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 June 30, 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.
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(Exact name of registrant as specified in its charter)
Delaware 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
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(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
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As of July 30, 2002, the total number of outstanding shares of the Registrant's
common stock was 14,022,740.
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 June 30, 2002 (unaudited) and
December 31, 2001..............................................................................3
Condensed Consolidated Statements of Operations for the Three Months ended
June 30, 2002 and 2001 and for the Six Months ended June 30, 2002 and 2001.....................4
Condensed Consolidated Statements of Cash Flows for the Six Months ended June
30, 2002 and 2001..............................................................................5
Notes to 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..............................................................13
SIGNATURE PAGE..................................................................................................14
Trikon Technologies, Inc.
PART 1 FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
June 30, December 31,
2002 2001
-------------- -------------
(Unaudited) (Note A)
Assets
Current assets:
Cash and cash equivalents......................................... $ 47,948 $ 44,667
Accounts receivable, net........................................... 15,181 19,775
Inventories, net.................................................. 21,782 21,624
Other current assets.............................................. 2,687 3,084
-------------- -------------
Total current assets ............................................. 87,598 89,150
Property, equipment and leasehold improvements, net of accumulated 20,230 20,425
depreciation and amortization.................................
Demonstration systems, net of accumulated depreciation............ 4,183 2,962
Other assets...................................................... 228 196
-------------- -------------
Total assets...................................... $ 112,239 $ 112,733
============== =============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses............................. $ 7,265 $ 6,997
Current portion of long-term debt................................. 9,126 9,636
Deferred revenue.................................................. 1,218 5,106
Other current liabilities......................................... 4,049 5,032
-------------- -------------
Total current liabilities.......................... 21,658 26,771
Long-term debt less current portion............................... 14,182 15,606
Pension obligations............................................... 3,231 3,372
Other non-current liabilities..................................... 1,056 1,531
-------------- -------------
40,127 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: 254,528 242,725
Authorized shares-- 50,000,000
Issued and outstanding-- 14,019,802 at March 31, 2002 and
12,855,279 at December 31, 2001..............................
Accumulated other comprehensive loss............................. (7,218) (9,774)
Deferred compensation............................................ (1,327) (2,086)
Accumulated deficit.............................................. (173,871) (165,412)
------------ --------------
Total shareholders' equity....................... 72,112 65,453
------------ --------------
Total liabilities and shareholders' equity....................... $ 112,$39 $ 112,733
============ ==============
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 Six Months Ended
---------------------------------- ------------------------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
------------- ----------------- --------------- -----------------
Revenues:
Product revenues............................. $8,462 $27,653 $16,462 $65,301
License revenues............................. 50 - 50 -
------------- ----------------- --------------- -----------------
8,512 27,653 16,512 65,301
Costs and expenses:
Cost of goods sold........................... 5,467 13,600 11,238 33,040
Research and development..................... 2,542 2,419 4,821 4,847
Selling, general and administrative.......... 5,669 6,544 10,493 13,353
------------- ----------------- --------------- -----------------
13,678 22,563 26,552
51,240
(Loss) income from operations................ (5,166) 5,090 (10,040) 14,061
Interest income (expense), net............... 25 (36) 18 (106)
------------- ----------------- --------------- -----------------
(Loss) income before income tax (credit)
charge........................................ (5,141) 5,054 (10,022) 13,955
Income tax (credit) charge................... (465) 1,212 (1,563) 3,350
------------- ----------------- --------------- -----------------
Net (loss) income............................... $(4,676) $3,842 $(8,459) $10,605
Preferred dividend ............................. - 60 - 141
------------- ----------------- --------------- -----------------
Net (loss) income applicable to common shares... $(4,676) $3,782 $(8,459) $10,464
------------- ----------------- --------------- -----------------
(Loss) earnings per share data:
Basic: ...................................... $(0.37) $0.34 $(0.69) $0.96
Diluted: .................................... $(0.37) $0.30 $(0.69) $0.85
Weighted average common shares used in the
calculation:
Basic: ...................................... 12,664 11,124 12,192 10,883
Diluted: .................................... 12,664 12,500 12,192 12,259
See Notes to Condensed Consolidated Financial Statements.
4
Trikon Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six months ended
-------------------------------------------------
June 30, June 30,
2002 2001
------------------ --------------------
Net cash (used in) provided by operating activities........ $ (6,822) 10,425
Investing Activities
Purchases of property plant and equipment ............ (1,216) (3,171)
Other ................................................ (27) (90)
------------------ --------------------
Net cash used in investing activities (1,243) (3,262)
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Financing Activities
Issuance of common stock.............................. 11,803 10,003
Redemption of preferred stock......................... - (2,691)
Preferred stock dividend.............................. - (50)
Proceeds of term bank loan............................ - 21,450
Repayment of term bank loan........................... (2,731) (1,775)
(Repayments of) receipts, net from capital lease
obligations....................................... (302) 25
------------------ --------------------
Net cash provided by financing activities.................. 8,770 26,962
------------------ --------------------
Effect of exchange rates changes on cash................... 2,576 (2,754)
Net increase in cash and cash equivalents.................. 3,281 31,371
Cash and cash equivalents at beginning of period........... 44,667 7,076
------------------ --------------------
Cash and cash equivalents at end of period................. $ 47,948 38,447
------------------ --------------------
See Notes to Unaudited Condensed Consolidated Financial Statements.
5
Trikon Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 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 and six months ended June 30,
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 value. The components of inventory consist of the following (in
thousands):
June 30, December 31,
2002 2001
---------------- ----------------
Components................................. $9,997 $11,879
Work in process and spares................. 11,652 8,510
Finished goods............................. 133 1,235
---------------- ----------------
$21,782 $21,624
================ ================
NOTE C COMPREHENSIVE INCOME
Comprehensive (loss) income comprises net (loss) income and currency translation
adjustment for the period. Translation adjustments resulted in gains of $4.2
million and $2.6 million for the three and six months ended June 30, 2002,
respectively, and losses of $(0.9 million) and $(3.2million) for the three and
six months ended June 30, 2001, respectively. Total comprehensive (loss) for the
three and six months ended June 30, 2002 was $(486,000) and $(5.9) million,
respectively, compared to comprehensive income for the three and six months
ended June 30, 2001 of $3.0 million and $7.4 million, respectively.
6
NOTE D EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended Six Months Ended
----------------------------------------------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Numerator ($'000):
Net (loss) income $(4,676) $3,842 $(8,459) $10,605
Preferred Dividend - (60) - (141)
------------- -------------- -------------- --------------
Net (loss) income applicable to common stockholders $(4,676) $3,782 $(8,459) $10,464
------------- -------------- -------------- --------------
Denominator (thousands):
Weighted average shares outstanding 13,813 12,273 13,341 12,032
Restricted stock (1,149) (1,149) (1,149) (1,149)
------------- -------------- -------------- --------------
Denominator for basic earnings per share 12,664 11,124 12,192 10,883
------------- -------------- -------------- --------------
Adjusted weighted average shares outstanding 12,664 11,124 12,192 10,883
Effect of dilutive securities:
Employee stock options - 475 - 481
Unvested common stock - 901 - 895
------------- -------------- -------------- --------------
Dilutive potential common shares - 1,376 - 1,376
------------- -------------- -------------- --------------
Denominator for diluted earnings per share 12,664 12,500 12,192 12,259
------------- -------------- -------------- --------------
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 July 29, 2002 the Company and the trustees of the Company's defined benefit
pension plan entered into a definitive agreement, pursuant to which the trustees
agreed to the wind up of the plan as soon as reasonably practical. Under the
agreement, the Company paid to the plan 890,000 British Pounds (approximately
$1.4 million at quarter end exchange rates) in August 2002, an amount estimated
to cover the difference between the value of the assets of the plan and the best
estimate of the amount needed to fund the wind up of the plan, as determined by
the plan actuary, under the agreed actuarial assumptions (the plan deficit).
This payment is in addition to normal contributions made during the six months
ended June 30, 2002 of (pound)175,000 ($230,000) . The Company is currently
investigating whether the entering of this definitive agreement represents a
settlement of the plan in accordance with FAS 88.
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 herein and any
expectations based on such forward-looking statements are subject to risks and
uncertainties and other important factors, including, without limitation, the
length and severity of the continuing downturn in the semiconductor industry,
the long sales cycle and implementation periods for Trikon's systems, 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 such 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. The Company's sales are
generally denominated in US Dollars, but most of the Company's expenses are
incurred in British pounds. Accordingly, a decrease in the value of the dollar
may have a material effect on the Company's reported expenses.
SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company's product revenues consist primarily of system, spare parts and
service sales. The Company changed its revenue recognition policy in 2000 to
implement the accounting rules of Securities and Exchange Commission Staff
Accounting Bulletin 101 ("SAB 101").
Revenues related to equipment sales are recognized upon shipment and transfer of
title when the equipment has been pre-tested in the factory under conditions
similar to which the customer intends to operate the equipment and meets all of
the customers defined specifications. For new customers, or new products,
revenue is recognized only on final acceptance unless the customer attends and
approves the pre-testing procedures and the customer and the Company is
satisfied that the performance of the equipment, once installed and operated,
will continue to meet the customer-defined specifications. Equipment sold as
demonstration or evaluation units are recognized for revenue on transfer of
title and either final acceptance, or satisfactory completion of testing to
demonstrate that the equipment meets all the customer defined specifications.
Equipment sales generally include the provision of installation and
commissioning services, which are not essential to the functionality of the
equipment but have contractual payment terms linked to the final acceptance. The
Company has deferred revenue recognition on the portion of revenue contractually
linked to final acceptance, (or the fair value of the installation services, if
greater), until final customer acceptance of the equipment.
Revenue related to spare parts is recognized on shipment and revenue related to
service contracts is recognized ratably over the duration of the contracts.
Functional Currency
The functional currency for most of the Company's operations is the UK pounds
sterling. System sales are generally in US dollars and spares and service in
various currencies. Changes in foreign currency exchange rates result in
currency gains and losses, which are charged to the Company's selling, general
and administrative expenses. Periodic differences in the value of non-US net
assets as a result of movements of foreign currency exchange rates are treated
as changes to the cumulative translation adjustment on the Company's balance
sheet.
8
Research and Development
Research and development are core elements of the Company's business. The
Company develops annual budgets for research and development expenses based upon
anticipated developments in the technologies for the Company's products.
Research and development costs are expensed as incurred.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of total
revenue for the periods indicated:
Three Months Ended Six Months Ended
------------------------------------------------------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Product revenues.......................... 99.4% 100.0% 99.7% 100.0%
License revenues.......................... 0.6 0.0 0.3 0.0
-------------- --------------- ----------------- -----------------
Total revenues............................ 100.0 100.0 100.0 100.0
Cost of goods sold........................ 64.2 49.2 68.1 50.6
-------------- --------------- ----------------- -----------------
Gross margin.............................. 35.8 50.8 31.9 49.4
Operating expenses:
Research and development............. 29.9 8.7 29.2 7.5
Selling, general and administrative....... 66.6 23.7 63.5 20.4
-------------- --------------- ----------------- -----------------
Total operating expenses.................. 96.5 32.4 92.7 27.9
-------------- --------------- ----------------- -----------------
(Loss) income from operations............. (60.7) 18.4 (60.8) 21.5
Interest (income) expense, net............ (0.3) 0.1 (0.1) 0.2
-------------- --------------- ----------------- -----------------
(Loss) income before income tax (credit) charge.. (60.4) 18.3 (60.7) 21.3
Income tax (credit) charge................ (5.5) 4.4 (9.5) 5.1
-------------- -------------- ----------------- -----------------
Net (loss) income......................... (54.9)% 13.9% (51.2)% 16.2%
============== ================ ================ =================
9
REVENUES. Product revenues for the three months ended June 30, 2002 decreased
69% to $8.5 million compared to $27.7 million for the three months ended June
30, 2001 and product revenues for the six months ended June 30, 2002 decreased
75% to $16.5 million compared to $65.3 million for the six months ended June 30,
2001. Shipments for the second quarter of fiscal 2002 were $8.0 million compared
to $25.2 million in the second quarter of the prior year. Shipments for the six
months ended June 30, 2002 were $12.7 million compared to $67.8 for the six
months ended June 30, 2001. 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 six months of the prior year
reflecting the Company's backlog from fiscal 2000, prior to the onset of the
current global slowdown. The Company's customers continue to be cautious
regarding their capital expenditure plans and orders for the Company's products
remained depressed.
Sales outside of the United States accounted for approximately 61% and 62% of
total revenues in the three-month periods ended June 30, 2002 and June 30, 2001,
respectively, and approximately 60% and 72% of total revenues in the six-month
periods ended June 30, 2002 and June 30, 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 2002. 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 whom 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.
Our sales by product are as follows:
Three Month's Ended Six Month's Ended
June 30, June 30,
------------ ------------ ---------- --------------
2002 2001 2002 2001
------------ ------------ ---------- --------------
PVD 42% 32% 45% 50%
CVD - 12% 6% 11%
Etch 32% 46% 26% 31%
Spares 26% 10% 23% 8%
------------ ------------ ---------- --------------
Total 100% 100% 100% 100%
------------ ------------ ---------- --------------
License revenues in the three and six-month period ended June 30, 2002 related
to power supply technology.
GROSS MARGIN. The gross margin on product revenues for the three-month period
ended June 30, 2002 was 35.4% as compared to 50.8 % for the three-month period
ended June 30, 2001 and 31.7% for the six months ended June 30, 2001 compared
with 49.4% for the six months ended June 30, 2001. The decline in the gross
margin is attributable to the under utilization of fixed manufacturing and
customer support facilities and personnel due to the significant decrease in
sales and shipments. This was partially offset during the 3 month period ended
June 30, 2002 by better than average margins achieved on product sales in the
quarter, particularly in respect of the sale of refurbished systems.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
three months ended June 30, 2002 were $2.5 million or 29.9% of total revenues
compared with $2.4 million or 8.7% of total revenues for the three months ended
June 30, 2001. For the six months ended June 30, 2002, research and development
expenses were $4.8 million or 29.2% of total revenues compared with $4.8 million
or 7.4% of total revenues for the six months ended June 30, 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.
10
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended June 30, 2002 were $5.7
million, or 66.6% of total revenues, compared to $6.5 million, or 23.7% of total
revenues, in the three months ended June 30, 2001. For the six months ended June
30, 2002 selling, general and administrative expenses were $10.5 million, or
63.5% of total revenues, compared to $13.4 million, or 20.4% of total revenues,
in the six months ended June 30, 2000. Selling, general and administrative
expenses in the six months ended June 30, 2002 include losses arising from
foreign currency adjustments of $769,000 compared to a gain of $951,000
recognized 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 three and six-month period ended
June 30, 2002. In absolute dollars, however, selling, general and administrative
expenses decreased in the three and six-month period ended June 30, 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 six months of 2002.
INCOME FROM OPERATIONS. As a result of the decrease in revenue for the three and
six month period ended June 30, 2002, combined with the current fixed operating
cost structure of the business, the Company incurred a loss from operations of
$5.2 million in the three months ended June 30, 2002 and $10.0 million in the
six months ended June 30, 2002, compared to income from operations of $5.1
million in the three months ended June 30, 2001 and $14.1 million in the six
months ended June 30, 2001.
INTEREST INCOME (EXPENSE), NET. Net interest income was $25,000 for the three
months ended June 30, 2002 compared with net interest expense of $36,000 for the
three months ended June 30, 2001. During the six months ended June 30, 2002 net
interest income was $18,000 compared to net interest expense of $106,000 in the
prior year. Interest income in the current period is due primarily to increased
cash balances in the three and six months ended June 30, 2002 compared to the
prior year.
INCOME TAXES. For the three months ended June 30, 2002, the Company recorded a
tax credit of $465,000 compared with a tax charge of $1.2 million for the three
months ended June 30, 2001. For the six months ended June 30, 2002, the Company
recorded a tax credit of $1.6 million compared with a tax charge of $3.3 million
for the six months ended June 30, 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 six months ended June 30, 2002, 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 June 30, 2002, the Company had $47.9 million in cash and cash equivalents,
compared to $44.7 million at December 31, 2001. The primary uses of cash in the
six months ended June 30, 2002 were operations, which used $6.8 million, the
investment of $1.2 million in property, plant and equipment and repayments of
the term loan facility from a British bank of $2.7 million. In April 2002, the
Company's cash and cash equivalents were increased as a result of the sale of
1,093,348 shares of the Company's common stock, in a private transaction with a
group of institutional shareholders. The net proceeds to the Company amounted to
approximately $11.8 million. In addition, currency translation adjustments
resulted in a $2.6 million increase in the Company's cash and cash equivalents
at June 30, 2002.
As at June 30, 2002 and December 31, 2001, the Company had two term loans from a
British bank with total balance outstanding of 14.4 million British pounds and
16.2 million British Pounds (approximately $22.0 million and $23.1 23.7 million,
respectively, at the respective quarter end exchange rates). In March 2002, the
Company amended its loan agreements with the bank to provide for an amended
repayment schedule. The first loan had outstanding $0.9 million at June 30, 2002
and was repaid in full in July 2002. The second loan had outstanding $21.1
million at June 30, 2002 and bears interest at the London Interbank Borrowing
Rate (LIBOR) plus 1.25% (presently payable at the rate of 5.43%) per annum and
also carries no prepayment penalties. This loan is repayable in eight equal
installments of approximately $1.9 million per quarter commencing April 2002,
with a final repayment of $7.7 million in March 2004.
11
The loan facility includes financial covenants that require the Company to
maintain the ratio of net borrowings to net worth less than 0.5 : 1.0 and to
maintain interest cost at below 10% of profit before interest and taxes. The
bank has granted the company a waiver of the covenant to maintain interest cost
at below 10% of profit before interest and taxes, for fiscal periods to June
2003. The Company will be allowed to incur net interest of 400,000 British
Pounds in 2002 ($588,000 at the quarter end exchange rate) and (pound)250,000
British Pounds ($368,000 at the quarter end exchange rate), in the six months
ended June 30, 2003, under the terms of a replacement covenant. As a result the
company expects to be in full compliance of its financial covenants at least for
the next six months.
The Company has financed certain equipment purchases under capital lease
arrangements. As of June 30, 2002 the capital lease obligations amounted to $1.3
million, of which approximately $520,000 falls due within one year and the
remainder is due in installments through December 31, 2005. The company also has
obligations under operating leases totaling $9.3 million at June 30, 2002, of
which $6.4 million relates to the the lease of the Company's principal office.
This lease requires annual payments of 490,000 British pounds ($750,000 at
quarter end exchange rates) and expires in 2010 .
The Company's cash balance of $47.9 million combined with cash generated by
operations will be the primary sources of liquidity for the Company. During the
next 12 months, the Company expects that it will use part of its cash balance to
fund operations and to make scheduled principal payments of $2.8 million in the
third quarter of fiscal 2002 and $1.9 million per quarter thereafter 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, however, given current market conditions an equity offering
does not appear likely at this time.
With the exception of the operating leases as noted above, the company has no
off balance sheet financing activities.
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 monitors currency exchange rates and matches 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 June 30, 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 third quarter
of 2002 would have no material effect on revenues, which are primarily expressed
in United States dollars and would increase operating costs and reduce cash flow
by approximately $1.2 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 $5.3million. 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.
12
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
On May 16, 2002 the Company held its annual meeting of stockholders, at which
the stockholders voted for the election of the members of the board of directors
of the Company, for the approval of an amendment to the Company's 1998
Director's Stock Option Plan, for the approval of a proposal to change of state
of incorporation of the Company from California to Delaware and for the
ratification of the selection of Ernst & Young LLP as the company's independent
public accountants.
The nominees for election to the Company's Board of Directors, received the
following votes:
For Withhold
Christopher Dobson 12,505,334 81,774
Nigel Wheeler 11,868,484 718,594
Richard M. Conn 12,505,334 81,774
Stephen N. Wertheimer 12,505,334 81,774
Robert Anderson 12,505,334 81,774
With respect to the proposal to amend the Company's 1998 Director's Stock Option
Plan to increase the number of shares of Common Stock that may be issued under
such plan from 50,000 to 150,000, 12,367,100 votes were cast in favor of the
proposal, 194,663 votes were cast against the proposal and there were 507,065
abstentions and broker non-votes.
With respect to the proposal to change of state of incorporation of the Company
from California to Delaware, 7,643,187 votes were cast in favor of the proposal,
1,588,306 votes were cast against the proposal, and there were 507,065
abstention and no broker non-votes
With respect to the proposal to ratify the selection of Ernst & Young LLP to
serve as the Company's independent public accountants, 12,513,274 votes were
cast in favor of the proposal, 67,905 votes were cast against the proposal, and
there were 5,899 abstention and no broker non-votes.
ITEM 5. OTHER INFORMATION
Not Applicable
14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
None
(b) Reports on Form 8-K:
Current report on Form 8-K dated April 16, 2002
Current report on Form 8_K dated May 17, 2002
15
Trikon Technologies, Inc.
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: August 08, 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
16