UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|
(Mark One)
|
|
|
|
|
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934 |
|
|
|
|
|
For the fiscal year ended December 31, 2002
|
|
|
|
|
|
or
|
|
|
|
|
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE 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) |
||
| |
||
| DELAWARE |
|
95-4054321 |
| (State
or other jurisdiction of incorporation or organization) |
|
(I.R.S.
Employer Identification No.) |
| |
|
|
| Ringland
Way, Newport, Gwent NP18 2TA, United Kingdom |
||
| (Address
of principal executive offices) (Zip Code) |
||
| |
||
| 44
(0)1633 414 000 |
||
| Registrant’s
telephone number, including area code |
||
| |
||
| Securities
registered pursuant to Section 12(b) of the Act: None |
||
| |
||
| Securities
registered pursuant to Section 12(g) of the Act: |
||
| Common
Stock, $0.001 par value per share |
||
| (Title
of Class) |
||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 No
Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes No
Yes NoThe aggregate
market value of the registrant’s voting and non-voting common equity held
by non-affiliates of the registrant on June 28, 2002 (the last business day
of the registrant’s most recently completed second fiscal quarter), based
on the closing price of the Common Stock as reported on the Nasdaq National
Market on such date, was approximately $77,081,626.
As of March
17, 2003, the registrant had outstanding 14,031,718 shares of Common Stock.
Documents Incorporated by Reference: Part III of this Annual Report on Form 10-K incorporates information by reference from the Registrant’s Proxy Statement for its 2003 Annual Meeting of Shareholders, which Proxy Statement will be filed no later than 120 days after the end of the Registrant’s fiscal year.
TRIKON TECHNOLOGIES, INC.
Annual Report On Form 10-K For The Year Ended December 31, 2002
Index
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|
|
|
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|
|
|
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|
|
|
|
|
|||
|
|
|
|
|
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K and certain information incorporated herein by reference contain 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. All statements included or incorporated by reference in this Annual Report on Form 10-K, other than statements that are purely historical, are forward looking statements. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and other similar expressions or variations of such words are intended to identify these forward-looking statements.
These forward-looking statements, which include statements about our development efforts in the field of low k dielectrics, acceptance of our technological innovations and products, the length and severity of the protracted and continuing downturn in the semiconductor industry, our capital requirements and funding sources, our ability to cut costs and manage our business during the protracted and continuing downturn, our market size, share and demand, and our expectations and objectives regarding future expected operating results, revenues and earnings are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements.
All forward-looking statements included or incorporated by reference in this Annual Report on Form 10-K are based on information available to us as of the date hereof, and we assume no obligation to update any such forward-looking statements. Stockholders are cautioned not to place undue reliance on such statements.
The forward-looking statements 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 and the continuing and protracted downturn in the semiconductor industry, the long sales cycle and implementation periods, the acceptance of our technologies and products, our ability to respond to technological change, our dependence on a limited number of customers and other factors discussed under the heading “Risk Factors” and elsewhere in this Annual Report on Form 10-K. The reader should also consult the cautionary statements and risk factors listed from time to time in the reports we file with the Securities and Exchange Commission.
TRADEMARKS
TRIKON, ORION, OMEGA, OMEGA ETCH, OMEGA 2, SOFT SPUTTER ETCH, PLANAR 200, FORCEFILL, FLOWFILL, HI-FILL, SIGMA, ELECTROTECH, PLASMAFAB, SCIF, DRY DIP, FxP, and THE PLASMA COMPANY are our trademarks and are registered in one or more of the territories in which we sell our products. M0RI, LOW-K FLOWFILL, C3M and PLANAR are our trademarks, and we have applied for trademark registration of these and other marks in the major sales territories in which we operates.
All other trademarks, service marks, or trade names referred to in this Annual Report on Form 10-K are the property of their respective owners.
2
PART I
ITEM 1. Business
OVERVIEW
We design,
manufacture, market and service a broad line of advanced production equipment
used to manufacture silicon and compound semiconductor devices, commonly called
integrated circuits, and planar optoelectronic devices. Integrated circuits
consist of thin film layers of insulating material and conducting materials. These circuits
and devices are key components in most advanced electronic
products, such as telecommunications devices, consumer and industrial electronics
and computers.
Our products
carry out processes to add and remove materials to the surface of a circuit
or other device. In particular, our products are used for chemical vapor deposition
(“CVD”), physical vapor deposition (“PVD”) and etch processes.
CVD processes add insulating material, PVD processes add conducting materials,
and etch processes are used to remove unwanted materials. These processes are
used, for example, in the manufacture of the layers of wiring, known as the
interconnect, of an integrated circuit.
Our strategy is to expand our
position as a leading provider of process solutions to the silicon semiconductor, compound
semiconductor and emerging optical and micro systems markets, and includes the following key
elements:
Marketing solutions over a broad range of applications in the silicon and compound semiconductor end markets. We offer innovative products incorporating new technologies including our leading CVD technologies for depositing low k materials (k is the dielectric constant and is a measure of the insulating capabilities of a material). The use of low k materials in the manufacture of integrated circuits results in increased speed of electrical signals through an integrated circuit and is crucial to the development of faster and smaller integrated circuits. We believe that our ability to identify and provide leading edge solutions to key growth markets will be critical to ensuring our long-term success.
Maintaining
technological strength. We devote significant resources to research and
development programs, including programs addressing low k and ultra low k dielectrics,
new PVD applications and advanced oxide/low k etch applications for silicon
integrated circuits and, despite the protracted and continuing downturn in the
semiconductor industry, we continue to spend heavily on research and development.
We are committed to improving existing systems and technologies and to developing
new technologies and systems that compete effectively on the basis of total
cost of ownership and performance.
Leveraging existing strong customer relationships with silicon and compound semiconductor manufacturers located throughout North America, Europe and the Asia/Pacific region. We work closely with each customer to identify and address specific product requirements. We believe that timeliness of delivery along with the ability to service and support customers on an international basis has been and will continue to be critical to attracting and retaining our worldwide customer base.
Offering lower cost of ownership solutions for mature, non-critical processes. We believe that our solutions for these markets have a lower cost of ownership, which is attributed to factors such as efficient manufacturing processes, small factory footprint and low consumables.
Our principal executive offices are located at Ringland Way, Newport, South Wales NP18 2TA, United Kingdom, and our telephone number is 44 (0) 1633.414.000.
We make available free of charge through our website, www.trikon.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities Exchange Commission. Our internet website and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K or our other filings with the SEC.
Our Products
Integrated
circuits are built on a silicon or other material wafer base, and include a
variety of circuit components, such as transistors and other devices, that are
connected by multiple layers of wiring (interconnects). To build an integrated
circuit, the transistors, capacitors and other circuit components are first
created on the surface of the wafer by performing a series of processes to modify,
deposit and remove selected film layers. Similar processes are then used to
build the layers of wiring structures on the wafer.
3
Our products are used in hundreds of steps in these processes to create the integrated circuit, which includes among many different processes, the following basic operations to create interconnect layers:
|
|
•
|
deposition, or adding material to a substrate, typically a silicon wafer;
|
|
|
|
|
|
|
•
|
patterning, or printing a circuit outline on the substrate; and
|
|
|
|
|
|
|
•
|
etching, or removing layers, of material from the substrate.
|
These, and other processes, are repeated in multiple cycles, building up microscopically thin layers, thereby interconnecting countless transistors.
We supply production equipment for two of the most typical deposition techniques, chemical vapor deposition and physical vapor deposition, and plasma etching equipment for selective material removal.
Our proprietary technologies and leading-edge wafer processes capabilities enable our customers to perform new and advanced fabrication processes, thereby improving their products.
Chemical Vapor Deposition
Chemical vapor deposition is a process that can be used to deposit thin films of dielectric (insulating) and, to a lesser extent, conductive materials. During the CVD process, gases that contain atoms of the material to be deposited chemically react to form a thin film on the wafer. Three types of dielectric layers deposited by CVD include:
|
|
•
|
the pre-metal dielectric (“PMD”), the insulating layer between the active components and the first interconnect metal layer;
|
|
|
|
|
|
|
•
|
the inter-metal dielectric (“IMD”), the insulating layer between the different metal layers; and
|
|
|
|
|
|
|
•
|
the final passivation layer that seals the completed device from atmospheric moisture.
|
The most common insulating films deposited by CVD are silicon dioxide, which is used for the PMD and IMD layers, and silicon nitride, which is used for the final passivation layer.
Our CVD products, Planar fxp and Planar 300 for Flowfill, low k Flowfill and ORION deposition are targeted towards the IMD and PMD markets and utilize our proprietary technologies. The IMD and PMD markets require a suitable insulating material to separate the many levels of microscopic wiring in an integrated circuit. The most common insulating material is silicon dioxide, which, when deposited by conventional techniques, is unable to fill small gaps.
Addressing
the problems of conventional CVD technology, our Flowfill and low k Flowfill
products are primarily directed towards the gap fill market and are used to
deposit a planarizing layer that in some cases may be used without the need
for chemical mechanical polishing. These products are cluster tools with up
to six process module positions.
Our Flowfill process is a patented CVD technology that was developed to form high quality silicon dioxide layers that possess the properties of both gap fill and a high degree of planarization. When a high degree of planarization is reached, the upper surface of the layer is relatively flat, irrespective of the topography of the surface covered. Flowfill can fill features less than 0.04 micron wide with a less than 8:1 height to width ratio and simultaneously achieve a very high degree of planarization for large gaps up to 20 microns.
Our Low k Flowfill product has similar gap filling and planarization properties to the Flowfill product but provides a low k dielectric process, which enables device manufacturers to speed up the performance of their integrated circuits. Our Low k Flowfill technology is in production with a tunable dielectric constant of between 2.8 and 3.3 and has the capability of achieving a dielectric constant of 2.5.
4
Our ORION technology, an ultra low k offering, is aimed at advanced copper damascene applications where a k value of 2.5 or below is required. ORION can be deposited at k values of both 2.5 and 2.15, values which have been independently verified. Our internal measurements on films deposited by the ORION product suggest that the k value can be reduced to 1.8. The ORION films are deposited using the Planar 300 system, a bridge tool that can process both 200mm and 300mm wafers. This tool has 6 process module positions and is also capable of running Flowfill and low k Flowfill processes, therefore offering customers a progression path from Flowfill to ORION technology at both 200 and 300 mm production.
Physical Vapor Deposition
Physical vapor deposition is a process used to deposit conducting, liner and barrier metal layers on an integrated circuit. One of the primary PVD methods is sputtering, a process in which an electrical discharge creates ions of an inert gas, such as argon, which are then accelerated in a vacuum at a target typically of pure metal or metal compound, such as aluminum, aluminum compounds, tantalum or copper. The target atoms are sputtered away and deposited on the wafer to form a thin film. Thin conductive films, when patterned by lithography and etching, are used to wire an integrated circuit. These sputtered thin films consist of:
|
|
•
|
the bulk conducting layers;
|
|
|
|
|
|
|
•
|
the barrier and liner metal layers to prevent diffusion or reactions between metals and silicon regions; and
|
|
|
|
|
|
|
•
|
the seed layer for electroplating.
|
Our Sigma fxP and Sigma 300 systems are used to sputter uniform layers of pure metals or metal alloys. These products are cluster tools based in industry standard robotics platforms.
Sigma is designed to be one of the cleanest PVD systems on the market, which is a key technology requirement for sputtering the wafer with as high quality film as possible. Various process chambers are available for specific functions. In particular, there are advanced PVD chambers for depositing high quality barrier and liner layers for advanced metalization structures. These consist of the “long throw” Hi-Fill and “ionised metal” Advanced Hi-Fill PVD chambers for improved barrier and liner deposition into high aspect ratio structures and an MOCVD process module for the most advanced titanium nitride barrier layers. A Forcefill chamber is also available which fills contact holes on semiconductor wafers with deposited aluminum alloys by applying heat and isostatic high pressure. Additional chambers consist of pre heat and sputter etch.
We are targeting both compound device makers and barrier and liner applications for advanced silicon device production. We believe that the Sigma systems have the lowest cost of ownership compared to our main competitors, and cost of ownership is an important factor for integrated circuit manufacturers.
Plasma Etch
Plasma etch
is a process that removes precisely defined patterns from the wafer surface
by chemically converting exposed portions of the surface into a gaseous by-product
that is pumped away from the process chamber. Almost all deposition processes
create a film covering the entire wafer surface. Many layers are required only
in selected parts of the wafer, for example to create wires of metal and may
be created by a series of steps including a plasma etch step. First, the entire
wafer surface is covered with sputtered aluminum alloys and its associated barrier
layers. These conductive layers are then coated with photo resist and are exposed
to the wiring pattern during the photolithography process. Plasma etching is
then used to remove the exposed conductive layer, thus replicating the wiring
pattern. The metal remains in place under the protective photo resist, which
is then stripped off.
Our Omega plasma etch system is available on two platforms as the Omega fxp and a single chamber Omega 201. The Omega fxP offers up to 6 process modules combined with tools for wafer alignment and cool-down and two vacuum cassette stations. Multiple chambers provide high throughput for the high volume user or the option to ‘mix and match’ different plasma sources so that advanced sequential etching processes can be addressed. The Omega 201 features our plasma source technologies in a single chamber format that combines high performance etching with small footprint and low costs. These attributes make the tool particularly well suited to cost-sensitive manufacturing of silicon integrated circuits, compound device makers and to the emerging photonics industry.
5
Both platforms support our three main plasma sources, our M0RI™ technology, Plasma Enhanced Reactive Ion Etch (“PERIE”) and Inductively Coupled Plasma (“ICP”). Additional modules may also be added that provide secondary functions, such as post etch corrosion processes. M0RI etch technology offers the highest plasma density that provides process solutions for the most advanced polysilicon, oxide and low k etch requirements. The ICP is used extensively for high-density aluminium and polysilicon etching as well as for a broad range of front and back face processing on compound semiconductors. The PERIE offers medium plasma density for silicon and dielectric etching where the feature sizes are less challenging.
We believes the
low cost of ownership, small footprint, high reliability and process flexibility
make the Omega particularly suitable for consumer, compound integrated circuit
and planar optical waveguides manufacture where a wide range of
layers can be etched on a limited number of systems.
Our History
In August 1995,
we completed our initial public offering of common stock, in which we received
net proceeds of $40.1 million.
In November 1996, we acquired Electrotech Limited and Electrotech Equipments Limited (together referred to as Electrotech), both United Kingdom companies, for a total consideration of $145.7 million. Of this consideration, $86.0 million was attributed to purchased in process technology and was expensed in our statement of operations for the year ended December 31, 1996. We funded the cash portion of the acquisition price through the issuance of 7 1/8% convertible notes, most of which were redeemed as part of a debt to equity conversion in 1998, with the remaining notes in issue redeemed on maturity in October 2001.
During 1997, the semiconductor equipment industry entered a severe downturn, which adversely affected our revenues and cash flows. In response to the downturn, we restructured our operations, which included the closure of our M0RI etch operations in California and the sale of non exclusive licenses for our M0RI source and ForceFill technologies to Applied Materials and our M0RI source technology to Lam Research.
Due to the
market conditions and the greatly increased number of shares in issuance, resulting
from the debt to equity conversions completed as part of the restructuring activities,
our stock price fell below $1.00 and it was delisted from the Nasdaq National
Market and moved to the OTC bulletin board on November 11, 1998. On December
17, 1999, following an improvement in our operating results, we effected a 10
for 1 reverse stock split and on May 10, 2000 our common stock was relisted
on the Nasdaq National Market.
After our reorganization, we relocated our head office and management team to the United Kingdom, where we conduct our manufacturing operations.
Marketing, Sales and Customer Support
We sell, install and service our systems to semiconductor manufacturers worldwide. Our customers include a wide range of companies, including certain of the 10 largest device makers, the leading producers of compound and optical semiconductors and US government contractors. We offer highly reliable products that give our customers a competitive edge through technology or cost advantage, comprehensive field support and a responsive parts replacement and service program. This builds a stable, satisfied and growing customer base.
We have established multiple sales channels to market products and services to match our efforts in each region. We currently market and sell our products and technologies through a combination of direct sales and agency and distributor arrangements.
Our sales are divided among three geographic regions – Europe, North America and Asia. Set forth below in tabular format is the geographic distribution of our net sales for the past three fiscal years, expressed as a percentage of sales.
|
|
|
Europe
|
|
North America
|
|
Asia
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
64
|
%
|
|
33
|
%
|
|
3
|
%
|
|
2001
|
|
|
60
|
%
|
|
32
|
%
|
|
8
|
%
|
|
2000
|
|
|
64
|
%
|
|
27
|
%
|
|
9
|
%
|
6
In North America, we market and sell our products principally through our direct sales organization supported by service operations located in Orange County, CA; Dallas, TX; Portland, OR; New Haven, CT; and Ottawa, Canada.
In Europe, we market and sell our products primarily through our direct sales and service operations in the United Kingdom, the Netherlands, France and Germany.
In South Korea, we market and sell our products directly through our wholly owned South Korean subsidiary. In Japan and Taiwan, we operate with distribution support from our United Kingdom and South Korea offices. We are currently assessing our Asian organization and we expect to increase the resources allocated to this region during fiscal 2003.
Our total revenue includes amounts from certain individual customers that exceed 10% of our total revenue. For the year ended December 31, 2002, Philips was the only customer who exceeded 10% of our revenue, accounting for 11% of our revenue. In 2001, Infineon AG represented 17% and Philips represented 15% of our total revenues respectively. Our largest customers may vary from year to year depending upon, among other things, a customer’s budget for capital expenditures, plans for new fabrication facilities and new product introductions.
We provide
customers with evaluation systems of our new products as part of our sales efforts.
The provision of evaluation systems is an important step in the lengthy sales
cycle. The average duration of an evaluation period for systems is approximately
one year. Consequently, as we expand our sales efforts, particularly in the
low k market, we believe that a significant increase in our investment in demonstration
and evaluation systems may be needed.
We have an international customer support group at Newport, UK in addition to the local office service and support staff at our regional centers. We also have a dedicated training suite at our Newport facilities housing a clean room with complete systems and the latest generation training aids. The Newport based support team is divided into CVD, PVD and plasma etch groups responsible for quality and technical support, a training and support documentation group and a spares supply group.
Research, Development and Engineering
We believe that our future success will depend primarily upon our ability to continue to improve our systems and technologies and to develop new products that compete effectively on the basis of total cost of ownership and technical performance. These technologies and systems will also need to meet customer requirements and emerging industry standards. Accordingly, we devote a significant portion of our personnel and our financial resources to research and development programs and seek to maintain close relationships with our customers in order to remain responsive to their product needs. This commitment is evidenced by the 11% increase in research and development expenditures in the year ended December 31, 2002 as compared to the prior year, despite the downturn in the semiconductor industry.
As of December
31, 2002, we employed 75 professional and technical personnel in research, development
and engineering. Our research and development group is responsible for identifying
new technology applications and developing processes to meet customer requirements.
Major research and development programs currently address CVD deposited dielectrics
for ILD/IMD and shallow trench isolation gap fill applications and ultra low
k dielectrics for copper damascene applications, PVD and MOCVD deposited barrier/liner/seed
applications and advanced oxide/low k and silicon etch applications for silicon
integrated circuits and the deposition and etching of critical layers in compound
semiconductor and planar optical waveguide devices.
Our expenditure for research and development during the fiscal years 2002, 2001 and 2000 were $10.7 million, $9.7 million and $8.4 million, respectively
Manufacturing
We manufacture most of our key technology components for our products at our Newport, United Kingdom facility, where substantially all of our long-lived assets are maintained. This approach has enabled us to ensure quality control and compliance with government regulation and reduce dependence on third party suppliers. Our United Kingdom operations are ISO 9001 compliant.
7
Our Newport facility has
world-class
facilities which are built and operated at the high levels of cleanliness
required in the semiconductor industry. Our manufacturing and final test area
is class 1000 representing a high level of cleanliness (a class is a standard definition which represents a number of particles per million, the smaller the number of particles the cleaner the facility). With a class 100 engineering clean room and a class 10 process and product demonstration room, our engineering and customer support areas are even cleaner. We also have a dedicated training suite of classrooms and a clean workshop stocked with our products, both current and former generations, where we are able to train our own and our customers’ engineers. We also operate two additional sites near the Newport facility where assemblies are made, a sheet metal fabrication workshop producing enclosures, panels and other parts and a CNC machinery center, producing chamber components and other parts and wafer transport assemblies. In order to ensures that our facilities remain competitive in both quality and price, and to help cover fixed costs, the CNC facility also produces
products for third parties.
Competition
The markets we serve are highly competitive and subject to rapid technological change. Historically, new technologies have only gained acceptance when industry leaders have concurrently adopted such new technologies. Significant competitive factors include timing of new product offerings, system performance, cost of ownership, size of installed base, depth and breadth of product line and customer support.
We face significant competition from various suppliers of systems that utilize similar or alternative technologies. Competitors range from very large, well capitalized corporations with a diversified product portfolio to smaller companies that compete with a single innovative product. In the CVD market, our primary competitors are Applied Materials, ASMI, Novellus and Unaxis, as well as other CVD manufacturers and track manufacturers for spin on glass, or SOG, deposition, such as Tokyo Electron. In the PVD market, we face competition from suppliers such as Anelva, Applied Materials, Novellus, Ulvac, Unaxis, and Veeco. In the etch market, we face competition from suppliers including Applied Materials, Hitachi, Lam Research, Tegal, Tokyo Electron and Unaxis. Virtually all of these competitors are substantially larger companies, some with broader product lines. They have well established reputations in the markets in
which we compete, greater experience with high volume manufacturing, broader name recognition, substantially larger customer bases, and substantially greater financial, technical, manufacturing and marketing resources.
We have granted non-exclusive, worldwide, paid-up licenses of our M0RI source and Force Fill PVD technologies to Applied Materials and granted a non-exclusive, worldwide, paid-up license of our M0RI source technology to Lam Research. As a result, in the future our PVD and etch products may have to compete with products of Applied Materials or Lam Research based on our technologies. The license agreements do not preclude us from utilizing, or licensing to other third parties, the licensed technologies.
Backlog
As of December 31, 2002, our
backlog was approximately $8.5 million, as compared to approximately $13.7 million at December
31, 2001. Our backlog consists of system purchase orders that provide for delivery within the
following year and the unearned revenue of systems previously shipped. Backlog includes only
systems for which a purchase order has been received and a delivery date assigned. Backlog at
December 31, 2002 includes one system for $1.6 million for which the purchase order is subject
to our customer receiving final United States government approval of funding. Orders are
typically subject to cancellation or delay by the customer with limited or no penalties.
The reduction in our backlog is directly attributable to the
continuing and protracted downturn in the semiconductor industry and the resulting low
order volume in 2002. Because of possible changes in delivery schedules and cancellations of orders,
the stated backlog is not necessarily indicative of sales for any
future period nor is a backlog any assurance that we will realize profit from filling
these orders.
Intellectual Property
We rely on a variety of types of intellectual property protection to protect our proprietary technology, including patent, copyright, trademark and trade secret laws, non-disclosure agreements, and other intellectual property protection methods. We currently hold 31 US and 56 foreign patents. As of December 31, 2002, we have 32 patent applications pending in the US and 169 patents pending in the rest of the world, and we intend to file additional patent applications as appropriate. The issued patents and any subsequent issued patent arising from our pending applications expire between 2009 and 2022.
Our success and ability to compete depends in large part upon protecting our proprietary technology. We rely on a combination of patent, trade secret, copyright and trademark laws, non-disclosure and other contractual agreements and technical measures to protect our proprietary rights.
8
There can be
no assurance that patents will be issued on our pending patent applications
or that competitors will not be able to legitimately ascertain proprietary information
embedded in our products that is not covered by patent or copyright. In such
case, we may be precluded from preventing the competitor from making use of
such information. In addition, should we wish to assert our patent rights against
a particular competitor’s product, there can be no assurance that any claim
in any of our patents will be sufficiently broad nor, if sufficiently broad,
any assurance that our patents will not be challenged, invalidated or circumvented,
or that we will have sufficient resources to prosecute our rights.
In the normal course of business, we receive, from time to time inquiries regarding possible patent infringement. In dealing with such inquiries, it may become necessary or useful for us to obtain or grant licenses or other rights. However, there can be no assurance that such licenses or rights will be available to us on commercially reasonable terms. If we are not able to resolve a claim, negotiate a settlement of the matter, obtain necessary licenses on commercially reasonable terms and/or successfully prosecute or defend our position, our business, financial condition and results of operations could be materially and adversely affected.
Environmental Matters
We are subject to a variety of federal, state and local laws, rules and regulations relating to the use, storage, discharge and disposal of hazardous chemicals and gases used during customer demonstrations and in research and development activities. Public attention has increasingly been focused on the environmental impact of operations that use hazardous materials. In 1995, the United Kingdom adopted a new and comprehensive environmental law known as the Environmental Act 1995, which, among other things, deals with the allocation of responsibility for the clean up of contaminated property and expands potential liability with respect to the remediation of such contamination. We own or lease a number of facilities in the United Kingdom, and failure to comply with present or future regulations could result in substantial liability, suspension or cessation of our operations, restrictions on our ability to expand at our present
locations, or requirements for the acquisition of significant equipment or other significant expense. To date, compliance with environmental rules and regulations has not had a material effect on our operations. We believe that we are in material compliance with all applicable environmental rules and regulations and are in compliance with ISO14000 environmental standards.
Employees
At December 31, 2002, we had 325 full-time employees (including employees on temporary contracts), including 75 engaged in research, development and engineering, 22 in sales and marketing, 90 in customer support, 113 in manufacturing and facilities, and 25 in general administration and finance.
None of our employees are covered by a collective bargaining agreement and we consider our relations with our employees to be good.
ITEM 2. PROPERTIES
Certain information concerning our principal properties at December 31, 2002 is set forth below:
| Location |
|
Type |
|
Principal
Use |
Square Footage | Property Interest | ||
| |
|
|
|
|
|
|
||
| Newport, United Kingdom |
|
Office,
Manufacturing & Laboratories |
|
Headquarters,
Manufacturing, Sales and Customer Support, Research & Engineering |
|
110,000 |
|
Leased |
| Bristol, United Kingdom |
|
Office,
Manufacturing & Warehouse |
|
Vacant |
|
55,700 |
|
Owned |
| Cwmfelin-fach,
United Kingdom |
|
Office,
Manufacturing and Warehouse |
|
Manufacturing
of Components |
|
20,000 |
|
Leased |
| Bristol, United Kingdom |
|
Office,
Manufacturing & Warehouse |
|
Manufacturing
of Components |
|
9,000 |
|
Leased |
9
| Orange County,USA |
|
Office |
|
North
American Headquarters, Sales & Support |
|
1,600 |
|
Leased |
We have a number of smaller properties and field offices located in the United States, the United Kingdom, Germany, France and South Korea. We believe that our properties adequately serve our present needs.
ITEM 3. LEGAL PROCEEDINGS
As of March 25, 2003, there were no material, pending legal proceedings to which we or our subsidiaries are a party. From time to time, we become involved in ordinary, routine or regulatory legal proceedings incidental to our business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our stockholders during the quarter ended December 31, 2002.
10
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Market for the Registrant’s Common Equity
Our common
stock trades on the Nasdaq National Market under the symbol “TRKN”.
The quarterly high and low sale prices for Common Stock as reported by the Nasdaq
National Market for the periods indicated below are as follows.
|
|
|
High
|
|
Low
|
|
||
|
|
|
|
|
|
|
|
|
|
2001
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
15.63
|
|
$
|
9.44
|
|
|
Second Quarter
|
|
$
|
15.18
|
|
$
|
7.13
|
|
|
Third Quarter
|
|
$
|
14.05
|
|
$
|
7.95
|
|
|
Fourth Quarter
|
|
$
|
11.95
|
|
$
|
7.96
|
|
|
2002
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
15.90
|
|
$
|
10.14
|
|
|
Second Quarter
|
|
$
|
15.02
|
|
$
|
7.10
|
|
|
Third Quarter
|
|
$
|
9.13
|
|
$
|
4.01
|
|
|
Fourth Quarter
|
|
$
|
7.10
|
|
$
|
3.25
|
|
As of January 21, 2003, there were 120 holders of record of our common stock.
We have never
declared or paid dividends on our common stock and we do not expect to pay dividends
on our common stock in the foreseeable future.
Our Series
H Preferred Stock was retired during fiscal 2001. Prior to being retired, dividends
due during fiscal 2001 were paid with 12,477 new shares of Series H Preferred
Stock and cash of $50,000.
On March 18,
2003, the closing price of the common stock as reported on the Nasdaq National
Market was $3.33 per share.
Unregistered Sales of Registrant’s Equity Securities During Last Fiscal Year
During the year ended December 31 2002, we sold 1,093,348 shares of our common stock in a private transaction with several institutional shareholders. The gross proceeds of the sale were $12.6 million and our costs amounted to approximately $837,000.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are qualified by reference to and should be read in conjunction with our consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this report. The selected consolidated financial data set forth below as of December 31, 2002, and 2001 and for the years ended December 31, 2002, 2001, and 2000 have been derived from our audited financial statements included elsewhere in this annual report. The selected consolidated financial data set forth below as of December 31, 2000, 1999 and 1998 and for the years ended December 31, 1999 and 1998 have been derived from our audited financial statements that are not included in this annual report.
As discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, we changed our accounting policy with respect to revenue recognition in the year ended December 31, 2001. In accordance with Accounting Principles Board Opinion 20, we accounted for the change as a cumulative effect on the prior years resulting from the change to a different revenue recognition policy. As a result, the selected consolidated financial data for the periods ending on and before December 31, 2000 have not been restated, but pro forma revenue, net income and earnings per share are included as a footnote to the selected consolidated data.
11
|
|
|
Year Ended December 31
|
|
|||||||||||||
|
|
|
|
|
|||||||||||||
|
|
|
2002
|
|
2001
|
|
2000
|
|
1999
|
|
1998
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars, except share information)
|
|
|||||||||||||
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
32,765
|
|
$
|
97,046
|
|
$
|
106,662
|
|
$
|
48,363
|
|
$
|
25,125
|
|
|
License revenues
|
|
|
50
|
|
|
—
|
|
|
350
|
|
|
2,144
|
|
|
13,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||