UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[Mark One]
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001
OR
/ / 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 0-26482
TRIKON TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-4054321
-------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Ringland Way, Newport, Gwent NP18 2TA, United Kingdom
----------------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant' s telephone number, including area code 44-1633-414-000
---------------
Not Applicable
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Former name, former address and former fiscal year, if changed
since last report
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Sections 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 X No
---------- ----------
As of May 8, 2001, the total number of outstanding shares of the Registrant's
common stock was 11,891,259.
1
Trikon Technologies, Inc.
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 2001 (unaudited) and December 31, 2000......3
Unaudited Condensed Consolidated Statements of Operations for the Three Months ended March 31,
2001, and 2000.................................................................................4
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31,
2001 and 2000..................................................................................5
Notes to Unaudited Condensed Consolidated Financial Statements.................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........8
Item 3. Quantitative and Qualitative Disclosure about Market Risk.....................................11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................12
Item 6. Exhibits and Reports on Form 8-K..............................................................12
SIGNATURE PAGE ..............................................................................................13
EXHIBITS ..............................................................................................14
2
Trikon Technologies, Inc.
PART 1
FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
March 31, December 31,
2001 2000
----------- -----------
(unaudited)
Assets
Current assets:
Cash and cash equivalents .......................................... $ 28,843 $ 7,076
Accounts receivable, net of reserves .............................. 38,855 29,537
Inventories, net of reserves ....................................... 30,222 30,872
Other current assets .............................................. 8,721 6,728
--------- ---------
Total current assets .............................................. 106,641 74,213
Property, equipment and leasehold improvements, net of accumulated
depreciation and amortization.................................. 17,894 19,045
Demonstration systems, net of accumulated depreciation ............. 2,540 2,210
Other assets ...................................................... 198 226
--------- ---------
Total assets ..................................... $ 127,273 $ 95,694
========= =========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses ............................. 20,007 21,513
Current portion of long-term debt .................................. 12,862 5,421
Deferred revenue .................................................. 13,432 9,330
Other current liabilities .......................................... 10,041 4,603
--------- ---------
Total current liabilities ......................... 56,342 40,867
Long-term debt less current portion ................................ 15,193 2,376
Other non-current liabilities ...................................... 992 2,531
--------- ---------
72,527 45,774
Shareholders' equity:
Preferred Stock: .................................................. 2,734 4,430
Authorized shares -- 20,000,000
Series H Preferred Stock, no par value $10 per share
liquidation preference
Designated shares - 3,500,000
Issued and outstanding -- 273,421 at March 31, 2001 and
442,976 at December 31, 2000
Common Stock, no par value: ........................................ 232,518 230,788
Authorized shares -- 50,000,000
Issued and outstanding -- 11,873,281 at March 31, 2001 and
11,709,757 at December 31, 2000
Cumulative translation adjustment .................................. (7,605) (5,255)
Deferred compensation .............................................. (3,224) (3,603)
Accumulated deficit ............................................... (169,677) (176,440)
--------- ---------
Total shareholders' equity ........................ 54,746 49,920
--------- ---------
Total liabilities and shareholders' equity ......................... $ 127,273 $ 95,694
========= =========
See Notes to Unaudited Condensed Consolidated Financial Statements
3
Trikon Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except for share data)
Three Months Ended
---------------------------
March 31, March 31,
2001 2000
----------- ----------
Product sales ............................................................. $ 37,648 $ 18,020
Costs and expenses:
Cost of goods sold ......................................................... 19,475 9,495
Research and development ................................................... 2,429 1,700
Selling, general and administrative ......................................... 6,731 4,941
-------- --------
28,635 16,136
Income from operations ...................................................... 9,013 1,884
Interest (expense), net ..................................................... (115) (55)
-------- --------
Income before income tax charge ............................................... 8,898 1,829
Income tax charge ........................................................... 2,135 229
-------- --------
Net income before cumulative effect of change in accounting policy ............. 6,763 1,600
Cumulative effect of change in accounting policy ............................... -- (1,833)
-------- --------
Net income/(loss) after cumulative effect of change in
accounting policy ......................................................... $ 6,763 $ (233)
======== ========
Preferred dividend ............................................................ 81 554
-------- --------
Net income/ (loss) applicable to common shares ................................. $ 6,682 $ (787)
======== ========
Earnings per share data
Earnings per common share before cumulative effect of change in accounting
policy:
Basic: ..................................................................... $ 0.63 $ 0.12
Diluted: ................................................................... $ 0.56 $ 0.10
Earnings/(loss) per common share after cumulative effect of change in
accounting policy:
Basic: ..................................................................... $ 0.63 $ (0.09)
Diluted: ................................................................... $ 0.56 $ (0.08)
Average common shares used in the calculation:
Basic: ..................................................................... 10,644 8,665
Diluted: ................................................................... 12,018 10,034
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
Trikon Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Three months ended
---------------------------
March 31, March 31,
2001 2000
---------- ---------
Net cash arising from (used in) operating activities ............... $ 1,697 $ (1,756)
INVESTING ACTIVITIES
Net purchases of property, equipment and leasehold
improvements................................................ (475) (758)
FINANCING ACTIVITIES
Issuance of common stock ...................................... 33 --
Proceeds of term bank loan .................................... 21,450 --
Repayment of term bank loan ................................... (894) --
Proceeds from capital leases ................................. -- 96
Repayments of capital lease obligations ....................... (44) (11)
-------- --------
Net cash arising from financing activities .................... 20,545 85
-------- --------
Net increase/decrease in cash and cash equivalents ............ 21,767 (2,429)
Cash and cash equivalents at beginning of period ................... 7,076 3,927
-------- --------
Cash and cash equivalents at end of period ......................... $ 28,843 $ 1,498
======== ========
See Notes to Unaudited Condensed Consolidated Financial Statements.
5
Trikon Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2001
NOTE A BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The operating results for the three months ended March 31, 2001
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2001. For further information, refer to the consolidated
financial statements and footnotes thereto included in Trikon Technologies,
Inc.'s (the "Company") Annual Report on Form 10-K for the year ended December
31, 2000.
In the fourth quarter of fiscal 2000, the Company changed its accounting policy
with respect to revenue recognition to adopt Staff Accounting Bulletin 101
issued by the staff of the Securities and Exchange Commission. In accordance
with APB 24 and SAB 101 the effects of this change in accounting policy has been
applied retrospectively to the first quarter of 2000 resulting in a reduction to
previously reported net income for the first quarter of 2000, before the
cumulative effect of change in accounting policy, of $299,000 (or $0.03 per
share)
The Balance Sheet at December 31, 2000, has been derived from the audited
consolidated financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
NOTE B INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. The components of inventory consist of the following (in thousands):
March 31, December 31,
2001 2000
---------------- ---------------
Components............................................................ $ 14,478 $ 15,592
Work in process........................................................ 14,981 14,540
Finished goods......................................................... 763 740
---------- ---------
$ 30,222 $ 30,872
========== =========
NOTE C COMPREHENSIVE INCOME (LOSS)
Comprehensive income/(loss) comprises net income/(loss) and currency translation
losses for the period. Translation losses were $2.4 million and $0.4 million for
the three months ended March 31, 2001 and March 31, 2000 respectively. Total
comprehensive income/(loss) for the three months ended March 31, 2001 and March
31, 2000 was $4.4 million and $(0.6) million respectively.
6
NOTE D EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Three months ended
----------------------------
March 31, March 31,
2001 2000
--------- ---------
Numerator ($'000):
Net income applicable to common stockholders before cumulative effect of
change in accounting policy $ 6,690 $ 1,046
--------- ----------
Net income/(loss) applicable to common stockholders after cumulative effect
of change in accounting policy 6,690 (787)
--------- ----------
Denominator (thousands):
Weighted average shares outstanding 11,793 9,814
Restricted stock (1,149) (1,149)
--------- ----------
Denominator for basic earnings per share 10,644 8,665
--------- ----------
Adjusted weighted average shares outstanding 10,644 8,665
Effect of dilutive securities:
Employee stock options.. 487 572
Unvested common stock.. 887 797
--------- ----------
Dilutive potential common shares 1,374 1,369
--------- ----------
Denominator for diluted earnings per share 12,018 10,034
--------- ----------
Basic and diluted earnings per share is calculated in accordance with FASB
Statement No. 128, "Earnings Per Share," which specifies the computation,
presentation and disclosure requirements for earnings per share. The
weighted-average number of shares used to calculate basic earnings per share for
each period excludes 1,149,281 unvested shares of common stock, which are
contingently issuable to the Company's Chairman of the Board.
NOTE E PREFERRED STOCK
The Board of Directors has the authority to issue up to 20,000,000 shares of
Preferred Stock in one or more series with rights, preferences, privileges and
restrictions to be determined at the Board's discretion.
In May 1998, in conjunction with an exchange offer made to the holders of
convertible notes, the Company issued 2,855,754 new shares of Series H Preferred
Stock. The Series H Preferred Stock are redeemable at the option of the Company
for cash at a redemption price equal to $10 per share plus accrued but unpaid
dividends and the holders of the Series H Preferred Stock are entitled to
receive dividends at an annual rate of 8-1/8% of the stated amount payable
annually, at the Company's option, in cash or additional shares of Series H
Preferred Stock or any combination thereof. The dividend rate was increased to
9-1/8% with effect from April 15, 2000 following the achievement of specified
income levels. The Series H Preferred Stock is subject to automatic conversion
if the closing price of the Company' s Common Stock reaches certain levels.
Dividends due to holders of Series H Preferred Stock have been paid by the issue
of additional shares of Series H Preferred Stock.
During the three months ended March 31, 2001, the Company exchanged a total of
169,555 shares of Series H Preferred Stock plus accrued unpaid dividends for
133,124 shares of Common stock.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management' s Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with our condensed
consolidated financial statements and notes thereto included elsewhere in this
Report. This discussion contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are based on current
expectations, assumptions and projections and entail various risks and
uncertainties that could cause actual results to differ materially from those
projected in the forward-looking statements. These risks and uncertainties
include but are not limited to the ability of the Company to adapt its product
offerings to new technologies and industry requirements, such as the use of
copper as a new conducting material and the use of 300mm silicon wafers, the
cyclical nature of the semiconductor industry, the ability of the Company to
make the necessary significant capital investments and availability of financial
resources adequate for the Company's medium- and long-term needs, market
acceptance of the Company's technologies, including the Company's low k
products, and the willingness of semiconductor manufacturers to use different
suppliers for fabrication equipment, and long sales cycles ranging from several
months to over one year, as well as those set forth under "Quantitative and
Qualitative Disclosure about Market Risk," and the other risks and uncertainties
described from time to time in the Company' s public announcements and SEC
filings, including without limitation the Company's Quarterly and Annual Reports
on Form 10-Q and 10-K, respectively.
OVERVIEW
The Company develops, manufactures, markets and services semiconductor equipment
for the worldwide semiconductor manufacturing industry.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of total
revenue for the periods indicated:
Three months ended
--------------------
March 31, March 31,
2001 2000
--------- ---------
Product Revenues ..................................................... 100.0% 100.0%
Cost of goods sold ................................................... 51.7 52.7
----- -----
Gross margin ......................................................... 48.3 47.3
Operating expenses:
Research and development ......................................... 6.5 9.4
Selling, general and administrative .............................. 17.9 27.4
----- -----
Total operating expenses ............................................. 24.4 36.8
----- -----
Income from operations ................................................ 23.9 10.5
Interest expense, net ................................................. 0.3 0.3
----- -----
Income before income tax charge ...................................... 23.6 10.2
Income tax charge ..................................................... 5.6 1.3
----- -----
Net income before cumulative effect of change in accounting principle 18.0% 8.9%
===== =====
8
PRODUCT REVENUES. Product revenues for the three months ended March 31, 2001
increased 109% to $37.6 million compared to $18.0 million for the three months
ended March 31, 2000. Shipments for the quarter of $42.6 million compared to
$18.6 million in the quarter ending March 31, 2000, an increase of 129%. Revenue
was lower than shipments primarily due to deferral of revenue relating to
amounts payable by the customer on acceptance of the system. Sales for the three
months ended March 31, 2000 included $1.5 million of revenue also reported in
fiscal 1999 (`recycled revenue').
Sales outside of the United States accounted for approximately 79% and 77% of
total revenues in the three month periods ended March 31, 2001 and March 31,
2000 respectively. The Company expects that sales outside of the United States
will continue to represent a significant percentage of the Company's product
sales through 2001. In addition, because of the large unit price associated with
the Company' s systems, the Company anticipates that its product sales will
continue to be made to a small number of customers in each quarter. The quantity
of product shipped may fluctuate significantly from quarter to quarter and the
individual customers to which these products are sold can also change from
quarter to quarter. Given the significance of each individual sale, the
percentage of sales made outside of the United States may also fluctuate
significantly from quarter to quarter.
During the three month's ended March 31, 2001 new product bookings declined
significantly compared to the prior quarter due to difficult market conditions
being experienced in the whole semiconductor industry. The Company expects that
this cyclical downturn will have an adverse impact on the future sales of the
Company until such down cycle ends and that revenues in subsequent quarters of
fiscal 2001 will be lower than that achieved in the three month's ended March
31, 2001.
GROSS MARGIN. The gross margin for the three month period ended March 31, 2001
was 48.3% as compared to 47.3% for the three month period ended March 31, 2000.
The improvement in gross margin are primarily attributable to productivity gains
associated with increased production volumes.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
three months ended March 31, 2001 were $2.4 million or 6.5% of total revenues
compared with $1.7 million or 9.4% of total revenues for the three months ended
March 31, 2000. The major focus of the Company's research and development
efforts continues to be the development of new processes in further advancing
the Company's proprietary PVD, CVD and etch technologies as well as adding
enhancements to its existing products. While in percentage of sales terms
research and development expenses have declined, total research and development
expenses continue to increase with the total expenditure growing 10.5% over
expenditure levels in the fourth quarter of 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended March 31, 2001 were $6.7
million, or 17.9% of total revenues, compared to $4.9 million, or 27.4% of total
revenues, in the three months ended March 31, 2000. Selling, general and
administrative expenses in the three months ended March 31, 2001 include a
charge of $1.3 million relating to the Company's defined benefit plan to as a
result of the Company's decision to withdraw this scheme Selling, general and
administrative expenses in the three months ended March 31, 2001 include gains
arising from foreign currency adjustments of $890,000 compared to losses of
$35,000 incurred in the same period in the prior year.
INCOME FROM OPERATIONS. As a result of the increases in revenue for the three
months ended March 31, 2001, income from operations increased to $9.0 million or
23.9% of revenue compared with $1.9 million or 10.5% in the three months ended
March 31, 2000.
INTEREST EXPENSE, NET. Net interest expense was $115,000 for the three months
ended March 31, 2001 compared with net interest expense of $55,000 for the three
months ended March 31, 2000. The increase in net interest expense in the current
period is due to increased net borrowing in the three months ended March 31,
2001 compared to the prior year, as discussed further under the heading "
Liquidity and Capital Resources".
9
INCOME TAXES. For the three months ended March 31, 2001, the Company recorded a
tax charge of $2.1 million compared with a tax charge of $0.2 million for the
three months ended March 31, 2000. In prior periods the effective tax rate was
low as a result of the use of net operating losses for which no deferred tax
asset had been recognized. The effective rate for fiscal 2001 is lower than the
statutory rate as a result of the utilization of the remaining United Kingdom
net operating losses in the current year.
The Company's ability to use its domestic and any remaining foreign net
operating losses and credit carry forwards will depend upon future income and,
with respect to domestic net operating losses, will be subject to an annual
limitation, required by the Internal Revenue Code of 1986, as amended and
similar state provisions.
The Company has operating subsidiaries in several countries, and each subsidiary
is taxed based on the laws of the jurisdiction in which it operates. Because
taxes are incurred at the subsidiary level, and one subsidiary' s tax losses
cannot be used to offset the taxable income of subsidiaries in other
jurisdictions, the Company's consolidated effective tax rate may increase to the
extent it reports tax losses in some subsidiaries and taxable income in others.
The subsidiaries are subject to taxation in countries where they operate, and
such operations generally are taxed at rates similar to or higher than tax rates
in the United States. The payment of dividends or distributions by the
subsidiaries to the United States would be subject to withholding taxes in the
country of domicile and may be mitigated under the terms of relevant double tax
treaties.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company had $28.8 million in cash and cash equivalents,
compared to $7.1 million at December 31, 2000. During the three months ended
March 31, 2001, the Company drew down a term loan of 15 million British Pounds
(approximately $21.5 million at quarter end exchange rates) from a British bank.
The term loan carries a variable rate of interest and is repayable in three
equal annual installments on March 21, 2002, 2003 and 2004. Interest is payable
at London Interbank Borrowing rate (LIBOR) plus 1.25% (presently payable at the
rate of 6.74%) per annum and the loan carries no prepayment penalties. In
addition, the Company repaid during the quarter ended March 31, 2001 625,000
British Pounds (approximately $894,000 at quarter end exchange rates) of its
existing term loan. As a result at March 31, 2001, the Company had 18.25 million
British Pounds (approximately $26 million at quarter end exchange rates) in bank
loans outstanding. The Company also has an overdraft (credit) facility with the
same bank of up to 1.5 million British Pounds for use against standby letters of
credit and guarantees(approximately $2.1 million at quarter end exchange rates).
No amount is presently outstanding under this facility. The increase in cash and
cash equivalents for the three months ended March 31, 2001 primarily results
from the net amount drawn down of the new term loan.
During the three month period ended March 31, 2001, the Company issued 133,124
shares of Common Stock in exchange for 169,555 shares of Series H Preferred
Stock including accrued but unpaid dividends.
The Company expects that its cash balance and anticipated cash flow from future
operations and the availability of loans under the existing and new credit
facilities is sufficient to fund the Company's operations over the fiscal year
ending December 31, 2001 and to meet its other cash needs.
10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The following discussion and analysis about market risk disclosures may contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Such statements include declarations
regarding the intent, belief or current expectations of the Company and its
management and involve risks and uncertainties. Actual results could differ
materially from those projected in the forward-looking statements.
The Company's earnings and cash flow are subject to fluctuations in foreign
currency exchange rates. Significant factors affecting this risk include the
Company's manufacturing and administrative cost base, which is predominately in
British Pounds, and product sales outside the United States, which may be
expressed in currencies other than the United States dollar. The Company
constantly monitor currency exchange rates and match currency availability and
requirements whenever possible. The company may from time to time enter into
forward foreign exchange transactions in order to minimize risk from firm future
positions arising from trading. As at March 31, 2001 and December 31, 2000 the
Company had no open forward currency transactions.
Based upon budgeted income and expenditures, a hypothetical increase of 10% in
the value of the British Pound against all other currencies in the fourth
quarter of 2000 would have no material effect on revenues expressed in United
States dollars and would increase operating costs and reduce cash flow by
approximately $2.2 million. The same increase in the value of the British Pound
would increase the value of the net assets of the Company expressed in United
States dollars by approximately $2.4 million. The effect of the hypothetical
change in exchange rates ignores the effect this movement may have on other
variables including competitive risk. If it were possible to quantify this
impact, the results could well be different from the sensitivity effects shown
above. In addition, it is unlikely that all currencies would uniformly
strengthen or weaken relative to the British Pound. In reality, some currencies
may weaken while others may strengthen.
11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UNDER SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
Number Description
------ -----------
10.1 Term Loan agreement with Lloyds TSB Bank plc
dated March 6, 2001
(b) Reports on Form 8-K:
None.
12
SIGNATURES
Pursuant to the requirements 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.
Date: May 11, 2001 TRIKON TECHNOLOGIES, INC.
/s/Nigel Wheeler
--------------------------------
Nigel Wheeler
Chief Executive Officer, Chief Operating
Officer, President and Director
/s/William J Chappell
---------------------------------
William J Chappell
Chief Financial Officer
13
EXHIBIT INDEX
Exhibit No. Page No. Description
---------- -------- -----------
10.1 Term Loan agreement with Lloyds TSB Bank plc
dated March 6, 2001
14