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, 2002
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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 03, 2002, the total number of outstanding shares of the Registrant's
common stock was 13,985,626.
1
Trikon Technologies, Inc.
INDEX
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets at March 31, 2002 and December 31, 2001................................ 3
Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2002, and 2001.......... 4
Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2002 and 2001........... 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,
2002 2001
----------- ---------
(Unaudited) (Note A)
Assets
Current assets:
Cash and cash equivalents ......................................................... $ 43,203 $ 44,667
Accounts receivable, net .......................................................... 14,071 19,775
Inventories, net .................................................................. 20,665 21,624
Other current assets .............................................................. 2,353 3,084
--------- ---------
Total current assets .............................................................. 80,292 89,150
Property, equipment and leasehold improvements, net of accumulated depreciation and 18,780 20,425
amortization
Demonstration systems, net of accumulated depreciation ............................ 3,880 2,962
Other assets ...................................................................... 194 196
--------- ---------
Total assets ...................................................... $ 103,146 $ 112,733
========= =========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses ............................................. $ 7,488 $ 6,997
Current portion of long-term debt ................................................. 9,357 9,636
Deferred revenue .................................................................. 1,766 5,106
Other current liabilities ......................................................... 4,796 5,032
--------- ---------
Total current liabilities .......................................... 23,407 26,771
Long-term debt less current portion ............................................... 15,057 15,606
Pension Obligations ............................................................... 3,215 3,372
Other non-current liabilities ..................................................... 1,022 1,531
--------- ---------
42,701 47,280
Shareholders' equity:
Preferred Stock:
Authorized shares-- 20,000,000
Issued and outstanding-- Nil at March 31, 2002 and December 31, 2001
Common Stock, no par value: 242,757 242,725
Authorized shares-- 50,000,000
Issued and outstanding-- 12,892,276 at March 31, 2002 and 12,855,279
at December 31, 2001
Accumulated other comprehensive loss .............................................. (11,408) (9,774)
Deferred compensation ............................................................. (1,707) (2,086)
Accumulated deficit ............................................................... (169,197) (165,412)
--------- ---------
Total shareholders' equity ........................................ 60,445 65,453
--------- ---------
Total liabilities and shareholders' equity ........................................ $ 103,146 $ 112,733
========= =========
See Notes to 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,
2002 2001
-------- --------
Product sales ......................................... $ 8,000 $ 37,648
Costs and expenses:
Cost of goods sold ................................. 5,771 19,475
Research and development ........................... 2,279 2,429
Selling, general and administrative ................ 4,824 6,731
-------- --------
12,874 28,635
(Loss) income from operations ......................... (4,874) 9,013
Interest (expense), net ............................ (7) (115)
-------- --------
(Loss) income before income tax (credit) charge ....... (4,881) 8,898
Income tax (credit) charge ......................... (1,098) 2,135
-------- --------
Net (loss) income ..................................... (3,783) 6,763
Preferred dividend .................................... -- 81
-------- --------
Net (loss) income applicable to common shares ......... $ (3,783) $ 6,682
======== ========
(Loss) earnings per share data
Basic: ............................................. $ (0.32) $ 0.63
Diluted: ........................................... $ (0.32) $ 0.56
Weighted average common shares used in the calculation:
Basic: ............................................. 11,720 10,644
Diluted: ........................................... 11,720 12,018
See Notes to Condensed Consolidated Financial Statements.
4
Trikon Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Three months ended
----------------------
March 31, March 31,
2002 2001
-------- --------
Net cash provided by operating activities .............. $ 466 $ 3,456
Investing Activities
Purchases of property plant and equipment ........ (114) (475)
-------- --------
Net cash arising from investing activities ............. (114) (475)
-------- --------
Financing Activities
Issuance of common stock ......................... 32 33
Proceeds of term bank loan ....................... -- 21,450
Repayment of term bank loan ...................... -- (894)
Repayments of capital lease obligations .......... (151) (44)
-------- --------
Net cash (used in) provided by financing activities .... (119) 20,545
-------- --------
Effect of exchange rates changes on cash ............... (1,697) (1,759)
Net (decrease) increase in cash and cash equivalents ... (1,464) 21,767
Cash and cash equivalents at beginning of period ....... 44,667 7,076
-------- --------
Cash and cash equivalents at end of period ............. $ 43,203 $ 28,843
======== ========
See Notes to Condensed Consolidated Financial Statements.
5
Trikon Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2002
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, 2002
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2002.
The balance sheet at December 31, 2001 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.
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, 2001.
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,
2002 2001
------- -------
Components ................................... $10,553 $11,879
Work in process and spares ................... 9,046 8,510
Finished goods ............................... 1,066 1,235
------- -------
$20,665 $21,624
======= =======
NOTE C COMPREHENSIVE (LOSS) INCOME
Comprehensive (loss) income comprises net (loss) income and currency translation
losses for the period. Translation losses were $1.6 million and $2.4 million for
the three months ended March 31, 2002 and March 31, 2001 respectively. Total
comprehensive (loss) income for the three months ended March 31, 2002 and March
31, 2001 was $(5.4) million and $4.4 million, respectively.
6
NOTE D EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Three months ended
--------------------------
March 31, March 31,
2002 2001
----------- -----------
Numerator ($'000):
Net (loss) income ................................. $ (3,783) $ 6,763
Preferred Dividend ................................ -- 81
----------- -----------
Net (loss) income applicable to common stockholders $ (3,783) $ 6,682
----------- -----------
Denominator (thousands):
Weighted average shares outstanding ............... 12,869 11,793
Restricted stock .................................. (1,149) (1,149)
----------- -----------
Denominator for basic earnings per share .......... 11,720 10,644
----------- -----------
Adjusted weighted average shares outstanding ...... 11,720 10,644
----------- -----------
Effect of dilutive securities:
Employee stock options ...................... -- 487
Unvested common stock ....................... -- 887
----------- -----------
Dilutive potential common shares .................. -- 1,374
----------- -----------
Denominator for diluted earnings per share ........ 11,720 12,018
----------- -----------
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 restricted common stock issued
to the Company's Chairman of the Board. Subject to certain conditions, the
restricted stock will vest 100% upon the earlier of (i) May 14, 2003, or (ii)
the sale of all or substantially all of the assets of the Company.
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.
NOTE F SUBSEQUENT EVENT
On April 17, 2002, the Company consummated the sale of 1,093,348 shares of its
common stock for net proceeds of approximately $11.8 million in cash. The
securities were issued to new and existing institutional investors in a private
offering pursuant to Regulation D of the Securities Act of 1933, as amended.
7
Trikon Technologies, Inc.
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. The forward-looking statements included herin and any
expectations based on such forward-looking statements are subject to risks and
uncertainties and other important factors, including, without limitation, the
cyclical nature of the semiconductor industry, the long sales cycle and
implementation periods, the acceptance of Trikon's technologies and products,
Trikon's ability to respond to technological change, Trikon's dependence on a
limited number of customers and other factors 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,
2002 2001
----------- -----------
Product Revenues .................................. 100.0% 100.0%
Cost of goods sold ................................ 72.1 51.7
----------- -----------
Gross margin ...................................... 27.9 48.3
Operating expenses:
Research and development .................... 28.5 6.5
Selling, general and administrative ......... 60.3 17.9
----------- -----------
Total operating expenses .......................... 88.8 24.4
----------- -----------
(Loss) income from operations ..................... (60.9) 23.9
Interest expense, net ............................. 0.1 0.3
----------- -----------
(Loss) income before income tax charge ............ (61.0) 23.6
Income tax (credit) charge ........................ (13.7) 5.6
----------- -----------
Net (loss) income ................................. (47.3)% 18.0%
----------- -----------
8
PRODUCT SALES. Product revenues for the three months ended March 31, 2002
decreased 79% to $8.0 million compared to $37.6 million for the three months
ended March 31, 2001. Shipments for the first quarter of fiscal 2002 were $4.7
million compared to $42.6 million in the first quarter of the prior year. The
decline in sales and shipments in the quarter reflects the effects of the on
going global slowdown in the semiconductor industry with the Company's revenue
in the first quarter of the prior year reflecting the Company's backlog from
fiscal 2000, prior to the onset of the current global slowdown. Although the
Company's customers continue to be cautious regarding their capital expenditure
plans and orders for the Company's products remained depressed, management has
seen indications of the possibility of improved sales prospects in the second
half of fiscal 2002.
During the quarter, the Company also shipped a Planar 300(TM) system for
installation at the 300mm production facility of a major foundry in Taiwan in
order to evaluate the Company's ORION(TM) 2.2 ultra low k film for
next-generation copper damascene logic devices. As the systems shipment was for
evaluation purposes only, the Company did not earn any revenue.
Sales outside of the United States accounted for approximately 73% and 79% of
total revenues in the three-month periods ended March 31, 2002 and March 31,
2001 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 fiscal 2002. 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. Further, as the Company anticipates that
its product sales will be comprised of a relatively small number of shipments
the quantity of product shipped may fluctuate significantly from quarter to
quarter and the individual customers to whom these products are sold may also
change from quarter to quarter.
Our sales by product are as follows:
Three Month's Ended
March 31,
------------------------
2002 2001
---------- ----------
PVD 48% 62%
CVD 12% 11%
Etch 18% 19%
Spares 22% 8%
---------- ----------
Total 100% 100%
---------- ----------
GROSS MARGIN. The gross margin for the three months ended March 31, 2002 was
27.8% as compared to 48.3% for the three months ended March 31, 2001. The
decline in the gross margin for the first quarter is attributable to the under
utilization of fixed manufacturing and customer support facilities and personnel
due to the significant decrease in sales and shipments.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
three months ended March 31, 2002 were $2.3 million or 28.5% of total revenues
compared with $2.4 million or 6.5% of total revenues for the three months ended
March 31, 2001. 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, especially the
development of the Company's low k technology, as well as adding enhancements to
its existing products. The Company is committed to continued investment in its
research and development and expects that its research and development expenses
for 2002 will be higher than those incurred in fiscal 2001.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended March 31, 2002 were $4.8
million, or 60.3% of total revenues, compared to $6.7 million, or 17.9% of total
revenues, in the three months ended March 31, 2001. Selling, general and
administrative expenses in the three months ended March 31, 2002 include gains
arising from foreign currency transactions of $111,000 compared to gains of
$890,000 incurred in the same period in the prior year. The increase in selling,
general and administrative expenses as a percentage of revenues is attributable
to the significant decrease in revenues in the first quarter of 2002. In
absolute dollars, however, selling, general and administrative expenses
decreased in the first quarter of 2002 as compared to the comparable period in
the prior year. This decrease is due, in part, to the Company's cost reduction
programs. The decrease is also attributable to the fact that the Company paid
less in commissions and other variable compensation in the first quarter of
2002.
9
INCOME FROM OPERATIONS. As a result of the decrease in revenue for the three
months ended March 31, 2002, combined with the current operating cost structure
of the business, the company incurred a loss from operations of $4.8 million,
compared to income from operations of $9.0 million in the three months ended
March 31, 2001. While management continues to be cautious with respect to its
cost structure, it believes that the current personnel are critical to the
company's ability to execute on the growth prospects of the Company during the
recovery of the semiconductor market and penetration of new business with its
low k CVD equipment. Accordingly, management believes that the Company has
little ability to reduce further its current cost structure.
INTEREST EXPENSE, NET. Net interest expense was $7,000 for the three months
ended March 31, 2002 compared with net interest expense of $115,000 for the
three months ended March 31, 2001. The decrease is attributable to increased
cash and cash equivalents in the period. In addition, interest cost in the prior
year included interest on the Company's 7 1/8% subordinated convertible notes
which were paid in full in October 2001.
INCOME TAXES. For the three months ended March 31, 2002, the Company recorded a
tax credit of $1.1 million compared with a tax charge of $2.1 million for the
three months ended March 31, 2001. The Company's tax rate for the fiscal year
ending December 31, 2002 will depend on a number of factors including the result
for the year, the allocation of the result amongst the various tax jurisdictions
in which it operates, and its ability to reclaim prior year taxes paid in the
United Kingdom or other jurisdictions. In estimating the tax rate for the first
quarter, the Company has not provided any benefit for deferred tax arising from
estimated operating losses generated that are not offset against prior period
tax payments that can be reclaimed.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, the Company had $43.2 million in cash and cash equivalents,
compared to $44.7 million at December 31, 2001. While cash provided by
operations was $466,000, cash and cash equivalents during the first quarter
declined due to investment in property plant and equipment at $114,000, lease
repayments of $151,000 and the negative effect of foreign currency on cash of
$1.7 million for the quarter.
As at March 31, 2002 and December 31, 2001, the Company had two term loans
outstanding totaling 16.2 million British Pounds (approximately $23.1 million at
quarter end exchange rates) from a British bank. In March 2002, the company
amended its loan agreements with the bank to provide for an amended repayment
schedule. The first loan has outstanding $1.8 million at March 31, 2002 and
bears interest at the London Interbank Borrowing Rate (LIBOR) plus 1.5%
(presently payable at the rate of 5.72%) per annum and the loan carries no
prepayment penalties. This loan is repayable in two equal installments in April
2002 and July 2002. The second loan has outstanding $21.3 million at March 31,
2002 and bears interest at the London Interbank Borrowing Rate (LIBOR) plus
1.25% (presently payable at the rate of 5.48%) per annum and also carries no
prepayment penalties. This loan is repayable in 8 equal installments of
approximately $1.8 million per quarter commencing April 2002, with a final
repayment of $7.0 million in March 2004.
In April 2002, the Company's cash and cash equivalents were increased as a
result of the sale of 1,093,348 shares in a private transaction with a group of
institutional shareholders. The net proceeds amounted to approximately $11.8
million.
The Company's cash balance of $43.2 million and the net proceeds of the sale of
1,093,348 common shares, combined with cash generated by operations will be the
primary sources of liquidity for the company. During fiscal 2002, the Company
expects that it will use part of its cash balance to fund operations and to make
scheduled principal payments of $7.2 million with respect to its bank debt. The
amount of cash reserves that the Company will be required to use to fund its
operations will depend on how long the current downturn will last. If the
downturn continues longer than anticipated, the Company will continue to rely on
its cash resources to fund operations, but management believes that the current
cash balances and the availability of loans under the existing and new credit
facilities, will be sufficient to fund the Company's operations for at least the
next 12 months. In order to further bolster its cash position, the Company may
seek to raise additional debt or equity financing.
10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
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, 2002 and December 31, 2001, 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 second
quarter of 2002 would have no material effect on revenues expressed in United
States dollars and would increase operating costs and reduce cash flow by
approximately $1.7 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 $3.5 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:
10.1 - Amendment to the term loan facility,
dated March 6, 2001 between the company and Lloand
Lloyds TSB Bank plc, dated March 18, 2002.
(b) Reports on Form 8-K:
None.
12
Trikon Technologies, Inc.
DRAFT
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.
TRIKON TECHNOLOGIES, INC.
Date: May 09, 2002 /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