan During 2000, the Company adopted the Axcelis Technologies, Inc. 2000 Stock
Plan (the Plan), a stock award and incentive plan which permits the issuance of
options, stock appreciation rights, restricted stock, and performance awards to
selected employees, directors and consultants of the Company. The Plan reserved
18.5 million shares of common stock for grant under the Plan. Expiration of options
or stock appreciation rights are based on award agreements, or in the case of incentive
stock options, awards expire ten years from the date of grant. Non-qualified stock
options may, if approved by the Board of Directors, have a stated term in excess of
ten years. Generally, awards terminate upon termination of employment for options
granted to employees. Under the terms of the Plan, the exercise price, determined
by the Board of Directors, may not be less than the fair market value of a share of
the Company's common stock on the date of grant. The following tables summarize information about Axcelis' stock
options as of and for the year ended December 31, 2000: Stock Options for Eaton Common Shares Granted to Axcelis Employees Eaton has stock option plans under which Axcelis employees were granted
options, through July 11, 2000, to purchase Eaton common shares at prices equal
to fair market value as of the date of grant. Historically, the majority of these
options vested ratably during the three-year period following the date of grant and
expire ten years from the date of grant. A summary of Eaton stock option activity
for options granted to Axcelis employees during 1999 and 1998 follows: The stock option activity for options granted to Axcelis employees under Eaton's
stock option plans was not significant during the period January 1, 2000 through July
11, 2000. On January 24, 2001, Axcelis' Board of Directors approved, effective as of
December 29, 2000, the assumption, by Axcelis, of substantially all of the stock options
originally issued by Eaton that were outstanding at December 29, 2000 and held by individuals
who were employees of Axcelis on that date. To effect this assumption, Axcelis' Board of
Directors approved the conversion of each Eaton option to Axcelis options in a manner that
resulted in Axcelis employees receiving the same intrinsic value and ratio of exercise
price per share to market value per share as they had prior to conversion. In addition,
each new Axcelis option resulting from this conversion will have the same vesting provisions
and terms as the Eaton options assumed. Approximately 423,400 Eaton options were converted
to 3,586,103 Axcelis options. The converted options were not issued through the Axcelis stock
option plan and, therefore, are not included in the stock option activity disclosed above for
the Plan. A summary of the options outstanding at December 31, 2000 follows: Pro Forma Disclosure As permitted under Statement of Financial Accounting Standard (SFAS) No. 123,
Accounting for Stock-Based Compensation, Axcelis has elected to follow APB No. 25,
Accounting for Stock Issued to Employees, and related interpretations in accounting
for stock-based awards to employees. Under APB No. 25, the Company recognizes no
compensation expense with respect to such awards, since on the date the options
were granted, the option price equaled the market value of the common shares. Pro forma information regarding net income (loss) is required by SFAS No. 123.
This information is required to be determined as if Axcelis had accounted for
stock-based awards to its employees granted subsequent to 1995 under the fair
value method of that Statement. The fair values of the options granted under
the Axcelis stock option plan and the Eaton stock option plans have been estimated
at the date of grant using the Black-Scholes options pricing model with the
following assumptions: For purposes of pro forma disclosures under SFAS No. 123, the estimated fair
values of the options are assumed to be amortized to expense over the options'
vesting periods. Although some Eaton stock options were granted to Axcelis
employees during the period January 1, 2000 to July 11, 2000, the number of
such options was not significant and, therefore, have not been included in
the pro forma presentation below. Pro forma information related to options
granted follows (in thousands, except per share amounts): Note 10. Stockholders' Equity Common and Preferred Stock Prior to June 2000, Axcelis had authorized
common stock of 1,000 shares with a par value of $1.00 per share; 100 shares were
outstanding and owned by Eaton. In June 2000, the Axcelis Board of Directors
authorized the conversion of the 100 shares of Axcelis common stock owned by
Eaton into 80 million shares and increased the number of authorized shares to
300 million with a par value of $0.001 per share. Stockholders' equity has
been restated to give retroactive recognition for the stock split for all periods
presented by reclassifying from Parent Company Investment to common stock the par
value of additional shares arising from the split. In addition, all references
in the financial statements to the number of shares and per-share amounts of the
Company's common stock have been restated. In connection with Eaton's distribution of Axcelis shares to Eaton shareholders,
Axcelis transferred the net Parent Company Investment of $88,904 to paid-in capital. In June 2000, the Board also authorized the establishment of 30 million shares of
preferred stock with a par value of $0.001. No shares of preferred stock have been
issued. Employee Stock Purchase Plan In June 2000, the Board of Directors approved the adoption of the 2000 Employee Stock
Purchase Plan, which provides effectively all Axcelis employees the opportunity to purchase
common stock of the Company at less than market prices. Purchases are made through payroll
deductions up to 10% of the employee's salary. Generally, employees may purchase Axcelis
common stock at 85% of the market value of the Company's common stock on the first trading
day of each offering period or on the day the stock is purchased, whichever is lower.
The purchase price may be adjusted by a committee of the Board of Directors. Compensation
expense is not recognized by the Company because the plan is a non-compensatory plan under
Section 423 of the Internal Revenue Code. The number of shares of common stock that may be
issued under the stock purchase plan is 2.5 million shares, plus an annual increase to be
added on the last day of each fiscal year beginning in 2001 equal to one percent of the
outstanding shares on such date, or a lesser amount approved by the Board of Directors.
The maximum shares that may be issued under the plan may not exceed 7.5 million shares.
No shares were issued under the plan in 2000, as the effective date of the plan was January
1, 2001. Note 11. Lease Commitments At December 31, 2000, the Company had lease commitments through 2004. Minimum rental
commitments under noncancelable operating leases, which expire at various dates and in most
cases contain renewel options, are as follows (in millions): 2001, $8.4; 2002, $6.2; 2003,
$4.2; 2004, $2.6. Rental expense in 2000, 1999 and 1998 (in millions) was $7.8, $4.8 and $5.6, respectively. Note 12. Business Segment and Geographic Region Information Axcelis operates in only one business segment, which is the manufacture of capital
equipment for the semiconductor manufacturing industry. The principal market for semiconductor
manufacturing equipment is semiconductor manufacturers. Substantially all sales are made
directly by Axcelis to customers located in the United States, Europe and Asia Pacific. Axcelis' ion implantation systems product line includes high and medium current implanters
and high energy implanters and services. Other products include photostabilizers, ozone and
plasma ashers, thermal processing systems and other products and services. Net sales by product
line follow (in thousands): Net Sales and long-lived assets by geographic region based on the physical location
of the operation recording the sales or the asset, follow (in thousands): * Long-lived assets consist of property, plant and equipment - net. Sales from United States operations to customers in foreign countries (in thousands)
were $388,679 (57.1%) in 2000, $158,523 (39.9%) in 1999 and $79,791 (30.0%) in 1998. Note 13. Income Taxes Income (loss) before income taxes for the years ended December 31 follows (in thousands): Income taxes (credit) for the years ended December 31
follows (in thousands):
Beverly, Massachusetts 01915
(Address of principal executive offices, including zip code)
(Registrant's telephone number, including area code)
Common Stock, $0.001 par value
Preferred Share Purchase Rights
TYPE OF ION
IMPLANTER CORE PRODUCTS RECENTLY INTRODUCED PRODUCTS
----------- ----------------------------------------- -------------------------------------
HIGH ENERGY GSD/HE HE(MC)
- Permits multiple implant steps - Lower cost alternative to GSD/HE
in one process, or chaining, thus
increasing throughput HE3
- More than 80% of our GSD/HE - For use with 300 millimeter
customers use it for one or more wafers
medium current applications
- Broadest application coverage
GSD/VHE
- Highest energy range available
- Also used by customers
for R&D
HIGH CURRENT GSD/200E(2) LED
- High dose implants - Increased performance at low
- High productivity at low cost energy
HIGH TILT/ 8250HT MC3
MEDIUM CURRENT - Energy purity - For use with 300 millimeter
- Process flexibility wafers
PRODUCT LINE CORE PRODUCTS RECENTLY INTRODUCED PRODUCTS
- ------------ ------------------------------------------- ---------------------------------------------
DRY STRIP FUSIONGEMINI PLASMA ASHER FUSION ES3
- High ash rates with low damage - Comprehensive dry strip and
FUSIONGEMINI PLASMA ASHER ES residue removal with
- Adds additional capability for 300 millimeter capability
dry residue removal
PHOTOSTABILIZERS FUSIONGEMINI PHOTOSTABILIZER FUSION PS3
- Propriety ultraviolet light - Industry's only 300 millimeter
source; high throughput production-ready photostabilizer
PRODUCT LINE CORE PRODUCTS RECENTLY INTRODUCED PRODUCTS
- ------------ -------------------------------------- ---------------------------------------------
RTP SYSTEMS SUMMIT SUMMIT 300
- Accommodates 0.18m devices - 300 millimeter capability
- Repeatable, accurate temperature
gradient
SQUARE FOOTAGE
FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED)
----------------- ------------------------------------- ----------------
Beverly, Massachusetts Manufacturing of ion implantation 310,200 (owned)
and rapid thermal processing products
and research and development
Rockville, Maryland Manufacturing of dry strip and 169,900 (leased)
photostabilization products and
research and development
Fiscal 2000 High Low
- --------------------------- -------- --------
Third quarter............. $25.88 $11.63
Fourth quarter............ $11.19 $ 7.00
- --------------------------- -------- --------
Years ended December 31,
-----------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(in thousands, except per share amounts)
Consolidated statements of
operations data:
Net sales....................... $ 680 401 $ 397,267 $ 265,709 $ 460,010 $ 448,663
Gross profit.................... 299,309 157,082 64,229 172,802 157,246
Operating income (loss)......... 104,637 12,333 (137,909) (72,035) 43,002
Net income (loss)............... 99,115 14,428 (82,047) (61,467) 46,304
Net income (loss) per share:
Basic......................... $ 1.13 $ 0.18 $ (1.03) $ (0.77) $ 0.58
Diluted....................... $ 1.13 $ 0.18 $ (1.03) $ (0.77) $ 0.58
========= ========= ========= ========= =========
Shares used in computing per
Basic......................... 88,063 80,000 80,000 80,000 80,000
Diluted....................... 88,064 80,000 80,000 80,000 80,000
========= ========= ========= ========= =========
COMBINED BALANCE SHEET DATA
Cash and cash equivalents....... $ 168,157 $ 3,530 $ 3,338 $ 3,479 $ 2,159
Working capital................. 297,348 169,759 91,028 149,041 112,092
Total assets.................... 672,331 422,835 341,121 457,567 279,189
Stockholders' equity............ 491,369 342,296 269,161 349,192 190,429
-----------------------
2000 1999 1998
----- ----- -----
Net sales...................................... 100.0% 100.0% 100.0%
Gross profit................................... 44.0 39.5 24.2
Other costs & expenses:
Research & development....................... 10.1 13.0 29.6
Selling...................................... 8.3 9.5 15.9
General & administrative..................... 8.9 11.6 17.7
Amortization of goodwill & intangible
assets.................................... 1.4 2.3 3.5
Restructuring charges........................ - - 9.4
------ ------ ------
Income (loss) from operations.................. 15.4 3.1 (51.9)
Other income (expense):
Royalty income............................... 2.2 1.5 3.0
Equity income (loss) of SEN.................. 2.9 0.3 (0.8)
Other income (expense)-net................... 0.7 - (0.4)
------ ------ ------
Income (loss) before income taxes.............. 21.2 4.9 (50.1)
Income taxes (credit).......................... 6.6 1.3 (19.2)
----- ----- ------
Net income (loss).............................. 14.6% 3.6% (30.9)%
====== ====== =====
January 22, 2001, except for the fourth
paragraph of Note 9, as to which the
date is January 24, 2001
Consolidated Statements of Operations
Year Ended December 31,
-------------------------------
2000 1999 1998
--------- --------- ---------
In thousands, except per share amounts
Net sales............................... $680,401 $397,267 $265,709
Cost of products sold................... 381,092 240,185 184,122
Cost of products sold -- restructuring
charges............................... 17,358
--------- --------- ---------
Gross profit........................ 299,309 157,082 64,229
Operating expenses:
Research & development................ 68,768 51,599 78,656
Selling............................... 56,427 37,946 42,134
General & administrative.............. 60,198 45,925 47,075
Amortization of goodwill & intangible
assets.............................. 9,279 9,279 9,279
Restructuring charges................. 24,994
--------- --------- ---------
Income (loss) from operations........... 104,637 12,333 (137,909)
Other income (expense):
Royalty income........................ 15,054 5,854 7,949
Equity income (loss) of Sumitomo Eaton
Nova Corporation.................... 19,570 1,338 (2,132)
Interest income....................... 5,801
Other -- net.......................... (790) 28 (1,045)
--------- --------- ---------
Income (loss before income taxes........ 144,272 19,553 (133,137)
Income taxes (credit)................... 45,157 5,125 (51,090)
--------- --------- ---------
Net income (loss)....................... $ 99,115 $ 14,428 $(82,047)
========= ========= =========
Basic net income (loss) per share....... $ 1.13 $ 0.18 $ (1.03)
Diluted net income (loss) per share..... $ 1.13 $ 0.18 $ (1.03)
Share used in computing:
Basic net income (loss) per share..... 88,063 80,000 80,000
Diluted net income (loss) per share... 88,064 80,000 80,000
Consolidated Balance Sheets
December 31,
2000 1999
- ---------------------------------------------- ------------- -------------
(In thousands)
ASSETS
Current assets
Cash and short-term investments.............. $ 168,157 $ 3,530
Receivable from Eaton Corporation............ 11,241
Accounts receivable.......................... 150,482 101,335
Inventories.................................. 122,036 83,326
Deferred income taxes & other current assets. 26,851 36,060
------------- -------------
Total current assets............................ 467,526 235,492
Property, plant and equipment, net.............. 75,653 73,809
Investment in Sumitomo Eaton Nova Corporation... 44,915 22,210
Goodwill........................................ 42,977 47,006
Intangible assets............................... 20,418 26,190
Other assets.................................... 20,842 18,128
------------- -------------
Total assets.................................... $ 672,331 $ 422,835
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable............................. $ 46,855 $ 24,579
Payable to Eaton Corporation................. 25,818
Accrued compensation......................... 17,686 8,984
Warranty reserve............................. 36,195 18,568
Income taxes payable......................... 31,153
Other current liabilities.................... 12,471 13,602
------------ -------------
Total current liabilities....................... 170,178 65,733
Deferred income taxes........................... 7,391 10,238
Other long-term liabilities..................... 3,393 4,568
Stockholders' equity
Preferred stock, $0.001 par value, 30,000
shares authorized..........................
Common stock, $0.001 par value, 300,000
shares authorized; 97,050 and 80,000 shares
issued and outstanding at December 31, 2000
and 1999, respectively..................... 97 80
Additional paid-in capital................... 437,472
Retained earnings............................ 58,682
Accumulated other comprehensive income (loss) (4,882) (5,529)
Parent company investment.................... 347,745
------------ -------------
Total stockholders' equity...................... 491,369 342,296
------------ -------------
Total liabilities and stockholders' equity...... $ 672,331 $ 422,835
============= =============
Consolidated Statements of Stockholders' Equity
Accumulated
Common Stock Additional Parent Other
--------------- Paid-In Company Retained Comprehensive
Shares Amount Capital Investment Earnings Income/(Loss) Total
- ------------------------------------------ ------ ----------- ----------- --------- ------------- ----------
(In thousands)
Balance at December 31, 1997..... 80,000 $ 80 $ 356,029 $ (6,917) $ 349,192
Comprehensive income:
Net loss...................... (82,047) (82,047)
Foreign currency translation
adjustments................. 1,097 1,097
----------
Total comprehensive loss...... (80,950)
Net transfers from Eaton
Corporation................... 919 919
--------- ------ ----------- ----------- --------- ------------- ----------
Balance at December 31, 1998 80,000 80 274,901 (5,820) 269,161
Comprehensive income:
Net income.................... 14,428 14,428
Foreign currency translation
adjustments................. 291 291
----------
Total comprehensive income.... 14.719
Net transfers from Eaton
Corporation................... 58,416 58,416
--------- ------ ----------- ----------- --------- ------------- ----------
Balance at December 31, 1999 80,000 80 347,745 (5,529) 342,296
Comprehensive income:
Net income.................... 40,433 $ 58,682 99,115
Foreign currency translation
adjustments................. 647 647
----------
Total comprehensive income.... 99,762
Initial public offering.......... 17,050 17 $ 348,568 348,585
Dividend paid to Eaton
Corporation ($3.75 per share).. (300,000) (300,000)
Net transfer from Eaton
Corporation................... 726 726
Reclassification of parent
company investment to
additional paid-in capital.... 88,904 (88,904)
--------- ------ ----------- ----------- --------- ------------- ----------
Balance at December 31, 2000 97,050 $ 97 $ 437,472 $ 0 $ 58,682 $ (4,882) $ 491,369
========= ====== =========== =========== ========= ============= ==========
Consolidated Statements of Cash Flows
Year Ended December 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
(In thousands)
Operating activities:
Net income (loss)........................... $ 99,115 $ 14,428 $ (82,047)
Adjustments to reconcile to net cash
provided (used) by operating activities:
Depreciation............................ 8,535 9,803 10,548
Amortization of goodwill & intangible
assets............................... 9,279 9,279 9,279
Deferred income taxes................... (8,355) (2,758) (12,065)
Undistributed (income) loss of Sumitomo
Eaton Nova Corporation............... (19,570) (1,347) 2,890
Deferred royalty income from Sumitomo
Eaton Nova Corporation............... (2,286) (3,249)
Restructuring charges................... (7,060) 37,347
Changes in operating assets &
liabilities, excluding acquisition of
a business & non-cash
restructuring charges:
Accounts receivable................ (50,097) (71,918) 57,465
Inventories........................ (39,431) (16,989) 27,936
Accounts payable & other current
liabilities...................... 44,824 18,481 (39,920)
Payable to Eaton Corporation....... 25,818
Income taxes payable............... 31,153
Other assets....................... (2,765) 7,604 (616)
Other-net.......................... 1,177 3,658 4,638
--------- --------- ---------
Net cash provided (used) by
operating activities........... 99,683 (39,105) 12,206
Investing activities:
Expenditures for property, plant &
equipment................................. (21,848) (16,914) (14,988)
Proceeds from sale of Austin, Texas
facility................................. 10,967
Other-net................................... (138) (2,205) 1,722
--------- --------- ---------
Net cash used by investing
activities..................... (11,019) (19,119) (13,266)
Financing activities:
Net proceeds from the sale of Axcelis
common shares............................. 348,585
Payment of previously declared dividend to
Eaton Corporation......................... (300,000)
Net transfers from Parent Company........... 27,378 58,416 919
--------- --------- ---------
Net cash provided by financing
activities..................... 75,963 58,416 919
--------- --------- ---------
Net increase (decrease) in cash & cash
equivalents................................. 164,627 192 (141)
Cash & short-term investments at beginning of
period...................................... 3,530 3,338 3,479
--------- --------- ---------
Cash & short-term investments at end
of period................................... $ 168,157 $ 3,530 $ 3,338
========= ========= =========
Notes to Consolidated Financial Statements
INVENTORY &
WORKFORCE REDUCTIONS OTHER ASSET PLANT
--------------------- WRITE- CONSOLIDATION
EMPLOYEES DOLLARS DOWNS & OTHER TOTAL
---------- -------- ----------- ------------- --------
1998 charges.................... 475 $ 7,054 $ 30,296 $ 5,002 $ 42,352
Utilized in 1998................ (300) (3,493) (30,296) (1,503) (35,292)
---- ------- -------- ------- --------
Balance remaining at
December 31, 1998............. 175 3,561 0 3,499 7,060
Utilized in 1999................ (175) (3,561) (3,499) (7,060)
---- ------- -------- ------- --------
Balance remaining at
December 31, 1999............. 0 $ 0 $ 0 $ 0 $ 0
==== ======= ======== ======= ========
DECEMBER 31,
--------------------
2000 1999
-------- --------
Trade.......................................... $141,676 $100,137
Sumitomo Eaton Nova Corporation................ 10,915 3,246
-------- --------
152,591 103,383
Allowance for doubtful accounts................ (2,109) (2,048)
-------- --------
$150,482 $101,335
======== ========
December 31,
--------------------
2000 1999
-------- --------
Raw materials.................................. $ 74,929 $ 54,146
Work in process................................ 31,531 19,229
Finished goods................................. 26,828 20,800
-------- --------
133,288 94,175
Inventory allowances........................... (11,252) (10,849)
-------- --------
$122,036 $ 83,326
======== ========
December 31,
--------------------
2000 1999
-------- --------
Land & buildings............................... $ 48,904 $ 59,862
Machinery & equipment.......................... 55,917 48,914
Construction in process........................ 19,679 9,662
-------- --------
124,500 118,438
Accumulated depreciation....................... (48,847) (44,629)
-------- --------
$ 75,653 $ 73,809
======== ========
December 31,
-------------------
2000 1999
------- --------
Goodwill........................................ $55,419 $ 55,904
Accumulated amortization........................ (12,442) (8,898)
------- --------
$42,977 $ 47,006
======= ========
Intangible assets............................... $40,000 $ 40,000
Accumulated amortization........................ (19,582) (13,810)
------- --------
$20,418 $ 26,190
======= ========
Weighted-
Average
Shares Exercise Price
----------- --------------
Outstanding at beginning of year....
Granted............................. 4,217,218 $21.26
Forfeited........................... (108,295) 22.00
----------- --------------
Outstanding at end of year.......... 4,108,923 $21.36
===========
Available for grant at end of year.. 14,391,077
===========
Weighted
Outstanding Weighted Exercisable at Weighted Average
Range of December 31 Average December 31 Average Remaining
Exercise Price 2000 Exercise Price 2000 Exercise Price Contractual Life
-------------- ----------- -------------- -------------- -------------- ----------------
$ 7.13-$10.63 37,900 $ 8.64 373 $ 9.32 9.9 years
11.19- 15.00 231,000 11.38 5,775 11.38 9.8
18.06- 22.00 3,840,023 21.96 191,159 21.97 9.5
----------- --------------
4,108,923 $ 21.36 197,307 $ 21.64 9.6
=========== ==============
1999 1998
-----------------------------------------------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
---------- -------------- ----------- --------------
Outstanding at beginning of year. 305,093 $74.03 192,451 $67.21
Granted.......................... 162,625 71.41 115,941 84.76
Exercised........................ (8,211) 56.60 (3,299) 53.44
---------- -----------
Outstanding at end of year....... 459,507 $73.41 305,093 $74.03
========== ===========
Weighted
Outstanding Weighted Exercisable at Weighted Average
Range of December 31 Average December 31 Average Remaining
Exercise Price 2000 Exercise Price 2000 Exercise Price Contractual Life
-------------- ----------- -------------- -------------- -------------- ----------------
$ 4.65-$6.81 282,088 $ 6.12 282,088 $ 6.12 4.6 years
7.17-10.62 3,304,015 8.62 1,385,077 8.48 7.9
----------- --------------
3,586,103 $ 8.43 1,667,165 $ 8.08 7.7
=========== ==============
Axcelis Stock
Option Plan Eaton Stock Option Plans
2000 1999 1998
------------- ------------- -------------
Dividend yield.......................... 0% 3% 3%
Expected volatility..................... 93% 21% 22%
Risk-free interest rate................. 5.1% to 6.3% 4.7% 4.7% to 5.7%
Expected option life in years........... 4 4 or 5 4, 5 or 6
Weighted average fair value per share of
options granted during the year....... $14.66 $12.56 $17.57
Axcelis Stock
Option Plan Eaton Stock Option Plans
2000 1999 1998
------------- ------------- -------------
Net income (loss)
As reported........................... $99,115 $14,428 $(82,047)
Assuming fair value method............ 94,435 13,473 (82,665)
Diluted net income (loss) per share.....
As reported........................... $1.13 $0.18 $(1.03)
Assuming fair value method............ 1.07 0.17 (1.03)
2000 1999 1998
-------- -------- --------
Ion implantation systems & services............ $534,428 $322,002 $219,927
Other products & services...................... 145,973 75,265 45,782
-------- -------- --------
$680,401 $397,267 $265,709
======== ======== ========
Net Long-Lived
Sales Assets*
-------- ----------
2000
United States.......................................... $596,934 $74,276
Europe................................................. 58,351 458
Asia Pacific........................................... 25,116 919
-------- -------
$680,401 $75,653
======== =======
1999
United States.......................................... $343,345 $71,740
Europe................................................. 35,482 752
Asia Pacific........................................... 18,440 1,317
-------- -------
$397,267 $73,809
======== =======
1998
United States.......................................... $214,174 $62,321
Europe................................................. 40,254 1,192
Asia Pacific........................................... 11,281 1,050
-------- -------
$265,709 $64,563
======== =======
December 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
United States...................................... $108,296 $ 12,999 $(132,446)
Foreign............................................ 16,406 5,216 1,441
Equity income (loss) of Sumitomo Eaton Nova
Corporation...................................... 19,570 1,338 (2,132)
--------- --------- ---------
$144,272 $ 19,553 $(133,137)
========= ========= =========
December 31,
------------------------------
2000 1999 1998
------- -------- -------
Current:
United States
Federal......................................... $44,761 $ 4,150 $(34,469)
State........................................... 3,546 1,883 (5,809)
Foreign............................................ 5,205 1,850 1,253
------- -------- -------
53,512 7,883 (39,025)
Deferred:
United States...................................... (8,355) (2,211) (11,910)
Foreign............................................ (547) (155)
------- -------- -------
(8,355) (2,758) (12,065)
------- -------- -------
$45,157 $ 5,125 $(51,090)
======= ======== =======
Reconciliations of income taxes (credit) at the United States Federal statutory rate to the effective income tax rate for the years ended December 31 follow (in thousands):
2000 ------------------- 1999 1998 Amount Rate Rate Rate ---------- ------ ------ ------ Income taxes (credit) at the United States statutory rate................................. $ 50,495 35.0% 35.0% (35.0)% State taxes, net of federal income tax benefit... 2,305 1.6 6.3 (2.9) Amortization of goodwill....................... 1,248 0.9 6.4 1.0 Current and prior years' foreign sales corporation benefit.......................... (3,029) (2.1) (1.5) (0.2) Current and prior years' credit for increasing research activities.......................... (1,046) (0.7) (15.9) (2.8) Foreign income tax rate differentials.......... (538) (0.4) (2.7) 0.4 Foreign tax credit............................. (0.2) Income tax rate differential related to Sumitomo Eaton Nova Corporation.............. (6,687) (4.6) (2.4) 0.6 Other - net.................................... 2,409 1.6 1.2 0.5 ---------- ------- ------- ------ $ 45,157 31.3% 26.2% (38.4)% ========== ======= ======= ======
Significant components of current and long-term deferred income taxes at December 31 follow (in thousands):
Current Long-term Assets Liabilities ------- ----------- 2000 Inventories............................................ $11,309 Accrued warranty....................................... 9,990 Accrued vacation....................................... 2,206 Property, plant & equipment............................ $ (2,032) Intangible assets...................................... (5,245) Other items............................................ 1,906 (114) ------- -------- $25,411 $ (7,391) ======= ======== 1999 Inventories............................................ $25,048 Accrued warranty....................................... 5,267 Accrued vacation....................................... 1,061 Property, plant & equipment............................ $ (3,229) Intangible assets...................................... (9,167) Other items............................................ 1,660 2,158 ------- -------- $33,036 $(10,238) ======= ========
No provision has been made for income taxes on undistributed earnings of operations outside the United States of $68.1 million at December 31, 2000, which includes $42.4 million for Sumitomo Eaton Nova Corporation, since the earnings retained have been reinvested by the operations. If distributed, such remitted earnings would be subject to withholding taxes but substantially free of United States income taxes.
Note 14. Significant Customers
One customer individually accounted for 13.9% of net sales in fiscal 2000. Three customers individually accounted for 15.9%, 10.6%, and 10.5% of net sales in 1999. No single customer represented more than 10% of net sales in 1998.
Note 15. Sumitomo Eaton Nova Corporation
Sumitomo Eaton Nova Corporation (SEN) was established in 1982 under the Commercial Code of Japan and is owned equally by Sumitomo Heavy Industries, Ltd., a Japanese corporation, and Axcelis. SEN designs, manufactures, sells and services ion implantation equipment in Japan under a license agreement with Axcelis. Summary financial information follows (in thousands):
2000 1999 1998 -------- -------- -------- Twelve months ended November 30: Net sales.......................................... $261,351 $110,722 $ 92,740 Income from operations............................. 73,022 5,005 (5,581) Net income......................................... 39,139 2,676 (4,264) November 30: Current assets..................................... 185,116 157,591 Noncurrent assets.................................. 44,909 53,799 Current liabilities................................ 140,178 150,087 Noncurrent liabilities............................. 615 430
The fiscal year end for SEN is March 31. The consolidated statements of operations for Axcelis include the results of SEN for the twelve-month periods ended November 30, which represents a one-month lag. The information above has been presented as of and for the twelve months ended November 30 to conform to Axcelis' equity accounting for SEN.
A summary of Axcelis' transactions with SEN follows (in thousands):
2000 1999 1998 -------- -------- -------- Net sales to SEN....................................... $11,913 $ 6,660 $ 6,401 Royalty income from SEN................................ 13,464 3,838 4,036 Dividends received..................................... 375 720 Axcelis' equity in income (loss) of SEN................ 19,570 1,338 (2,132) Accounts receivable at December 31 from SEN............ 10,915 3,246 3,358
Note 16. Transactions with Eaton Corporation
Prior to the initial public offering, Axcelis' consolidated statements of operations include an allocation of Eaton's general corporate expenses to reflect the services provided or benefits received by Axcelis. Such allocated expenses were (in millions) $8.2 in 2000, $15.0 in 1999 and $14.8 in 1998. This allocation was based on Eaton's internal expense allocation methodology which charged these expenses to operating locations based both on net working capital, excluding cash equivalents and short-term debt, and on property, plant and equipment - net. Management believes this was a reasonable method of allocating these expenses and was representative of the operating expenses that would have been incurred had Axcelis operated on a stand-alone basis. The consolidated statements of operations do not include an allocation of interest expense related to Eaton's debt obligations, consistent with Eaton's internal expense allocation methodology.
Commencing with the initial public offering, the Company entered into various agreements with Eaton, which provide for transitional services and support, including those associated with voice and data transmissions and other data-related operations, accounts receivable, accounts payable, fixed assets, payroll, general accounting, financial accounting consolidation, cash management, human resources, tax, legal and real estate. Under these agreements, the Company reimbursed Eaton for its direct and indirect costs of providing these services until the divestiture, and thereafter, for a limited time, the Company is reimbursing Eaton for its costs plus an additional fee for providing certain of these additional services. The transition periods covered by these agreements vary, but are generally less than two years from July 10, 2000. The agreements do not necessarily reflect the costs of obtaining these services from unrelated third parties or of providing the applicable services in-house. However, management believes that continuing to purchase certain of these services from Eaton provides an efficient means of obtaining these services during the transition period. Transition expenses included in Axcelis' consolidated statement of operations for the year ended December 31, 2000 amounted to $5.5 million.
At December 31, 2000, the Company had a payable to Eaton of $25.8 million and
taxes payable of $31.2 million. The payable to Eaton arose primarily from expenditures,
such as workers'compensation claims, health claims, legal and other professional services,
and other general and administrative expenses, made by Eaton on Axcelis' behalf subsequent
to the initial public offering. Taxes payable are payable to Eaton as the former parent
will file a consolidated return for 2000, which will include Axcelis. Effective January
1, 2001, Axcelis began paying for the majority of these costs as the Company transitioned
off of Eaton's systems and support. Amounts payable to Eaton as of December 31, 2000 were
paid in January, 2001.
Note 17. Quarterly Results of Operations (unaudited)
The historical financial information, particularly for the periods prior to the separation date, may not be indicative of Axcelis' future performance.
---------------------------------------------------------------------------------- Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31, 2000 2000 2000 2000 1999 1999 1999 1999 --------- -------- --------- --------- --------- -------- --------- -------- Net sales............. $188,997 $182,509 $165,844 $143,051 $130,671 $108,658 $ 98,814 $ 59,124 Gross profit.......... 83,385 81,182 73,268 61,474 52,542 42,260 41,512 20,768 Net income............ 30,202 28,480 21,571 18,862 8,942 9,649 6,212 (10,375) Basic and diluted net income per share.... $ 0.31 $ 0.30 $ 0.27 $ 0.24 $ 0.11 $ 0.12 $ 0.08 $ (0.13)
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.
AXCELIS TECHNOLOGIES, INC. |
By: | /s/ Brian R. Bachman |
| |
Brian R. Bachman | |
Vice Chairman and Chief Executive Officer |
Dated: March 29, 2001
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.
Name Title Date - --------------------------- ----------------------------------- --------------- /s/ Brian R. Bachman Vice Chairman and March 29, 2001 - --------------------------- Chief Executive Officer Brian R. Bachman /s/ Cornelius F. Moses, III Principal Accounting and March 29, 2001 - --------------------------- Financial Officer Cornelius F. Moses, III /s/ Mary G. Puma Director March 29, 2001 - --------------------------- Mary G. Puma /s/ Alexander M. Cutler Director March 29, 2001 - --------------------------- Alexander M. Cutler /s/ Stephen R. Hardis Director March 29, 2001 - --------------------------- Stephen R. Hardis Director - --------------------------- Ned C. Lautenbach /s/ Philip S. Paul Director March 29, 2001 - --------------------------- Philip S. Paul /s/ Naoki Takahashi Director March 29, 2001 - --------------------------- Naoki Takahashi /s/ Gary L. Tooker Director March 29, 2001 - --------------------------- Gary L. Tooker
AXCELIS TECHNOLOGIES, INC.
INDEX TO EXHIBITS
to Form 10-K for the Year ended December 31, 2000.
These Exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K:
Exhibit No. |
Description |
2.1 |
Master Separation and Distribution Agreement between Eaton Corporation and the Company. Incorporated by reference from Exhibit 2.1 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
2.2 |
General Assignment and Assumption Agreement between Eaton Corporation and the Company. Incorporated by reference from Exhibit 2.2 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
2.3 |
Trademark License Agreement between Eaton Corporation and the Company. Incorporated by reference from Exhibit 2.3 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
2.4 |
Employee Matters Agreement between Eaton Corporation and the Company. Incorporated by reference from Exhibit 2.4 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
2.5 |
Tax Sharing and Indemnification Agreement between Eaton Corporation and the Company. Incorporated by reference from Exhibit 2.5 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
2.6 |
Transitional Services Agreement between Eaton Corporation and the Company. Incorporated by reference from Exhibit 2.6 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
2.7 |
Real Estate Matters Agreement between Eaton Corporation and the Company. Incorporated by reference from Exhibit 2.7 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
2.8 |
Indemnification and Insurance Matters Agreement between Eaton Corporation and the Company. Incorporated by reference from Exhibit 2.8 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
2.9 |
Purchase and Sale Agreement dated December 29, 1995 by and between Eaton Corporation and Eaton Semiconductor Equipment, Inc. Incorporated by reference from Exhibit 2.9 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
2.10 |
Agreement and Plan of Merger dated as of June 30, 1997 among Eaton Corporation, ETN Acquisition Corp., a wholly-owned subsidiary of Eaton and Fusion Systems Corporation. Incorporated by reference from Exhibit 2.10 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
3.1 |
Amended and Restated Certificate of Incorporation of the Company. Incorporated by reference from Exhibit 3.1 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
3.2 |
Bylaws of the registrant, as amended. Incorporated by reference from Exhibit 3.2 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
3.3 |
Certificate of Designation of Series A Participating Preferred Stock, filed with the Secretary of State of Delaware on July 5, 2000. Filed herewith. |
4.1 |
Specimen Stock Certificate. Incorporated by reference from Exhibit 4.1 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
4.2 |
Rights Agreement between the Company and EquiServe Trust Company, N.A. Incorporated by reference from Exhibit 4.1 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
10.1* |
2000 Stock Plan, as amended. Incorporated by reference from Exhibit 10.1 from the Company's Report on Form 10-Q filed with the Commission on November 14, 2000. |
10.2* |
Employee Stock Purchase Plan. Incorporated by reference from Exhibit 10.2 from the Company's Report on Form 10-Q filed with the Commission on November 14, 2000. |
10.3 |
Form of Indemnification Agreement entered into by the Company with each of its directors and executive officers. Incorporated by reference from Exhibit 10.2 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
10.4* |
Form of Change in Control Agreement between the registrant and certain of its executive officers. Incorporated by reference from Exhibit 10.3 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
10.5* |
Employment Agreement between the Company and Brian R. Bachman. Incorporated by reference from Exhibit 10.4 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
10.6* |
Employment Agreement between the Company and Mary G. Puma. Incorporated by reference from Exhibit 10.5 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
10.7** |
Organization Agreement dated December 3, 1982 between Eaton Corporation and Sumitomo Heavy Industries, Ltd. relating to Sumitomo Eaton Nova Corporation, as amended. Incorporated by reference from Exhibit 10.6 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
10.8** |
Master License Agreement dated January 16, 1996 between Eaton Corporation and Sumitomo Eaton Nova Corporation. Incorporated by reference from Exhibit 10.7 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
21.1 |
Subsidiaries of the Company. Incorporated by reference from Exhibit 21.1 of the Company's Registration Statement on Form S-1 (Registration No. 333-36330). |
23.1 |
Consent of Ernst & Young LLP, Independent Auditors. Filed herewith. |
99 |
Factors affecting future operating results. Filed herewith.
* Indicates a management contract or compensatory plan.
Certain confidential information contained in the document has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended, or Rule 24b-2 promulgated under the Securities and Exchange Act of 1934, as amended |
Schedule II-Valuation and Qualifying Accounts
Axcelis Technologies, Inc.
(In thousands)
Charged Balance at Charged to to Other Beginning Costs and Accounts- Deductions- Balance at Description of Period Expenses Describe Describe End of Period - ---------------------------- ----------- ----------- ----------- ------------ --------------- (In thousands) Year ended December 31, 2000 Allowances for doubtful accounts $2,048 $247 $186 (A) $2,109 Year ended December 31, 1999 Allowances for doubtful accounts $2,028 $505 $485 (A) $2,048 Year ended December 31, 1998 Allowances for doubtful accounts $1,971 $ 2 $(55)(A) $2,028 (A) Uncollectible accounts written off, net of recoveries
CERTIFICATE OF DESIGNATIONS
of
SERIES A PARTICIPATING PREFERRED STOCK
of
AXCELIS TECHNOLOGIES, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Axcelis Technologies, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Corporation"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law by the unanimous written consent of the Board of Directors dated as of June 30, 2000.
RESOLVED, that, pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Restated Certificate of Incorporation, the Board of Directors hereby creates a series of Preferred Stock, par value $0.001 per share (the "Preferred Stock"), of the Corporation and hereby states the designation and number of shares and fixes the relative rights, preferences, and limitations thereof as follows:
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Corporation by the undersigned duly authorized officer this 30th day of June, 2000.
/s/ Earl R. Franklin
Earl R. Franklin
Assistant Secretary
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-49726) pertaining to the Axcelis Technologies, Inc. Employee Stock Purchase Plan and the Registration Statement (Form S-8 No. 333-49768) pertaining to the Axcelis Technologies, Inc. 2000 Stock Plan, of our report dated January 22, 2001, except for the fourth paragraph of Note 9, as to which the date is January 24, 2001, with respect to the consolidated financial statements and schedule of Axcelis Technologies, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2000.
/s/ERNST & YOUNG LLP
Boston, Massachusetts
March 29, 2001
AXCELIS TECHNOLOGIES, INC.
FACTORS AFFECTING FUTURE OPERATING RESULTS
From time to time, we may make forward-looking public statements, such as statements concerning our then expected future revenues or earnings or concerning projected plans, performance, contract procurement as well as other estimates relating to future operations. Forward-looking statements may be in reports filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in press releases or informal statements made with the approval of an authorized executive officer. The words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions are intended to identify "forward-looking statements" within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act of 1933, as amended, as enacted by the Private Securities Litigation Reform Act of 1995.
We wish to caution you not to place undue reliance on these forward-looking statements which speak only as of the date on which they are made. In addition, we wish to advise you that the factors listed below, as well as other factors we have not currently identified, could affect our financial or other performance and could cause our actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods or events in any current statement.
We will not undertake and specifically decline any obligation to publicly release revisions to these forward-looking statements to reflect either circumstances after the date of the statements or the occurrence of events which may cause us to re-evaluate our forward-looking statements.
In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act, we are hereby filing cautionary statements identifying important factors that could cause our actual results to differ materially from those projected in forward-looking statements made by us or on our behalf.
Downturns in the semiconductor industry have had in the past, and may have in the future, a severe adverse effect on our sales and profitability.
Our business depends in significant part upon capital expenditures by semiconductor manufacturers, especially manufacturers that are opening new or expanding existing fabrication facilities. The level of capital expenditures by these manufacturers depends upon the current and anticipated market demand for semiconductors and the products utilizing them, the available manufacturing capacity in manufacturers' fabrication facilities, and the ability of manufacturers to increase productivity in existing facilities without incurring additional capital expenditures.
The semiconductor industry is highly cyclical and has experienced periodic downturns that have had a severe adverse impact on the semiconductor industry and on suppliers to the semiconductor industry, including us. The semiconductor industry has in the past experienced, and will likely experience in the future, periods of oversupply that result in significantly reduced demand for capital equipment, including our systems. When these periods occur, we will be adversely affected. For instance, semiconductor equipment manufacturers were affected by a severe downturn in the semiconductor industry in 1998, during which our net sales declined by $194.3 million, or 42.2%, from the prior year.
We anticipate that a significant portion of our new orders will depend upon demand from semiconductor manufacturers who build or expand fabrication facilities. If existing fabrication facilities are not expanded or new facilities are not built as rapidly as anticipated, demand for our systems may decline, and we may be unable to generate significant new orders for our systems, which would adversely affect our sales levels. In addition, the continued requirements for investments in engineering, research and development and marketing necessary to develop new products and to maintain extensive customer service and support capabilities limit our ability to reduce expenses during downturns in proportion to declining sales. Any future downturns or slowdowns in the semiconductor industry may cause the price of our common stock to decline.
If we fail to develop and introduce new or enhanced products and services for semiconductor manufacturers, we will not be able to compete effectively.
Rapid technological changes in semiconductor manufacturing processes require the semiconductor equipment industry to respond quickly to changing customer requirements. We believe that our future success will depend in part upon our ability to develop, manufacture and successfully introduce new systems and product lines with improved capabilities and to continue to enhance existing products, including products that process 300 millimeter wafers. Our ability to successfully develop, introduce and sell new and enhanced systems depends upon a variety of factors, including new product selection, timely and efficient completion of product design and development, timely and efficient implementation of manufacturing and assembly processes, product performance in the field and effective sales and marketing. We cannot assure you that we will be successful in selecting, developing, manufacturing and marketing new products or in enhancing our existing products.
Due to the risks inherent in transitioning to new products, we will need to accurately forecast demand for new products while managing the transition from older products. Our inability to develop or meet the technical specifications of any of our new systems or enhancements to our existing systems or to manufacture and ship these systems or enhancements in volume in a timely manner could materially and adversely affect us.
If new products have reliability or quality problems, we may experience reduced orders, higher manufacturing costs, delays in acceptance and payment, and additional service and warranty expense. In the past, we have experienced some delays as well as reliability and quality problems in connection with new product introductions, resulting in some of these consequences.
We cannot assure you that we will successfully develop and manufacture new products or that our new products will be accepted in the marketplace. A failure to successfully introduce new products will have a material adverse effect on us.
We expect to continue to make significant investments in research and development. Future technologies, processes or product developments may render our current product offerings obsolete or we may not be able to develop and introduce new products or enhancements to existing products that satisfy customer needs in a timely manner or achieve market acceptance. The failure to do so could adversely affect us. If we are not successful in marketing and selling advanced processes or equipment to customers with whom we have formed long-term relationships, sales of our products to those customers could be adversely affected.
If we fail to compete successfully in the highly competitive semiconductor equipment industry, our sales and profitability will decline.
The market for semiconductor manufacturing equipment is highly competitive. We believe that, to remain competitive, we will require significant financial resources in order to offer a broad range of products, to maintain customer service and support centers worldwide and to invest in product and process research and development.
In the ion implantation market, we compete with a relatively small number of competitors. An acquisition of, or by, one of our competitors in the ion implant sector may result in a substantially strengthened competitor with greater financial, engineering, manufacturing, marketing and customer service and support resources than we have. Competitors with substantially greater financial resources than we have may be better positioned to successfully compete in the industry. In addition, there are smaller, emerging semiconductor equipment companies that provide innovative systems with technology that may have performance advantages over our systems.
Competitors are expected to continue to improve the design and performance of their existing products and processes and to introduce new products and processes with improved price and performance characteristics. If competitors enter into strategic relationships with leading semiconductor manufacturers covering products similar to those sold or being developed by us, our ability to sell products to those manufacturers may be adversely affected. We cannot assure you that we will be able to compete successfully with our existing competitors or with new competitors.
We have been dependent on sales to a limited number of large customers; the loss of any of these customers or any reduction in orders from such customers could materially affect our sales.
Historically, we have sold a significant proportion of our products and services to a limited number of fabricators of semiconductor products. For example, in 2000, three of our customers, STMicroelectronics N.V., Texas Instruments Incorporated, and Motorola, Inc. accounted for 28.0% of our net sales, and our ten largest customers accounted for 56.3%. None of our customers has entered into a long-term agreement requiring it to purchase our products. Product sales to certain of our customers may decrease in the near future as those customers complete current purchasing requirements for new or expanded fabrication facilities. Although the composition of the group comprising our largest customers has varied from year to year, the loss of a significant customer or any reduction or delays in orders from any significant customer, including reductions or delays due to customer departures from recent buying patterns, or market, economic or competitive conditions in the semiconductor industry, could adversely affect us. The ongoing consolidation of semiconductor manufacturers may increase the adverse effect of losing a significant customer.
Our quarterly financial results may fluctuate significantly and may fall short of anticipated levels.
We derive most of our revenues from the sale of a relatively small number of expensive products to a small number of customers. The list prices on these products range from $150,000 to over $4.0 million. At our current sales level, each sale, or failure to make a sale, could have a material effect on us in a particular quarter. Our lengthy sales cycle, coupled with customers' competing capital budget considerations, make the timing of customer orders uneven and difficult to predict. In a given quarter, a number of factors can adversely affect our revenues and results, including changes in our product mix, increased fixed expenses per unit due to reductions in the number of products manufactured, and higher fixed costs due to increased levels of research and development and expansion of our worldwide sales and marketing organization.
In addition, our backlog at the beginning of a quarter typically does not include all orders required to achieve our sales objectives for that quarter and is not a reliable indicator of our future sales. As a result, our net sales and operating results for a quarter depend on our shipping orders as scheduled during that quarter as well as obtaining new orders for products to be shipped in that same quarter. Any delay in scheduled shipments or in shipments from new orders could materially and adversely affect us, which could cause our stock price to decline significantly. Due to the foregoing factors, we believe that period-to-period comparisons of our operating results should not be relied upon as an indicator of our future performance.
We are dependent upon our Japanese joint venture and Sumitomo for access to the Japanese semiconductor equipment market.
In 1982, we established our SEN joint venture with Sumitomo to provide us with additional manufacturing capacity for our ion implantation products and local access to the Japanese semiconductor equipment market. Under our arrangements with Sumitomo, our ion implantation products may be sold in Japan only through the joint venture. We receive our 50% proportionate share of the equity income or loss from SEN. As part of the joint venture arrangement, we have entered into a separate license agreement with SEN, last renewed in 1996, under which SEN is entitled to use our ion implantation technology in sales of ion implanters to semiconductor manufacturers in Japan. We receive substantial income from this license agreement. The license agreement expires on December 31, 2004 and is automatically renewable for successive five-year periods unless either party has provided one year's prior notice of termination. A substantial decline in SEN's sales and income from operations could have a material adverse effect on our net income.
We also have an arrangement with Sumitomo, outside the SEN joint venture, under which it is the exclusive distributor of our dry strip, photostabilization and rapid thermal processing products to semiconductor manufacturers in Japan. This distribution arrangement expires in 2002 and thereafter is renewable from year to year unless either party has given the other party six months prior written notice.
We are substantially dependent upon sales of our products and services to customers outside the United States.
Sales of our products and services to customers outside the United States, including exports from our U.S. facilities, accounted for approximately 49.4% , 53.5% and 69.4% of our net sales in 1998, 1999 and 2000, respectively. We anticipate that international sales will continue to account for a significant portion of our net sales. Because of our dependence upon international sales, we are subject to a number of factors, including:
Substantially all of our sales to date have been denominated in U.S. dollars. Our products become less price competitive in countries with currencies that are declining in value in comparison to the dollar. This could cause us to lose sales or force us to lower our prices, which would reduce our gross margins. If it becomes necessary for us to make sales denominated in foreign currencies, we will become more exposed to the risk of currency fluctuations. Our equity income and royalty income from SEN are denominated in Japanese yen.
We may not be able to maintain and expand our business if we are not able to retain, hire and integrate additional qualified personnel.
Our business depends on our ability to attract and retain qualified, experienced employees. There is substantial competition for experienced engineering, technical, financial, sales and marketing personnel in our industry. In particular, we must attract and retain highly skilled design and process engineers. Competition for such personnel is intense, particularly in the areas where we are based, including the Boston metropolitan area and the Rockville, Maryland area, as well as in Taiwan and Singapore. If we are unable to retain our existing key personnel, or attract and retain additional qualified personnel, we may from time to time experience inadequate levels of staffing to develop, manufacture and market our products and perform services for our customers. As a result, our growth could be limited due to our lack of capacity to develop and market our products to our customers, or we could fail to meet our delivery commitments or experience deterioration in service levels or decreased customer satisfaction, all of which could adversely affect us and cause the value of our common stock to decline.
Our dependence upon a limited number of suppliers for many components and sub-assemblies could result in increased costs or delays in manufacture and sales of our products.
We rely to a substantial extent on outside vendors to manufacture many of the components and subassemblies of our products. We obtain many of these components and subassemblies from either a sole source or a limited group of suppliers. Because of our reliance on outside vendors generally, and on a limited group of suppliers in particular, we may be unable to obtain an adequate supply of required components on a timely basis, on price and other terms acceptable to us, or at all.
In addition, we often quote prices to our customers and accept customer orders for our products prior to purchasing components and subassemblies from our suppliers. If our suppliers increase the cost of components or subassemblies, we may not have alternative sources of supply and may not be able to raise the price of our products to cover all or part of the increased cost of components.
The manufacture of some of these components and subassemblies is an extremely complex process and requires long lead times. As a result, we have in the past and may in the future experience delays or shortages. If we are unable to obtain adequate and timely deliveries of our required components or subassemblies, we may have to seek alternative sources of supply or manufacture these components internally. This could delay our ability to manufacture or to ship our systems on a timely basis, causing us to lose sales, incur additional costs, delay new product introductions and suffer harm to our reputation.
Our historical financial information may not be representative of our results as a separate company.
Our combined financial statements for periods ending on or before June 30, 2000 have been carved out from the consolidated financial statements of Eaton Corporation using the historical bases of assets, liabilities and operating results of the semiconductor equipment operations business of Eaton that we comprised. Accordingly, our historical financial information for those periods does not necessarily reflect what our financial position, operating results and cash flows would have been had we been a separate, stand-alone entity during the periods presented. Our costs and expenses for those periods were allocated to our business based on Eaton's internal expense allocation methodology which charges these expenses to operating locations based both on net working capital, excluding short-term investments and short-term debt, and on property, plant and equipment - net. While we believe this allocation methodology is reasonable and allocated costs are representative of the operating expenses that would have been incurred had we operated on a stand-alone basis, such historical financial information is not necessarily indicative of what our financial position, operating results and cash flows will be in the future. We have not made adjustments to this historical financial information to reflect any significant changes that may occur in our cost structure and operations as a result of our separation from Eaton Corporation, including increased costs associated with being a publicly traded, stand-alone company.
In certain circumstances, we may need additional capital.
We believe our capital requirements will vary greatly from quarter to quarter, depending on, among other things, capital expenditures, fluctuations in our operating results, financing activities, acquisitions and investments and inventory and receivables management. We believe that our available cash and our future cash flow from operations, will be sufficient to satisfy our working capital, capital expenditure and research and development requirements for the foreseeable future. We cannot assure you, however, that the underlying assumed levels of sales and expenses will prove to be accurate. In addition, in the future, we may require or choose to obtain additional debt or equity financing in order to finance acquisitions or other investments in our business. Future equity financings would be dilutive to the existing holders of our common stock. Moreover, we are restricted in raising substantial amounts of equity capital under our tax sharing and indemnification agreement with Eaton Corporation, as well as by market conditions. Future debt financings could involve restrictive covenants that may limit the manner in which we conduct our business.
We may incur costly litigation to protect our proprietary technology, and if unsuccessful, we may lose a valuable asset or experience reduced market share.
We rely on a combination of patents, copyrights, trademark and trade secret laws, non-disclosure agreements and other intellectual property protection methods to protect our proprietary technology. Despite our efforts to protect our intellectual property, our competitors may be able to legitimately ascertain the non-patented proprietary technology embedded in our systems. If this occurs, we may not be able to prevent their use of this technology. Our means of protecting our proprietary rights may not be adequate and our patents may not be sufficiently broad to prevent others from using technology that is similar to or the same as our technology. In addition, patents issued to us have been, or might be challenged, and might be invalidated or circumvented and any rights granted under our patents may not provide adequate protection to us. Our competitors may independently develop similar technology, duplicate features of our products or design around patents that may be issued to us. As a result of these threats to our proprietary technology, we may have to resort to costly litigation to enforce or defend our intellectual property rights.
On January 8, 2001, we filed a lawsuit against Applied Materials, Inc. in the United States District Court for the District of Massachusetts. The complaint alleges that Applied's medium current/high energy ion implanter machine infringes our patent for ion implantation equipment using radio frequency linear accelerator technology. We have also alleged that Applied unlawfully interfered with our existing and future contracts. On January 18, 2001, we filed a motion for a preliminary injunction, asking the court to stop Applied from manufacturing, selling or offering to sell its medium current/high energy ion implanter machine and to order Applied to remove all of our patented technology from implanters that Applied may have placed in chipmakers' plants for process development trials.
While we believe our claims are meritorious and intend to pursue this matters vigorously, there can be no assurance of a favorable outcome.
We might face intellectual property infringement claims or patent disputes that may be costly to resolve and, if resolved against us, could be very costly to us and prevent us from making and selling our systems.
From time to time, claims and proceedings have been or may be asserted against us relative to patent validity or infringement matters. Our involvement in any patent dispute or other intellectual property dispute or action to protect trade secrets, even if the claims are without merit, could be very expensive to defend and could divert the attention of our management. Adverse determinations in any litigation could subject us to significant liabilities to third parties, require us to seek costly licenses from third parties and prevent us from manufacturing and selling our systems. Any of these situations could have a material adverse effect on us and cause the value of our common stock to decline.
Risks Related to our Agreements with Eaton Corporation
Prior to our initial public offering, we entered into a number of agreements with Eaton Corporation. These agreements were negotiated at a time when we were a wholly-owned subsidiary of Eaton Corporation and therefore may not have the same terms that such agreements would have had if they had been negotiated in an arm's length transaction.
Covenants and Payables in Favor of Eaton Corporation. Our agreements with Eaton restrict our operations and obligate us to make payments to Eaton in certain situations, including:
Transitional Services. We are currently using Eaton to provide all or a portion of the following services, including:
Our transitional services agreements with Eaton will generally terminate not later than December 31, 2001. We are in the process of engaging our own personnel and creating or acquiring our own processes, services and systems to replace some of the services and systems provided to us by Eaton. In order to successfully implement these services without Eaton's assistance, we must be able to attract and retain a significant number of highly skilled employees.
Although Eaton is contractually obligated to provide us with these services, these services may not be provided at the same level as when we were part of Eaton or on which we could provide the services for ourselves. Moreover, the cost of obtaining such services from Eaton may exceed the cost at which we could provide such services for ourselves with our own personnel and creating or acquiring our own processes, services and systems.
Conflicts under Eaton Agreements and Otherwise. Conflicts may arise under our agreements with Eaton Corporation and other interests of Axcelis and Eaton may differ from time to time. We have agreed to submit all disputes under the agreements with Eaton to binding arbitration, following non-binding mediation, unless the failure to initiate litigation would cause serious and irreparable injury to one of us or others. Three of our directors are also directors of Eaton Corporation and one, Alexander M. Cutler, is also an executive officer of Eaton. Our directors who are also directors of Eaton will have obligations to both companies and may have conflicts of interest with respect to matters that could have different implications for Eaton and us.