UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:95)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2016
(cid:134)
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
Common Stock, $.001 par value
Name of each exchange on which registered
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:134) No (cid:95)
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:134) No (cid:95)
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:95) No (cid:134)
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes (cid:95) No (cid:134)
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:95)
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:134)
Accelerated filer (cid:95)
Non-accelerated filer (cid:134)
(Do not check if a smaller
reporting company)
Smaller reporting company (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:134) No (cid:95)
Aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2016: $310,378,330
Number of shares outstanding of the registrant’s Common Stock, $0.001 par value, as of March 13, 2017: 29,917,059
Documents incorporated by reference:
Portions of the definitive Proxy Statement for Axcelis Technologies, Inc.’s Annual Meeting of Stockholders to be held on May 16, 2017 are
incorporated by reference into Part III of this Form 10-K.
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 and other processing equipment used in the fabrication of semiconductor chips. We believe that
our Purion family of products are the most innovative implanters available on the market today. We sell to leading
semiconductor chip manufacturers worldwide. The ion implantation business represents 93.2% of our revenue in 2016
with the remaining 6.8% of revenue derived from other legacy processing systems. In addition to equipment, we provide
extensive aftermarket lifecycle products and services, including used tools, spare parts, equipment upgrades,
maintenance services and customer training.
Axcelis’ business commenced in 1978 and its current corporate entity was incorporated in Delaware in 1995,
and is headquartered in Beverly, Massachusetts. We maintain an internet site at www.axcelis.com. On or through our
website, investors may access, free of charge, 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.
2016 was a challenging year for the Company. Our 2016 revenues of $267.0 million were below our 2015
revenues due to lower purchasing from key memory customers, particularly in dynamic random-access memory
(“DRAM”). Despite this, Axcelis made progress towards our long-term strategic goal of regaining a position of market
share leadership in the ion implant semiconductor equipment market.
In 2016 we continued to invest a significant portion of our resources in research and development programs
related to our Purion ion implantation platform. During the year, our customer base for Purion ion implanters expanded
significantly, and we successfully introduced several new extensions to our core Purion systems, such as the hot silicon
carbide Purion M, the Purion EXE and Purion VXE. We placed Purion ion implanters with seven new customers, as well
as within seven new fabs owned by existing customers. We expect customer adoption and demand for our Purion
products to continue to grow.
In addition, we continued to improve our gross margin performance in 2016. The Company’s gross margins for
2016 were 37.3%, up from 33.7% in 2015. We also worked hard to ensure that manufacturing and operating expense
levels remain well aligned to business conditions. We believe that the most fundamental interest of our stockholders is in
consistent, profitable, financial performance and we expect to deliver such results in 2017. Our performance is subject to
risks and uncertainties discussed below under Item 1A Risk Factors.
Industry Overview
Semiconductor chips, also known as integrated circuits, are used in a continuously evolving range of consumer
and industrial products, including for example, personal computers, mobile devices, automobiles, sensors and controllers
for the “internet of things,” and data storage servers. Types of semiconductor chips include DRAM and “negative and”
(“NAND”) Flash memory; logic devices to process information; and “system on chip” devices (which have both logic
and memory features). The semiconductor chip manufacturers industry is entering a period of sustained growth driven by
the increased number of devices providing information to, and receiving information from, the internet. This
development, sometimes referred to as the “Connected World,” is increasing demand for chips used in data input, such as
image sensors, which are often manufactured using mature processing technologies, as well as for memory chips to
support the storage of data, internet streaming and “cloud computing” data analytics.
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
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device. Transistors are created in the silicon wafer by introducing various precisely placed impurities into the silicon in
specific patterns.
Semiconductor chip manufacturers own or manage wafer fabrication facilities (often referred to as a “fab”),
which utilize many different types of equipment in the making of integrated circuits. Over 300 process steps utilizing
over 50 different types of process tools are required to make a single device like a microprocessor. Semiconductor chip
manufacturers seek device performance benefits through new products and technology enhancements and productivity
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.
We have different types of customers, which impacts timing of purchases and technology requirements. Some
customers are integrated electronics manufacturers, who make semiconductor chips for their own devices. These same
companies may also act as foundries, who manufacture chips for other electronic manufacturers or chip design
companies. Some customers only function as foundries. A few companies design and manufacture branded chips that
are sold to device manufacturers. In addition, some customers may have partnerships or joint ventures with two or more
semiconductor chip manufacturers to share the technology development and capital investment. The timing of purchases
by foundry customers will depend on their receipt or loss of manufacturing contracts. Also, foundry customers will look
for equipment that can deliver the broadest capabilities so that they are prepared to manufacture all chip types, while
integrated electronics manufacturers may invest in processing equipment that is dedicated to a specific application they
require for their products.
The semiconductor capital equipment industry is highly cyclical, as global chip production capacities
successively exceed, then lag behind, global chip demand. When chip demand is high, and inventories low, chip
manufacturers add capacity through capital equipment purchases. Given the difficulties of forecasting and calibrating
chip demand and production capacity, the industry periodically experiences excess chip inventories and softening chip
prices. Device manufacturers react with muted capital spending, lowering the demand for capital equipment. Changes in
consumer and business demand for products in which chips are used also affect the industry. A successful semiconductor
capital equipment manufacturer must not only provide some of the most technically complex products manufactured in
the world but also must manage its business to thrive during the inevitable low points in the cycle.
Axcelis’ Strategy
Axcelis’ 2017 strategic initiatives are:
• Drive top line and market share growth with Purion systems, capitalizing on investments by customers in
the memory and the mature technology sectors
•
•
Increase aftermarket revenues by delivering differentiated high value products in each business segment,
including upgrades, spares, consumables, service and used tools
Improve gross margins
• Enhance profitability and cash generation
We have continued to invest in research and development through the industry cycles to ensure our products
meet the needs of our customers. We take pride in our scientists and engineers who 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 strive for operational excellence by focusing on ways to lower our product,
manufacturing and design costs and to improve our delivery times to our customers. We will continue to use our Global
Customer Teams and a focused account management structure to maintain and strengthen our customer relationships and
increase customer satisfaction. Finally, we will maintain a strong cash balance to ensure that we have enough capital to
fund a potential ramp up in our business.
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Ion Implantation Systems
Ion implantation is a principal step in the transistor formation cycle of the semiconductor chip manufacturing
process. Ion implantation is also used to change the characteristics of the silicon for reasons other than transistor
formation, a process known as “material modification”. An ion implanter is a large, technically advanced system that
injects dopants such as arsenic, boron or phosphorus into a wafer. These dopants are ionized and therefore have electric
charges. This electric charge allows the dopants to 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.
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:
• Medium current implanters are the original model of ion implanter, with mid to low-range energy and dose
capability.
• High current implanters were the second type of implanter to emerge, having low energy capability and
high dose range.
• High energy implanters emerged to address the need for deeper implants with a high energy range and low
dose.
The Purion Platform and Family of Ion Implanters
Axcelis offers a complete line of high energy, high current and medium current implanters for all application
requirements. Our flagship systems are all based on a common Purion platform which offers purity, precision and
productivity by combining a high-speed, state-of-the-art single wafer end station, enabling unmatched throughput (500
wafers per hour), and an advanced spot beam that ensures that all points across the wafer see the same beam at the same
beam angle, resulting in exceptional process control and maximum yield.
• High Energy Implant. Our Purion XE high energy system combines Axcelis’ production-proven RF
Linac high energy, spot beam technology with the Purion platform. Axcelis is a market leader in high
energy ion implanters, and we expect to maintain our leadership in the high energy segment through sales
of both our multi-wafer legacy high energy systems and the Purion XE, the Purion EXE and the Purion
VXE.
• Medium Current Implant. Our Purion M medium current system offers higher productivity and lower
cost of ownership than competitive offerings, in addition to other advantages. Our Purion M systems also
offer differentiation for specialty applications, like hot silicon carbide.
• High Current Implant. Our Purion H high current system fulfills all traditional high current requirements
while extending beyond traditional high current energy and dose ranges. In order to maximize utilization
and flexibility, the Purion H can process some traditional mid-current implants. In addition, the Purion H is
extendable into ultra-low energy applications to satisfy future process requirements, including leakage
current performance. The Purion H also provides advantages for material modification applications,
including hot and cold implant.
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We believe our ion implant products will continue to meet customer demand for advantages in productivity,
process performance and technical extendibility.
Dry Strip
Axcelis previously manufactured other types of semiconductor processing equipment in addition to the ion
implanters, including dry strip wafer cleaning systems. In December 2012, we sold the intellectual property rights
relating to our dry strip business to Lam Research Corporation (“Lam”). Under the agreements with Lam, Axcelis may
continue to sell dry strip systems for 200mm and 150mm wafers through December 2017. We will continue to service
and support our dry strip installed base indefinitely.
Aftermarket Support and Services
Through our Customer Innovation and Support business, we offer our customers extensive aftermarket service
and support throughout the lifecycle of the equipment we manufacture as well as equipment we previously
manufactured. We believe that approximately 3,000 of our products are in use in 32 countries worldwide. The service
and support that we provide includes used tools, spare parts, equipment upgrades, and maintenance services. We provide
varying levels of sales, service and applications support out of our field offices to customers located in 32 countries.
Revenue generated through our service and support business represented 47.8%, 43.0% and 59.8% of revenue in 2016,
2015 and 2014, respectively.
To support our aftermarket business, we have approximately 200 staff members, 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. Our Axcelis Managed Inventory service offering, a parts consignment
arrangement, provides the customer with full spares support, with Axcelis retaining 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.
Sales and Marketing
We primarily sell our equipment and services through our direct sales force. We conduct sales and marketing
activities from our sales offices located in the United States, Taiwan, South Korea, China, Germany, Singapore, Japan
and Italy.
International revenue, including export sales from our U.S. manufacturing facilities to foreign customers and
sales by foreign subsidiaries and branches, accounted for 80.0%, 85.1% and 80.0% of total revenue in 2016, 2015 and
2014, respectively. Substantially all of our sales are denominated in U.S. dollars. See Note 18 to our Consolidated
Financial Statements contained in Item 15 of this Form 10-K for a breakdown of our revenue and long-lived assets in the
United States, Europe and Asia. See also Item 1A, “Risk Factors,” for information about risks attendant to our foreign
operations.
Customers
In 2016, the top 20 semiconductor chip manufacturers accounted for approximately 87.2% of total
semiconductor capital equipment spending, down slightly from 87.7% in 2015. These manufacturers are from the largest
semiconductor chip manufacturing regions in the world: the United States, Asia Pacific (Taiwan, South Korea, Singapore
and China), Japan and Europe.
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Revenue from our ten largest customers accounted for 70.2%, 76.8% and 68.1%, of revenue in 2016, 2015 and
2014, 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 2016, one customer accounted for 17.0% of revenue. In 2015, two
customers accounted for 29.3% and 10.5% of revenue, respectively. In 2014, two customers accounted for 17.4% and
12.3% of revenue, respectively.
Our Beverly, Massachusetts Advanced Technology Center houses a process development laboratory with
12,500 sq. ft. of class 10/100/1000 clean room for product demonstrations and process development and a 34,000 sq. ft.
customer training center. The Advanced Technology Center provides infrastructure and process capabilities that allow
customers to test their unique process steps on our systems under conditions that substantially replicate the customers’
production environment. This facility also provides significant capability for our research and development efforts.
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 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 use 3D, computer-aided design, finite element analysis and other computer-based modeling
methods to test new designs.
Our expenses for research and development were $34.4 million, $32.6 million and $33.5 million in 2016, 2015
and 2014, respectively, or 12.9%, 10.8% and 16.5% of revenue, respectively. We expect that research and development
expenditures will continue to represent a similar level of investment in future years.
Manufacturing
We manufacture products at our 417,000 sq. ft. ISO 9001:2008, ISO 14001:2004 certified plant in Beverly,
Massachusetts. Our facility employs best in class manufacturing techniques, including lean manufacturing, six sigma
controls and advanced inventory management, purchasing and quality systems.
Our clean manufacturing process uses class 1,000/10,000 space to facilitate most of our manufacturing
requirements.
The Company’s core manufacturing and supply chain competency is built around system assembly and testing,
which remains an in-house capability due to the high degree of expertise and intellectual property associated with the
process and design. Non-core work is sourced to one of several global partners and includes items such as vacuum
systems, wafer handling and commodity-level components. We continuously pursue outsourcing opportunities where the
economics are justified, with a goal of enabling quality and margin improvement. Our supply chain team is globally
focused and is located in Beverly and Singapore. Customized and commercially available software solutions drive our
planning, purchasing and inventory tracking process.
Our products are designed to be assembled and tested in a modular fashion, which facilitates our
industry-recognized “ship-from-cell” process. Specially developed test stands, software and tooling provide the
framework for this accelerated delivery process. Customers that choose ship-from-cell substantially improve their
delivery times while receiving the same high level of quality provided by more traditional longer cycle integration
techniques. Product margins and inventory turns also improve as a result of shorter factory cycle times and increased
labor productivity.
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Installation of our equipment is provided by factory and field teams. The process includes assembling the
equipment at its installation site and after it has been connected, recalibrating it to factory specifications.
Competition
The semiconductor chip manufacturer industry is highly competitive and is characterized by a small number of
participants ranging in size. Significant competitive factors in the semiconductor capital equipment market include price,
cost of ownership, equipment performance, customer support, capabilities and breadth of product line.
In ion implantation, we mainly compete against Applied Materials, Inc. We and Applied Materials are the only
ion implant manufacturers with a full range of implant products, and service and support infrastructures able to service
our customers globally. Three other niche players we compete with from time to time include Advanced Ion Beam
Technology, Inc., Nissin Ion Implantation Co., Ltd. and SEN Corporation.
Intellectual Property
We rely on patent, copyright, trademark and trade secret protection in the United States and in other countries,
as well as contractual restrictions, to protect our proprietary rights in our products and our business. As of December 31,
2016, we had 314 active patents issued in the United States and 465 active patents granted in other countries, as well as
191 patent applications (44 in the United States and 147 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. Trademark registrations generally remain in effect as long as the trademarks are in use.
From time to time, we enter into license agreements with third parties under which we obtain or grant rights to patented
or proprietary technology. We do not believe that any of our licenses are currently material to us.
Backlog
Systems backlog, including deferred systems revenue, was $17.5 million and $22.5 million as of December 31,
2016 and 2015, respectively. 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 are
typically due to ship within six months. All orders are subject to cancellations or rescheduling by customers with limited
or no penalties.
Backlog does not include orders received and fulfilled within a quarter. Our backlog at the beginning of a
quarter typically does not include all orders required to achieve our sales objectives for that quarter. Backlog is not
necessarily an indicator of future business trends because orders for services or parts received during the quarter are
generally performed or shipped within the same quarter.
Bookings in the quarter ended December 31, 2016 were $34.8 million compared to $26.1 million in the quarter
ended December 31, 2015.
Employees
As of December 31, 2016, we had 814 employees and 31 temporary staff worldwide, of which 603 work in
North America, 190 in Asia and 52 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. One of our
European locations has formed a work council, which has certain information and discussion rights under applicable law.
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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 are proud of our commitment to improving our environment. We believe 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 of the Registrant
Mary G. Puma, 59, has been our President and Chief Executive Officer since January 2002, having served as
Chairman from 2005 to 2015. From May 2000 until January 2002, Ms. Puma was our President and Chief Operating
Officer. 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 and
Semiconductor Equipment and Materials International (SEMI).
Kevin J. Brewer, 58, became our Executive Vice President and Chief Financial Officer in September 2013,
having served as interim Chief Financial Officer beginning in June 2013. Mr. Brewer also manages our Global
Operations. Mr. Brewer had been our Executive Vice President, Global Operations since 2008 and our Senior Vice
President, Manufacturing Operations since May 2005, 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.
John E. Aldeborgh, 60, has been our Executive Vice President, Customer Operations since February 2013,
having joined Axcelis in January 2013 as our Senior Vice President, Customer Operations. Prior to joining Axcelis,
Mr. Aldeborgh served as the Chief Executive Officer and President, and as a Director, of innoPad, Inc., a privately held
manufacturer of Chemical Mechanical Planarization pads, since 2006. Mr. Aldeborgh served in various marketing and
sales position at Varian Semiconductor Equipment Associates Inc. (an ion implantation systems business acquired by
Applied Materials Inc. in 2011) from 2002 to 2005, including Vice President of Sales and Marketing. Prior to Varian,
Mr. Aldeborgh served as President and Chief Operating Officer of Ebara Technologies, Inc., from 1998 to 2002.
Mr. Aldeborgh also held various positions, at Genus, Inc. from 1989 to 1998, including Executive Vice President and
Chief Operating Officer.
William Bintz, 60, is our Executive Vice President, Product Development since November 2016. From 2011
until November 2016, Mr. Bintz served as Executive Vice President, Product Development, Engineering and Marketing.
Prior to that, he served as Senior Vice President, Marketing beginning in September 2007, after joining Axcelis in early
2006 as Director of Marketing for curing and cleaning products and shortly thereafter becoming Vice President of
Product Marketing. 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.
Lynnette C. Fallon, 57, is our Executive Vice President, Human Resources/Legal and General Counsel, a
position she has held since May 2005. Prior to that, Ms. Fallon was Senior Vice President HR/Legal and General
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Counsel since 2002, and Senior Vice President and General Counsel since 2001. Ms. Fallon has also been our corporate
Secretary 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.
Douglas A. Lawson, 56, has been our Executive Vice President, Corporate Marketing and Strategy since
November 2013, having joined Axcelis as Vice President Business Development in 2010, and holding the position of
Senior Vice President of Strategic Initiatives beginning in 2011. Mr. Lawson also manages our Information Technology
function. Prior to joining the company in 2010, he held the position of General Manager of Luminus Devices from 2009
to 2010. He has over 30 years of experience in the technology industry, and has held numerous executive and technical
positions at BTU International, PRI Automation, Digital Equipment and Intel.
Russell J. Low, Ph. D., 46, is our Executive Vice President, Engineering, having joined Axcelis in October
2016. Prior to joining the Company, Dr. Low held the position of Vice President of Engineering, MOCVD Business
Unit at Veeco Instruments since 2013, prior to which he was Veeco’s Senior Director of Engineering, Molecular Beam
Epitaxy Business Unit beginning in 2012. From 2003 to 2012, Dr. Low held a number of positions at Varian
Semiconductor Equipment Associates, most recently as Director of Technology. Prior to that, Dr. Low held engineering
positions in the thermal processing and ion implant divisions of Applied Materials, Inc. from 1997 to 2003.
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Item 1A. Risk Factors.
Risks Related to Our Business and Industry
Set forth below and elsewhere in this Form 10-K and in other documents we file with the SEC are risks and
uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking
statements contained in this Form 10-K. We note that factors set forth below, individually or in the aggregate, may cause
our actual results to differ materially from expected and historical results. We note these factors for investors as
permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to
predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of
all potential risks or uncertainties.
If semiconductor chip manufacturers do not make sufficient capital expenditures, our sales and profitability will be
harmed.
New systems orders and used tool sales depend upon demand from semiconductor chip manufacturers who
build or expand fabrication facilities. The impact of this demand on the Company will vary with the type of
semiconductor chip manufacturers who are purchasing systems. For example, changes in demand in the memory and
mature process technology segments will most significantly impact the Company since customers in these segments have
established Axcelis ion implanters as process tools of record. When the rate of construction or expansion of fabrication
facilities declines, demand for our systems will decline, reducing our revenue. In addition, all or a portion of the demand
for increased capacity may be satisfied by a semiconductor chip manufacturer’s ability to reconfigure and re-use
equipment they already own. Revenue decline also hurts our profitability because our established 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.
If we fail to develop and introduce reliable new or enhanced products and services that meet the needs of
semiconductor chip manufacturers, our results will suffer.
Rapid technological changes in semiconductor chip 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. This will depend upon a variety of factors, including new product selection, timely and efficient completion of
product design and development as well as manufacturing and assembly processes, product performance in the field and
effective sales and marketing. In particular:
• We must continue to develop competitive technical specifications of new systems, or enhancements to our
existing systems, and manufacture and ship these systems or enhancements in volume in a timely manner.
• 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.
• 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.
• 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.
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A significant portion of our revenue depends on customers electing to buy aftermarket products and services from
Axcelis.
Historically, a significant portion of our product revenue and all of our service revenue relates to our sale of
“aftermarket” products and services, which include parts, consumables, upgrades, service contracts, and time and
materials billings. Some of our customers purchase fewer aftermarket products and services, often training their own
staff to maintain and service semiconductor capital equipment rather than relying on the equipment manufacturer for
these services. In addition, we compete against third party parts suppliers for the sale of parts and consumables that are
not protected by patents or otherwise proprietary. To the extent our customers purchase parts and services from other
vendors or provide their own system maintenance labor, our revenue will be less.
Our financial results may fluctuate significantly.
We derive our new systems revenue from the sale of a small number of expensive products to a relatively small
number of customers. The list prices on our ion implant and other systems range from $0.6 million to $7.5 million. We
also sell used equipment in our aftermarket business. At our current sales level, each sale, or failure to make a sale, has a
significant effect on us in a particular quarter. In a given quarter, a number of factors can adversely affect our revenue
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, warranty costs and impact of changes to inventory
reserves. New product introductions may also affect our gross margins. Fluctuations in our financial results may have an
adverse effect on the price of our common stock.
Our financial results may fall short of anticipated levels because forecasting revenue and profitability is complex and
may be inaccurate.
Management may from time to time provide financial forecasts. These forecasts are based on assumptions,
which are believed to be reasonable when made, of fab utilization, shipment timing and system acceptance timing. Any
of these assumptions can prove erroneous and the level of revenue 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 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 revenue and operating results for a quarter depend on our shipping orders as scheduled during that quarter,
receiving customer acceptance of previously shipped products, 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 affect our financial results.
Accounting rules addressing revenue recognition add more complexity in forecasting quarterly revenue 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 forecasted 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. From time to time,
inventory buildups in the semiconductor industry, resulting in part from periodic downturns, produce an oversupply of
semiconductors. This can cause a reduced demand for capital equipment such as our products, negatively impacting our
sales and level of profitability. Our revenue can vary significantly from one point in the cycle to another, making it
difficult to manage the business, both when revenue is increasing and when it is decreasing. In addition, a substantial
11
portion of our operating expenses do not fluctuate with changes in volume. Significant decreases in revenue can therefore
have a disproportionate effect on profitability. In addition, reduced demand for our products and services may require
Axcelis to implement cost reduction efforts, including restructuring activities, which may adversely affect Axcelis’
ability to capitalize on opportunities that arise in the future due to our highly cyclical industry.
If we fail to compete successfully in the highly competitive semiconductor capital equipment industry, our sales and
profitability will decline.
The ion implant segment is highly competitive and includes one company with substantially greater financial,
engineering, manufacturing, marketing and customer service and support resources that may better position it to compete
successfully, as well as several smaller companies that could provide innovative systems with technology that may have
performance advantages. 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. 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 are dependent on sales to a limited number of large customers; the loss of a significant customer 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 2016, our top ten customers accounted for 70.2% of our net sales, in
comparison to 76.8% and 68.1% in 2015 and 2014, respectively. 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 will adversely affect us. The ongoing consolidation of semiconductor chip manufacturers may result in the loss
of a customer.
Axcelis is subject to the risks of operating internationally and we derive a substantial portion of our revenue 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 80.0% of total revenue in 2016 in comparison to 84.8% of total
revenue in 2015 and 80.0% in 2014. Ion implanter system shipments to Asian customers represented 75.3% of total
shipment dollars in 2016 in comparison to 78.9% in 2015 and 78.3% in 2014. We anticipate that international sales will
continue to account for a significant portion of our revenue. The potential increasing investment in semiconductor chip
manufacturing capability in China is expected to create disruption in our markets, resulting in both risk and opportunity.
Because of our dependence upon international sales, our results and prospects may be adversely affected by a number of
factors, including:
•
•
•
•
•
•
unexpected changes in laws or regulations resulting in more burdensome governmental controls, tariffs,
restrictions, embargoes or export license requirements;
volatility in currency exchange rates;
political and economic instability;
difficulties in accounts receivable collections;
extended payment terms beyond those customarily offered in the United States;
difficulties in managing suppliers, service providers or representatives outside the United States;
12
•
•
difficulties in staffing and managing foreign subsidiary and branch operations; and
potential 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 attract and retain additional qualified personnel, we may from time to time
experience insufficient levels of staffing to fully 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 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 a limited group of suppliers.
Accordingly, based on situations outside of our control, 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,
negatively impacting our gross margins.
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.
Moreover, if actual demand for Axcelis’ products is different than expected, Axcelis may purchase more or
fewer parts than necessary or incur costs for canceling, postponing or expediting delivery of parts. If Axcelis purchases
inventory in anticipation of customer demand that does not materialize, or if customers reduce or delay orders, Axcelis
may incur excess inventory charges.
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. We believe that our existing cash and cash equivalents will be sufficient to satisfy our
anticipated cash requirements. A number of factors, including those described in these “Risk Factors,” could prove our
assumptions wrong and cause us to require additional capital from external sources. Depending on market conditions,
future debt or equity 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.
13
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. However, the aftermarket revenues of our non-U.S. subsidiaries, and most of the operating
expenses of these non-U.S. subsidiaries, are received and incurred in local currencies. The translation of these operating
results into U.S. dollars in our Consolidated Statement of Operations can result in other income (expense). Similarly, the
translation of asset and liability values to U.S. dollars are recorded in stockholders’ equity as an element of accumulated
other comprehensive income (loss). Accordingly, fluctuations in exchange rates can impact reported revenues, expense,
profitability and asset values in our Consolidated Financial Statements. During the year ended December 31, 2016,
approximately 28.4% of our revenue was derived from foreign operations with this inherent risk. In addition, at
December 31, 2016, our operations outside of the United States accounted for approximately 20.1% of our total assets,
the majority of which was denominated in currencies other than the U.S. dollar.
Axcelis is exposed to risks related to cybersecurity threats and incidents.
In the conduct of its business, Axcelis collects, uses, transmits and stores data on information technology
systems. This data includes confidential information belonging to Axcelis or its customers or other business partners, as
well as personally-identifiable information of individuals. Axcelis has been and expects to be subject to cybersecurity
threats and incidents, ranging from employee error or misuse to individual attempts to gain unauthorized access to
information systems to sophisticated and targeted measures known as advanced persistent threats, none of which have
been material to the Company to date. Axcelis devotes significant resources to network security, data encryption and
other measures to protect its systems and data from unauthorized access or misuse. However, depending on their nature
and scope, cybersecurity incidents could result in business disruption; the misappropriation, corruption or loss of
confidential information and critical data (Axcelis’ and that of third parties); reputational damage; litigation with third
parties; diminution in the value of Axcelis’ investment in research, development and engineering; data privacy issues;
and increased cybersecurity protection and remediation costs.
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 challenge, design around or legitimately use the proprietary
technology embedded in our systems or other technology or information used in our business. If this occurs, the value of
our proprietary technology will be diminished. Our means of protecting our proprietary rights may not be adequate and
our patents may not be sufficient to prevent others from using technology that is similar to or the same as our technology.
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 or claims of infringement with respect to such
technology could have an adverse impact on our financial performance or ability to ship products with existing
configurations.
14
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 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 remove certain features from our products or seek costly licenses from third parties or 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 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 lease our principal facility in Beverly, Massachusetts, which comprises 417,000 square feet. The facility is
principally used for manufacturing, research and development, sales/marketing, customer support, advanced process
development, product demonstration, customer-training center and corporate headquarters. 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.
We own 23 acres of undeveloped property in Beverly, Massachusetts, adjacent to our headquarters.
As of December 31, 2016, the Company also leased 41 other properties, of which 11 are located in the United
States and the remainder are located in Asia and Europe, including offices in Taiwan, Singapore, South Korea, China,
Malaysia, Japan, Italy and Germany. These properties are used for sales and service offices and warehousing.
Our Beverly, Massachusetts facility is ISO 9001:2008 and ISO 14001:2004 and our European office is
ISO 9001:2008 certified.
Item 3. Legal Proceedings.
The Company is not presently a party to any 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.
Item 4. Mine Safety Disclosures.
Not applicable.
15
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 closing sale prices as reported on the Nasdaq Global Select Market during each of the quarters
for the two most recent years, as adjusted for our 1-4 reverse stock split as discussed in Note 4. As of March 6, 2017, we
had approximately 4,000 stockholders of record. We have never paid any cash dividends to our shareholders and do not
anticipate paying cash dividends in the foreseeable future.
2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Common Stock
Price
High
Low
$ 11.52 $ 9.40
$ 12.96 $ 9.96
$ 13.64 $ 9.56
$ 12.24 $ 9.36
$ 11.40 $ 8.96
$ 11.88 $ 9.16
$ 13.43 $ 9.91
$ 14.55 $ 11.20
Item 6. Selected Financial Data.
The following selected consolidated statements of operations data for each of the three years ended December
31, 2016, 2015 and 2014 and the consolidated balance sheets data as of December 31, 2016 and 2015 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 sheets data as of December 31, 2014 and 2013, and the statements of operations data for the years
ended December 31, 2013 and 2012, have been derived from the audited financial statements contained in our
Form 10-K filed on March 4, 2015. The consolidated balance sheets data as of December 31, 2012 has been derived from
the audited financial statements contained in our Form 10-K filed on March 1, 2013.
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
16
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.
2016
Year ended December 31,
2014
2015
2013
2012
Consolidated statements of operations data:
Revenue
Gross profit
Income (loss) from operations
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 sheets data:
Cash and cash equivalents
Working capital
Total assets
Long-term liabilities
Stockholders’ equity
(In thousands, except per share amounts)
$ 266,980 $ 301,495 $ 203,051 $ 195,632 $ 203,385
58,171
(30,938)
(32,388)
(34,034)
67,935
(14,618)
(16,104)
(17,144)
70,164
(10,661)
(10,167)
(11,266)
99,598
16,623
11,024
11,001
101,706
20,718
15,205
14,678
$
$
0.38 $
0.36 $
0.51 $
0.49 $
(0.40) $
(0.40) $
(0.63) $
(0.63) $
(1.26)
(1.26)
29,195
30,947
28,595
30,229
27,863
27,863
27,217
27,217
26,905
26,905
$ 70,791 $
192,998
302,231
53,045
201,455
78,889 $ 30,753 $ 46,290 $ 44,986
185,589 * 126,541 * 142,952 * 138,947 *
281,784 * 221,158 * 227,053 * 215,662 *
53,652
183,764 * 161,856 * 169,506 * 179,580 *
22,087
7,204
6,300
* As adjusted for correction of prior period error. Please see Note 3 for further discussion.
17
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
The semiconductor capital equipment industry is subject to significant cyclical swings in capital spending by
semiconductor chip manufacturers. Capital spending is influenced by demand for semiconductors and the products using
them, the utilization rate and capacity of existing semiconductor chip manufacturing facilities and changes in
semiconductor technology, all of which are outside of our control. As a result, our revenue may fluctuate from year to
year and period to period. Our established cost structure does not vary significantly with changes in volume. We may
also experience fluctuations in operating results and cash flows depending on our revenue level.
2016 was a challenging year for the Company. Our 2016 revenues of $267.0 million were below our 2015
revenues due to lower purchasing from key memory customers, particularly in DRAM. Despite this, Axcelis made
progress towards our long-term strategic goal of regaining a position of market share leadership in the ion implant
semiconductor capital equipment market.
In 2016 we continued to invest a significant portion of our resources in research and development programs
related to our Purion ion implantation platform. During the year, our customer base for Purion ion implanters expanded
significantly, and we successfully introduced several new extensions to our core Purion systems, such as the hot silicon
carbide Purion M, the Purion EXE and Purion VXE. We placed Purion ion implanters with seven new customers, as well
as within seven new fabs owned by existing customers. We expect customer adoption and demand for our Purion
products to continue to grow.
In addition, we continued to improve our gross margin performance in 2016. The Company’s gross margins for
2016 were 37.3%, up from 33.7% in 2015. We also worked hard to ensure that manufacturing and operating expense
levels remain well aligned to business conditions. We believe that the most fundamental interest of our stockholders is in
consistent, profitable, financial performance and we expect to deliver such results in 2017.
Consolidation and partnering within the semiconductor chip manufacturing industry has resulted in a smaller
number of customers. Our net revenue from our ten largest customers accounted for 70.2% of total revenue for the year
ended December 31, 2016 compared to 76.8% and 68.1% of revenue for the years ended December 31, 2015 and 2014,
respectively. For the year ended December 31, 2016, the Company had one customer representing 17.0% of total
revenue.
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, revenue and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our estimates and assumptions. 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
18
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. For additional accounting policies see Note 2 to the consolidated financial statements for the year
ended December 31, 2016 included in this Annual Report on Form 10-K.
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 service
obligations to the customer, the complexity of the customer’s post-delivery acceptance provisions, payment history,
customer creditworthiness and the installation process.
Our system sales transactions are made up of multiple elements, including the system itself and elements that
are not delivered simultaneously with the system. These undelivered elements might include a combination of
installation services, extended warranty and support and spare parts, all of which are generally covered by a single sales
price.
Our system revenue arrangements with multiple elements are divided into separate units of accounting if
specified criteria are met, including whether the delivered element has stand-alone value to the customer. If the criteria
are met, then the consideration received is allocated among the separate units based on their relative selling price, and the
revenue is recognized separately for each of the separate units.
We determine selling price for each unit of accounting (element) using vendor specific objective evidence
(“VSOE”) or third-party evidence (“TPE”), if they exist, otherwise, we use best estimated selling price (“BESP”). We
generally expect that we will not be able to establish TPE due to the nature of our products, and, as such, we typically
will determine selling price using VSOE or BESP.
Where required, we determine BESP for an individual element based on consideration of both market and
Company-specific factors, including the selling price and profit margin for similar products, the cost to produce the
deliverable and the anticipated margin on that deliverable and the characteristics of the markets in which the deliverable
is sold.
Systems are not sold separately and VSOE or TPE is not available for the systems element. Therefore the
selling price associated with systems is based on BESP. The allocated value for installation in the arrangement includes
the either (i) the relative selling price of the installation or (ii) the portion of the sales price that will not be received until
the installation is completed (the “retention”). The selling price of elements such as extended warranty for support, spare
parts and support labor is also based on BESP. For the majority of regions, the selling price of 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, both of which are sold separately, or VSOE. In regions where
VSOE does not exist the Company uses BESP.
Product revenue for products which have demonstrated market acceptance 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 acceptance has occurred, as defined in the sales documentation, or, for certain customers, when
both the acceptance has occurred and retention payment has been received. Revenue for other elements is recognized at
the time products are shipped or the related services are performed.
We generally recognize product revenue for systems which have demonstrated market acceptance at the time of
shipment because the customer’s post-delivery acceptance provisions and installation process have been established to be
19
routine, commercially inconsequential and perfunctory. We believe the risk of failure to complete a system installation is
remote.
For initial shipments of systems with new technologies or in the small number of instances where we are unsure
of meeting the customer’s specifications or obtaining customer acceptance upon shipment of the system, we 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.
Impairment of Long-Lived Assets
We record impairment losses on long-lived assets when events and circumstances indicate that these assets
might not be recoverable. 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.
Actual performance could be materially different from our current forecasts, which could impact estimates of
undiscounted cash flows and may result in the impairment of the carrying amount of the long-lived assets in the future.
This could be caused by strategic decisions made in response to economic and competitive conditions, the impact of the
economic environment on our customer base or a material adverse change in our relationships with significant
customers.
We did not record an impairment charge in the years ended December 31, 2016, 2015 or 2014.
Accounts Receivable—Allowance for Doubtful Accounts
We record an allowance for doubtful accounts for estimated losses resulting from the inability of our customers
to make required payments. Our allowance for doubtful accounts is established based on a specific assessment of
collectability of our customer accounts. If the financial condition of our 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 and Lower of Cost or Market
We record an allowance for estimated excess and obsolete inventory and lower of cost or market. 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.
Although we make 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 we determine that inventory needs
to be written down, the Company will recognize such costs in our cost of revenue at the time of such determination. If we
subsequently sell product that has previously been written down, our gross margin in that period will be favorably
impacted.
Product Warranty
We generally offer a one year warranty for all of our systems, 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 relative 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.
20
Stock-based Compensation
Stock-based compensation expense for stock options with time-based conditions is estimated as of the grant
date based on the fair value of the award and is recognized as expense over the requisite service period, which generally
equals the vesting period, based on the number of awards that are expected to vest. Estimating the fair value for stock
options requires judgment, including the expected term of our stock options, volatility of our stock, expected dividends,
risk-free interest rates over the expected term of the options and the expected forfeiture rate.
We considered a number of factors when estimating volatility. Our method of estimating expected volatility for
all stock options granted relies on a combination of historical and implied volatility. We believe 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.
In limited circumstances, we also issue stock option grants with vesting based on performance or market
conditions, such as the price of our common stock, or, a combination of time, performance or market conditions. The fair
values and derived service periods for all grants that have vesting based on performance or market conditions are
estimated using the Monte Carlo valuation method. For each stock option grant with vesting based on a combination of
time or market conditions, where vesting will occur if either condition is met, the related compensation costs are
recognized over the shorter of the explicit service period or the derived service period.
We use the straight-line attribution method to recognize expense for stock-based awards such that the expense
associated with awards is evenly recognized throughout the period.
The amount of stock-based compensation recognized is based on the value of the portion of the awards that are
ultimately expected to vest. We estimate forfeitures at the time of grant and revise them, 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 unvested portion of the surrendered stock-based award.
The benefits of tax deductions in excess of recognized compensation cost is 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 had no impact on the Company’s
consolidated statement of cash flows for the years ended December 31, 2016, 2015 and 2014.
Income Taxes
We record 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 basis, and net operating loss and tax credit carryforwards.
Our 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 income tax accounting.
We establish a valuation allowance when it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Significant management judgment is required in determining our provision for income taxes,
the deferred tax assets and liabilities and any valuation allowance recorded against those net deferred tax assets.
We evaluate the weight of all available evidence such as historical losses, projected future taxable income and
the expected timing of the reversals of existing temporary differences 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.
Based on our level of deferred tax assets as of December 31, 2016 and our level of historical U.S. losses, we
have determined that the current uncertainty regarding the realization of these assets is sufficient to warrant the need for
a full valuation allowance against our U.S. net deferred tax assets. We have also determined that a valuation allowance is
required on a portion of our foreign deferred tax assets.
21
Our income tax expense includes 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.
Results of Operations
The following table sets forth our results of operations as a percentage of total revenue:
Year ended December 31,
2015
2014
2016
Revenue:
Product
Services
Total revenue
Cost of revenue:
Product
Services
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Restructuring charges
Total operating expenses
Income (loss) from operations
Other (expense) income:
Interest income
Interest expense
Other, net
Total other (expense) income
Income (loss) before income taxes
Income tax provision
Net income (loss)
91.5 %
8.5
100
92.5 %
7.5
100
88.3 %
11.7
100
55.8
6.9
62.7
37.3
12.9
8.9
9.2
0.1
31.1
6.2
60.1
6.2
66.3
33.7
10.8
7.7
8.3
—
26.8
6.9
55.8
9.7
65.5
34.5
16.5
10.2
11.8
1.3
39.8
(5.3)
0.1
(1.9)
(0.3)
(2.1)
4.1
0.0
4.1 %
—
(1.7)
(0.2)
(1.9)
5.0
0.1
4.9 %
—
(0.5)
0.8
0.3
(5.0)
0.5
(5.5) %
22
Revenue
The following table sets forth our revenue:
Year ended
December 31,
2016
2015
Period-to-Period
Change
Year ended
December 31,
$
%
(dollars in thousands)
2015
2014
Period-to-Period
Change
$
%
Revenue:
Product
Percentage of
revenue
Services
Percentage of
revenue
Total revenue
$ 244,295
$ 278,875
$ (34,580)
(12.4)% $ 278,875
$ 179,246
$ 99,629 55.6 %
91.5 %
92.5 %
92.5 %
88.3 %
22,685
22,620
65
0.3 % 22,620
23,805
(1,185) (5.0) %
8.5 %
7.5 %
7.5 %
11.7 %
$ 266,980
$ 301,495
$ (34,515)
(11.4)% $ 301,495
$ 203,051
$ 98,444 48.5 %
2016 Compared with 2015
Product
Product revenue, which includes new system sales, sales of spare parts, product upgrades and used system sales
was $244.3 million or 91.5% of revenue in 2016, compared with $278.9 million, or 92.5% of revenue in 2015. The
decrease in product revenue in 2016 was primarily driven by a decrease in the number of Purion systems sold due to an
unexpected decline in DRAM spending.
Approximately 38.9% of systems revenue in 2016 was from sales of 200mm products and 61.1% was from
sales of 300mm products, compared with 13.0% and 87.0% for sales of 200mm products and 300mm products in 2015,
respectively. The increase in 200mm system sales is attributed to a resurgence in the mature process technology segment
including shipments of both legacy and 200mm Purion systems
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, 2016 and 2015 was $11.0 million and
$8.5 million, respectively. The increase was primarily due to a prepayment of a system sale.
Services
Services revenue, which includes the labor component of maintenance and service contracts and fees for service
hours provided by on-site service personnel, was $22.7 million, or 8.5% of revenue for 2016, compared with
$22.6 million, or 7.5% of revenue for 2015. Although services revenue should increase with the expansion of the
installed base of systems, it can fluctuate from period to period based on capacity utilization at customers’ manufacturing
facilities, which affects the need for equipment service.
2015 Compared with 2014
Product
Product revenue was $278.9 million or 92.5% of revenue in 2015, compared with $179.2 million, or 88.3% of
revenue in 2014. The increase in product revenue in 2015 was primarily driven by an increase in the number of Purion
systems sold.
Approximately 13.0% of systems revenue in 2015 was from sales of 200mm products and 87.0% was from
sales of 300mm products, compared with 18.1% and 81.9% for sales of 200mm products and 300mm products in 2014,
respectively.
23
The total amount of deferred revenue at December 31, 2015 and 2014 was $8.5 million and $7.2 million,
respectively. The increase was mainly due to the increase in systems sales in 2015 and the timing of acceptance of
deferred system sales.
Services
Services revenue was $22.6 million, or 7.5% of revenue for 2015, compared with $23.8 million, or 11.7% of
revenue for 2014.
Revenue Categories used by Management
In addition to the line item revenue categories discussed above, management also uses revenue categorizations
which look at revenue by product line (the most significant of which is ion implant) and by aftermarket, as described
below.
2016 Compared with 2015
Ion Implant
Revenue from sales of ion implantation products and related service was $248.9 million, or 93.2% of total
revenue in 2016, compared with $282.6 million, or 93.2%, of total revenue in 2015.
Aftermarket
We refer to the business of selling spare parts, product upgrades, and used systems, combined with the sale of
maintenance labor and service contracts and service hours, as the “aftermarket” business. Revenue from our aftermarket
business was $127.7 million in 2016, which decreased slightly compared to $129.6 million for 2015. Aftermarket
revenue generally increases with the expansion of the installed base of systems but can fluctuate from period to period
based on capacity utilization at customers’ manufacturing facilities which affects the sale of spare parts and demand for
equipment service.
2015 Compared with 2014
Ion Implant
Revenue from sales of ion implantation products and related service was $282.6 million, or 93.7% of total
revenue in 2015, compared with $183.1 million, or 90.2%, of total revenue in 2014. The increase in ion implant’s share
of total revenue for 2015 reflects a continuing reduction in dry strip revenue following the sale of assets relating to the
dry strip product line in December 2012. Total revenue in ion implant increased as our market share increased in 2015
due to our Purion products.
Aftermarket
Revenue from our aftermarket business was $129.6 million in 2015, which increased moderately compared to
$121.4 million for 2014.
24
Gross Profit / Gross Margin
The following table sets forth our gross profit:
Year ended
December 31,
2016
2015
Period-to-Period
Change
Year ended
December 31,
$
%
(dollars in thousands)
2015
2014
Period-to-Period
Change
$
%
Gross Profit:
Product
$ 95,288
$ 97,815
$ (2,527)
(2.6)% $ 97,815
$ 65,961
$ 31,854 48.3 %
Product gross margin
39.0 %
35.1 %
35.1 %
36.8 %
Services
4,310
3,891
419
10.8 %
3,891
$ 4,203
(312) (7.4) %
Services gross margin
Total gross profit
Gross margin
19.0 %
17.2 %
17.2 %
17.7 %
$ 99,598
$ 101,706
$ (2,108)
(2.1)% $ 101,706
$ 70,164
$ 31,542 45.0 %
37.3 %
33.7 %
33.7 %
34.5 %
2016 Compared with 2015
Product
Gross margin from product revenue was 39.0% for the twelve months ended December 31, 2016, compared to
35.1% for the twelve months ended December 31, 2015. The increase in gross margin of 3.9% resulted from improved
margins on Purion systems as a result of continued focus on supply chain optimization, value engineering and lean
performance, combined with an increased mix of higher margin parts and upgrades.
Services
Gross margin from services revenue was 19.0% for the twelve months ended December 31, 2016, compared to
17.2% for the twelve months ended December 31, 2015. The increase in gross margin is attributable to lower service
costs and higher margin service revenues.
2015 Compared with 2014
Product
Gross margin from product revenue was 35.1% for the twelve months ended December 31, 2015, compared to
36.8% for the twelve months ended December 31, 2014. The decrease in gross margin resulted from the net effect of
significantly higher systems sales volume of new Purion systems at lower margins and a decreased mix of parts and
upgrade revenue, partially offset by sale of previously written down systems.
Services
Gross margin from services revenue was 17.2% for the twelve months ended December 31, 2015, compared to
17.7% for the twelve months ended December 31, 2014. The decrease in gross margin is due to lower volumes and
changes in the mix and timing of service contracts.
25
Operating Expenses
The following table sets forth our operating expenses:
Year ended
December 31,
Period-to-Period
Change
Year ended
December 31,
2016
2015
$
%
2015
2014
Period-to-Period
Change
$
%
(dollars in thousands)
Research and development
Percentage of revenue
Sales and marketing
Percentage of revenue
General and administrative
Percentage of revenue
Restructuring charges
Percentage of revenue
Total operating expenses
$ 34,402 $ 32,586 $
1,816
5.6 % $ 32,586 $ 33,533 $
(947)
(2.8)%
12.9 %
10.8 %
10.8 %
16.5 %
23,839
23,325
514
2.2 %
23,325
20,713
2,612
12.6 %
8.9 %
7.7 %
7.7 %
10.2 %
24,452
25,059
(607)
(2.4)%
25,059
23,958
1,101
4.6 %
9.2 %
282
0.1 %
8.3 %
18
0.0 %
264
1,466.7 %
8.3 %
18
0.0 %
11.8 %
2,621
1.3 %
(2,603)
(99.3)%
$ 82,975
$ 80,988
$
1,987
2.5 % $ 80,988
$ 80,825
$
163
0.2 %
Percentage of revenue
31.1 %
26.9 %
26.9 %
39.8 %
Our operating expenses consist primarily of personnel costs, including salaries, commissions, bonuses, stock-
based compensation and related benefits and taxes; project material costs related to the design and development of new
products and enhancement of existing products; and professional fees, travel and depreciation expenses. Personnel costs
are our largest expense, representing $47.6 million, or 57.5% of our total operating expenses, for the year ended
December 31, 2016; $47.9 million, or 59.1%, of our total operating expenses for the year ended December 31, 2015; and
$45.3 million, or 57.9%, of our total operating expenses, excluding the restructuring charge of $2.6 million for the year
ended December 31, 2014.
Research and Development
Year ended
December 31,
Period-to-Period
Change
Year ended
December 31,
Period-to-Period
Change
2016
2015
$
%
2015
(dollars in thousands)
2014
$
%
Research and development
Percentage of revenue
$ 34,402 $ 32,586 $ 1,816
5.6 % $ 32,586 $ 33,533 (947) (2.8)%
12.9 %
10.8 %
10.8 %
16.5 %
Our ability to remain competitive depends largely on continuously developing innovative technology, with new
and enhanced features and systems and introducing them at competitive prices on a timely basis. Accordingly, based on
our strategic plan, we establish annual R&D budgets to fund programs that we expect will drive competitive advantages.
2016 Compared with 2015
Research and development expense was $34.4 million in 2016, an increase of approximately $1.8 million, or
5.6%, compared with $32.6 million in 2015. The increase was primarily due to increased headcount and outside services
to support product enhancements of our Purion platform partially offset by lower variable incentive plan expense.
2015 Compared with 2014
Research and development expense was $32.6 million in 2015, a decrease of approximately $0.9 million, or
2.8%, compared with $33.5 million in 2014. The decrease was primarily due to lower personnel costs driven by reduced
headcount from a reduction in force in 2014 and a spike in labor and material costs in the prior year related to the rollout
of our Purion platform. This was partially offset by higher variable incentive plan expense in 2015.
26
Sales and Marketing
Year ended
December 31,
Period-to-Period
Change
Year ended
December 31,
2016
2015
$
%
2015
2014
Period-to-Period
Change
$
%
(dollars in thousands)
Sales and marketing
Percentage of revenue
$ 23,839 $ 23,325 $ 514
2.2 % $ 23,325 $ 20,713 $ 2,612 12.6 %
8.9 %
7.7 %
7.7 %
10.2 %
Our sales and marketing expenses result primarily from the sale of our equipment and services through our
direct sales force.
2016 Compared with 2015
Sales and marketing expense was $23.8 million in 2016, an increase of $0.5 million, or 2.2%, compared with
$23.3 million in 2015. The increase was primarily due to an increase in new tool evaluation costs.
2015 Compared with 2014
Sales and marketing expense was $23.3 million in 2015, an increase of $2.6 million, or 12.6%, compared with
$20.7 million in 2014. The increase was primarily due to variable incentive plan expense and other compensation
expense as well as higher new tool evaluation costs.
General and Administrative
General and administrative
Percentage of revenue
Year ended
December 31,
Period-to-Period
Change
Year ended
December 31,
2016
%
2015
(dollars in thousands)
$ 24,452 $ 25,059 $ (607) (2.4)% $ 25,059 $ 23,958 1,101 4.6 %
%
2014
2015
$
9.2 %
8.3 %
8.3 %
11.8 %
Period-to-Period
Change
$
Our general and administrative expenses result primarily from the costs associated with our executive, finance,
information technology, legal and human resource functions.
2016 Compared with 2015
General and administrative expense was $24.5 million in 2016, a decrease of $0.6 million, or 2.4% compared
with $25.1 million in 2015. The decrease was primarily due to a reduction in personnel costs driven by a decrease in
variable incentive plan expense.
2015 Compared with 2014
General and administrative expense was $25.1 million in 2015, an increase of $1.1 million, or 4.6% compared
with $24.0 million in 2014. The increase was primarily due to variable incentive plan expense.
Restructuring
The Company from time to time incurs expenses relating to restructuring.
2016 Compared with 2015
During the year ended December 31, 2016 we recorded $0.3 million to restructuring expense due to a
consolidation in our customer base. During the year ended December 31, 2015, we recorded an immaterial charge to
restructuring expense.
27
2015 Compared with 2014
During the year ended December 31, 2015 we recorded an immaterial charge to restructuring expense. During
the year ended December 31, 2014 we recorded $2.6 million in restructuring expense for severance and other related
costs.
Other (Expense) Income
Other (expense) income consists primarily of interest relating to the lease obligation we incurred in connection
with the 2015 sale of our headquarters facility (“sale leaseback”) and other financing obligations, foreign exchange gains
and losses attributable to fluctuations of the U.S. dollar against the local currencies of certain of the countries in which
we operate, as well as interest earned on our invested cash balances.
2016 Compared with 2015
Other expense for the years ended December 31, 2016 and 2015 was $5.5 million and includes interest related
to our sale leaseback obligation of $5.1 million and $4.8 million, respectively.
2015 Compared with 2014
Other expense for the year ended December 31, 2015 of $5.5 million consists primarily of $4.8 million of
interest related to our sale leaseback obligation. Other income for the year ended December 31, 2014 of $0.5 million
consists primarily of foreign exchange gain of $1.8 million offset partially by interest expense of $1.1 million associated
with the business loan agreement with Northern Bank & Trust Company (“Term Loan”).
Income Taxes
Income tax expense was less than $0.1 million, $0.5 million and $1.1 million for the year ended December 31,
2016, 2015 and 2014, respectively. Our income tax expense is primarily due to operating results of foreign entities in
jurisdictions in Europe and Asia, where we earn taxable income. We have significant net operating loss carryforwards in
the United States and certain European jurisdictions, and, as a result, we do not currently pay significant income taxes in
those jurisdictions. Additionally, we do not recognize the tax benefit for such losses in the United States and certain
European taxing jurisdictions until it is determinable that there will be sufficient income such that the tax benefits can be
recognized.
Liquidity and Capital Resources
Our liquidity is affected by many factors. Some of these relate specifically to the operations of our business, for
example, our sales and other factors relate to the uncertainties of global economies, including the availability of credit
and the condition of the overall semiconductor capital equipment industry. Our established cost structure does not vary
significantly with changes in volume. We experience fluctuations in operating results and cash flows depending on
fluctuations in our revenue level.
In 2016, $8.8 million of cash was used to support operating activities. This compares to $18.3 million of cash
provided by operating activities in 2015. Cash and cash equivalents at December 31, 2016 was $70.8 million, compared
to $78.9 million at December 31, 2015. Approximately $16.4 million of cash was located in foreign jurisdictions as of
December 31, 2016. In addition to the cash and cash equivalent balance at December 31, 2016, the Company had
$6.9 million in restricted cash which relates to a $5.9 million letter of credit associated with the security deposit for the
sale leaseback transaction, a $0.9 million letter of credit relating to workers’ compensation insurance, and a $0.1 million
deposit relating to customs activity. Working capital at December 31, 2016 was $193.0 million. At December 31, 2016,
the Company had no bank debt.
Capital expenditures were $2.5 million and $1.8 million for the years ended December 31, 2016 and 2015,
respectively. Total capital expenditures for 2017 are projected to be approximately $7.5 million. Future capital
28
expenditures beyond 2017 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.
Cash provided by financing activities was $2.4 million and $31.4 million for the years ended December 31,
2016 and 2015, respectively. The $2.4 million cash provided by financing activities in 2016 was mainly due to the
exercise of stock options and proceeds received from the employee stock purchase plan.
The $31.4 million cash provided by financing activities from the prior year resulted largely from the first quarter
2015 sale of our corporate headquarters building in Beverly, Massachusetts, which provided $48.9 million of gross
proceeds, less $0.4 million for prepaid rent, for a net amount of $48.5 million. At the time of this sale, the Company
discharged an outstanding term loan of $14.4 million, with related accrued interest, and paid a pre-payment penalty to
Northern Bank and Trust Company for a total payment of $14.8 million. The Company incurred $0.8 million of related
financing expenses associated with this transaction and entered into a 22-year leaseback of the facility, the financial
commitment for which is included in the table of contractual obligations below. The Company also received proceeds of
$4.4 million relating to the exercise of stock options and purchases of Company stock through the Employee Stock
Purchase Plan.
We have outstanding letters of credit and surety bonds in the amount of $9.0 million to support our sale
leaseback, workers’ compensation insurance program and certain value added tax claims in Europe.
The following represents our commercial commitments as of December 31, 2016 (in thousands):
Other Commercial Commitments
Surety bonds
Standby letters of credit
Total
Total
$ 2,172 $
6,862
$ 9,034 $
Amount of
Commitment
Expiration by Period
2017
2018-2019
1,652
62
1,714
520 $
6,800
7,320 $
The following represents our contractual obligations as of December 31, 2016 (in thousands):
Payments Due by Period
Contractual Obligations
Sale leaseback obligation
Purchase order commitments
Operating leases
Total
$ 125,945 $ 5,315 $ 11,064 $ 11,567 $
Total
2017
43,867
5,228
42,973
2,581
2018-2019 2020-2021 2022 - Beyond
97,999
653
—
63
2,094
178
553
$ 175,040 $ 50,869 $ 13,221 $ 12,298 $
98,652
We have no off-balance sheet arrangements at December 31, 2016, exclusive of operating leases.
We have net operating loss and tax credit carryforwards, the tax effect of which aggregate $115.6 million at
December 31, 2016. These carryforwards, which expire principally between 2017 and 2034, are available to reduce
future income tax liabilities in the United States and certain foreign jurisdictions.
It is Company policy to provide taxes for the total anticipated tax impact of the undistributed earnings of our
wholly-owned foreign subsidiaries, as such earnings are not expected to be reinvested indefinitely. The Company
anticipates that U.S. tax resulting from remitting such earnings will be off-set by net operating loss or credit
carryforwards to the extent available. In addition, the Company does not anticipate incurring a foreign withholding tax
on remitting such earnings since it does not intend to remit the earnings as dividends.
We believe that based on our current market, revenue, expense and cash flow forecasts, our existing cash, cash
equivalents and borrowing capacity will be sufficient to satisfy our anticipated cash requirements for the short and
29
long-term. We currently have no credit facility but management believes we would be able to borrow on reasonable
terms if needed.
Related-Party Transactions
There are no significant related-party transactions that require disclosure in the consolidated financial statements
for the year ended December 31, 2016, or in this Annual Report on Form 10-K.
Recent Accounting Pronouncements
A discussion of recent accounting pronouncements, the impact of some of which may be material, is included in
Note 2 to the consolidated financial statements for the year ended December 31, 2016 included in this Annual Report on
Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Interest Rate Sensitivity
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio, which
consists entirely of cash equivalents at December 31, 2016. 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. We do not use derivative financial instruments in managing our investment
portfolio. 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 revenue is billed in U.S. dollars and operating expenses are incurred in the local currency.
During the years ended December 31, 2016 and 2015, approximately 28.4% and 24.7% of our revenue were derived
from foreign operations with this inherent risk. In addition, at both December 31, 2016 and 2015, our operations outside
of the United States accounted for approximately 20.1% and 20.7% of our total assets, respectively, the majority of
which was denominated in currencies other than the U.S. dollar. We do not use derivative financial instruments in
managing our foreign currency exchange risk.
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.
30
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, 2016.
In making this assessment, management used the criteria set forth in the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) Internal Control—2013 Integrated Framework.
Based on this assessment, management has concluded that, as of December 31, 2016, 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.
31
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, 2016,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). 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, 2016, 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, 2016 and 2015, and
the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows
for each of the three years in the period ended December 31, 2016 of Axcelis Technologies, Inc. and our report dated
March 14, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 14, 2017
32
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.
33
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 16, 2017 (the “Proxy Statement”) captioned:
•
•
•
•
“Proposal 1: Election of Directors,”
“Board of Directors,”
“Board Committees,” and
“Corporate Governance,”
The remainder of such information is set forth under the heading “Executive Officers of the Registrant” at the
end of Item 1 in Part I of this report and is incorporated herein by reference.
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:
•
•
“Executive Compensation,” and
“Board Committees—Compensation Committee Interlocks and Insider Participation.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
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:
•
•
“Share Ownership of 5% Stockholders,” and
“Share Ownership of Directors and Executive Officers,”
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:
•
•
•
“Executive Compensation,”
“Board of Directors,” and
“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.
34
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
Consolidated Statements of Operations—For the years ended December 31, 2016, 2015 and
36
2014
Consolidated Statements of Comprehensive Income (Loss)—For the years ended December
31, 2016, 2015 and 2014
Consolidated Balance Sheets—December 31, 2016 and 2015
Consolidated Statements of Stockholders’ Equity—For the years ended December 31, 2016,
2015 and 2014
Consolidated Statements of Cash Flows—For the years ended December 31, 2016, 2015 and
2014
Notes to Consolidated Financial Statements
2)
Financial Statement Schedules:
37
38
39
40
41
42
Schedule II—Valuation and Qualifying Accounts for the years ended December 31, 2016, 2015 and
2014.
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.
35
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. as of December
31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income, changes in
stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2016. Our audits also
include 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, 2016 and 2015, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended December 31, 2016, 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 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, 2016, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (2013 framework) and our report dated March 14, 2017 expressed an unqualified opinion
thereon.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 14, 2017
36
Axcelis Technologies, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
Revenue:
Product
Services
Total revenue
Cost of revenue:
Product
Services
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Restructuring charges
Total operating expenses
Income (loss) from operations
Other (expense) income:
Interest income
Interest expense
Other, net
Total other (expense) income
Income (loss) before income taxes
Income tax provision
Net income (loss)
Net income (loss) per share:
Basic
Diluted
Shares used in computing net income (loss) per share:
Basic weighted average common shares
Diluted weighted average common shares
$
$
$
$
2016
244,295
22,685
266,980
149,007
18,375
167,382
99,598
34,402
23,839
24,452
282
82,975
16,623
238
(5,073)
(764)
(5,599)
11,024
23
11,001
0.38
0.36
29,195
30,947
Twelve months ended
December 31,
2015
$
$
$
$
$
$
$
$
278,875
22,620
301,495
181,060
18,729
199,789
101,706
32,586
23,325
25,059
18
80,988
20,718
64
(4,976)
(601)
(5,513)
15,205
527
14,678
0.51
0.49
28,595
30,229
2014
179,246
23,805
203,051
113,285
19,602
132,887
70,164
33,533
20,713
23,958
2,621
80,825
(10,661)
32
(1,069)
1,531
494
(10,167)
1,099
(11,266)
(0.40)
(0.40)
27,862
27,862
See accompanying Notes to these Consolidated Financial Statements
37
Axcelis Technologies, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Net income (loss)
Other comprehensive (loss):
Foreign currency translation adjustments
Amortization of actuarial gains/losses and other adjustments from pension plan
Total other comprehensive (loss)
Comprehensive income (loss)
Twelve months ended
December 31,
2015
$ 11,001 $ 14,678 $ (11,266)
2014
2016
(847)
(1)
(848)
(4,150)
(313)
(4,463)
$ 10,153 $ 11,971 $ (15,729)
(2,664)
(43)
(2,707)
See accompanying Notes to these Consolidated Financial Statements
38
Axcelis Technologies, Inc.
Consolidated Balance Sheets
(In thousands, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Long-term restricted cash
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued compensation
Warranty
Income taxes
Deferred revenue
Other current liabilities
Total current liabilities
Sale leaseback obligation
Long-term deferred revenue
Other long-term liabilities
Total liabilities
December 31, December 31,
2016
2015
$
70,791 $
50,573
113,853
5,512
240,729
30,840
6,864
23,798
$
302,231 $
$
24,996 $
5,142
2,426
240
10,335
4,592
47,731
47,586
674
4,785
100,776
78,889
36,868
109,408
4,792
229,957
30,031
6,936
14,860
281,784
19,849
9,059
3,363
143
7,863
4,091
44,368
47,586
679
5,387
98,020
Commitments and contingencies (Note 17)
Stockholders’ equity:
Preferred stock, $0.001 par value, 30,000 shares authorized; none issued or
outstanding
Common stock, $0.001 par value, 75,000 shares authorized; 29,518 shares issued and
outstanding at December 31, 2016; 29,025 shares issued and 28,995
shares outstanding at December 31, 2015
Additional paid-in capital
Treasury stock, at cost, no shares at December 31, 2016 and 30 shares at December
31, 2015
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
—
—
30
535,408
29
529,089
—
(331,704)
(2,279)
201,455
302,231 $
(1,218)
(342,705)
(1,431)
183,764
281,784
$
See accompanying Notes to these Consolidated Financial Statements
39
Axcelis Technologies, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
Accumulated
Additional
Common Stock
Paid-in
Shares Amount Capital
Treasury
Stock
27 $ 511,075 $ (1,218) $ (346,117) $
—
(11,266)
Deficit
—
—
27,556 $
—
Other
Accumulated Comprehensive Stockholders’
Income (Loss)
Equity
Total
—
—
605
—
—
1
—
—
2,894
50
—
446
2
—
(7)
—
—
—
—
—
—
—
—
—
—
5,739 $ 169,506
(11,266)
—
(4,150)
(313)
—
(4,150)
(313)
2,895
—
—
446
(7)
—
28,213
—
—
28
—
4,745
519,153
—
—
(1,218)
—
—
(357,383)
14,678
—
1,276
—
4,745
161,856
14,678
—
—
759
—
—
1
—
—
3,920
47
—
441
7
—
(7)
—
—
—
—
—
—
—
—
—
—
(2,664)
(43)
—
(2,664)
(43)
3,921
—
—
441
(7)
—
29,026
—
—
29
—
5,582
529,089
—
—
(1,218)
—
—
(342,705)
11,001
—
(1,431)
—
5,582
183,764
11,001
—
—
392
—
—
1
—
—
2,237
22
—
325
108
—
(11)
—
—
—
—
—
(30)
—
—
—
(1,218)
(145)
1,218
—
—
—
—
—
—
—
—
(847)
(1)
—
—
—
—
—
(847)
(1)
2,238
325
(11)
0
(145)
—
29,518 $
—
30 $ 535,408 $
5,131
—
— $ (331,704) $
—
—
5,131
(2,279) $ 201,455
Balance at December 31, 2013
Net loss
Foreign currency translation
adjustments
Change in pension obligation
Exercise of stock options
Issuance of shares under
Employee Stock Purchase Plan
Issuance of restricted common
shares
Stock-based compensation
expense
Balance at December 31, 2014
Net income
Foreign currency translation
adjustments
Change in pension obligation
Exercise of stock options
Issuance of shares under
Employee Stock Purchase Plan
Issuance of restricted common
shares
Stock-based compensation
expense
Balance at December 31, 2015
Net income
Foreign currency translation
adjustments
Change in pension obligation
Exercise of stock options
Issuance of shares under
Employee Stock Purchase Plan
Issuance of restricted common
shares
Treasury shares returned to
authorized
Reverse stock split issuance costs
Stock-based compensation
expense
Balance at December 31, 2016
See accompanying Notes to these Consolidated Financial Statements
40
Axcelis Technologies, Inc.
Consolidated Statements of Cash Flow
(In thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization
Gain on sale of equipment
Deferred taxes
Stock-based compensation expense
Provision for doubtful accounts
Provision for excess and obsolete inventory
Changes in operating assets & liabilities:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable and other current liabilities
Deferred revenue
Income taxes
Other assets and liabilities
Net cash (used in) provided by operating activities
Cash flows from investing activities
Proceeds from sale of equipment
Expenditures for property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Decrease in restricted cash
Financing fees and other expenses
Proceeds from exercise of stock options
Proceeds from Employee Stock Purchase Plan
Principal payments on sale leaseback obligation
Proceeds from financing obligations
Principal payments on Term Loan
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information
Cash paid for:
Income taxes
Interest
Supplemental disclosure of total cash, cash equivalents and restricted cash:
Cash and cash equivalents at end of period
Restricted cash at end of period
Total cash, cash equivalents and restricted cash at end of period
Twelve months ended
December 31,
2015
2014
2016
$ 11,001 $ 14,678 $ (11,266)
4,258
(248)
519
5,179
106
1,051
4,869
—
779
5,575
—
1,721
4,589
—
1,266
4,812
—
1,817
(14,135)
(6,572)
(1,056)
799
2,467
102
(12,270)
(8,799)
5,171
(15,938)
640
5,997
1,360
(46)
(6,547)
18,259
(7,069)
(12,280)
(1,384)
772
2,577
(212)
333
(16,045)
270
(2,506)
(2,236)
—
(1,830)
(1,830)
—
(896)
(896)
72
(146)
2,227
277
—
—
—
2,430
507
(8,098)
78,889
—
(6,111)
(115)
(847)
2,895
3,921
446
441
—
(392)
—
48,940
(470)
(14,530)
2,756
31,422
(1,352)
285
(15,537)
48,136
46,290
30,753
$ 70,791 $ 78,889 $ 30,753
$
$
525 $
4,815 $
669 $
3,985 $
931
832
$ 70,791 $ 78,889 $ 30,753
825
$ 77,655 $ 85,825 $ 31,578
6,864
6,936
See accompanying Notes to these Consolidated Financial Statements
41
Axcelis Technologies, Inc.
Notes to Consolidated Financial Statements
Note 1. Nature of Business
Axcelis Technologies, Inc. (“Axcelis” or the “Company”) was incorporated in Delaware in 1995, and is a
worldwide producer of ion implantation and other processing equipment used in the fabrication of semiconductor chips
in the United States, Europe and Asia. In addition, the Company provides extensive aftermarket service and support,
including spare parts, equipment upgrades, used equipment and maintenance services to the semiconductor industry.
Note 2. Summary of Significant Accounting Policies
The accompanying consolidated financial statements reflect the application of certain significant accounting
policies as described in this note and elsewhere in the footnotes.
(a) Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its
wholly-owned, controlled subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation.
Events occurring subsequent to December 31, 2016 have been evaluated for potential recognition or disclosure
in the consolidated financial statements.
(b) Use of Estimates
The preparation of these consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, the
Company evaluates its estimates and judgments, including those related to revenue recognition, the realizable value of
inventories, valuing stock-based compensation instruments and valuation allowances for deferred tax assets. Actual
amounts could differ from these estimates. Changes in estimates are recorded in the period in which they become known.
(c) 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 revenue and expenses. The resulting translation adjustments are recorded in
stockholders’ equity as an element of accumulated other comprehensive income (loss). Foreign currency transaction
gains and losses are included in other income (expense) in the Consolidated Statements of Operations.
For the year ended December 31, 2016 the Company had $0.6 million in foreign exchange losses. For the year
ended December 31, 2015 the Company did not have any material foreign exchange gains or losses. For the year ended
December 31, 2014, the Company realized $1.8 million of foreign exchange gains.
(d) 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 and certificates of deposit. Cash
equivalents are carried on the balance sheet at fair market value.
42
(e) 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 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.
The Company 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.
(f) Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated depreciation and amortization.
Depreciation and amortization are recorded using the straight-line method over the estimated useful lives of the
related assets as follows:
Asset Classification
Land and buildings (under lease)
Machinery and equipment
Estimated Useful Life
Lesser of the lease term or
estimated useful life of the asset
3 to 10 years
On January 30, 2015, the Company sold its corporate headquarters facility. As part of this sale, the Company
also entered into a 22-year lease agreement. The Company accounted for the sale leaseback transaction as a financing
arrangement for financial reporting purposes. The Company retained the historical costs of the property and the related
accumulated depreciation on its financial books within property, plant and equipment and will continue to depreciate the
property for financial reporting purposes over the lesser of its remaining useful life or its initial lease term of 22 years.
Repairs and maintenance costs are expensed as incurred. Expenditures for renewals and betterments are
capitalized.
(g) Impairment of Long-Lived Assets
The Company records impairment losses on long-lived assets when events and circumstances indicate that these
assets might not be recoverable. 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.
The Company did not have any indicators of impairment during the period ending December 31, 2016. The
Company did not record an impairment charge in the years ended December 31, 2016, 2015, or 2014.
Actual performance could be materially different from our current forecasts, which could impact estimates of
undiscounted cash flows and may result in the impairment of the carrying amount of the long-lived assets in the future.
This could be caused by strategic decisions made in response to economic and competitive conditions, the impact of the
economic environment on our customer base, or a material adverse change in the Company’s relationships with
significant customers.
43
(h) Concentration of Risk and Off-Balance Sheet Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are principally cash
equivalents and accounts receivable. The Company’s cash equivalents are principally maintained in an investment grade
money-market fund or certificates of deposit.
The Company has no significant off-balance-sheet risk such as exchange contracts, option contracts or other
hedging arrangements.
The Company’s 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 without significantly increasing risk.
This is accomplished by investing in marketable high investment grade securities. 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.
The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires
no collateral to secure accounts receivable. For selected overseas sales, the Company requires customers to obtain letters
of credit before product is shipped. The Company 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.
The Company’s customers consist of semiconductor chip manufacturers located throughout the world and net
sales to its ten largest customers accounted for 70.2%, 76.8% and 68.1% of revenue in 2016, 2015 and 2014,
respectively.
For the year ended December 31, 2016, the Company had one customer representing 17.0% of total revenue.
For the year ended December 31, 2015, the Company had two customers representing 29.3% and 10.5% of total revenue,
respectively. For the year ended December 2014 the Company had two customers representing 17.4% and 12.3% of total
revenue, respectively.
As of December 31, 2016, the Company had four customers account for 22.0%, 12.3%, 12.0% and 10.6% of
consolidated accounts receivable, respectively. As of December 31, 2015, the Company had three customers account for
22.9%, 12.7% and 11.6% of consolidated accounts receivable, respectively.
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 economic
conditions or other factors, could affect its ability to deliver products to its customers.
(i) Revenue Recognition
The Company’s revenue recognition policy involves significant judgment by management. 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.
The Company’s system sales transactions are made up of multiple elements, including the system itself and
elements that are not delivered simultaneously with the system. These undelivered elements might include a combination
of installation services, extended warranty and support and spare parts, all of which are covered generally by a single
sales price.
The Company’s system revenue arrangements with multiple elements are divided into separate units of
accounting if specified criteria are met, including whether the delivered element has stand-alone value to the customer. If
the criteria are met, then the consideration received is allocated among the separate units based on their relative selling
price, and the revenue is recognized separately for each of the separate units.
44
The Company determines selling price for each unit of accounting (element) using vendor specific objective
evidence (VSOE) or third-party evidence (TPE), if they exist, otherwise, the Company uses best estimated selling price
(BESP). The Company generally expects that it will not be able to establish TPE due to the nature of its products, and, as
such, the Company typically will determine selling price using VSOE or BESP.
Where required, the Company determines BESP for an individual element based on consideration of both
market and Company-specific factors, including the selling price and profit margin for similar products, the cost to
produce the deliverable and the anticipated margin on that deliverable and the characteristics of the markets in which the
deliverable is sold.
Systems are not sold separately and VSOE or TPE is not available for the systems element. Therefore the
selling price associated with systems is based on BESP. The allocated value for installation in the arrangement includes
either (i) the relative selling price of the installation or (ii) the portion of the sales price that will not be received until the
installation is completed (the “retention”). The selling price of elements such as extended warranty for support, spare
parts and support labor is also based on BESP. For the majority of regions, the selling price of 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, both of which are sold separately, or VSOE. In regions where
VSOE does not exist the Company uses BESP.
Product revenue for products which have demonstrated market acceptance, 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, collectability 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 acceptance has occurred, as defined in the sales documentation or, for certain customers, when
both acceptance has occurred and retention payment has been received. Revenue for other elements is recognized at the
time products are shipped or the related services are performed.
The Company generally recognizes revenue for systems which have demonstrated market acceptance 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 Company believes the risk of failure to complete a
system installation is remote.
For initial shipments of systems with new technologies or in the small number of instances where the Company
is unsure of meeting the customer’s specifications or obtaining customer acceptance upon shipment of the system, it 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.
Product revenue includes revenue from system sales, sales of spare parts, the spare parts component of
maintenance and service contracts and product upgrades. Services revenue includes the labor component of maintenance
and service contract amounts charged for on-site service personnel.
Axcelis reports revenue net of any taxes collected from customers and remitted to governmental authorities,
with the collected taxes recorded as current liabilities until remitted to the relevant government authority.
(j) Shipping and Handling Costs
Shipping and handling costs are included in cost of revenue.
45
(k) Stock-Based Compensation
The Company generally recognizes compensation expense for all stock-based payments to employees and
directors, including grants of employee stock options, based on the grant-date fair value of those stock-based payments
using the Black-Scholes option pricing model, adjusted for expected forfeitures. Other valuation models may be utilized
in the limited circumstances where awards with market-based vesting considerations, such as the price of the Company’s
common stock, or performance based awards, are granted. Stock-based compensation expense is recognized ratably over
the requisite service period. For each stock option grant with vesting based on a combination of time, market or
performance conditions, where vesting will occur if either condition is met, the related compensation costs are
recognized over the shorter of the explicit service period or the derived service period.
See Note 14 for additional information relating to stock-based compensation.
(l) 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 basis, 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. The
Company establishes 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 in the consolidated statements of operations.
(m) Computation of Net Income (Loss) per Share
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.
The Company incurred a net loss for the year ended December 31, 2014, and has excluded 1,165,855 of
incremental shares attributable to outstanding stock options and restricted stock units from the calculation of net loss per
share because the effect would have been anti-dilutive.
46
The components of net income (loss) per share are as follows:
2016
Year ended December 31,
2015
(in thousands, except per share data)
(11,266)
2014
Net income (loss) available to common stockholders $ 11,001 $ 14,678 $
Weighted average common shares outstanding used
in computing basic income (loss) per share
Incremental options and RSUs
Weighted average common shares outstanding used
in computing diluted net income (loss) per share
Net income (loss) per share
29,195
1,752
28,595
1,634
30,947
30,229
27,862
—
27,862
Basic
Diluted
$
$
0.38 $
0.36 $
0.51 $
0.49 $
(0.40)
(0.40)
(n) Accumulated Other Comprehensive Income
The following table presents the changes in accumulated other comprehensive income, net of tax, by component
for the year ended December 31, 2016:
Balance at December 31, 2015
Other comprehensive loss and pension reclassification
Balance at December 31, 2016
Foreign Defined benefit
currency
pension plan
(in thousands)
Total
$
$
(744) $
(847)
(1,591) $
(687) $ (1,431)
(848)
(688) $ (2,279)
(1)
(o) Recent Accounting Guidance
Accounting Standards or Updates Recently Adopted
In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.” The amendments
in this ASU require entities that present classified statements of financial position to classify deferred tax liabilities and
assets as noncurrent. They apply to all entities that present a classified statement of financial position. For public
business entities, the amendments in this ASU are effective for financial statements issued for annual periods beginning
after December 15, 2016, and interim periods within those annual periods. The Company adopted ASU No. 2015-17
early, effective June 30, 2016, on a prospective basis. As a result, the Company presented all deferred tax assets and
liabilities as noncurrent on the consolidated balance sheet as of December 31, 2016, reducing current deferred tax assets
by $0.2 million, long-term deferred tax assets by $0.3 million and short-term deferred tax liabilities by $0.5 million. The
current deferred tax assets and liabilities on the consolidated balance sheet as of December 31, 2015, have not been
reclassified.
In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to
Continue as a Going Concern.” ASU 2014-15 introduces an explicit requirement for management to assess if there is
substantial doubt about an entity’s ability to continue as a going concern, and to provide related footnote disclosures in
certain circumstances. In connection with each annual and interim period, management must assess if there is substantial
doubt about an entity’s ability to continue as a going concern within one year after the issuance date. Disclosures are
required if conditions give rise to substantial doubt. The adoption of this standard did not have a material impact on the
Company’s consolidated financial statements.
47
Accounting Standards or Updates Not Yet Effective
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which provides
guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it
transfers promised goods or services to customers in an amount that reflects the consideration to which the company
expects to be entitled in exchange for those goods or services. In April 2016, the FASB issued ASU 2016-10, “Revenue
from Contracts with Customers” (Topic 606): Identifying Performance Obligations and Licensing, which further clarifies
performance obligations in a contract with a customer. In May 2016, the FASB issued ASU 2016-12, “Revenue from
Contracts with Customers” (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides a more
narrow interpretation of ASU No. 2014-09. These ASUs are effective for annual reporting periods beginning after
December 15, 2017 and interim periods within those annual periods. The Company is currently assessing the potential
impact the adoption of these standards will have on the financial statements.
In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory,” which changes
the inventory measurement principles for entities using the first-in, first-out (FIFO) or average cost methods. For entities
utilizing one of these methods, the inventory measurement principle will change from lower of cost or market to the
lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of
business, less the reasonably predictable costs of completion, disposal and transportation. The amendments are effective
for annual and interim periods beginning after December 15, 2016. The adoption of this ASU will not have a material
impact on the Company’s financial statements and disclosures.
In February 2016, the FASB issued ASU No. 2016-02 “Leases.” The ASU requires lessees to recognize the
rights and obligations created by most leases as assets and liabilities on their balance sheet and continue to recognize
expenses on their income statement over the lease term. It will also require disclosures designed to give financial
statement users information on the amount, timing, and uncertainty of cash flows arising from leases. The guidance is
effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years. Early
adoption is permitted for all entities. The Company is currently evaluating the impact of ASU 2016-02 on the
consolidated financial statements and disclosures.
In March 2016, the FASB issued ASU No. 2016-09 “Compensation — Stock Compensation,” which changes
the accounting for stock-based payment transactions, including the income tax consequences, classification of awards as
either equity or liabilities, and classification on the statement of cash flows. For public business entities, the amendments
in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual
periods. Early adoption is permitted for all entities and any entity that elects early adoption must adopt all of the
amendments in the same period. The adoption of this ASU will not have a material impact on the Company’s financial
statements and disclosures.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a
consensus of the FASB Emerging Issues Task Force).” This ASU requires the statement of cash flows to explain the
change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or
restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents are
to be included with cash and cash equivalents when reconciling the beginning of period and end of period amounts
shown on the statement of cash flows. ASU No. 2016-18 will be effective for annual reporting periods beginning after
December 15, 2017. The adoption of this ASU will not have a material impact on the Company’s financial statements
and disclosures.
Note 3. Correction of Accounting Error in Prior Period
Subsequent to March 31, 2016, but prior to filing the Form 10-Q for the quarter ended June 30, 2016, the
Company discovered a cumulative error associated with the elimination of profits on sales of inventory to its
subsidiaries. This error had no impact upon the Company’s consolidated statement of operations or consolidated
statement of cash flows subsequent to the year ended December 31, 2010. The following financial statement line items
reported in the Company’s consolidated balance sheet for the year ended December 31, 2015 was affected by the
correction of this accounting error:
48
(in thousands)
Inventory, net
Total current assets
Total assets
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
Previously Reported
December 31, 2015
Adjusted December
31, 2015
Effect
of Change
$
$
115,904 $
236,453
288,280
(336,209)
190,260
288,280 $
109,408 $
229,957
281,784
(342,705)
183,764
281,784 $
(6,496)
(6,496)
(6,496)
(6,496)
(6,496)
(6,496)
This error was associated with transactions occurring prior to September 2010, at which time the Company
revised its methodology to compute and eliminate intercompany profits. However, the Company failed to identify and
record an entry to eliminate the cumulative error resulting from the prior methodology. This $6.5 million error resulted in
an overstatement of inventory and a cumulative understatement of cost of product revenue as of September 2010.
Thereafter, the effect was an overstatement of inventory and understatement of accumulative deficit for each subsequent
reporting period. The consolidated balance sheets as of December 31, 2015 and 2014 have been revised to reflect the
correction of the error through a decrease in inventory and an increase in accumulated deficit of $6.5 million. In the
opinion of management, the effect is not material to the consolidated financial position or results of operations for any
previously reported period.
Note 4. 1-for-4 Reverse Stock Split
As of 6:00 PM Eastern Time on June 30, 2016, the Company effected a 1-for-4 reverse stock split of its
common stock. The Company continues to be traded under its unchanged symbol “ACLS.” All previously reported
common stock share amounts in the accompanying financial statements and related notes have been retroactively
adjusted to reflect the reverse stock split. As a result of the reduced number of shares outstanding after the reverse stock
split, the stated capital attributable to common stock on the Company’s balance sheet (which consists of the unchanged
$0.001 par value per share multiplied by the aggregate number of shares issued and outstanding), has been reduced.
Correspondingly, the Company’s additional paid-in capital account, which consists of the difference between its stated
capital and the aggregate amount paid to the Company upon issuance of all currently outstanding shares of its common
stock, has been credited with the amount by which the stated capital was reduced. The Company’s stockholders’ equity,
in the aggregate, remains unchanged.
Immediately prior to the effectiveness of the reverse stock split, the Company retired 30 thousand shares of
common stock held in treasury to the status of authorized and unissued.
Note 5. Restricted Cash
The restricted cash of $6.9 million at December 31, 2016 relates to a $5.9 million letter of credit associated to
the security deposit for the sale leaseback transaction, a $0.9 million letter of credit relating to workers’ compensation
insurance and a $0.1 million deposit relating to customs activity. The change in restricted cash is classified in the
statement of cash flows as a financing activity.
Note 6. Accounts Receivable, net
The components of accounts receivable are as follows:
Trade receivables
Allowance for doubtful accounts
Trade receivables, net
49
December 31,
2016
2015
(in thousands)
$ 50,650 $ 36,868
—
$ 50,573 $ 36,868
(77)
Note 7. Inventories, net
The components of inventories are as follows:
Raw materials
Work in process
Finished goods (completed systems)
Inventories, net
December 31,
2016
2015
(in thousands)
$ 80,503 $ 72,070
29,219
8,119
$ 113,853 $ 109,408
14,117
19,233
When recorded, inventory reserves are intended to reduce the carrying value of inventories to their market
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 inventories 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. In 2016, the Company recorded an overall decrease of $1.6 million in the inventory reserves, which
consisted of disposals due to previously reserved for obsolescence and excess inventory of $2.6 million partially offset
by a provision charge to the reserve of $1.0 million. As of December 31, 2016 and 2015, inventories are stated net of
inventory reserves of $8.8 million and $10.5 million respectively.
During each of the years ended 2016, 2015 and 2014, the Company recorded charges to cost of sales of $0.8
million, $0.5 million and $0.8 million to reflect the lower of cost or market value. During 2014, the Company recorded a
charge to cost of sales of $1.0 million due to production levels below normal capacity.
Note 8. Property, Plant and Equipment, net
The components of property, plant and equipment are as follows:
Land and buildings
Machinery and equipment
Construction in process
Total cost
Accumulated depreciation
Property, plant and equipment, net
December 31,
2016
2015
(in thousands)
$ 75,792 $ 80,491
11,080
1,451
93,022
(62,991)
$ 30,840 $ 30,031
9,472
1,704
86,968
(56,128)
Depreciation expense was $1.8 million, $2.4 million and $2.4 million for the years ended December 31, 2016,
2015 and 2014, respectively.
50
Note 9. Assets Manufactured for Internal Use, net
The components of assets manufactured for internal use, included in amounts reported as other assets, are as
follows:
Internal use assets
Construction in process
Total cost
Accumulated depreciation
Assets manufactured for internal use, net
December 31,
2016
2015
(in thousands)
$ 42,776 $ 31,759
470
32,229
(20,193)
$ 21,683 $ 12,036
1,745
44,521
(22,838)
These products are used for research and development, training, and customer demonstration purposes.
Depreciation expense was $2.4 million, $2.5 million and $2.2 million for the years ended December 31, 2016,
2015 and 2014, respectively.
Note 10. Restructuring Charges
In the first quarter of 2016, due to changes in customer service contracts resulting from a consolidation in our
customer base, the Company had severance and other costs related to a reduction in force.
The Company’s restructuring liability for the years ended December 31, 2016, 2015 and 2014 are as follows:
Balance at December 31, 2014
Severance, related costs and other adjustments
Cash payments
Balance at December 31, 2015
Severance and related costs
Cash payments
Balance at December 31, 2016
Note 11. Product Warranty
Severance
(in thousands)
481
$
(2)
(479)
—
282
(282)
—
$
$
The Company generally offers a one year warranty for all of its systems, 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.
51
The 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 warranties
during the period
Balance at December 31 (end of period)
Amount classified as current
Amount classified as long-term
Total warranty liability
Note 12. Financing Arrangements
Sale Leaseback Obligation
2016
Year ended December 31,
2015
(in thousands)
$ 3,555 $ 1,526 $ 1,428
1,743
4,305
(2,096)
(2,672)
3,125
(4,249)
2014
235
451
$ 2,666 $ 3,555 $ 1,526
396
$ 2,426 $ 3,363 $ 1,352
174
$ 2,666 $ 3,555 $ 1,526
192
240
On January 30, 2015, the Company sold its corporate headquarters facility for the purchase price of $48.9
million. As part of the sale, the Company also entered into a 22-year lease agreement with the buyer. The sale leaseback
is accounted for as a financing arrangement for financial reporting and, as such, the Company recorded a financing
obligation of $47.6 million as of December 31, 2016. The associated lease payments include both an interest component
and payment of principal, with the underlying liability being extinguished at the end of the original lease term. The
Company posted a collateralized security deposit of $5.9 million in the form of an irrevocable letter of credit at the time
of the closing. Upon the termination of our credit facility with Silicon Valley Bank in October 2015, this letter of credit
was cash collateralized.
Note 13. Employee Benefit Plans
(a) Defined Contribution Plan
The Company maintains the Axcelis Long-Term Investment Plan, a defined contribution plan. All regular
employees are eligible to participate and may contribute up to 35% of their compensation on a before-tax basis subject to
Internal Revenue Service (“IRS”) limitations. Highly compensated employees may contribute up to 16% of their
compensation on a before-tax basis subject to IRS limitations. In 2015, the Company implemented a matching
contribution of up to one thousand U.S. dollars on a dollar-for-dollar basis on contributions by eligible participants. In
2016, the Company increased the matching contribution to a maximum of one thousand two hundred U.S. dollars, on the
basis of one dollar matched for each two dollars contributed by eligible participants. Total related expense for 2016 and
2015 was $0.4 million.
(b) Other Compensation Plans
The Company operates in foreign jurisdictions that require lump sum benefits, payable based on statutory
regulations, for voluntary or involuntary termination. Where required, an annual actuarial valuation of the benefit plans is
obtained.
52
The Company has recorded an unfunded liability of $4.0 million and $3.9 million at December 31, 2016 and
2015, respectively, for costs associated with these compensation plans in foreign jurisdictions. The following table
presents the classification of these liabilities in the Consolidated Balance Sheets:
Current:
Accrued compensation
Total current liabilities
Long-term:
Other long-term liabilities
Total liabilities
Year ended
December 31,
2015
2016
(in thousands)
$ 902 $ 857
$ 902 $ 857
3,057
3,052
$ 3,959 $ 3,909
The expense recorded in connection with these plans was $0.8 million, $0.7 million and $0.7 million during the
years ended December 31, 2016, 2015 and 2014, respectively.
Note 14. Stock Award Plans and Stock Based Compensation
(a) Equity Incentive Plans
The Company maintains the Axcelis Technologies, Inc. 2012 Equity Incentive Plan (the “2012 Equity Plan”),
which became effective on May 2, 2012. Our 2000 Stock Plan (the “2000 Stock Plan”) expired on May 1, 2012 and no
new grants may be made under that plan after that date. However, awards granted under the 2000 Stock Plan prior to the
expiration remain outstanding and subject to the terms of the 2000 Stock Plan.
The 2012 Equity Plan, as amended, reserves 5.5 million shares of common stock, $0.001 par value, for grant
and permits the issuance of options, stock appreciation rights, restricted stock, restricted stock units, stock equivalents
and awards of shares of common stock that are not subject to restrictions or forfeiture to selected employees, directors
and consultants of the Company. Shares that are not issued under an award (because such award expires, is terminated
unexercised or is forfeited) that were outstanding under the 2000 Stock Plan as of the May 2, 2012, increase the reserve
of shares available for grant under the 2012 Equity Plan.
The term of stock options granted under these plans is specified in the award agreements. Unless a lesser term is
otherwise specified by the Compensation Committee of the Company’s Board of Directors, awards under the 2012
Equity Plan will expire seven years from the date of grant. In general, all awards issued under the 2000 Stock Plan expire
ten years from the date of grant. Under the terms of these stock plans, the exercise price of a stock option may not be less
than the fair market value of a share of the Company’s common stock on the date of grant. Under the 2012 Equity Plan,
fair market value is defined as the last reported sale price of a share of the common stock on a national securities
exchange as of any applicable date, as long as the Company’s shares are traded on such exchange.
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 six months and, once
vested, are not affected by the director’s termination of service to the Company. In limited circumstances, the Company
may grant stock option awards with market-based vesting conditions, such as the Company’s common stock price, or
other performance conditions. Termination of service by an employee will cause options to cease vesting as of the date of
termination, and in most cases, employees will have 90 days after termination to exercise options that were vested as of
the termination of employment. In general, retiring employees will have one year after termination of employment to
exercise vested options. The Company settles stock option exercises with newly issued common shares.
Restricted stock units granted to employees during 2016 had both time-based vesting provisions and
performance-based vesting provisions. Generally, unvested restricted stock unit awards expire upon termination of
service to the Company. The Company settles restricted stock units upon vesting with newly issued common shares. No
restricted stock was granted under either stock plan during the three year period ended December 31, 2016.
53
As of December 31, 2016, there were 0.7 million shares available for grant under the 2012 Equity Plan. No
shares are available for grant under the 2000 Stock Plan.
As of December 31, 2016, there were 5.0 million options outstanding under the 2012 Equity Plan and the 2000
Stock Plan, collectively, and 0.5 million unvested restricted stock units outstanding under the 2012 Stock Plan.
(b) Employee Stock Purchase Plan
The Employee Stock Purchase Plan (the “Purchase Plan”) provides effectively all of the Company’s 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 as elected by the participant, subject to certain caps set forth in
the Purchase Plan. Employees may purchase the Company’s common stock at 85% of its market on the day the stock is
purchased.
The Purchase Plan is considered compensatory and as such, compensation expense has been recognized based
on the benefit of the discounted stock price, amortized to compensation expense over each offering period of six months.
Compensation expense relating to the Purchase Plan was approximately $0.1 million for each of the years ended
December 31, 2016, 2015 and 2014.
As of December 31, 2016, there were a total of 0.3 million shares reserved for issuance and available for
purchase under the Purchase Plan. Less than 0.1 million shares were purchased under the Purchase Plan in each of the
years ended December 31, 2016, 2015 and 2014.
(c) Valuation of Stock Options and Restricted Stock Units
For the purpose of valuing stock options with service conditions, 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:
Weighted-average expected volatility
Weighted-average expected term
Risk-free interest rate
Expected dividend yield
2016
49.3% — 56.7%
4.7 years
1.1% — 2.0%
0%
Year ended December 31,
2015
2014
56.2% — 64.7% 60.6% — 98.4%
4.6 — 4.7 years 3.8 — 4.7 years
1.2% — 1.7%
1.3% — 1.6%
0%
0%
Expected volatility—The Company considers a number of factors when estimating volatility for stock options
granted. The Company’s method of estimating expected volatility relies on a combination of historical and implied
volatility. The Company believes that this blended volatility results in an accurate estimate of the grant-date fair value of
employee stock options because it appropriately reflects the market’s current expectations of future volatility.
Expected term—The Company calculated the weighted average expected term for stock options granted prior to
July 1, 2012, using a forward looking lattice model of the Company’s stock price incorporating a suboptimal exercise
factor and a projected post-vest forfeiture rate. For stock options granted after July 1, 2012 to employees and to
non-employee members of the Company’s Board of Directors, the Company used the simplified method for estimating
the expected life of “plain vanilla” options because it did not have sufficient exercise history to use a lattice model. The
Company expects that it will use a lattice model once sufficient exercise history has been established. A change in the
contractual life from 10 years to 7 years was made to reflect the fact that options granted after May 1, 2012 were granted
under the 2012 Equity Incentive Plan, which limits option terms to seven years.
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.
54
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.
In limited circumstances, the Company also issues stock option grants with vesting based on market conditions,
such as the Company’s common stock price, or a combination of time or market or performance conditions. The fair
values and derived service periods for all grants that have vesting based on market or performance conditions are
estimated using the Monte Carlo valuation method. For each stock option grant with vesting based on a combination of
time and performance or market conditions, where vesting will occur if either condition is met, the related compensation
costs are recognized over the shorter of the explicit service period or the derived service period.
The fair value of the Company’s restricted stock units is calculated based upon the fair market value of the
Company’s stock at the date of grant.
(d) Summary of Stock-based Compensation Expense
The Company uses the straight-line attribution method to recognize expense for stock-based awards such that
the expense associated with awards is evenly recognized throughout the period.
The amount of stock-based compensation recognized is based on the value of the portion of the awards that are
ultimately expected to vest. The Company estimates forfeitures at the time of grant and revises them, 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 unvested portion of the surrendered stock-based award. Based on a historical
analysis, a forfeiture rate of 5% per year was applied to stock-based awards, including executive officer awards, for the
years ended December 31, 2016, 2015 and 2014.
For the year ended December 31, 2016, the Company recognized stock-based compensation expense of $5.2
million. Stock-based compensation expense was $5.6 million and $4.8 million for the years ended December 31, 2015
and 2014, respectively. The Company presents the expenses related to stock-based compensation in the same expense
line items as cash compensation paid to its employees. For the year ended December 31, 2016, the Company primarily
used restricted stock units in its annual equity compensation program. For the years ended December 31, 2015 and 2014,
the Company primarily used stock options in its annual equity compensation program.
The benefit of tax deductions in excess of recognized compensation cost is 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 had no impact on the Company’s
consolidated statement of cash flows as of and for the years ended December 31, 2016, 2015 or 2014.
55
(e) Stock Option Awards
The following table summarizes the stock option activity for the year ended December 31, 2016:
Weighted
Weighted Average
Average
Exercise
Price
Remaining
Contractual
Term
(years)
Aggregate
Intrinsic
Value
(in thousands)
Options
(in thousands)
Outstanding at December 31, 2015
Granted
Exercised
Canceled
Expired
Outstanding at December 31, 2016
Exercisable at December 31, 2016
Options Vested or Expected to Vest at December 31, 2016(1)
42
(392)
(56)
(60)
5,417 $ 7.29
13.34
5.71
8.98
20.66
4,951 $ 7.29
3,756 $ 6.49
4,886 $ 7.25
3.94 $
3.63 $
3.97 $
36,018
30,321
35,743
(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.
The total intrinsic value, which is defined as the difference between the market price at exercise and the price
paid by the employee to exercise the options, for options exercised during the years ended December 31, 2016, 2015 and
2014 was $2.5 million, $5.3 million and $2.4 million, respectively.
The total fair value of stock options vested during the years ended December 31, 2016, 2015 and 2014 was
$3.9 million, $5.4 million and $4.7 million respectively. The weighted average grant-date fair value of options granted
for the years ended December 31, 2016, 2015 and 2014 was $5.75, $5.05 and $3.82, respectively. As of December 31,
2016, there was $4.8 million of total forfeiture-adjusted unrecognized compensation cost related to non-vested stock
options granted under the 2012 Equity Incentive Plan and the 2000 Stock Plan. That cost is expected to be recognized
over a weighted-average period of 2.1 years.
(f) 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 in either the 2012 Equity Incentive
Plan or the 2000 Stock 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. RSU awards granted in 2016 included time vested share awards and awards with performance
vesting conditions. No restricted stock awards were granted, or vested, during the years ended December 31, 2016, 2015
and 2014. The fair value of a restricted stock unit and restricted stock award is charged to expense ratably over the
applicable service period.
56
Changes in the Company’s non-vested restricted stock units for the year ended December 31, 2016 is as
follows:
Outstanding at December 31, 2015
Granted
Vested
Forfeited
Outstanding at December 31, 2016
Weighted-Average
Grant Date Fair
Value per Share
Shares/units
(in thousands)
91 $
571
(110)
(4)
548 $
11.39
9.73
10.50
9.64
9.85
The weighted average grant-date fair value of restricted stock units granted for the years ended December 31,
2016, 2015 and 2014 was $9.73, $12.12 and $8.68, respectively. Some restricted stock units provide for net share
settlement to offset the personal income tax obligations of the employee’s restricted stock unit vesting. Vesting activity
above reflects shares vested before net share settlement.
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. As of December 31, 2016 and 2015, there were no outstanding shares of preferred stock.
Note 16. Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date.
(a) Fair Value Hierarchy
The accounting guidance for fair value measurement requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. The standard establishes a fair value hierarchy
based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial
instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the
fair value measurement. The fair value hierarchy is as follows:
Level 1—applies to assets or liabilities for which there are quoted prices in active markets for identical
assets or liabilities.
Level 2—applies to assets or liabilities for which there are inputs other than quoted prices that are
observable for the asset or liability, such as quoted prices for similar assets or liabilities in active markets;
quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions
(less active markets); or model-derived valuations in which significant inputs are observable or can be derived
principally from, or corroborated by, observable market data.
Level 3—applies to assets or liabilities for which there are unobservable inputs to the valuation
methodology that are significant to the measurement of the fair value of the assets or liabilities.
57
(b) Assets and Liabilities Measured at Fair Value
The Company’s money market funds are included in cash and cash equivalents in the consolidated balance
sheets, and are considered a level 1 investment as they are valued at quoted market prices in active markets. The
Company’s sale leaseback obligation relating to the sale of our corporate headquarters is carried at amortized cost, which
approximates fair value based on an implied borrowing rate of 10.65%. The underlying cash flow associated with our
lease payments is being applied to both an interest and principal component using the effective interest method over the
associated lease term. The liability is categorized as level 3 within the fair value hierarchy.
The following table sets forth Company’s assets and liabilities which are measured at fair value by level within
the fair value hierarchy.
Assets
Cash equivalents:
Money market funds
Assets
Cash equivalents:
Money market funds
Liabilities
December 31, 2016
Fair Value Measurements
Level 1
Level 2 Level 3 Total
(in thousands)
$ 54,170
$ — $ — $ 54,170
Level 1
December 31, 2015
Fair Value Measurements
Level 2 Level 3
Total
(in thousands)
$ 65,327
$ — $
— $ 65,327
Sale leaseback obligation
$
—
$ — $ 47,586 $ 47,586
(c) Other Financial Instruments
The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents (which are
comprised primarily of money market funds and deposit accounts), accounts receivable, prepaid expenses and other
current and non-current assets, restricted cash, accounts payable and accrued expenses approximate fair value due to their
short-term maturities.
Note 17. Commitments and Contingencies
(a) Lease Commitments
The Company leases manufacturing and office facilities and certain equipment under operating leases that
expire through 2037. Rental expense was $3.8 million, $3.8 million and $3.7 million under operating leases for the years
58
ended December 31, 2016, 2015 and 2014, respectively. Future minimum lease commitments on non-cancelable
operating leases for the year ended December 31, 2016 are as follows:
2017
2018
2019
2020
2021
Thereafter
Operating
Leases
(in thousands)
2,581
$
1,390
704
352
201
—
5,228
$
(b) Sale Leaseback Financing Obligation
In addition to the lease commitments as described above, the Company entered into a 22-year lease agreement
relating to our corporate headquarters in Beverly, Massachusetts. The following table relates to the cash payment
schedule associated with this lease obligation as of December 31, 2016:
2017
2018
2019
2020
2021
Thereafter
Total lease payments
Less interest portion
Sale leaseback obligation
(c) Purchase Commitments
Lease
Obligation
(in thousands)
5,315
$
5,470
5,594
5,719
5,848
97,999
$ 125,945
(78,359)
47,586
$
The Company has non-cancelable contracts and purchase orders for inventory of $43.9 million at December 31,
2016.
(d) Litigation
The Company is not presently a party to any 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.
(e) 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.
59
Note 18. Business Segment and Geographic Region Information
The Company operates in one business segment, which is the manufacture of capital equipment for the
semiconductor chip manufacturing industry. The principal market for semiconductor capital equipment is semiconductor
chip manufacturers. Substantially all sales are made directly by the Company to its customers located in the United
States, Europe and Asia Pacific.
The Company’s ion implantation systems product line includes high current, medium current and high energy
implanters. Other products include legacy dry strip equipment, curing systems, and thermal processing systems. In
addition to new equipment, the Company provides post-sales equipment service and support, including spare parts,
equipment upgrades, used equipment, maintenance services and customer training.
Revenue by product lines is as follows:
Ion implantation systems and services
Other systems and services
Total revenue
2016
Year ended December 31,
2015
(in thousands)
$ 248,885 $ 282,624 $ 183,148
19,903
$ 266,980 $ 301,495 $ 203,051
18,871
18,095
2014
Revenue and long-lived assets by geographic region, based on the physical location of the operation recording
the sale or the asset, are as follows:
2016
United States
Europe
Asia Pacific
2015
United States
Europe
Asia Pacific
2014
United States
Europe
Asia Pacific
Revenue
Long-Lived
Assets
(in thousands)
$ 191,261 $ 52,006
—
517
$ 266,980 $ 52,523
25,436
50,283
$ 226,890 $ 41,729
—
334
$ 301,495 $ 42,063
24,209
50,396
$ 126,255 $ 40,001
—
299
$ 203,051 $ 40,300
29,140
47,656
Long-lived assets consist of property, plant and equipment, net, and assets manufactured for internal use.
Operations in Europe and Asia Pacific consist of sales and service organizations.
International revenue, which includes export sales from U.S. manufacturing facilities to foreign customers and
sales by foreign subsidiaries and branches, was $213.8 million (80.0% of total revenue), $256.5 million (85.1% of total
revenue) and $162.4 million (80.0% of total revenue) in 2016, 2015 and 2014, respectively.
60
Note 19. Income Taxes
Income (loss) before income taxes is as follows:
United States
Foreign
Income (loss) before income taxes
Provision for income taxes is as follows:
Current:
United States
Federal
State
Foreign
Total current
Deferred:
Foreign
Total deferred
Income tax provision
2016
Year ended December 31,
2015
(in thousands)
$ 8,880 $ 12,708 $ (11,987)
1,820
$ 11,024 $ 15,205 $ (10,167)
2,497
2,144
2014
2016
Year ended December 31,
2014
2015
(in thousands)
$
— $
49
(217)
(168)
— $
(33)
374
341
—
59
780
839
191
191
260
186
260
186
23 $ 527 $ 1,099
$
Reconciliations of income taxes at the United States Federal statutory rate to the effective income tax rate are as
follows:
2014
2016
Year ended December 31,
2015
(in thousands)
$ 3,859 $ 5,322 $ (3,558)
38
(22)
184
(174)
(6,835)
(5,676)
259
600
(758)
(102)
686
379
—
—
607
—
9,143
(540)
740
1,333
527 $ 1,099
32
(615)
(7,765)
233
305
264
3,565
—
—
145
23 $
$
Income tax benefit at the United States statutory rate
State income taxes
Unrecognized tax benefits
Effect of change in valuation allowance
Foreign income tax rate differentials
Unremitted earnings of foreign subsidiaries
Stock options
Credit expirations
Deemed distribution from foreign subsidiaries
Discrete items, net
Other, net
Income tax provision
61
Significant components of current and long-term deferred income taxes are as follows:
As of December 31,
2016
Current Long Term Current
(in thousands)
2015
Long Term
Federal net operating loss carryforwards
State net operating loss carryforwards
Foreign net operating loss carryforwards
Federal tax credit carryforwards
State tax credit carryforwards
Unremitted earnings of foreign subsidiaries
Intangible assets
Property, plant and equipment
Accrued compensation
Inventories
Stock compensation
Warranty
Other
Deferred taxes, gross
Valuation allowance
Deferred taxes, net
$
$
98,007 $
1,546
673
12,778
2,566
(8,913)
229
9,774
97
5,230
6,687
930
(5,578)
124,026
(122,966)
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
1,060 $
— $ 101,479
1,636
—
810
—
16,343
—
3,964
—
(8,632)
—
286
—
9,331
—
—
1,082
—
2,541
6,001
—
—
1,214
(3,945)
1,237
127,273
6,074
(125,928)
(6,335)
1,345
(261) $
At December 31, 2016, the Company had $124.0 million of deferred tax assets worldwide relating to net
operating loss carryforwards, tax credit carryforwards and other temporary differences, which are available to reduce
income taxes in future years. A valuation allowance must 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 there is a strong presumption that a valuation allowance is needed. This presumption
can be overcome in very limited circumstances.
The Company maintains a valuation allowance reducing the carrying value of the deferred tax assets in the
United States 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 2016 and 2015 were
attributable to changes in the composition of temporary differences and changes in net operating loss carryforwards. The
remaining net deferred tax asset on the consolidated balance sheet represents the balances related to the activities of the
foreign subsidiaries.
At December 31, 2016, the Company has federal and state net operating loss carryforwards of $317.1 million
and foreign net operating loss carryforwards of $2.8 million, expiring principally between 2017 and 2034.
The Company has research and development and other tax credit carryforwards of $12.8 million at December
31, 2016 that can be used to reduce future federal and state income tax liabilities. These tax credit carryforwards expire
principally between 2017 and 2028. The Company does not have any foreign tax credit carryforwards as a result of the
expiration of $3.6 million of foreign tax credits at December 31, 2016.
It is Company policy to provide taxes for the total anticipated tax impact of the undistributed earnings of our
wholly-owned foreign subsidiaries, as such earnings are not expected to be reinvested indefinitely. The Company
anticipates that U.S. tax resulting from remitting such earnings will be offset by net operating loss or credit carryforwards
to the extent available. In addition, the Company does not anticipate incurring a foreign withholding tax on remitting
such earnings since it does not intend to remit the earnings as dividends.
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
62
authorities for all years dating back to 2005. The Company’s policy is to recognize interest related to unrecognized tax
benefits as interest expense and penalties as operating expenses. 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.
At December 31, 2016, the Company had unrecognized tax benefits related to uncertain tax positions of
approximately $6.8 million, of which approximately $5.4 million reduced the Company’s deferred tax assets and the
offsetting valuation allowance and $1.5 million was recorded in other long-term liabilities. During the first quarter of
2016, the statute of limitations associated with a tax position previously taken by the Company expired. The related tax
reserve of $0.6 million and accrued interest of $0.3 million that had been recorded were reversed during the twelve
months ended December 31, 2016. The Company believes that it is reasonably possible that there will be a reduction to
the reserve for uncertain tax positions of approximately $0.5 million within the next twelve months as a result of the
expiration of the statute of limitations in a foreign tax jurisdiction. The Company recognized $0.2 million in interest and
penalty expense related to unrecognized tax benefits for each of the years-ended December 31, 2016, 2015 and 2014,
respectively.
A reconciliation of the beginning and ending balance of unrecognized tax benefits are as follows:
Balance at beginning of year
Increase (decrease) in unrecognized tax benefits as a result of tax
positions taken during a prior period
Decreases in unrecognized tax benefits related to settlements with tax
authorities
Reductions to unrecognized tax benefits as a result of a lapse of the
applicable statute of limitation
Increases in unrecognized tax benefits as a result of tax positions taken
during the current period
Balance at end of year
2016
2015
(in thousands)
$ 7,671 $ 7,960
76
(78)
—
(211)
(903)
—
—
$ 6,844 $ 7,671
Recorded as other long-term liability
Recorded as a decrease in deferred tax assets and offsetting valuation
allowance
Balance at end of year
$ 1,462 $ 2,142
5,382
5,529
$ 6,844 $ 7,671
Note 20. Quarterly Results of Operations (unaudited)
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
2016(1)
2016
2016
2016(2)
2015(3)
2015(4)
2015(5)
2015
Revenue
Gross profit
Net income
Net income per basic share $
Net income per diluted
(in thousands, except per share data)
$ 69,358 $ 65,650 $ 64,451 $ 67,521 $ 70,458 $ 79,317 $ 78,437 $ 73,283
23,380
1,868
0.07
21,973
826
0.03 $
24,104
2,151
23,415
1,948
27,174
5,883
29,179
6,101
25,131
2,937
26,947
3,965
0.10 $
0.13 $
0.07 $
0.21 $
0.07 $
0.21 $
share
$
0.13 $
0.07 $
0.10 $
0.06 $
0.03 $
0.20 $
0.20 $
(1) Net income includes a $0.6 million charge to inventory reserves.
0.06
(2) Net income includes a $0.2 million charge to inventory reserves and $0.3 million restructuring charge.
(3) Net income includes a $0.8 million charge to inventory reserves, $0.8 million variable incentive plan expense and
$1.5 million of revenue for fully written down inventory sold in quarter.
63
(4) Net income includes a $0.3 million charge to inventory reserves and $2.2 million variable incentive plan expense.
(5) Net income includes a $0.3 million charge to inventory reserves, $1.1 million stock-based compensation acceleration
and $2.3 million of revenue for fully written down inventory sold in quarter.
64
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AXCELIS TECHNOLOGIES, INC.
By: /s/ MARY G. PUMA
Mary G. Puma,
President and Chief Executive Officer
Dated: March 14, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature
/s/ MARY G. PUMA
Mary G. Puma
/s/ KEVIN J. BREWER
Kevin J. Brewer
/s/ RICHARD J. FAUBERT
Richard J. Faubert
/s/ R. JOHN FLETCHER
R. John Fletcher
/s/ ARTHUR L. GEORGE, JR.
Arthur L. George Jr.
/s/ JOSEPH P. KEITHLEY
Joseph P. Keithley
/s/ JOHN T. KURTZWEIL
John T. Kurtzweil
/s/ PATRICK H. NETTLES
Patrick H. Nettles
/s/ THOMAS ST. DENNIS
Thomas St. Dennis
Title
Date
Director and Principal Executive Officer
March 14, 2017
Principal Accounting and Financial Officer
March 14, 2017
March 14, 2017
March 14, 2017
March 14, 2017
March 14, 2017
March 14, 2017
March 14, 2017
March 14, 2017
Director
Director
Director
Director
Director
Director
Director
65
Exhibit
No.
2.1
Exhibit Index
Description
Real Estate Sale Agreement dated as of October 3, 2014 between the Company and Middleton Beverly
Investors LLC. Incorporated by reference to Exhibit 2. 1 to the Company’s Form 10-Q filed with the
Commission on November 6, 2014.
2.2
Sixth Amendment to Real Estate Sale Agreement between the Company and Middleton Beverly
Investors LLC dated as of January 30, 2015. Incorporated by reference to Exhibit 2.2 of the Company’s
Form 10-K for the year ended December 31, 2014 filed with the Commission on March 11, 2015.
3.1
Amended and Restated Certificate of Incorporation of the registrant, as adopted May 6, 2009. Incorporated
by reference to Exhibit 3.1 of the Company’s Form 8-K filed with the Commission on May 11, 2009.
3.2
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the registrant,
effective June 30, 2016, as filed with the Secretary of State of the State of Delaware. Incorporated by
reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the Commission on July 5,
2016.
3.3
Bylaws of the Company, as amended and restated as of May 13, 2014. Incorporated by reference to
Exhibit 3.2 of the Company’s Form 8-K filed with the Commission on May 19, 2014.
10.1*
Axcelis Technologies, Inc. 2000 Stock Plan, as amended through November 13, 2014. Incorporated by
reference to Exhibit 10.1 of the Company’s Form 10-K for the year ended December 31, 2014 filed with the
Commission on March 11, 2015.
10.2*
Axcelis Technologies, Inc. 2012 Equity Incentive Plan, as amended through February 15, 2017. Filed
herewith.
10.3*
Axcelis Management Incentive Plan, as amended and restated by the Compensation Committee of the Board
of Directors on February 11, 2010. Incorporated by reference to Exhibit 10.2 of the Company’s report on
Form 10-K for the year ended December 31, 2009 filed with the Commission on March 15, 2010.
10.4*
Form of Indemnification Agreement approved by the Board of Directors of the Company on February 9,
2012 for use with each of its directors and officers. Incorporated by reference to Exhibit 10.4 of the
Company’s report on Form 10-K for the year ended December 31, 2011 filed with the Commission on
February 29, 2012.
10.5*
Form of Change in Control Agreement, as amended, as approved by the Board of Directors on April 27,
2012 between the Company and certain of its executive officers. Incorporated by reference to Exhibit 10.5
of the Company’s report on Form 10-Q for the quarter ended June 30, 2012 filed with the Commission on
August 7, 2012.
10.6*
Form of Change in Control Agreement, as amended, as approved by the Compensation Committee of the
Board of Directors on November 11, 2016, between the Company and certain of its executive officers. Filed
herewith.
10.7*
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.
10.8*
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.
66
Exhibit
No.
10.9*
Form of Employee Non-Qualified Stock Option Certificate under the 2012 Equity Incentive Plan, adopted
June 18, 2012. Incorporated by reference to Exhibit 10.2 of the Company’s report on Form 10-Q for the
quarter ended June 30, 2012 filed with the Commission on August 7, 2012.
Description
10.10* Form of Non-Employee Director Non-Qualified Stock Option Certificate under the 2012 Equity Incentive
Plan, adopted June 18, 2012. Incorporated by reference to Exhibit 10.3 of the Company’s report on
Form 10-Q for the quarter ended June 30, 2012 filed with the Commission on August 7, 2012.
10.11* Form of Restricted Stock Unit Award Agreement under the 2012 Equity Incentive Plan, adopted June 18,
2012. Incorporated by reference to Exhibit 10.4 of the Company’s report on Form 10-Q for the quarter
ended June 30, 2012 filed with the Commission on August 7, 2012.
10.12* Named Executive Officer Base Compensation at March 14, 2017. Filed herewith.
10.13* Non-Employee Director Cash Compensation at March 14, 2017. Filed herewith.
10.14* 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.
10.15* Form of Executive Separation Pay Agreement between the Company and each of each of the Company’s
executive officers other than Mary G. Puma, as approved by the Compensation Committee of the Board of
Directors on March 5, 2015. Incorporated by reference to Exhibit 10.15 of the Company’s Form 10-K for
the year ended December 31, 2014 filed with the Commission on March 11, 2015.
10.16
Lease Agreement between the Company and Beverly Property Owner LLC, effective January 30, 2015.
Incorporated by reference to Exhibit 10.24 of the Company’s Form 10-K for the year ended December 31,
2014 filed with the Commission on March 11, 2015.
14.1
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.
21.1
Subsidiaries of the Company. Filed herewith.
23.1
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. Filed herewith.
31.1
Certification of the Principal Executive Officer under Exchange Act Rule 13a-14(a)/15d-14(a) (Section 302
of the Sarbanes-Oxley Act), dated March 14, 2017. Filed herewith.
31.2
Certification of the Principal Financial Officer under Exchange Act Rule 13a-14(a)/15d-14(a) (Section 302
of the Sarbanes-Oxley Act), dated March 14, 2017. Filed herewith.
32.1
Certification of the Principal 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 14, 2017. Filed herewith.
32.2
Certification of the Principal 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 14, 2017. Filed herewith.
67
Exhibit
No.
101
The following materials from the Company’s Form 10-K for the year ended December 31, 2016, formatted
in eXtensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations,
(ii) Consolidated Statement of Comprehensive Income (iii) Consolidated Balance Sheets, (iv) Consolidated
Statements of Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial
Statements.
Description
*
Indicates a management contract or compensatory plan.
You may obtain a copy of any of these exhibits 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.
68
Schedule II—Valuation and Qualifying Accounts
Axcelis Technologies, Inc.
(In thousands)
Year ended December 31, 2016
Allowance for doubtful accounts and returns(**)
Reserve for excess and obsolete inventory(***)
Year ended December 31, 2015
Allowance for doubtful accounts and returns
Reserve for excess and obsolete inventory(***)
Year ended December 31, 2014
Allowance for doubtful accounts and returns
Reserve for excess and obsolete inventory(***)
Balance at Charged to
Beginning of Costs and
Expenses
Period
Balance at
End of
Period
Other(*)
Deductions
$
— $
106 $
(29) $
10,465
1,051
(2,619)
— $
—
77
8,897
$
390 $
— $
(390) $
23,642
1,185
(14,362)
— $
—
—
10,465
$
404 $
— $
— $ (14) $
25,091
1,003
(2,452)
—
390
23,642
(*) Represents foreign currency translation adjustments.
(**) Deductions include the write-off of accounts receivable.
(***) Deductions include the disposal and sale of fully reserved inventory
69
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 30, 2011, with all
dividends, if any, being reinvested. The stock performance shown on the graph below is not necessarily
indicative of future price performance.
$300.00
$250.00
$200.00
$150.00
$100.00
$50.00
$0.00
12/30/2011
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/30/2016
Axcelis Technologies, Inc. (ACLS)
Nasdaq Composite Index (COMPX)
Philadelphia Semiconductor Index (SOX)
$100.00
$100.00
$100.00
$104.51
$115.91
$105.38
$183.46
$160.32
$146.81
$192.48
$181.80
$188.47
$194.74
$192.21
$182.05
$273.50
$206.63
$248.73
Axcelis Technologies, Inc. (ACLS)
Nasdaq Composite Index (COMPX)
Philadelphia Semiconductor Index (SOX)
22MAR201712200310
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. These risks and uncertainties are discussed in more detail in our Form 10-K and other SEC
filings, which may be obtained as described on the next page under ‘‘Investor Information/SEC
Form 10-K’’.
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
Mary G. Puma
President and Chief Executive Officer
Kevin J. Brewer
Executive Vice President and Chief
Financial Officer
John E. Aldeborgh
Executive Vice President, Global
Customer Operations
William Bintz
Executive Vice President, Product
Development
Douglas A. Lawson
Executive Vice President, Corporate
Marketing and Strategy
Russell J. Low, Ph.D.
Executive Vice President, Engineering
Lynnette C. Fallon
Executive Vice President, HR/Legal,
General Counsel and Secretary
R. John Fletcher
Chief Executive Officer,
Fletcher Spaght, Inc.
Richard J. Faubert
Retired CEO,
Amberwave Systems Corporation
Authur L. George, Jr.
Retired Executive,
Texas Instruments
Joseph P. Keithley
Chairman, Nordson Corporation
Former Chairman and CEO, Keithley
Instruments
John T. Kurtzweil
Independent Consultant
Patrick H. Nettles
Executive Chairman,
CIENA Corporation
Mary G. Puma
President and Chief Executive Officer,
Axcelis Technologies, Inc.
Thomas St. Dennis
Executive Chairman,
FormFactor, Inc.
AUDIT COMMITTEE
John T. Kurtzweil, Chairman
Joseph P. Keithley
R. John Fletcher
COMPENSATION COMMITTEE
R. John Fletcher, Chairman
Authur L. George, Jr.
John T. Kurtzweil
Patrick H. Nettles
NOMINATING AND GOVERNANCE
COMMITTEE
Joseph P. Keithly, Chairman
Richard J. Faubert
Thomas St. Dennis
ANNUAL MEETING DATE &
LOCATION
The annual meeting of stockholders will
be held at 12:30 p.m. on Tuesday,
May 16, 2017 at the offices of Locke
Lord LLP, 111 Huntington Ave., Boston,
MA 02199
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, as well as
the Company’s 2016 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
Locke Lord LLP
111 Huntington Avenue
Boston, MA 02199-7613
STOCK LISTING
The Company’s common stock is traded
on the NASDAQ Global Select market
under the symbol ACLS.
TRANSFER AGENT & REGISTRAR
For questions regarding misplaced stock
certificates, changes of address, or the
consolidation of accounts, please contact
Computershare Trust Company, N.A.,
the company’s transfer agent:
Telephone: 1-781-575-2725
Toll Free: 1-877-373-6374
Hearing Impaired
TDD#: 1-800-952-9245
Website:
http://www.computershare.com/investor
Mailing Address:
Computershare Trust Company, N.A.
P.O. Box 30170
College Station, TX 77842-3170
Overnight Correspondence:
Computershare Trust Company, N.A.
211 Quality Circle, Suite 210
College Station, TX 77854
WEBSITE
http://www.axcelis.com