Table of Contents
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended June 27, 2008
OR
o
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 000-51642
Aviza
Technology, Inc.
(Exact Name of
Registrant as Specified in its Charter)
Delaware
|
|
20-1979646
|
(State or Other
Jurisdiction of Incorporation or Organization)
|
|
(I.R.S. Employer
Identification Number)
|
440
Kings Village Road
Scotts
Valley, California 95066
(Address of
Principal Executive Offices including Zip Code)
(831)
438-2100
(Registrants
Telephone Number, Including Area Code)
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
x
NO
o
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act. (Check one):
|
Large accelerated filer
o
|
Accelerated filer
o
|
|
|
|
|
Non-accelerated filer
o
|
Smaller reporting
company
x
|
|
(Do not check if a
smaller reporting company)
|
|
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
YES
o
NO
x
As of August 6,
2008, the registrant had 21,856,473 shares of its common stock, par value
$0.0001 per share, outstanding.
Table of Contents
ITEM
1. FINANCIAL STATEMENTS
AVIZA
TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in
thousands, except par amounts and number of shares)
|
|
June 27,
|
|
September 28,
|
|
|
|
2008
|
|
2007 (1)
|
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
11,824
|
|
$
|
23,087
|
|
Accounts
receivable - net
|
|
27,526
|
|
37,202
|
|
Inventory
|
|
45,941
|
|
45,529
|
|
Prepaid expenses
and other current assets
|
|
5,128
|
|
5,317
|
|
Total current
assets
|
|
90,419
|
|
111,135
|
|
|
|
|
|
|
|
PROPERTY, PLANT
AND EQUIPMENT - net
|
|
25,408
|
|
31,781
|
|
INTANGIBLE
ASSETS - net
|
|
1,769
|
|
3,333
|
|
OTHER ASSETS
|
|
1,511
|
|
1,831
|
|
TOTAL
|
|
$
|
119,107
|
|
$
|
148,080
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
Short term
borrowings and current portion of notes payable
|
|
$
|
28,643
|
|
$
|
15,043
|
|
Accounts payable
|
|
21,320
|
|
22,536
|
|
Warranty
liability
|
|
7,593
|
|
11,222
|
|
Accrued
liabilities
|
|
18,729
|
|
13,391
|
|
Total current
liabilities
|
|
76,285
|
|
62,192
|
|
NOTES PAYABLE -
Long term
|
|
12,295
|
|
14,490
|
|
OTHER
LIABILITIES - Long term
|
|
175
|
|
|
|
Total
liabilities
|
|
88,755
|
|
76,682
|
|
|
|
|
|
|
|
COMMITMENTS AND
CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS
EQUITY:
|
|
|
|
|
|
Preferred stock,
$0.0001 par value - 5,000,000 shares authorized; none outstanding
|
|
|
|
|
|
Common stock,
$0.0001 par value100,000,000 shares authorized; 21,856,473 and 20,846,549
shares issued and outstanding at June 27, 2008 and September 28,
2007, respectively
|
|
2
|
|
2
|
|
Additional
paid-in capital
|
|
121,690
|
|
118,400
|
|
Accumulated
deficit
|
|
(94,225
|
)
|
(49,974
|
)
|
Accumulated
other comprehensive income
|
|
2,885
|
|
2,970
|
|
Total
stockholders equity
|
|
30,352
|
|
71,398
|
|
TOTAL
|
|
$
|
119,107
|
|
$
|
148,080
|
|
(1) Amounts were derived from our audited consolidated financial
statements for the year ended September 28, 2007 included in our Annual
Report on Form 10-K.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
Table of Contents
AVIZA
TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(in
thousands, except share and per share amounts)
(unaudited)
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
June 27,
|
|
June 29,
|
|
June 27,
|
|
June 29,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
NET SALES
|
|
$
|
33,505
|
|
$
|
57,421
|
|
$
|
97,693
|
|
$
|
181,251
|
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS
SOLD:
|
|
|
|
|
|
|
|
|
|
Cost of goods
sold
|
|
22,490
|
|
39,246
|
|
67,808
|
|
125,304
|
|
Cost of goods
sold - restructuring charges
|
|
|
|
|
|
13,029
|
|
|
|
Total cost of
goods sold
|
|
22,490
|
|
39,246
|
|
80,837
|
|
125,304
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
11,015
|
|
18,175
|
|
16,856
|
|
55,947
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
7,337
|
|
8,101
|
|
23,357
|
|
23,815
|
|
Selling, general
and administrative
|
|
9,001
|
|
8,217
|
|
28,084
|
|
24,846
|
|
Restructuring
and other charges
|
|
|
|
|
|
7,792
|
|
|
|
Total operating
expenses
|
|
16,338
|
|
16,318
|
|
59,233
|
|
48,661
|
|
INCOME (LOSS)
FROM OPERATIONS
|
|
(5,323
|
)
|
1,857
|
|
(42,377
|
)
|
7,286
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME
(EXPENSE):
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
22
|
|
146
|
|
106
|
|
283
|
|
Interest expense
|
|
(487
|
)
|
(663
|
)
|
(1,435
|
)
|
(2,978
|
)
|
Other income -
net
|
|
15
|
|
(449
|
)
|
49
|
|
(425
|
)
|
|
|
|
|
|
|
|
|
|
|
Total other
expense - net
|
|
(450
|
)
|
(966
|
)
|
(1,280
|
)
|
(3,120
|
)
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS)
BEFORE INCOME TAXES
|
|
(5,773
|
)
|
891
|
|
(43,657
|
)
|
4,166
|
|
PROVISION FOR
(BENEFIT FROM) INCOME TAXES
|
|
(128
|
)
|
382
|
|
594
|
|
1,178
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
(LOSS)
|
|
$
|
(5,645
|
)
|
$
|
509
|
|
$
|
(44,251
|
)
|
$
|
2,988
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.26
|
)
|
$
|
0.02
|
|
$
|
(2.05
|
)
|
$
|
0.16
|
|
Diluted
|
|
$
|
(0.26
|
)
|
$
|
0.02
|
|
$
|
(2.05
|
)
|
$
|
0.16
|
|
Weighted average
common shares:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
21,856,473
|
|
20,763,221
|
|
21,590,985
|
|
18,150,976
|
|
Diluted
|
|
21,856,473
|
|
21,607,161
|
|
21,590,985
|
|
18,964,575
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
2
Table
of Contents
AVIZA TECHNOLOGY, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(in
thousands)
(Unaudited)
|
|
Nine Months Ended
|
|
|
|
June 27,
|
|
June 29,
|
|
|
|
2008
|
|
2007
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
|
|
Net income
(loss)
|
|
$
|
(44,251
|
)
|
$
|
2,988
|
|
Adjustments to
reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
Depreciation
|
|
4,045
|
|
2,908
|
|
Amortization
|
|
420
|
|
945
|
|
Non-cash
restructuring and other charges
|
|
17,676
|
|
|
|
Fair value of
common stock issued for prototype materials
|
|
125
|
|
|
|
Stock-based
compensation
|
|
1,451
|
|
1,530
|
|
Gain on disposal
of equipment
|
|
(296
|
)
|
|
|
Provision for allowance
for doubtful accounts
|
|
141
|
|
(19
|
)
|
Write-off costs
of prior financing agreements
|
|
|
|
176
|
|
Reduction in
acquired intangible assets due to the use of acquired net operating losses
|
|
|
|
509
|
|
Changes in
assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
|
9,494
|
|
(13,936
|
)
|
Inventory
|
|
(10,902
|
)
|
8,829
|
|
Prepaid expenses
and other assets
|
|
1,175
|
|
104
|
|
Accounts payable
|
|
(772
|
)
|
(11,199
|
)
|
Warranty
liability
|
|
(3,593
|
)
|
1,104
|
|
Accrued
liabilities
|
|
5,438
|
|
1,609
|
|
Net cash used in
operating activities
|
|
(19,849
|
)
|
(4,452
|
)
|
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
|
|
Purchases of
property, plant and equipment
|
|
(2,511
|
)
|
(7,479
|
)
|
Purchase of
technology license
|
|
(48
|
)
|
|
|
Proceeds from
sale of equipment
|
|
324
|
|
|
|
Proceeds from
sale of the net assets of ET Equipments Ltd.
|
|
600
|
|
|
|
Net cash used in
investing activities
|
|
(1,635
|
)
|
(7,479
|
)
|
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
|
|
Net proceeds
(repayments) on credit lines
|
|
13,075
|
|
(12,341
|
)
|
Proceeds from
the issuance of common stock
|
|
9
|
|
27,689
|
|
Net proceeds on
refinancing of mortgage loan
|
|
|
|
5,635
|
|
Proceeds from
equipment loan
|
|
|
|
4,000
|
|
Payments on
mortgage loan
|
|
(333
|
)
|
(253
|
)
|
Payments on
other borrowings
|
|
(985
|
)
|
(958
|
)
|
Payments on
equipment loan
|
|
(973
|
)
|
(95
|
)
|
Payments on
capital lease obligations
|
|
(234
|
)
|
(195
|
)
|
Net cash
provided by financing activities
|
|
10,559
|
|
23,482
|
|
Effect of
exchange rates on foreign cash balances
|
|
(338
|
)
|
(281
|
)
|
NET (DECREASE)
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
(11,263
|
)
|
11,270
|
|
CASH AND CASH
EQUIVALENTS:
|
|
|
|
|
|
Beginning of
period
|
|
23,087
|
|
10,722
|
|
End of period
|
|
$
|
11,824
|
|
$
|
21,992
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
Cash paid for
interest
|
|
$
|
1,320
|
|
$
|
2,560
|
|
Cash paid for
income taxes
|
|
$
|
629
|
|
$
|
353
|
|
NONCASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
Fair value of
common stock issued in the acquisition of technology license
|
|
$
|
1,715
|
|
$
|
|
|
Property and
equipment purchases included in accounts payable at end of period
|
|
$
|
129
|
|
$
|
537
|
|
Equipment
acquired under capital lease
|
|
$
|
71
|
|
$
|
715
|
|
Notes payable
issued for services to be rendered
|
|
$
|
|
|
$
|
1,737
|
|
The accompanying
notes are an integral part of these condensed consolidated financial statements
3
Table of Contents
AVIZA TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
June 27,
2008
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with United
States (U.S.) generally accepted accounting principles for interim financial
information and applicable regulations of the U.S. Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the U.S. have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair statement of
financial position and results of operations have been included. Our operating
results for the quarter and nine months ended June 27, 2008 are not
necessarily indicative of the results that may be expected for future quarters
and the fiscal year ending September 26, 2008. The accompanying unaudited
condensed consolidated financial statements should be read in conjunction with
our audited consolidated financial statements for the year ended September 28,
2007, which are included in our Annual Report on Form 10-K, and the risk
factors contained therein.
The preparation of the accompanying unaudited
condensed consolidated financial statements requires the use of estimates that
affect the reported amounts of assets, liabilities, revenues, expenses and
contingencies. These estimates include, but are not limited to, estimates
related to revenue recognition, allowance for doubtful accounts, inventory
valuation, tangible and intangible long-lived asset valuation, warranty and
other obligations, contingent liabilities and litigation. Estimates are updated
on an ongoing basis and are evaluated based on historical experience and current
circumstances. Changes in facts and circumstances in the future may give rise
to changes in these estimates which may cause actual results to differ from
current estimates.
Aviza Technology, Inc.s (the Company
or Aviza) current fiscal year will end on September 26, 2008 and
includes 52 weeks. We close our fiscal quarters on the last Friday of
December, March, June and September.
The condensed consolidated financial
statements include the accounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
4
Table
of Contents
2. Balance Sheet Details
|
|
June 27,
|
|
September 28,
|
|
|
|
2008
|
|
2007
|
|
|
|
(in thousands)
|
|
Inventory:
|
|
|
|
|
|
Raw materials
|
|
$
|
28,985
|
|
$
|
28,667
|
|
Work-in-process
|
|
12,636
|
|
13,692
|
|
Finished goods
and evaluation systems
|
|
4,320
|
|
3,170
|
|
Total
|
|
$
|
45,941
|
|
$
|
45,529
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets:
|
|
|
|
|
|
Insurance
|
|
$
|
375
|
|
$
|
96
|
|
Deferred
installation costs
|
|
249
|
|
385
|
|
Taxes
|
|
2,055
|
|
2,621
|
|
Other
|
|
2,449
|
|
2,215
|
|
Total
|
|
$
|
5,128
|
|
$
|
5,317
|
|
|
|
|
|
|
|
Property,
plant and equipment - net:
|
|
|
|
|
|
Land
|
|
$
|
1,839
|
|
$
|
1,839
|
|
Buildings and
improvements
|
|
12,217
|
|
12,198
|
|
Machinery and
equipment
|
|
18,964
|
|
18,659
|
|
Office
furnishings, fixtures and equipment
|
|
6,672
|
|
6,564
|
|
Construction-in-process
|
|
758
|
|
3,820
|
|
Total
|
|
40,450
|
|
43,080
|
|
Accumulated
depreciation
|
|
(15,042
|
)
|
(11,299
|
)
|
Property, plant
and equipment - net
|
|
$
|
25,408
|
|
$
|
31,781
|
|
|
|
|
|
|
|
Accrued
liabilities:
|
|
|
|
|
|
Accrued payroll
and payroll taxes
|
|
$
|
5,190
|
|
$
|
5,660
|
|
Accrued legal
and accounting fees
|
|
4,618
|
|
1,643
|
|
Deferred revenue
|
|
974
|
|
1,076
|
|
Accrued
restructuring charges
|
|
1,646
|
|
|
|
Other taxes
payable
|
|
3,455
|
|
3,557
|
|
Other
|
|
2,846
|
|
1,455
|
|
Total
|
|
$
|
18,729
|
|
$
|
13,391
|
|
3. Stock-Based Compensation
Effective October 1, 2005, we adopted
the provisions of Statement of Financial Accounting Standards, or SFAS, No. 123(R),
Share-Based Payment
, or SFAS 123(R). SFAS 123(R) establishes
standards for the accounting for transactions in which an entity exchanges its
equity instruments for goods or services. It also addresses transactions in
which an entity incurs liabilities in exchange for goods or services that are
based on the fair value of the entitys equity instruments or that may be
settled by the issuance of those equity instruments. Accordingly, stock-based
compensation cost is measured at grant date, based on the fair value of the
award, and is recognized as expense over the employees requisite service
period. The measurement of stock-based compensation cost is based on several
criteria including, but not limited to, the valuation model used and associated
input factors such as expected term of the award, stock price volatility,
dividend rate, risk-free interest rate and award cancellation rate. The input
factors used in the valuation model are based on subjective future expectations
combined with management judgment. If there is a difference between the
assumptions used in determining stock-based compensation costs and the actual
factors, which become known over time, we may change future input factors used
5
Table
of Contents
in determining
stock-based compensation costs. These changes may materially impact our results
of operations in the periods over which such costs are expensed.
The fair value of each option is estimated at
the date of grant using the Black-Scholes option valuation model. We estimate
the expected stock price volatility and expected life of our options based on
historical data and representative peer group data. We use historical data to
estimate forfeiture rates. The risk-free interest rate for periods within the
contractual life of the option is based on the U.S. Treasury yield with similar
expected life.
Under our stock option plans, we may grant options
to purchase up to a maximum of 6,644,000 shares of common stock, including
outstanding options to employees, directors and consultants at a price not less
than the fair market value on the date of the grant. These options generally
vest over two to five years and generally expire seven to ten years from the
date of the grant.
We recognized stock-based compensation expense
of $456,000 and $1,451,000 during the quarter and nine months ended June 27,
2008, respectively, and $616,000 and $1,530,000 during the quarter and nine
months ended June 29, 2007, respectively. Due to uncertainty surrounding
the realization of the income tax benefit related to stock based compensation
expense, there is no related income tax benefit recognized in the consolidated
statements of operations for the quarter and nine months ended June 27,
2008 and June 29, 2007, respectively, as a full valuation allowance has
been provided against the deferred tax asset.
The fair value of our stock options granted
in the quarter and nine months ended June 27, 2008 and June 29, 2007,
respectively, was estimated at the date of grant using the following weighted
average assumptions:
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
June 27,
|
|
June 29,
|
|
June 27,
|
|
June 29,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Expected life
(years)
|
|
3.0
|
|
4.8
|
|
3.6
|
|
4.6
|
|
Risk-free
interest rate
|
|
2.6%
|
|
4.6%
|
|
2.8%
|
|
4.7%
|
|
Stock price
volatility
|
|
58.0%
|
|
60.1%
|
|
56.3%
|
|
60.8%
|
|
Dividend yield
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
6
Table of
Contents
The following table summarizes our stock option
activity under the stock plans during the quarter and nine months ended June 27,
2008
:
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Number of
|
|
Weighted Average
|
|
Remaining Contractual
|
|
Aggregate Intrinsic
|
|
|
|
Shares
|
|
Exercise Price
|
|
Term (Years)
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
September 28, 2007
|
|
4,202,499
|
|
$
|
5.01
|
|
6.51
|
|
$
|
3,496,801
|
|
Granted
|
|
410,000
|
|
1.78
|
|
|
|
|
|
Exercised
|
|
(9,924
|
)
|
0.95
|
|
|
|
|
|
Forfeited
|
|
(35,932
|
)
|
12.78
|
|
|
|
|
|
Outstanding at
December 28, 2007
|
|
4,566,643
|
|
4.66
|
|
6.27
|
|
1,266,487
|
|
Granted
|
|
100,000
|
|
1.10
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(78,540
|
)
|
9.55
|
|
|
|
|
|
Outstanding at
March 28, 2008
|
|
4,588,103
|
|
4.50
|
|
6.01
|
|
|
|
Granted
|
|
883,500
|
|
0.52
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(232,346
|
)
|
4.52
|
|
|
|
|
|
Outstanding at
June 27, 2008
|
|
5,239,257
|
|
3.83
|
|
5.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested
and expected to vest at June 27, 2008
|
|
4,948,238
|
|
3.87
|
|
5.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested
at June 27, 2008
|
|
2,904,720
|
|
4.55
|
|
5.55
|
|
|
|
The aggregate intrinsic value represents
total pre-tax intrinsic value based on the closing stock price of $0.52, $0.50,
$1.81 and $3.45 per share at June 27, 2008, March 28, 2008, December 28,
2007 and September 28, 2007, respectively.
As of June 27, 2008, there was $3.2 million
of unrecognized compensation cost related to unvested stock options granted and
outstanding, net of estimated forfeitures. The cost is expected to be
recognized over a weighted average period of approximately 2.4 years.
The following table details total stock-based
compensation expense for the quarters and nine months ended June 27, 2008
and June 29, 2007, respectively:
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
June 27,
|
|
June 29,
|
|
June 27,
|
|
June 29,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(in thousands)
|
|
Cost of goods
sold
|
|
$
|
50
|
|
$
|
58
|
|
$
|
152
|
|
$
|
159
|
|
Research and
development
|
|
110
|
|
140
|
|
350
|
|
363
|
|
Selling, general
and administrative
|
|
296
|
|
418
|
|
949
|
|
1,008
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
stock-based compensation expense
|
|
456
|
|
616
|
|
1,451
|
|
1,530
|
|
Income tax benefits
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
$
|
456
|
|
$
|
616
|
|
$
|
1,451
|
|
$
|
1,530
|
|
7
Table of
Contents
The options outstanding and vested at June 27,
2008 were in the following exercise price ranges:
|
|
Options Outstanding
|
|
Options Vested
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
Weighted
|
|
Range of
|
|
|
|
Remaining
|
|
Average
|
|
Number
|
|
Average
|
|
Exercise
|
|
Number
|
|
Contractual
|
|
Exercise
|
|
Vested and
|
|
Exercise
|
|
Prices
|
|
Outstanding
|
|
Life (Years)
|
|
Price
|
|
Exercisable
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.52 - $0.54
|
|
849,541
|
|
4.86
|
|
$
|
0.52
|
|
33,571
|
|
$
|
0.52
|
|
$0.55 - $0.83
|
|
1,091,868
|
|
5.52
|
|
0.83
|
|
1,091,830
|
|
0.83
|
|
$0.84 - $4.98
|
|
1,746,589
|
|
5.13
|
|
3.49
|
|
776,000
|
|
3.59
|
|
$4.99 - $87.07
|
|
1,551,259
|
|
6.48
|
|
8.14
|
|
1,003,319
|
|
9.47
|
|
$0.52 - $87.07
|
|
5,239,257
|
|
5.57
|
|
3.83
|
|
2,904,720
|
|
4.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average fair value of options on
the grant date, as determined under SFAS 123(R), granted during the quarter and
nine months ended June 27, 2008 was $0.21 and $0.42 per share,
respectively, and $3.21 and $3.07 per share for the quarter and nine months
ended June 29, 2007, respectively.
The total intrinsic value of options exercised
during the quarter and nine months ended June 27, 2008 was $0 and $14,000
respectively, and $129,000 and $419,000 for the quarter and nine months ended June 29,
2007, respectively. The total cash received from employees as a result of
employee stock options exercises during the quarter and nine months ended June 27,
2008 was $0 and $9,000, respectively. For the quarter and nine months ended June 29,
2007, the total cash received from employees as a result of stock option
exercise was $56,000 and $216,000, respectively.
4. Intangible Assets
During
the quarter ended December 28, 2007, we acquired prototype materials and a
license to certain technology in exchange for 1,000,000 shares of our common
stock and potential future royalty payments based on net revenue generated from
future sales of products developed utilizing the technology. A summary of the
total consideration given at closing is as follows (in thousands):
Issuance of
common stock (1,000,000 shares at $1.83 per share)
|
|
$
|
1,830
|
|
Direct acquisition
costs
|
|
58
|
|
Total
consideration
|
|
$
|
1,888
|
|
The price per share used for valuation
purposes was the closing price per common share per the NASDAQ Global Market on
December 7, 2007, the date the shares were transferred. Direct acquisition
costs represent legal costs and use tax liability accrued on the transaction.
The total consideration issued in the
transaction was allocated based on the estimated fair values of the assets
acquired as of the closing date. The allocation is as follows (in thousands):
License
|
|
$
|
1,763
|
|
Prototype
materials
|
|
125
|
|
Total
consideration
|
|
$
|
1,888
|
|
8
Table of Contents
The prototype materials were expensed as
research and development costs during the quarter ended December 28, 2007.
The cost of the license is being amortized over its estimated 10-year useful
life commencing January 2008.
Intangible assets are recorded at cost, net
of accumulated amortization, and are amortized over their estimated useful
lives using the straight-line method. At June 27, 2008 and September 28,
2007 our intangible assets consisted of licenses which we have acquired.
We evaluate intangible assets for indicators
of possible impairment when events or changes in circumstances indicate the
carrying amount of the asset may not be recoverable. During March 2008, we
successfully completed testing of new technology which provides a more
efficient and cost-effective solution than certain technology we had previously
licensed. As a result, the value of the previously licensed technology became
impaired. The previously licensed technology was written down to its fair value
at March 28, 2008 based upon an analysis of future cash flows related to
the technology. This resulted in an impairment charge to operations of
approximately $3.0 million which was included in restructuring and other
charges during the quarter ended March 28, 2008. The estimated useful life
of the previously licensed technology was reduced to one year from March 28,
2008 based on our analysis. The net book value of this license at June 27,
2008 was $94,000, which reflects the write-down.
Accumulated amortization and impairment on
our intangible assets at June 27, 2008 and September 28, 2007 was
$3,994,000 and $858,000, respectively.
Amortization expense relating to all
intangible assets was $75,000 and $319,000 for the quarter and nine months
ended June 27, 2008, respectively, and $116,000 and $369,000 for the
quarter and nine months ended June 29, 2007, respectively. Based on the
intangible assets recorded at June 27, 2008, and assuming no subsequent
additions to or impairment of the underlying assets, the remaining amortization
expense is expected to be as follows (in thousands):
September 26,
2008 (remaining 3 months)
|
|
$
|
75
|
|
September 25,
2009
|
|
239
|
|
September 24,
2010
|
|
176
|
|
September 30,
2011
|
|
176
|
|
September 28,
2012
|
|
176
|
|
Thereafter
|
|
927
|
|
Total
|
|
$
|
1,769
|
|
9
Table of Contents
5.
Borrowing Facilities
Borrowings consist of the following (in
thousands):
|
|
June 27,
|
|
September 28,
|
|
|
|
2008
|
|
2007
|
|
Bank loan
(revolving line of credit)
|
|
$
|
26,012
|
|
$
|
12,937
|
|
Equipment note
payable
|
|
2,630
|
|
3,603
|
|
Mortgage note
payable
|
|
11,452
|
|
11,785
|
|
Other notes
payable
|
|
371
|
|
572
|
|
Capital lease
obligations
|
|
473
|
|
636
|
|
Total
|
|
40,938
|
|
29,533
|
|
Less: short-term
and current portion of long-term borrowings
|
|
28,643
|
|
15,043
|
|
Long-term
portion
|
|
$
|
12,295
|
|
$
|
14,490
|
|
6. Warranty and Guarantees
Warranty
We
accrue for the estimated cost of the warranty on our systems, which includes
the cost of the labor and parts necessary to repair systems during the warranty
period. The amounts recorded in the warranty accrual are estimated based on
actual historical costs incurred and on estimated probable future expenses
related to current sales. The warranty accrual is adjusted over the warranty
period based on actual cost incurred. Systems typically have warranty periods
ranging from one to three years. The components of the warranty accrual are as
follows:
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
June 27,
|
|
June 29,
|
|
June 27,
|
|
June 29,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(in thousands)
|
|
Beginning
warranty accrual
|
|
$
|
8,575
|
|
$
|
12,903
|
|
$
|
11,222
|
|
$
|
10,816
|
|
Additional
accruals for new shipments
|
|
890
|
|
2,484
|
|
2,058
|
|
8,248
|
|
Warranty costs
incurred
|
|
(1,317
|
)
|
(2,806
|
)
|
(5,314
|
)
|
(6,560
|
)
|
Expiration and
change in liability for pre-existing warranties during the period
|
|
(555
|
)
|
(556
|
)
|
(373
|
)
|
(479
|
)
|
Ending warranty
accrual
|
|
$
|
7,593
|
|
$
|
12,025
|
|
$
|
7,593
|
|
$
|
12,025
|
|
Guarantees
In addition to product
warranties, we, from time to time, in the normal course of business, indemnify
certain customers against third-party claims that our products, when used for
their intended purposes, infringe the intellectual property rights of such
third party or other claims made against certain parties. It is not possible to
determine the maximum potential amount of liability under these indemnification
obligations due to the limited history of prior indemnification claims and the
unique facts and circumstances that are likely to be involved in each
particular claim. Historically, we have never made payments under these
obligations, accordingly no liabilities have been recorded for these
obligations on the balance sheet at June 27, 2008 and September 28,
2007, respectively.
7. Income Taxes
As
part of the process of preparing our financial statements, we are required to
estimate our income tax provision (benefit) in each of the jurisdictions in
which we operate. This process requires us to estimate our current income tax
provision (benefit) and assess temporary differences resulting from differing
treatment of items for tax and accounting purposes. These differences result in
deferred tax assets and liabilities, which are included in our balance sheet
.
10
Table of Contents
We
record a valuation allowance to reduce our deferred tax assets to the amount
that is more likely than not to be realized. While we have considered future
taxable income and any ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance, if we were to determine that we
would be able to realize our deferred tax assets in the future in excess of our
net recorded amount, an adjustment to the deferred tax asset would increase
income in the period such determination was made. Likewise, if we
were to determine that we would not be
able to realize all or part of a net deferred tax asset in the future, an
adjustment to the deferred tax asset would be charged to income in the period
such determination was made.
We have recorded a 100% valuation allowance
against our domestic and United Kingdom net deferred tax asset due to the
uncertainty regarding future taxable income.
Income tax expense primarily relates to our
foreign operations as we continue to incur losses from domestic operations. We
recorded an income tax benefit of $128,000 during the quarter ended June 27,
2008 and income tax expense of $594,000 during the nine months ended June 27,
2008. We recorded income tax expense of $382,000 and $1,178,000
for the quarter and nine months ended June 29, 2007,
respectively.
We adopted the provisions of Financial
Standards Accounting Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), an interpretation of FASB Statement No. 109 (SFAS 109) on September 29,
2007. As a result of the implementation of FIN 48, we recognized no material
adjustment in the liability for unrecognized income tax benefits. At the
adoption date of September 29, 2007, we had approximately
$3.5 million of unrecognized tax benefits, $2.1 million of which would
affect our effective tax rate if recognized, and $1.4 million would be offset
by valuation allowance. At June 27, 2008, we had $3.6 million of
unrecognized tax benefits.
In addition, we recognized interest and
penalties related to uncertain tax positions in income tax expense. At the
adoption date of September 29, 2007, we had approximately $124,000 of
accrued interest and penalties for uncertain tax positions primarily from our
foreign operations. We do not anticipate that total unrecognized tax benefits
will significantly change due
to the
settlement of audits and the expiration of the statue of limitations prior to June 26,
2009.
At September 28, 2007, we had
approximately $56.6 million and $8.3 million of federal and
California net operating loss carryforwards, respectively. We and our
subsidiaries have had multiple ownership changes, as defined by Section 382
of the Internal Revenue Code (IRC), due to significant stock transactions in
previous years that will limit the future realization of our net operating loss
carryforwards. Section 382 will result in the forfeiture of approximately
$24.6 million of net operating loss carryforwards for federal income tax
purposes. The net operating loss carryforwards begin to expire in 2014 for
federal and 2013 for California purposes.
As of September 28, 2007, we had federal
and California research and development tax credit carryforwards of approximately
$1.7 million and $1.6 million, respectively. Due to Section 382
ownership changes under IRC Section 383, $1.1 million of the federal
research tax credit carryforwards will be subject to forfeiture. Federal
research and development tax credit carryforwards will expire beginning in
fiscal 2011. California research and development tax credits will carry forward
indefinitely.
8. Restructuring and Other
Charges
Restructuring
Charges -
During the
quarter ended March 28, 2008, we announced our plans for a significant
global restructuring based on an analysis of our product strategy, served
markets and internal operations. In order to streamline our operations and
align product offerings with the current market conditions, we have and will
continue to downsize programs, products and spending related to trench
capacitor technology for DRAM and will decrease our overall dependence on the
DRAM market. The restructuring of our global workforce, products and business
operations was designed to reduce our overall cost structure, as well as
improve operational execution and financial performance. We have refocused on
our core strengths in the ALD, Etch and PVD technologies, while moving away
from the development of large batch thermal systems. We will continue to
service and support our current global installed base.
As part of our
restructuring plans, we executed a global reduction in workforce, divested
ourselves of a non-core operation and wrote down assets related to non-core
products which included inventory revaluation, cancellation of purchase
commitments and the write-down of impaired machinery and equipment. Volume
manufacturing will no longer be performed at our Scotts Valley headquarters. Of
the restructuring charges, approximately $2.4 million required future cash
payments. We estimate these payments will be made throughout fiscal 2009. At June 27,
2008, approximately $1.6 million of these estimated payments remained unpaid
and are included in accrued liabilities.
11
Table of Contents
During the quarter ended March 28,
2008, we sold the net assets of our machine shop, ET Equipments Ltd., located
in Wales, UK, for $600,000 as part of our restructuring plan to refocus on our
core strengths. The net book value of the net assets sold, cost of completing
the transaction and loss on the sale of the net assets of ET Equipments Ltd.
were as follows (in thousands):
Assets:
|
|
|
|
|
|
Inventory
|
|
$
|
1,143
|
|
|
|
Equipment
|
|
148
|
|
|
|
|
|
|
|
$
|
1,291
|
|
Liabilities:
|
|
|
|
|
|
Accounts payable
|
|
(19
|
)
|
|
|
Accrued
liabilities
|
|
(233
|
)
|
|
|
|
|
|
|
(252
|
)
|
Net assets sold
|
|
|
|
1,039
|
|
Transaction
costs
|
|
|
|
104
|
|
|
|
|
|
1,143
|
|
Less: Purchase
price
|
|
|
|
(600
|
)
|
Net loss on sale
of net assets of ET Equipments Ltd.
|
|
|
|
$
|
543
|
|
|
|
|
|
|
|
|
|
Transaction costs related
primarily to legal fees incurred.
Other Charges -
During the quarter ended March 28, 2008, we recognized impairment
of an intangible asset related to a license we had acquired (see Note 4).
Completion of successful testing of a new technology, which provides a more
efficient and cost-effective solution, lead to the impairment of the license,
resulting in a charge of approximately $3.0 million to operations during the quarter
ended March 28, 2008.
The impact of these restructuring
and other charges on the operating results for the nine months ended June 27,
2008, and the remaining liability as of June 27, 2008, is summarized as
follows (in thousands):
|
|
|
|
Loss on
|
|
|
|
Sale of Net
|
|
Impairment of
|
|
|
|
|
|
|
|
Reduction in
|
|
Non-cancellable
|
|
Inventory
|
|
Assets of
|
|
Machinery and
|
|
Impairment of
|
|
|
|
|
|
Work Force
|
|
Purchase Commitments
|
|
Revaluation
|
|
ET Equipments Ltd.
|
|
Equipment (1)
|
|
Intangible
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
costs - cost of goods sold
|
|
$
|
380
|
|
$
|
2,178
|
|
$
|
10,471
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
13,029
|
|
Restructuring and
other charges - operating expenses
|
|
387
|
|
|
|
-
|
|
543
|
|
3,854
|
|
3,008
|
|
7,792
|
|
Total
restructuring and other charges
|
|
767
|
|
2,178
|
|
10,471
|
|
543
|
|
3,854
|
|
3,008
|
|
20,821
|
|
Non-cash
adjustments
|
|
|
|
|
|
(10,471
|
)
|
(543
|
)
|
(3,654
|
)
|
(3,008
|
)
|
(17,676
|
)
|
Cash payments
|
|
(589
|
)
|
(149
|
)
|
|
|
|
|
|
|
|
|
(738
|
)
|
Balance at
March 28, 2008
|
|
178
|
|
2,029
|
|
|
|
|
|
200
|
|
|
|
2,407
|
|
Cash payments
|
|
(174
|
)
|
(587
|
)
|
|
|
|
|
|
|
|
|
(761
|
)
|
Balance at
June 27, 2008
|
|
$
|
4
|
|
$
|
1,442
|
|
$
|
|
|
$
|
|
|
$
|
200
|
|
$
|
|
|
$
|
1,646
|
|
(1) Includes
$200,000 of disposal costs accrued as of June 27, 2008
12
Table
of Contents
9. Commitments and Contingencies
On April 11, 2006, IPS, Ltd. filed a lawsuit
against us in the United States District Court for the Central District of
California. The complaint alleges that we improperly used IPSs confidential
information to develop our Celsior single-wafer processing type atomic layer
deposition technology. The complaint is for unspecified monetary damages,
injunctive relief and an order rescinding the settlement and distributor
agreements that we and IPS entered into in May 2004 in settlement of a
prior lawsuit that IPS filed against ASML U.S., Inc. and us in March 2004
relating to assets that we acquired from ASML in October 2003. In May 2007,
we successfully moved the dispute to arbitration. Discovery commenced in June 2007.
The arbitration hearing is currently scheduled for March 2009. We intend
to contest the lawsuit vigorously.
We do not believe that the outcome of
this lawsuit will have a material impact on our business, financial condition
or results of operations.
Prior to our merger transaction with Trikon
Technologies, Inc., Trikon was a party to an employment lawsuit in France.
On March 10, 2004, Dr. Jihad Kiwan departed Trikon as Director and
Chief Executive Officer. On March 29, 2004 and April 2, 2004, Trikon
received letters from a United Kingdom law firm and from a French law firm,
respectively, on behalf of Dr. Kiwan, detailing certain monetary claims
for severance amounts due to Dr. Kiwan with respect to his employment with
Trikon. On April 28, 2004, Dr. Kiwan filed a lawsuit in France and on
June 10, 2004, filed similar proceedings in the United Kingdom. Dr. Kiwan
has subsequently withdrawn the proceedings in the United Kingdom. On January 7,
2008, the French Commercial Court in Grenoble rejected certain of Dr. Kiwans
claims but ordered us to pay monetary awards with respect to certain other of Dr. Kiwans
claims. We intend to appeal the decision and do not believe that the outcome of
the dispute will have a material impact on our business, financial condition or
results of operations. We have accrued our estimate of the costs to settle the
claims at June 27, 2008.
On December 1, 2006, we filed an
arbitration demand against ASML U.S., Inc., and related entities,
asserting claims of fraud, negligent misrepresentation, fraud in the inducement
and breach of the covenant of good faith and fair dealing arising out of our
purchase of ASMLs Thermal Division in October 2003. Following discovery
and an unsuccessful motion for summary judgment filed by ASML, the matter was
arbitrated in December 2007 and January 2008. The arbitrator issued a
preliminary judgment in favor of ASML. Based on a provision in the governing
contract providing that the party prevailing in the arbitration may recover its
attorneys fees and costs from the opposing party, the arbitrator has ordered
briefings by both parties with regard to any fee request by ASML. On April 17,
2008, ASML submitted a petition seeking approximately $2.5 million in attorneys
fees and costs incurred in connection with this matter. Following full briefing
by both parties, the arbitrator issued a final award of approximately $1.4
million in attorneys fees and costs to ASML. We have accrued our
estimate of the cost to settle the claims at June 27, 2008.
Our Scotts Valley location is a federal
Superfund site. Chlorinated solvent and other contamination was identified at
the site in the early 1980s, and by the late 1980s Watkins Johnson
Corporation (WJ) (a previous owner of the Company) had installed a
groundwater extraction and treatment system. In 1991, WJ entered into a consent
decree with the United States Environmental Protection Agency providing
for remediation of the site. In July 1999, WJ signed a remediation agreement
with an environmental consulting firm, ARCADIS Geraghty and Miller (ARCADIS).
Pursuant to this remediation agreement, WJ paid approximately $3 million
in exchange for which ARCADIS agreed to perform the work necessary to assure
satisfactory completion of WJs obligation under the consent decree. The
agreement also includes a cost overrun guaranty from ARCADIS up to a total
project cost of $15 million. In addition, the agreement included
procurement of a ten-year, claims-made insurance policy to cover overruns of up
to $10 million from American International Specialty (AIS), along with a
ten-year, claims made $10 million policy to cover unknown pollution
conditions at the site.
Failure
of WJ, ARCADIS, or AIS to fulfill their obligations may subject the Company to
substantial fines, and the Company could be forced to suspend production, alter
manufacturing processes or cease business operations, any of which could have a
material negative effect on the Companys business, financial condition or results
of operations.
13
Table
of Contents
Management
believes that the likelihood of the failure of WJ, ARCADIS or AIS is remote and
that any remaining or uninsured environmental liabilities will not have a
material impact on the Companys business, financial condition or results of
operations.
10. Major Customers
The following chart illustrates the
percentages of our net sales accounted for by our largest customers for the
periods indicated:
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
June 27,
|
|
June 29,
|
|
June 27,
|
|
June 29,
|
|
Customers
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
33
|
%
|
20
|
%
|
16
|
%
|
35
|
%
|
B
|
|
11
|
%
|
27
|
%
|
|
|
|
|
C
|
|
|
|
|
|
10
|
%
|
|
|
11. Comprehensive Income (Loss)
The components of comprehensive income (loss)
are as follows (in thousands):
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
June 27,
|
|
June 29,
|
|
June 27,
|
|
June 29,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net income
(loss)
|
|
$
|
(5,645
|
)
|
$
|
509
|
|
$
|
(44,251
|
)
|
$
|
2,988
|
|
Currency
translation adjustment
|
|
(37
|
)
|
404
|
|
(85
|
)
|
1,613
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive (loss) income
|
|
$
|
(5,682
|
)
|
$
|
913
|
|
$
|
(44,336
|
)
|
$
|
4,601
|
|
12. Net Income (Loss) Per Share
Basic income (loss) per share has been
computed based upon the weighted average number of common shares outstanding
for the periods presented. Diluted income (loss) per share is calculated as
though all potentially dilutive shares were outstanding during the period,
based upon the application of the treasury stock method. The following details
the calculation of the net income (loss) per share for the periods presented
(in thousands, except share and per share data):
14
Table of Contents
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
June 27,
|
|
June 29,
|
|
June 27,
|
|
June 29,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
$
|
(5,645
|
)
|
$
|
509
|
|
$
|
(44,251
|
)
|
$
|
2,988
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Basic weighted
average shares outstanding
|
|
21,856,473
|
|
20,763,221
|
|
21,590,985
|
|
18,150,976
|
|
Effect of
potentially dilutive securities:
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
843,940
|
|
|
|
813,599
|
|
Dilutive
weighted average shares outstanding
|
|
21,856,473
|
|
21,607,161
|
|
21,590,985
|
|
18,964,575
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) per share - basic
|
|
$
|
(0.26
|
)
|
$
|
0.02
|
|
$
|
(2.05
|
)
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) per share - diluted
|
|
$
|
(0.26
|
)
|
$
|
0.02
|
|
$
|
(2.05
|
)
|
$
|
0.16
|
|
For the nine months ended June 27, 2008
and June 29, 2007, we had securities outstanding that could potentially
dilute basic earnings per share in the future, but were excluded from the
computation of diluted net income (loss) per share in the periods presented as
their effect would have been anti-dilutive. The weighted average shares of
common stock issuable upon conversion or exercise of such outstanding
securities consist of the following:
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
June 27,
|
|
June 29,
|
|
June 27,
|
|
June 29,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Options that
would have been included in the computation of dilutive shares outstanding
had the Company reported net income from continuing operations because the exercise
price of such options exceeded the average stock price.
|
|
|
|
|
|
1,486,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options that
were excluded from the computation of dilutive shares outstanding because the
total assumed proceeds exceeded the average market value of the Companys
common stock during the period
|
|
4,998,451
|
|
2,261,110
|
|
3,141,570
|
|
2,413,741
|
|
|
|
|
|
|
|
|
|
|
|
Shares issuable
upon exercise of common stock warrants
|
|
290,000
|
|
406,725
|
|
300,262
|
|
406,725
|
|
15
Table
of Contents
ITEM 2. MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Cautionary Statement Regarding
Forward-Looking Statements
The statements in this report include
forward-looking statements. These forward-looking statements are based on our
managements current expectations and beliefs and involve numerous risks and
uncertainties that could cause actual results to differ materially from
expectations. You should not rely upon these forward-looking statements as
predictions of future events because we cannot assure you that the events or
circumstances reflected in these statements will be achieved or will occur. You
can identify forward-looking statements by the use of forward-looking
terminology, including the words believes, expects, may, will, should,
seeks, intends, plans, estimates or anticipates or the negative of
these words and phrases or other variations of these words and phrases or
comparable terminology. These forward-looking statements relate to, among other
things: our sales, results of operations and anticipated cash flows; capital
expenditures; depreciation and amortization expenses; research and development
expenses; sales, general and administrative expenses; the development and
timing of the introduction of new products and technologies; our ability to
maintain and develop relationships with our existing and potential future
customers and our ability to maintain the level of investment in research and
development and capacity that is required to remain competitive. Many factors
could cause our actual results to differ materially from those projected in
these forward-looking statements, including, but not limited to: variability of
our revenues and financial performance; risks associated with product
development and technological changes; the acceptance of our products in the
marketplace by existing and potential future customers; disruption of operations
or increases in expenses due to our involvement in litigation or caused by
civil or political unrest or other catastrophic events; general economic
conditions and conditions in the semiconductor industry in particular; the
continued employment of our key personnel and risks associated with
competition.
For a discussion of the factors that could
cause actual results to differ materially from the forward-looking statements,
see the Liquidity and Capital Resources section under Managements
Discussion and Analysis of Financial Condition and Results of Operations in
this item of this report and the other risks and uncertainties that are set
forth elsewhere in this report or detailed in our other Securities and Exchange
Commission reports and filings. We assume no obligation to update these
forward-looking statements.
Overview
We design, manufacture, sell and support
advanced semiconductor capital equipment and process technologies for the
global semiconductor industry and related markets. We offer both front-end-of-line
and back-end-of-line systems and process technologies used in a variety of
segments of the semiconductor market using critical thin film formation
technologies, including ALD, PVD, CVD, Etch and thermal processing systems.
Our customer base is geographically diverse
and includes both integrated device manufacturers and foundry-based
manufacturers. We have a broad installed base, with approximately
2,500 systems in active operation for which we are providing ongoing parts
and services worldwide. We sell our systems globally primarily through a direct
sales force and in some instances through local independent sales
representatives. Our largest customers may vary from year to year depending
upon, among other things, the customers annual budget for capital
expenditures, plans for new fabrication facilities and expansions and new
system introductions by us.
Aviza Technology, Inc. was incorporated
on December 8, 2004 to facilitate the merger transaction of our
subsidiaries, Aviza, Inc. and Trikon Technologies, Inc. Aviza, Inc.
was incorporated on September 18, 2003 by affiliates of VantagePoint
Venture Partners, or VantagePoint, as Thermal Acquisition Corporation, a
Delaware corporation, for the purpose of acquiring the business of the Thermal
Division of ASML Holding, N.V., a Netherlands corporation, which division
of ASML is referred to in this discussion as the Predecessor. On October 10,
2003, Thermal Acquisition Corporation acquired the business of the Predecessor
and changed its name to Aviza Technology, Inc., which name was
subsequently changed to Aviza, Inc. in connection with the merger
transaction with Trikon.
On December 1, 2005, we completed the
merger transaction with Trikon, and our common stock is publicly traded on the
Nasdaq Global Market under the symbol AVZA.
16
Table
of Contents
We are often required to develop systems in
advance of our customers demand for those systems, and we undertake
significant system development efforts in advance of any of our customers
expressly indicating demand for our systems. Our system development efforts
typically span six months to two years.
During the quarter ended March 28, 2008,
we announced plans for a global restructuring based upon an analysis of our
product strategy, served markets and internal operations. The restructuring
allows us to refocus our attention on our core strengths in the ALD, Etch and
PVD market segments.
We have and will continue to downsize
programs, products and spending related to trench capacitor technology for DRAM
and will decrease our overall dependence on the DRAM market. The restructuring
of our global workforce, products and business operations was designed to
reduce our cost structure as well as improve operational execution and
financial performance. We will continue to support our current global installed
base and maintain the ability to manufacture additional systems as may be
required by customers. During the quarter ended March 28, 2008, we
recorded approximately $17.8 million in costs associated with the
restructuring. These charges were primarily attributable to a global reduction
in force of approximately 15% of employees and contractors and the write-down
of assets relating to non-core products or processes which include inventory
revaluation, cancellation of purchase commitments and the write-down of
equipment. Annualized savings as a result of our restructuring related to lower
employee costs and lower depreciation expenses will be approximately $8.0
million.
On March 28, 2008, we received
notification from Nasdaq informing us that the bid price of our common stock
closed below the minimum $1.00 per share requirement for continued inclusion
under the Market place Rule 4450(a)(5). We have until September 24,
2008 to regain compliance.
Critical Accounting Policies
There are no material changes to the critical
accounting policies described in the section entitled Critical Accounting
Polices under Item 7 in our Annual Report on Form 10-K for the fiscal
year ended September 28, 2007.
17
Table of Contents
Results of Operations
The information in the table below presents
our statements of operations data as a percentage of net sales for the quarters
and nine months ended June 27, 2008 and June 29, 2007.
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
June 27,
|
|
June 29,
|
|
June 27,
|
|
June 29,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
Cost of goods
sold
|
|
|
|
|
|
|
|
|
|
Cost of goods
sold
|
|
67
|
%
|
68
|
%
|
70
|
%
|
69
|
%
|
Cost of goods
sold - restructuring charges
|
|
0
|
%
|
0
|
%
|
13
|
%
|
0
|
%
|
Total cost of
sales
|
|
67
|
%
|
68
|
%
|
83
|
%
|
69
|
%
|
Gross margin
|
|
33
|
%
|
32
|
%
|
17
|
%
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
22
|
%
|
14
|
%
|
24
|
%
|
13
|
%
|
Selling, general
and administrative
|
|
27
|
%
|
15
|
%
|
28
|
%
|
14
|
%
|
Restructuring
and other charges
|
|
0
|
%
|
0
|
%
|
8
|
%
|
0
|
%
|
Total operating
expenses
|
|
49
|
%
|
29
|
%
|
60
|
%
|
27
|
%
|
Income (loss)
from operations
|
|
(16
|
)%
|
3
|
%
|
(43
|
)%
|
4
|
%
|
Other income
(expense):
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
Interest expense
|
|
(1
|
)%
|
(1
|
)%
|
(1
|
)%
|
(2
|
)%
|
Other income -
net
|
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
Total other
expense - net
|
|
(1
|
)%
|
(1
|
)%
|
(1
|
)%
|
(2
|
)%
|
Income (loss)
before income taxes
|
|
(17
|
)%
|
2
|
%
|
(44
|
)%
|
2
|
%
|
Provision for
income taxes
|
|
0
|
%
|
1
|
%
|
1
|
%
|
1
|
%
|
Net income
(loss)
|
|
(17
|
)%
|
1
|
%
|
(45
|
)%
|
1
|
%
|
Net Sales
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
June 27,
|
|
June 29,
|
|
June 27,
|
|
June 29,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(in thousands)
|
|
Net sales
|
|
$
|
33,505
|
|
$
|
57,421
|
|
$
|
97,693
|
|
$
|
181,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales for the quarter ended June 27,
2008 decreased by $23.9 million, or 42%, from the quarter ended June 29,
2007. The decrease was due primarily to the following:
·
An approximate $33.4 million
decrease in net sales of our deposition and thermal processing systems. Sales
recognized on shipment decreased by $28.2 million as unit shipments decreased
by 96% during the quarter ended June 27, 2008 from the quarter ended June 29,
2007. Net sales recognized upon customer acceptance decreased by $5.2 million
primarily due to a $3.9 million reduction in RVP-300
plus
system acceptances, which reflects fewer systems in the field under
installation. The overall decrease is the result of changes within our DRAM
customers, relating primarily to trench capacitor technology.
18
Table of Contents
·
The decrease in our
deposition and thermal processing systems net sales was partially offset by a
$7.7 million (68%) increase in net sales of our PVD, Etch and CVD systems due
to higher unit volume through market penetration in the Asia Pacific market.
·
Service and spare parts
sales increased by approximately $1.7 million during the quarter ended June 27,
2008 due primarily to higher field option sales.
Net sales for the nine
months ended June 27, 2008 decreased by $83.6 million, or 46%, from the
nine months ended June 29, 2007. The decrease was due primarily to the
following:
·
An approximate $91.9 million
decrease in net sales of our deposition and thermal processing systems. Sales
recognized on shipment decreased by $81.4 million as unit shipments decreased
by 88% during the nine months ended June 27, 2008 as compared to the nine
months ended June 27, 2007. Net sales recognized upon customer acceptance
decreased by $10.5 million primarily due to an $8.2 million reduction in
RVP-300plus system acceptances, which reflect lower unit shipments and
completed installation during the period. The decrease was due primarily to
market pricing pressures for our DRAM customers and changes relating to trench
capacitor technology within our customer group.
·
The decrease in the net
sales of our deposition and thermal processing systems was partially offset by
a $9.4 million increase in net sales of our PVD, Etch, and CVD systems.
·
Service and spares sales
were approximately 3% less during the nine months ended June 27, 2008 due
primarily to lower equipment utilization at our customer sites.
During the quarter ended June 27, 2008,
Triquent Semiconductor, Inc. accounted for 11% of our net sales. During
the quarter and nine months ended June 27, 2008, Win Semiconductor
Corporation accounted for 33% and 16% of our net sales, respectively. During
the nine months ended June 27, 2008, Qimonda A.G. accounted for 10% of our
net sales.
During the quarter ended June 29, 2007,
Nan Ya Technology Corporation accounted for 27% of our net sales. During the
quarter and nine months ended June 29, 2007, Inotera Memories, Inc.
accounted for 20% and 35% of our net sales, respectively.
Gross Profit and Gross Margin
Gross profit is the difference between net
sales and cost of goods sold. Cost of goods sold consists of purchased
material, labor and overhead to manufacture equipment or spare parts and the
cost of service and factory and field support to customers for warranty,
installation and paid service calls. In addition, the cost of outsourcing the
assembly or manufacturing of systems and subsystems to third parties is
included in cost of goods sold. Gross margin is gross profit expressed as a
percentage of net sales.
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
June 27,
|
|
June 29,
|
|
June 27,
|
|
June 29,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
Gross profit
|
|
$
|
11,015
|
|
$
|
18,175
|
|
$
|
16,856
|
|
$
|
55,947
|
|
Gross margin
|
|
33
|
%
|
32
|
%
|
17
|
%
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Table
of Contents
Gross margin increased by approximately 1%
during the quarter ended June 27, 2008 as compared to the quarter ended June 29,
2007. This increase was primarily the result of the following:
·
A shift in the system
product mix away from our deposition and thermal processing systems to
higher-gross margin PVD, Etch, and CVD systems. During the quarter ended June 27,
2008, PVD, Etch, and CVD systems accounted for approximately 58% of system
sales as compared to 20% during the quarter ended June 29, 2007.
·
A decrease in unabsorbed
manufacturing costs as reductions in manufacturing costs due to implementation
of cost cutting measures more than offset lower manufacturing cost absorption
due to lower unit volume.
These positive impacts on gross margin were partially
offset by an 8% reduction in overall service gross margin, which was due
primarily to lower installation and warranty activity related to deposition and
thermal product lines.
The decrease in gross margin of 14% during
the nine months ended June 27, 2008 as compared to the nine months ended June 29,
2007 was primarily due to the restructuring charges of approximately $13.0
million recorded during the nine months ended June 27, 2008.
Excluding the impact of restructuring
charges, gross margin for the nine months ended June 27, 2008 was
consistent with gross margin for the nine months ended June 29, 2007.
While gross margin was consistent from period to period the changes impacting
gross margin during the nine months ended June 27, 2008 as compared to the
nine months ended June 29, 2007 were as follows:
·
Gross margin recognized on
shipment of our systems was approximately 8% higher during the nine months
ended June 27, 2008 due to changes in the product mix, with a higher
proportion of PVD, Etch, and CVD shipments and a lower proportion of thermal
processing systems.
·
Gross margin on
service-related activities decreased by approximately 10% due to lower spare
parts sales, a higher proportion of field option sales during the nine months
ended June 27, 2008 and lower demand for installation and warranty services
created by lower shipments during the nine months ended June 27, 2008.
·
Reductions in manufacturing
cost of approximately $6.0 million were more than offset by lower manufacturing
cost absorption of $8.5 million due to a decrease in the number of systems
produced during the nine months ended June 27, 2008 primarily in relation
to an 88% decrease in deposition and thermal system shipments.
Research and Development
Research and development expense consists of
employment costs attributable to employees, consultants and contractors who
primarily spend their time on system design, engineering and process
development; materials and supplies used in system prototyping, including
wafers, chemicals and process gases; depreciation and amortization expense allocable
to research and development activities and facilities; direct charges for
repairs to research equipment and laboratories; costs of outside services for
facilities; and process engineering support and wafer analytical services. We
also include in research and development expenses associated with the
preparation, filing and prosecution of patents and other intellectual property.
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
June 27,
|
|
June 29,
|
|
June 27,
|
|
June 29,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
Research and
development
|
|
$
|
7,337
|
|
$
|
8,101
|
|
$
|
23,357
|
|
$
|
23,815
|
|
Percent of net
sales
|
|
22
|
%
|
14
|
%
|
24
|
%
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Table of Contents
Research and development costs decreased by
approximately $0.8 million, or 9%, during the quarter ended June 27, 2008
as compared to the quarter ended June 29, 2007 due primarily to the
following:
·
|
|
A 19%
reduction in head count contributed to a net decrease of approximately $0.5
million in salaries and benefits.
|
|
|
|
·
|
|
A $0.3
million reduction in net prototype supplies related primarily to a
next-generation product development project that was in process during the
quarter ended June 29, 2007.
|
|
|
|
·
|
|
As part of
our restructuring plan implemented during fiscal 2008, we deemphasized
research and development activity related to thermal products. As a result,
our development lab-related costs for supplies, chemicals, gases and
prototype supplies related to the thermal products decreased by approximately
$0.6 million.
|
|
|
|
·
|
|
Increased
travel expenses of approximately $0.2 million related to increased PVD, Etch,
and CVD opportunities in the Asia Pacific region.
|
|
|
|
·
|
|
Approximately
$0.2 million increase in depreciation expense and lab equipment rentals.
|
|
|
|
·
|
|
An
approximate $0.1 million increase in patent-related costs.
|
The net decrease in research and development
costs of approximately $0.5 million, or 2%, during the nine months ended June 27,
2008 as compared to the nine months ended June 29, 2007 was primarily due
to the following:
·
|
|
A $0.5
million decrease in salaries and benefits related primarily to a reduction in
workforce associated with our restructuring plan implemented during the nine
months ended June 29, 2008.
|
|
|
|
·
|
|
As part of
our restructuring plan implemented during fiscal 2008, we deemphasized
continued research and development activity related to our thermal product
lines. As a result, we reduced costs by approximately $1.4 million through
decreased development lab activities.
|
|
|
|
·
|
|
Increased
depreciation, amortization, and equipment rental expense of approximately
$1.0 million related primarily to equipment installed in our development
laboratories and amortization of a technology license acquired during
December 2007.
|
|
|
|
·
|
|
Increased
travel expense of approximately $0.3 million related primarily to increased
PVD, Etch, and CVD business opportunities in Asia Pacific region.
|
Selling, General and Administrative
Selling, general and administrative expense
consists of employment costs attributable to employees, consultants and
contractors who primarily spend their time on sales, marketing and order
administration and corporate administrative services; occupancy costs
attributable to employees performing these functions; sales commissions;
promotional marketing expenses; and legal and accounting expenses.
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
June 27,
|
|
June 29,
|
|
June 27,
|
|
June 29,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
Selling, general
and administrative
|
|
$
|
9,001
|
|
$
|
8,217
|
|
$
|
28,084
|
|
$
|
24,846
|
|
Percent of net
sales
|
|
27
|
%
|
15
|
%
|
28
|
%
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Table
of Contents
The increase in selling, general and
administrative expense of approximately $0.8 million, or 10%, during the
quarter ended June 27, 2008, as compared to the quarter ended June 29,
2007, was primarily due to the following:
·
A $1.0 million increase in
legal costs associated with pending legal matters.
·
An approximate $0.2 million
increase in third-party commissions due to increased system shipments to
certain customers in Taiwan.
·
An approximate $0.5 million
increase in depreciation expense and license fees.
·
Increased currency exchange
losses of approximately $0.2 million.
These cost increases were partially offset
by:
·
A $0.6 million decrease in
salaries and benefits related to lower headcount and stock compensation costs.
·
Lower consulting costs of
approximately $0.2 million.
·
Lower travel and supply
costs of approximately $0.4 million related primarily to the implementation of
Oracle 11i during fiscal 2007.
The increase in selling, general and
administrative expense of approximately $3.2 million, or 13%, during the nine
months ended June 27, 2008 over the nine months ended June 29, 2007
was primarily due to the following:
·
A $5.2 million increase in
costs associated with pending legal matters.
·
Increases in costs
associated with our international infrastructure build-up of $0.5 million.
·
A $0.4 million increase in
depreciation expense related to the implementation of Oracle 11i, which was
completed at the end of fiscal 2007.
·
A $0.2 million increase in
bad debt expense.
These increases were partially offset by:
·
Lower salary, wages and
employee benefits of approximately $1.3 million due primarily to lower
headcount.
·
Approximately $0.2 million
in reduced commission expenses related to lower system sales during the nine
months ended June 27, 2008.
·
Lower travel costs of
approximately $0.3 million due primarily to the implementation of Oracle 11i in
2007 and lower thermal system business levels in fiscal 2008.
·
A $0.4 million increase in
currency transaction gains.
·
Approximately $0.3 million
in reduced supplies expense due to the Oracle 11i implementation in fiscal
2007.
22
Table of Contents
Restructuring and Other Charges
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
June 27,
|
|
June 29,
|
|
June 27,
|
|
June 29,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
Restructuring
and Other Charges
|
|
$
|
|
|
$
|
|
|
$
|
7,792
|
|
$
|
|
|
Percent of net
sales
|
|
0
|
%
|
0
|
%
|
8
|
%
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the quarter ended March 28,
2008, we implemented restructuring plans to align operations with our core
strength products in the ALD, Etch and PVD market segments. This entailed a
downsizing of activities related to lower performing, less profitable products
resulting in a global reduction in force, the write-down of impaired machinery
and equipment and the divestiture of the net assets of ET Equipments Ltd., a
machine shop located in Wales, U.K. During the quarter ended March 28,
2008, we also wrote down an intangible asset related to a license of certain
technology. We have developed and successfully tested a more efficient and
cost-effective technology thus impairing the asset.
The breakdown of restructuring and other charges
included in operating expenses for the nine months ended June 27, 2008 are
as follows (in thousands):
Impairment of
machinery and equipment
|
|
$
|
3,854
|
|
Impairment of
intagible asset
|
|
3,008
|
|
Loss on sale of
net assets of ET Equipments LTD
|
|
543
|
|
Reduction in
work force
|
|
387
|
|
|
|
$
|
7,792
|
|
Interest Expense
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
June 27,
|
|
June 29,
|
|
June 27,
|
|
June 29,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
Interest expense
|
|
$
|
487
|
|
$
|
663
|
|
$
|
1,435
|
|
$
|
2,978
|
|
Percent of net
sales
|
|
1
|
%
|
1
|
%
|
1
|
%
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our interest expense for the quarters and
nine months ended June 27, 2008 and June 29, 2007 consisted primarily
of interest incurred on our revolving line of credit, equipment term loan and
commercial real estate loan. In addition, amortization of debt issuance costs
impacted both quarters. During the nine months ended June 29, 2007,
interest expense included the amortization of the fair value of warrants issued
to affiliates of VantagePoint in consideration of VantagePoints agreement to
guarantee a portion of our prior revolving line of credit. During April 2007,
we entered into a new financing agreement that did not require further
guarantees. Unamortized debt issuance costs and warrant amortization related to
the prior financing agreements were written off when the transaction for our
new financing closed.
23
Table of Contents
Aggregate borrowings under our current
revolving line of credit, equipment term loan and commercial real estate loan
were $40.1 million at June 27, 2008 and $31.7 million at June 29,
2007.
During the quarter ended June 27, 2008,
interest expense decreased by approximately $0.2 million from the quarter ended
June 29, 2007, due primarily to lower average interest rates on our
current credit facility. Interest rates on our current credit facility averaged
5.0% during the quarter ended June 27, 2008. Interest rates on our
facilities in place during the quarter ended June 29, 2007 ranged from
7.75% to 10.625%.
During the nine months ended June 27,
2008, interest expense decreased by approximately $1.5 million from the nine
months ended June 29, 2007 primarily due to lower average borrowings
($28.8 million average borrowings on our credit facility during the nine months
ended June 27, 2008 as compared to $33.6 million average borrowings on our
credit facilities in place during the nine months ended June 29, 2007), a
lower average interest rate (6.0% as compared to 8.4%) and lower amortization
of debt issuance costs ($0.1 million as compared to $0.6 million).
Income Taxes
Because we have incurred significant
operating losses during prior periods, no material federal or state income
taxes have been recorded. We recorded income taxes relating to certain
profitable international subsidiaries and provided a full valuation allowance
on our net tax benefits generated in all other jurisdictions during the
respective periods.
Liquidity and Capital Resources
At June 27, 2008, our cash and cash
equivalents were $11.8 million as compared to $23.1 million at September 28,
2007. This $11.3 million decrease in cash and cash equivalents is
primarily attributable to cash used to fund operations ($19.8 million) and
capital expenditures ($2.5 million) during the nine months ended June 29,
2008, which was partially offset by increased borrowings under our revolving
line of credit.
We anticipate that our existing cash balances
and available borrowings under our credit facility will be sufficient to meet
our anticipated cash needs for at least the next 12 months. However, we may
need to raise additional capital from the sale of debt or equity securities or
from other sources in order to support our operations. We may not be able to
obtain any additional capital on acceptable terms, if at all.
Cash Flows from Operating
Activities
Operating activities used $19.8 million of
cash in the nine months ended June 27, 2008. Cash was used to fund
operating losses of $44.3 million during the nine months ended June 27,
2008. Non-cash operating costs totaling $23.6 million, consisting primarily of
depreciation and amortization, restructuring and other charges and stock-based
compensation, were included in the operating loss for the period. Cash provided
by a decrease of $9.5 million in accounts receivable primarily due to
collections of retentions due on shipments, a decrease of $1.2 million in
prepaid expenses and other current assets and a $5.4 million increase in
accrued liabilities primarily related to increased legal costs and
restructuring charges was partially offset by cash used to fund increases in
inventory of $10.9 million primarily related to increased PVD, Etch and CVD
business opportunities, a decrease of $3.6 million in warranty liabilities
primarily due to lower system shipments during the nine months ended June 27,
2008 and a decrease in accounts payable of $0.8 million due to the timing of
inventory purchases.
Cash Flows from Investing
Activities
Cash used in investing activities for the
nine months ended June 27, 2008 was $1.6 million. Cash used in investing
activities during the quarter primarily consisted of purchasing equipment to be
used in our development and demonstration laboratories ($2.5 million), which
was partially offset by proceeds received from the sale of equipment ($0.3
million) and the sale of the net assets of ET Equipments Ltd. ($0.6 million),
our machine shop located in Wales, U.K.
Cash Flows from Financing
Activities
Net cash generated by financing activities
for the nine months ended June 27, 2008 was $10.6 million. Incremental
bank borrowings under our revolving line of credit generated $13.1 million in
cash. Payments on our equipment and mortgage lines of credit, short-term
borrowings and capital lease obligations were the primary offsets to these
borrowings.
24
Table
of Contents
During April 2007, we entered into a
credit facility with a syndicate of banks to refinance our previous line of
credit and mortgage line of credit. Our credit facility includes a two-year
revolving line of credit, an equipment term loan and a four-year commercial
real estate term loan. We may borrow up to $55.0 million under our credit
facility. Borrowings under the credit facility bear interest at the London
Inter Bank Offering Rate, or LIBOR, plus 2.18% (4.64% at June 27, 2008).
The terms of the credit agreement prohibits us from paying cash dividends on
our common stock. The credit agreement contains certain financial and operating
covenants.
Maximum borrowings available under the
revolving line of credit are $44.0 million and are secured by our accounts
receivable and inventory. Outstanding borrowings under the revolving line of
credit were $26.0 million at June 27, 2008.
Maximum borrowings under the equipment term
loan are $4.0 million and are secured by a lien on our equipment. Our
equipment term loan has a three-year amortization period with monthly payments
of principal and accrued interest. Outstanding borrowings under the equipment
term loan were $2.6 million at June 27, 2008. As principal is paid
down under the equipment portion of the facility, additional borrowing
availability will be created under the revolving portion of the credit
facility.
Maximum borrowings under the commercial real
estate term loan are $13.0 million or 70% of the appraised value of the
real estate, whichever is lower, and are secured by a deed of trust on our
Scotts Valley facility. Monthly payments of principal and accrued interest will
be based on a 20-year amortization period of the loan principal. Outstanding
borrowings under the commercial real estate term loan were $11.5 million
at June 27, 2008. As principal is paid down under the commercial real
estate portion of the facility, additional borrowing availability will be
created under the revolving portion of the credit facility.
A subsidiary of ours has a revolving line of
credit for 200,000,000 Japanese Yen (approximately $1.9 million, at the
exchange rate on June 27, 2008) under which there were no borrowings at June 27,
2008. The credit line bears interest at 1.875% per annum.
Off-Balance Sheet Arrangements
At June 27, 2008, we had no off-balance
sheet arrangements as defined in Item 303(a)(4) of Regulation S-K
promulgated by the Securities and Exchange Commission.
Contractual Obligations
Other than operating leases for certain
equipment and real estate and certain vendor commitments, we have no
significant off-balance sheet transactions or unconditional purchase
obligations. As a smaller reporting company, we are not required to provide tabular
disclosure of contractual obligations.
ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not
required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was performed under the
supervision and with the participation of our management, including our chief
executive officer and chief financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of
the period covered by this quarterly report. Based on that evaluation, our
management, including our chief executive officer and chief financial officer,
concluded that, as of June 27, 2008, our disclosure controls and
procedures were effective. During the nine months ended June 27, 2008,
there were no changes in our internal control over financial reporting that
materially affected, or were reasonably likely to materially affect, our
internal control over financial reporting.
25
Table
of Contents
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 11, 2006, IPS, Ltd. filed a lawsuit
against us in the United States District Court for the Central District of
California. The complaint alleges that we improperly used IPSs confidential
information to develop our Celsior single-wafer processing type atomic layer
deposition technology. The complaint is for unspecified monetary damages,
injunctive relief and an order rescinding the settlement and distributor
agreements that we and IPS entered into in May 2004 in settlement of a
prior lawsuit that IPS filed against ASML U.S., Inc. and us in March 2004
relating to assets that we acquired from ASML in October 2003. In May 2007,
we successfully moved the dispute to arbitration. Discovery commenced in June 2007.
The arbitration hearing is currently scheduled for March 2009. We intend
to contest the lawsuit vigorously.
We do not believe that the outcome of
this lawsuit will have a material impact on our business, financial condition
or results of operations.
Prior to our merger transaction with Trikon
Technologies, Inc., Trikon was a party to an employment lawsuit in France.
On March 10, 2004, Dr. Jihad Kiwan departed Trikon as Director and
Chief Executive Officer. On March 29, 2004 and April 2, 2004, Trikon
received letters from a United Kingdom law firm and from a French law firm,
respectively, on behalf of Dr. Kiwan, detailing certain monetary claims
for severance amounts due to Dr. Kiwan with respect to his employment with
Trikon. On April 28, 2004, Dr. Kiwan filed a lawsuit in France and on
June 10, 2004, filed similar proceedings in the United Kingdom. Dr. Kiwan
has subsequently withdrawn the proceedings in the United Kingdom. On January 7,
2008, the French Commercial Court in Grenoble rejected certain of Dr. Kiwans
claims but ordered us to pay monetary awards with respect to certain other of Dr. Kiwans
claims. We have appealed the decision and do not believe that the outcome of
the dispute will have a material impact on our business, financial condition or
results of operations
.
We
have accrued our estimate of the cost to settle the claims at June 27,
2008.
On December 1, 2006, we filed an
arbitration demand against ASML U.S., Inc., and related entities,
asserting claims of fraud, negligent misrepresentation, fraud in the inducement
and breach of the covenant of good faith and fair dealing arising out of our
purchase of ASMLs Thermal Division in October 2003. Following discovery
and an unsuccessful motion for summary judgment filed by ASML, the matter was
arbitrated in December 2007 and January 2008. The arbitrator issued a
preliminary judgment in favor of ASML. Based on a provision in the governing
contract providing that the party prevailing in the arbitration may recover its
attorneys fees and costs from the opposing party, the arbitrator has ordered
briefing by both parties with regard to any fee request by ASML. On April 17,
2008, ASML submitted a petition seeking approximately $2.5 million in attorneys
fees and costs incurred in connection with this matter. Following full briefing
by both parties, the arbitrator issued a final award of approximately $1.4
million in attorneys fees and costs to ASML. We have accrued our
estimate of the cost to settle the claims at June 27, 2008.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we are not
required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF
EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS
None
26
Table
of Contents
ITEM 5. OTHER INFORMATION
None.
ITEM 6.
EXHIBITS
Exhibit
Number
|
|
Description
|
|
|
|
31.1
|
|
Certification of the
Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
31.2
|
|
Certification of the
Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
32.1
|
|
Certification of the
Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
32.2
|
|
Certification of the Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
27
Table
of Contents
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.
|
Aviza
Technology, Inc.
|
|
(Registrant)
|
|
|
Dated: August 6,
2008
|
|
|
By:
|
/s/
PATRICK C. OCONNOR
|
|
|
|
Patrick
C. OConnor
|
|
Executive
Vice President and Chief Financial
|
|
Officer
|
|
(Principal
Financial and Accounting Officer)
|
28
Table of Contents
EXHIBIT
INDEX
Exhibit
Number
|
|
Description
|
|
|
|
31.1
|
|
Certification of the
Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
31.2
|
|
Certification of the
Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
32.1
|
|
Certification of the
Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
32.2
|
|
Certification of the Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
29
Aviza Tech (MM) (NASDAQ:AVZA)
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