10-Q 1 b311489_10q.txt QUARTERLY REPORT 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 ----------------------------------------------------------------------------- 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