Axcelis Annual Report 2017

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FY2017 Annual Report · Axcelis

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

(Mark One)


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

For the fiscal year ended December 31, 2017



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  No 

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act

of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes  No 

Indicate by 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  No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be

contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 
(Do not check if a smaller
reporting company)

Smaller reporting company 

Emerging growth company 

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  No 

Aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2017: $644,303,947

Number of shares outstanding of the registrant’s Common Stock, $0.001 par value, as of March 12, 2018: 32,128,818

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, 2018 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 offers the most innovative implanters available on the market today. We sell to leading
semiconductor chip manufacturers worldwide. The ion implantation business represented 95.2% of our revenue in 2017,
with the remaining 4.8% 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.
We are headquartered in Beverly, Massachusetts and 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.

2017 was a very strong year for the Company. Our 2017 revenues of $410.6 million were $143.6 million higher

In 2017 we continued to invest a significant portion of our resources in research and development programs
related to our Purion ion implantation platform. The strong semiconductor market in 2017 provided the backdrop for
additional market share growth for the Company. Systems revenue grew by 88.6% from 2016 to 2017, with Purion ion
implanters representing 89.0% of 2017 systems revenue. During the year, Axcelis shipped Purion systems to 18 new
customer fabs. Seven of these sites represent new Purion customers, and the other eleven locations are first in-fab Purion
placements by existing Purion customers.

The Company’s gross margin for 2017 was 36.6%, down from 37.3% in 2016. 2017 gross margin was impacted

by a $6.2 million excess inventory reserve charge taken on legacy tools and parts in the fourth quarter of 2017, which
reduced full year 2017 gross margin by 1.5 percentage points. Without the impact of this excess inventory charge, gross
margins in 2017 would have been at the Company’s highest annual level in 11 years. We worked diligently to ensure that
manufacturing and operating expense levels remained well aligned to business conditions. We believe that the most
fundamental interest of our stockholders is consistent, profitable, financial performance, which we expect to deliver in
2018. 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 dynamic random-access
memory (“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 industry is in 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. These chips are
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 silicon wafers of either 200mm (8 inches) or 300mm (12 inches) in

diameter. Each semiconductor chip is made up of millions of tiny transistors or “switches” to control the functions of the
device. Transistors are created in the silicon wafer by introducing various precisely placed impurities into the silicon in
specific patterns.

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, making semiconductor chips for their own devices. These same
companies may also act as foundries, manufacturing 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 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 success in securing manufacturing contracts. Also, foundry customers will look for
equipment that can deliver the broadest capabilities in order to be prepared to manufacture all chip types, while
integrated electronics manufacturers may invest in processing equipment dedicated to a specific application they require
for their products.

The semiconductor capital equipment industry is 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 low points in the cycle.

Axcelis’ Strategy

Axcelis’ 2018 strategic initiatives are:

• Achieve $450M in revenue by growing Purion penetrations:
o Expand footprint within existing customers
o Capture expected significant capital expenditure in China across all customers and segments
o Penetrate leading edge foundry/logic
o Expand our presence in the Japanese market

• Drive Customer Support and Innovation (“CS&I”) revenues by delivering innovative, high value products

and services that include upgrades, spares and consumables, and used tools

• Enhance profitability and cash generation

o Deliver gross margin of 39% for full year 2018

We continue to invest in research and development to ensure our products meet the needs of our customers. We

take pride in our scientists and engineers who are adding to our portfolio of patents and unpatented proprietary
technology to ensure that our investment in technology leadership translates 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. Global Customer Teams and a focused account management structure maintain and
strengthen our customer relationships and increase customer satisfaction. Finally, we endeavor to maintain a strong cash
balance to ensure sufficient capital to fund business growth.

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

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

• High energy implanters emerged to address the need for deeper implants with a high energy range and low

dose.

• 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.

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 Purion flagship systems are all based on a common platform which offers purity, precision and
productivity. Combining a state-of-the-art single wafer end station and enabling a 500 wafer per hour throughput, with an
advanced spot beam architecture (that ensures that all points across the wafer see the same beam at the same beam
angle), Purion products deliver 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 legacy multi-wafer 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 also process some traditional medium-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 provides advantages for material modification applications,
including hot and cold implant.

We believe our ion implant products will continue to meet customer demand for advantages in productivity,

process performance and technical extendibility.

Aftermarket Support and Services

Through our Customer Support and Innovation business, we offer our customers extensive aftermarket service

and support throughout the lifecycle of the equipment we 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 offer 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 36.0%, 47.8% and 43.0% of revenue in 2017, 2016 and 2015, respectively.

To support our aftermarket business, we have 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. These services provide 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 84.9%, 80.0% and 85.1% of total revenue in 2017, 2016 and
2015, respectively. Substantially all of our sales are denominated in U.S. dollars. See Note 15 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 2017, the top 20 semiconductor chip manufacturers accounted for approximately 90.9% of total

semiconductor capital equipment spending, up from 87.2% in 2016. 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.

Information on net sales to unaffiliated customers is included in Note 2 of Notes to Consolidated Financial

Statements. For the year ended December 31, 2017, revenues from each of Samsung Electronics Co, Ltd., and SK hynix
represented 10 percent or more of consolidated revenues and the loss of these customers would have a material adverse
effect on our business.

Research and Development

Our industry continues to experience rapid technological change, requiring us to frequently introduce new

products and enhancements. 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.

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 $43.1 million, $34.4 million and $32.6 million in 2017, 2016
and 2015, respectively, or 10.5%, 12.9% and 10.8% 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 9001:2015, 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 competency in manufacturing and supply chain management 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.

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 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. Applied Materials and Axcelis 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,
2017, we had 244 active patents issued in the United States and 478 active patents granted in other countries, as well as
211 patent applications (45 in the United States and 166 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 $87.3 million and $17.5 million as of December 31,
2017 and 2016, 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, 2017 were $103.8 million compared to $34.8 million in the quarter

ended December 31, 2016.

Employees

As of December 31, 2017, we had 896 employees and 89 temporary staff worldwide, of which 702 work in

North America, 228 in Asia and 55 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.

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 9001:2015 and ISO 14001:2004 certified at our
Beverly, MA facility.

Executive Officers of the Registrant

Mary G. Puma, 60, 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, 59, 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, 61, 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, 61, 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, 58, 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
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, 57, 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., 47, 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.

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. It is not possible to predict or identify all such risk factors. Consequently, the
following is not 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 that 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
account for 85% of implant capital expenditures. 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. 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 for 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 higher manufacturing costs, delays in acceptance and payment and additional
service and warranty expenses, and ultimately, a lack of repeat orders.

• 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.

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 selling prices on our ion implant and other systems range from approximately $2.0 million to
$8.0 million. We also sell used equipment in our aftermarket business. Each sale, or failure to make a sale, may have 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 margin. 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 to investors. These forecasts are based on

assumptions, which are believed to be reasonable when made, of 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 cyclical and we expect that demand for our products will increase and decrease,
making it difficult to manage the business and potentially causing harm to our sales and profitability.

The semiconductor industry is 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, 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 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.

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 margin 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

semiconductor chip manufacturers. In 2017, our top ten customers accounted for 73.3% of our net sales, in comparison to
70.2% and 76.8% in 2016 and 2015, 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. 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, accounted for 84.9% of total revenue in 2017 in comparison to 80.0% of total revenue in 2016 and
84.8% in 2015. Ion implanter system shipments to Asian customers represented 82.6% of total shipment dollars in 2017
in comparison to 75.3% in 2016 and 78.9% in 2015. We anticipate that international sales will continue to account for a
significant portion of our revenue. The potential increased 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;

difficulties in staffing and managing foreign subsidiary 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 margin.

The manufacture of some of these components and sub-assemblies is an extremely complex process and

requires long lead times. As a result we could 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.

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,
and profitability and asset values in our Consolidated Financial Statements. During the year ended December 31, 2017,
approximately 23.5% of our revenue was derived from foreign operations with this inherent risk. In addition, at
December 31, 2017, our operations outside of the United States accounted for approximately 14.6% 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. As reported in the 2017 Verizon Data Breach Investigation
Report, attempts to access confidential business information make up almost all of the cyber security risk for a

manufacturing company, with 93% of the threat actors external to the company. Verizon reported that most of the
attacks are conducted by state-affiliated actors who are an “advanced persistent threat.” 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 had a material impact on the Company to date. Axcelis devotes significant resources to network
security, data encryption, employee training 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.

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, 2017, the Company also leased 47 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 9001:2015 and ISO 14001:2004 and our European office is

ISO 9001:2015 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.

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 of March 12, 2018, we had approximately 2,000 stockholders of record. We have never
paid any cash dividends to our shareholders and do not anticipate paying cash dividends in the foreseeable future.

2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Common Stock
Price

High

Low

$ 11.40 $ 8.96
$ 11.88 $ 9.16
$ 13.43 $ 9.91
$ 14.55 $ 11.20

$ 18.80 $ 14.15
$ 25.65 $ 17.80
$ 27.35 $ 19.45
$ 36.63 $ 27.90

Item 6. Selected Financial Data.

The following selected consolidated statements of operations data for each of the three years ended December
31, 2017, 2016 and 2015 and the consolidated balance sheets data as of December 31, 2017 and 2016 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, 2015 and 2014, and the statements of operations data for the years
ended December 31, 2014 and 2013, have been derived from the audited financial statements contained in our
Form 10-K filed on March 4, 2016. The consolidated balance sheets data as of December 31, 2013 have been derived
from the audited financial statements contained in our Form 10-K filed on March 3, 2014.

The historical financial information set forth below may not be indicative of our future performance and should

be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and

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

Year ended December 31,

2017

2016

2015

2014

2013

(In thousands, except per share amounts)

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

$ 410,561 $
150,247
47,842
43,831
126,959

266,980 $ 301,495 $ 203,051 $ 195,632
67,935
99,598
(14,618)
16,623
(16,104)
11,024
(17,144)
11,001

70,164
(10,661)
(10,167)
(11,266)

101,706
20,718
15,205
14,678

$
$

4.11 $
3.80 $

0.38 $
0.36 $

0.51 $
0.49 $

(0.40) $
(0.40) $

(0.63)
(0.63)

30,866
33,436

29,195
30,947

28,595
30,229

27,863
27,863

27,217
27,217

70,791 $ 78,889 $ 30,753 $ 46,290
142,952
192,998
227,053
302,231
22,087
53,045
169,506
201,455

126,541
221,158
7,204
161,856

185,589
281,784
53,652
183,764

$ 133,407 $
260,488
488,218
55,321
353,610

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 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.

2017 was a very strong year for the Company. Our 2017 revenues of $410.6 million were $143.6 million higher

than our 2016 revenues, driven mainly by strong system sales. 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 with
our Purion systems now a tool of record at seven of the top ten semiconductor capital equipment spenders.

The Company’s gross margin for 2017 was 36.6%, down from 37.3% in 2016. 2017 gross margin was impacted

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 73.3% of total revenue for the year
ended December 31, 2017 compared to 70.2% and 76.8% of revenue for the years ended December 31, 2016 and 2015,
respectively. For the year ended December 31, 2017, the Company had two customers representing 24.9% and 13.1% of
total revenue, respectively.

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
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, 2017 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
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
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, 2017, 2016 or 2015.

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 Net Realizable Value

We record an allowance for estimated excess and obsolete inventory and lower of cost or net realizable value.
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.

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 consider 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.

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, the expected timing of the reversals of

existing temporary differences and projected future taxable income 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.

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,
2016

2015

2017

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 from operations
Other (expense) income:

Interest income
Interest expense
Other, net

Total other expense
Income before income taxes
Income tax (benefit) provision
Net income

94.3 %
5.7
100

91.5 %
8.5
100

92.5 %
7.5
100

57.2
6.2
63.4
36.6

10.5
6.9
7.5
—
24.9
11.7

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

0.2
(1.3)
0.1
(1.0)
10.7
(20.2)
30.9 %

0.1
(1.9)
(0.3)
(2.1)
4.1
—
4.1 %

—
(1.7)
(0.2)
(1.9)
5.0
0.1
4.9 %

Revenue

The following table sets forth our revenue:

Year ended
December 31,

2017

2016

Period-to-Period
Change

Year ended
December 31,

%
2016
(dollars in thousands)

2015

Period-to-Period
Change
$

Revenue:

Product

Percentage of
revenue
Services

Percentage of
revenue
Total revenue

$ 387,124

$ 244,295

$ 142,829

58.5 % $ 244,295

$ 278,875

$ (34,580) (12.4)%

94.3 %

91.5 %

92.5 %

23,437

22,685

752

3.3 % 22,685

22,620

0.3 %

5.7 %

8.5 %

7.5 %

$ 410,561

$ 266,980

$ 143,581

53.8 % $ 266,980

$ 301,495

$ (34,515) (11.4)%

2017 Compared with 2016

Product

Product revenue, which includes new system sales, sales of spare parts, product upgrades and used system sales

was $387.1 million or 94.3% of revenue in 2017, compared with $244.3 million, or 91.5% of revenue in 2016. The
increase in product revenue in 2017 was primarily driven by an increase in the number of Purion systems sold.

Approximately 34.2% of systems revenue in 2017 was from sales of 200mm products and 65.8% was from

sales of 300mm products, compared with 38.9% and 61.1% for sales of 200mm products and 300mm products in 2016,
respectively.

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, 2017 and 2016 was $18.1 million and
$11.0 million, respectively. The increase was primarily due to the increased number of systems sold in the current year.

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 $23.4 million, or 5.7% of revenue for 2017, compared with
$22.7 million, or 8.5% of revenue for 2016. 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.

2016 Compared with 2015

Product

Product revenue 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 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 was $22.7 million, or 8.5% of revenue for 2016, compared with $22.6 million, or 7.5% of

revenue for 2015.

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.

2017 Compared with 2016

Ion Implant

Revenue from sales of ion implantation products and related service was $391.1 million, or 95.2% of total

revenue in 2017, compared with $248.9 million, or 93.2%, of total revenue in 2016.

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 $147.9 million in 2017, compared to $127.7 million for 2016. 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.

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

Revenue from our aftermarket business was $127.7 million in 2016, which decreased slightly compared to

$129.6 million for 2015.

Gross Profit / Gross Margin

The following table sets forth our gross profit:

Year ended
December 31,

Period-to-Period
Change

Year ended
December 31,

2017

2016

2015

Period-to-Period
Change
$

(dollars in thousands)

$ 152,192

$ 95,288

$ 56,904

59.7 % $ 95,288

$ 97,815

$ (2,527) (2.6) %

39.3 %

39.0 %

35.1% %

(1,945)

4,310

(6,255)

(145.1)% 4,310

3,891

419 10.8 %

(8.3)%

19.0 %

17.2% %

Gross Profit:
Product

Product gross
margin

Services

Services gross
margin

Total gross profit $ 150,247
Gross margin

36.6 %

$ 99,598

$ 50,649

50.9 % $ 99,598

$ 101,706

$ (2,108) (2.1) %

37.3 %

33.7% %

2017 Compared with 2016

Product

Gross margin from product revenue was 39.3% for the twelve months ended December 31, 2017, compared to
39.0% for the twelve months ended December 31, 2016. The increase in gross margin of 0.3% resulted from improved
margins on Purion systems, partially offset by an excess reserve for legacy inventory.

Services

Gross margin from services revenue was (8.3)% for the twelve months ended December 31, 2017, compared to

19.0% for the twelve months ended December 31, 2016. The decrease in gross margin in the recent period is primarily
attributable to increased costs on service contracts.

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.

Operating Expenses

The following table sets forth our operating expenses:

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

Year ended
December 31,

Period-to-Period
Change

Year ended
December 31,

2017

2016

2015

Period-to-Period
Change

(dollars in thousands)

43,071 $ 34,402 $
12.9 %

10.5 %

8,669

25.2 % $ 34,402 $ 32,586 $
10.8 %
12.9 %

1,816

5.6 %

28,532

23,839

4,693

19.7 %

23,839

23,325

514

2.2 %

6.9 %

8.9 %

7.7 %

30,802

24,452

6,350

26.0 %

24,452

25,059

(607)

(2.4)%

7.5 %
—
— %

9.2 %
282
0.1 %

(282)

(100.0)%

9.2 %
282
0.1 %

8.3 %
18
— %

$ 102,405

$ 82,975

$ 19,430

23.4 % $ 82,975

264

1,466.7 %

1,987

2.5 %

$ 80,988

$
26.9% %

Percentage of revenue

24.9 %

31.1 %

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 $64.5 million, or 63.0% of our total operating expenses, for the year ended
December 31, 2017; $47.6 million, or 57.5%, of our total operating expenses for the year ended December 31, 2016; and
$47.9 million, or 59.1%, of our total operating expenses for the year ended December 31, 2015.

Research and Development

Research and development
Percentage of revenue

Year ended
December 31,

Period-to-Period
Change

Year ended
December 31,

Period-to-Period
Change

2017

2016

%
(dollars in thousands)

2016

2015

$ 43,071 $ 34,402 $ 8,669

25.2 % $ 34,402 $ 32,586 1,816

5.6 %

10.5 %

12.9 %

10.8 %

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.

2017 Compared with 2016

Research and development expense was $43.1 million in 2017, an increase of approximately $8.7 million, or

25.2%, compared with $34.4 million in 2016. The increase was primarily due to variable incentive plan expense and to a
lesser extent to increased headcount.

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.

Sales and Marketing

Sales and marketing

Percentage of revenue

Year ended
December 31,

2017

2016

Period-to-Period

Change
$

Year ended
December 31,

Period-to-Period
Change

2016

2015

(dollars in thousands)
$ 28,532 $ 23,839 $ 4,693 19.7 % $ 23,839 $ 23,325 $ 514 2.2 %

6.9 %

8.9 %

7.7 %

Our sales and marketing expenses result primarily from the sale of our equipment and services through our

direct sales force.

2017 Compared with 2016

Sales and marketing expense was $28.5 million in 2017, an increase of $4.7 million, or 19.7%, compared with

$23.8 million in 2016. The increase was primarily due to variable incentive plan expense and to a lesser extent to
increased headcount.

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.

General and Administrative

Year ended
December 31,

Period-to-Period
Change

Year ended
December 31,

2017

2016

%
(dollars in thousands)

2016

2015

General and administrative
Percentage of revenue

$ 30,802 $ 24,452 $ 6,350 26.0 % $ 24,452 $ 25,059
8.3 %

9.2 %

7.5 %

9.2 %

Period-to-Period
Change

(607) (2.4) %

Our general and administrative expenses result primarily from the costs associated with our executive, finance,

information technology, legal and human resource functions.

2017 Compared with 2016

General and administrative expense was $30.8 million in 2017, an increase of $6.4 million, or 26.0% compared

with $24.5 million in 2016. The increase was primarily due to variable incentive plan expense and to a lesser extent to
increased headcount.

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.

Restructuring

The Company from time to time incurs expenses relating to restructuring.

2017 Compared with 2016

During the year ended December 31, 2016 we recorded $0.3 million to restructuring expense due to a

consolidation in our customer base.

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.

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.

2017 Compared with 2016

Other expense for the year ended December 31, 2017 was $4.0 million, which includes $5.1 million of interest

expense related to our sale leaseback obligation and other miscellaneous expense of $0.7 million, offset by interest
income of $0.7 million and $1.1 million of foreign currency translation gains. Other expense for the year ended
December 31, 2016 was $5.6 million and includes interest expense of $5.1 million, interest income of $0.2 million and
$0.6 million of foreign currency translation loss.

2016 Compared with 2015

Other expense for the years ended December 31, 2016 and 2015 was $5.6 million and $5.5 million, respectively

and includes interest related to our sale leaseback obligation of $5.1 million and $4.8 million, respectively.

Income Taxes

Income tax (benefit) expense was $(83.1) million, $0.1 million and $0.5 million for the years ended December
31, 2017, 2016 and 2015, respectively. The income tax benefit of $83.1 million in 2017 was primarily due to the release
of our valuation allowance on our deferred tax assets. Our income tax expense for the years ended December 31, 2016
and 2015 is 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.

At December 31, 2017, the Company had $90.3 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. The Company has continued to maintain a $7.1 million valuation allowance in the U.S.

against certain tax credits and state net operating losses due to the uncertainty of their realization based on long-term
Company forecasts and the expiration dates on these attributes. In releasing the valuation allowance in 2017, we
considered the weight of all available evidence in determining whether a valuation allowance was required against the
Company’s deferred tax assets at December 31, 2017. After consideration of both positive and negative evidence,
management concluded that it is more likely than not that a substantial portion of its deferred tax assets will be realized.
The positive evidence considered was three year U.S. historical cumulative profitability, projected future taxable income
and length of carry-forward periods of net operating losses and tax credits. The primary negative is the volatile
semiconductor industry that the Company operates in. If future operating results of the U.S. or these foreign jurisdictions
significantly exceed expectations it is reasonably possible that there could be a further reduction in the valuation
allowance in the future. Further reduction of the valuation allowance, in whole or in part, would result in a non-cash
income tax benefit during the period of reduction.

On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was signed into law. The 2017 Tax

Act eliminates the deferral of U.S. income tax on the historical un-repatriated earnings by imposing the Transition Toll
Tax, which is a one-time mandatory deemed repatriation tax on undistributed foreign earnings. As of December 31,
2017, we have accrued income tax liabilities of $0.4 million under the Transition Toll Tax after utilization of foreign tax
credits and research and development credits. The Transition Toll Tax will be paid over an eight-year period, starting in
2018, and will not accrue interest.

The 2017 Tax Act includes a federal statutory rate reduction from 35% to 21%, the elimination or reduction of

certain domestic deductions and credits and limitations on the deductibility of interest expense and executive
compensation. The 2017 Tax Act also transitions international taxation from a worldwide system to a modified territorial
system and includes base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain
earnings of our foreign subsidiaries to U.S. taxation as global intangible low-taxed income. These changes are effective
beginning in 2018.

Our preliminary estimate of the Transition Toll Tax and the remeasurement of our deferred tax assets and

liabilities is subject to the finalization of management’s analysis related to certain matters, such as developing
interpretations of the provisions of the 2017 Tax Act, changes to certain estimates and amounts related to the earnings
and profits of certain subsidiaries and the filing of our tax returns. U.S. Treasury regulations, administrative
interpretations or court decisions interpreting the 2017 Tax Act may require further adjustments and changes in our
estimates. The final determination of the Transition Toll Tax and the remeasurement of our deferred assets and liabilities
will be completed as additional information becomes available, but no later than one year from the enactment of the 2017
Tax Act.

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 2017, $56.3 million of cash was provided by operating activities. This compares to $8.8 million of cash used

to support operations in 2016. Cash and cash equivalents at December 31, 2017 was $133.4 million, compared to
$70.8 million at December 31, 2016. Approximately $16.4 million of cash was located in foreign jurisdictions as of
December 31, 2017. In addition to the cash and cash equivalent balance at December 31, 2017, the Company had
$7.5 million in restricted cash which relates to a $5.9 million letter of credit associated with the security deposit for the
lease on our corporate headquarters in Beverly, Massachusetts, a $0.8 million letter of credit relating to workers’
compensation insurance, a $0.7 million letter of credit associated with a bank guarantee and a $0.1 million deposit
relating to customs activity. Working capital at December 31, 2017 was $260.5 million. At December 31, 2017, the
Company had no bank debt.

Capital expenditures were $7.3 million and $2.5 million for the years ended December 31, 2017 and 2016,

respectively. Total capital expenditures for 2018 are projected to be approximately $6.0 million. Future capital
expenditures beyond 2018 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 $15.1 million and $2.3 million for the years ended December 31,
2017 and 2016, respectively. The $15.1 million cash provided by financing activities in 2017 was mainly due to the
exercise of stock options and proceeds received from the employee stock purchase plan. The $2.3 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.

We have outstanding letters of credit and surety bonds in the amount of $9.4 million to cover the security

deposit under the lease of our headquarters, workers’ compensation insurance program, customs and bank deposits and
certain value added tax claims in Europe.

The following represents our commercial commitments as of December 31, 2017 (in thousands):

Other Commercial Commitments
Surety bonds
Standby letters of credit
Total

Total
$ 1,885 $
7,466
$ 9,351 $

Amount of
Commitment
Expiration by Period
2019
2018
1,221
—
1,221

7,466
8,130 $

664 $

The following represents our contractual obligations as of December 31, 2017 (in thousands):

Payments Due by Period

Contractual Obligations
Sale leaseback obligation
Purchase order commitments
Operating leases

Total

$ 120,632 $ 5,471 $ 11,313 $ 11,828 $

Total

2018

83,520
6,306

81,572
2,915

2019-2020 2021-2022 2023 - Beyond
92,020
—
39

807
2,730

1,141
622

$ 210,458 $ 89,958 $ 14,850 $ 13,591 $

92,059

We have no off-balance sheet arrangements at December 31, 2017, exclusive of operating leases.

We have net operating loss and tax credit carryforwards, the tax effect of which aggregate $80.2 million at
December 31, 2017. These carryforwards, which expire principally between 2018 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
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, 2017, 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, 2017 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, 2017. The primary objective of our investment activities is to
preserve principal. This is accomplished by investing in marketable 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, 2017 and 2016, approximately 23.5% and 28.4% of our revenue were derived
from foreign operations with this inherent risk. In addition, at both December 31, 2017 and 2016, our operations outside
of the United States accounted for approximately 14.6% and 20.1% 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.

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, 2017.

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, 2017, 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.

Report of Independent Registered Public Accounting Firm

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

Opinion on Internal Control over Financial Reporting

We have audited Axcelis Technologies, Inc.’s internal control over financial reporting as of December 31, 2017,

based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Axcelis
Technologies, Inc. (the Company) maintained, in all material respects, effective internal controls over financial reporting
as of December 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the 2017 consolidated financial statements of the Company and our report dated March 14,
2018 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting

and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s 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 are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with all U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects.

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

Definition and Limitations of Internal Control Over Financial Reporting

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

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

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

/s/ Ernst & Young LLP
Boston, Massachusetts
March 14, 2018

Changes in Internal Control over Financial Reporting

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

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

Item 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, 2018 (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.

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)

The following documents are filed as part of this Report:

Financial Statements:

Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations — For the years ended December 31, 2017, 2016 and

2015

Consolidated Statements of Comprehensive Income — For the years ended December 31,

2017, 2016 and 2015

Consolidated Balance Sheets — December 31, 2017 and 2016
Consolidated Statements of Stockholders’ Equity — For the years ended December 31,

2017, 2016 and 2015

Consolidated Statements of Cash Flows — For the years ended December 31, 2017, 2016

and 2015

Notes to Consolidated Financial Statements

Exhibits

38
39

41
42

The exhibits filed as part of this Form 10-K are listed on the Exhibit Index immediately preceding the
signature page, which Exhibit Index is incorporated herein by reference.

Financial Statement Schedules:

Schedule II—Valuation and Qualifying Accounts for the years ended December 31, 2017, 2016 and
2015.

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.

Item 16. Form 10-K Summary

Not applicable.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Axcelis Technologies, Inc. (the Company) as
of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income, stockholders’
equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and
financial statement schedule listed in the Index at Item 15(a), collectively referred to as the “consolidated financial
statements”. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting
principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, 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, 2018 expressed an unqualified opinion
thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express

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

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan

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

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1999.

Boston, Massachusetts
March 14, 2018

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 from operations
Other (expense) income:

Interest income
Interest expense
Other, net

Total other expense
Income before income taxes
Income tax (benefit) provision
Net income
Net income per share:

Basic
Diluted

Shares used in computing net income per share:
Basic weighted average common shares
Diluted weighted average common shares

$
$

2017

387,124
23,437
410,561

234,932
25,382
260,314
150,247

43,071
28,532
30,802
—
102,405
47,842

714
(5,121)
396
(4,011)
43,831
(83,128)
126,959

4.11
3.80

30,866
33,436

Twelve months ended
December 31,
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

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

See accompanying Notes to these Consolidated Financial Statements

Axcelis Technologies, Inc.
Consolidated Statements of Comprehensive Income
(In thousands)

Net income
Other comprehensive income:

Foreign currency translation adjustments
Amortization of actuarial gains and other adjustments from pension plan
Total other comprehensive income (loss)

Comprehensive income

Twelve months ended
December 31,
2016

2017

2015

$ 126,959 $ 11,001 $ 14,678

4,347
108
4,455

(2,664)
(43)
(2,707)
$ 131,414 $ 10,153 $ 11,971

(847)
(1)
(848)

See accompanying Notes to these Consolidated Financial Statements

Axcelis Technologies, Inc.
Consolidated Balance Sheets
(In thousands, except per share amounts)

ASSETS

Current assets:

Cash and cash equivalents
Short-term restricted cash
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets

Total current assets

Property, plant and equipment, net
Long-term restricted cash
Deferred income taxes
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,

2017

2016

133,407 $
750
75,302
120,544
9,772
339,775
36,168
6,723
83,148
22,404
488,218 $

70,791
—
50,573
113,853
5,512
240,729
30,840
6,864
1,060
22,738
302,231

32,642 $
20,955
4,112
273
16,181
5,124
79,287
47,714
1,964
5,643
134,608

24,996
5,142
2,426
240
10,335
4,592
47,731
47,586
674
4,785
100,776

Commitments and contingencies (Note 14)
Stockholders’ equity:

Common stock, $0.001 par value, 75,000 shares authorized; 32,048 shares issued and
outstanding at December 31, 2017; 29,518 shares issued and outstanding at
December 31, 2016
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income (loss)

Total stockholders’ equity
Total liabilities and stockholders’ equity

32
556,147
(204,745)
2,176
353,610
488,218 $

30
535,408
(331,704)
(2,279)
201,455
302,231

See accompanying Notes to these Consolidated Financial Statements

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

Accumulated

Additional
Paid-in
Common Stock
Shares Amount Capital

Treasury
Stock
28 $ 519,153 $ (1,218) $ (357,383) $
—

Deficit

14,678

—

28,213 $
—

Other
Accumulated Comprehensive Stockholders’
Income (Loss)

Equity

Total

—
—
759

—
—
1

—
—
3,920

—

441

—
—
—

—

—
—
—

—

1,276 $ 161,856
14,678

—

(2,664)
(43)
—

(2,664)
(43)
3,921

—

441

(7)
5,582
529,089
—

—
—
(1,218)
—

—
—
(342,705)
11,001

—
—
(1,431)
—

(7)
5,582
183,764
11,001

—
—
—

—

—
—
—

—

1,218
—
—
—
—

—
—
—
(331,704)
126,959

—
—
—

—

—
—
—

—

(847)
(1)
—

—

(847)
(1)
2,238

325

(11)

—
—
—
(2,279)
—

—
(145)
5,131
201,455
126,959

4,347
108
—

4,347
108
15,514

—

845

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
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, 2017

7
—
29,026
—

—
—
392

—
—
29
—

—
—
1

—
—
2,237

—

325

108

—

(11)

(30)
—
—
29,518
—

—
—
2,358

—
—
—
30
—

—
—
2

(1,218)
(145)
5,131
535,408
—

—
—
15,512

—

845

138
—

32,048 $

(1,164)
5,546

—
—
32 $ 556,147 $

—
—
— $ (204,745) $

—
—

(1,164)
5,546
2,176 $ 353,610

See accompanying Notes to these Consolidated Financial Statements

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

Cash flows from operating activities

Net income
Adjustments to reconcile net income to net cash provided by (used in)
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 provided by (used in) operating activities

Cash flows from investing activities
Proceeds from sale of equipment
Expenditures for property, plant and equipment and capitalized software

Net cash used in investing activities

Cash flows from financing activities

Net settlement on restricted stock grants
Financing fees and other expenses
Principal payments on term loan
Principal payments on sale leaseback obligation
Proceeds from financing obligations
Proceeds from Employee Stock Purchase Plan
Proceeds from exercise of stock options

Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period

Supplemental disclosure of cash flow information
Cash paid for:

Income taxes
Interest

Twelve months ended
December 31,
2016

2017

2015

$ 126,959 $ 11,001 $ 14,678

5,002
—
(82,085)
5,672
—
(8,135)

4,258
(248)
519
5,179
106
1,051

4,869
—
779
5,575
—
1,721

(23,573)
5,703
(3,866)
25,000
7,079
14
(1,486)
56,284

(14,135)
(6,572)
(1,056)
810
2,467
102
(12,270)
(8,788)

5,171
(15,938)
640
6,005
1,360
(46)
(6,547)
18,267

—
(7,285)
(7,285)

270
(2,506)
(2,236)

—
(1,830)
(1,830)

(1,184)
—
—
—
—
739
15,515
15,070
(844)
63,225
77,655

(8)
(11)
(847)
(146)
(14,530)
—
(392)
—
48,940
—
441
277
3,921
2,227
37,525
2,347
285
507
54,247
(8,170)
31,578
85,825
$ 140,880 $ 77,655 $ 85,825

$
$

583 $
5,315 $

525 $
4,815 $

669
3,985

See accompanying Notes to these Consolidated Financial Statements

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 consolidated accounts of the Company and its

wholly-owned, controlled subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation. Certain reclassifications have been made to prior years' financial statements to conform to the current
year’s presentation.

Events occurring subsequent to December 31, 2017 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 reserves relating to tax assets and liabilities. Actual
amounts could differ from these estimates. Changes in estimates are recorded in the period in which they become known.

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, 2017 the Company had $1.1 million in foreign exchange gains. 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.

(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 funds, U.S Government and Agency Securities
and deposit accounts. Cash equivalents are carried on the balance sheet at fair market value.

(e) Inventories

Inventories are carried at lower of cost or net realizable value, 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 net realizable value. 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

7 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, 2017. The

Company did not record an impairment charge in the years ended December 31, 2017, 2016, or 2015.

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.

(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 investment grade
money-market funds, U.S. Government and Agency Securities and deposit accounts.

The Company has no significant off-balance-sheet risk such as currency 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 quarterly. 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 73.3%, 70.2% and 76.8% of revenue in 2017, 2016 and 2015,
respectively.

For the year ended December 31, 2017 the Company had two customers representing 24.9% and 13.1% of total

revenue, 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.

As of December 31, 2017, the Company had three customers account for 19.8%, 11.8% and 10.6% of
consolidated accounts receivable, 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.

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.

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

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.

(k) Stock-Based Compensation

The Company generally recognizes compensation expense for all stock-based payments to employees and

directors, including grants of stock options and restricted stock units, 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 or restricted stock unit 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 11 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 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 components of net income per share are as follows:

Net income available to common stockholders
Weighted average common shares outstanding used
in computing basic income per share
Incremental options and RSUs
Weighted average common shares used in computing
diluted net income per share
Net income per share

Basic
Diluted

2017

Year ended December 31,
2016
(in thousands, except per share data)
14,678
$ 126,959 $ 11,001 $

2015

30,866
2,570

29,195
1,752

28,595
1,634

33,436

30,947

30,229

$
$

4.11 $
3.80 $

0.38 $
0.36 $

0.51
0.49

Diluted weighted average common shares outstanding does not include options and restricted stock units
outstanding to purchase 0.9 million and 0.9 million common equivalent shares for the periods ended December 31, 2016
and 2015, respectively, as their effect would have been anti-dilutive.

(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, 2017:

Balance at December 31, 2016

Other comprehensive income and pension
reclassification

Balance at December 31, 2017

(o) Recent Accounting Guidance

Accounting Standards or Updates Recently Adopted

Foreign Defined benefit

currency

pension plan
(in thousands)

Total

(1,591) $

(688) $ (2,279)

4,347
2,756 $

4,455
108
(580) $ 2,176

In July 2015, the FASB issued Accounting Standards Update (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
changes 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 Company adopted this ASU prospectively in the first quarter of 2017, which did not have a material
impact on our 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. The amended guidance eliminates the
requirement to record excess tax benefits as a reduction in current taxes payable and an increase to additional paid-in
capital. The Company adopted this ASU in the first quarter of 2017, in part prospectively and in part retrospectively, as

permitted by the ASU.

The Company prospectively adopted the provisions of ASU No. 2016-09 relating to the accounting for excess
tax benefits. Axcelis had tax deductions in excess of recognized compensation cost of $29.5 million for the year ended
December 31, 2017 which resulted in a tax benefit of $10.3 million.

The Company retrospectively adopted the provisions of ASU 2016-09 related to the presentation of employee

taxes. These provide that when an employer withholds shares for taxes on vesting of equity compensation, the value
withheld is presented as a financing activity on the statement of cash flows. This resulted in a $1.2 million, eleven
thousand and an eight thousand dollar reduction in net cash provided by financing activities for the years ended
December 31, 2017, 2016 and 2015, respectively. Prior to adoption, these amounts were reflected within cash flows from
operating activities.

The Company has also elected to continue to estimate a forfeiture rate associated with our stock-based awards

and related expense.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 203): 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 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. On January 1, 2017, the Company early adopted this ASU retrospectively,
resulting in $6.9 million of restricted cash being included in the beginning balances of cash, cash equivalents and
restricted cash balances on the statement of cash flows for the periods presented. Please see Note 3 for additional
information.

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. In July, 2017, the FASB issued ASU 2017-13, “Revenue Recognition (Topic
605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842), which clarifies
the transition periods related to public and private business entities. These ASUs (collectively referred to as “Topic 606”)
are effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual
periods.

The Company has substantially completed the implementation of Topic 606 and has identified the necessary

changes to its policies, processes, systems, and controls.

The Company will adopt Topic 606, effective January 1, 2018, using the modified retrospective approach. The

cumulative effect of adopting Topic 606 will be a $1.6 million increase to retained earnings on January 1, 2018. We have
completed our assessment of the effect of adoption. Based on our assessment, under ASC 606 we will no longer value
any installation performance obligation as the greater of the standalone selling price or retention, but rather only value
installation at the standalone selling price.

In February 2016, the FASB issued ASU No. 2016-02 “Leases.” In July, 2017, the FASB issued ASU 2017-13,

“Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and
Leases (Topic 842), which clarifies the transition periods related to public and private business entities. 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. We are currently evaluating the impact of ASU 2016-02
on the consolidated financial statements and disclosures.

In August 2016, the FASB issued ASU No. 2016-15 “Classification of Certain Cash Receipts and Cash

Payments.” The ASU is intended to add or clarify guidance on the classification of certain receipts and payments in the
statement of cash flows and to eliminate the diversity in practice related to such classifications. The guidance in ASU
2016-15 is required for annual reporting periods beginning after December 15, 2017, with early adoption permitted. We
are currently evaluating the impact of ASU 2016-15 on the consolidated financial statements and disclosures.

In March 2017, the FASB issued ASU No. 2017-07 “Compensation – Retirement Benefits (Topic 715):

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The ASU is
intended to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The
amendment applies to all entities offering a defined benefit pension plan, other postretirement benefit plans, or other
types of benefits accounted for under Topic 715. The amendments in the ASU require an employer to report the service
cost component in the same line item or items as other compensation costs arising from services rendered by the
pertinent employees during the period. The other components of net benefit cost are required to be presented in the
income statement separately from the service cost component and outside a subtotal of income from operations. The
amendments in this ASU are effective for public business entities for annual periods beginning after December 15, 2017,
including interim periods within the annual period. The amendments in this ASU should be applied retrospectively for
the presentation of the service cost component and the other components of net periodic pension cost and net periodic
postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the
capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets.
We are currently evaluating the impact of ASU 2017-07 on the consolidated financial statements and disclosures.

Note 3. Cash, cash equivalents and restricted cash

Cash and cash equivalents
Short-term and long-term restricted cash
Total cash, cash equivalents and restricted cash

December 31,

2017

2016

(dollars in thousands)

133,407 $
7,473
140,880 $

70,791
6,864
77,655

As of December 31, 2017, the Company had $7.5 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 $0.8 million letter of credit relating to
workers’ compensation insurance, a $0.7 million letter of credit associated with a bank guarantee and a $0.1 million
deposit relating to customs activity.

Note 4. Accounts Receivable, net

The components of accounts receivable are as follows:

Trade receivables
Allowance for doubtful accounts
Trade receivables, net

December 31,

2017

2016

(in thousands)
$ 75,302 $ 50,650
(77)
$ 75,302 $ 50,573

—

We record an allowance for doubtful accounts for estimated losses resulting from the inability of our customers

Note 5. Inventories, net

The components of inventories are as follows:

Raw materials
Work in process
Finished goods (completed systems)
Inventories, net

December 31,

2017

2016

(in thousands)
$ 82,313 $ 80,503
14,117
19,233
$ 120,544 $ 113,853

31,651
6,580

When recorded, inventory reserves are intended to reduce the carrying value of inventories to their net realizable

value. The Company establishes inventory reserves when conditions exist that indicate inventory may be in excess of
anticipated demand or is obsolete based upon assumptions about future demand for the Company’s products or market
conditions. The Company regularly evaluates the ability to realize the value of 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 2017, the Company recorded a net increase of $5.3 million in inventory reserves, which includes
$6.2 million of write-down of excess inventory related to Legacy products. As of December 31, 2017 and 2016,
inventories are stated net of inventory reserves of $14.2 million and $8.8 million respectively.

During each of the years ended 2017, 2016 and 2015, the Company recorded charges to cost of sales of $8.1

million, $0.8 million and $0.5 million to reflect the lower of cost or net realizable value.

The Company has inventory on consignment at customer locations as of December 31, 2017 and 2016, of $3.6

million and $3.4 million, respectively.

Note 6. 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,

2017

2016

(in thousands)
$ 76,260 $ 75,792
9,472
1,704
86,968
(56,128)
$ 36,168 $ 30,840

11,477
6,982
94,719
(58,551)

Depreciation expense was $2.2 million, $1.8 million and $2.4 million for the years ended December 31, 2017,

2016 and 2015, respectively.

Note 7. 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,

2017

2016

(in thousands)
$ 40,366 $ 42,776
1,745
44,521
(22,838)
$ 20,632 $ 21,683

301
40,667
(20,035)

These products are used for research and development, training, and customer demonstration purposes.

Depreciation expense was $2.8 million, $2.4 million and $2.5 million for the years ended December 31, 2017,

2016 and 2015, respectively.

Note 8. Product Warranty

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.

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 9. Financing Arrangements

Sale Leaseback Obligation

2017

Year ended December 31,
2016
(in thousands)
$ 2,666 $ 3,555 $ 1,526
4,305
3,125
(2,672)
(4,249)

5,671
(2,603)

2015

(1,232)

396
$ 4,502 $ 2,666 $ 3,555

235

$ 4,112 $ 2,426 $ 3,363
192
$ 4,502 $ 2,666 $ 3,555

390

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 $47.7 million as of December 31, 2017. 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. In October 2015, this letter of credit was cash collateralized.

Note 10. 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 $1,200, on the basis of one dollar matched for
each two dollars contributed by eligible participants. In 2017, the Company increased the matching contribution to 50%
of employees’ pre-tax contributions on the first 6% of eligible compensation contributed to the plan. Total related
expense was $0.5 million, $0.4 million and $0.4 million, for 2017, 2016 and 2015, respectively.

(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.

The Company has recorded an unfunded liability of $4.6 million and $4.0 million at December 31, 2017 and

2016, 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,
2016

2017

(in thousands)

$ 967 $ 902
$ 967 $ 902

3,583

3,057
$ 4,550 $ 3,959

The expense recorded in connection with these plans was $1.0 million, $0.8 million and $0.7 million during the

years ended December 31, 2017, 2016 and 2015, respectively.

Note 11. 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 6.5 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. In accordance with the terms of the 2012 Equity Plan, this reserves shares that were not

issued under an award (because such award expires, is terminated unexercised or is forfeited) that was outstanding under
the 2000 Stock Plan as of the May 2, 2012.

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 2017 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, 2017.

As of December 31, 2017, there were 1.3 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, 2017, there were 2.6 million options outstanding under the 2012 Equity Plan and the 2000

Stock Plan, collectively, and 0.6 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, 2017, 2016 and 2015.

As of December 31, 2017, 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, 2017, 2016 and 2015. The Purchase Plan will expire in June 2020, unless re-approved by the
stockholders.

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

2017
N/A
N/A
N/A
N/A

Year ended December 31,
2016

2015

4.7 years

49.3% — 56.7% 56.2% — 64.7%
4.6 — 4.7 years
1.3% — 1.6%
0%

1.1% — 2.0%

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.

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, 2017, 2016 and 2015.

For the year ended December 31, 2017, the Company recognized stock-based compensation expense of $5.7
million. Stock-based compensation expense was $5.2 million and $5.6 million for the years ended December 31, 2016
and 2015, 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, 2017, the Company used
restricted stock units in its annual equity compensation program. For the year ended December 31, 2016, the Company
primarily used restricted stock units in its annual equity compensation program. For the year ended December 31, 2015,
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. Axcelis had tax deductions in excess of recognized compensation cost of $29.5
million for the year ended December 31, 2017 which resulted in a tax benefit of $10.3 million. Because the Company did
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, 2017, 2016 and 2015.

(e) Stock Option Awards

The following table summarizes the stock option activity for the year ended December 31, 2017:

Weighted

Weighted Average
Average
Exercise
Price

Remaining
Contractual
Term
(years)

Aggregate
Intrinsic
Value
(in thousands)

Options
(in thousands)

Outstanding at December 31, 2016
Granted
Exercised
Canceled
Expired
Outstanding at December 31, 2017
Exercisable at December 31, 2017
Options Vested or Expected to Vest at December 31, 2017(1)

—
(2,358)
(15)
(2)

4,951 $ 7.29
—
6.58
10.24
21.32
2,576 $ 7.91
2,008 $ 7.16
2,555 $ 7.88

3.21 $
2.92 $
3.25 $

53,571
43,236
53,189

(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, 2017, 2016 and
2015 was $39.7 million, $2.5 million and $5.3 million, respectively.

The total fair value of stock options vested during the years ended December 31, 2017, 2016 and 2015 was

$3.1 million, $3.9 million and $5.4 million respectively. The weighted average grant-date fair value of options granted
for the years ended December 31, 2016 and 2015 was $5.75 and $5.05, respectively. As of December 31, 2017, there was
$2.3 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 1.4 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. 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 2017 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, 2017, 2016 and 2015. The fair
value of a restricted stock unit and restricted stock award is charged to expense ratably over the applicable service period.

Changes in the Company’s non-vested restricted stock units for the year ended December 31, 2017 is as

follows:

Outstanding at December 31, 2016
Granted
Vested
Forfeited
Outstanding at December 31, 2017

Weighted-Average
Grant Date Fair
Value per Share

Shares/units
(in thousands)

548 $
320
(196)
(55)
617 $

9.85
20.72
11.32
10.36
14.93

The weighted average grant-date fair value of restricted stock units granted for the years ended December 31,

2017, 2016 and 2015 was $20.72, $9.73 and $12.12, 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 12. Stockholders’ Equity

The Company may issue up to 75 million shares of common stock without additional shareholder approval. As

of December 31, 2017 and 2016, there were 32.0 million and 29.5 million outstanding shares of common stock.

Note 13. 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.

(b) Assets and Liabilities Measured at Fair Value

The Company’s money market funds and short-term investments 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 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, U.S. Government
Securities and Agency Investments

Assets
Cash equivalents:

Money market funds

December 31, 2017
Fair Value Measurements

Level 1

Level 2 Level 3 Total

(in thousands)

$ 116,433

$ — $ — $ 116,433

December 31, 2016
Fair Value Measurements

Level 1

Level 2 Level 3 Total

(in thousands)

$ 54,170

$ — $ — $ 54,170

The carrying amounts reflected in the consolidated balance sheets for 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 14. 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 $3.9 million, $3.8 million and $3.8 million under operating leases for the years
ended December 31, 2017, 2016 and 2015, respectively. Future minimum lease commitments on non-cancelable
operating leases for the year ended December 31, 2017 are as follows:

Operating

Leases
(in thousands)
2,915
$
1,836
894
420
202
39
6,306

2018
2019
2020
2021
2022
Thereafter

(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, 2017:

2018
2019
2020
2021
2022
Thereafter
Total lease payments
Less interest portion
Sale leaseback obligation

Lease

Obligation
(in thousands)
5,471
$
5,594
5,719
5,848
5,980
92,020
$ 120,632
(72,918)
47,714

The Company has non-cancelable contracts and purchase orders for inventory of $83.5 million at December 31,

2017.

(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.

Note 15. 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

2017

Year ended December 31,
2016
(in thousands)
$ 391,051 $ 248,885 $ 282,624
18,871
$ 410,561 $ 266,980 $ 301,495

18,095

19,510

2015

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:

2017
United States
Europe
Asia Pacific

2016
United States
Europe
Asia Pacific

2015
United States
Europe
Asia Pacific

Revenue

Long-Lived
Assets

(in thousands)

$ 313,916 $ 56,089
—
707
$ 410,561 $ 56,796

26,936
69,709

$ 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

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 $348.5 million (84.9% of total revenue), $213.8 million (80.0% of total
revenue) and $256.5 million (85.1% of total revenue) in 2017, 2016 and 2015, respectively.

Note 16. Income Taxes

Income before income taxes is as follows:

2017

Year ended December 31,
2016
(in thousands)

2015

United States
Foreign

Income before income taxes

$ 40,752 $
3,079

8,880 $ 12,708
2,497
2,144
$ 43,831 $ 11,024 $ 15,205

Provision for income taxes is as follows:

Current:

United States

Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Income tax provision

Year ended December 31,
2016
2017
(in thousands)

2015

430 $
32
230
692

— $ —
(33)
49
374
(217)
341
(168)

(82,048)
(1,698)
(74)
(83,820)
$ (83,128) $

—
—
191
191

—
—
186
186
23 $ 527

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

follows:

Year ended December 31,

2017

2016

2015

(in thousands)

203
(285)
(115,831)
(312)
(8,933)
(10,342)
—
4,556
(1,165)
42,531
(8,778)
31
(144)

15,341 $ 3,859 $ 5,322
(22)
(174)
(5,676)
600
(102)
379
—
—
—
—
—
(540)
740
527

32
(615)
(7,765)
233
305
264
3,565
—
—
—
—
—
145
23 $

$ (83,128) $

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
Repatriation of foreign earnings
Recognition of equity NOL's
Rate change
Credit generation
Discrete items, net
Other, net

Income tax provision

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

Federal net operating loss carryforwards
State net operating loss carryforwards
Foreign net operating loss carryforwards
Federal tax credit carryforwards
State tax credit carryforwards
Unremitted earnings of foreign subsidiaries
Intangible assets
Property, plant and equipment
Accrued compensation
Inventories
Stock compensation
Warranty
Deferred revenue
Other
Deferred taxes, gross
Valuation allowance
Deferred taxes, net

Year ended December 31,

2017

2016

$ 56,646 $
1,586
758
14,312
6,908
(21)
116
5,838
45
3,798
2,351
980
187
(3,220)
90,284
(7,136)
$ 83,148 $

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

Changes in tax rates and tax laws are accounted for in the period of enactment. Our deferred tax assets and

liabilities are measured at the enacted tax rate expected to apply when these temporary differences are expected to be
realized or settled. On December 22, 2017, the Tax Cuts and Jobs Act (“2017 Tax Act”) was signed into law and has
resulted in significant changes to the U.S. corporate income tax system. The 2017 Tax Act eliminates the deferral of U.S.
income tax on the historical un-repatriated earnings by imposing the Transition Toll Tax, which is a one-time mandatory
deemed repatriation tax on undistributed foreign earnings. The Transition Toll Tax is assessed on the U.S. shareholder's
share of the foreign corporation's accumulated foreign earnings that have not previously been taxed. Earnings in the form
of cash and cash equivalents will be taxed at a rate of 15.5% and all other earnings will be taxed at a rate of 8.0%. As of
December 31, 2017, we have accrued income tax liabilities of $0.4 million under the Transition Toll Tax after utilization
of foreign tax credits and research and development credits. The Transition Toll Tax will be paid over an eight-year
period, starting in 2018, and will not accrue interest.

Our preliminary estimate of the Transition Toll Tax and the remeasurement of our deferred tax assets and

The 2017 Tax Act includes a federal statutory rate reduction from 35% to 21%, the elimination or reduction of

At December 31, 2017, the Company had $90.3 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. Management has considered the weight of all available evidence in determining whether a
valuation allowance remains to be required against its deferred tax assets at December 31, 2017. After consideration of
both positive and negative evidence, management has concluded that it is more likely than not that a substantial portion
of its deferred tax assets will be realized. The positive evidence considered was three year U.S. historical cumulative
profitability, projected future taxable income and length of carry-forward periods of net operating losses and tax credits.
The primary negative evidence to be considered is the volatile semiconductor industry that the Company operates in. The
Company has continued to maintain a $7.1 million valuation allowance in the U.S. against certain tax credits and state
net operating losses due to the uncertainty of their realization based on long-term Company forecasts and the expiration
dates on these attributes. If future operating results of the U.S. or these foreign jurisdictions significantly exceed
expectations it is reasonably possible that there could be a further reduction in the valuation allowance in the future.
Further reduction of the valuation allowance, in whole or in part, would result in a non-cash income tax benefit during
the period of reduction.

At December 31, 2017, the Company has federal and state net operating loss carryforwards of $298.9 million

and foreign net operating loss carryforwards of $2.9 million expiring principally between 2018 and 2034.

The Company has research and development and other tax credit carryforwards of $21.2 million at December
31, 2017 that can be used to reduce future federal and state income tax liabilities. These tax credit carryforwards expire
principally between 2017 and 2037.

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 certain state taxes 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
authorities for all years dating back to 2011. 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, 2017, the Company had unrecognized tax benefits related to uncertain tax positions of

approximately $9.1 million, of which approximately $8.0 million reduced the Company’s deferred tax assets and the
offsetting valuation allowance and $1.1 million was recorded in other long-term liabilities. During the first quarter of
2017, the statute of limitations associated with two tax positions previously taken by the Company expired. The related
tax reserve of $0.3 million and accrued interest of $0.2 million that had been recorded were reversed during the twelve
months ended December 31, 2017. The Company recognized a benefit of $0.1 million in interest and penalties related to
unrecognized tax benefits for the year-ended December 31, 2017.

A reconciliation of the beginning and ending balance of unrecognized tax benefits are as follows:

Balance at beginning of year
Increase 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

2017

2016
(in thousands)
$ 6,844 $ 7,671 $ 7,960

2015

(78)

—

(211)

(511)

(903)

—

2,691

—
$ 9,105 $ 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

$ 1,109 $ 1,462 $ 2,142

7,996 5,382

5,529
$ 9,105 $ 6,844 $ 7,671

Note 17. Quarterly Results of Operations (unaudited)

Dec. 31,
2017(1)

Sept. 30,

June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,

2017

2016

Revenue
Gross profit
Net income
Net income per basic

(in thousands, except per share data)
$ 116,396 $ 104,482 $ 102,790 $ 86,893 $ 69,358 $ 65,650 $ 64,451 $ 67,521
23,415
1,948

25,131
2,937

24,104
2,151

26,947
3,965

34,714
9,506

39,062
13,932

39,751
11,841

36,720
91,680

2.88 $

0.38 $

0.46 $

0.32 $

0.13 $

0.07 $

0.10 $

0.07

Net income per diluted

2.68 $

0.35 $

0.42 $

0.29 $

0.13 $

0.07 $

0.10 $

0.06

(1) Gross profit includes $6.2 million charge to inventory reserves. Net income also includes an $81.6 million tax

benefit relating to the reversal of a valuation allowance on deferred tax assets.

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

Restated Certificate of Incorporation of the registrant, filed November 2, 2017. Incorporated by reference to

Exhibit 3.1 of the Company’s Form 10-Q filed with the Commission on November 3, 2017.

3.2

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 13, 2018. 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 each of its executive officers.
Incorporated by reference to Exhibit 10.6 of the Company’s Form 10-K for the year ended December 31,
2016 filed with the Commission on March 14, 2017.

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.

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.

Exhibit
No.

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, 2018. Filed herewith.

10.13* Non-Employee Director Cash Compensation at March 14, 2018. 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, 2018. 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, 2018. 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, 2018. 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, 2018. Filed herewith.

101

The following materials from the Company’s Form 10-K for the year ended December 31, 2017, 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.

Indicates a management contract or compensatory plan.

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, 2018

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, 2018

Principal Accounting and Financial Officer

March 14, 2018

Director

Schedule II—Valuation and Qualifying Accounts
Axcelis Technologies, Inc.
(In thousands)

Year ended December 31, 2017
Allowance for doubtful accounts and returns(**)
Reserve for excess and obsolete inventory(***)
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(***)

Balance at Charged to
Beginning of Costs and
Expenses

Period

Balance at
End of
Period

Other(*)

Deductions

77 $

— $

(77) $

8,897

8,135

(2,820)

— $
—

—
14,212

— $

106 $

(29) $

10,465

1,051

(2,619)

— $
—

77
8,897

390 $

— $

(390) $

23,642

1,721

(14,898)

— $
—

—
10,465

(*) Represents foreign currency translation adjustments.

(**) Deductions include the write-off of accounts receivable.

(***) Deductions include the disposal and sale of fully reserved inventory

STOCK PERFORMANCE GRAPH

This graph compares the five-year cumulative total stockholder returns for our common stock to

that of the Philadelphia Semiconductor Index and the Nasdaq Composite Index at each of the last five
fiscal year ends. The cumulative returns are based on a $100 investment on December 31, 2012, with all
dividends, if any, being reinvested. The stock performance shown on the graph below is not necessarily
indicative of future price performance.

$600.00

$500.00

$400.00

$300.00

$200.00

$100.00

$0.00

12/31/2012

12/31/2013

12/31/2014

12/31/2015

12/30/2016

12/29/2017

Axcelis Technologies, Inc. (ACLS)

Nasdaq Composite Index (COMPX)

Philadelphia Semiconductor Index (SOX)

$100.00

$175.54

$138.32

$139.31

$184.17

$156.85

$178.85

$186.33

$165.84

$172.76

$261.69

$178.28

$236.03

$516.19

$228.63

$326.27

Axcelis Technologies, Inc. (ACLS)

Nasdaq Composite Index (COMPX)

Philadelphia Semiconductor Index (SOX)

27FEB201815281678

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
Former Chairman, Nordson Corporation
Former Chairman and CEO, Keithley
Instruments

John T. Kurtzweil
Chief Financial Officer,
Akoustis Technologies, Inc.

Patrick H. Nettles
Non-executive Chairman,
CIENA Corporation

Mary G. Puma
President and Chief Executive Officer,
Axcelis Technologies, Inc.

Thomas St. Dennis
Non-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. Keithley, 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 Wednesday,
May 16, 2018 at the Company’s
corporate headquarters.

CORPORATE HEADQUARTERS
108 Cherry Hill Drive
Beverly, MA 01915-1053
978-787-4000

INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072

INVESTOR INFORMATION/SEC
FORM 10-K
Information on the Company, as well as
the Company’s 2017 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 505000
Louisville, KY 40233-5000

Overnight Correspondence:
Computershare Trust Company, N.A.
462 South 4th Street, Suite 1600
Louisville, KY 40202

WEBSITE
http://www.axcelis.com