Axcelis

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(Mark  One)
(cid:2)

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

For the fiscal year ended December 31, 2008

(cid:3)

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)

Delaware
(State or other jurisdiction
of incorporation or organization)

34-1818596
(IRS Employer  Identification No.)

108 Cherry Hill Drive
Beverly, Massachusetts 01915
(Address of principal executive offices)  (zip code)

(978)  787-4000
(Registrant’s telephone number, including  area code)

Securities registered pursuant  to Section  12(b) of  the  Act:

Title of each class

Name of each  exchange  on which  registered

Common Stock, $.001 par value
Preferred Share Purchase Rights

The Nasdaq Stock  Market LLC

Securities registered pursuant to  Section  12(g) of  the  Act:
None

Indicate by check mark if the registrant is a  well-known  seasoned issuer, as  defined in  Rule  405 of the  Securities

Act. Yes (cid:3) No (cid:2)

Indicate by check mark if the registrant  is  not required  to  file  reports pursuant  to  Section 13  or  Section 15(d) of  the

Act. Yes (cid:3) No (cid:2)

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  (cid:2) No  (cid:3)

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. (cid:2)

Indicate by check mark whether the registrant  is a large  accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See  the  definitions  of  ‘‘large  accelerated  filer,’’ ‘‘accelerated filer’’ and  ‘‘smaller
reporting company’’  in Rule  12b-2  of  the  Exchange Act.
Large accelerated filer (cid:3) Accelerated filer (cid:2) Non-accelerated filer  (cid:3) Smaller reporting company (cid:3)

(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant  is a  shell  company (as  defined  in Rule 12b-2 of  the  Act).  Yes (cid:3)  No  (cid:2)

Aggregate market value of the voting stock held  by non-affiliates  of  the  registrant  as of June 30,  2008: $497,275,221.

Number of shares outstanding of the registrant’s  Common  Stock, $0.001  par value,  as of March  27,  2009:

103,283,850.

Portions of the definitive Proxy Statement for  Axcelis  Technologies, Inc.’s  Annual  Meeting  of  Stockholders to be

held on May 6, 2009  are incorporated by  reference  into  Part  III of  this  Form  10-K.

Documents incorporated by reference:

Item 1. Business.

Overview of Our Business

PART I

Axcelis Technologies, Inc. (‘‘Axcelis,’’ the Company,’’  ‘‘we,’’ ‘‘us,’’ or ‘‘our’’) designs, manufactures

and services ion implantation, dry strip  and other processing equipment used in the fabrication of
semiconductor chips. We sell to all of the top 20 semiconductor chip manufacturers worldwide. The ion
implantation business comprised approximately 81.9% of  our revenues in  2008 with  the remaining
18.1% of revenues derived from our  dry  strip and other processing systems. In  addition  to  equipment,
we provide extensive aftermarket service  and  support,  including  spare  parts, equipment upgrades,
maintenance services and customer training. During 2008,  we also owned 50%  of  the equity of SEN
Corporation, an SHI and Axcelis Company, or ‘‘SEN,’’ a  leading  producer of ion  implantation
equipment in Japan. SEN licenses technology from us for certain ion implantation  products and has
exclusive rights to market the licensed products in  Japan. In  February 2009, we  entered into an
agreement to sell our shares in SEN,  which closed on March 30,  2009. See ‘‘SEN Corporation, an  SHI
and Axcelis Company’’ below.

Axcelis is headquartered in Beverly, Massachusetts. We maintain an Internet  site at

http://www.axcelis.com. We make available free of charge  on and through  this website our annual
reports on Form 10-K, quarterly reports  on Form 10-Q, current reports on Form  8-K, and  amendments
to those reports filed or furnished pursuant to Section  13(a)  or  15(d)  of the Exchange  Act as  soon  as
reasonably practicable after we electronically file  such material with,  or furnish it to, the Securities and
Exchange Commission. Our website and  the information contained therein or connected thereto shall
not be deemed to be incorporated into this Form  10-K.

Industry Overview

Semiconductor chips, also known as integrated  circuits, are  used  in personal computers,

telecommunication equipment, digital consumer electronics,  wireless communication  products and other
applications. Types of semiconductor  chips include  memory chips (which store and retrieve
information), microprocessors (logic devices which process  information) and ‘‘system on chip’’ devices
(which have both logic and memory features). Most  semiconductor  chips are built  on a wafer of silicon
of either 200mm (8 inches) or 300mm (12 inches) in diameter. Each semiconductor  chip is made up  of
millions of tiny transistors or ‘‘switches’’  to control the  functions of the  device. Transistors are  created
in the silicon wafer by introducing various precisely placed impurities into  the silicon in specific
patterns. The process steps in the formation of transistors are  traditionally referred to as
‘‘Front-End-of-Line.’’ The ‘‘Back-End-of-Line’’ process steps connect the  transistors and other
components together through several overlapping layers of metal wires, known as interconnect, creating
a complete circuit. Each layer of metal  interconnect must be separated by a non-conductive or
insulating material called inter-level dielectric.  Each layer that  is added is selectively patterned  to  all
previous layers through a process called photolithography.

Semiconductor chip manufacturers utilize many different types of equipment  in the making  of

integrated circuits. There are over 300 process steps utilizing over 50  different types of process tools
required in the making of a single device  like a microprocessor.  Semiconductor chip manufacturers
seek efficiency improvements through increased  throughput,  equipment  utilization and  higher
manufacturing yields. Capacity is added  by increasing the amount of manufacturing equipment in
existing fabrication facilities and by constructing new  fabrication facilities.  Periodically,  and historically
every seven or eight years, the semiconductor industry adopts a larger  silicon  wafer size to achieve
lower manufacturing costs. Semiconductor  manufacturers can  produce  more  chips on  a larger  wafer,
thus  reducing the overall manufacturing cost  per  chip. For example, the use of 200mm  wafers in
production began at the end of the 1980s.  The migration from  200mm to  300mm began at  the end of

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the 1990s. The majority of wafer fabrication  facilities  today  are using wafers with  a diameter of 300mm.
In 2008, Axcelis derived 59% of total systems revenue  (a  component  of  product revenue)  from sales of
300mm equipment.

The customer base is also changing. Given the magnitude  of the investment needed to build  a new
wafer fabrication facility (often referred to as a ‘‘fab’’), which  today  exceeds $1  billion and can  be  over
$3 billion for a new 300mm fab, many customers are entering  into  partnerships to offset the cost of
technology development and manufacturing. In addition, many chip  developers  outsource  all  or part  of
their chip manufacturing requirements to contract manufacturers,  known  as foundries. Foundries are
predominantly located in Asia (historically  Taiwan and Singapore) and are  significant purchasers of
semiconductor manufacturing equipment.  China has recently seen the  construction of  many new
foundries, which is expected to continue.

Traditionally, the semiconductor industry has  grown on an annual basis. However, due to the
nature of the industry, cyclicality is inherent. Chip manufacturers’ periodic  aggressive capitalization  has
historically led to overcapacity, excess chip  inventories, softening chip prices and  finally  muted
capitalization, which in turn results in lower demand for equipment. Changes  in consumer and business
demand for products in which chips are  used also  affect the  industry.  Current economic conditions have
resulted in greatly reduced demand, and this situation is  expected  to  continue for  at least the  next year.
Therefore, a successful semiconductor  equipment manufacturer must not only provide some of the
most technically complex products manufactured in  the world  but  also  must design its  business  to  thrive
during the inevitable low points in the cycle.

Axcelis’ Strategy

Our mission and vision is to:

(cid:129) Ensure our customers’ success by providing semiconductor  manufacturing  and support solutions

and services that deliver the best performance at  the lowest total cost of ownership.

(cid:129) Achieve and maintain market share leadership (#1 or #2) in  the principal product  market

segments we serve.

(cid:129) Deliver profitability and positive cash flow through the industry cycles to maximize shareholder

and employee value.

In addition to ion  implanters, Axcelis offers dry strip and other processing systems  that  serve
process steps in both the front and back  end of line semiconductor manufacturing.  In September 2007,
Axcelis’ management elected to discontinue  future development  of the thermal processing and
photostabilization/curing product lines. Axcelis continues to  provide aftermarket support for the
installed base of these systems. Of our  total  2008 revenues,  14.6% were derived  from our  dry  strip
products and related services and 3.5% from these other product lines.

Operationally, we manage our business based on three  main tenets:

(cid:129) technology leadership,

(cid:129) operational excellence, and

(cid:129) customer partnerships.

We  have continued to invest in research and development through  the industry cycles to assure our

products meet the needs of our customers.  We continue  to  add to our  portfolio  of patents and
unpatented proprietary technology to  ensure that our investment  in technology leadership is translated
into unique product advantages. We take  pride in  our  scientists  and engineers who  comprise over
one-third of our workforce. We strive for  operational excellence by  focusing on ways to lower our
manufacturing and design costs and to improve our delivery  times to our  customers. Finally, we have

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grown and improved our customer support infrastructure and have established Global Customer Teams
and a focused account management structure  to  strengthen our  customer relationships  and increase
customer satisfaction.

Ion Implantation Systems

Ion implantation is a principal step in the transistor formation cycle  of the semiconductor

manufacturing process. An ion implanter  is  a large, technically  advanced machine that injects dopants
such as arsenic, boron or phosphorus into a silicon wafer. These dopants  are ionized and therefore
have electric charges. With an electric charge they  can be manipulated, moved  and accelerated with
electric and magnetic fields. Ion implanters use  these fields to create a beam of ions  with a precisely
defined amount of energy (ranging between several  hundred and three million electron-volts) and with
a precisely defined amount of beam current (ranging from  microamps  to  milliamps).  Certain areas of
the silicon wafer are blocked off by a polymer material known as  photoresist, which  acts  as a ‘‘stencil’’
to pattern devices 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, called the
transistors. Typical process flows require twenty implant  steps, with the most advanced processes
requiring thirty or more. Each implant  step is  characterized by  four key parameters: dopant type, dose
(amount of dopant), energy (depth into  the silicon)  and tilt (angle  of  wafer  relative to the  ion beam).

In order to cover the wide range of implant steps,  three different types of  implanters have  been

developed, each designed to cover a specific range of  applications, primarily  defined by dose and
energy. The three traditional implanter types are referred to as medium current, high current and  high
energy:

(cid:129) Medium current (mid dose) implanters  are the original model of  ion implanter, with mid-range

energy and dose capability. These implanters are single wafer systems in which only one  wafer at
a time  is slowly moved in front of the  ion beam.

(cid:129) High current (high dose) implanters were the second type of  implanter to emerge, having low

energy capability and high dose range. High current  implanters were initially designed  as ‘‘multi
wafer’’ or ‘‘batch’’ tools for maximum  productivity, processing multiple  wafers  at the same time.
To address smaller device geometries and provide high tilt, single wafer high current  implanters
now dominate the sector.

(cid:129) High energy implanters emerged to address  the need for deeper implants  with a high  energy

range and low dose. High energy implanters are available in both multi wafer and single wafer
architectures.

Axcelis offers a complete line of high energy, high current and medium current  implanters for all

application requirements. Axcelis is a  market  leader in high  energy ion implanters  and was a  market
leader in multi wafer high current implanters  for many years. Beginning in 2005, most customers
shifted from multi wafer tools to single  wafer tools for high current applications. Because Axcelis did
not have a single wafer high current  product at that time, we have experienced  a significant  loss of
market share which we have yet to regain. We introduced  our single wafer Optima  HD  product (for
high current applications) in 2006. By the end  of  2008, Axcelis had shipped  12 Optima  HD  products,
but due to continued depressed market conditions the  Company to date has not regained  any
significant market share. Our single wafer tool  for high energy applications, the  Optima XE, was
released in the fourth quarter of 2007.  We expect  to  maintain our  leadership in the high energy
segment through sales of our multi wafer  high energy systems and  the Optima XE.

Axcelis’ line of single wafer implanters, known  as the Optima platform, is designed  to  meet current
and future application requirements of  our customers  by combining high  productivity,  excellent process

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performance, technical extendibility and maximum  applications overlap. The three Optima products
are:

(cid:129) The Optima HD. We use the term ‘‘high dose’’ or ‘‘HD’’ in connection  with this product

because the Optima HD fulfills all traditional high current requirements while extending  beyond
traditional high current energy and dose ranges.  In order to  maximize utilization and flexibility,
the Optima HD can process some traditional mid current implants. In addition, the  Optima HD
is extendable into ultra-low energy applications to satisfy  future process requirements. The
Optima HD also supports molecular and hydrogen implants for  emerging dual  poly gate and
silicon-on-insulator applications to improve  device speed and  performance.

(cid:129) The Optima XE. The Optima XE combines Axcelis’ production-proven RF  Linac  high energy,

spot beam technology with a high-speed, state-of-the-art  single  wafer endstation, enabling
unmatched throughput. Axcelis’ advanced  spot beam ensures that  all points across the wafer  see
the same beam at the same beam angle, resulting in exceptional process  control  and maximum
yield. Also introduced in the fourth quarter of 2007 was  the Optima HE, a reduced energy
version  of the Optima XE. This new single wafer high energy tool will meet the needs of  those
customers exploring a transition from  our multi wafer high energy tools.

(cid:129) The Optima MD. We refer to this product as ‘‘mid dose’’ or  ‘‘MD’’ because  it has energy and

dose capabilities which extend beyond the  traditional  medium current space into traditional high
current and high energy spaces. With the  introduction of the Optima  MD in  2005, Axcelis
re-entered the medium current market  segment, which we had not participated in since 2001.

We believe the Optima products will meet customer demand for advantages in productivity,

simplicity, process performance and technical extendibility.

Dry  Strip

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. Through a process known as
photolithography, the photoresist is developed into  a  pattern  like a stencil. Once the  subsequent
implant  processes and etch steps (in which the  top layer of the surface  of  the wafer  not  covered by
photoresist is removed) are completed, the photoresist is no longer necessary  and must be removed.
The primary means of removing photoresist  and  residue  is a process called  ‘‘dry  strip’’  or ‘‘ashing.’’ Our
dry strip machines, also called ‘‘ashers,’’ use microwave and radio  frequency energy to turn process
gases into plasma,  which then acts to ‘‘clean’’ the surface  of  the  wafer  by removing the  photoresist and
unwanted residue.

Stripping photoresist during the front-end-of-line transistor  sequence is relatively simple and,
therefore, the equipment required (sometimes referred to as ‘‘bulk strip’’)  is characterized  by  high
throughput and low cost. Our dry strip tools are capable of removing bulk photoresist from the wafer,
as well as the residue left behind after bulk strip. In addition to its use  prior to the front-end-of-line
implant  and etch processes, photoresist is also applied and removed  during back-end-of-line processes.
Stripping photoresist in the back-end-of-line interconnect sequence requires  more complicated tools
and  cleaning chemistries due to the advanced materials being used at smaller device geometries. One
key  process is the stripping of the photoresist lying on top of  the low-k  dielectric film used between
copper lines. Since the low-k materials are easily damaged during the  photoresist removal  process, tools
must be designed to minimize this damage.  We believe that  Axcelis offers the  only  no damage low-k
dry strip solution and that the advantages  of our technology will drive growth for Axcelis’ dry strip tools
in this important application space. Our front-end photoresist removal capabilities coupled with our
technology for back-end photoresist removal provide a complete solution for  our customers.

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Other Processing Systems

Photostabilization/Curing Systems

In some manufacturing processes, the photoresist  stencil material

spread on the wafer must be hardened or ‘‘cured.’’ Axcelis’  curing (also known  as photostabilization)
systems use proprietary ultraviolet light sources to cure the photoresist so the  material  maintains  the
desired pattern during the subsequent  implant processes  and etch steps.

The photostabilization and curing market has remained a  small segment.  In past  years,  Axcelis has
explored growth opportunities for this  product line in curing and drying new  low-k dielectric materials.
To date, broad adoption of such materials has not occurred. In the fourth quarter of 2007,  Axcelis
determined that the current and near  term  market  opportunity  for the curing product  line did not
justify continuing investment in these  products. As a result, Axcelis decided to cease future  product
development in curing to focus on profitable growth within the company’s core  ion implant  and dry
strip businesses.

Thermal  Processing Systems 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 thermal processing systems employ  a patented design to process a  single wafer in a  hot  wall
vertical reactor. This technology differs from most  other thermal processing equipment, which regulate
temperature through a lamp-based system.  The RTP market  is dominated by a single major  competitor
and, while the Axcelis RTP systems have  technological  advantages for certain applications, our
penetration into the market remains  low. In  the third quarter of 2007, Axcelis determined that the
current and near term market opportunity for the RTP product line  did not justify continuing
investment in these products. As a result, Axcelis  decided  to cease future product development in  RTP
to focus  on profitable growth within  the  company’s core ion implant and  dry  strip  businesses.

Aftermarket Support and Services

We  offer our customers extensive aftermarket service and support  throughout the  lifecycle  of  the

equipment we manufacture. We believe  that  more than 4,200 of  our products, including products
shipped by SEN, are in use in 50 countries  worldwide.  The service and support that we  provide include
spare parts, equipment upgrades, and  maintenance services. We  offer service  out of 51  field offices in
sixteen countries. Revenues generated  through our service and support business represented  about
57.1%, 42.2%, and 38.2% of revenue in  2008, 2007, and 2006, respectively.

Our customer support network consists  of over 502 staff,  including sales and marketing personnel,
field service engineers, and spare parts  and  applications engineers, as  well as employees located at our
manufacturing facilities who work with our customers to provide  customer training and documentation,
product,  process and applications support.

Most of our customers maintain spare parts  inventories for our  machines.  In  addition to our

web-based spare parts management and  replenishment tracking  program, we offer a number of
Business-to-Business options to support our  customers’  parts  management requirements.  AMI  (Axcelis
Managed Inventory) provides the customer  with full  spares  support through which  Axcelis takes
responsibility for the complete supply  chain. The expansion of  these services provides ease of use
alternatives that help us reduce order  fulfillment  costs and improve cycle time, resulting in an expanded
customer base for this service offering.  See Note 2 to our Consolidated Financial Statements contained
in Item 15 of this Form 10-K for a discussion of revenue classifications  from  our  aftermarket business.

Sales and Marketing

We  primarily sell our equipment and  services through our direct sales  force. We  have 16 sales

offices in ten countries. Aftermarket  service  and support is also  offered at all of these offices.  In  the

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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, China,  Japan, Germany, Singapore,
Netherlands, France and Italy. In addition, isolated sales  are made  in smaller markets through
distributors and manufacturing representatives.

In Japan, we have exclusively licensed specified ion implant products to our joint venture, SEN,
which  manufactures and sells its machines  and  services directly  to  semiconductor manufacturers. This
license to SEN was terminated at the closing of the  sale of our investment  in SEN and a new  license
was entered into. After the closing of the  transaction Axcelis  can market all of its ion  implant products
in Japan. See ‘‘SEN Corporation, an  SHI  and Axcelis Company’’ below. We  sell our non-implant
products in Japan through Toda Technologies  Service Co., Ltd., an unaffiliated company, which
provides sales and support services for these  products.

International revenues, including export  sales  from our  U.S. manufacturing facilities to foreign

customers, sales by foreign subsidiaries and branches, and royalties, accounted for  64.7% of total
revenue in 2008, 67.0% in 2007, and 67.1% in 2006. Substantially  all of our sales  are denominated in
U.S. dollars. See Note 17 to our Consolidated  Financial Statements contained in Item  15 of this
Form 10-K for a breakdown of our revenues and long-lived assets in  the United States,  Europe and
Asia.

Customers

In 2008, the top 20 semiconductor manufacturers accounted for  approximately 75.8%  of  total
semiconductor industry capital spending,  down  from 80% in  2007. These  manufacturers  are from the
four  largest semiconductor manufacturing  regions in the world: the United States, Asia  Pacific  (Taiwan,
South Korea, Singapore, and China),  Japan  and Europe. The Company  and  SEN  together  serve all of
the 20 largest semiconductor manufacturers. We  believe that more than 4,200 of  our products,
including products shipped by SEN, are  in use  worldwide.

Revenues from our ten largest customers accounted for  51.5%, 57.8%,  and 54.9%  of  revenue in
2008, 2007, and 2006, respectively. We  expect that sales of  our products to relatively few customers will
continue to account for a high percentage of revenue for the foreseeable future.  In 2008, one customer
accounted for 11.7% of revenue. In 2007, two customers accounted for 12.2%  and 10.5%  of revenue,
respectively. However, in 2006, no single  customer accounted for greater  than 10%  of  revenue.

SEN Corporation, an SHI and Axcelis  Company

Since 1983, we have exclusively licensed our Japanese joint venture,  SEN Corporation, an  SHI and
Axcelis Company, to manufacture and sell specific ion  implanter  systems  using our  technology in  Japan.
As of year end 2008, SEN had 532 employees  and 149 temporary staff based in  Tokyo and Saijo, Japan.
We  owned 50% of the equity of SEN and our  senior  managers served as half  of the members of SEN’s
Board of Directors until March 30, 2009 when our investment in SEN was sold to Sumitomo  Heavy
Industries, Ltd., a Japanese corporation (‘‘SHI’’) and our joint venture  partner.  SHI now  controls 100%
of the equity of SEN. See discussion below about  the sale  of our  investment in SEN to SHI.

Under a Master License Agreement  with  SEN  dated  January 16, 1996,  as amended (the ‘‘1996
License Agreement’’), Axcelis has licensed  SEN  to  make  and sell specified ion implanters,  not  including
the Optima MD, Optima HD and Optima HE, which are available in Japan directly  from Axcelis. SEN
pays royalties on its net sales of licensed ion implantation products in accordance with the rates set
forth in the 1996 License Agreement. The royalty rates  vary depending  on the type  of implanter sold.
These royalty amounts were $4.1 million,  $6.1 million and $9.2 million in  2008, 2007 and 2006,
respectively. In 2006, Axcelis initiated  an arbitration in  Tokyo under the 1996 License Agreement  to
seek to resolve an issue regarding royalties  due on SEN’s sales of  the  SHX, its single  wafer high  energy
implanter. To date, the amount of these unpaid  royalties is not material.  See Item  3. ‘‘Legal

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Proceedings.’’ This arbitration will be  dismissed in connection  with Axcelis’  sale of  its investment  in
SEN under the Share Purchase Agreement between Axcelis,  SHI and SEN, as  discussed below.  Under
the 1996 License Agreement, SEN has granted us a royalty-free worldwide (except  for Japan) license  to
use any technology SEN develops that  is  an improvement to our  technology. The  1996 License
Agreement between SEN and Axcelis will continue in effect until  terminated. The license agreement
may be terminated by Axcelis or by SEN, with  the approval of the Axcelis representatives on  the SEN
Board, on twelve months’ notice. The  1996 License Agreement has  been be terminated  in connection
with Axcelis’ sale of its shares in SEN  under the Share Purchase Agreement between Axcelis, SHI  and
SEN, as discussed below.

In 2007, Axcelis and SHI entered into a  memorandum  of understanding that provided for SEN to

make an aggregate annual dividend of  40% of its net income to the  two  shareholders.  Under  this
agreement, Axcelis received dividends of $2.0  million,  $6.7 million, and $5.7 million for  SEN’s fiscal
years ended March 31, 2008, 2007, and  2006, respectively. These amounts equaled Axcelis’ 50% share
of 40% of SEN’s net earnings for each year. The  memorandum  of  understanding provides that the two
shareholders may re-negotiate the dividend  rate for years after  2008. Absent  a new  agreement, the
memorandum of understanding provides for  continuing annual dividends at the level of 40% of  SEN’s
net income. Despite this, there can be  no guarantee that SHI  or SEN management  will  comply with
this  obligation. Axcelis expects SEN to record a  loss for its fiscal year ending March  31, 2009, in  which
case no dividend will be paid for that year. This memorandum of understanding was terminated in
connection with Axcelis’ sale of investment  in SEN under  the Share Purchase Agreement  discussed
below.

On February 26, 2009, Axcelis, SHI and SEN entered into a  Share Purchase  Agreement pursuant

to which Axcelis agreed to sell to SHI all  of  Axcelis’ common shares in SEN in exchange  for a  cash
payment of 13 billion Yen on the later of  March 31, 2009  or the date on  which certain closing
conditions are satisfied (the ‘‘Share Purchase Agreement’’). On  March 2, 2009, the Company  purchased
a foreign exchange option to hedge the  proceeds from the transaction. This  option insures  proceeds of
approximately $132.7 million before  advisor fees and other  expenses. On March 30,  2009, the Company
completed the sale of its shares in SEN, to SHI for proceeds  of $122.3 million net of advisory fees and
other expenses. The Company will record a  net gain of approximately $1.2  million on the sale of its
investment in SEN in the first quarter.

SEN remains liable to the Company for royalties and commissions on products sold through
March 31, 2009. In connection with the  closing under the Share Purchase Agreement, Axcelis and SEN
entered into a new License Agreement which allows each company to continue to use certain patents
and technical information owned by the other to make and sell ion implant systems on  a worldwide,
royalty-free, perpetual basis. The transaction  terminated all  existing agreements among the  three parties
relating to the SEN joint venture. In  addition, the arbitration with  SEN  initiated  by  Axcelis in  Tokyo
will be dismissed.

On March 30, 2009, $86.4 million of  the proceeds  from the sale of our shares  in SEN were used

for a direct pay-off of all amounts due to the holder  of  our  4.25% Convertible  Senior Subordinated
Notes (the ‘‘Notes’’) that matured in  January 2009.

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 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

7

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.

Our expenditures for research and development were $63.3 million, $72.0 million and $72.4 million

in 2008, 2007, and  2006, respectively, or 25.3%, 17.8%  and  15.7%  of  revenues,  respectively. We expect
that research and development expenditures  will continue to represent a substantial investment in
future years.

Manufacturing

We  manufacture our products at our 417,000 sq. ft.  facility in Beverly,  Massachusetts. 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 clean room  environments that are similar  to the clean rooms used by
semiconductor manufacturers for wafer fabrication.

Our Beverly facility is also the location  of our Advanced Technology Center,  which houses an
advanced process development laboratory with  12,500 sq. ft. of class 10/100/1000  clean  room  space for
product  demonstration and process development and  a 34,000 sq. ft. customer training center. These
demonstration facilities are used to facilitate sales and to allow customers to test  their processing steps
on our systems under conditions that  substantially replicate  the customers’ production environment.
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.

Most ion implant systems are assembled in  five  separate modules. The modules are then tested

individually using specially developed  software  and are shipped directly to the customer, bypassing the
integration of the modules into a complete implanter.  As a  result,  the implanter system is integrated
for the first time on the customer’s factory  floor  and tested  for quality assurance. We refer to this
process as ‘‘ship from cell.’’ Ship from  cell  manufacturing  allows  us to more quickly  and efficiently ship
and install ion implant systems than  the traditional  manufacturing method involving a full integration of
the system in our factory. Ship from cell saves an average  of  4 weeks in  our manufacturing cycle time,
thus  improving product margins and lead-times for our customers. All  of our 200mm and 300mm
implanters are qualified for ship from  cell manufacturing.

Each  system module is packaged to maintain  clean  room  standards during shipment.  Installation is
not a complex process and does not  require specialized skills. A team of assemblers from the  customer
and Axcelis typically performs the installation. The  process 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  met during module  testing.

We  purchase materials, components and sub-assemblies, 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 sub-assemblies included in our
products are obtained either from a sole source or a limited group of suppliers. Disruption to our
source could affect our ability to deliver products  to  our  customers. 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.

8

We  outsource many of our major sub-assemblies and components. We have several large

outsourcing partners that provide this  service for  assemblies like  the frames, power distribution systems,
wafer handling systems and vacuum systems.  Axcelis will continue to aggressively  pursue outsourcing
opportunities where the economics are  justified, with a goal of enabling factory capacity, quality  and
margin improvement. We outsource complex  assemblies up to and  including  module build. Critical
assemblies will continue to be manufactured in house due to the high  level of expertise required. We
are dependent upon a limited number  of  suppliers for  many  components and sub-assemblies,  which
could result in increased costs or delays in the  manufacture and sale of  our  products.

Competition

The semiconductor wafer fabrication equipment market is highly  competitive  and is characterized
by a small number of medium to large size participants. We compete  in two principal product markets
in both the front-end and back-end of  the semiconductor  wafer fabrication process: ion implantation
and dry strip. We believe that 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,  equipment performance, customer  support, breadth of  product
line, distribution and financial viability.

Ion Implantation.

In ion implantation, our major competitor  in high energy and high current is

Varian Semiconductor Equipment Associates, Inc. In the medium current equipment segment,  we
compete with Nissin Electric Co., Ltd.  and  Varian. After  the sale  of  our investment in SEN to SHI,
SEN is licensed to use certain of our technology  to  compete in the  world wide ion implantation market.
Our Optima HD Imax competes against Plasma  Immersion Systems from both Varian and Applied
Materials.

Dry  Strip. Our principal competitors in the dry strip  product market are PSK, Inc., Mattson

Technology Inc. and Novellus Systems, 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 January 1,  2009, we  had 294  patents issued in the United States and
514 patents granted in other countries, as  well as  816 patent applications (99 in the  United States and
717 in other countries) on file with various  patent  agencies worldwide.  Patents  are generally in  effect
for up to 20 years from the filing of the application.

We  intend to file additional patent applications and grow  our  intellectual  property  portfolio  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.

From time to time, we enter into license agreements with  third parties under which we  obtain  or

grant rights to patented or proprietary  technology. Except for our license  agreement with SEN
(described above under ‘‘SEN Corporation, an SHI and Axcelis Company’’), we do not believe that any
of our licenses are currently material  to  us.

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, or  that  any such claims will
not be successful, requiring us to pay substantial damages or delete  certain features from  our  products
or both.

9

Backlog

As of December 31, 2008, our systems backlog (excluding deferred systems revenue) was

$6.3 million, as compared to $20.5 million as of  December 31,  2007. Systems backlog including deferred
systems revenue was $20.7 million and $60.7 million as of December 31, 2008 and 2007, respectively.
Decrease in backlog is representative of  the overall downturn in the  semiconductor equipment market.
We  believe it is meaningful to investors  to include deferred systems revenue as part of our backlog.
Deferred systems revenue represents  revenue that will be recognized in  future periods based  on prior
shipments. Our policy is to include in  backlog only those system orders for which we have accepted
purchase orders and typically are due to ship  within six months.  Backlog does  not  include orders
received for our service business (spare  parts, consumables  and  service contracts) due to the turn rate
associated with that business. Generally, orders for  services or parts received during the quarter are
performed or shipped within the same quarter.  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, 2008, we had 1,154  employees and 8 temporary  staff worldwide, of which 847

work in North America, 231 in Asia  and 76  in Europe. We consider our relationship with our
employees to be good. Our employees  are not represented by a  labor union and  are not subject to a
collective bargaining agreement. Some  of our European locations have formed work councils, which
have certain information and discussion rights under  applicable law.

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. We are ISO-14001 certified at  our Beverly, MA  facility.

Executive Officers

Mary G. Puma, 51, has been our President and Chief Executive Officer since January 2002  and

Chairman since 2005. From May 2000 until January 2002, Ms. Puma was our  President and  Chief
Operating Officer, prior to which she served as a Vice President of  Axcelis from February 1999. In
1998, she became General Manager and  Vice President of the Implant Systems Division of Eaton
Corporation, a global diversified industrial manufacturer. 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. Ms. Puma  is a
director of Nordson Corporation, North Shore Medical Center and  Semiconductor Equipment and
Materials International (SEMI).

Stephen G. Bassett, 60, has been our Chief  Financial Officer since April 2004  and Executive Vice
President, Finance since May 2005, prior  to which  he was Senior  Vice President, Finance since 2004.
Prior to that, Mr. Bassett had served as  interim Chief Financial Officer  for  Axcelis beginning in  June

10

2003. From 1999 to 2002, Mr. Bassett  served as  Chief  Financial Officer of Ezenia! Inc., a  provider  of
real-time voice, video and data collaboration solutions for corporate  networks  and the  Internet. From
1996 to 1999, Mr. Bassett worked as  an  independent financial  consultant.  From 1981  until 1996,
Mr. Bassett served as an audit partner at  Ernst & Young LLP, where he  managed auditing services for
a variety of organizations, ranging from multinational Fortune  500 companies to emerging businesses.

Kevin J. Brewer, 50, is our Executive Vice President, Manufacturing  Operations, a  position  he has

held since November 2008, prior to which he had been Vice  President  of Manufacturing Operations
since October 2002 and Director of Operations from  1999 to 2002. Prior to  joining Axcelis  in 1999,
Mr. Brewer was Director of Operations, Business Jets at  Raytheon Aircraft Company, a  leading
manufacturer of business and special  mission aircraft owned by  Raytheon Company, a  manufacturer of
defense, government and commercial electronics,  as well  as aircraft.  Prior to that, Mr. Brewer held
various management positions in operations and strategic planning in Raytheon  Company’s Electronic
Systems and Missile Systems groups.

Lynnette C. Fallon, 49, has been our General Counsel and corporate Secretary since 2001 and
Executive Vice President, Human Resources/Legal since May 2005. Prior  to  that,  Ms. Fallon  was  Senior
Vice President HR/Legal since 2002, and  Senior Vice President since  2001. Before  joining Axcelis,
Ms. Fallon was a partner in the Boston  law firm of Palmer & Dodge LLP  since 1992, where she was
head of the Business Law Department from 1997 to 2001.

Matthew P. Flynn, 52, is our Executive Vice President, Global  Customer Operations, a position he

has held since May 2005, prior to which he  was Vice President Global  Customer Operations since
October 2002. Before then, Mr. Flynn  was Director of Sales, Ion Implant and  RTP  systems. Prior to
joining Axcelis in 1996, Mr. Flynn held  executive and management roles  at Cherry Semiconductor,  an
integrated circuit manufacturer, and at Teledyne Inc.,  in its  microelectronics business.

Craig Halterman, 45, has been our Chief Information Officer  since July 2000 and a Senior Vice
President since May 2005, before which he  was a Vice President since July  2000 and  our  Director of
Information  Technology since the beginning  of  2000. Prior to joining us,  Mr. Halterman was
Information  Technology Director at Honeywell/AlliedSignal in its defense and space  systems business
since 1997. Before that, Mr. Halterman  held various information technology positions at The  Dow
Chemical Co., Thompson Consumer Electronics, General Electric Co. and RCA Consumer  Electronics.

William Bintz, 52, has been our Senior  Vice President, Marketing  since September 2007.  Mr.  Bintz

joined Axcelis in early 2006 as Director  of Marketing for curing and cleaning products  and shortly
thereafter became Vice President of Product Marketing  where he  expanded his responsibilities to
include implant products as well. Prior  to  joining Axcelis,  from 2002 Mr.  Bintz was Product Director
for Medium Current and High Energy Ion Implant System at Varian Semiconductor Equipment
Associates, Inc. Before that, he was General Manager of the Materials Delivery Products Group  at
MKS Instruments, beginning in 1999,  and General Manager of the Thermal Processing Systems
Division at Eaton Corporation (now  Axcelis) beginning in 1995.

11

Item 1A. Risk Factors.

Some of the matters discussed in this filing contain forward-looking statements regarding  future
events that are subject to risks and uncertainties.  From time to time, we may also  make  other  forward-
looking public statements, such as statements concerning  our then expected  future revenues or earnings
or concerning the prospects for our markets  or our  product development,  projected plans, performance,
order 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 registration statements filed under  the  Securities Act  of  1933, as amended (the ‘‘Securities Act’’), in
press releases or in 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, 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.  These
statements speak only as of the date  on which they are made and represent management’s expectations
based on information available to them at that time. The factors  listed below, as  well as other factors
that we may or may not have currently  identified, could  affect our  financial or  other performance and
could cause our actual results for future  periods  to  differ materially from  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 that may cause us  to re-evaluate our forward-looking statements,  except as  may be
required by law.

Important factors that could cause our  actual results  to  differ  materially from those projected in
forward-looking statements in this Form  10-K or  that  may otherwise be made by us or  on our behalf
and that make an investment in our securities risky include,  but  are  not limited  to: our ability to
maintain our Nasdaq listing, the cyclical nature  of the semiconductor industry, whether we  can keep
pace with rapid technological changes  in  the semiconductor  manufacturing  processes, the highly
competitive nature of the semiconductor  equipment industry, and quarterly fluctuations  in operating
results attributable to the timing and  amount  of orders for our  products and services, as  well as the
other risk factors, discussed in the section titled ‘‘Outlook’’ and below. If  any of those risk factors
actually occurs, our business, financial  condition and results  of operations  could  be  seriously  harmed
and the trading price of our common stock  could decline.

We may  be unable to obtain needed additional capital to  finance our operations.

Our capital requirements may vary widely 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. Although, we are  forecasting  continuing
depressed market conditions throughout  2009, which will result  in negative  cash flow from operations,
we believe that our existing cash and cash  equivalents will be sufficient to satisfy  our  anticipated cash
requirements through the end of 2009, this,  of course, depends  on the accuracy  of  our  assumptions
about levels of sales and expenses, and a number of factors, including those described in these ‘‘Risk
Factors,’’ could cause us to require additional  capital from  external sources.  We currently do not have
access to any sources of external capital.  In addition, if  the downturn  in the semicap  equipment
industry continues into 2010 and our  operating performance does  not  improve  significantly  as compared
to the fourth quarter of 2008, it could  have  a significant  effect on  our liquidity  and our ability to
continue in the future as a going concern.  Depending on market conditions, future debt  or equity

12

financings may not be possible on attractive terms  or at  all. In  addition,  future debt or equity  financings
could be dilutive to the existing holders of  our  common  stock.

The general economic crisis may further hurt our business.

Factors such as consumer spending, business investment, and the volatility and strength  of  the

capital markets all affect the business  and  economic environment, and ultimately,  the amount of
profitability of our business. Continuing capital market upheavals may have an  adverse  effect on us
because we are dependent on customer  behavior.  Our  revenues  are  likely  to  continue to decline in  such
circumstances and our profit margins will  continue to erode. In addition, as a result of extreme
prolonged events, such as the global credit crisis,  we could  incur significant losses

If semiconductor manufacturers do not make  sufficient capital expenditures, our sales and  profitability will be
harmed.

Almost all of our new orders will depend upon demand  from semiconductor  manufacturers  who
build or  expand fabrication facilities. When the rate of construction or  expansion of fabrication  facilities
declines, demand for our systems will  decline, reducing our revenues. Revenue decline also  hurts  our
profitability because our fixed cost structure  and  our continued  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 in proportion to declining  sales.

Our financial results may fluctuate significantly.

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  $.2 million to over
$5.0 million. At our current sales level,  each sale, or failure to make  a sale, has a  material  effect  on us
in a particular quarter. 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. Our financial results
also fluctuate based on gross profit realized on  sales. A variety of factors  may cause  gross profit as a
percentage of revenue to vary, including the mix and average  selling prices  of  products sold,  costs to
manufacture and customize systems and  warranty costs.  New product  introductions may also  affect our
gross  margins. Fluctuations in our results  may  have an adverse effect on the  price of our common
stock.

Our financial results may fall short of anticipated  levels; forecasting revenues and  profitability is complex and
may be inaccurate.

Management typically provides financial forecasts  for the  subsequent quarter in the  earnings

release for each quarter. These forecasts are based on  assumptions  believed to be reasonable when
made of shipment timing and contract  terms. However, in  some cases, the final customer terms  may
not have been agreed and documented  at  the time  the forecast is made, so the level of revenues
recognizable in a particular quarter may  vary from the  forecast. Our  lengthy sales cycle, coupled with
customers’ competing capital budget considerations, make the timing  of  customer  orders  uneven and
difficult to predict. 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 revenues  and operating  results for a quarter depend on our shipping
orders as scheduled during that quarter,  receiving  customer acceptance of  shipped products during the
quarter, and obtaining new orders for  products to be shipped in  that same quarter. Any delay  in, or
cancellation of, scheduled shipments  and  customer  acceptances or in  shipments from new orders could
materially and adversely affect our financial results.

13

Accounting rules addressing revenue  recognition,  have added additional  complexity in  forecasting
quarterly revenues and profitability. Orders  for our  products usually contain multiple delivery elements
that result in revenue deferral under generally accepted accounting principles. Due to the foregoing
factors, investors should understand that  our actual financial results  for  a quarter may vary significantly
from our forecasts of financial performance for that quarter. Failure to meet  forecast  financial
performance may have an adverse effect  on the price of our common stock.

The semiconductor industry is highly cyclical and  we expect that demand for  our  products will regularly
increase and decrease, making it difficult to manage the  business  and potentially causing harm  to our sales
and profitability.

The semiconductor business is highly  cyclical, experiencing upturns when the demand for our
products is high and downturns when our customers are  not  investing in new or  expanded  fabrication
facilities. Our revenues can vary significantly from one point in the  cycle to  another,  making it  difficult
to manage the business, both when revenues  are increasing and when they  are decreasing. In  addition,
a substantial portion of our operating expenses are fixed and do not fluctuate with changes in  volume.
Significant decreases in revenues can  therefore have a disproportionate effect  on profitability.

Oversupply in the semiconductor industry  reduces  demand  for  capital equipment,  including our products.

From time to time, inventory buildups  in the semiconductor industry, resulting in part  from

periodic downturns, produce an oversupply  of semiconductors. This will cause semiconductor
manufacturers to revise capital spending  plans, resulting in reduced demand for capital equipment such
as our products. If an oversupply is not  reduced by increasing demand from  the various electronics
industries that use semiconductors, which we  cannot accurately  predict, our  sales  and profitability  will
be harmed.

If we fail to develop and introduce reliable new or  enhanced products and services that meet the  needs  of
semiconductor manufacturers, our results will suffer.

Rapid  technological changes in semiconductor manufacturing processes require  us  to  respond
quickly to changing customer requirements. 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 using a single wafer platform.  This will depend  upon  a  variety  of  factors, including
new product selection, timely and efficient completion of product design and development and of
manufacturing and assembly processes, product performance in the field and effective sales and
marketing. In particular:

(cid:129) We must develop the technical specifications of  competitive new systems, or enhancements to
our  existing systems, and manufacture  and  ship these systems  or  enhancements in  volume in  a
timely manner.

(cid:129) We will need to accurately predict the  schedule  on which our customers  will be ready to

transition to new products, in order to accurately forecast demand  for new products  while
managing the transition from older products.

(cid:129) We will need to effectively manage  product reliability or quality problems that often exist  with

new systems, in order to avoid reduced orders, higher manufacturing costs, delays  in acceptance
and payment and additional service and warranty expenses.

(cid:129) Our new products must be accepted in the marketplace.

Our failure to meet any of these requirements will  have a material  adverse effect  on our operating

results and profitability.

14

If we are unable to gain market share in the 300 millimeter single wafer high current ion implant  market in
a timely way, our results will suffer.

Our future success will depend in large part  upon our ability to successfully gain  market share with

our  new single wafer ion implant system, the  Optima HD. We  were  late to  market  with the Optima
HD system, so we must compete against  established  competitive  offerings for  the high current  300
millimeter ion implant market. The Optima HD serves the  300 millimeter high current (high dose)
market segment of ion implant, which is a  substantial  portion of the total  market opportunity available
to Axcelis. Our success will depend upon  a variety  of factors,  including the  existence of  customer
opportunities for the Optima HD to be selected, timely and efficient completion of product reliability
and development and of manufacturing  and assembly processes, product performance  in the field and
effective sales and marketing. In particular:

(cid:129) The technical specifications of the Optima HD system must be competitive;

(cid:129) The Optima HD must be manufactured and shipped in  volume in  a timely manner;

(cid:129) We must effectively manage any product reliability or  quality problems  that often exist with new
systems in order to avoid reduced orders, higher manufacturing  costs, delays in acceptance and
payment and additional service and warranty  expenses;  and

(cid:129) The Optima HD must be accepted  in the marketplace.

Our failure to meet any of these requirements will  have a material  adverse effect  on our operating

results and profitability.

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 and includes
companies with substantially greater financial,  engineering, manufacturing, marketing and customer
service and support resources than we have that may be better positioned to compete successfully 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. We expect
our  competitors 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 we are unable to improve or introduce competing  products when demanded by the
markets, our business will be harmed.  In  addition,  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. Finally, if we must lower
prices to remain competitive without commensurate  cost of  goods savings, our  gross margins  and
profitability will be adversely affected.

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 them could  materially  affect our sales.

Historically, we have sold a significant portion  of our products and services to a  limited number  of

fabricators of semiconductor products. For example, in 2008,  our top ten customers accounted for
51.5% of our net sales. None of our  customers has entered into a long-term agreement requiring it  to
purchase our products. 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 could adversely affect us. The ongoing consolidation of semiconductor
manufacturers may also increase the  harmful  effect of losing  one or more significant customers.

15

As  a  result of our sale of SEN, our Japanese joint  venture, SEN will be able to  compete against us  globally
and we will need to develop infrastructure  in Japan

Until March 30, 2009 we owned 50%  of the equity of SEN Corporation which held a license from
us to make and sell ion implanters in Japan. On  that date, we sold our  shares in SEN to SHI, and SEN
entered into a new License Agreement which allows the  two  companies to continue to use certain
patents and technical information owned  by  the other to make and  sell  ion implant  systems on a
worldwide, royalty-free, perpetual basis.  As a result of the sale, SEN is free to make  and sell the
licensed products worldwide, creating  a  new  global competitor for Axcelis.  Axcelis will need to use its
established customer relations and infrastructure outside of Japan as  well as the  technical advantages of
the Optima HD and Optima XE to compete  against SEN  as well as  our existing competitors.

Until the Optima developments, we regularly licensed SEN to make and sell our  implant systems

in Japan. Axcelis is now able to compete  against SEN in  Japan with all Axcelis products.  To do so,
Axcelis needs to either expand and develop its own customer relations and infrastructure  in Japan or
contract with a third party to sell and support implanters in Japan. If  Axcelis is not able  to  compete
effectively with SEN, our results of operations may  be  adversely affected.

Axcelis is  subject to the risks of operating internationally and  we derive a substantial  portion of our  revenues
from  outside the United States, especially from Asia.

We  are substantially dependent on sales of our  products and services to customers outside the

United States. International sales, including  export sales from  our U.S. manufacturing facilities to
non-U.S.  customers and sales by our  non-U.S. subsidiaries and branches,  accounted for 64.7% of  total
revenue in 2008, 67.0% in 2007, and 67.1% in 2006. System shipments to Asian  customers  represented
50% of total shipment dollars in 2008 in comparison to 64% of  total  shipment dollars  in 2007. We
anticipate that international sales will continue  to  account for a significant portion of our revenue.
Because of our dependence upon international sales, our results  and prospects may be adversely
affected by a number of factors, including:

(cid:129) unexpected changes in laws or regulations resulting in  more burdensome governmental controls,

tariffs,  restrictions, embargoes or export license  requirements;

(cid:129) difficulties in obtaining required export licenses;

(cid:129) volatility in currency exchange rates;

(cid:129) political and economic instability, particularly  in Asia;

(cid:129) difficulties in accounts receivable collections;

(cid:129) extended payment terms beyond those  customarily offered in the  United States;

(cid:129) difficulties in managing distributors  or representatives  outside the United States;

(cid:129) difficulties in staffing and managing foreign  subsidiary and branch  operations; and

(cid:129) potentially adverse tax consequences.

We may  not be able to maintain and expand our business  if we  are  not  able to hire,  retain and  integrate
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  Boston metropolitan area,  as
well as in other locations around the  world. If we  are unable to retain  our  existing key personnel, or

16

attract and retain additional qualified personnel, we may from  time to time experience levels  of  staffing
inadequate to develop, manufacture  and market our products and perform  services for  our customers.
As a result, our growth could be limited 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 our financial results.

Our dependence upon a limited number  of  suppliers for  many components and sub-assemblies  could result in
increased costs or delays in the manufacture and  sale  of our  products.

We  rely to a substantial extent on outside  vendors  to  manufacture many of the  components and
sub-assemblies of our products. We obtain many of these components and  sub-assemblies from  either a
sole source or a limited group of suppliers. Accordingly, 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

before purchasing components and sub-assemblies  from our suppliers.  If our suppliers increase the cost
of components or sub-assemblies, 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 sub-assemblies 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 sub-assemblies, 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 international operations involve currency risk.

Substantially all of our sales are billed  in U.S. dollars, thereby reducing the impact of  fluctuations
in foreign exchange rates on our results. Operating margins  of  certain foreign operations can  fluctuate
with changes in foreign exchange rates  to the extent  revenues  are  billed in U.S. dollars  and operating
expenses are incurred in the local functional currency. During the  year ended December  31, 2008,
approximately 30% of our revenues were derived from foreign operations with this inherent  risk. In
addition, at December 31, 2008, our operations  outside of the  United States accounted for
approximately 53% of our total assets,  the majority of which was denominated  in currencies other than
the U.S.  dollar. Our investment in SEN and our royalty  and  equity income  from SEN are subject  to
foreign currency exchange risks. From time to time  we use forward contracts  to  hedge  the risk  of
currency fluctuation with respect to SEN  royalties  for which payment is  received in Japanese yen;
however, fluctuations in foreign exchange rates could have  an adverse affect on our financial results.

Our stock price has been volatile and you could lose the value of your investment.

Our stock price has been volatile and has  fluctuated  significantly to date.  The trading price  of  our
stock is likely to continue to be highly volatile and subject  to  wide fluctuations. Your investment  in our
stock could lose value. Some of the factors that could significantly  affect  the market  price of our stock
include:

(cid:129) actual or anticipated variations in results;

(cid:129) analyst  reports or recommendations;

(cid:129) changes in interest rates; and

(cid:129) other events and factors, many of which  are beyond our control.

17

The stock market in general has experienced extreme  price  fluctuations.

Our common stock is at risk for delisting from  the  Nasdaq  Global Select Market.

Our common stock is currently listed on  the Nasdaq Global Select  Market. Nasdaq has

requirements that a company must meet  in  order  to  remain listed on  the Nasdaq Global Select  Market.
These requirements include maintaining a minimum closing bid  price of $1.00 per share, which we have
not maintained since October 7, 2008. Nasdaq’s  has temporarily suspended the  minimum closing bid
price requirement until July 20, 2009. Although our non-compliance  has no  effect  on the  listing of our
common stock at this time, there is no  guarantee that we will be able  to  regain compliance  with the
minimum closing bid requirement. If  we  fail to meet the continued  listing  requirements of the  Nasdaq
Global Select Market and our common stock is  delisted, our stock price, as well as  the liquidity of our
common stock, would be adversely affected as  a result.  Delisting would also negatively impact our
ability to sell our common stock and secure  additional financing.

Our proprietary technology may be vulnerable  to efforts by competitors to challenge or design  around,
potentially reducing our 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.  Finally, all patents expire after  a  period  of  time (in the  U.S.,
patents expire 20 years from the date  of  filing of the  patent  application). Our market share could be
negatively impacted by the expiration  of  a  patent  which had created a barrier for our competitors.

Axcelis also has agreements with third parties for licensing of patented or proprietary  technology
with Axcelis as the licensor or the licensee. Termination  of license agreements could have an adverse
impact on our financial performance or  ability to ship products  with existing configurations.

We (or customers that we indemnify) 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.  We typically  agree  to indemnify  our customers from  liability to
third parties for intellectual property  infringement arising from the use  of  our products in  their
intended manner. Therefore, we occasionally receive  notification from  customers who  believe that we
owe them indemnification or other obligations related to infringement claims made  against the
customers by third parties. 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. In addition, infringement
indemnification clauses in system sale agreements  may require us to take other actions  or require us to

18

provide certain remedies to customers  who are exposed to indemnified liabilities.  Any  of  these
situations could have a material adverse effect  on our business results.

If operations were disrupted at Axcelis’ primary  manufacturing facility  it would  have  a negative impact on our
business.

We  have one primary manufacturing  facility, located  in Massachusetts. Its operations could be

subject to disruption for a variety of reasons, including, but not limited to natural  disasters, work
stoppages, operational facility constraints  and terrorism. Such disruption could cause delays in
shipments of products to our customers  and  could result in cancellation of orders or  loss of  customers,
which  could seriously harm our business.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

We  own one property and lease 53 properties,  of  which 17  are located in  the United  States  and
the remainder are located in Asia and  Europe, including offices in  Taiwan, Singapore, South Korea,
China, Japan, Malaysia, Italy, Germany and France.

Our principal facilities are listed below:

Facility  Location

Principal Use

Beverly, Massachusetts Manufacturing, research and development, sales/marketing,
customer support, advanced process development, product
demonstration, customer-training center and  corporate
headquarters.

Square Footage
(Owned Leased)

417,000
(owned)

Beverly, Massachusetts

Research and development, marketing and customer
support

22,000
(leased)

Although we are currently operating significantly below normal capacity as a result of the

continuing downturn in the industry, we believe that there is no material long-term, excess capacity  in
our  manufacturing 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 and ISO 14001 certified and  all  other
locations are ISO 9001 certified.

19

Item 3. Legal Proceedings.

In January 2009, U.S. Bank National Association, the  trustee (the ‘‘Trustee’’) under the Indenture

relating to the Company’s 4.25% Convertible Senior Subordinated Notes (the ‘‘Notes’’), filed  a
Complaint in US District Court in the  (Southern)  District of New York seeking a judgment for  the
amount due on the Notes, (a total payment of approximately $86.4 million). This  litigation  relates to
the Company’s failure to pay the principal  and interest due on the Notes  on January  15, 2009,
discussed in the Management’s Discussion  and  Analysis below.  In February 2009,  as an inducement to
enter into the Share Purchase Agreement dated February 26,  2009 (the ‘‘Share Purchase Agreement’’)
with Sumitomo Heavy Industries, Ltd. (‘‘SHI’’) and SEN Corporation, an SHI and Axcelis Company
(‘‘SEN’’), the Trustee confirmed in writing that judgment would not be entered  in this litigation until
after April 13, 2009, during which time it was  contemplated that the closing under the  Share  Purchase
Agreement will occur. On March 30, 2009, the  sale of  our equity  holdings in SEN was completed and
the Notes were repaid in full. As a result  of the payment, the trustee  for the  Notes will withdraw
litigation filed in connection with Axcelis’  default on the Notes. See ‘‘Business—SEN Corporation, an
SHI and Axcelis Company.’’

The Company is not presently a party to any other litigation that  it believes might have  a material
adverse effect on its business operations.  The Company is, from time to time, a party  to  litigation  that
arises in  the normal course of its business operations. This includes the  arbitration initiated by Axcelis
in 2006 with SEN to establish a basis  for  setting the royalty for a single wafer, high current ion  implant
system known as the SHX. To date, the amount of  these unpaid royalties is not material. In January
2009, the Company and SEN agreed  to  suspend this arbitration indefinitely. On March  30, 2009, in
connection with the completion of the sale of  SEN,  this arbitration will be dismissed by the parties. See
‘‘Business—SEN Corporation, an SHI  and Axcelis  Company.’’

Item 4. Submission of Matters to a Vote  of Security Holders.

None.

PART II

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

of Equity Securities.

Our common stock trades on the Nasdaq Global Select Market under the symbol ACLS. The
following table sets forth the high and  low sale prices  as reported on the Nasdaq Global Select Market
during each of the quarters for the two  most recent years. As of  March 13,  2009, we  had approximately
5,692 stockholders of record. We have not paid  any cash dividends in the  past five  years  and do  not
anticipate paying cash dividends in the  future.

2007

First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2008

First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Common Stock Price

High

Low

$7.82
8.20
6.63
5.17

$5.79
6.04
5.35
1.73

$5.92
5.96
4.52
4.04

$3.70
4.63
1.25
0.36

20

Item 6. Selected Financial Data.

The following selected consolidated statements  of operations  data for each of the three years
ended December 31, 2008, 2007, and  2006 and  the consolidated balance sheet data as of December 31,
2008 and 2007 have been derived from  the audited  consolidated  financial statements contained in
Item 15 of Part IV of this Form 10-K. The selected consolidated balance sheet data as  of December 31,
2006 and 2005, and the statement of operations data for the years ended  December 31, 2005 and 2004,
has been derived from the audited financial  statements  contained  in our Form  10-K filed  on March 13,
2007. The consolidated balance sheet  data as of December 31, 2004 has  been derived  from the audited
financial statements contained in our Form 10-K filed on  March 15, 2005.

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 of  Financial
Condition and Results of Operations’’  and our historical consolidated financial statements and  notes to
those statements included in Item 7  of  Part II and Item 15  of  Part IV,  respectively, of this Form 10-K.

Consolidated statements of operations data:

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit
. . . . . . . . . . . . . . . . . . . . . . .
Equity income (loss) of SEN . . . . . . . . . . .
Income (loss) before Income taxes . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . .
Net income (loss) per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . .
Shares used in computing basic and diluted

per  share amounts:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated balance sheet data:

Years ended December 31, 2008

2008

2007

2006

2005

2004

(In thousands, except per share amounts)

$ 250,214
62,615
(3,667)
(195,803)
(196,664)

$404,800
152,861
10,416
(11,808)
(11,398)

$461,717
191,514
19,266
42,783
40,770

$372,540
154,431
15,751
(1,982)
(3,855)

$507,976
211,528
30,531
75,139
74,175

$
$

(1.91) $
(1.91) $

(0.11) $
(0.11) $

0.40
0.40

$
$

(0.04) $
(0.04) $

0.75
0.73

102,739
102,739

101,891
101,891

101,058
101,361

100,301
100,301

99,528
101,205

Cash and cash equivalents . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . .

$ 37,694
111,182
455,181
5,808
319,377

$ 83,877
284,679
669,929
89,920
486,006

$140,451
284,910
753,993
86,290
447,562

$ 71,417
301,143
661,443
141,176
426,041

$108,295
298,184
688,862
137,994
443,473

21

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

Certain statements in ‘‘Management’s Discussion and Analysis  of Financial Condition  and Results
of Operations’’ are forward-looking statements  that involve risks  and uncertainties. Words  such as may,
will, should, would, anticipates, expects, intends, plans, believes, seeks, estimates  and similar  expressions
identify such forward-looking statements. The  forward-looking statements contained  herein  are based
on current expectations and entail various risks  and uncertainties that could cause actual results to
differ  materially from those expressed  in  such  forward-looking statements. Factors  that  might cause
such a difference include, among other things, those set forth under ‘‘Liquidity and Capital Resources’’
and ‘‘Risk Factors’’ and others discussed  elsewhere in this Form  10-K.  Readers are cautioned not to
place undue reliance on these forward-looking statements, which  reflect management’s analysis only as
of the date hereof. We assume no obligation to update  these forward-looking statements to reflect
actual results or changes in factors or assumptions affecting forward-looking statements,  except as  may
be required by law.

Overview

Axcelis Technologies, Inc. (‘‘Axcelis,’’‘‘the Company,’’ ‘‘we,’’ ‘‘us,’’ or ‘‘our’’), is a  worldwide
producer of equipment used in the fabrication of semiconductors.  In addition,  the Company provides
extensive aftermarket service and support,  including  spare  parts, equipment  upgrades,  and maintenance
services to the semiconductor industry.  Until  March 30, 2009, the Company owned 50% of the  equity
of a joint venture with Sumitomo Heavy  Industries, Ltd.  (‘‘SHI’’)  in Japan. This joint  venture, which  is
known as SEN Corporation, an SHI and Axcelis Company (‘‘SEN’’),  licensed technology  from the
Company relating to the manufacture of specified ion  implantation  products and had exclusive rights to
manufacture and sell these products in the  territory of Japan. SEN is the leading producer of  ion
implantation equipment in Japan. Upon the  sale of  the Company’s investment  in SEN, (See Note 1 to
the consolidated financial statements.) Axcelis and SEN entered into a new License Agreement  which
allows each company to continue to use  certain patents and technical information owned by the other
to make and sell ion implant systems on a worldwide, royalty-free, perpetual basis.  As a result of the
sale, SEN is free to make and sell the  licensed products worldwide, creating a  new global  competitor
for Axcelis. Axcelis will need to use its  established customer  relations and infrastructure outside of
Japan as well as the technical advantages of the Optima HD and  Optima XE to compete against SEN
as well as our existing competitors.

Prior to the release of the Optima product line, we  regularly licensed  SEN  to  make  and sell our

implant systems in Japan. Axcelis is now able to compete against SEN in  Japan  with all Axcelis
products. To do so, Axcelis needs to either expand and develop its own customer relations and
infrastructure in Japan or contract with  a  third party to sell and support implanters  in Japan. If Axcelis
is not able to compete effectively with SEN, our results of operations may be adversely  affected.

As discussed in ‘‘Liquidity and Capital Resources’’ below, on  January 15, 2009, Axcelis failed to

make the required payment of approximately $85 million under an Indenture dated as of May  2, 2006
(the ‘‘Indenture’’) between Axcelis and  U.S. Bank National Association, as trustee,  relating to the
Company’s 4.25% Convertible Senior Subordinated  Notes. On  February 26, 2009, Axcelis, SHI  and
SEN entered into  a Share Purchase Agreement pursuant to which, on March 30, 2009,  sold  its  shares
in SEN to SHI for $122.3 million net  of  advisory fees and  expenses. A portion of the  net proceeds  was
used to discharge, in full, the Company’s  obligations under  the Indenture.

The semiconductor capital equipment industry is subject to significant  cyclical swings  in capital

spending by semiconductor manufacturers.  Capital spending is influenced  by  demand for
semiconductors and the products using them, the utilization rate and capacity of existing  semiconductor
manufacturing facilities and changes  in semiconductor  technology, all of  which are outside of our
control. As a result, our revenues and  gross margins,  to  the extent affected by increases or  decreases in
volume, could fluctuate from year to  year and  period to period. The industry experienced a downturn

22

beginning in the second half of 2007  which extended  through 2008 and is  expected to continue at  least
through 2009. Our gross margins are  also affected  by the introduction  of  new products. We  typically
become  more efficient in manufacturing  products  as they  mature.  Our expense base is  largely fixed and
does not vary significantly with changes  in  volume. Therefore, we could experience fluctuations in
operating results and cash flows depending on  our revenues as  driven by  the  level of capital
expenditures by semiconductor manufacturers.

The sizable expense of building, upgrading or expanding a semiconductor fabrication facility  is

increasingly causing semiconductor companies to contract with foundries to  manufacture their
semiconductors. In addition, consolidation  and partnering within the semiconductor manufacturing
industry is increasing. We expect these trends  to  continue to reduce  the number  of  our  potential
customers. This growing concentration of Axcelis’  customers may increase competitive pricing as higher
percentages of our total revenues are  tied  to  the buying  decisions of a particular customer or a small
number of customers.

In both 2008 and 2007, we incurred net losses. Beginning in 2004,  most customers shifted from
multi wafer tools to single wafer tools  for high  current ion implant applications. Because  we did  not
have a single wafer high current product, we have  experienced a significant loss of market share which
we have yet to regain. We introduced our single wafer Optima  HD  (for high  current applications)
product  in 2006 and have begun to gain  traction  with this tool at a number of customers through
evaluation arrangements. As of December 31, 2008, revenue  of approximately  $21.3 million has been
recognized on sales of the Optima HD.

During  the last four months of 2008, our stock price  dropped significantly below book value.  Our

inability to repay our outstanding debt  in January 2009  and our inability  to  generate sufficient  cash
flows to support ongoing operations,  have adversely  impacted our  stock price. As mentioned above, we
have lost significant market share in  high  current  ion implant (the largest  market  segment in ion
implant) over the past several years. We believe that we  now have  competitive  products in the high
current and high energy ion implant market segments,  as well as  dry strip.  However, challenging market
conditions have severely limited our  ability to increase sales and market share. Additionally, in concert
with the market uncertainty resulting from the current credit  crisis, we believe that the economic
downturn characterized by higher unemployment, lower corporate earnings, lower business investment
and lower consumer spending, has severely impacted many technology manufacturers  and has
significantly lowered the demand for our products. The Company believes that a combination of  these
factors accounts for the difference between  our  stock trading price and our  book value.

In addition, the estimated future total  available market for  our products, as  published by

independent third party industry analysts, was significantly revised downward  in the fourth quarter and
we experienced a 26% decline (as compared to aftermarket revenue in the third quarter of 2008) in
our  aftermarket business, reflecting significant declines in manufacturers’ capacity  utilization. This
fourth quarter contraction in the industry led us  to  revise our short term and long term financial
forecasts. As a result, we recorded charges in the  fourth  quarter  of  2008 for the impairment  of
intangible and long-lived assets of $46.9  million, impairment of goodwill  of  $42.1 million, and  excess
inventory of $23.2 million.

Continuing capital market upheavals may  have an adverse  effect on us  because we are dependent

on customer behavior. Our revenues  would likely continue  to  decline in such  circumstances and  our
profit margins would continue to erode.  In addition, as  a result of  extreme prolonged events, such as
the global credit crisis, we could incur significant losses. Factors such as consumer  spending,  business
investment, and the volatility and strength of the  capital markets all affect the business and economic
environment, and ultimately, the amount of  profitability of our business. Continuing adverse trends  in
the economy would likely affect our earnings negatively  and have  a material adverse effect on our
business, results of operations and financial condition.

23

Axcelis’ liquidity is affected by many factors. Some of these factors are based  on normal operations
of the business, including acceptance of  the Optima product line, and others relate  to  the uncertainties
of global economies, including the availability of credit, and the state of the  semiconductor equipment
industry. Although our cash requirements  fluctuate based on the  timing and  extent of these factors, we
believe that based on our current market, revenue  and expense  forecast our existing cash and cash
equivalents and the net proceeds of the sale  of our SEN investment will be sufficient to satisfy our
anticipated cash requirements at least through 2009. If the downturn in the semicap  equipment industry
continues into 2010 and our operating  performance does not improve  significantly  as compared  to  the
fourth quarter of 2008, it could have  a  significant effect  on our liquidity and our ability to continue in
the future as a going concern.

Operating results for the years presented are not necessarily indicative of the results  that  may be

expected for future interim periods or years as  a whole.

Critical Accounting Estimates

Management’s discussion and analysis  of our financial condition and results  of  operations  are
based upon Axcelis’ consolidated financial statements, which have been  prepared  in accordance with
accounting principles generally accepted  in  the United States. The  preparation of these financial
statements requires management to make  estimates and judgments that  affect the  reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent  assets and liabilities. On
an on-going basis, we evaluate our estimates, including those related to revenue recognition,  income
taxes, accounts receivable, inventory  and  warranty obligations. Management’s  estimates are  based on
historical experience and on various  other  assumptions that are believed  to be reasonable under  the
circumstances, the results of which form the basis  for making judgments  about  the carrying values of
assets and liabilities that are not readily  apparent from  other sources. Actual results  may differ from
these estimates under different assumptions  or conditions.

We  believe the following accounting policies are critical in the portrayal of our financial condition

and results of operations and require management’s  most significant judgments and  estimates in  the
preparation of our consolidated financial statements.

Revenue Recognition

Our revenue recognition policy involves significant  judgment by  management. As  described below,

we consider a broad array of facts and circumstances in determining when  to  recognize revenue,
including contractual obligations to the  customer,  the complexity of the  customer’s  post delivery
acceptance provisions, payment history, customer creditworthiness  and the installation process.  In  the
future, if the post delivery acceptance provisions and installation process become  more complex or
result in a materially lower rate of acceptance, we may have to revise  our revenue recognition policy,
which  could delay the timing of revenue recognition.

We  recognize revenue based on guidance provided in  SEC Staff Accounting Bulletin  No. 104,

Revenue Recognition. Axcelis’ revenue transactions include sales of products under multiple element
arrangements. Revenue under these arrangements is allocated  to  each  element, except systems,  based
upon its estimated fair market value,  in accordance with the provisions of EITF 00-21, Accounting for
Revenue Arrangements with Multiple Deliverables (‘‘EITF 00-21’’). The amount of revenue allocated to
systems is calculated on a residual method. Under this  method, the total  value of the  arrangement is
allocated first to the undelivered elements, with  the residual amount being allocated to product
revenue.

The value of the undelivered elements includes  (a) the  greater of (i)  the fair value of the

installation or (ii) the portion of the  sales price that will not be received until  the installation is
completed (the ‘‘retention’’) plus (b)  the fair value of all other  undelivered elements.  The amount

24

allocated to installation is based upon the  fair value of the service performed, including labor, which is
based upon the estimated time to complete the installation at hourly rates, and material components.
The fair value of all other undelivered  elements  is based upon the  price charged when these  elements
are sold  separately. Product revenue  for products  which have  demonstrated market acceptance (legacy
products), is generally recognized upon  shipment provided title and risk of loss has passed to the
customer, evidence of an arrangement  exists, prices  are contractually  fixed  or determinable,  collection is
reasonably assured through historical  collection results and  regular credit evaluations, and there are  no
uncertainties regarding customer acceptance. Revenue from installation services is recognized  at the
time formal acceptance is received from the  customer or,  for certain  customers,  when both the  formal
acceptance and retention payment have been received. Revenue for other elements  is recognized at the
time products are shipped or the related  services are  performed.

We  generally recognize systems revenue  for  products which have demonstrated  market acceptance

(legacy products), at the time of shipment because the customer’s post-delivery acceptance provisions
and installation process have been established  to  be  routine, commercially inconsequential and
perfunctory. 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, which may  be  the Axcelis
standard specification. To ensure that the  customer’s specifications are satisfied,  many customers
request that new systems be 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. Customers of mature products generally do not
require pre-shipment testing. We believe  the risk of failure  to  complete a system installation is remote.
Should an installation not be completed successfully, 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.

For initial shipments of systems with new technologies or  in the small number  of  instances where

Axcelis is unsure of meeting the customer’s specifications or  obtaining customer  acceptance  upon
shipment of the system, Axcelis will defer the recognition of systems revenue  and related costs  until
written customer acceptance of the system is obtained. This deferral period is generally  within twelve
months of shipment.

Revenue related to maintenance and service contracts is  recognized ratably over  the duration of

the contracts, or based on parts usage,  where  appropriate.  Revenue related to service hours is
recognized when the services are performed.

Royalty revenue is primarily earned under the terms of our license agreement with  SEN.  Royalty

revenue is recorded at the time SEN  notifies the Company that royalties have  been earned.

Goodwill

In accordance with SFAS No. 142, Goodwill and  Other  Intangible Assets, we review  goodwill  for

impairment at least annually or more  often if there  are indicators of impairment present. Our annual
test is performed during the fourth quarter of each  year.  As a  result  of declining  economic conditions,
along with our stock price below book  value,  we also  performed an interim test at September 30,  2008,
concluding that goodwill was not impaired. The provisions of SFAS  142 require that a two-step
impairment test be performed for goodwill. In the first  step, we compare the fair  value of the  reporting
unit to which goodwill has been allocated to its carrying  value.  If the fair  value  of  the reporting unit
exceeds the carrying value of the net assets assigned  to  that  unit, goodwill is  considered not impaired
and we are not required to perform further testing. If the  carrying value of the net  assets assigned  to
the reporting unit  exceeds the fair value  of the  reporting unit, then  we  must perform the second  step of
the impairment test and determine the implied fair value of the reporting unit’s  goodwill.  If the
carrying  value of a reporting unit’s goodwill exceeds its implied  fair value, then  we would  record an
impairment loss equal to the difference.

25

Our annual test was performed during the fourth quarter of  2008. During this  period, the

significant decline in our stock price experienced at  the end of the  third quarter continued through  the
end of the fourth quarter and beyond, resulting in a sustained market capitalization well below  book
value. In addition, the estimated future  total available  market  for our  products, as  published by
independent third party industry analysts, was significantly revised downward  in the fourth quarter and
we experienced a 26% decline (as compared to aftermarket revenues  in the  third quarter of  2008)  in
our  aftermarket business, reflecting significant declines in manufacturers’ capacity  utilization. This
fourth quarter contraction in the industry led us  to  revise our short-term  and  long-term financial
forecast. Our updated long-term financial forecast represents the  best estimate  that  our management
has at this time and we believe that its  underlying assumptions are reasonable.

SFAS 142 requires that we measure goodwill  for impairment  at  the  reporting unit level. The

Company has one operating segment  as defined  by  SFAS 131 and  disclosed in Note 17 to the
consolidated financial statements. At December 31, 2008, goodwill was evaluated for impairment at the
component level, which is one level below the  operating segment. As such, the  Cleaning and  Curing
product  line was considered the reporting unit, for  purposes of evaluating  goodwill for impairment.

The impairment analysis utilized a discounted cash flow method and assumed a cash flow  period of

10 years based on management’s updated projections for 3  years  and an additional 7 years based on
additional projections and historical performance. The underlying assumptions in this 10  year  forecast
contemplate increased market share  above current levels,  improvement to gross margins while
managing operating expenses at current levels.  We utilized the Gordon Growth  Method  based upon a
discount rate of 18% less the estimated growth rate of  3.0%. A variance  in these assumptions could
have a significant impact on the assessment as to whether goodwill may or may  not  be  impaired.

Based on the result of our impairment  assessment of goodwill, we determined that the carrying

value of our Cleaning and Curing product line exceeded  its estimated fair value. Therefore, we
performed the second step of the impairment test to determine the implied value of goodwill. We
allocated the estimated fair value of our Cleaning  and Curing  product line as determined  in the first
step to recognized and unrecognized net  assets, including allocations to intangible assets. The result of
our  analysis indicated that there would be no remaining implied  value attributable to goodwill in  our
Cleaning and Curing product line and accordingly, we recorded  a  goodwill impairment charge of
$42.1 million as of December 31, 2008.

Estimates and assumptions used in the determination of fair value  for  the Cleaning and  Curing
product  line include revenue growth rates and operating  margins. These are used  to  calculate  projected
future cash flows, risk adjusted discount  rates, future economic and market conditions and determining
appropriate market comparables. We believe these assumptions  to  be  reasonable but  actual conditions
are unpredictable and inherently uncertain. Actual future  results may differ from  out estimates.

Impairment of Intangible and Long-Lived  Assets

In accordance with SFAS No. 144, Accounting  for the Impairment or  Disposal of Long-Lived  Assets,

we assess the carrying value of intangible and long-lived assets for impairment whenever events  or
changes in circumstances indicate that the carrying value may not  be  recoverable. As a  result of
declining economic conditions, along with our stock price below  book value, we  performed  an interim
test at September 30, 2008, concluding  that intangible and  long-lived assets were  not  impaired.

The significant decline in our stock price  experienced at  the end of the  third  quarter  continued
through the end of the fourth quarter and beyond, resulting  in a sustained  market  capitalization well
below book value. In addition, the estimated future total available market for our  products, as
published by independent third party industry analysts, was significantly revised downward in the  fourth
quarter and we experienced a 26% decline (as compared to aftermarket  revenue  in the third quarter of
2008) in our aftermarket business, reflecting significant declines in  manufacturers’  capacity utilization.

26

This fourth quarter contraction in the  industry led us to revise our short-term  and long-term  financial
forecasts. Our updated financial forecast represents the best estimate that our management has at this
time and we believe that its underlying  assumptions  are reasonable. Recoverability is  measured by a
comparison of the assets’ carrying amount to their expected future  undiscounted  net cash  flows. If such
assets are considered to be impaired,  the impairment  is measured  based on  the amount by which the
carrying  value exceeds its fair value. Fair  value was based  on a probability weighted cash flow forecast,
discounted at a rate commensurate with  the risks involved in achieving the forecasted cash flows. See
notes 2, 6, 8, and 9 to the accompanying  financial  statements for further detail on  impairment of
intangible and long-lived assets.

The estimates of future operating results  and cash flows are derived from our updated  long-term

financial forecast. This updated long-term forecast represents the  best estimate  that  we have at this
time and we believe that its underlying  assumptions  are reasonable based primarily on current product
performance and customer acceptance.  This  forecast relies  primarily on market assumptions and
market share we expect to achieve. However,  actual performance in the  near-term and  longer-term
could be materially different from these forecasts, which could  impact future  estimates of undiscounted
cash flows and may result in the impairment of the carrying amount of long-lived  assets. This could  be
caused by events such as strategic decisions made  in response  to  economic  and competitive  conditions,
the impact of the economic environment on our customer base, or  a  material  negative change in its
relationships with significant customers. Accordingly,  we will  continue to perform this  analysis no less
than quarterly for the foreseeable future.

As a result of this review, we recorded a  total intangible assets  and  long-lived asset impairment

charge  of $46.9 million during the fourth  quarter ended  December  31, 2008. This charge  consisted of
intangibles of $8.3 million, certain other assets of $21.1 million  and property,  plant  and equipment of
$17.5 million.

Accounts  Receivable—Allowance for Doubtful Accounts

Axcelis records an allowance for doubtful  accounts for estimated losses resulting  from the inability

of its customers to make required payments.  If the financial condition of Axcelis’  customers were to
deteriorate, resulting in an impairment  of their ability to make payments,  additional allowances may be
necessary.

Inventory—Allowance for Excess and Obsolescence

Axcelis records an allowance for estimated  excess  and obsolete  inventory. The allowance  is
determined using management’s assumptions of materials usage, based  on estimates of forecasted and
historical demand and market conditions.  If actual  market  conditions  become  less  favorable than  those
projected by management, additional  inventory write-downs  may be required.

With the downward revisions in the fourth  quarter  of the estimated future total available market
for our  products, we revised our revenue  forecasts  through 2010.  Based on the  revised forecasts and
expected inventory usages over the next  two years, we  increased the excess and obsolete inventory
reserve  by $23.2 million as of December  31, 2008. Although the  Company makes every effort to ensure
the accuracy of our forecasts or product  demand and pricing assumptions, any  significant unanticipated
changes in demand, pricing, or technical developments would  significantly impact the  value of  our
inventory and our reported operating results. In the future, if the Company finds that estimates  are too
optimistic and determine that inventory needs to be written down further, the Company will  recognize
such costs in our cost of revenue at the  time of such determination. Conversely,  if  we find  our
estimates are too pessimistic and we  subsequently sell  product that has  previously  been written down,
our  gross margin in that period will be  favorably impacted.

27

Product Warranty

Axcelis offers a one to three year product  warranty,  the terms and conditions  of  which vary
depending upon the product sold. For  all systems sold, we accrue a liability for the estimated  cost of
standard warranty at the time of system shipment  and defer the  portion of systems revenue attributable
to the fair value of non-standard warranty. Costs  for non-standard  warranty are expensed  as incurred.
Factors that affect our warranty liability  include the number of installed units, historical and  anticipated
product  failure rates, material usage  and service labor costs.  We periodically assess  the adequacy of  our
recorded  liability and adjust the amount  as necessary.

Results of Operations

The following table sets forth our results of operations as a percentage of total revenue  for the

periods indicated:

Revenue:

Years Ended December 31,

2008

2007

2006

Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalties,  primarily from SEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

77.6%
20.7%
1.7%

84.9%
13.6%
1.5%

86.3%
11.7%
2.0%

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100.0% 100.0% 100.0%

Cost of revenue:

Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:

Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of intangibles and long lived assets
. . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

64.5%
10.5%

75.0%

25.0%

25.3%
17.8%
17.2%
16.8%
18.8%
1.1%
2.7%

99.7%

53.6%
8.6%

62.2%

37.8%

17.8%
12.3%
10.3%
1.2%
0.0%
0.7%
0.6%

42.9%

50.7%
7.8%

58.5%

41.5%

15.7%
9.9%
10.1%
0.0%
0.0%
0.5%
0.1%

36.3%

Income (loss) from operations: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense):

Equity income (loss) of SEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net

(74.7)% (5.1)%

5.2%

(1.5)%
2.6%
4.2%
1.8%
1.2%
0.6%
(2.6)% (1.6)% (1.9)%
(0.1)%
0.0%
(0.1)%

Total other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3.6)%

2.2%

Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for/(benefit) from income taxes . . . . . . . . . . . . . . . . . . . . . . .

(78.3)% (2.9)%
(0.1)%

0.3%

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(78.6)% (2.8)%

4.0%

9.2%
0.4%

8.8%

28

Year ended December 31, 2008 in comparison to the year ended December 31, 2007

Revenue

Revenues declined significantly in 2008 compared to 2007  and based on  current industry
projections are expected to decline further in 2009. The continuing decline in market conditions  is
expected to have a negative impact on both revenues from system sales and revenues from the
Company’s aftermarket business.

Product

Product revenue, which includes systems  sales,  sales of  spare  parts and product upgrades, was
$194.3 million or 77.6% of revenue in 2008, compared  with $343.6  million,  or 84.9% of revenue in
2007. Product revenue in 2007 and 2008 has been reduced  by  our loss of high current market share,  as
discussed above. The decline in product revenue in 2008 is also attributable to a  weakening
semiconductor market and a related decrease  in capital spending by semiconductor manufacturers. In
addition, a decrease in capacity expansion  at 200mm  manufacturing  facilities  (a  portion of which  relates
to the overall decline in the semiconductor  capital equipment market) decreased  revenue from system
sales by $149.3 million for 2008.

Approximately 41% of systems revenue in 2008 was from  sales of  200mm products  and 59% was

from sales of 300mm products, compared with 31.6% and 68.4% for sales of 200mm  products and
300mm products in 2007, respectively.  Despite our  results, general market trends  for the  past several
years highlight a growth in sales toward  300mm products and  a decrease  in expansion  of facilities using
200mm products.

A portion of our revenue from system sales is deferred until installation  and other services  related
to future deliverables are performed. The total amount of deferred revenue at  December 31,  2008 and
2007 was $14.4 million and $40.5 million, respectively. The decline was mainly  due  to  the decrease in
overall systems revenue in 2008 and the  recognition  of  $13.2 million of revenue deferred in 2007
related to the rollout of the Optima  HD  product  line.

Service

Service revenue, which includes the labor component of maintenance and service contracts  and
fees for service hours provided by on-site  service  personnel, was $51.9 million, or 20.7% of  revenue for
2008, compared with $55.2 million, or  13.6% of revenue, for  2007. Although  service  revenue should
increase with the expansion of the installed  base  of systems, it can  fluctuate period to period based on
capacity  utilization at customers’ manufacturing facilities, which affects the need for equipment service.

Royalties

Royalty revenue was $4.1 million or  1.7% of revenue for  2008, compared  with $6.1 million, or
1.5% of revenue for 2007. Royalties are  earned  primarily under the  terms of our license agreement
with SEN. Changes are mainly attributable to fluctuations in SEN sales volume based on demand for
equipment by Japanese semiconductor manufacturers and  the timing of shipments in Japan. In
connection with the sale of the Company’s investment in  SEN  (see  Note 1  to  the consolidated financial
statements.) subsequent to March 31, 2009  SEN  will  have no  obligation to pay royalties  to  the
Company.

Ion Implant

Revenue from sales of ion implantation  products and service accounted  for $204.9  million, or
81.9% of total revenue in 2008, compared with $304.5 million, or 75.2%, of total revenue in 2007.  The

29

decline  was due to the factors discussed  above.  Annual  revenue from the sale  of ion implantation
products and service typically average from 70% to 80%  of total revenues.

Aftermarket

The Company’s product revenues include sales of spare parts  and product upgrades as  well as
complete systems. We refer to the business of selling spare parts and product upgrades, combined with
the sale of maintenance labor and service contracts and service hours as the  ‘‘aftermarket’’ business.
The revenue from our aftermarket business  was $143.0 million for 2008, compared to $170.9 million for
2007. Aftermarket revenue generally  increases  with expansion of the installed base of systems  but can
fluctuate period to period based on capacity utilization  at customers’ manufacturing facilities which
affects the sale of spare parts and demand for equipment service. The  estimated future total  available
market for our products, as published by independent third party  industry  analysts,  was significantly
revised downward in the fourth quarter and we  experienced a 26% decline  (as  compared to
aftermarket revenues in the third quarter of 2008), in our  aftermarket business, reflecting significant
declines in manufacturers’ capacity utilization. The decline of aftermarket  revenue has  continued
through the first quarter of 2009.

Gross  Profit

Product

Gross profit from product revenue was  17.0% for 2008, compared to 36.8% for 2007, a decrease of
19.8%. Approximately 12% of the decrease pertains to an additional reserve of $23.2 million  for excess
inventory. The remaining 7.8% decrease  is attributable  to  the significantly lower system sales  volume
(14.9%) during the year. These amounts  were offset by the favorable impact of an increased mix of
parts and upgrade revenue at higher  margins  (7.1%).

Service

Gross profit from service revenue was 49.2% for 2008,  compared to 36.8% for 2007.  The  increase

in gross profit is attributable to service  pricing increases enacted during the first quarter of 2008 driving
a higher mix of profitable service support agreements  and lower expenses against fixed price support
contracts.

Research and Development

Research and development expense was  $63.3 million in 2008,  a  decrease of $8.7  million,  or 12%,
compared with $72.0 million in 2007.  The decrease was driven primarily by completion of Optima  and
Integra platform development: decreased professional fee expenses ($3.4 million),  decreased payroll
costs ($4.8 million) and decreased project material costs ($1.3 million), offset by increased development
asset amortization and depreciation costs ($0.8  million).

Research and development expense was  attributable to the following activities for  2008: 49%  for

new product development, 32% for improvement of existing  products, and 19%  for product testing.

Sales and Marketing

Sales and marketing expense was $44.6  million  in 2008, a decrease of $5.4  million, or  10.8%,

compared with $50.0 million in 2007.  The decrease was driven primarily by decreased  payroll  costs
($3.7 million), decreased professional  services ($0.3 million), decreased  commissions expenses
($0.4 million), decreased travel costs  ($1.2 million), decreased marketing communications costs
($0.4 million) and decreased training and supplies costs  ($0.5 million),  offset by increased costs  related
to evaluation system support for our Optima platform ($1.1 million).

30

General and Administrative

General and administrative expense was  $43.1 million in 2008,  an increase  of  $1.4 million,

compared with $41.7 million in 2007.  The increase was driven primarily by increased variable
compensation costs of ($1.1 million) and increased professional  fee expenses  ($2.4  million) offset  by
lower payroll costs of ($1.4 million),  lower  stock compensation costs ($0.4  million) and lower travel
costs ($0.3 million).

Impairment of Goodwill

Our annual test was performed during the fourth quarter of  2008. During this  period, the

significant decline in our stock price experienced at  the end of the  third quarter continued through  the
end of the fourth quarter and beyond, resulting in a sustained market capitalization well below  book
value. In addition, the estimated future  total available  market  for our  products, as  published by
independent third party industry analysts, was significantly revised downward  in the fourth quarter and
we experienced a 26% decline (as compared to aftermarket revenue in the third quarter of 2008), in
our  aftermarket business, reflecting significant declines in manufacturers’ capacity  utilization. This
fourth quarter contraction in the industry led us  to  revise our short-term  and  long-term financial
forecast. Our updated long-term financial forecast represents the  best estimate  that  our management
has at this time and we believe that its  underlying assumptions are reasonable.

Based on the result of our impairment  assessment of goodwill, we determined that the carrying

value of our Cleaning and Curing product line exceeded  its estimated fair value. Therefore, we
performed the second step of the impairment test to determine the implied value of goodwill.
Specifically, we allocated the estimated  fair value of our Cleaning and Curing product line  as
determined in the first step to recognized and unrecognized net assets, including allocations to
intangible assets such as developed technologies, in-process research and  development, customer
relationships and trade names. The result of  our  analysis indicated that there would  be  no remaining
implied value attributable to goodwill  and accordingly, we wrote off  the entire book value  of  goodwill
of $42.1 million as of December 31, 2008.

During  the three month period ended September 30, 2007, we  elected to  discontinue  future
development of the RTP and Curing  product lines. Based on that business decision,  the forecast of
future cash flows was revised and, as such, in September  2007 a  goodwill impairment  loss of
$4.7 million was recorded. The fair value of these product lines was estimated using  the expected
present  value of future cash flows.

Impairment of Intangibles and Long-Lived Assets

The significant decline in our stock price  experienced at  the end of the  third  quarter  continued
through the end of the fourth quarter and beyond, resulting  in a sustained  market  capitalization well
below book value. In addition, the estimated future total available market for our  products, as
published by independent third party industry analysts, was significantly revised downward in the  fourth
quarter and we experienced a 26% decline (as compared to aftermarket  revenue  in the third quarter of
2008), in our aftermarket business, reflecting significant declines in  manufacturers’  capacity utilization.
This fourth quarter contraction in the  industry led us to revise our short-term  and long-term  financial
forecast. Our updated long-term financial forecast represents the  best estimate  that  our management
has at this time and we believe that its  underlying assumptions are reasonable.

As a result of our review of the recoverability  of intangibles and long-lived  assets we recorded an

impairment charge of $46.9 million consisting  of the entire net book value of  intangible  assets of
$8.3 million, certain other assets of $21.1 million, and property, plant and equipment of  $17.5 million.
There was no impairment charge related  to  intangibles or long-lived assets in  2007.

31

Stock-based Compensation Expense

Total stock-based compensation expense related to stock options, restricted  stock, restricted stock

units and the Employee Stock Purchase Plan for the years ended December 31, 2008 and  2007 was
$4.7 million and $5.5 million, respectively.

See Note 14 to our Consolidated Financial Statements contained in Item  15 of this Annual Report

on Form 10-K for further information  regarding our adoption of SFAS 123R.

Restructuring

In May and October of 2008, we implemented a reduction in force to further reduce costs to
mitigate deteriorating industry fundamentals. These reductions  in force  resulted in restructuring  charges
to expense of $3.5 million and $3.4 million  respectively for separation and  outplacement costs. See
Note 11 to our Consolidated Financial Statements  contained in  Item 15 of this Annual Report on
Form 10-K for further information regarding  our 2008 restructuring.

Changes in our restructuring liability, included in  amounts  reported as  other  current liabilities, are

as follows:

Balance at December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Severance

(in thousands)

$

916
6,873
(7,043)

Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

746

Other Income (Expense)

Equity loss attributable to SEN was $3.7 million  for  2008. This is compared  to  equity income
attributable to SEN of $10.4 million  for 2007.  Fluctuations in equity income from SEN reflect  changes
in its sales volume and net income resulting from demand  changes in the Japanese  semiconductor
market, and the timing of shipments in Japan. In connection with the sale of the Company’s investment
in SEN (see Note 1 to the consolidated  financial statements.) subsequent  to  March 31, 2009  the
Company will no longer record equity income or loss from SEN.

Interest income of $1.6 million for 2008, primarily  relates to interest earned on cash, cash
equivalents and short-term investments.  Interest income decreased by $3.4  million from  2007, due
primarily to lower average cash balances.

Interest expense of $6.7 million in 2008, an increase of $0.3 million from  2007,  relates primarily to
the outstanding convertible senior subordinated notes which have an  effective yield  to  maturity of 8%.
The increase in interest expense in 2008  relates to the  accretion of the premium  due  at maturity.

Income Taxes (Credits)

We  incur income tax expense relating principally to operating results of foreign entities  in

jurisdictions, principally in Asia, where we earn taxable  income. We  have significant net operating  loss
carryforwards in the United States and certain foreign jurisdictions, principally Europe, and,  as a result,
we do not currently pay significant income taxes  in those  jurisdictions and we do  not  recognize the tax
benefit for such losses as discussed in  Note 18  to  the consolidated  financial statements. Accordingly,
our  effective income tax rate is not meaningful.

32

Year ended December 31, 2007 in comparison to the year ended December 31, 2006

Revenue

Product

Product revenue, which includes systems  sales,  sales of  spare  parts and product upgrades, was
$343.6 million or 84.9% of revenue in 2007, compared  with $398.4  million,  or 86.3% of revenue in
2006. Product revenue in 2006 and 2007 was reduced by our  loss of  high current  market share. The
decline  in product revenue in 2007 was also attributable to a  weakening semiconductor market and a
related decrease in capital spending by semiconductor manufacturers. In addition a decrease  in capacity
expansion at 200mm manufacturing facilities (a portion of which  relates  to the overall decline in  the
semiconductor capital equipment market)  decreased  revenue from system sales by $44.6 million for
2007.

Approximately 31.6% of systems revenue in 2007 was from  sales of  200mm products and  68.4%

was from sales of 300mm products, compared  with 42.2%  and 57.8%  for sales of 200mm products  and
300mm products in 2006, respectively.  This  followed  overall market trends for the past  several years
which  show the growth in sales toward 300mm products  and a  decrease in expansion of facilities using
200mm products.

A portion of our revenue from system sales is deferred until installation  and other services  related
to future deliverables are performed. The total amount of deferred revenue at  December 31,  2007 and
2006 was $40.5 million and $33.9 million, respectively.

Service

Service revenue, which includes the labor component of maintenance and service contracts  and
fees for service hours provided by on-site  service  personnel, was $55.2 million, or 13.6% of  revenue for
2007, compared with $54.1 million, or  11.7% of revenue, for  2006.

Royalties

Royalty revenue was $6.1 million, or  1.5% of revenue for  2007, compared  with $9.2 million, or
2.0% of revenue for 2006. Royalties are  primarily earned under the  terms of our license agreement
with SEN. Changes are mainly attributed  to fluctuations in SEN sales volume based on demand  for
equipment by Japanese semiconductor manufacturers and  the timing of shipments in Japan.

Ion Implant

Revenue from sales of ion implantation  products and services accounted for $304.5  million or
75.2% of total revenue in 2007, compared with $342.9 million, or 74.3%, of total revenue in 2006.

Aftermarket

The revenue from our aftermarket business  was $170.9 million for 2007, compared to

$176.2 million for 2006. Aftermarket  revenue generally increases with expansion of the  installed base of
systems but can fluctuate period to period based on capacity  utilization at  customers’  manufacturing
facilities which affects the sale of spare  parts and demand for  equipment service.

Gross  Profit

Product

Gross profit from product revenue was  36.8% for 2007, compared to 41.2% for 2006. The decrease

in gross profit from product revenues  is attributable  to  a decline in  product revenue  and the  related

33

under absorption of manufacturing overhead (approximately  3.2%)  and lower margins on new  product
revenue (approximately 2.7%), offset  by  the favorable impact  of a higher  mix  or upgrades and
proprietary spare parts (approximately  1.4%).

Service

Gross profit from service revenue was 36.8% for 2007,  compared to 33.7% for 2006.  The  increase

in gross profit for 2007 is attributable to improved utilization of the fixed service labor cost base.

Research and Development

Research and development expense was  $72.0 million in 2007,  a  decrease of $.4  million,  or 0.6%,

as compared with $72.4 million in 2006. The decrease  was driven primarily by decreased variable
compensation costs ($2.5 million), decreased  professional  fee  expenses ($1.3 million) and  decreased
payroll  costs ($0.6 million), offset by increased project material costs ($2.3 million) and increased
development asset amortization and depreciation costs  ($2.5 million).

Research and development expense was  attributable to the following activities for  2007: 57%  for

new product development, 28% for improvement of existing  products, and 15%  for product testing.

Sales and Marketing

Sales and marketing expense was $50.0  million  in 2007, an  increase of $4.5  million,  or 9.9%, as

compared with $45.5 million in 2006.  This increase was driven  primarily  by  increased payroll costs
($2.6 million), increased costs related  to  evaluation  system support of  our Optima platform
($2.6 million) and stock compensation  cost ($0.6  million), offset by  lower  commissions expense
($1.5 million).

General and Administrative

General and administrative expense was  $41.7 million in 2007,  a decrease of $4.9 million,  or
10.5%, as compared with $46.6 million  in 2006. This increase was  driven primarily by lower  variable
compensation costs ($4.6 million), lower depreciation costs ($0.7  million), lower  stock compensation
costs ($0.6 million) and lower lease,  travel,  utilities,  sales  tax and insurance expense ($0.4 million) offset
by increased professional fee expenses  ($0.9 million) and increased payroll related costs ($0.5 million).

Impairment of Goodwill

During  the three month period ended September 30, 2007, we  elected to  discontinue  future
development of the RTP and Curing  product lines. Based on that business decision,  the forecast of
future cash flows was revised and, as such, in September  2007 a  goodwill impairment  loss of
$4.7 million was recorded. The fair value of these product lines was estimated using  the expected
present  value of future cash flows.

Stock-based Compensation Expense

During  the first quarter of fiscal 2006, we  adopted the  Financial Accounting Standards Board’s

Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based  Payment, or
SFAS 123R, using the modified prospective application  method. The effect  of  adopting  SFAS 123R was
to reduce net income for the year ended December  31, 2006 by  $3.3 million  ($0.03  on basic and diluted
earnings per share).

Total stock-based compensation expense related to stock options, restricted  stock, restricted stock

units and the Employee Stock Purchase Plan for the year ended December 31, 2007 and  2006 was
$5.5 million, respectively.

See Note 14 to our Consolidated Financial Statements contained in Item  15 of this Annual Report

on Form 10-K for further information  regarding our adoption of SFAS 123R.

34

Restructuring

In October of 2007, we implemented a  reduction in force  related to planned actions taken by

management to control costs and improve the focus  of its  operations in order to sustain future
profitability and conserve cash. This reduction in force  was expected  to  result in a  total  charge to
expense of approximately $3.1 million related to separation  and outplacement  costs, of which
$2.5 million was recorded in the statement of operations at  December 31, 2007.

Changes in our restructuring liability, included in  amounts  reported as  other  current liabilities, are

as follows:

Balance at December 31, 2006 . . . . . . . . . . . . . . . . . .
Restructuring Expense . . . . . . . . . . . . . . . . . . . . . . . .
Cash Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ — $ 1,124
—
(1,124)

2,506
(1,590)

$ 1,124
2,506
(2,714)

Balance at December 31, 2007 . . . . . . . . . . . . . . . . . .

$

916

$ — $

916

Severance

Leases

Total

(in thousands)

The 2006 lease restructuring liability  relates to the consolidation  of our  Rockville, Maryland
operations into its  headquarters and manufacturing facility located  in Beverly,  Massachusetts during
2005. These leases were paid over the  remaining  lease term, which ended December 31, 2007.

Other Income (Expense)

Equity income attributable to SEN was $10.4 million in 2007 compared to $19.3  million  in 2006.
Fluctuations in equity income from SEN  reflect changes in its sales volume and net income resulting
from demand changes in the Japanese  semiconductor market, and  the timing of  shipments in Japan.

Interest income of $5.0 million for 2007 primarily  relates to interest earned on cash, cash
equivalents and short-term investments.  Interest income decreased by $3.4  million from  2006 due
primarily to lower average cash balances,  resulting from the repayment of $74.2  million  of  long-term
debt in January 2007.

Interest expense of $6.4 million in 2007, a decrease  of  $2.7 million from 2006,  relates primarily  to
the outstanding convertible senior subordinated notes which have an  effective yield  to  maturity of 8%.
The decrease in interest expense in 2007 is a direct result of the repayment of $74.2 million of
long-term debt in January 2007.

Income Taxes (Credits)

Income tax expense for 2007 was $0.4 million. In 2007, we determined  that certain  tax reserves

relating to a previous tax year were no longer required. As a result, we recorded an adjustment  to
reduce income tax expense by $1.2 million.  In  addition, during  the year we recorded  tax benefits
related to the realization of foreign tax credits, which we  expected  to  recover approximately
$1.2 million in tax refunds of amounts  paid for alternative minimum taxes  remitted for tax years 2004
through 2006.

Liquidity and Capital Resources

Capital expenditures were $3.4 million  and  $10.4 million  for  the years ended December 31, 2008

and 2007, respectively. We have no significant  capital projects planned for 2009 and  total  capital
expenditures for 2009 are projected to be less  than  $2.0 million. Future  capital expenditures  beyond
2009 will depend on a number of factors, including the timing and rate of expansion of our business
and our ability to generate cash to fund  them.

35

The following represents our contractual obligations  and commercial commitments as  of

December 31, 2008 (in thousands):

Contractual Obligations

Total

2009

2010-2011 2011-2012 Thereafter

Payments Due by Period

Short-term debt (including interest) . $ 84,937
8,811
Purchase order commitments . . . . . .
9,175
Operating leases . . . . . . . . . . . . . . .

$84,937 $ — $ —
—
749

—
2,802

8,811
4,963

$102,923

$98,711 $2,802

$749

$ —
—
661

$661

Other Commercial Commitments

Total

2009

2010-2011 2011-2012 Thereafter

Amount of Commitment Expiration by
Period

Standby letters of credit . . . . . . . . . . $
Guarantees . . . . . . . . . . . . . . . . . . .

8,654
3,511

$ 8,654 $ — $ —
—

3,511

—

$ 12,165

$12,165 $ — $ —

$ —
—

$ —

We  have no off-balance sheet arrangements  at December 31,  2008.

Our liquidity is affected by many factors. Some of  these relate specifically to the  operations  of  our

business, for example, the rate of acceptance of the  Optima product line,  and others  relate  to  the
uncertainties of global economies, including  the availability  of  credit, and the condition  of  the overall
semiconductor equipment industry.

During  2008, we experienced negative cash flows from operations. Cash used for operations in

2008 was predominately driven by the  net  loss from  operations  attributable  to  the depressed
semiconductor equipment market and the  resultant  decline  in revenues.  Cash  and cash equivalents at
December 31, 2008 were $37.7 million,  compared to $83.9 million at December 31,  2007. The
$46.2 million decrease in cash and cash equivalents  is mainly attributable  to  cash used by operations
($48.8 million) and capital expenditures ($3.4 million) offset by a decrease  of restricted cash balances
of $9.6 million. We also anticipate significant cash outflows from operations throughout 2009. However,
we believe that based on our current market, revenue and expense forecasts our  existing cash and  cash
equivalents and the net proceeds from  the sale of our SEN investment will be sufficient  to  satisfy our
anticipated cash requirements at least through 2009. Our 2009  forecast  reflects revenue  and gross
margins, excluding nonrecurring charges, consistent with  amounts realized  in the fourth quarter of 2008
and operating expense levels that reflect  cost saving initiatives implemented during 2008. If the
downturn in the semicap equipment industry continues into 2010 and our operating  performance does
not improve significantly as compared to the fourth quarter of 2008, it  could have  a significant  effect
on our liquidity and our ability to continue in the future as  a  going  concern.

Our 2009 cash position will also be driven by reductions in working capital,  as inventory for the

Optima product line is converted into revenue.

On March 30, 2009, pursuant to the Share  Purchase Agreement  with SHI and  SEN,  we sold all of

our  common shares in SEN to SHI for net  proceeds of  $122.3  million.  We used $86.4  million of  that
amount to pay in full our outstanding  obligations on our 4.25% Convertible Senior Subordinated  Notes.
After payment of our debt, our unrestricted  cash balance  at March 30, 2009 was  approximately
$69 million.

We  have net operating loss and tax credit carryforwards the  tax  effect of which aggregate

$118.6 million at December 31, 2008.  These  carryforwards,  which expire principally between  2018 and
2028, are available to reduce future income tax liabilities  in the United States and  certain  foreign

36

jurisdictions. We expect the sale of our  investment in SEN to generate  taxable income which we will
off-set with existing net operating loss  carry forwards.

We  have outstanding standby letters of credit, bank  guarantees and surety bonds  in the amount of

$12.1 million to support certain operating lease obligations, workers’  compensation insurance, and
certain value added tax claims in Europe, of which $8.7 million at December  31, 2008 was supported by
cash pledged as collateral. The pledged cash  is reflected as  restricted cash on the  consolidated  balance
sheet.

On April 23, 2008, we entered into a  revolving  credit facility with a bank that provides  for
borrowings up to the lesser of $50 million or  specified  percentages  of the amounts of qualifying
accounts receivable and inventory. We  are currently unable to borrow against  the facility because are
not currently, and do not expect to become, in compliance with the  financial covenants contained in the
underlying credit agreement. This facility expires in  April 2010. If  we  terminate  this  revolving credit
facility prior to April 23, 2009, we will have to pay  an early termination  fee  of  approximately
$1.0 million as the date of termination. If  we terminate this revolving credit facility after April  23, 2009
but prior to its expiration, we will have  to pay an  early  termination  fee of  approximately  $0.5 million as
of the date of termination.

We  do not currently have access to any other source of credit. We are continuing to explore  new

financing sources. However, in light of the current negative economic  environment,  including the
prolonged downturn in the semiconductor and semicap  equipment  industries, and  the negative effect it
has had on the Company’s results of  operations, financial position, liquidity, and the lending
environment,we anticipate that it would  be very  difficult for us  to  obtain significant  new credit on
favorable terms, if at all.

Although our cash requirements fluctuate based  on the  timing and extent of a number of factors,

we believe, as discussed above, that our existing cash and cash  equivalents,  which include the  net
proceeds from the sale of our investment in  SEN,  as well as cash  generated by anticipated  operations,
will be sufficient to satisfy our anticipated cash requirements at least through 2009.  However, if that is
not the case, and we are unable to obtain  additional financing  if and  when needed, we  would be
required to curtail  or shut down our  operations, which  would materially adversely affect the  prospects
of our business.

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 at December 31, 2008. 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  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.

Foreign Currency Exchange Risk

Substantially all of our sales are billed  in U.S. dollars, thereby reducing the impact of  fluctuations
in foreign exchange rates on our results. Operating margins  of  certain foreign operations can  fluctuate
with changes in foreign exchange rates  to the extent  revenues  are  billed in U.S. dollars  and operating
expenses are incurred in the local functional currency. During the  years  ended December  31, 2008 and
2007, approximately 30% and 10% of our revenues were derived from foreign operations with  this
inherent risk. In addition, at both December 31,  2008 and 2007, our operations outside of the United

37

States accounted for approximately 53%  and  37% of our total  assets, respectively, the  majority of which
was denominated in currencies other  than the U.S.  dollar.

Our investment in SEN and our royalty and equity income from  SEN  were subject  to  foreign
currency exchange risks. For royalties to be received in cash and certain other accounts  receivable from
SEN ($0.25 million at December 31, 2008) we hedge, from time  to  time,  our exposure to currency
fluctuation through the use of forward  contracts. The effect of a 10% depreciation of the Japanese  Yen
compared to the U.S. dollar would result in  a write-down in our  investment  in SEN and  a
corresponding decrease in accumulated other comprehensive income (included  in stockholders’ equity)
of $14.2 million at December 31, 2008.

Item 8. Financial Statements and Supplementary Data.

Response to this Item is submitted as a separate section of  this report  immediately following

Item 15.

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

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and  Procedures.

Our management, with the participation of our principal executive officer and principal financial

officer, has evaluated the effectiveness  of  our disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of  1934, as amended (the ‘‘Exchange Act’’)) as of
the end of the period covered by this  annual  report (the ‘‘Evaluation Date’’). Based on this evaluation,
our  principal executive officer and principal financial officer concluded  that,  as of the Evaluation Date,
these disclosure controls and procedures  are effective.

Internal Control over Financial Reporting

Management’s Annual Report on Internal Control  over Financial  Reporting

Management is responsible for establishing and maintaining adequate internal  control  over
financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Because of its
inherent limitations, internal control over financial reporting  may  not prevent or  detect  all
misstatements. A control system, no  matter  how well  designed  and operated, can provide only
reasonable assurance with respect to financial  statement preparation and  presentation. Projections of
any evaluation of effectiveness to future periods  are subject to the  risk that  controls may become
inadequate because of changes in conditions, or that the  degree  of compliance with  the policies or
procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial  reporting as of

December 31, 2008. In making this assessment, management used the  criteria set forth in the
Committee of Sponsoring Organizations  of  the Treadway Commission (COSO)  Internal  Control-
Integrated Framework.

Based on this assessment, management has concluded that, as of  December 31, 2008, our internal

control over financial reporting is effective based on those criteria.

The independent registered public accounting  firm  of Ernst & Young LLP, as  auditors of our
consolidated financial statements, has  issued an attestation report  on its  assessment  of  our  internal
control over financial reporting.

38

Report of Independent Registered Public  Accounting Firm

The Board of Directors and Stockholders of  Axcelis Technologies, Inc.

We  have audited Axcelis Technologies, Inc.’s  internal control  over financial reporting  as of

December 31, 2008, based on criteria established in Internal Control—Integrated Framework  issued by
the Committee of Sponsoring Organizations  of the Treadway Commission (the COSO criteria).  Axcelis
Technologies Inc.’s management is responsible for  maintaining effective internal control over financial
reporting, and for its assessment of the  effectiveness  of  internal control  over financial reporting
included in the accompanying Management’s  Annual  Report on Internal  Control over  Financial
reporting. Our responsibility is to express an  opinion on  the company’s internal control over financial
reporting based on our audit.

We  conducted our audit in accordance with the standards of  the Public Company Accounting
Oversight Board (United States). Those  standards require that we  plan and perform the audit to obtain
reasonable assurance about whether  effective  internal control over financial reporting was maintained
in all material respects. Our audit included  obtaining an understanding  of internal control  over
financial reporting, assessing the risk that a  material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based  on the assessed risk, and performing such other
procedures as we considered necessary in  the circumstances. We believe that our audit  provides a
reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide  reasonable

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

Because of its inherent limitations, internal control over  financial  reporting may not prevent or

detect misstatements. Also, projections  of any evaluation  of  effectiveness to future periods are  subject
to the risk that controls may become inadequate  because of changes in conditions, or  that  the degree
of compliance with the policies or procedures may deteriorate.

In our opinion, Axcelis Technologies  Inc.  maintained, in all material respects,  effective internal

control over financial reporting as of  December 31, 2008,  based on the COSO criteria.

We  also have audited, in accordance with the standards of  the Public Company Accounting
Oversight Board (United States), the  consolidated balance sheets of Axcelis  Technologies  Inc. as of
December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’
equity, and cash flows for each of the three years in the period ended December 31, 2008  of  Axcelis
Technologies, Inc. and our report dated March 31,  2009 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Boston, Massachusetts
March 31, 2009

39

Changes  in Internal Control over Financial Reporting

There was no change in our internal control over  financial  reporting (as defined in Rule  13a-15(f)

under the Exchange Act) identified in connection with the evaluation  of  our internal control  that
occurred during our fourth quarter that has  materially affected, or is  reasonably  likely to materially
affect, our internal control over financial  reporting.

Item 9B. Other Information.

None.

Item 10. Directors, Executive Officers  and  Corporate Governance.

PART III

A portion of the information required  by  Item 10 of Form  10-K is incorporated by reference from
the information responsive thereto contained in the  sections in Axcelis Proxy Statement for  the Annual
Meeting of Stockholders to be held May  6, 2009 (the ‘‘Proxy Statement’’)  captioned:

(cid:129) ‘‘Proposal 1: Election of Directors,’’

(cid:129) ‘‘Corporate Governance,’’ and

(cid:129) ‘‘Other Matters—Section 16(a) Beneficial  Ownership  Reporting Compliance.’’

The remainder of such information is  set forth under the heading ‘‘Executive  Officers’’  at the  end

of Item 1 in 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 responsive thereto contained in the sections in the Proxy Statement captioned:

(cid:129) ‘‘Executive Compensation,’’ and

(cid:129) ‘‘Other Matters—Compensation Committee  Interlocks and Insider Participation.’’

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

Matters.

A portion of the information required  by  Item 12 of Form  10-K is incorporated by reference from

the information responsive thereto contained in the  sections in the Proxy Statement  captioned:

(cid:129) ‘‘Share Ownership of 5% Stockholders,’’ and

(cid:129) ‘‘Share Ownership of Directors and Executive  Officers.’’

The remainder of such information is  set forth below:

Equity Plan Reserves Disclosure

We  maintain two equity compensation plans, the 2000  Stock Plan and the Employee Stock
Purchase Plan. The number of shares  issuable upon exercise of outstanding  options  granted to
employees and non-employee directors, as well  as the number of  shares remaining available for  future

40

issuance, under our equity compensation  plans as of December 31, 2008  are summarized in the
following table:

Plan category

(A)
Number of shares
to be issued upon
exercise of
outstanding options

(B)
Weighted-average
exercise price of
outstanding options

(C)
Number of
shares remaining
available for future
issuance under equity
compensation plans
(excluding shares  reflected
in column (A)(1)

Equity compensation plans approved by

stockholders . . . . . . . . . . . . . . . . . . . .

15,523,128

Equity compensation plans not approved

by stockholders . . . . . . . . . . . . . . . . . .

—

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . .

15,523,128

$8.05

—

$8.05

17,308,596

—

17,308,596

(1) Represents the total shares available  for issuance under  our 2000  Stock Plan and our Employee

Stock Purchase Plan, as of December  31, 2008, as follows:

(A) 13,982,435 shares were available  for future issuance under the  2000 Stock  Plan. Such amount
represents the total number of shares reserved for issuance under the 2000 Stock Plan
(33,173,367), less 418,880 outstanding shares  issued under the  plan as  restricted stock, 2,078,097
shares issuable upon vesting of outstanding restricted  stock units, 1,170,827  shares issued upon
option exercises, and the outstanding options shown  in column (A), all  as of December 31,  2008.
This plan is generally used for grants to employees and directors  and was approved by our
stockholders at our 2002 annual meeting.

(B)  3,326,161 shares were available under  our Employee  Stock Purchase Plan, which  represents the
total number of shares reserved for issuance  under the  plan (7,500,000) less 4,173,838 shares issued
through December 31, 2008. The Employee  Stock Purchase Plan was approved by Eaton
Corporation, as our sole stockholder  prior to our initial  public  offering,  in compliance  with
Internal Revenue Code Section 423.

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

The information required by Item 13 of Form  10-K is incorporated by  reference from  the

information responsive thereto contained in the sections in the Proxy Statement captioned:

(cid:129) ‘‘Executive Compensation,’’

(cid:129) ‘‘Corporate Governance—Board of Directors  Independence and Meetings,’’ and

(cid:129) ‘‘Corporate Governance—Certain Relationships and Related Transactions.’’

Item 14. Principal Accounting Fees and  Services

The information required by Item 14 of Form  10-K is incorporated by  reference from  the
information responsive thereto contained in the section captioned ‘‘Proposal 2:  Ratification of the
Appointment of our Independent Registered  Public Accounting Firm’’ in the  Proxy  Statement.

41

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a) The following documents are filed  as part of this Report:

1) Financial Statements:

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . F-1
Consolidated Statements of Operations—For the years ended December 31,

2008, 2007 and 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets—December 31,  2008 and 2007 . . . . . . . . . . . . . . F-3
Consolidated Statements of Stockholders’  Equity—For the years ended

December 31, 2008, 2007 and 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4

Consolidated Statements of Cash Flows—For the  years  ended December  31,

2008, 2007 and 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . F-6

2) Financial Statement Schedules:

Schedule II—Valuation and Qualifying Accounts for the years ended December 31,  2008, 2007
and 2006

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.

3) 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.

42

Report of Independent Registered Public  Accounting Firm

The Board of Directors and Stockholders of  Axcelis Technologies, Inc.

We  have audited the accompanying consolidated balance sheets of Axcelis  Technologies,  Inc. (the

‘‘Company’’) as of December 31, 2008 and 2007, and  the related consolidated  statements of operations,
stockholders’ equity, and cash flows for  each of the three years  in the period ended December 31,
2008. Our audits also included the financial statement schedule  listed in the index  at Item  15(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 the standards  of  the Public Company Accounting
Oversight Board (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, 2008 and  2007, and
the consolidated results of its operations and its cash  flows for each  of  the three  years  in the period
ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.  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 to the information set forth  therein.

We  also have audited, in accordance with the standards of  the Public Company Accounting

Oversight Board (United States), Axcelis  Technologies, Inc.’s  internal control over  financial  reporting as
of December 31, 2008, based on criteria established in Internal  Control—Integrated Framework issued
by the Committee  of Sponsoring Organizations of the Treadway Commission and our report dated
March 31, 2009 expressed an unqualified  opinion thereon.

Boston, Massachusetts
March 31, 2009

/s/ Ernst & Young, LLP

F-1

Axcelis Technologies, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)

Revenue

Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalties,  primarily from SEN . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 194,275
51,880
4,059

$343,555
55,179
6,066

$398,437
54,073
9,207

Year Ended December 31,

2008

2007

2006

Cost of revenue

Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses

Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of intangibles and long-lived assets . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

250,214

404,800

461,717

161,310
26,289

187,599
62,615

217,039
34,900

251,939
152,861

234,370
35,833

270,203
191,514

63,262
44,573
43,056
42,115
46,949
2,624
6,873

72,044
49,974
41,718
4,658
—
2,624
2,506

72,384
45,536
46,620
—
—
2,551
682

249,452

173,524

167,773

Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(186,837)

(20,663)

23,741

Other income (expense)

Equity income (loss) of SEN . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3,667)
1,614
(6,744)
(169)

(8,966)

10,416
5,019
(6,427)
(153)

8,855

Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes (credits) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(195,803)
861

(11,808)
(410)

19,266
8,383
(9,085)
478

19,042

42,783
2,013

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(196,664) $ (11,398) $ 40,770

Net income (loss) per share

Basic net income (loss) per share . . . . . . . . . . . . . . . . . . . . . . . .

Diluted net income (loss) per share . . . . . . . . . . . . . . . . . . . . . . .

$

$

(1.91) $

(0.11) $

(1.91) $

(0.11) $

0.40

0.40

Shares used in computing net income (loss) per share

Weighted average common shares . . . . . . . . . . . . . . . . . . . . . . . .

102,739

101,891

101,058

Weighted average dilutive common share equivalents . . . . . . . . . .

—

—

303

Weighted average common shares and dilutive common share

equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

102,739

101,891

101,361

See accompanying Notes to these Consolidated  Financial Statements

F-2

Axcelis Technologies, Inc.
Consolidated Balance Sheet
(In thousands)

December 31,

2008

2007

Current assets

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 37,694
8,654
27,486
150,113
17,231

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in SEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

241,178
44,432
156,677
—
—
12,894

$ 83,877
17,018
76,067
169,278
32,442

378,682
68,101
132,911
42,115
10,925
37,195

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of convertible subordinated debt . . . . . . . . . . . . . . . . . . . . .

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commitments and contingencies (Note  16)
Stockholders’ equity

$ 455,181

$669,929

$

8,066
15,841
3,137
337
12,508
6,897
83,210

129,996
—
1,872
3,936

$ 27,054
17,003
5,011
531
35,827
8,577
—

94,003
79,923
4,704
5,293

Preferred stock, $0.001 par value, 30,000  shares authorized; none issued  or

outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

Common stock, $0.001 par value, 300,000 shares  authorized; 103,400  shares
issued and 103,280 shares outstanding at  December  31, 2008; 102,565
shares issued and 102,445 shares outstanding at  December 31,  2007 . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost, 120 shares at  December 31,  2008 and 2007 . . . . . . . . .
Accumulated deficit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . .

103
483,546
(1,218)
(198,479)
35,425

103
478,726
(1,218)
(1,815)
10,210

319,377

486,006

$ 455,181

$669,929

See accompanying Notes to these Consolidated Financial Statements

F-3

Axcelis Technologies, Inc.
Consolidated Statements of Changes in  Stockholders’  Equity
(In thousands)

Balance at December 31, 2005 . . . . . . . 100,637

$101

$466,454

$(5,385)

$(1,218) $ (31,187)

$ (2,724)

$ 426,041

Common Stock

Additional
Paid-in

Deferred

Treasury Accumulated Comprehensive Stockholders’

Accumulated
Other

Total

Shares Amount Capital Compensation

Stock

Deficit

Income  (Loss)

Equity

Comprehensive income

Net income . . . . . . . . . . . . . . . . .
Foreign currency translation

adjustments . . . . . . . . . . . . . . . .

Unrealized gain on marketable

securities

. . . . . . . . . . . . . . . . .

Total comprehensive income . . . . .

Reclassification of deferred

compensation upon adoption of SFAS
No. 123R . . . . . . . . . . . . . . . . . . .
. . . . . . . . . .

Exercise of stock options
Issuance  of shares under Employee

Stock Purchase Plan . . . . . . . . . . . .
.
Forfeiture of restricted common shares
Issuance  of restricted common shares
. .
Stock-based compensation expense . . . .

—

—

—

—

—
265

—

—

—

—

—
—

—

—

—

—

—

—

—

—

(5,385)
1,586

5,385
—

470

—
(4) —
—
50
—
—

2,266
(18)
—
5,064

—
—
—
—

—

—

—

—

—

—
—

—
—
—
—

40,770

—

40,770

—

—

—

—
—

—
—
—
—

1,816

1,816

37

—

—
—

—
—
—
—

37

$ 42,623

—
1,586

2,266
(18)
—
5,064

(1,218)

9,583

(871)

477,562

— $ — $

— $ — $ — $ (11,398)

$ —

$ (11,398)

Balance at December 31, 2006 . . . . . . . 101,418
Comprehensive loss

101

469,967

Net loss . . . . . . . . . . . . . . . . . . . .
Foreign currency translation

adjustments . . . . . . . . . . . . . . . .

Unrealized gain on marketable

securities

. . . . . . . . . . . . . . . . .
Change in pension . . . . . . . . . . . . .

Total comprehensive loss

Exercise of stock options
Issuance  of shares under Employee

. . . . . . .
. . . . . . . . . .

—

—
—

—
189

—

—
—

—
1

Stock Purchase Plan . . . . . . . . . . . .
.
Forfeiture of restricted common shares
Issuance  of restricted common shares
. .
Stock-based compensation expense . . . .

586
1
(16) —
—
388
—
—

—

—
—

—
1,081

2,984
—
(838)
5,532

—

—
—

—
—

—
—
—
—

—

—
—

—
—

—
—
—
—

—

—
—

—
—

—
—
—
—

10,819

10,819

4
258

—
—

—
—
—
—

4
258

$

(317)
1,082

2,985
—
(838)
5,532

Balance at December 31, 2007 . . . . . . . 102,565
Comprehensive loss

$103

$478,726

$ — $(1,218) $

(1,815)

$10,210

$ 486,006

Net loss . . . . . . . . . . . . . . . . . . . .
Foreign currency translation

adjustments . . . . . . . . . . . . . . . .
Change in pension . . . . . . . . . . . . .

Total comprehensive loss

Exercise of stock options
Issuance of shares under Employee

. . . . . . .
. . . . . . . . . .

—

—
—

—
22

—

—
—

—
—

—

—
—

—
110

Stock Purchase Plan . . . . . . . . . . . .
.
Forfeiture of  restricted common shares
Issuance  of restricted common shares
. .
Stock-based compensation expense . . . .

388
—
(12) —
—
437
—
—

786
—
(785)
4,709

—

—
—

—
—

—
—
—
—

— (196,664)

—

(196,664)

—
—

—
—

—
—
—
—

—
—

—
—

—
—
—
—

25,075
140

—
—

—
—
—
—

25,075
140

$(171,449)
110

786
—
(785)
4,709

Balance at December 31, 2008 . . . . . . . 103,400

$103

$483,546

$ — $(1,218) $(198,479)

$35,425

$ 319,377

See accompanying Notes to these Consolidated Financial Statements

F-4

Axcelis Technologies, Inc.
Consolidated Statements of Cash Flow
(In thousands)

Year Ended December 31,

2008

2007

2006

Cash flows from operating activities

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income  (loss)  to  net cash  provided by

$(196,664) $ (11,398) $ 40,770

(used for) operating activities
Equity (income) loss of SEN . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Accretion of premium on convertible  debt
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of intangibles and long-lived  assets . . . . . . . . . . . . .
Provision for excess inventory . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividend from SEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets & liabilities

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . .
Accounts payable & other current liabilities . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .

3,667
20,947
189
2,624
3,287
4,709
42,115
46,949
24,631
2,016

48,644
(6,942)
14,991
(23,330)
(26,151)
(162)
(10,239)

(10,416)
19,287
(91)
2,624
3,036
5,532
4,658
—
5,018
12,424

(1,537)
(10,718)
(4,690)
(24,989)
6,666
(2,455)
(24,055)

(19,266)
17,586
(209)
2,551
1,887
5,475
—
—
5,797
—

6,704
(53,132)
6,503
21,402
(7,452)
868
(10,466)

Net cash provided by (used for) operating activities . . . . . .

(48,719)

(31,104)

19,018

Cash flows from investing activities

Purchase of marketable securities . . . . . . . . . . . . . . . . . . . . . . . .
Sales and maturities of marketable securities . . . . . . . . . . . . . . . .
Expenditures for property, plant, and equipment
. . . . . . . . . . . . .
Decrease (increase) in restricted cash . . . . . . . . . . . . . . . . . . . . .

— (13,000)
76,200
—
(10,386)
(3,407)
(4,862)
9,624

(72,329)
103,763
(6,924)
(924)

Net cash provided by (used for) investing  activities . . . . . . .

6,217

47,952

23,586

Cash flows from financing activities

Proceeds from issuance of convertible  debt
. . . . . . . . . . . . . . . . .
Repayment of convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . .
Proceeds from Employee Stock Purchase Plan . . . . . . . . . . . . . . .

Net cash provided by (used for) financing activities . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . .

Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . .

—
— (74,217)
1,082
110
1,822
786

896
(4,577)

(46,183)
83,877

(71,313)
(2,109)

(56,574)
140,451

24,217
—
1,586
1,930

27,733
(1,303)

69,034
71,417

Cash and cash equivalents at end of  period . . . . . . . . . . . . . . . . . . .

$ 37,694

$ 83,877

$140,451

Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

3,188
1,064

$
$

4,765
2,981

$
$

5,802
2,867

See accompanying Notes to these Consolidated  Financial Statements

F-5

Axcelis Technologies, Inc.
Notes to Consolidated Financial Statements

Note 1. Nature of Business and Basis of Presentation

Axcelis Technologies, Inc. (‘‘Axcelis’’ or the ‘‘Company’’), is a  worldwide producer of ion

implantation, dry strip and other processing equipment  used  in the fabrication of semiconductor chips
in the United States, Europe and Asia.  In  September  of  2007, Axcelis’  management elected to
discontinue future  development of the  thermal processing and photostabilization/curing product lines to
focus on profitable growth within the  company’s core ion implant and dry  strip  businesses. See Note 2
for further discussion.

In addition, the Company provides extensive  aftermarket service and support, including spare
parts, equipment upgrades, and maintenance services  to  the semiconductor industry. Until March 30,
2009, the Company owned 50% of the equity  of a joint venture  with Sumitomo Heavy Industries, Ltd.
(‘‘SHI’’) in Japan. This joint venture,  which is known as SEN Corporation, an SHI and Axcelis
Company (‘‘SEN’’), licensed technology  from the  Company relating to the manufacture of specified ion
implantation products and had exclusive rights to manufacture and sell these products in the  territory
of Japan. SEN is the leading producer of  ion implantation equipment in Japan. Upon the sale of the
Company’s investment in SEN, as described in the following paragraph, Axcelis and SEN entered into
a new License Agreement which allows each company to continue to use certain patents  and technical
information owned by the other to make  and sell ion  implant systems  on a worldwide, royalty-free,
perpetual basis. As a result of the sale,  SEN  is  free to make  and  sell the licensed  products worldwide,
creating a new global competitor for  Axcelis. Axcelis will  need to use its established customer relations
and infrastructure outside of Japan as  well as the  technical  advantages  of the Optima  HD and Optima
XE to compete against SEN as well as  our  existing competitors.

Prior to the release of the Optima product line, we regularly licensed SEN to make  and sell our

implant systems in Japan. Axcelis is now able  to  compete against SEN in  Japan  with all Axcelis
products. To do so, Axcelis needs to either expand and  develop its own customer relations and
infrastructure in Japan or contract with  a third party to sell and support implanters  in Japan. If Axcelis
is not able to compete effectively with SEN, our results of operations may be adversely  affected.

As discussed in Note 12 below, on January 15,  2009, Axcelis failed to make the  required payment
of approximately $85 million under an Indenture dated as of May 2, 2006 (the ‘‘Indenture’’)  between
Axcelis and U.S. Bank National Association, as trustee (the ‘‘Trustee’’), relating to the Company’s
4.25% Convertible Senior Subordinated  Notes  (the ‘‘Notes’’). Such failure constituted an  event of
default under the Indenture. On February  26, 2009, Axcelis, SHI,  and  SEN entered into a Share
Purchase Agreement pursuant to which  Axcelis agreed to sell to SHI all of Axcelis’ common shares in
SEN in exchange for a cash payment of  13 billion Yen on the later of March 31, 2009 or the date on
which  certain closing conditions are satisfied.  On March  2, 2009, the  Company purchased  a foreign
exchange option to hedge the proceeds  from the transaction. The option insured proceeds of
approximately $132.7 million before  advisor fees and other expenses. On March 30,  2009, the Company
completed the sale of SEN for proceeds of $122.3 million net  of $10.5 million in advisor  fees  and other
expenses. A portion of the net proceeds were used to discharge the Company’s obligations under  the
Indenture in full.

During  2008, the Company experienced negative cash  flows from operations. Cash used for
operations in 2008 was predominately driven by the net loss  from operations attributable to the
depressed semiconductor equipment  market  and the resultant decline in revenues. Cash and  cash
equivalents at December 31, 2008 were $37.7 million, compared to $83.9 million at December 31, 2007.
The $46.2 million decrease in cash and cash  equivalents  is mainly attributable to cash  used by
operations ($48.8 million) and capital  expenditures ($3.4 million) offset by a decrease of restricted cash
balances of $9.6 million. The Company  also anticipate  significant cash outflows from operations

F-6

throughout 2009. However, the Company  believes  that based on its current market, revenue and
expense forecasts its existing cash and cash equivalents and the net proceeds from the sale of its SEN
investment will be sufficient to satisfy  its  anticipated  cash  requirements at least through 2009.  The
Company’s 2009 forecast reflects revenue  and gross margins,  excluding  nonrecurring  charges,  consistent
with amounts realized in the fourth quarter of 2008  and operating expense  levels that reflect cost
saving initiatives implemented during 2008. If the downturn  in the semicap equipment  industry
continues into 2010 and the Company’s operating performance  does not improve  significantly  as
compared to the fourth quarter of 2008, it  could have a significant effect on the Company’s liquidity
and its ability to continue in the future  as a going concern.

The Company does not currently have access to any  other source  of credit. The Company is
continuing to explore new financing sources.  However,  in light  of the current  negative economic
environment generally, and the lending environment  specifically,  the  Company anticipates  that  it would
be very difficult to obtain significant  new credit on favorable terms,  if at all.

Note 2. Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts  of Axcelis and its wholly-owned,

controlled subsidiaries. All intercompany balances and transactions have  been eliminated  in
consolidation. The equity method of  accounting is used to account for the Company’s 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 substantially 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  during  the year  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 consist of  cash on hand  and  highly liquid investments with original
maturities of ninety days or less. Cash equivalents consist primarily  of  money market securities, direct
and indirect U.S. government obligations, commercial paper, and obligations  of  U.S. banks.  Cash
equivalents are carried on the balance sheet  at fair market value.

Unrealized gains and losses on cash equivalents are included in  accumulated  other  comprehensive

income (loss) in stockholders equity until  realized.

Inventories

Inventories are carried at lower of cost,  determined using the first-in, first-out (FIFO)  method, or

market. The Company periodically reviews its inventories and  makes  provisions  as necessary for
estimated obsolescence or damaged goods  to  ensure values  approximate  lower of cost or market. The

F-7

amount of such markdowns is equal  to  the difference  between cost of inventory  and the  estimated
market value based upon assumptions  about future  demands, selling  prices, and market conditions.

Axcelis records an allowance for estimated  excess  inventory. The allowance is determined using
management’s assumptions of materials usage, based on estimates  of demand and  market  conditions. If
actual market conditions become less  favorable  than those projected by  management, additional
inventory write-downs may be required.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation is computed using  the

straight-line method. The historical cost of buildings is depreciated  over forty years and machinery and
equipment principally over three to ten  years.  Expenditures for maintenance and repairs  are expensed
as incurred. Expenditures for renewals  and betterments are capitalized.

Impairment of Intangibles and Long-Lived Assets

In accordance with Financial Accounting Standards  Board (FASB)  Statement  No. 144, Accounting

for the Impairment or Disposal of Long-Lived Assets (SFAS 144),  the  Company records impairment
losses on intangibles and long-lived assets  when events  and circumstances indicate that long-lived assets
might not be recoverable. As a result  of  declining economic  conditions, along  with its stock price below
book value, the Company performed  an  interim test at September 30,  2008, concluding that intangible
and long-lived assets were not impaired.

The significant decline in the Company’s stock price experienced at the  end of the third quarter

continued through the end of the fourth  quarter and beyond, resulting  in a sustained market
capitalization well below book value. In  addition,  the estimated future  total  available  market for the
Company’s products, as published by  independent third party industry analysts,  was  significantly  revised
downward in the fourth quarter and we  experienced a 26% decline  (as compared to aftermarket
revenue in the third quarter of 2008) in  our aftermarket  business,  reflecting significant declines  in
manufacturers’ capacity utilization. This  fourth quarter contraction in  the industry led the  Company to
revise its short-term and long-term financial forecast. The Company’s  updated long-term financial
forecast represents the best estimate that management has at this  time  and the  Company believes  that
its  underlying assumptions are reasonable. Recoverability  is measured  by  a comparison  of the assets’
carrying  amount to their expected future  undiscounted net cash  flows. If such  assets are considered to
be impaired, the impairment is measured  based  on the amount by  which the carrying  value exceeds its
fair value. Fair value was based on a  probability weighted cash flow forecast, discounted  at a rate
commensurate with the risks involved  in  achieving the forecasted cash flows.

The estimates of future operating results  and cash flows are derived from the  Company’s updated

long-term financial forecast. This updated long-term forecast represents the best estimate that the
Company has at this time and the Company believes  that its  underlying  assumptions  are reasonable
based primarily on current product performance  and customer acceptance. This forecast relies primarily
on market assumptions and market share Axcelis expects to achieve.  However,  actual performance  in
the near-term and longer-term could  be  materially different  from these  forecasts, which  could  impact
future estimates of undiscounted cash  flows and may result  in the impairment of  the carrying amount
of long-lived assets. This could be caused  by events such  as strategic decisions made  in response to
economic and competitive conditions,  the impact  of the economic environment  on the Company’s
customer base, or a material negative  change  in its  relationships with significant  customers.
Accordingly, the Company will continue  to perform this analysis  no less than  quarterly for the
foreseeable future.

As discussed in Note 6, 8 and 9 to the  consolidated financial statements,  the Company recorded a
total intangible and long-lived asset impairment charge of $46.9  million. This charge  consists of  writing

F-8

off the net book value of all its intangibles of $8.3 million, certain  other assets of $21.1 million  and
property, plant and equipment of $17.5 million.

Intangible Assets

Intangible assets are amortized on a  straight-line basis over their estimated useful lives as follows:

Developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer list
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5 to 10 years
10 years
5 years

See Note 8 regarding impairment of  intangible assets.

Goodwill

In accordance with FASB Statement  No. 142,  Goodwill and Other  Intangible Assets (‘‘SFAS 142’’),

the Company reviews goodwill for impairment at  least annually  or more often if there  are indicators of
impairment present. The Company’s annual test is  performed  during  the fourth  quarter  of  each year.
As a result of the declining economic  conditions, along with our stock price  below book value, the
Company also performed an interim test at  September 30, 2008,  concluding that goodwill was not
impaired.  The provisions of SFAS 142 require a  two step impairment test to be performed for
goodwill. In the first step, the Company  compares the  fair value of each reporting  unit to which
goodwill has been allocated to its carrying  value. If the fair value of the reporting unit  exceeds  the
carrying  value of the net assets assigned to that  unit, goodwill is considered not impaired and the
Company is not required to perform further testing. If the  carrying value of the net  assets assigned  to
the reporting unit  exceeds the fair value  of the  reporting unit, then  the Company must perform the
second  step of the impairment test in order to determine the implied fair value of the reporting unit’s
goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied  value, then  the
Company would record an impairment  loss equal to the difference.

The Company’s annual test was performed  during the fourth quarter of  2008. During  this  period,

the significant decline in the Company’s stock price experienced  at  the end of the  third quarter
continued through the end of the fourth  quarter and beyond, resulting  in a sustained market
capitalization well below book value. In  addition,  the estimated future  total  available  market for the
Company’s products, as published by  independent third party industry analysts,  was  significantly  revised
downward in the fourth quarter and the  Company  experienced a 26% decline  (as  compared to
aftermarket revenue in the third quarter  of 2008) in  its  aftermarket  business,  reflecting  significant
declines in manufacturers’ capacity utilization. This  fourth  quarter contraction in the industry  led the
Company to revise its short-term and long-term financial forecast. The  Company’s updated  long-term
financial forecast represents the best  estimate that management has at this time  and the  Company
believes that its underlying assumptions  are reasonable.

SFAS 142 requires that the Company measure  goodwill for impairment  at the  reporting unit level.

The Company has one operating segment  as defined by SFAS 131  and disclosed in Note 17 to the
consolidated financial statements. At December 31, 2008, goodwill was evaluated for impairment at the
component level, which is one level below the  operating segment. As such, the  Cleaning and  Curing
product  line was considered the reporting unit, for  purposes of evaluating  goodwill for impairment.

Estimates and assumptions used in the determination of fair value  for  the Cleaning and  Curing
product  line include revenue growth rates and operating  margins. These are used  to  calculate  projected
future cash flows, risk adjusted discount  rates, future economic and market conditions and determining
appropriate market comparables. The  Company believes these assumptions to be reasonable but actual
conditions are unpredictable and inherently uncertain. Actual future results may  differ  from out
estimates.

F-9

The Company’s impairment analysis utilized a discounted cash  flow  method. The Company

assumed a cash flow period of 10 years based  on management’s updated  projections for 3 years and an
additional 7 years based on additional projections and historical  performance. The underlying
assumptions in this 10 year forecast contemplate increased  market  share above current levels,
improvement to gross margins while managing  operating expenses at current levels. The Company
utilized the Gordon Growth Method based upon  a discount rate of 18% less the estimated growth  rate
of 3%. A variance in these assumptions  could have a significant impact on the assessment as to
whether goodwill may or may not be  impaired.

As discussed in Note 7 to the consolidated financial statements, during the  fourth quarter the
Company conducted analyses of the potential  impairment of goodwill and concluded that goodwill was
impaired by $42.1 million at December  31, 2008.

Concentration of 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’  net sales to its  ten largest  customers accounted
for 51.5%, 57.8%, and 54.9% of revenue  in  2008, 2007, and 2006, respectively.

Axcelis performs ongoing credit evaluations of its customers’ financial condition and generally

requires no collateral to secure accounts receivable.  For  selected  overseas  sales, Axcelis requires
customers to obtain letters of credit before product is shipped. Axcelis maintains an allowance for
doubtful accounts based on its assessment  of the collectability of accounts  receivable. The Company
reviews the allowance for doubtful accounts monthly. The  Company does  not  have any  off-balance-
sheet credit exposure related to its customers.

Axcelis’ exposure to market risk for changes  in interest rates relates primarily to cash equivalents.
The primary objective of the Company’s  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 limiting exposure to any one issue or issuer. The Company  does not
use derivative financial instruments to manage its investment portfolio and does  not  expect operating
results or cash flows to be affected to any significant degree by any change in  market  interest rates.

Some of the components and sub-assemblies included in  the Company’s products are  obtained
either from a sole source or a limited group of suppliers. Disruption to the Company’s supply  source,
resulting either from depressed economic conditions or other  factors, could affect its ability to deliver
products to its customers.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised  of two  components, net income (loss) and other

comprehensive income (loss). Other comprehensive income (loss) consists of foreign currency
translation adjustments, unrealized gains and losses  on the Company’s marketable securities and  the
effects of the minimum pension liability.

F-10

The following table shows the cumulative  components of other comprehensive  income  (loss)  for

the years ended December 31, 2008,  2007 and 2006:

Foreign currency translation adjustments . . . . . . . . . . . .
Unrealized loss on securities . . . . . . . . . . . . . . . . . . . . .
Pension benefit adjustment . . . . . . . . . . . . . . . . . . . . . .

2008

2007

2006

(in thousands)
$ 9,952
—
258

$35,285
—
140

$(867)
(4)
—

Total accumulated comprehensive income . . . . . . . . . .

$35,425

$10,210

$(871)

Fair  Value of Financial Instruments

SFAS No. 107, Disclosures about Fair Value of  Financial Instruments,  requires that disclosure  be
made of estimates of the fair value of financial  instruments. The carrying amounts of certain of the
Company’s financial instruments, including  cash equivalents, accounts receivable, accounts payable and
other accrued liabilities approximate fair  value due to their short maturities. The fair  value of  the
Company’s convertible subordinated  debentures  is estimated based  on quoted  market  prices for the
same or similar issues or on current rates offered to the Company for debt of the  same remaining
maturities.

Revenue Recognition

The Company’s revenue recognition policy  involves significant  judgment by management. As
described below, the Company considers  a broad  array  of facts and  circumstances  in determining when
to recognize revenue, including contractual  obligations to the customer, the complexity  of the
customer’s post delivery acceptance provisions, payment history, customer  creditworthiness and the
installation process. In the future, if the  post delivery  acceptance provisions  and installation process
become  more complex or result in a materially lower rate of acceptance,  the Company may  have to
revise its revenue recognition policy,  which could delay  the timing of  revenue recognition.

The Company recognizes revenue based on guidance  provided  in SEC Staff Accounting Bulletin
No. 104, Revenue Recognition. Axcelis’  revenue transactions  include sales of products under multiple
element arrangements. Revenue under these arrangements is allocated to each element, except  systems,
based upon its estimated fair market  value, in accordance  with the  provisions of EITF  00-21,
Accounting for Revenue Arrangements  with  Multiple Deliverables (‘‘EITF 00-21’’). The amount of revenue
allocated to systems is calculated on  a  residual  method. Under this method, the total value of the
arrangement is allocated first to the undelivered elements, with  the residual amount being allocated to
product  revenue.

The value of the undelivered elements includes  (a) the  greater of (i)  the fair value of the

installation or (ii) the portion of the  sales price that will not be received until  the installation is
completed (the ‘‘retention’’) plus (b)  the fair value of all other  undelivered elements.  The amount
allocated to installation is based upon the  fair value of the service performed, including labor, which is
based upon the estimated time to complete the installation at hourly rates, and material components.
The fair value of all other undelivered  elements  is based upon the  price charged when these  elements
are sold  separately. Product revenue  for products  which have  demonstrated market acceptance (legacy
products), generally recognized upon  shipment provided  title and risk  of loss  has passed to the
customer, evidence of an arrangement  exists, prices  are contractually  fixed  or determinable,
collectibility is reasonably assured through historical collection results  and  regular credit evaluations,
and there are no uncertainties regarding customer acceptance. Revenue from installation services  is
recognized at the time formal acceptance is received from the customer or, for certain customers, when
both the formal acceptance and retention payment  have been  received. Revenue for other elements is
recognized at the time products are shipped or the related  services are performed.

F-11

The Company generally recognizes revenue  for products which  have demonstrated market

acceptance (legacy products), at the  time of shipment because the customer’s post-delivery acceptance
provisions and installation process have been established to be routine, commercially  inconsequential
and perfunctory. 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, which may  be  the Axcelis
standard specification. To ensure that the  customer’s specifications are satisfied,  many customers
request that new systems be 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. Customers of mature products generally do not
require pre-shipment testing. The Company believes the  risk of  failure to complete  a system installation
is remote. Should an installation not  be  completed successfully, 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.

For initial shipments of systems with new technologies or  in the small number  of  instances where

Axcelis is unsure of meeting the customer’s specifications or  obtaining customer  acceptance  upon
shipment of the system, Axcelis will defer the recognition of systems revenue  and related costs  until
written customer acceptance of the system is obtained. This deferral period is generally  within twelve
months of shipment.

Revenue related to maintenance and service contracts is  recognized ratably over  the duration of

the contracts, or based on parts usage,  where  appropriate.  Revenue related to service hours is
recognized when the services are performed.

Royalty revenue is primarily earned under the terms of the Company’s license  agreement with
SEN. Royalty revenue is recorded at the time SEN notifies the  Company that royalties  have been
earned.

Product revenue includes revenue from system sales, sales  of spare parts, the spare parts

component of maintenance and service contracts and product upgrades. Service revenue includes the
labor component of maintenance and service  contract amounts  charged for  on-site service personnel.

Shipping and Handling Costs

Shipping and handling costs are included  in cost of  revenue.

Stock-Based Compensation

SFAS No. 123 (revised 2004), Share-Based Payment (‘‘SFAS No. 123R’’) requires entities  to
recognize compensation expense for  all  share-based payments to employees and directors,  including
grants of employee stock options, based  on  the grant-date fair  value of those  share-based payments
(with limited exceptions), adjusted for  expected forfeitures.

The Company adopted SFAS No. 123R,  effective January 1, 2006 using the modified  prospective

transition method. Under that transition method,  stock-based  compensation  expense recognized during
the years ended December 31, 2008,  2007 and 2006 includes: (a)  stock options,  restricted stock and
restricted stock units granted prior to, but not yet vested, as of December 31, 2005,  based on  the
grant-date fair value estimated in accordance with  the original provisions of SFAS  No. 123, and
(b) shares issued in offerings under the  Employee  Stock Purchase Plan with offering  periods
commencing January 1, 2006 and stock  options, restricted stock and restricted stock units  granted
subsequent to December 31, 2005, based on the  grant-date fair value estimated  using  the Black-Scholes
valuation model in accordance with the provisions of SFAS No. 123R.  Expense is recognized ratably
over the requisite service period. Under  the modified prospective  transition method,  results for prior
periods were not restated.

F-12

See Note 14 for additional information relating  to  stock-based compensation.

Income Taxes

The Company records income taxes using the asset and liability  method. Deferred income tax
assets and liabilities are recognized for  the future tax consequences attributable  to  differences between
the financial statement carrying amounts of existing assets  and liabilities and their respective  income tax
bases, and operating loss and tax credit  carryforwards. The Company’s  consolidated  financial statements
contain certain deferred tax assets which  have arisen  primarily  as a result of operating losses, as well  as
other temporary differences between  financial and tax accounting. SFAS No. 109, Accounting for
Income Taxes requires the Company  to  establish a  valuation  allowance  if the likelihood of realization of
the deferred tax assets is reduced based on an  evaluation of  objective  verifiable evidence.  Significant
management judgment is required in  determining the Company’s  provision for income taxes, the
Company’s deferred tax assets and liabilities and any valuation allowance recorded  against those net
deferred tax assets. The Company evaluates the weight of  all available  evidence to determine  whether it
is more likely than not that some portion or  all  of  the net deferred income tax assets will not be
realized.

Income taxes include the largest amount of tax benefit for an uncertain tax position that is more
likely than not to be sustained upon audit based  on the technical merits  of the tax position.  Settlements
with tax authorities, the expiration of  statutes of limitations for particular tax positions, or obtaining
new information on particular tax positions may cause a change  to  the effective tax  rate. The  Company
recognizes accrued interest related to unrecognized tax benefits  as interest expense  and penalties as
operating expense.

Net Income (Loss) Per Share

SFAS No. 128, Earnings per Share, requires  two  presentations of earnings per share,  ‘‘basic’’ and

‘‘diluted.’’ Basic earnings per share is  computed by dividing income available to common stockholders
(the numerator) by the weighted-average number of common shares outstanding (the denominator) for
the period. The computation of diluted  earnings  per  share is similar to basic earnings  per  share, except
that the denominator is increased to  include the number of additional  common shares that would have
been outstanding if the potentially dilutive common shares had been issued, calculated using the
treasury stock method.

For the year ended December 31, 2008,  the Company has excluded 0.1 million incremental shares
attributable to restricted stock and restricted  stock units from the  computation of diluted earnings per
share as their effect would be anti-dilutive. For the year ended December 31,  2007, the Company  has
excluded 0.2 million incremental shares  attributable to outstanding  stock  options  and 0.3  million
incremental shares attributable to restricted stock and  restricted stock units from the computation of
diluted earnings per share as their effect  would be anti-dilutive. In addition, for the assumed  conversion
of the Company’s convertible debt to  common stock, 4.2  million  shares, 4.0  million shares, and
7.5 million shares, computed using the if  converted method, were excluded from  the computation of
diluted earnings per share for years ended  December  31, 2008, 2007, and 2006, respectively,  as the
effect of conversion would be anti-dilutive. These stock options, restricted stock  awards,  restricted stock
units and conversions could, however,  become dilutive in future periods.

Recent  Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued  SFAS No. 157,  Fair
Value Measurement. SFAS No. 157 defines  fair value, establishes a framework for measuring  fair value
in generally accepted accounting principles  and establishes a  hierarchy that  categorizes and prioritizes
the sources to be used to estimate fair  value. SFAS  No. 157  also expands financial statement disclosures

F-13

about fair value measurements. On February  6, 2008, the  FASB issued  FASB  Staff Position  (FSP)  157-b
which  delays the effective date of SFAS No.  157 for one year  for all nonfinancial assets and
nonfinancial liabilities, except those that  are recognized  or disclosed at fair  value in  the financial
statements on a recurring basis (at least annually). SFAS No. 157 and FSP 157-b  are effective for
financial statements issued for fiscal years beginning after  November 15, 2007. The Company has
elected a partial deferral of SFAS No. 157  under the  provisions of FSP 157-b related to the
measurement of fair value used when evaluating  goodwill,  other intangible assets  and other long-lived
assets for impairment and valuing asset retirement obligations  and liabilities for exit or  disposal
activities. The impact of partially adopting SFAS  No. 157 effective January  1, 2008 was not material to
the Company’s financial position or results of operations.

In December 2007, the FASB issued  SFAS  No. 141(R), Business Combinations. This statement

applies to all transactions or other events  in which an entity (the acquirer) obtains control of one or
more businesses (the acquiree), including  those sometimes referred to as  ‘‘true mergers’’ or  ‘‘mergers of
equals’’ and combinations achieved without the  transfer of consideration, for example, by contract
alone or through the lapse of minority  veto rights. This statement applies to all business entities,
including mutual entities that previously used the pooling-of-interests method  of  accounting for  some
business combinations. It does not apply to;  1) the formation of a joint venture; 2) the  acquisition  of an
asset or a group of assets that does not constitute  a business;  3) a combination between entities or
businesses under common control; 4)  a  combination between not-for-profit  organizations or the
acquisition of a for-profit business by a  not-for-profit organization. This  statement applies  prospectively
to business combinations for which the  acquisition  date is  on or after the beginning of  the first annual
reporting period beginning on or after  December 15, 2008. An entity  may  not  apply it before that date.
The effective date of this statement is the  same as that of  the related SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements. The adoption  of SFAS No. 141(R) is not expected to
have a material impact on the Company’s financial position, results  of  operations or  liquidity.

In December 2007, the FASB issued  SFAS  No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an Amendment to  ARB No.  51. This statement  applies to all entities  that  prepare
consolidated financial statements, except not-for-profit  organizations,  but  will  affect only those entities
that have an outstanding noncontrolling interest in  one  or more subsidiaries or that deconsolidate a
subsidiary. This statement is effective for fiscal years, and  interim periods within those fiscal years,
beginning on or after December 15, 2008 (that is, January 1, 2009, for  entities with  calendar  year-ends).
Earlier adoption is prohibited. The effective date  of this  statement  is the same as that of the  related
SFAS No. 141(R).  The adoption of SFAS  No.  160 is not expected to have a  material  impact  on the
Company’s financial position, results  of  operations or liquidity.

Note 3. Restricted Cash

The components of restricted cash are as follows:

December 31,

2008

2007

(in thousands)

Cash collateralizing standby letters of  credit
. . . . . . . . . . . . . . . .
Bank guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$8,654
—

$13,915
3,103

$8,654

$17,018

In addition to guarantees that are cash  collateralized, the  Company has guarantees and surety

bonds related to value added tax claims and refunds in Europe of approximately $3.5 million at
December 31, 2008.

F-14

Note 4. Accounts Receivable, net

The components of accounts receivable are  as follows:

Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . .

$30,031
(2,545)

$78,994
(2,927)

December 31,

2008

2007

(in thousands)

Note 5.

Inventories, net

The components of inventories are as follows:

$27,486

$76,067

December 31,

2008

2007

(in thousands)

Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods (completed systems) . . . . . . . . . . . . . . . . . . . .

$ 93,996
35,977
20,140

$ 95,289
41,018
32,971

$150,113

$169,278

When recorded, reserves are intended to reduce the carrying value of inventory  to  its  net

realizable value. The Company establishes inventory reserves  when conditions exist that indicate
inventory may be in excess of anticipated demand  or is  obsolete based upon assumptions about future
demand for the Company’s products or market conditions. The Company regularly evaluates the ability
to realize the value of inventory based  on  a combination of  factors including the following: forecasted
sales or usage, estimated product end  of life  dates, estimated  current and future  market value and new
product  introductions. Purchasing and  usage alternatives  are also explored  to  mitigate  inventory
exposure.

As of December 31, 2008 and 2007, the inventory  is stated net of inventory reserves  of

$47.7 million and $25.1 million respectively.  As a result of the downward revisions  of  the estimated
future total available market for the  Company’s products  in the fourth quarter of 2008,  the Company
revised its revenue forecasts through 2010. Based on the revised forecasts  and expected inventory
usages over the next two years, the Company  increased  its excess and obsolete  inventory  reserve by
$23.2 million as of December 31, 2008.

F-15

Note 6. Property, Plant and Equipment, net

The components of property, plant and equipment are as follows:

December 31,

2008

2007

(in thousands)

Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 79,988
—
—

$ 78,678
66,144
6,493

Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . .

79,988
(35,556)

151,315
(83,214)

$ 44,432

$ 68,101

Depreciation expense was $8.1 million, $8.7  million,  and $8.9 million,  for the  years  ended

December 31, 2008, 2007, and 2006,  respectively.

During  the fourth quarter of 2008, the Company recorded an impairment charge related to
property, plant and equipment of $17.5 million. The Company  had  an appraisal  completed to value its
land  and buildings which indicated that the fair  value was  in excess of carrying  value. Other items
within property, plant and equipment were determined to have inconsequential fair value and,
accordingly, the carrying value of these assets  was  reduced to zero. (See  Note 2.)

The Company did not record an impairment  charge related to property, plant and equipment in

2007.

Note 7. Goodwill

As a result of the Company’s impairment assessment  of  goodwill, the Company determined that
the carrying value of the Cleaning and Curing product line exceeded its estimated fair value. Therefore,
the Company performed the second step of  the impairment test to determine  the implied value of
goodwill. Specifically the Company allocated the  estimated  fair value of the Cleaning  and Curing
product  line as determined in the first step to recognized and unrecognized net  assets, including
allocations to intangible assets such as  developed technologies, in-process  research  and development,
customer relationships and trade names. The result of this analysis  indicated that there  was  no
remaining implied value attributable to goodwill  and accordingly, the Company recorded a goodwill
impairment charge of $42.1 million in  the fourth  quarter of 2008.

In 2007, a goodwill impairment charge of $4.7  million  was  recorded relating to the RTP and

Photostabilization/Curing product lines.  (See  Note 2.)

Note 8.

Intangible Assets, net

The components of intangible assets  are as  follows:

December 31, 2008

December 31, 2007

Accumulated
Amortization lived assets

Impairment
of long

Cost

Net Book
Value

Cost

Accumulated
Amortization lived assets

Impairment
of long

Net Book
Value

Developed technology . . . $48,030
903
Customer list
. . . . . . . . .
877
Software licenses . . . . . . .

$40,550
506
453

$49,810

$41,509

$7,480
397
424

$8,301

F-16

(in thousands)
$ — $48,030
903
877

—
—

$38,191
416
278

$ — $49,810

$38,885

$ —
—
—

$ —

$ 9,839
487
599

$10,925

Amortization expense for intangible  assets was $2.6  million,  for each  of  the years ended

December 31, 2008, 2007, and 2006,  respectively.

During  the fourth quarter of 2008, the Company reviewed the recoverability  of intangible assets
under SFAS 144. In connection with this analysis, management determined  that  there were no future
cash flows associated with these assets  and therefore  no fair value  was ascribed  to  them. As a result,
the Company recorded a non-cash impairment charge of $8.3  million in  the fourth  quarter  of  2008.
(See Note 2.)

The Company did not record an impairment  charge related to intangible assets in 2007.

Note 9. Other Assets

Included in amounts reported as other assets  are the net  book value of products manufactured by

the Company for internal use as follows:

December 31,

2008

2007

(in thousands)

$16,959
(5,308)

$82,447
(48,138)

$11,651

$34,309

These products are used in-house for research and development, training,  and customer

demonstration purposes. Costs are amortized  to  expense over three to five years. Amortization expense
was $11.4 million, $9.2 million, and $7.6 million, for the years ended  December 31, 2008, 2007,  and
2006, respectively.

The Company recorded an impairment charge to other assets  of  $21.1 million in the fourth quarter

of 2008 in connection with this impairment analysis  under SFAS 144. The sum of the expected
undiscounted future cash flows of the  long lived asset group that included these assets was less than  the
carrying  amount of the asset group. The  measure  of impairment for these  assets was based upon  an
analysis of the fair value compared to the carrying value as  described in  Note 2.  The  Company
established the fair value of the other  assets based upon its best alternative use, which would  be  the
sale of these tools as used inventory. The  Company has a  history of used tool sales that supports  a
range of fair value for these assets. The  timing of  the impairment event in the fourth quarter primarily
relates to the sustained industry downturn and an  anticipated  decrease in future cash  flows derived
from the long-lived asset group that  includes these internal use tools, including significant  change in the
manner in which other assets were being  used resulting  in excess and or idle tools.  These charges were
primarily related to the sustained industry downturn  and an  anticipated decrease in future cash  flows
derived from other assets being used  in  research  and  development activities.

Note 10. Restructuring Charges

In October of 2008, the Company implemented  a reduction in force  to  further reduce  costs to

mitigate deteriorating industry fundamentals. This reduction in  force will  result in a restructuring
charge  to expense of approximately $3.9 million principally for separation and outplacement costs,  of
which  $3.4 million was recorded in the  fourth quarter  of  2008 and  the remainder  will  be  recorded in
the first quarter of 2009. A total of $2.9 million has been  paid  through December 31, 2008.

In May 2008, the Company implemented a  reduction in  force in connection with planned actions
taken by management to control costs to provide future profitability and conserve cash. This reduction
in force resulted in a total charge to  expense  of  approximately $3.6  million  principally for separation
and outplacement costs, of which $3.5  million has been recognized as expense  through December  31,

F-17

2008. The remaining $0.1 million is expected  to  be  recognized  in the first quarter of 2009.  A total of
$3.4 million has been paid through December 31,  2008.

Change in the Company’s restructuring liability, included in amounts reported as other liabilities, is

as follows:

Balance at December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Severance

(in thousands)

$

916
6,873
(7,043)

Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

746

In October of 2007, the Company implemented  a reduction in force  to  control  costs and improve
the focus of its operations in order to  sustain future profitability  and conserve cash. This reduction  in
force resulted in a total charge to expense of approximately $3.1 million related to separation and
outplacement costs, of which $2.5 million was recorded in the  statement  of  operations  at December 31,
2007. For the years ended December 31,  2008 and 2007, payments  made  in connection with this plan
were $0.7 million and $1.6 million, respectively. As of December  31, 2008,  there was approximately
$0.1 million in other liabilities related  to  the October 2007  restructuring.

The 2006 lease restructuring liability  relates to the consolidation  of the Company’s  Rockville,
Maryland operations into its headquarters and manufacturing facility located in  Beverly, Massachusetts
during 2005. These leases were paid  over  the remaining lease term, which ended December 31,  2007.

Changes in the Company’s restructuring  liability,  included in  amounts reported as other liabilities,

for the year ended December 31, 2007  are as follows:

Balance at December 31, 2006 . . . . . . . . . . . . . . . . . .
Restructuring expense . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ — $ 1,124
—
(1,124)

2,506
(1,590)

$ 1,124
2,506
(2,714)

Balance at December 31, 2007 . . . . . . . . . . . . . . . . . .

$

916

$ — $

916

Severance

Leases

Total

(in thousands)

For the year ended December 31, 2006,  the Company recorded restructuring charges of

$0.7 million primarily related to a reevaluation of  the assumptions used in determining the  fair value of
certain lease obligations related to facilities abandoned in  a  previous  restructuring.  The revised
assumptions, including lower estimates of expected sub-rental income over  the remainder of the  lease
terms and expected lease termination  costs associated  with exiting  a  portion of the  facilities,  were based
on management’s evaluation of the commercial rental market.  The above mentioned charges  are net of
a credit of $0.3 million to previously  recognized  restructuring charges relating primarily  to  the
adjustment for severance and other one-time termination benefits associated with reduction in force
actions and the consolidation of the  Company’s Rockville,  Maryland operations into its headquarters
and manufacturing facility located in  Beverly,  Massachusetts. In addition to the amounts reported  as
restructuring charges, $0.3 million of relocation and  other incremental expenses related  to  the
consolidation of the Rockville, Maryland operations are  included in general  and administrative expense
for the year ended December 31, 2006.

F-18

Note 11. Product Warranty

The Company offers a one to three year warranty  for all of its products, the terms and  conditions

of which vary depending upon the product  sold.  For  all systems sold, the Company accrues a liability
for the estimated cost of standard warranty at the time  of system shipment and defers the  portion of
systems revenue attributable to the fair  value of non-standard warranty.  Costs for non-standard
warranty are expensed as incurred. Factors that  affect the  Company’s warranty liability include  the
number of installed units, historical and  anticipated product  failure rates, material usage  and service
labor costs. The Company periodically assesses  the adequacy of its recorded liability and  adjusts  the
amount as necessary.

Changes in the Company’s product warranty liability are as follows:

Balance at January 1 (beginning of year) . . . . . . . . . . .
Warranties issued during the period . . . . . . . . . . . . .
Settlements made  during the period . . . . . . . . . . . . .
Changes in estimate of liability for pre-existing

Years Ended December 31,

2008

2007

2006

$ 6,245
2,564
(5,419)

(in thousands)
$ 6,472
6,625
(6,306)

$ 7,166
9,231
(6,513)

warranties during the period . . . . . . . . . . . . . . . . .

140

(546)

(3,412)

Balance at December 31 (end of year) . . . . . . . . . . . . .

$ 3,530

$ 6,245

$ 6,472

Amount classified as current
. . . . . . . . . . . . . . . . . .
Amount classified as long-term . . . . . . . . . . . . . . . . .

$ 3,137
393

$ 5,011
1,243

$ 5,229
1,243

Total Warranty Liability . . . . . . . . . . . . . . . . . . . .

$ 3,530

$ 6,254

$ 6,472

Note 12. Financing Arrangements

Convertible Subordinated Debt

On January 15, 2009, Axcelis failed to  make  the required  payment  of  approximately  $85 million

under an Indenture dated as of May  2, 2006 (the ‘‘Indenture’’)  between Axcelis and U.S. Bank
National Association, as trustee (the  ‘‘Trustee’’), relating  to the Company’s 4.25% Convertible Senior
Subordinated Notes (the ‘‘Notes’’). Such  failure  constituted an event of default  under the Indenture.
Pursuant to the Indenture and as a result of the failure by Axcelis to make  the required  payment,
Axcelis was required to pay, upon demand  of  the Trustee,  the entire overdue  amount,  plus interest at a
rate of 8.0% per annum, plus certain  additional costs  and  expenses  associated with the  collection of
such amounts. In January 2009, the Trustee filed a Complaint in US District  Court in  New York
seeking a judgment for the amount due  on the Notes. In February 2009, as an  inducement to enter into
the Share Purchase Agreement dated February 26,  2009 with Sumitomo Heavy Industries, Ltd. and
SEN Corporation, an SHI and Axcelis Company (see  Note 1.),  the Trustee confirmed in writing that
judgment would not be entered in their  litigation against Axcelis until after April 13, 2009,  during
which  time it was contemplated that  the  closing  under the Share Purchase Agreement would occur.  On
March 30, 2009, the Company completed the sale  of SEN for proceeds  of $122.3 million net  of
$10.5 million in advisor fees and other  expenses. A portion of  the  net proceeds  was used for  a direct
repayment of all amounts due under  the  Indenture resulting in  an extinguishment of  the debt  in full.

The Notes were issued in May 2, 2006, under  an exchange and purchase agreement  pursuant  to

which  the holder of an aggregate of approximately $50.8 million  of  the Company’s $125 million of
4.25% Convertible Subordinated Notes  due January 15,  2007 issued  in January 2002  (the  ‘‘2002
Notes’’), agreed to exchange its 2002  Notes  for  $50.8 million in  aggregate principal amount of the
Notes, plus accrued and unpaid interest on  the 2002 Notes  through the closing date  of the exchange. In

F-19

addition, the Company issued this holder an additional  $24.2  million  of  Notes,  resulting in an  aggregate
of $75  million of Notes outstanding. The  Company repaid the remaining $74.2 million of outstanding
2002 Notes in January 2007.

On April 23, 2008, the Company entered into a  revolving  credit facility with a bank that provides

for borrowings up to the lesser of $50 million or  specified  percentages  of  the amounts of qualifying
accounts receivable and inventory. The  Company is currently  unable  to  borrow against  the facility
because it is not currently, and do not  expect to become,  in compliance  with the financial covenants
contained in the underlying credit agreement.  This facility expires in April 2010. If  the Company
terminates this revolving credit facility prior  to  April 23, 2009, the Company  will  have to pay an early
termination fee of approximately $1.0 million as the date of termination. If  the Company terminates
this  revolving credit facility after April 23, 2009  but prior  to its expiration, the Company will  have to
pay an early termination fee of approximately $0.5 million as of the date  of  termination.

Note 13. Defined Contribution Plan

The Company maintains the Axcelis  Long-Term Investment Plan, a defined contribution plan. All
regular employees were eligible to participate and may contribute up to 35%  of  their  compensation  on
a before-tax basis subject to IRS limitations. Highly compensated  employees may  contribute up  to  16%
of their compensation on a before-tax  basis subject to IRS limitations. Through 2008,  the Company
matched employee contributions in an amount equal to the greater  of  (A) 100%  of the employee’s
pre-tax contributions up to one thousand  dollars  or (B)  50% of the employee’s pre-tax contributions,
up to the first 6% of eligible compensation. Under this plan,  approximately  $1.6 million, $2.2 million,
and $2.2 million was recognized as expense  for the  years  ended December  31, 2008, 2007, and  2006,
respectively.

Note 14. Stock Award Plans and Stock-Based Compensation

2000 Stock Plan

The Company maintains the Axcelis  Technologies, Inc. 2000  Stock Plan (the ‘‘2000 Plan’’), a stock

award and incentive plan which permits the  issuance  of  options, stock appreciation rights, restricted
stock, restricted stock units, and performance awards  to  selected  employees, directors and  consultants
of the Company. The 2000 Plan originally  reserved 18.5 million shares of common stock for future
grant, which amount was subsequently increased to 33.2  million shares of common  stock.  The 2000
Plan expires in 2012. At December 31, 2008  there were 14.0  million shares of common stock available
for future grant. At December 31, 2008,  stock awards outstanding under the 2000 Plan included stock
options, restricted stock and restricted  stock units.

Expiration of non-qualified stock options or  stock appreciation rights is based  on award

agreements. Non-qualified stock options typically  expire ten years from date of grant,  but, if approved
by the Board of Directors, may have a stated term  in excess of ten years. Incentive  stock  option awards
expire ten years from the date of grant. Generally,  options granted  to  employees terminate  upon
termination of employment. Under the  terms of the  2000 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. Stock options granted  to  employees generally  vest over a  period of  four
years, while stock options granted to  non-employee members of the Company’s Board  of  Directors
generally vest over a period of 6 months  and, once  vested,  are  not affected  by  the director’s
termination of service to the Company.  The Company settles  stock option exercises with newly issued
common shares.

Generally, unvested restricted stock and  restricted stock unit awards  expire upon termination of
service to the Company. Restricted stock  or restricted  stock unit awards granted  to  employees generally
vest over a period of four years, while  restricted stock  or restricted stock  units granted to members  of

F-20

the Company’s Board of Directors generally vest over a  period of six months.  The  Company plans to
settle restricted stock units upon vesting with newly issued common shares.

Under the 2000 Plan, fair market value is defined  as the closing price of a share of the common
stock on the Nasdaq Global Select Market as of  any applicable date, as long  as the Company’s shares
are traded on such exchange.

Grant-Date Fair Value

For the purpose of valuing stock options, the Company  uses  the  Black-Scholes option pricing
model to calculate the grant-date fair  value of an award. The  fair values of options granted were
calculated using the following estimated weighted-average assumptions:

Years ended December 31,

2008

2007

2006

Weighted-average expected volatility . . . . . . . . . . . . . .
Weighted-average expected term (in years) . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . .

76.5%
5.5

58.4%
4.2
1.6-2.4% 3.5-5.1% 4.3-5.1%
0%

58.4%
4.2

0%

0%

Expected volatility—The Company is  responsible for estimating volatility  and has considered a
number of factors  when estimating volatility. The Company’s  method of estimating expected volatility
for all stock options granted relies on  a combination of historical and implied volatility. The Company
believes that this blended volatility results in a more accurate estimate of the grant-date fair  value of
employee stock options because it more  appropriately reflects the  market’s  current expectations  of
future volatility.

Expected term—Weighted average expected  term was calculated using a forward looking lattice

model of the Company’s stock price  incorporating a  suboptimal exercise  factor and  a projected
post-vest forfeiture rate.

Risk-free interest rate—The yield on  zero-coupon U.S.  Treasury securities  for a  period that is

commensurate with the expected term  assumption  is used as the risk-free  interest rate.

Expected dividend yield—Expected dividend  yield was  not  considered in  the option  pricing formula

since the Company does not pay dividends  and has no current plans to do so  in the future.

Stock-Based Compensation Expense

The Company estimates the fair value  of  stock options using  the Black-Scholes valuation model,

consistent with the provisions of SFAS No. 123R and SEC SAB No. 107. The  fair value  of the
Company’s restricted stock and restricted stock units was  calculated based  upon the  fair market value
of the Company’s stock at the date of grant.

The Company used the graded attribution method to recognize  expense for all stock-based awards

prior to the adoption of SFAS 123R. Upon adoption of SFAS 123R on January 1, 2006, the Company
changed to the straight-line attribution  method to recognize expense for  stock-based awards granted
after December 31, 2005. The change to the straight-line attribution method was made  so that the
expense associated with each stock-based  award is recognized evenly  over the vesting period. The
expense associated with the unvested portion of  the pre-adoption grants will  continue to be expensed
using the graded attribution method.

The amount of stock-based compensation recognized is based on the  value  of  the portion of the
awards that are ultimately expected to  vest. SFAS 123R requires forfeitures to be estimated at the time
of grant  and revised, if necessary, in  subsequent  periods if  actual  forfeitures differ from those estimates.
The term ‘‘forfeitures’’ is distinct from ‘‘cancellations’’ or  ‘‘expirations’’ and represents  only  the

F-21

unvested portion of the surrendered  stock-based  award.  The Company currently expects, based on a
historical analysis, a forfeiture rate of  10% per year, including executive officer awards.

Under SFAS No. 123R, the Company recognized stock-based  compensation  expense of $4.7  million

$5.5 million and $5.5 million for the  years ended December 31, 2008,  2007 and 2006, respectively. For
2008, the Company primarily used stock  options  in its  annual share-based payment  program. For 2007
and 2006 the Company used restricted stock units in its annual  share-based payment program for
employees, while continuing to use stock  options for new hire grants. As  a result, restricted stock units
comprised the majority of equity grants in 2007  and  2006.

SFAS No. 123R also requires the benefits of tax deductions in excess of recognized compensation

cost to be reported as a financing cash  flow, rather than as an operating cash  flow. Because  the
Company does not recognize the benefit of tax deductions  in excess of recognized compensation cost
due to its cumulative net operating loss position, this change  had no impact on the  Company’s
consolidated statement of cash flows as of and for  the years ended December 31, 2008, 2007 and 2006.

Stock Options

The following table summarizes the stock option activity for the years ended December  31, 2008,

2007 and 2006:

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value

(years)

(in thousands)

Outstanding at December 31, 2005 . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at December 31, 2006 . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at December 31, 2007 . . . . . . . . . . . . .

Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Options

(in thousands)
13,464
670
(265)
(204)
(860)

12,805
385
(191)
(114)
(1,451)

11,434

5,333
(20)
(196)
(1,027)

Outstanding at December 31, 2008 . . . . . . . . . . . . .

15,524

Exercisable at December 31, 2008 . . . . . . . . . . . . . .

9,805

$11.81
5.14
5.98
6.52
11.71

$11.68
4.93
5.71
6.33
11.47

$11.65

0.71
5.01
5.42
10.75

$ 8.05

$12.13

5.65

3.27

Options Vested or Expected to Vest at

December 31, 2008(1) . . . . . . . . . . . . . . . . . . . . .

13,898

$ 8.88

5.24

$ 15

$ —

$352

(1) In addition to the vested options, the  Company expects  a portion  of the unvested  options to vest at
some point in the  future. Options expected  to  vest is calculated  by applying an estimated forfeiture
rate to the unvested options.

F-22

Of the options outstanding at December  31, 2008,  2007, and 2006, 9,805,  10,467,  and 11,304,
respectively, were vested and exercisable  with a weighted average exercise price  of  $12.13, $12.21, and
$12.38, respectively. The total intrinsic value of options  exercised (i.e.  the difference  between  the
market price at exercise and the price  paid by the  employee  to  exercise the options) for  the years
ended December 31, 2008, 2007 and 2006 was $0.0,  $0.3 and $0.3 million, respectively.

The total fair value of stock options  vested during  the year ended December 31, 2008  was

$1.5 million. As of December 31, 2008, there was $2.4 million of total forfeiture adjusted unrecognized
compensation cost related to non-vested stock options  granted under the 2000 Plan. That cost  is
expected to be recognized over a weighted-average  period of 3.12 years.

Restricted Stock and Restricted Stock  Units

Restricted stock units (‘‘RSUs’’) represent the Company’s unfunded and unsecured promise to
issue shares of the common stock at  a future date, subject to the terms  of  the RSU  Award Agreement
and the 2000 Plan. The purpose of these awards is to assist in  attracting and retaining  highly competent
employees and directors and to act as an  incentive in motivating  selected  employees and directors to
achieve long-term corporate objectives.  These  RSU  awards typically vest over four years for employees
and executive officers. The restricted  stock awards  to  directors typically vest over  six months. The fair
value of restricted stock unit and restricted stock awards is charged to expense  ratably over the
applicable service period.

Changes in the Company’s non-vested restricted stock  and  restricted stock units for the years

ended December 31, 2008, 2007, and  2006 are as follow:

Outstanding at December 31, 2005 . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at December 31, 2006 . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at December 31, 2007 . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at December 31, 2008 . . . . . . . . . . . . . .

Shares/units

(in thousands)
1,063
927
(137)
(22)

1,831
1,178
(476)
(423)

2,110
203
(568)
(133)

1,612

Weighted-Average
Grant Date Fair
Value per Share

$7.04
6.01
7.90
7.84

$6.44
6.03
6.60
6.24

$6.22
4.60
6.43
6.28

$5.94

As of December 31, 2008, there was  $5.6 million of total  forfeiture adjusted unrecognized

compensation cost related to nonvested restricted stock and  restricted stock units, which is expected to
be amortized over a weighted average  amortization period  of 1.84 years.

Employee Stock Purchase Plan

The Employee Stock Purchase Plan (the ‘‘Purchase Plan’’) 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 of up to 10%  of  the employee’s  salary, subject to
certain caps set forth in the Purchase  Plan. Historically,  employees could  purchase  Axcelis common
stock at 85% of the market value of  the  Company’s  common stock on the first trading day of each

F-23

offering period or on the day the stock is  purchased, whichever was lower.  Effective January  1, 2006,
employees may only purchase Axcelis common stock at 85% of the market value of the  Company’s
common stock on the day the stock is  purchased. The purchase price may be adjusted by the Board of
Directors.

Under SFAS No. 123R, the Purchase Plan is considered compensatory and as such, compensation
expense has been recognized beginning January 1,  2006. Compensation expense is computed based on
the benefit of the discounted stock price, amortized to compensation  expense over each  offering period
of six months. Compensation expense for  the years ended December 31, 2008, 2007, and 2006 was
$0.1 million, $0.3 million, and $0.3 million respectively.

As of December 31, 2008, there were a  total  of 3.3 million shares reserved for issuance and
available for purchase under the Purchase  Plan.  There were  0.4, 0.6, and  0.5  million  shares purchased
under the Purchase Plan for the years ended December 31,  2008, 2007, and 2006 respectively.

Note 15. Stockholders’ Equity

Preferred Stock

The Company may issue up to 30 million shares of preferred stock in  one or more series.  The

Board of Directors is authorized to fix the  rights and terms for any series of preferred  stock without
additional shareholder approval. In June 2000, the Board of Directors authorized  and designated
3 million shares of preferred stock as  Series A  Participating  Preferred  Stock for issuance pursuant to
the Company’s Shareholder Rights Plan discussed below. As  of  December 31,  2008 and 2007, there
were no outstanding shares of preferred stock.

Shareholder Rights Plan

In June 2000, the Board of Directors adopted a  Shareholder Rights Plan and declared a dividend

distribution of one share purchase right (a ‘‘Right’’) for each outstanding  share of common stock  to
stockholders of record at the close of business  on June 30,  2000. Each  share of common  stock  newly
issued after that date also will carry with it one Right. Each Right  will entitle  the record holder to
purchase from the Company one one-hundredth of a share of Series A Participating Preferred Stock at
an exercise price of $110.00 per Right subject to adjustment. If  certain takeover events occur, exercise
of the rights would entitle the holders  thereof (other  than  the acquiring person or group) to receive
common shares or common stock of a surviving corporation, or cash,  property or other securities, with
a market value equal to twice the purchase  price. These takeover events  include a person or group
becoming the owner of 20% or more of  the Company’s outstanding common stock,  or the
commencement of, or announcement of  an intention to make, a tender offer  or exchange  offer the
consummation of which would result  in the beneficial ownership by  a  person or group of 20% or  more
of the Company’s outstanding common shares. The Rights expire in June 2010, and may be redeemed
by the Company at the option of its Board  of Directors,  for $.001 per Right.

Other Reserved Shares

At December 31, 2008, there were 4.2 million shares of common stock reserved for issuance upon

conversion of the Notes.

Note 16. Commitments and Contingencies

Lease Commitments

The Company leases manufacturing and office facilities and certain equipment under operating

leases that expire through 2015. Rental  expense  was $6.9 million, $6.9  million, and $6.2 million under
operating leases, excluding amounts recorded as  a component of restructuring expense, for the years

F-24

ended December 31, 2008, 2007 and 2006, respectively. Future minimum lease commitments on
non-cancelable operating leases are as follows:

Year ended December 31,

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating
Leases

(in thousands)
$4,963
2,802
749
292
281
88

$9,175

Purchase Commitments

The Company has non-cancelable contracts and purchase orders for inventory of $8.8  million  at

December 31, 2008.

Litigation

In January 2009, theTrustee under the  Indenture relating to the  Company’s 4.25%  Convertible
Senior Subordinated Notes (the ‘‘Notes’’), filed a Complaint in US District Court in New York seeking
a judgment for the amount due on the Notes,  (a  total  payment of  approximately $85  million). This
litigation relates to the Company’s failure  to  pay  the principal and  interest due on the  Notes on
January 15, 2009, discussed in the Management’s Discussion and Analysis  above. In February 2009, as
an inducement to enter into the Share Purchase Agreement dated  February 26, 2009 (the ‘‘Share
Purchase Agreement’’) with Sumitomo Heavy Industries,  Ltd. (‘‘SHI’’) and  SEN  Corporation, an  SHI
and Axcelis Company (‘‘SEN’’), the Trustee confirmed in writing  that judgment will not be entered  in
this  litigation until after April 13, 2009,  during  which time it was contemplated that the closing under
the Share Purchase Agreement would occur. On March  30, 2009, the  Company completed the sale of
SEN for net proceeds of $122.3 million net of $10.5 million of advisor fees and  other expenses.  A
portion of the net proceeds was used  in  the direct repayment of all amounts due under the Indenture.
As a result of the payment, the trustee for  the Notes will  withdraw litigation filed in connection with
Axcelis’ default on the Notes. (See note 12.)

The Company is not presently a party to any other litigation that  it believes might have  a material
adverse effect on its business operations.  The Company is, from time to time, a party  to  litigation  that
arises in  the normal course of its business operations.

Prior to the sale, SEN and Axcelis were engaged  in an arbitration initiated by Axcelis  to  establish

a basis for setting the royalty for a single wafer, high current ion implant system known as the SHX.
SEN had filed counter claims which Axcelis believed had no  merit. In January 2009,  the Company and
SEN agreed to suspend the arbitration  indefinitely. In  connection with  the sale  of SEN, this  arbitration
will be dismissed by both parties.

Indemnifications

The Company’s system sales agreements typically include provisions under  which the Company
agrees to take certain actions, provide  certain remedies and defend its customers  against third-party
claims of intellectual property infringement under specified conditions and to indemnify customers
against any damage and costs awarded  in connection with  such claims. The Company has not incurred
any material costs  as a result of such indemnifications and has not accrued any  liabilities  related to
such obligations in the accompanying  consolidated  financial  statements.

F-25

Note 17. Business  Segment, Geographic Region Information, and Significant  Customers

Axcelis operates in 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 current, medium  current and high
energy implanters. Other products include  dry  strip equipment, curing systems, and thermal processing
systems. In addition to equipment, Axcelis  provides post-sales  equipment service and  support, including
spare parts, equipment upgrades, maintenance services and customer training.

Revenues by product line are as follows:

Ion implantation systems, services, and royalties . . .
Other products systems, services, and royalties . . . .

$204,886
45,328

(in thousands)
$304,529
100,271

$342,885
118,832

$250,214

$404,800

$461,717

Years ended December 31,

2008

2007

2006

Revenues and long-lived assets by geographic region  based on the physical  location of the

operation recording the sale or the asset are as  follows:

2008
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2007
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2006
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Revenue

Long-Lived
Assets

(in thousands)

$175,041
29,605
45,568

$44,432
—
—

$250,214

$44,432

$316,467
35,629
52,704

$66,845
518
738

$404,800

$68,101

$369,920
37,231
54,566

$65,347
588
743

$461,717

$66,678

Long-lived assets consist of property, plant and equipment, net.  Operations in Europe  and Asia

Pacific consist of sales and service organizations.

International revenues, including export  sales  from U.S.  manufacturing  facilities  to  foreign

customers, sales by foreign subsidiaries and branches, and royalties were $161.9 million (64.7% of total
revenues) in 2008, $271.2 million (67.0% of total  revenues) in 2007, and $309.9 million (67.1% of total
revenues) in 2006.

F-26

One  customer accounted for 11.7% of revenue and 12% of consolidated accounts receivable  at
December 31, 2008. One customer accounted for 12.2% of  revenue and 24.1% of consolidated accounts
receivable at December 31, 2007. No single  customer accounted for more  than 10%  of revenue or
consolidated accounts receivable at December 31, 2006.

Note 18. Income Taxes

Income (loss) before income taxes are as follows:

Years ended December 31,

2008

2007

2006

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity income (loss) of SEN . . . . . . . . . . . . . . . . .

(in thousands)
$(193,451) $(28,121) $19,501
4,016
19,266

1,315
(3,667)

5,897
10,416

Income (loss) before income taxes . . . . . . . . . . .

$(195,803) $(11,808) $42,783

Income taxes (credits) are as follows:

Years ended December 31,

2008

2007

2006

(in thousands)

Current:

United States
Federal
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

8 $(1,574) $ 988
200
185
1,034
1,070

136
528

Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

672

(319)

2,222

Deferred:

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

189

189

—
(91)

(91)

—
(209)

(209)

Income taxes (credits) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $861 $ (410) $2,013

Reconciliations of income taxes at the United  States  Federal statutory  rate to the  effective income

tax rate are as follows:

Years ended December 31,

2008

2007

2006

(in thousands)

Income taxes (credit) at the United States statutory  rate . . . $(68,531) $ (4,132) $14,974
185
State  income taxes, net of federal income tax benefit . . . . .
130
— (4,217)
Realized net operating loss carryforwards . . . . . . . . . . . . . .
Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Unremitted earnings of foreign subsidiaries . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . .
Foreign income tax rate differentials . . . . . . . . . . . . . . . . .
Equity (income) loss of SEN . . . . . . . . . . . . . . . . . . . . . . .
Reversal of income tax liabilities recorded in  prior years . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,856
(497)
(2,187)
— (1,294)
1,659

136
—
14,740
5,965
45,586
68
1,283

—
(581)
(6,743)
—
(1,550)

1,614

Income taxes (credits) . . . . . . . . . . . . . . . . . . . . . . . . . . $

861 $

(410) $ 2,013

F-27

Significant components of current and  long-term deferred income taxes  are as  follows:

Federal net operating loss

carryforwards . . . . . . . . . . . . . . . . .
State net operating loss carryforwards .
Foreign net operating loss

carryforwards . . . . . . . . . . . . . . . . .
Federal tax credit carryforwards . . . . . .
State tax credit carryforwards . . . . . . .
Equity income of SEN . . . . . . . . . . . .
Unremitted earnings of foreign

subsidiaries . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . .
Property, plant and equipment
. . . . . .
Accrued compensation . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . .
Warranty . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . .

Deferred taxes, gross . . . . . . . . . . . . .

As of December 31,

2008

2007

Current

Long Term

Current

Long  Term

(in thousands)

$

— $ 80,460
1,697
—

$

— $ 49,022
1,717
—

—
—
—
—

—
—
—
1,312
28,858
—
1,140
1,711

33,021

4,142
22,630
9,641
—

(5,965)
1,012
7,393
—
—
3,437
143
2,559

127,149

—
—
—
—

—
—
—
620
22,978
—
1,804
945

26,347

4,487
21,073
10,439
(485)

—
(2,328)
1,082
—
—
3,018
445
(398)

88,072

Valuation allowance . . . . . . . . . . . . . .

(31,698)

(127,165)

(25,248)

(88,029)

Deferred taxes, net . . . . . . . . . . . . . . .

$ 1,323

$

(16) $ 1,099

$

43

At December 31, 2008, the Company  had $160.2  million  of deferred tax assets relating to net
operating loss carryforwards, tax credit  carryforwards  and  other temporary differences, which are
available to reduce income taxes in future years. SFAS  No. 109  Accounting for  Income Taxes requires
that a valuation allowance be established when it is ‘‘more likely than  not’’  that  all  or a portion of
deferred tax assets will not be realized.  A review  of all available  positive and negative evidence needs
to be considered, including a company’s  performance, the market environment  in which the  company
operates length of carryback and carryforward  periods,  existing sales backlog, and  projections of future
operating results. Where there are cumulative losses in recent years, SFAS No.  109 creates  a strong
presumption that a valuation allowance  is needed.  This presumption can be overcome  in very  limited
circumstances.

The Company is in a three year cumulative loss  position in the  United States and has uncertainty

in future taxable income for its European subsidiaries. As a result, the Company  maintains a 100%
valuation allowance for entities in those  tax jurisdictions to reduce the carrying  value of  deferred tax
assets to zero. The Company will continue to maintain a  full valuation allowance for those tax assets
until sustainable future levels of profitability are  evident.

Changes in the valuation allowance in 2008 and 2007 were  attributable  principally to changes in

the composition of temporary differences and increases  in net operating loss carryforwards. Also  in
2008, there was a change in the valuation allowance attributable to the recognition of a  deferred tax
liability for unremitted earnings of foreign  subsidiaries. Changes  in the valuation allowance  in 2006
were attributable to changes in the composition of temporary  differences and increases in tax credit
carryforwards which were offset by the realization of benefits from the use of  net operating loss
carryforwards to reduce taxable income.

F-28

At December 31, 2008, the Company has federal and state net operating  loss carryforwards of

approximately $231.6 million and foreign net operating  loss carryforwards of approximately
$11.4 million expiring principally between  2018 and  2028. The sale of the  Company’s investment in
SEN will generate taxable income which  will be off-set with existing  net operating loss carryforwards.

The Company has research and development and other tax  credit carryforwards of approximately

$10.2 million at December 31, 2008 that can be used to reduce future federal income tax  liabilities.
These tax credit carryforwards expire principally between 2021 and 2028.  In addition, the  Company has
foreign tax credit carryforwards of approximately  $12.4 million at December 31,  2008 that are available
to reduce future U.S. income tax liabilities subject to certain limitations. These  foreign tax  credit
carryforwards expire between 2011 and 2018.

The Company has not provided for income tax expense  on $155.5 million  of its  share of
unremitted earnings of SEN, since the Company does  not  have the ability to unilaterally  initiate a
distribution of these earnings nor a contractual agreement with  its  joint venture partner  to  do so.

In June 2006, the FASB issued Financial  Interpretation No.  48, Accounting  for Uncertainty in
Income Taxes (FIN 48), which clarifies  the accounting for uncertainty  in income taxes  recognized in a
company’s financial statements in accordance with SFAS No.  109. The Interpretation prescribes a
recognition threshold and measurement attribute  criteria for the financial statement recognition  and
measurement of a tax position taken  or  expected to be taken in a tax  return.  The Interpretation  also
provides guidance  on derecognition,  classification, interest and penalties,  accounting in interim  periods,
disclosure and transition.

The Company and its subsidiaries file income tax returns in  the U.S. federal jurisdiction, and
various states and foreign jurisdictions. The Company and most foreign  subsidiaries are subject to
income tax examinations by tax authorities  for all years dating  back to 2001. The  Company’s policy is to
recognize interest related to unrecognized tax benefits as  interest  expense and penalties as operating
expenses. Accrued interest and penalties  are insignificant at December 31, 2008. The Company believes
that it has appropriate support for the income tax positions taken and to be taken  on its tax returns
and that its accruals for tax liabilities  are  adequate for all open years based on an assessment of many
factors including past experience and interpretations  of  tax law applied to  the facts of  each  matter.

The Company adopted the provisions of FIN 48  on January 1, 2007. The  adoption of FIN 48 did
not impact the consolidated financial condition, results of operations or cash flows.  At December  31,
2008, the Company had unrecognized tax  benefits of approximately $5.8  million, of  which
approximately $4.7 million reduced the Company’s deferred tax assets and the offsetting valuation
allowance and $1.1 million was recorded in other long-term  liabilities. During  September of 2007,  the
Company made the determination that  certain reserves relating to a  previous tax  year  were no longer
required due to the expiration of a statue of limitations for the specific amount reserved. As a result,
the company recorded an adjustment to reduce income tax expense by  $1.2 million during the three
month period ended September 30, 2007. To  the extent these  unrecognized tax benefits  are ultimately
recognized, approximately $1.1 million would impact  the effective  tax rate in a  future period and
$4.7 million would increase deferred  tax  assets and the  offsetting  valuation  allowance. The  Company
does not expect any significant changes in unrecognized  tax  benefits in 2009.

F-29

A reconciliation of the beginning and  ending balance of unrecognized tax  benefits (in thousands) is

as follows:

Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases in unrecognized tax benefits  as a result of tax positions

2008

2007

(in thousands)

$5,708

$ 5,248

taken during a prior period . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

1,480

Increases in unrecognized tax benefits  as a result of tax positions

taken during the current period . . . . . . . . . . . . . . . . . . . . . . . .

261

274

Decreases in unrecognized tax benefits as a  result of tax positions

taken during the current period . . . . . . . . . . . . . . . . . . . . . . . .

(145)

(88)

Decreases in the unrecognized tax benefits as  a result  of  a lapse

of the applicable statute of limitations . . . . . . . . . . . . . . . . . . .

— (1,206)

Balance at end of  year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$5,824

$ 5,708

Recorded as Other Long Term Liability . . . . . . . . . . . . . . . . . . . .
Recorded as a decrease in deferred tax assets and offsetting

$1,104

$ 1,104

valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,720

4,604

$5,824

$ 5,708

Note 19. SEN Corporation, an SHI and  Axcelis Company (unaudited)

SEN was established in 1982 under the Commercial  Code  of Japan  and  was,  until March 30, 2009,
owned equally by Sumitomo Heavy Industries, Ltd., a  Japanese corporation, and  Axcelis. SEN designs,
manufactures, sells and services specified  ion implantation equipment in Japan under a license
agreement with Axcelis.

Summary financial information is as follows:

2008

2007

2006

(in thousands)

Twelve  months ended November 30:

Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$158,574
102,768
(7,334)

$235,611
97,911
20,832

$267,131
125,394
38,531

November 30:

Current assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . .

$326,197
31,768
38,863
752

$287,990
25,945
47,760
189

$304,208
26,044
76,339
187

SEN has a March  31 fiscal year end.  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.

F-30

A summary of Axcelis’ transactions with and balances payable to or receivable from SEN are as

follows:

Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends received . . . . . . . . . . . . . . . . . . . . . . . . . . .
Axcelis’ equity income (loss) of SEN . . . . . . . . . . . . . .
Accounts receivable at December 31 . . . . . . . . . . . . . .
Accounts payable at December 31 . . . . . . . . . . . . . . . .

2008

2007

2006

$ 1,166
4,059
2,016
(3,667)
257
2

(in thousands)
$ 1,825
6,066
12,424
10,416
442
284

$ 3,007
9,207
—
19,266
1,402
178

Axcelis’ retained earnings (deficit) included $94.5 million and $100.2 million of undistributed

earnings of SEN at December 31, 2008  and 2007,  respectively.

Changes in investment in SEN are as follows:

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity income (loss) of SEN . . . . . . . . . . . . . . . . . . . . . . .
Dividends received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange impact . . . . . . . . . . . . . . . . . . . . . . . . . .

$132,911
(3,667)
(2,016)
29,449

$126,688
10,416
(12,424)
8,231

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$156,677

$132,911

2008

2007

(in thousands)

In 2006, Axcelis and SHI agreed upon an annual dividend  relating  to  SEN’s  fiscal year  ended
March 31, 2006. The two shareholders instructed SEN to dividend 40% of SEN’s net  earnings for that
year. On January 31, 2007 and July 31, 2007, Axcelis  received  a payment  of  approximately  $5.7 million
representing its 50% share of the dividend. In 2007, the Company  entered into an  agreement with SHI
pursuant to which SEN will be instructed to dividend 40% of  its net income annually. On July  31, 2008
and 2007 the Company received a dividend  of  approximately $2.0  million  and $6.7 million  respectively
for SEN’s fiscal year ended March 31, 2008 and  2007.

On February 26, 2009, Axcelis, SHI and SEN entered into a  Share Purchase  Agreement pursuant

to which Axcelis would sell and SHI would buy all of Axcelis’  common shares in SEN in exchange for a
cash payment of 13 billion Yen on the later of March 31, 2009  or  the date on which certain closing
conditions are satisfied (the ‘‘Share Purchase Agreement’’). On  March 2, 2009, the Company  purchased
a foreign exchange option to hedge the  proceeds from the transaction. This  option insures  proceeds of
approximately $132.7 million before  advisor fees and other  expenses. On March 30,  2009, the Company
completed the sale of its shares in SEN, to SHI for proceeds  of $122.3 million net of advisory fees and
other expenses.

SEN remains liable to the Company for royalties and commissions on products sold through
March 31, 2009. In connection with the  closing under the Share Purchase Agreement, Axcelis and SEN
entered into a new License Agreement which allows each company to continue to use certain patents
and technical information owned by the other to make and sell ion implant systems on  a worldwide,
royalty-free, perpetual basis. The Company  can now market  all its products in Japan. The transaction
terminated all existing agreements among the three parties relating to the SEN joint venture.  In
addition, the arbitration with SEN initiated by Axcelis in Tokyo will  be  dismissed.

On March 30, 2009 $86.4 million of the proceeds  from the sale of the  Company’s investment in
SEN were used for a direct pay-off of all amounts due to the holder of its 4.25% Convertible Senior
Subordinated Notes (the ‘‘Notes’’) that matured in  January 2009.

F-31

Note 20. Quarterly Results of Operations (unaudited)

Dec. 31,
2008

Sept. 30,
2008

June 30, March  31,

2008

2008

Dec.  31,
2007

Sept. 30,
2007

June 30, March  31,

2007

2007

(in thousands, except per share data)

Revenue . . . . . . . . $ 41,977 $ 46,454 $ 76,889 $ 84,894 $ 89,649 $107,553 $110,073
43,590
Gross profit
. . . . .
4,744
Net income (loss) .
Net income (loss)
per  share basic
and diluted . . . . $

(1.37) $ (0.24) $ (0.19) $ (0.11) $ (0.10) $

(10,850)
(141,445)

31,753
(10,617)

17,159
(24,741)

27,090
(19,397)

29,216
(11,081)

36,269
(8,197)

(0.08) $

0.05

$97,526
41,250
2,672

$ 0.03

Results of operations for the quarters  ended December 31, 2008, September 30, 2008,  June  30,

2008 and December 31, 2007 included restructuring charges of $3.5 million,  $0.4 million, $3.0 million
and $2.5 million respectively.

Results of operations for the quarter  ended December  31, 2008 include charges  for impairment  of

intangible and long-lived assets of $46.9  million, impairment of goodwill  of  $42.1 million, and  excess
inventory of $23.2 million.

Results of operations for the quarter  ended September 30,  2007 include a  charge for impairment

of goodwill of $4.7 million.

F-32

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.

Signatures

AXCELIS TECHNOLOGIES, INC.

/s/ MARY G. PUMA

Dated: March 31, 2009

By:

Mary G. Puma, Chief Executive Officer

Pursuant to the requirements of the Securities 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  date indicated.

Signature

Title

Date

/s/ MARY G. PUMA

Mary G. Puma

/s/ STEPHEN G. BASSETT

Stephen G. Bassett

/s/ R. JOHN FLETCHER

R. John Fletcher

/s/ STEPHEN R. HARDIS

Stephen R. Hardis

/s/ WILLIAM C. JENNINGS

William C. Jennings

/s/ PATRICK H. NETTLES

Patrick H. Nettles

/s/ H. BRIAN THOMPSON

H. Brian Thompson

/s/ GEOFFREY WILD

Geoffrey Wild

Director and Principal Executive Officer

March 31, 2009

Principal Accounting and Financial Officer March 31, 2009

Director

Director

Director

Director

Director

Director

March 31, 2009

March 31, 2009

March 31, 2009

March 31, 2009

March 31, 2009

March 31, 2009

Exhibit No.

Exhibit Index

Description

3.1

3.2

3.3

4.1

4.2

4.3

10.1*

10.2*

10.3

10.4*

10.5*

10.6*

10.7*

Amended and Restated Certificate of Incorporation of the Company. Incorporated by
reference to Exhibit 3.1 of the Company’s Registration  Statement  on Form S-1
(Registration No. 333-36330).

Bylaws of the Company, as  amended  as  of  August  8, 2007. Incorporated by reference  to
Exhibit 3.2 of the Company’s Form 10-Q for the quarter ended June 30,  2007, filed with
the Commission on August 9, 2007.

Certificate of Designation of Series A Participating Preferred Stock, filed  with the Secretary
of State of Delaware on July 5, 2000. Incorporated  by reference to Exhibit  3.3 of the
Company’s Form 10-K for the year ended December 31, 2000, filed with the Commission
on March 30, 2001.

Specimen Stock Certificate.  Incorporated by reference to Exhibit 4.1 of the Company’s
Registration Statement on Form S-1 (Registration No. 333-36330).

Rights Agreement between  the Company and  EquiServe Trust Company,  N.A. Incorporated
by reference to Exhibit 4.1 of the Company’s Registration Statement  on Form S-1
(Registration No. 333-36330).

Indenture between the Company and U.S. Bank National Association, as trustee, including
the form of note, dated as of May 2, 2006. Incorporated by reference to Exhibit 4.12 of the
Company’s Report on Form 8-K filed  with the  Commission on  May  4, 2006.

Axcelis Technologies, Inc.  2000 Stock Plan, as amended through June  23, 2005.
Incorporated by reference to Exhibit 10.2 to the Company’s Current Report  on Form 8-K
filed with the Commission on June 28,  2005.

Axcelis Team Incentive Plan for executive officers, adopted  by the  Compensation
Committee of the  Board of Directors on January 20,  2005. Incorporated by reference  to
Exhibit 10.1 to the Company’s Report on Form 8-K filed with the Commission on
January 31, 2005.

Form of Indemnification Agreement entered into by  the Company with  each of its directors
and executive officers. Incorporated by reference  to  Exhibit 10.2 of the Company’s
Registration Statement on Form S-1 (Registration No. 333-36330).

Form of Change in Control  Agreement,  as  approved by the Board of Directors  on
October 16, 2007 and first effective on November 6, 2007, between the Company and each
of its executive officers. Incorporated by reference  to  Exhibit 10.4 of the  Company’s report
on Form 10-Q for the quarter ended September 30,  2007  filed with the Commission on
November 8, 2007.

Form of Employee non-qualified stock option grant under the 2000 Stock Plan, updated as
of April 5, 2002. Incorporated by reference to Exhibit  10.1 of the Company’s report on
Form 10-Q filed with the Commission on November 9, 2004.

Form of Non-Employee Director  stock non-qualified  stock option grant under the  2000
Stock Plan, updated as of July 12, 2004.  Incorporated  by reference to Exhibit 10.2 of the
Company’s report on Form 10-Q filed with the Commission on November 9, 2004.

Form of Restricted Stock  Agreement for use under the 2000 Stock Plan. Incorporated by
reference to Exhibit 10.4 to the Company’s  Current Report on Form 8-K filed with the
Commission on June 28, 2005.

Exhibit No.

10.8*

Form of Restricted Stock Unit  Award Agreement for use  under the  2000 Stock  Plan.
Incorporated by reference to Exhibit 10.3 to the Company’s Current Report  on Form 8-K
filed with the Commission on June 28,  2005.

Description

10.9*

Named Executive Officer  Base  Compensation  at March 31, 2009. Filed herewith.

10.10*

Non-Employee Director Cash Compensation at March  31, 2009. Filed herewith.

10.11*

Amended and Restated Employment Agreement between the Company and Mary  G. Puma
dated November 6, 2007. Incorporated by reference to Exhibit 10.3 of the Company’s
report on Form 10-Q for the quarter  ended September  30,  2007 filed with the  Commission
on November 8, 2007.

10.12** Organization Agreement dated  December  3, 1982 between  Eaton  Corporation and
Sumitomo Heavy Industries, Ltd. relating to SEN Corporation, an  SHI and Axcelis
Company formerly known as Sumitomo Eaton Nova Corporation, as amended.
Incorporated by reference to Exhibit 10.6 of the Company’s  Registration Statement on
Form S-1 (Registration No. 333-36330).

10.13** Master License Agreement  dated January  16, 1996 between Eaton  Corporation and SEN

Corporation, an SHI and Axcelis Company formerly known as Sumitomo  Eaton Nova
Corporation. Incorporated by reference to Exhibit 10.7 of the Company’s Registration
Statement on Form S-1 (Registration No. 333-36330).

10.14

10.15

10.16

14.1

21.1

23.1

31.1

31.2

32.1

Loan and Security Agreement  dated as of April 23, 2008 between the Company and Silicon
Valley Bank. Incorporated by  reference  to  Exhibit 10.1 to the Company’s report on
Form 10-Q for the quarter ended March  31,  2008 filed with the  Commission on  May 12,
2008.

Share Purchase Agreement dated February  26, 2009 among  the Company, Sumitomo Heavy
Industries, Ltd. And SEN Corporation, and SHI and Axcelis Company. Incorporated by
reference to Exhibit 10.1 to the Company’s  Current Report on Form 8-K filed with the
Commission on February 27, 2008.

Letter to the Company dated  February 25, 2009 from U.S. Bank National  Association, as
trustee under the Inden ture dated as of May 2, 2006 relating to Axcelis’ 4.25% Convertible
Senior Subordinated Notes. Incorporated by  reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K  filed with  the Commission  on February 27, 2008.

Ethical Business Conduct at  Axcelis, revised through January 2003. Incorporated by
reference to Exhibit 14.1 of the Company’s report on Form 10-K  filed with the Commission
on March 28, 2003.

Subsidiaries of the Company.  Filed herewith.

Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. Filed
herewith.

Certification of the Chief Executive Officer  under Exchange Act Rule 13a-14(a)/15d-14(a)
(Section 302 of the Sarbanes-Oxley Act), dated March 31, 2009. Filed herewith.

Certification of the Chief Financial  Officer under Exchange Act Rule 13a-14(a)/15d-14(a)
(Section 302 of the Sarbanes-Oxley Act), dated March 31, 2009. Filed herewith.

Certification of the Chief Executive Officer  pursuant to Section  1350 of Chapter 63 of title
18 of the United States Code (Section 906 of the  Sarbanes-Oxley Act), dated March  31,
2009. Filed herewith.

Exhibit No.

32.2

Certification of the Chief Financial  Officer pursuant to Section  1350 of Chapter 63 of title
18 of the United States Code (Section 906 of the  Sarbanes-Oxley Act), dated March  31,
2009. Filed herewith.

Description

*

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)

Year Ended December 31, 2008
Allowance for doubtful accounts and returns . .
Reserve for excess and obsolete inventory . . . .

Year Ended December 31, 2007
Allowance for doubtful accounts and  returns . .
Reserve for excess and obsolete inventory . . . .

Year Ended December 31, 2006
Allowance for doubtful accounts and returns . .
Reserve for excess and obsolete inventory . . . .

Balance at
Beginning of
Period

Charged to
Costs and
Expenses

Deductions Other(*)

Balance at
End  of
Period

$ 2,927
25,071

$

308
24,631

$ (691)
(2,596)

$

1
550

$ 2,545
47,656

2,941
22,092

3,123
17,795

—
5,018

—
5,797

(13)
(2,091)

(1)
52

2,927
25,071

(164)
(2,284)

(18)
784

2,941
22,092

(*) Represents foreign currency translation adjustments.

STOCK PERFORMANCE GRAPH
This graph compares the five-year cumulative total stockholder returns for our common stock to that of the Philadelphia Semiconductor Index 
and the Nasdaq Composite Index at each of the last five fiscal year ends. The cumulative returns are based on a $100 investment on 
December 31, 2003, with all dividends, if any, being reinvested. The stock performance shown on the graph below is not necessarily 
indicative of future price performance.

Company/Index Name

Axcelis Technologies Inc.
NASDAQ Composite Index
Philidelphia Semiconductor Index

December 31
2003
$100.00
$100.00
$100.00

December 31
2004
$79.16
$108.59
$85.28

December 31
2005
$46.45
$110.08
$94.37

December 30
2006
$56.77
$120.56
$92.09

December 29
2007
$44.79
$132.39
$80.30

December 31
2008
$5.24
$77.40
$41.58

BOARD OF DIRECTORS

EXECUTIVE OFFICERS

Stephen G. Bassett
Executive Vice President and Chief Financial Officer

William Bintz
Senior Vice President, Marketing

Kevin J. Brewer
Executive Vice President, Operations

Lynnette C. Fallon
Executive Vice President, Human Resources and Legal, 
General Counsel and Secretary

Matthew P. Flynn
Executive Vice President, Global Customer Operations

Craig M. Halterman
Senior Vice President and Chief Information Officer

Mary G. Puma
Chairman and Chief Executive Officer

R. John Fletcher
Chief Executive Officer,
Fletcher Spaght, Inc.

Stephen R. Hardis
Lead Director, Axcelis Technologies, Inc.,
Retired Chairman and Chief Executive Officer,
Eaton Corporation

William C. Jennings
Retired Partner, PricewaterhouseCoopers LLP

Patrick H. Nettles
Executive Chairman of the Board of Directors, 
CIENA Corporation

Mary G. Puma
Chairman and Chief Executive Officer,
Axcelis Technologies, Inc.

H. Brian Thompson
Executive Chairman, 
Global Telecom & Technology

Geoffrey Wild
Chief Executive Officer and President,
Cascade Microtech, Inc.

AUDIT COMMITTEE
William C. Jennings, Chairman
R. John Fletcher
Geoffrey Wild

COMPENSATION COMMITTEE
H. Brian Thompson, Chairman
R. John Fletcher
Stephen R. Hardis

NOMINATING AND GOVERNANCE 
COMMITTEE
Patrick H. Nettles, Chairman
Stephen R. Hardis

ANNUAL MEETING DATE & LOCATION
The annual meeting of stockholders will be held at 11:00 a.m. 
on Wednesday, May 6, 2009 at Axcelis corporate headquarters.

CORPORATE HEADQUARTERS
108 Cherry Hill Drive
Beverly, MA 01915-1053
978-787-4000

INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA  02116-5072

INVESTOR INFORMATION/SEC FORM 10-K
Information on the Company, including the exhibits to the 
Company’s 2008 Annual Report on SEC Form 10-K and other 
SEC filings, can be obtained free of charge either on our 
website at http://www.axcelis.com or by contacting Investor 
Relations at Axcelis Technologies, Inc., 108 Cherry Hill 
Drive, Beverly, MA 01915-1053.  You can also e-mail 
investor relations at investor.relations@axcelis.com.

LEGAL COUNSEL
Edwards Angell Palmer & Dodge LLP
111 Huntington Avenue at Prudential Center
Boston, MA 02108-3190

STOCK LISTING
The Company's common stock is traded on The NASDAQ
Global Market under the symbol ACLS.

TRANSFER AGENT & REGISTRAR
For questions regarding misplaced stock certificates, changes
of address, or the consolidation of accounts, please contact the
Company's transfer agent:

Telephone: +1 781-575-2725
Hearing Impaired #:  TDD:  1-800-952-9245

Address:
Computershare Trust Company, N.A. 
P.O. Box 43078
Providence, RI 02940-3078

Private Couriers/Registered Mail:
Computershare Trust Company, N.A. 
250 Royall Street
Canton, MA 02021

Questions & Inquiries via our Website:  
http://www.computershare.com 

WEBSITE
http://www.axcelis.com

SAFE HARBOR STATEMENT
This document contains forward-looking statements under the SEC safe harbor provisions.  These statements are based on management’s current expectations and should be
viewed  with  caution.   They  are  subject  to  various  risks  and  uncertainties,  many  of  which  are  outside  the  control  of  the  company,  including  our  ability  to  implement 
successfully our profit plans, the continuing demand for semiconductor equipment, relative market growth, continuity of business relationships with and purchases by 
major  customers,  competitive  pressure  on  sales  and  pricing,  increases  in  material  and  other  production  costs  that  cannot  be  recouped  in  product  pricing  and  global 
economic and financial conditions.