What changed in this filing

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Item 1. Business

2023-02-24 compared with 2022-02-25 · 92 added, 55 removed, 203 unchanged (42% of the section changed)

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2022 was an exceptional year for Axcelis despite logistical challenges brought on by the geo-political environment and the COVID-19 pandemic.

As a result of the strength of the overall electronics market and the continued growth of the Purion product family in 2021, we delivered record full year revenue, operating profit and gross margin since becoming an independent public company in 2001.

As a result of the strength of the overall electronics market and the continued growth of the Purion product family in 2022, we delivered record full year revenue, operating profit and gross margin since our first full year as a public company in 2001.

Revenue for 2022 was $920.0 million, an increase of 38.9% from 2021 revenue of $662.4 million.

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Net income for the year was $183.1 million, an increase of 85.6% following a 97.4% increase in revenue from the prior year.

The Company is in a strong competitive position as we participate in a period of extended industry growth.

The Company is in a strong competitive position as we participated in a period of extended industry growth in 2021 and 2022.

A focused strategy on ion implant, combined with the hard work and dedication of our employees and the encouragement and support of our customers and suppliers, enabled us to achieve numerous critical milestones in our drive to market leadership.

We were able to rapidly grow our manufacturing and supply chain capabilities through smart capacity planning and execution, including the opening of our new Axcelis Asia Operations Center in South Korea and the expansion of clean manufacturing in Beverly.

In 2021, we continued to expand the Purion installed base, growing our large and diverse group of customers, mainly in the mature process technology segment.

We continued our focus on the mature process technology segment in 2021, launching new Purion product extensions, including the Purion H200™ high current implanter, targeted for the production of power devices, and the Purion XEmax™ used to manufacture image sensors.

Through the introduction of these new products and continuous cost reduction measures, we increased our gross margin year over year, making this the fourth consecutive year with gross margin greater than 40 percent.

Axcelis had a number of important accomplishments in 2022:

● Axcelis’ revenue grew 39% year over year;

● Our full year revenue, gross margins and operating profit were all at record levels since our first full year as a public company in 2001;

● The market for mature semiconductor devices grew rapidly, producing greater than 80% of our systems shipments, and within that total, the electrification of the automotive market drove the power device market to contribute approximately 39% of our systems shipments;

● Our global footprint in growing markets continued to expand, including through multiple evaluation units at key customers in memory, mature process technologies and advanced logic, sales of our Purion product extensions into the Silicon Carbide market, follow-on orders for our Purion products in Japan, and device qualification for leading edge CMOS Image Sensor processes;

● Rapid growth of our manufacturing capabilities through solid execution, strong supply chain partnerships and bringing online new capacity at both our Beverly, Massachusetts facility and Axcelis Asia Operations Center in South Korea.

We continue to work diligently to ensure that manufacturing and operating expense levels remain well aligned to business conditions.

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and “system on chip” devices (which have both logic and memory features).

The increased number of devices providing information to and receiving

information from the Internet, 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 to support the storage of data, internet streaming and “cloud computing” data analytics.

The demand for chips continues to increase, as a result of the electrification of vehicles, the evolution of digital communications (including the introduction of 5G mobile networks and the growth in the Internet of Things), and the increasing complexity of device features.

These chips are used in power management, data input, such as image sensors, which are often manufactured using mature processing technologies, as well as for memory 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.

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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.

These same companies may also act as foundries, manufacturing semiconductor chips for other electronic manufacturers or chip design companies.

Some customers only function as foundries.

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Axcelis’ 2023 strategic goals are to:

● Achieve our $850M revenue model run rate in 2022, positioning us to achieve our $1 billion revenue model in future years

o Continue to grow the Purion footprint with our existing customer base as well as at new accounts in targeted market segments and geographies

◾ Capitalize on continued spending at mature process technology customers

◾ Capture memory business as customers increase spending during the year

◾ Continue working to penetrate leading edge logic and foundry customers

o Drive Customer Satisfaction & Innovation (CS&I) revenues by delivering excellent customer satisfaction and innovative, high value products and services

o Continue to drive gross margin improvements

● Execute a capital strategy that funds appropriate investments in the business and enables the potential for return of cash to shareholders

● Prepare for a post-COVID-19 business environment

● Exceed our $1.0 billion revenue model in 2023, positioning us to achieve our $1.3 billion revenue ion implant only model in future years by insuring high levels of customer satisfaction and quality

• Grow the Purion footprint with our existing customer base as well as at new accounts in targeted market segments and geographies

— Capitalize on strong spending in the mature process technology segment, especially by power device customers

— Capture additional high value memory business

— Continue to penetrate leading edge logic and foundry customers

• Drive Customer Solutions & Innovation (“CS&I”) revenues by delivering excellent customer satisfaction via innovative, high value products and services

• Continue to drive gross margin improvements through supply chain optimization, value engineering, lean manufacturing, quality improvements, product and service innovation and sales excellence

● Deliver attractive earnings per share and cash as defined in targeted business models

• Manage revenues and expenses in line with growth initiatives and industry trends

• Execute a capital strategy that allows for appropriate business investments while returning value to shareholders

● Expand beyond ion implant by launching identified corporate development growth initiatives

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

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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 steps.

Typical process flows require twenty implant steps, with the most advanced processes requiring substantially more steps.

Each implant step is characterized by four key parameters:

dopant type, dose (amount of dopant), energy (depth into the silicon) and tilt/twist (angle of wafer relative to the ion beam).

In order to efficiently 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 current, high energy and medium current:

In order to efficiently cover the wide range of implant steps, three different broad categories of implanters have been developed, each targeted at a specific range of applications, primarily defined by dose and energy.

The three traditional implanter categories are referred to as high current, high energy and medium current:

● High current implanters were the second type of implanter to emerge, having low energy capability and high dose range.

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Our Purion M systems also offer differentiated capabilities for specialty applications.

In addition to the above categories, ion implanters may also be categorized by the types of applications for which they are designed.

For example, the Axcelis Purion Power Series, which provides full recipe coverage for power device applications critical to mobile devices and electric vehicles, is comprised of a group of high current, medium current and high energy implanters that have been developed to optimize semiconductor devices created on Silicon Carbide wafers, which are advantageous for certain power devices.

We believe our ion implant products will continue to meet customer demand for advantages in productivity, process performance and technical extendibility.

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We offer varying levels of sales, service and application support out of our field offices.

Revenue generated through our CS&I business represented 31.4%, 38.1% and 40.9% of revenue in 2021, 2020 and 2019, respectively.

Revenue generated

through our CS&I business of $227.9 million, $207.8 million and $180.9 million represents 24.8%, 31.4% and 38.1% of total revenue in 2022, 2021 and 2020, 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, and product, process and applications support.

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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 provides the customer with full spares support through a parts consignment arrangement in which Axcelis retains responsibility for the complete supply chain.

Our Axcelis Managed Inventory service offering provides the customer with full spare parts support through a parts consignment arrangement in which Axcelis retains responsibility for the complete supply chain.

These services provide ease of use alternatives that reduce order fulfillment costs and improve cycle time, resulting in an expanded customer base for this service offering.

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International revenue, including export sales from our U.S.

manufacturing facilities to foreign customers and sales by foreign subsidiaries and branches, accounted for 92.6%, 89.3% and 89.4% of total revenue in 2021, 2020 and 2019,

respectively.

In 2021, 78.4% of our sales were denominated in U.S.

manufacturing facilities to foreign customers and sales by foreign subsidiaries and branches, accounted for 84.4%, 92.6% and 89.3% of total revenue in 2022, 2021 and 2020, respectively.

In 2022, approximately 90.9% of our sales were denominated in U.S.

See Note 17 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.

In 2021, according to Gartner Inc., the top 20 semiconductor chip manufacturers accounted for approximately 92.0% of total semiconductor capital equipment spending, which increased from 90.4% in 2020.

In 2022, according to Gartner Inc., the top 20 semiconductor chip manufacturers accounted for approximately 89.0% of total semiconductor capital equipment spending, which decreased from 92.0% in 2021.

These manufacturers are from the largest semiconductor chip manufacturing regions in the world:

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For the year ended December 31, 2022, revenues from Samsung Electronics Co, Ltd.

and Semiconductor Manufacturing International Corporation represented 10% or more of consolidated revenues.

and Semiconductor Manufacturing International Corporation (“SMIC”) represented 10% or more of our consolidated revenues.

The loss of either of these customers would have a material adverse effect on our business.

export controls impact our ability to sell to certain customers in China, a country that has represented a significant portion of our sales in recent years.

Since the placement of SMIC on the U.S.

Entity List in 2020, we are required to obtain export control licenses to ship to mature process SMIC fabs, which to date, we have been able to obtain.

Another chipmaker, Yangtze Memory Technologies Co., Ltd.

(“YMTC”), was placed on the Entity List in 2022, without a similar policy allowing licensed shipments.

A new export controls regulatory framework was issued by the U.S.

in October 2022 that limits all semiconductor equipment shipments to Chinese customers who are producing or developing logic, DRAM and NAND chips that meet specific advanced parameters.

While these regulations have further excluded exports to certain Chinese customers, we currently are able to continue to ship to the majority of our Chinese customers.

In general, however, sales to Chinese customers represent a higher risk than sales to customers in other international locations because of trade tensions between the U.S.

government and the Chinese government, and other challenges reflecting China’s stage of development, including public health concerns and rapid growth.

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 a 12,500 square feet class 10/100/1000 clean room for product demonstrations and process development and a 34,000 square feet customer training center.

Our Beverly, Massachusetts Advanced Technology Center houses a process development

laboratory with a 13,500 square feet class 10/100/1000 clean room for product demonstrations and process development and a 17,500 square feet 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 environments.

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Manufacturing

We manufacture products at our 417,000 square feet ISO 9001:2015 and ISO 14001:2015 certified plant in Beverly, Massachusetts.

We manufacture products at our 417,000 square feet ISO 9001:2015 and ISO 14001:2015 certified plant in Beverly, Massachusetts as well as our 38,000 square feet Axcelis Asia Operations Center in South Korea.

Our facilities employ best in class manufacturing techniques, including lean manufacturing, six sigma controls and advanced inventory management, purchasing and quality systems.

We expanded our manufacturing capabilities in November 2021, with the opening of our new Axcelis Asia Operations Center in South Korea.

This facility has 38,000 square feet and is designed to bring production closer to our Asia-based customers, driving customer satisfaction and operating efficiencies.

In 2022, we signed an additional lease of property in Beverly, Massachusetts, on which a state-of-the-art logistics and flex manufacturing center with 98,000 square feet is being built to our specifications, referred to as the Axcelis Logistics Center.

Our clean manufacturing process uses class 1,000/10,000 space to facilitate most of our manufacturing requirements.

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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.

Our supply chain team is globally focused and is located in Beverly, Korea and Singapore.

Customized and commercially available software solutions drive our planning, purchasing and inventory tracking process.

The companies supplying Axcelis play a critical part in our success.

We want to ensure these companies share our values and have adopted a Supplier Code of Conduct, which contains our expectation that our suppliers will comply with our Environmental Policy, our Corporate Social Responsibility Policy, and other industry standards and policies.

Our Supplier Code of Conduct provides that if a supplier fails to comply with these policies, our business relationship with that company will be permanently ended, although a compliance remediation period of up to 90 days may be allowed.

In 2022, Axcelis audited 54 suppliers for compliance with our Supplier Code of Conduct and other quality standards.

The outcome of these and prior audits included (i) the issuance of a total of over 190 corrective actions to suppliers, (ii) requiring more than 30 of our suppliers to participate in quarterly reviews focused on improvement projects, and (iii) subjecting two suppliers to more comprehensive audits and action plans.

Our products are designed to be assembled and tested in a modular fashion, which facilitates our industry-recognized “ship-from-cell” process.

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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.

In the area ion implantation, we mainly compete against Applied Materials, Inc.

Axcelis and Applied Materials are the only ion implant manufacturers with a full range of implant products, as well as service and support infrastructures able to service our customers globally.

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suppliers may have an advantage over U.S.

suppliers established U.S.

suppliers under recently established U.S.

export controls regulation for shipments to China.

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Human Capital

As of December 31, 2021, we had 1,122 employees and 73 temporary staff worldwide, of which 831 work in North America, 301 in Asia and 63 in Europe.

During 2021, our headcount increased by approximately 14% to support our increased business during the year.

As of December 31, 2022, we had 1,388 employees and 97 agency temporary staff worldwide.

During 2022, our total employee and temporary staff headcount increased by approximately 24% to support our increased business during the year.

While the majority of our headcount is based in the U.S.

at our main manufacturing facility in Beverly, MA, our business requires our presence where our customers are located around the world, resulting in Axcelis employees working in 28 different countries.

Of our total year end 2022 employees, 966 work in North America, 349 in Asia and 73 in Europe.

Our future success largely depends upon our continued ability to attract and retain highly skilled employees.

We provide competitive compensation and benefits programs.

In addition to salaries, these programs (which vary by country and region) include cash incentive programs and recognition bonuses, equity awards, an Employee Stock Purchase Plan, a 401(k) plan with a competitive employer match, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, flexible work schedules, employee assistance programs, and tuition assistance.

In addition to salaries, all Axcelis employees are eligible for cash incentive programs with annual payouts tied to annual financial metrics, as described in our proxy statements, with two exceptions:

(i) certain sales staff receive commission and other sales compensation, and (ii) in order to provide greater certainty of compensation to lower level U.S.

employees, we pay quarterly bonuses to those employees in amounts communicated at the start of the year.

Beyond these basic forms of cash compensation, we offer recognition bonuses, equity awards, an Employee Stock Purchase Plan, a 401(k) plan with a competitive employer match, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, flexible work schedules, employee assistance programs, and tuition assistance.

These programs all contribute to both attracting and retaining a highly skilled employee base, including those with critical leadership and industry skills and experience.

During 2021, our voluntary turnover rate for employees was 8.1%, or 6.9% without retirements, well below the worldwide technology industry (all reported) average of 18.2% reported in the Aon 2021 Salary Increase and Turnover Study — Second Edition, September 2021.

During 2022, our voluntary turnover rate for employees was 13.1%, or 11.4% without retirements, well below the worldwide technology industry (all reported) voluntary turnover average of 18.4% reported in the Aon 2022 Salary Increase and Turnover Study -- December 2022.

We also recognize that training is an important aspect of both employee retention and talent development.

Axcelis conducts an annual talent review process and establishes individualized development programs agreed upon by employees and their managers.

Human Resources provides training on personal development planning and leadership skills.

All Axcelis employees have access to LinkedIn Learning to pursue independent training on business subjects.

Our manufacturing staff each receives 35 hours of training upon commencement of employment, and our field service and other technical employees receive training on various ion implanter systems to develop product support, applications and service skills on all of our products.

Finally, all staff are required to complete monthly, annual or biennial training on cybersecurity, various health and safety topics, and legal matters, such as the Foreign Corrupt Practices Act, export controls compliance, ethical business practices, and confidentiality.

At a minimum, all Axcelis employees are required to complete at least 15 hours of training per year, and they can access additional voluntary training at the Company’s expense.

The success of our business is fundamentally connected to the well-being of our people.

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We provide our employees and their families with access to health and wellness insurance and programs that offer choice where possible so they can customize their benefits to meet their needs and the needs of their families.

In response to the ongoing COVID-19 pandemic, we have implemented significant changes that we determined were in the best interest of our employees, as well as the communities in which we operate, and which comply with government regulations.

This includes having those employees that could productively work from home continue to do so, while implementing additional safety measures for employees continuing critical on-site work.

During the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees, as well as the communities in which we operate, and which comply with government regulations.

This included having those employees that could productively work from home continue to do so, while implementing additional safety measures for employees continuing critical on-site work.

While all employees may now return to work in the Beverly facility, we are maintaining certain restrictions related to the manufacturing areas of the building to ensure that those members of our workforce are not unnecessarily exposed to other workers.

Axcelis is dedicated to building a diverse workforce, fostering a culture built on the principle of inclusion, and maintaining a workplace free from discrimination.

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

We are also proud that our Power Series ion implantation systems have become enabling technology for the production of power management devices, which are critical to the electrification of vehicles, an important component of our society’s actions to address climate change.

In 2022, Axcelis became a founding member of the Semiconductor Climate Consortium (“SCC”) of Semiconductor Equipment and Materials International (“SEMI”), our industry organization serving the manufacturing supply chain for the micro- and nano-electronics industries.

In doing so, we expect to bolster our own sustainability work with the power of the semiconductor ecosystem.

By collaborating with SCC member companies' joint knowledge and innovative technologies, Axcelis hopes to promote progressive action towards climate change.

Information about our Executive Officers

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Puma spent 15 years in various marketing and general management positions for General Electric Company.

Puma is a director of Nordson Corporation and Semiconductor Equipment and Materials International (SEMI).

Puma is also a director of Nordson Corporation, a manufacturer of precision dispensing equipment for industrial liquid and powder coatings, adhesives, and sealants, and serves as a director and, since early 2023, as Chairperson of the Board of Semiconductor Equipment and Materials International.

Brewer, 64, became our Executive Vice President and Chief Financial Officer in September 2013, having served as interim Chief Financial Officer beginning in June 2013.

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Brewer held various management positions in operations and strategic planning in Raytheon Company’s Electronic Systems and Missile Systems groups.

, 51, became our Executive Vice President, Global Customer and Engineering Operations effective January 1, 2021, having served as Executive Vice President, Engineering since joining Axcelis in October 2016.

, 52, is our Executive Vice President, Global Customer and Engineering Operations, a position he assumed in January 2021, having served as Executive Vice President, Engineering since joining Axcelis in October 2016.

Low joined Axcelis in October 2016 as Executive Vice President, Engineering.

Prior to joining the Company, Dr.

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from 1997 to 2003.

William Bintz, 65, 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.

Greg Redinbo, Ph.D., 58, is our Executive Vice President, Marketing and Applications, a position he assumed in September 2022.

Redinbo joined Axcelis in 2021 as Senior Vice President of Strategic Marketing and Business Development.

Redinbo has over 25 years of experience in the semiconductor capital equipment industry.

Prior to joining Axcelis, Dr.

Redinbo held the position of Vice President, Global Strategic Accounts at ASML.

Redinbo’s past positions also include Global Vice President of Sales, Service and Applications at FEI, Director of Sales, U.S.

and Europe, and Director of Product Marketing, High Current Products at Varian Semiconductor and Product Management in the Thermal Processing Division at Applied Materials.

Fallon, 63, is our Executive Vice President, Human Resources/Legal and General Counsel, a position she has held since May 2005.

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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.

Fallon is a director of ClearPoint Neuro, Inc.

Before joining Axcelis in 2001, Ms.

Fallon had been 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.

Fallon is also a member of the Board

of Directors of ClearPoint Neuro, Inc., a global therapy-enabling platform company providing stereotactic navigation and delivery to the brain.

Lawson, 62, 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business