TRIKON TECHNOLOGIES INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[Mark One]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

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)

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)

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 No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes No

As of July 25, 2003, the total number of outstanding shares of the Registrant’s common stock was 14,058,300

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Trikon Technologies, Inc.

INDEX

		PAGE NUMBER
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets at June 30, 2003 and December 31, 2002	3

	Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2003 and June 30, 2002	4

	Condensed Consolidated Statements of Cash Flows for the Three and Six Months ended June 30, 2003 and June 30, 2002	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	22

Item 4.	Controls and procedures	22

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	23

Item 2.	Changes in securities and use of proceeds	23

Item 3.	Defaults under senior securities	23

Item 4.	Submission of matters to the vote of security holders	23

Item 5.	Other Information	24

Item 6.	Exhibits and Reports on Form 8-K	24

SIGNATURE PAGE		25

Exhibits

3.3	By Laws of Trikon Technologies, Inc., amended May 22, 2003

10.11	1998 Directors stock option plan, amended May 22, 2003

10.15	Letter agreement with Nigel Wheeler dated June 4, 2003

31.1	Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule15d-14(a) of the Exchange Act

31.2	Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act

32.1	Certification of Chief Executive Officer furnished pursuant to Rule 13a-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S. C. 1350)

32.2	Certification of Chief Financial Officer furnished pursuant to Rule 13a-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C 1350).

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Trikon Technologies, Inc.

PART 1 - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

		June 30, 2003		December 31, 2002
		June 30, 2003		December 31, 2002

		(Unaudited)		(Note A)
Assets
Current assets:
Cash and cash equivalents	$	30,329	$	42,557
Accounts receivable, net		8,921		8,948
Inventories, net		19,904		20,486
Prepaid and other current assets		2,101		2,671

Total current assets		61,255		74,662

Property, equipment and leasehold improvements, net		18,009		19,636
Demonstration systems, net		1,638		2,669
Other assets		188		221

Total assets	$	81,090	$	97,188

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and accrued expenses	$	5,848	$	4,510
Current portion of long-term debt		15,053		8,651
Deferred revenue		1,609		1,169
Other current liabilities		3,867		5,288

Total current liabilities		26,377		19,618

Long-term debt less current portion		363		10,717
Pension obligations		743		5,313
Other non-current liabilities		950		1,020

		28,433		36,668

Shareholders’ equity:
Preferred Stock:
Authorized shares – 20,000,000
Issued and outstanding – Nil at June 30, 2003 and December 31, 2002
Common Stock, no par value:		254,551			254,536
Authorized shares – 50,000,000
Issued and outstanding – 14,051,760 at June 30, 2003 and 14,025,702 at December 31, 2002
Accumulated other comprehensive loss		(1,446	)		(8,400	)
Deferred compensation		—			(569	)
Accumulated deficit		(200,448	)		(185,047	)

Total shareholders’ equity		52,657			60,520

Total liabilities and shareholders’ equity	$	81,090		$	97,188

See Notes to Unaudited Condensed Consolidated Financial Statements.

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Trikon Technologies, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)

		Three Months ended						Six Months ended

		June 30, 2003			June 30, 2002			June 30, 2003			June 30, 2002
		June 30, 2003			June 30, 2002			June 30, 2003			June 30, 2002
Revenues:
Product revenues	$	5,967		$	8,462		$	11,071		$	16,462
License revenues		49			50			49			50

		6,016			8,512			11,120			16,512
Costs and expenses:
Cost of goods sold		4,804			5,467			9,144			11,238
Research and development		2,323			2,542			4,641			4,821
Selling, general and administrative		5,420			4,900			10,220			9,835
Settlement of pension liabilities and related expenses		2,017			—			2,723			—

		14,564			12,909			26,728			25,894

Loss from operations		(8,548	)		(4,397	)		(15,608	)		(9,382	)
Foreign currency gains (losses)		433			(769	)		155			(658	)
Interest income, net		112			25			210			18

Loss before income tax charge (credit)		(8,003	)		(5,141	)		(15,243	)		(10,022	)
Income tax charge (credit)		134			(465	)		158			(1,563	)

Net loss	$	(8,137	)	$	(4,676	)	$	(15,401	)	$	(8,459	)


Loss per share data:
Basic:	$	(0.60	)	$	(0.37	)	$	(1.17	)	$	(0.69	)
Diluted:	$	(0.60	)	$	(0.37	)	$	(1.17	)	$	(0.69	)
Weighted average common shares used in the calculation:
Basic:		13,494			12,664			13,187			12,192
Diluted:		13,494			12,664			13,187			12,192

See Notes to Unaudited Condensed Consolidated Financial Statements.

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Trikon Technologies, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)

	Six Months ended

		June 30, 2003			June 30, 2002
		June 30, 2003			June 30, 2002

Operating Activities
Net loss	$	(15,401	)	$	(8,459	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization of property plant and equipment		2,422			2,471
Loss on sale of property, plant and equipment		9			—
Amortization of deferred compensation		569			759
Provision for loss on accounts receivable		111			(18	)
Changes in operating assets and liabilities:
Accounts receivable		(84	)		4,612
Inventories (including demonstration systems)		1,613			(1,379	)
Other current assets		570			397
Accounts payable and other liabilities		(83	)		268
Income tax payable		—			(1,585	)
Pension obligations		1,470			—
Deferred revenue		440			(3,888	)

Net cash used in operating activities		(8,364	)		(6,822	)
Investing Activities
Purchases of property, equipment and leasehold improvements		(268	)		(1,216	)
Proceeds from sale of property, plant and equipment		—			19
Other assets and liabilities		(37	)		(46	)

Net cash used in investing activities		(305	)		(1,243	)
Financing Activities
Issuance of common stock		15			11,803
Repayments under bank credit lines		(4,038	)		(2,731	)
Payments on capital lease obligations		(339	)		(302	)

Net cash (used in) provided by financing activities		(4,362	)		8,770
Effect of exchange rate changes in cash		803			2,576

Net (decrease) increase in cash and cash equivalents		(12,228	)		3,281
Cash and cash equivalents at beginning of period		42,557			44,667

Cash and cash equivalents at end of period	$	30,329		$	47,948


See Notes to Unaudited Condensed Consolidated Financial Statements.

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Trikon Technologies, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2003

NOTE A BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include the accounts of Trikon Technologies Inc. (the “Company”) and its subsidiaries. All material intercompany balances and transactions have been eliminated. The 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 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 adjustments) considered necessary for a fair presentation have been included. The operating results for the three and six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.

The balance sheet at December 31, 2002 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

Commencing in the first quarter of fiscal 2003 the Company has identified, on the face of the statement of operations, foreign currency gains and losses as a separate item after income/loss from operations but before income/loss before tax in the current period. Certain prior-year amounts have been reclassified to conform to current-year presentation.

NOTE B RECENT ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards No. (“SFAS”) 143, “Accounting for Asset Retirement Obligations,” addresses the accounting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement is effective for financial years commencing after June 15, 2002 and the adoption of this statement did not have a material effect on the Company’s financial position or results of operations.

SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” supersedes SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and provides a single accounting model for the disposal of long-lived assets from continuing and discontinued operations. The Company adopted this standard on January 1, 2002 and the adoption of this statement did not have a material effect on the Company’s financial position or results of operations.

In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The statement changes the measurement and timing of recognition for exit costs, including restructuring charges, and is effective for any such activities initiated after December 31, 2002. It has no effect on charges recorded for exit activities begun prior to December 31, 2002. The adoption of this statement did not have a material effect on the Company’s financial position or results of operations.

SFAS No. 148, “Accounting for Stock Based Compensation – Transition and Disclosure” amends SFAS No. 123, “Accounting for Stock-Based Compensation,” and provides for additional disclosures relating to the pro forma effects of fair value based accounting when accounting is based upon the provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees.” The Company has included the additional disclosures required by this standard in note I to these condensed financial statements.

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In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (SFAS 149), “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends SFAS 133 to provide clarification on the financial accounting and reporting of derivative instruments and hedging activities and requires contracts with similar characteristics to be accounted for on a comparable basis. The Company does not expect the adoption of this statement to have a material effect on the Company’s financial position or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (SFAS 150), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS 150 establishes standards on the classification and measurement of financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003. The Company does not expect the adoption of this statement to have a material effect on the Company’s financial position or results of operations.

In November 2002, the FASB issued Financial Interpretation No. 45 (FIN 45) “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. For product warranties, instead of disclosing the maximum potential amount of future payments under the guarantee, a guarantor is required to disclose its accounting policy and methodology used in determining its liability for product warranties as well as a tabular reconciliation of the changes in the guarantor’s product warranty liability for the reporting period. The Company has included the additional disclosures required by this interpretation in note D to these condensed financial statements.

NOTE C 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:

		June 30, 2003		December 31, 2002
		June 30, 2003		December 31, 2002

		$’000		$’000

Customer service spares	$	3,129	$	4,327
Components		7,591		7,878
Work in process		9,184		7,065
Finished goods		—		1,216

	$	19,904	$	20,486

NOTE D LIABILITIES

The components of other current liabilities are as follows:

		June 30, 2003	December 31, 2002
		June 30, 2003	December 31, 2002

		$’000		$’000

Warranty and related expenses	$	971	$	1,426
Customer deposits		1,080		2,403
Payroll taxes		1,245		667
Income taxes		102		164
Other		469		628

Total	$	3,867	$	5,288

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Generally our products are sold with a standard warranty the period of which varies from 12 to 24 months, depending on a number of factors including the specific equipment purchased. We account for the estimated warranty cost as a charge to cost of sales at the time we recognize revenue. The warranty cost is based upon historic product performance and is based on a rolling 12-month average historic cost per machine per warranty month outstanding.

Changes in our product warranty liability during the three months ended March 31, 2003 and June 30, 2003 were as follows (in thousands):

Balance, December 31, 2002	$	1,426
Provisions for warranty		37
Consumption of reserves		(406	)
Translation adjustment		(20	)

Balance, March 31, 2003		1,041
Provisions for warranty		168
Consumption of reserves		(279	)
Translation adjustment		41

Balance, June 30, 2003	$	971

NOTE E COMPREHENSIVE LOSS

Comprehensive loss is comprised of the following:

		Three Months Ended						Six Months Ended

		June 30, 2003			June 30, 2002			June 30, 2003			June 30, 2002
		June 30, 2003			June 30, 2002			June 30, 2003			June 30, 2002

		$’000			$’000			$’000			$’000
Net loss	$	(8,137	)	$	(4,676	)	$	(15,401	)	$	(8,459	)
Pension plan obligations		6,040			—			6,040			—
Foreign currency translation adjustments		1,500			4,190			914			2,559

Total	$	(597	)	$	(486	)	$	(8,447	)	$	(5,900	)

Accumulated other comprehensive loss comprises:

		June 30, 2003		December 31, 2002
		June 30, 2003		December 31, 2002

		$’000		$’000
Pension plan obligations	$	1,180	$	7,220
Foreign currency translation adjustments		266		1,180

Total	$	1,446	$	8,400

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NOTE F 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, 2003			June 30, 2002			June 30, 2003			June 30, 2002
		June 30, 2003			June 30, 2002			June 30, 2003			June 30, 2002

Numerator ($’000):
Net loss	$	(8,137	)	$	(4,676	)	$	(15,401	)	$	(8,459	)

Denominator (thousands):
Weighted average shares outstanding		14,037			13,813			14,034			13,341
Restricted stock		(543	)		(1,149	)

	[Mark One]

		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended June 30, 2003
OR
		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934