Exhibit 99
AXCELIS TECHNOLOGIES, INC.
Form 10-K for the year ended December 31, 2001
FACTORS AFFECTING FUTURE OPERATING RESULTS
From time to time, we may make forward-looking public statements, such as
statements concerning our then expected future revenues or earnings or
concerning projected plans, performance, contract procurement as well as other
estimates relating to future operations. Forward-looking statements may be in
reports filed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), in press releases or informal statements made with the approval
of an authorized executive officer. The words or phrases "will likely result,"
"are expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward-looking statements" within
the meaning of Section 21E of the Exchange Act and Section 27A of the Securities
Act of 1933, as amended, as enacted by the Private Securities Litigation Reform
Act of 1995.
We wish to caution you not to place undue reliance on these
forward-looking statements which speak only as of the date on which they are
made. In addition, we wish to advise you that the factors listed below, as well
as other factors we have not currently identified, could affect our financial or
other performance and could cause our actual results for future periods to
differ materially from any opinions or statements expressed with respect to
future periods or events in any current statement.
We will not undertake and specifically decline any obligation to publicly
release revisions to these forward-looking statements to reflect either
circumstances after the date of the statements or the occurrence of events which
may cause us to re-evaluate our forward-looking statements.
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act, we are hereby filing cautionary statements identifying
important factors that could cause our actual results to differ materially from
those projected in forward-looking statements made by us or on our behalf.
If semiconductor equipment manufacturers do not make sufficient capital
expenditures, our sales and profitability will be harmed.
We anticipate that a significant portion of our new orders will depend
upon demand from semiconductor manufacturers who build or expand fabrication
facilities. If they do not build or expand fabrication facilities as rapidly as
we anticipate, demand for our systems will decline, reducing our revenues. This
would also hurt our profitability, because 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.
A number of factors may cause semiconductor manufacturers to make reduced
capital expenditures, including the following.
Downturns in the semiconductor industry may further reduce demand for our
products, harming our sales and profitability.
The semiconductor business is highly cyclical and the industry has been in
a severe down cycle since early in 2001, the length of which cannot be
predicted. This continues to reduce demand for new or expanded fabrication
facilities. Any continuing weakness or future downturns or slowdowns in the
industry may adversely affect our financial condition.
Oversupply in the semiconductor industry reduces demand for capital equipment,
including our products.
Inventory buildups in the semiconductor industry, resulting in part from
the down cycle, have produced a current oversupply of semiconductors. This has
caused semiconductor manufacturers to revise capital spending plans, resulting
in reduced demand for capital equipment such as our products. If this oversupply
is not reduced by increasing demand from the various electronics industries that
use semiconductors, which we cannot accurately predict, our sales and
profitability will be harmed.
Industry consolidation and outsourcing of semiconductor manufacturing may reduce
the number of our potential customers, harming our revenues.
The substantial expense of building, upgrading or expanding a
semiconductor fabrication facility is increasingly causing semiconductor
companies to contract with foundries to manufacture their semiconductors. In
addition, consolidation within the semiconductor manufacturing industry is
increasing. These trends could reduce the number of our potential customers,
increasing our dependence on our remaining customers and materially and
adversely affecting our sales.
If we fail to develop and introduce reliable new or enhanced products and
services that meet the needs of semiconductor manufacturers, our results will
suffer.
Rapid technological changes in semiconductor manufacturing processes
require us to respond quickly to changing customer requirements. Our future
success will depend in part upon our ability to develop, manufacture and
successfully introduce new systems and product lines with improved capabilities
and to continue to enhance existing products, including products that process
300 millimeter wafers. This will depend upon a variety of factors, including new
product selection, timely and efficient completion of product design and
development and of manufacturing and assembly processes, product performance in
the field and effective sales and marketing. In particular:
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. We must develop the technical specifications of competitive new
systems, or enhancements to our existing systems, and manufacture and
ship these systems or enhancements in volume in a timely manner.
. Due to the risks inherent in transitioning to new products, we will
need to accurately forecast demand for new products while managing
the transition from older products.
. We must avoid product reliability or quality problems that would lead
to reduced orders, higher manufacturing costs, delays in acceptance
and payment and additional service and warranty expenses.
. Our new products must be accepted in the marketplace.
Our failure to meet any of these requirements will have a material adverse
effect on our operating results and profitability.
If we fail to compete successfully in the highly competitive semiconductor
equipment industry, our sales and profitability will decline.
The market for semiconductor manufacturing equipment is highly competitive
and includes companies with substantially greater financial, engineering,
manufacturing, marketing and customer service and support resources than we have
that may be better positioned to compete successfully in the industry. In
addition, there are smaller, emerging semiconductor equipment companies that
provide innovative systems with technology that may have performance advantages
over our systems. Competitors are expected to continue to improve the design and
performance of their existing products and processes and to introduce new
products and processes with improved price and performance characteristics. If
we are unable to improve or introduce competing products when demanded by the
markets, our business will be harmed. In addition, if competitors enter into
strategic relationships with leading semiconductor manufacturers covering
products similar to those sold or being developed by us, our ability to sell
products to those manufacturers may be adversely affected.
We have been dependent on sales to a limited number of large customers; the loss
of any of these customers or any reduction in orders from them could materially
affect our sales.
Historically, we have sold a significant proportion of our products and
services to a limited number of fabricators of semiconductor products. For
example, in 2001, one of our customers, STMicroelectronics N.V. accounted for
13.9% of our net sales, and our top ten customers accounted for 67.2%. 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, including
reductions or delays due to customer departures from recent buying patterns, or
market, economic or competitive conditions in the semiconductor industry, could
adversely affect us. The ongoing consolidation of semiconductor manufacturers
may also increase the harmful effect of losing a significant customer.
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Our quarterly financial results may fluctuate significantly and may fall short
of anticipated levels.
We derive most of our revenues from the sale of a relatively small number
of expensive products to a small number of customers. The list prices on these
products range from $200,000 to over $4.0 million. At our current sales level,
each sale, or failure to make a sale, could have a material effect on us in a
particular quarter. Our lengthy sales cycle, coupled with customers' competing
capital budget considerations, make the timing of customer orders uneven and
difficult to predict. In a given quarter, a number of factors can adversely
affect our revenues and results, including changes in our product mix, increased
fixed expenses per unit due to reductions in the number of products
manufactured, and higher fixed costs due to increased levels of research and
development and expansion of our worldwide sales and marketing organization. Our
gross margins also may be affected by the introduction of new products. We
typically become more efficient in producing our products as they mature. For
example, our gross margins in 2001 were adversely affected in part as a result
of the increased proportion of systems sold to process 300 millimeter wafers. In
addition, our backlog at the beginning of a quarter typically does not include
all orders required to achieve our sales objectives for that quarter and is not
a reliable indicator of our future sales. As a result, our net sales and
operating results for a quarter depend on our shipping orders as scheduled
during that quarter as well as obtaining new orders for products to be shipped
in that same quarter. Any delay in, or cancellation of, scheduled shipments or
in shipments from new orders could materially and adversely affect our financial
results. Due to the foregoing factors, we believe that period-to-period
comparisons of our operating results should not be relied upon as an indicator
of our future performance.
Termination of our Japanese joint venture, or a decline in its fortunes, could
hurt our business and profits.
In 1982, we established a joint venture with Sumitomo Heavy Industries, Ltd.,
known as Sumitomo Eaton Nova, or SEN. We exclusively licensed SEN to manufacture
and sell our ion implantation products in Japan. The current license agreement
will expire on December 31, 2004 if either SEN or we provide one year's prior
notice of termination, otherwise, it will automatically renew for a five year
term. We receive royalties under the license agreement and each of Sumitomo and
the Company are credited with 50% of the equity income or loss from SEN's
operations. Royalties and income from SEN have been a substantial contribution
to our earnings. A substantial decline in SEN's sales and income from operations
could have a material adverse effect on our net income. We have also benefited
from research and development conducted by SEN engineers. A termination of the
license to SEN would require us to invest in our own infrastructure to sell and
service ion implant products in Japan.
We also have an arrangement with Sumitomo, outside the SEN joint venture,
under which Sumitomo distributes and services our dry strip, photostabilization
and rapid thermal processing products to semiconductor manufacturers in Japan.
This distribution arrangement expires in March 2002 and thereafter is renewable
from year to year unless either party has given the other party six months prior
written notice. We are currently negotiating the terms of an extension
arrangement with Sumitomo. Although we support Sumitomo's activities in Japan,
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a termination of the distributor agreement with SHI would require us to invest
in our own infrastructure to sell and service dry strip, photostabilization and
rapid thermal processsing products in Japan.
A decline in sales of our products and services to customers outside the United
States would hurt our business and profits.
We are substantially dependent on sales of our products and services to
customers outside the United States, which accounted for approximately 53.5%,
69.4% and 70% of our net sales in 1999, 2000 and 2001, respectively. We
anticipate that international sales will continue to account for a significant
portion of our net sales. Because of our dependence upon international sales,
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;
. difficulties in obtaining required export licenses;
. volatility in currency exchange rates;
. political and economic instability, particularly in Asia;
. difficulties in accounts receivable collections;
. extended payment terms beyond those customarily offered in the United
States;
. difficulties in managing distributors or representatives outside the
United States;
. difficulties in staffing and managing foreign subsidiary and branch
operations; and
. potentially adverse tax consequences.
Making more sales denominated in foreign currencies to counteract the strong
dollar may expose us to additional risks that could hurt our results.
Substantially all of our sales to date have been denominated in U.S.
dollars. Our products become less price competitive in countries with currencies
that are declining in value in comparison to the dollar. This could cause us to
lose sales or force us to lower our prices, which would reduce our gross
margins. Our equity income and royalty income from SEN are denominated in
Japanese yen, which exposes us to some risk of currency fluctuations. If it
becomes necessary for us to make more sales denominated in foreign currencies to
counteract the strong dollar, we will become more exposed to these risks.
We may not be able to maintain and expand our business if we are not able to
retain, hire and integrate additional qualified personnel.
Our business depends on our ability to attract and retain qualified,
experienced employees. There is substantial competition for experienced
engineering, technical, financial, sales and marketing personnel in our
industry. In particular, we must attract and retain highly skilled design and
process engineers. Competition for such personnel is intense, particularly in
the areas where we are based, including the Boston metropolitan area and the
Rockville,
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Maryland 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 levels of staffing inadequate to
develop, manufacture and market our products and perform services for our
customers. As a result, our growth could be limited or we could fail to meet our
delivery commitments or experience deterioration in service levels or decreased
customer satisfaction, all of which could adversely affect our financial results
and cause the value of our notes and stock to decline.
Our dependence upon a limited number of suppliers for many components and
sub-assemblies could result in increased costs or delays in manufacture and
sales of our products.
We rely to a substantial extent on outside vendors to manufacture many of
the components and subassemblies of our products. We obtain many of these
components and sub-assemblies from either a sole source or a limited group of
suppliers. Because of our reliance on outside vendors generally, and on a
limited group of suppliers in particular, we may be unable to obtain an adequate
supply of required components on a timely basis, on price and other terms
acceptable to us, or at all.
In addition, we often quote prices to our customers and accept customer
orders for our products before purchasing components and subassemblies from our
suppliers. If our suppliers increase the cost of components or subassemblies, we
may not have alternative sources of supply and may not be able to raise the
price of our products to cover all or part of the increased cost of components.
The manufacture of some of these components and subassemblies is an
extremely complex process and requires long lead times. As a result, we have in
the past and may in the future experience delays or shortages. If we are unable
to obtain adequate and timely deliveries of our required components or
subassemblies, we may have to seek alternative sources of supply or manufacture
these components internally. This could delay our ability to manufacture or to
ship our systems on a timely basis, causing us to lose sales, incur additional
costs, delay new product introductions and suffer harm to our reputation.
Our historical financial information may not be representative of our results as
a separate company.
Our combined financial statements for periods ending on or before June 30,
2000 have been carved out from the consolidated financial statements of Eaton
Corporation using the historical bases of assets, liabilities and operating
results of the semiconductor equipment operations business of Eaton that we
comprised. Accordingly, our historical financial information for those periods
does not necessarily reflect what our financial position, operating results and
cash flows would have been had we been a separate, stand-alone entity during the
periods presented. Our costs and expenses for those periods were allocated to
our business based on Eaton's internal expense allocation methodology, which
charges these expenses to operating locations based both on net working capital,
excluding short-term investments and short-term debt, and on property, plant and
equipment-net. While we believe this allocation methodology is
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reasonable and allocated costs are representative of the operating expenses that
would have been incurred had we operated on a stand-alone basis, such historical
financial information is not necessarily indicative of what our financial
position, operating results and cash flows will be in the future. We have not
made adjustments to this historical financial information to reflect any
significant changes that may occur in our cost structure and operations as a
result of our separation from Eaton, including increased costs associated with
being a publicly traded, stand-alone company.
In certain circumstances, we may need additional capital.
Our capital requirements may vary widely from quarter to quarter, depending
on, among other things, capital expenditures, fluctuations in our operating
results, financing activities, acquisitions and investments and inventory and
receivables management. We believe that our available cash, our credit line and
our future cash flow from operations will be sufficient to satisfy our working
capital, capital expenditure and research and development requirements for the
foreseeable future. This, of course, depends on the accuracy of our assumptions
about levels of sales and expenses, and a number of factors, including those
described in these "Risk Factors," could cause us to require additional capital
from external sources. In addition, in the future, we may require or choose to
obtain additional debt or equity financing in order to finance acquisitions or
other investments in our business. Depending on market conditions, future equity
financings may not be possible on attractive terms and would be dilutive to the
existing holders of our common stock and convertible notes. Moreover, until the
end of 2002, we are restricted in raising substantial amounts of equity capital
under a covenant to Eaton Corporation. Our existing credit agreement contains
restrictive covenants and future debt financings could involve additional
restrictive covenants, all of which may limit the manner in which we conduct our
business.
We may incur costly litigation to protect our proprietary technology, and if
unsuccessful, we may lose a valuable asset or experience reduced market share.
We rely on a combination of patents, copyrights, trademark and trade secret
laws, non-disclosure agreements and other intellectual property protection
methods to protect our proprietary technology. Despite our efforts to protect
our intellectual property, our competitors may be able to legitimately ascertain
the non-patented proprietary technology embedded in our systems. If this occurs,
we may not be able to prevent their use of this technology. Our means of
protecting our proprietary rights may not be adequate and our patents may not be
sufficiently broad to prevent others from using technology that is similar to or
the same as our technology. In addition, patents issued to us have been, or
might be challenged, and might be invalidated or circumvented and any rights
granted under our patents may not provide adequate protection to us. Our
competitors may independently develop similar technology, duplicate features of
our products or design around patents that may be issued to us. As a result of
these threats to our proprietary technology, we may have to resort to costly
litigation to enforce or defend our intellectual property rights.
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On January 8, 2001, we filed a lawsuit against Applied Materials, Inc.
("Applied") in the United States District Court for the District of
Massachusetts. The complaint alleges that Applied's medium current/high energy
ion implanter machine launched in November 2000 infringes our patent for ion
implantation equipment using radio frequency linear accelerator technology. We
have also alleged that Applied unlawfully interfered with our existing and
future contracts. On January 18, 2001, we filed a motion for a preliminary
injunction for the reason, among others, that infringement at the time of
industry transition between equipment capable of handling 200 millimeter wafers
and equipment capable of handling 300 millimeter wafers would irreparably harm
us. Through this motion, we asked the court to stop Applied from manufacturing,
selling or offering to sell its medium current/high energy ion implanter machine
and to order Applied to remove all our patented technology from implanters that
Applied may have placed in chipmakers' plants for process development trials.
Applied filed counterclaims of unfair competition, defamation and tortious
interference with prospective economic advantage, all of which, it contends,
arise from certain communications we allegedly made about the lawsuit and its
claims of infringement.
Hearings on summary judgment motions began in December 2001 and are
continuing. We believe our claims are meritorious and intend to pursue the
matter vigorously. Although there can be no assurance of a favorable outcome and
we are incurring significant legal expenses to pursue this litigation, we do not
believe that our pursuit of this matter will have a material adverse effect on
our financial condition, results of operations or liquidity. In the event that
Applied is found not to have infringed, we expect that Applied will continue to
sell its medium current/high energy implanter as a new and substantial
competitor for sales of high energy/medium current ion implantation equipment.
We might face intellectual property infringement claims or patent disputes that
may be costly to resolve and, if resolved against us, could be very costly to us
and prevent us from making and selling our systems.
From time to time, claims and proceedings have been or may be asserted
against us relative to patent validity or infringement matters. Our involvement
in any patent dispute or other intellectual property dispute or action to
protect trade secrets, even if the claims are without merit, could be very
expensive to defend and could divert the attention of our management. Adverse
determinations in any litigation could subject us to significant liabilities to
third parties, require us to seek costly licenses from third parties and prevent
us from manufacturing and selling our systems. Any of these situations could
have a material adverse effect on us and cause the value of our common stock to
decline.
Our agreements with Eaton Corporation may not have the same terms that such
agreements would have if they had been negotiated in an arm's length
transaction.
Before our initial public offering, we entered into a number of agreements
with Eaton Corporation. These agreements were negotiated at a time when we were
a wholly-owned subsidiary of Eaton and therefore may not have the same terms
that such agreements would have had if they had been negotiated in an arm's
length transaction.
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Covenants and payables in favor of Eaton. Our agreements with Eaton
restrict our operations and obligate us to make payments to Eaton in certain
situations, including:
. The Tax Sharing and Indemnification Agreement makes us liable to Eaton
for our allocable share of taxes arising for all periods beginning
after December 31, 1999 through December 29, 2000. If Eaton were
audited for this period and additional taxes were due, we would be
obligated to indemnify Eaton.
. Until December 29, 2002, without Eaton's consent, we may not
liquidate, merge or consolidate with any person, dispose of or
restructure the holding of our assets, or enter into any transaction
or make any change in our equity structure that would violate a
restrictive covenant designed to protect the tax-free nature of
Eaton's distribution of our shares in December 2000.
. We have agreed not to solicit or recruit employees of Eaton without
Eaton's consent until December 29, 2002.
Conflicts under Eaton agreements and otherwise. Conflicts may arise under
our agreements with Eaton Corporation and other interests of Axcelis and Eaton
may differ from time to time. We have agreed to submit all disputes under the
agreements with Eaton to binding arbitration, following nonbinding mediation,
unless the failure to initiate litigation would cause serious and irreparable
injury to one of us or others. Three of our directors are also directors of
Eaton and one, Alexander M. Cutler, is also the Chairman and Chief Executive
Officer of Eaton. Our directors who are also directors of Eaton have obligations
to both companies and may have conflicts of interest with respect to matters
that could have different implications for Eaton and us.
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