<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[Mark one]
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _____
Commission File Number: 0-26482
TRIKON TECHNOLOGIES, INC.
-------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-4054321
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9255 Deering Avenue, Chatsworth, California 91311
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
(818) 886-8000
----------------------------------------------------
(Registrant's telephone number, including area code)
Plasma & Materials Technologies, Inc.
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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
----- -----
As of May 12, 1997, the total number of outstanding shares of the Registrant's
common stock was 14,398,003.
<PAGE>
Trikon Technologies, Inc.
<TABLE>
<CAPTION>
Page
INDEX Number
-----
- ---------------------------------------------------------------------------------------------------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 1997 (unaudited)
and December 31, 1996 3
Unaudited Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1997 and 1996 4
Unaudited Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION 14
Item 3. Defaults upon Senior Securities 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE PAGE 15
EXHIBITS 16
</TABLE>
2
<PAGE>
Trikon Technologies, Inc.
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996 (1)
-------------- --------------
<S> <C> <C>
(UNAUDITED)
Assets
Current assets:
Cash and cash equivalents.................................. $ 7,329,565 $ 20,187,662
Short-term investments..................................... 1,565,721 1,464,165
Accounts receivable........................................ 22,936,181 27,229,806
Inventories................................................ 49,727,106 53,837,131
Other current assets....................................... 2,403,745 4,723,449
------------- -------------
Total current assets................................ 83,962,318 107,442,213
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization........... 29,986,855 28,743,886
Demonstration systems, net of depreciation................... 5,267,571 6,080,431
Intangible assets, net of amortization....................... 39,150,740 40,484,079
Other assets................................................. 866,329 429,596
------------- -------------
Total assets................................................. $ 159,233,813 $ 183,180,205
============= =============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses...................... $ 13,056,959 $ 24,114,756
Bank credit line........................................... 16,648,810 14,151,000
Other current liabilities.................................. 10,518,099 12,661,580
------------- -------------
Total current liabilities........................... 40,223,868 50,927,336
Convertible subordinated notes............................... 86,250,000 86,250,000
Other non-current liabilities................................ 15,342,244 14,754,721
Commitments and contingencies
Shareholders' equity:
Preferred Stock undesignated:
Authorized shares - 20,000,000
Issued and outstanding - None
Common Stock, no par value:
Authorized shares -- 50,000,000
Issued and outstanding -- 14,343,145 at
March 31, 1997 and 14,310,410 at
December 31, 1996..................................... 131,918,482 131,873,023
Cumulative translation adjustment.......................... (844,800) 1,412,200
Accumulated deficit........................................ (113,655,981) (102,037,075)
------------- -------------
Total shareholders' equity................................... 17,417,701 31,248,148
------------- -------------
Total liabilities and shareholders' equity................... $ 159,233,813 $ 183,180,205
============= =============
</TABLE>
(1) The Balance Sheet at December 31, 1996 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.
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
Trikon Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------
1997 (1) 1996
-------------------- -------------------
<S> <C> <C>
Revenues.................................................................. $ 11,951,871 $8,142,307
Costs and expenses:
Cost of goods sold................................................. 9,849,326 3,748,242
Research and development........................................... 4,903,551 1,642,588
Selling, general and administrative administrative................. 7,034,791 1,924,199
Amortization of intangibles........................................ 903,950 --
------------ ------------
22,691,618 7,315,029
------------ ------------
Income (loss) from operations............................................. (10,739,747) 827,278
Other:
Interest income (expense), net......................................... (2,344,362) 438,196
------------ ------------
Income (loss) before income tax provision (benefit) ...................... (13,084,109) 1,265,474
Income tax provision (benefit)............................................ (1,465,203) 7,973
------------ ------------
Net income (loss)......................................................... $(11,618,906) $1,257,501
============ ============
Net income (loss) per share:
Primary............................................................. $(0.81) $0.14
============ ============
Average common shares and equivalents..................................... 14,322,327 9,036,661
</TABLE>
(1) Includes the results of operations of Electrotech Equipments Limited and
Electrotech Limited (collectively, "Electrotech"), which was acquired on
November 15, 1996 (see Note A of Notes to Condensed Consolidated Financial
Statements).
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
Trikon Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------
1997 (1) 1996
------------------- -------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...................................................................... $(11,618,906) $ 1,257,501
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization of plant,
equipment, leasehold improvements and demonstration systems...................... 1,632,658 355,505
Amortization of intangibles........................................................ 903,950 --
Amortization of financing costs.................................................... 403,752 --
Deferred income taxes.............................................................. (1,067,428) --
Changes in operating assets and liabilities:
Accounts receivable.............................................................. 3,919,625 (5,377,382)
Inventories...................................................................... 3,466,025 (4,013,063)
Demonstration systems............................................................ 487,860 (587,321)
Other current assets............................................................. 2,319,704 (176,715)
Accounts payable, other accrued expenses
and other current liabilities................................................... (12,474,809) 2,363,689
Other liabilities................................................................ 37,951 --
------------ ------------
Net cash used in operating activities.................................................. (11,989,618) (6,177,786)
INVESTING ACTIVITIES
Purchases of property, equipment and leasehold
improvements.......................................................................... (1,342,990) (534,216)
Purchases of short-term investments.................................................... (2,233,870) (8,116,569)
Proceeds from sales of short-term investments.......................................... 2,132,314 1,956,214
Acquisition costs...................................................................... (1,042,420) --
Other assets........................................................................... (436,733) 160,099
------------ ------------
Net cash used in investing activities.................................................. (2,923,699) (6,534,472)
FINANCING ACTIVITIES
Net borrowing (repayments) under bank
credit lines......................................................................... 2,331,810 --
Proceeds from sale of common stock and
warrants............................................................................. 45,459 32,961
Payments on capital lease obligations.................................................. (141,049) (112,512)
------------ ------------
Net cash provided by (used in) financing activities.................................... 2,236,220 (79,551)
Effect of exchange rate changes on cash................................................ (181,000) --
------------ ------------
Net decrease in cash and cash equivalents.............................................. (12,858,097) (12,791,809)
Cash and cash equivalents at beginning of
period............................................................................... 20,187,662 24,770,363
------------ ------------
Cash and cash equivalents at end of period............................................. $ 7,329,565 $ 11,978,554
============ ============
</TABLE>
(1) Includes the cash flows of Electrotech, which was acquired on November 15,
1996 (see Note A of Notes to Condensed Consolidated Financial Statements).
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
Trikon Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------------
MARCH 31, 1997
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The operating results for the three months ended March 31, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in Trikon Technologies,
Inc.'s (the "Company") Annual Report on Form 10-K for the year ended December
31, 1996.
On November 15, 1996, the Company acquired all the issued and outstanding shares
of Electrotech Limited and Electrotech Equipments Limited (collectively,
"Electrotech"). Electrotech develops, manufactures, markets and services
semiconductor fabrication equipment for the worldwide semiconductor
manufacturing industry. The aggregate purchase price paid by the Company,
excluding approximately $7,976,000 in acquisition costs, was $145,700,000,
consisting of $75,000,000 paid in cash and the issuance of 5,600,000 shares of
Common Stock of the Company with an estimated fair market value of $70,700,000,
based on the closing sales price of a share of Common Stock on the Nasdaq
National Market on the last day prior to the public announcement of the parties'
agreement to the acquisition terms. The acquisition was accounted for as a
purchase and, accordingly, the acquired assets and liabilities were recorded at
their estimated fair market values at the date of acquisition. The Company's
consolidated assets, liabilities and results of operations include the assets,
liabilities, and operating results of Electrotech after, but not prior to, the
November 15, 1996 acquisition date.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. The components of inventory consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Components................. $23,707,495 $17,754,456
Work in process............ 24,958,639 32,993,125
Finished goods............. 1,060,972 3,089,550
----------- -----------
$49,727,106 $53,837,131
=========== ===========
</TABLE>
NOTE C - DEMONSTRATION SYSTEMS
Demonstration Systems represent completed systems at certain strategic customer
sites, "Beta Sites". The Company provides these demonstration systems at no
charge for a specified evaluation period. All operating costs incurred during
the evaluation period are paid by the customer. At the conclusion of the agreed
upon evaluation period, providing the equipment performs to specifications,
management expects that the customer will purchase the system, though they are
not obligated to do so. Demonstration Systems
6
<PAGE>
Trikon Technologies, Inc.
NOTE C - DEMONSTRATION SYSTEMS (CONTINUED)
are stated at the lower of cost or estimated net realizable value and are
depreciated on a straight line method over four years, if they are not
sold after one year.
NOTE D - PMT CVD PARTNERS, L.P. AGREEMENT
The Company has recently determined that certain characteristics of the CVD
technology of Electrotech known as "Flowfill(TM)", which technology was acquired
in November 1996 in the acquisition of Electrotech, are superior to the high
density plasma CVD processes which have been pursued by PMT CVD Partners, L.P.
(the "Limited Partnership") pursuant to an R&D Agreement (the "R&D Agreement")
entered into as of March 29, 1996 between the Limited Partnership and the
Company (under which the Company performs all research and development work for
the Limited Partnership). The Company has, accordingly, decided to discontinue
further research and development work under the R&D Agreement and instead focus
its consolidated efforts, on its own behalf and not on behalf of the Limited
Partnership, entirely upon the Flowfill(TM) CVD technology used in the
Electrotech equipment. The Company has communicated this decision to the limited
partners of the Limited Partnership, and one of the limited partners has
communicated to the Company that the discontinuation of the project is
inconsistent with the R&D Agreement and representations made by the Company in
connection therewith and that, accordingly, a settlement of any and all claims
that the limited partners of the Limited Partnership may have in connection with
such discontinuation is appropriate. The Company is presently negotiating with
the limited partners of the Limited Partnership to terminate the R&D Agreement
and all related agreements, and to obtain a release from the limited partners of
the Limited Partnership of all rights and claims in connection with the Limited
Partnership, the R&D Agreement and the ancillary agreements entered into by the
various parties in connection therewith. The amount or range of the possible
settlement cannot be reasonably estimated at this time; however, it could be
material to the future operating results of the Company.
NOTE E - NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
shares of Common Stock outstanding. Common equivalent shares from stock options
and warrants (using the treasury stock method) have been included in the
computation when dilutive. The weighted average number of shares used in the
computation for the three months ended March 31, 1997 excludes common equivalent
shares from options and warrants because they would be antidilutive.
NOTE F - IMPACT ON FINANCIAL STATEMENTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share", which is required to be adopted as of
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded and the calculation will
be referred to as basic earnings per share. Basic earnings (loss) per share
under FASB No. 128 would have been $0.15 per share for the quarter ended March
31, 1996 and would be the same as primary loss per share for the quarter ended
March 31, 1997. The impact of FASB No. 128 on the calculation of fully diluted
earnings per share for these quarters is not expected to be material.
NOTE G - LINE OF CREDIT AND LONG-TERM DEBT
On November 15, 1996, the Company entered into a senior secured credit agreement
with certain banks in the United States and the United Kingdom (the "Working
Capital Facility") that permits the Company and its U.K. subsidiary to borrow up
to an aggregate of $35.0 million, subject to certain borrowing base limitations
based on eligible accounts receivable. As of March 31, 1997, the Company had $18
million available under the Working Capital Facility, of which approximately
$16.6 million was outstanding in borrowings.
The Working Capital Facility places certain restrictions on the Company, which
among other things, prohibit the Company from paying cash dividends, limit the
amount of capital expenditures and require the Company to comply with certain
financial ratios and covenants. At December 31, 1996 and March
7
<PAGE>
Trikon Technologies, Inc.
NOTE G - LINE OF CREDIT AND LONG-TERM DEBT (CONTINUED)
31, 1997, the Company was not in compliance with certain financial ratio
requirements which were waived by its lenders as of December 31, 1996 and March
31, 1997 and for the year and quarter then ended. These waivers extend until
June 30, 1997, provided that (1) the Company fully draws $6,250,000 of
subordinated debt under an existing Note Purchase Agreement with five investors
no later than May 30, 1997, with the failure to do so resulting in the
expiration of the waiver on May 30, 1997, and (2) aggregate, outstanding
borrowings under the Working Capital Facility are limited to $19,000,000 during
the waiver period. The Company is negotiating with its lenders to make various
amendments to the Working Capital Facility, including revising its financial
ratio requirements and covenants for its duration, in light of recent and
anticipated operating results of the Company. If the Company successfully
completes such amendments, it believes that the Company will be able to remain
in compliance with the amended financial ratio requirements, covenants and other
provisions of the Working Capital Facility throughout 1997. The Company's
management anticipates completing and executing such amendment during the second
quarter of fiscal 1997. However, there can be no assurance that the Company will
be successful in completing its borrowings under the Note Purchase Agreement
and, accordingly, be successful in these negotiations with respect to the
Working Capital Facility, that the lending banks will continue to grant waivers
of existing covenant violations if an acceptable amendment is not timely
executed, or that the lending banks will not at any time require repayment of
outstanding amounts under the Working Capital Facility if such amendment is not
timely executed. If the lending banks were to require repayment of all or any
significant portion of the outstanding amounts under the Working Capital
Facility, the availability of adequate cash, and as a result the Company's
operations, would be materially and adversely affected.
On November 15, 1996, the Company received a commitment of terms from five
investors for an unsecured subordinated debt commitment. On December 16, 1996,
the Company entered into a Note Purchase Agreement (the "Note Purchase
Agreement") with the five investors confirming such commitment for unsecured
subordinated debt in the amount of $6,250,000. The interest rate on amounts
drawn under the Note Purchase Agreement will be the bank's prime rate plus 4%.
Interest is payable quarterly. The ability to borrow under the Note Purchase
Agreement expires January 1, 1998 and amounts borrowed under the Note Purchase
Agreement, plus accrued but unpaid interest, is due on January 1, 2000.
Amounts drawn under the Note Purchase Agreement are unsecured obligations of the
Company. No amounts were outstanding under the Note Purchase Agreement as of May
14, 1997. The Note Purchase Agreement contains covenants that are comparable to
those contained in the Convertible Notes, discussed below. The Company's ability
to borrow under the Note Purchase Agreement at any time is subject to various
conditions, including the lack of occurrence of any material adverse change
between the signing of the Note Purchase Agreement and the Company's borrowing
request. In light of the substantial losses incurred by the Company during the
quarter ended December 31, 1996 and March 31, 1997 (and the resulting violations
of the financial ratios and certain other covenants of the Working Capital
Facility), it is likely that any or all of the investors under the Note Purchase
Agreement are lawfully entitled to refuse to advance such funds to the Company.
The Company intends to request the borrowing of such funds in full, and is
currently negotiating with the investors in order to effect such borrowings. As
noted above, the lending banks under the Working Capital Facility have stated
that the Company's full borrowing of the $6,250,000 under the Note Purchase
Agreement will be a condition to an amendment of the Working Capital Facility
upon the terms desired by the Company. The Company believes it will be
successful in completing such borrowings, although the Company will be required
to modify the terms of the Note Purchase Agreement in a manner providing
additional consideration to the investors. However, there can be no assurance
that the Company will be successful in borrowing these funds under the Note
Purchase Agreement.
In connection with the acquisition of Electrotech, the Company issued
$86,250,000 of Convertible Subordinated Notes (the "Convertible Notes"). The
Convertible Notes bear interest at 7 1/8% which is payable in semi-annual
installments which commenced April 15, 1997. The Convertible Notes contain
certain provisions which, upon the occurrence of an "Event of Default", as
defined, could cause the Convertible Notes to become due and payable
immediately. Such an Event of Default would occur if, among other things, the
Company were to default on the Working Capital Facility or any other secured
indebtedness, as defined, caused by the failure to pay principal and interest
payments when due or resulting from the acceleration of such indebtedness prior
to its express maturity in excess of $10.0 million. As noted above, the existing
waivers of the Company's violations of certain financial ratios and other
covenants in the Working Capital Facility expire no later than June 30, 1997,
and the Company is currently negotiating with its lending banks to amend the
Working Capital Facility to revise the financial ratio requirements and
covenants for its duration, in light of recent and anticipated operating results
of the Company. The Convertible Notes have been classified as long-term debt
under the presumption that the Working Capital Facility will be amended such
that the Company will be able to comply with the applicable financial covenants
over the coming year.
8
<PAGE>
Trikon Technologies, Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
This Management's Discussion and Analysis of Financial Condition and Results of
Operations set forth below contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements are subject to certain risks
and uncertainties, including slowing growth in the demand for semiconductors and
challenges from the Company's competition that could cause actual results to
differ materially from those projected. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof.
OVERVIEW
The Company develops, manufactures, markets and services semiconductor
equipment for the worldwide semiconductor manufacturing industry. These products
are used for etch, chemical vapor deposition (CVD), and physical vapor
deposition (PVD) applications. The etch systems consist of the PINNACLE
8000(R) and PINNACLE 8000R(TM) systems (selling price between $1,800,000 for a
standard two-module system to $3,400,000 for a four-module system), the
Omega(TM) 201-2 system (selling price between $700,000 and $1,400,000, depending
on the configuration of the system), and a stand-alone MORI(TM) plasma source
process module which lists for approximately $500,000. The Company's CVD
products consist of the Delta 201 (selling price approximately $600,000) and the
Planar 200 Flowfill(TM) system, selling price ranging between $1,400,000 and
$2,500,000, depending on the configuration of the system. The Company's PVD
products are the Sigma system (selling price ranges from $1,500,000 to
$2,500,000) and the Sigma Forcefill(TM) whose selling price ranges from
$3,500,000 to $4,000,000, depending on the configuration of the system.
The Omega(TM) 201-2 system, the Delta 201, the Planar 200 Flowfill(TM) and the
Sigma and Sigma Forcefill(TM) products were obtained with the acquisition of
Electrotech on November 15, 1996.
ELECTROTECH ACQUISITION. On November 15, 1996, the Company acquired (the
"Acquisition") Electrotech Limited and Electrotech Equipments Limited
(collectively, "Electrotech"), privately-owned United Kingdom companies founded
in 1968, for an aggregate consideration of $75.0 million in cash and 5,600,000
shares of Common Stock, with an estimated fair market value of $70.7 million,
based on the closing sales price of a share of Common Stock on the Nasdaq
National Market on the last day prior to the public announcement of the parties'
agreement to the terms of the Acquisition. Electrotech develops, manufactures,
markets and services semiconductor fabrication equipment with products and
technologies for etch, CVD and PVD applications. The Acquisition expanded the
Company's product lines and its sales and service organization, which has
enabled the Company to have a greater presence throughout the United States,
Europe and Asia.
SEMICONDUCTOR INDUSTRY DOWNTURN; DECREASED PRODUCT DEMAND. The semiconductor
industry is highly cyclical and has historically experienced periodic downturns,
which have been characterized by diminished product demand and production
overcapacity. During 1996, the semiconductor industry experienced a downturn
which created a volatile market that resulted in the semiconductor manufacturers
withholding, reducing, rescheduling and delaying orders due to diminished
product demand and production overcapacity. The Company believes that such
downturn will continue to materially and adversely affect the Company's
operating results through at least the third quarter of 1997, and there can be
no assurance that the industry downturn will not continue to adversely affect
the Company beyond that time. In certain instances, industry downturns have
lasted for extended periods of time. Each of the Company's operations have been
and will continue to be dependent on the current and anticipated market demand
for integrated circuits (IC's) and products utilizing IC's that are produced by
semiconductor manufacturers. The current weakness in demand for the Company's
products, and the anticipated continuation of this weakness in the future, will
materially and adversely affect the Company's business and results of
operations.
The Company is particularly sensitive to the industry downturn, and believes it
has been, and will continue to be, more materially affected by the downturn
than many other semiconductor equipment manufacturers, because the loss or delay
of one or more system sales during any quarter significantly and adversely
affects its operating results for the quarter,
9
<PAGE>
Trikon Technologies, Inc.
and also because the lengthy sales cycle experienced by the Company will
adversely affect its ability to rapidly recover from the downturn. Additionally,
the Company's financial resources are substantially less than its competitors',
and the Company is accordingly less capable of enduring periods of continued
weak product demand.
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data of the Company
expressed as a percentage of revenues for the period indicated.
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1997 1996
------ -----
<S> <C> <C>
Revenues................................. 100.0% 100.0%
Cost of goods sold....................... 82.4% 46.0%
------ -----
Gross profit............................. 17.6% 54.0%
Operating expenses:
Research and development............... 41.0% 20.2%
Selling, general and administrative.... 58.9% 23.6%
Amortization of intangibles........ 7.6% --%
------ -----
Total operating expenses........... 107.5% 43.8%
------ -----
Income (loss) from operations............ (89.9)% 10.2%
Interest income (expense), net........... (19.6)% 5.4%
------ -----
Income (loss) before income tax.......... (109.5)% 15.6%
provision
Income tax provision (benefit)........... (12.3)% 0.1%
------ -----
Net income (loss)........................ (97.2)% 15.5%
====== =====
Gross margin on product sales............ 17.6% 52.0%
</TABLE>
Product Sales. Product sales, excluding contract revenue, for the first quarter
of fiscal 1997 increased 54% to $12.0 million compared to $7.8 million for the
first quarter of fiscal 1996. These increases were attributable almost entirely
to revenue derived from products acquired in the Company's acquisition of
Electrotech, as no PINNACLE systems or MORI(TM) sources were sold during the
first quarter of fiscal 1997. Shipments during the first quarter of fiscal 1997
included two Omega(TM) 201-2 etch systems, two Sigma Forcefill(TM) systems and
spare parts, as compared to the shipment of four PINNACLE 8000(R) and PINNACLE
8000R(TM) systems and four MORI(TM) sources in the first quarter of fiscal
1996.
Sales outside of the United States accounted for approximately 32% and 53% of
total revenue in the first quarters of fiscal years 1997 and 1996, respectively.
The Company anticipates that sales outside of the United States will continue to
account for a significant portion of its total revenue in fiscal 1997. In
addition, with the acquisition of Electrotech, which sells primarily to
locations outside of the United States, including Germany, Japan and Israel, the
Company expects that sales to Japanese, Korean and European semiconductor
manufacturers will continue to represent a significant percentage of the
Company's product sales through at least 1997. In addition, because of the large
unit price associated with the Company's systems, the Company anticipates that
its product sales will continue to be made to a small number of customers in any
given quarter.
Contract Revenue. No contract revenue was recognized in the first quarter
of fiscal year 1997, as compared with $0.4 million for the first quarter of
fiscal 1996. The Company received $2.8 million in contract revenue in fiscal
1996 under the March 1996 agreement between the Company and PMT CVD Partners,
L.P. The Company does not anticipate the receipt of any additional contract
revenue associated with this agreement (see Note D of Notes to Condensed
Consolidated Financial Statements).
Gross Margin on Product Sales. The Company's gross margin on product sales,
excluding contract revenue, for the first quarter of fiscal 1997 was 18%, as
compared to 52% for the first quarter of fiscal 1996. The decrease in gross
margin was primarily due to a low gross margin on Electrotech's products shipped
in the first quarter of fiscal 1997, due to the write-up of Electrotech's
inventory on hand, as of November 15, 1996, to fair market value
10
<PAGE>
Trikon Technologies, Inc.
resulting from the allocation of the Electrotech purchase price as required
under Accounting Principles Board Opinion No. 16 ("APB No. 16"). The write-up
increased cost of goods sold during the first quarter of fiscal 1997 by
approximately $2.4 million, as the related products were shipped. There is
approximately $5.2 million in inventory, as on March 31, 1997, relating to this
write-up of inventory. The $5.2 million write-up will affect cost of goods sold
as products are shipped from Electrotech during the balance of fiscal year 1997.
Gross margins have also been negatively impacted due to issues related to the
slower industry conditions noted above, and will continue to be adversely
affected in 1997.
Research & Development Expenses. Research and development expenses for the first
quarter of fiscal 1997 were $4.9 million, or 41% of total revenues, compared to
$1.6 million, or 20% of total revenues for the first quarter of fiscal 1996.
Included in research and development expenses during the first quarter of 1997
is $2.5 million related to Electrotech. The major focus of the Company's
research and development efforts during the first quarter of fiscal 1997 was on
increasing the development of its Forcefill(TM) and Flowfill(TM) technologies
and in the development of new processes in further advancing its proprietary
plasma source technology as well as adding enhancements to its existing
products. In addition, expenses during the first quarter of 1997 include costs
incurred associated with the contract with PMT, CVD Partners, L.P. with respect
to CVD applications of the Company's technology for which the Company does not
anticipate being reimbursed (see Note D of Notes to Condensed Consolidated
Financial Statements).
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the first quarter of fiscal 1997 were $7.0 million
or 59% of total revenues, compared to $1.9 million, or 24% of total revenues in
the first quarter of fiscal 1996. Included in the fiscal 1997 first quarter
expenses is $4.0 million in selling, general and administrative expenses related
to Electrotech. The dollar increases were primarily due to the continued
expansion of the Company's foreign operations. Towards the end of 1997, the
Company will fully occupy newly leased premises in Newport, South Wales,
England. As a result of such occupation, the rental charge and depreciation of
improvements to such premises will increase administrative expenses by
approximately $2 million per annum. The Company anticipates that selling,
general and administration expenses will continue to grow faster than any growth
in revenues.
Income (Loss) From Operations. The Company realized a $10.7 million loss from
operations, or 90% of total revenue in the first quarter of fiscal 1997, as
compared with a $0.8 million profit from operations, or 10% of total revenue in
the first quarter of fiscal 1996. The loss from operations in the first quarter
of fiscal 1997 was due primarily to reduced sales resulting predominately from
the industry downturn conditions noted above in addition to the allocated cost
to inventory charged through cost of goods sold during the first quarter of 1997
of $2.4 million related to the Electrotech inventory write-up. The Company
anticipates that operating results will continue to be unfavorably impacted by
continued weak product demand, as discussed above, and also by appromately $5.2
million in the remaining three quarters of fiscal 1997 due to the write-up of
Electrotech's inventory required by APB No. 16, as discussed above.
Interest Income/Expense. Interest income decreased to $0.4 million in the first
quarter of fiscal 1997 from $0.5 million in the first quarter of fiscal 1996.
This was due to lower cash balances being maintained in the investment accounts.
Interest expense increased to $2.6 million in the first quarter of fiscal 1997
from $0.1 million in the first quarter of fiscal 1996. This was due to the
accrual of interest payable to the holders of the $86.25 million of convertible
debt raised to fund part of the Acquisition. In addition, interest expense was
recorded for the utilization of the Company's $35.0 million Working Capital
Facility during the first quarter of fiscal 1997.
Income Taxes. The Company recorded a $1.5 million tax benefit in the first
quarter of fiscal 1997 compared to the recording of a nominal income tax
provision in the first quarter of fiscal 1996. The $1.5 million tax benefit
represents the combination of a foreign tax benefit associated with
Electrotech's operating loss and the reversal of deferred tax credits
established at November 15, 1996 for the difference in the tax basis and
financial reporting basis of the Electrotech assets acquired. The effective tax
rate differs from the statutory Federal tax rate due to certain one-time non-
deductible charges and losses for which no benefit has been provided. The
Company's ability to use its domestic and foreign net operating losses and
credit carryforwards will depend upon future income and
11
<PAGE>
Trikon Technologies, Inc.
will be subject to an annual limitation, required by the Internal Revenue Code
of 1986 and similar state provisions.
The Company has operating subsidiaries in several countries, and each subsidiary
is taxed based on the laws of the jurisdiction in which it operates. Because
taxes are incurred at each subsidiary level, and one subsidiary's tax losses
cannot be used to offset the taxable income of subsidiaries in other
jurisdictions, the Company's consolidated effective tax rate may increase to the
extent it reports tax losses in some subsidiaries and taxable income in others.
The subsidiaries are subject to taxation in countries where they operate, and
such operations generally are taxed at rates similar to or higher than tax rates
in the United States. The payment of dividends or distributions by the
subsidiaries to the United States would be subject to withholding taxes in the
country of domicile and may be mitigated under the terms of relevant double tax
treaties.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997 the Company had $8.9 million in cash, cash equivalents and
short-term investments, compared to $21.7 million at December 31, 1996. The
decrease in cash, cash equivalents and short-term investments resulted from the
use of cash in operating activities of $12.0 million, of which $11.6 million
resulted from the operating loss. In addition, $2.9 million of cash was used in
investing activities and $2.2 million of cash was provided from financing
activities.
On November 15, 1996 the Company entered into a three-year senior secured credit
facility with certain domestic and U.K. lenders (the "Working Capital Facility")
that permits the Company and its subsidiaries to borrow an aggregate of up to
$35.0 million, subject to borrowing base limitations, based upon eligible
accounts receivable. As of April 30, 1997, the Company had approximately $15.6
million in borrowings outstanding under the Working Capital Facility. The
Working Capital Facility places certain restrictions on the Company, which among
other things prohibit the Company from paying cash dividends, limit the amount
of capital expenditures and require the Company to comply with certain financial
ratios and covenants.
At December 31, 1996 and March 31, 1997, the Company was out of compliance with
certain financial ratios and covenants established under the Working Capital
Facility. The lenders have granted the Company a waiver of such covenant
violations as of December 31, 1996 and March 31, 1997 and for the year and
quarter then ended, which waivers expire June 30, 1997, provided that (1) the
Company fully draws $6,250,000 of subordinated debt under an existing Note
Purchase Agreement with five investors no later than May 30, 1997, with the
failure to do so resulting in the expiration of the waiver on May 30, 1997, and
(2) aggregate, outstanding borrowings under the Working Capital Facility are
limited to $19,000,000 during the waiver period. The Company is negotiating with
the lenders to make various amendments to the Working Capital Facility,
including revising its financial ratio requirements and covenants for its
duration, in light of recent and anticipated operating results of the Company.
The lenders have stated that they will require, as a condition to amending the
Working Capital Facility in the manner desired by the Company, that the Company
request and complete the borrowing of the $6,250,000 principal amount of
unsecured subordinated debt pursuant to the Note Purchase Agreement described
below. As described below, although the Company believes it will be successful
in completing such borrowings, there can be no assurance that the Company will
be successful in obtaining all such borrowings under the Note Purchase
Agreement. If the Company successfully negotiates such amendments to the Working
Capital Facility, it believes that the Company will be able to remain in
compliance with the amended financial ratio requirements, covenants and other
provisions of the Working Capital Facility throughout 1997. The Company's
management anticipates completing and executing such an amendment to the Working
Capital Facility during the second quarter of fiscal 1997. However, there can be
no assurance that the Company will be successful in completing its borrowings
under the Note Purchase Agreement and, accordingly, be successful in these
negotiations with respect to the Working Capital Facility, that the lending
banks will continue to grant waivers of existing covenant violations if an
acceptable amendment is not timely executed, or that the lending banks will not
at any time require repayment of outstanding amounts under the Working Capital
Facility if such amendment is not timely executed. If the lending banks were to
require repayment of all or any significant portion of the outstanding amounts
under the Working Capital Facility, the availability of adequate cash, and as a
result the Company's operations, would be materially and adversely affected.
In March 1996, the Company sponsored a limited partnership with certain third-
party investors to fund research and development costs and expenses relating to
CVD technology applications. Such investors invested an aggregate of
approximately $5,350,000 in the partnership, which aggregate amount was
available to fund such costs and expenses. At May 14, 1997 approximately
$2,133,038 remained in the partnership, and had not been spent on any research
and development. During the first quarter of fiscal 1997, the Company determined
that certain characteristics of the CVD technology of Electrotech, known as
"Flowfill(TM)", acquired in November 1996 in connection with the acquisition of
Electrotech, are superior to the high density plasma CVD processes which had
been pursued by the partnership. The Company accordingly decided to discontinue
further research and development under the Company-sponsored partnership and
instead focus its consolidated CVD efforts, on its own behalf and not on behalf
of the partnership, upon the Flowfill(TM) CVD technology used in the Electrotech
equipment. Accordingly, the Company does not anticipate that any of such
remaining funds in the partnership will be made available for such research and
development, but rather will be returned to the investors in the partnership
(see Note D of Notes to Condensed Consolidated Financial Statements).
On November 15, 1996, the Company received a commitment of terms from five
investors for an unsecured subordinated debt commitment. On December 16, 1996,
the Company entered into a Note Purchase Agreement (the "Note Purchase
Agreement") with the five investors confirming such commitment for unsecured
subordinated debt in the amount of $6,250,000. The interest rate on amounts
drawn under the Note Purchase Agreement will be the bank's prime rate plus 4%.
Interest is payable quarterly. The ability to borrow under the Note Purchase
Agreement expires January 1, 1998 and amounts borrowed under the Note Purchase
Agreement, plus accrued but unpaid interest, is due on January 1, 2000.
Amounts drawn under the Note Purchase Agreement are unsecured obligations of the
Company. No amounts were outstanding under the Note Purchase Agreement as of
May 14, 1997. The Note Purchase
12
<PAGE>
Trikon Technologies, Inc.
Agreement contains covenants that are comparable to those contained in the
Convertible Notes, discussed below. The Company's ability to borrow under the
Note Purchase Agreement at any time is subject to various conditions, including
the lack of occurrence of any material adverse change between the signing of the
Note Purchase Agreement and the Company's borrowing request. In light of the
substantial losses incurred by the Company during the quarter ended December 31,
1996 and March 31, 1997 (and the resulting violations of the financial ratios
and certain other covenants of the Working Capital Facility), it is likely that
any or all of the investors under the Note Purchase Agreement are lawfully
entitled to refuse to advance such funds to the Company. The Company intends to
request the borrowing of such funds in full, and is currently negotiating with
the investors in order to effect such borrowings. As noted above, the lending
banks under the Working Capital Facility have stated that the Company's full
borrowing of the $6,250,000 under the Note Purchase Agreement will be a
condition to an amendment of the Working Capital Facility upon the terms desired
by the Company. The Company believes it will be successful in completing such
borrowings, although the Company will be required to modify the terms of the
Note Purchase Agreement in a manner providing additional consideration to the
investors. However, there can be no assurance that the Company will be
successful in borrowing these funds under the Note Purchase Agreement.
In connection with the acquisition of Electrotech, the Company issued
$86,250,000 of Convertible Subordinated Notes (the "Convertible Notes"). The
Convertible Notes contain certain provisions which provide that, upon the
occurrence of an "Event of Default", as defined, could cause the Convertible
Notes to become due and payable immediately. Such an Event of Default would
occur if, among other things, the Company were to default on the Working Capital
Facility or any other secured indebtedness, as defined, caused by the failure to
pay principal or interest payments when due or resulting in the acceleration of
such indebtedness prior to its express maturity in excess of $10.0 million. As
noted above, the existing waivers of the Company's violations of certain
financial ratio and other covenants in the Working Capital Facility expire no
later than June 30, 1997, and the Company is currently negotiating with its
lending banks to amend the Working Capital Facility to revise the financial
ratio requirements and covenants for its duration, in light of recent and
anticipated operating results of the Company. The Convertible Notes have been
classified as long-term debt under the presumption that the Working Capital
Facility will be amended such that the Company will be able to comply with the
applicable financial covenants over the coming year.
Due to the recent growth in Electrotech's sales and its development of new
products, Electrotech's existing facilities have reached their capacity limit.
Electrotech has leased a 102,000 square foot facility into which it moved
certain of its sales, customer support and financing operations in January 1996.
Most of the facility is currently in use, and the remaining space is being built
out with a view to full occupancy towards the end of 1997.
The Company anticipates that it will spend approximately $13.5 million for
capital expenditures for the months remaining in fiscal 1997. This is expected
to include investments in demonstration and test equipment, information systems,
leasehold improvements and other capital items that should enable the Company to
expand its ability to support and develop new products and services. In
addition, the Company expects to increase its investment in inventory of
evaluation systems at customer sites.
The Company believes that cash provided or available from operations, the
Working Capital Facility, borrowings under the Note Purchase Agreement, and
other sources, including cash, cash equivalents and short-term investments on
hand, will be sufficient to support the Company's liquidity needs over the next
12 months. However, if the Company is unable to amend the Working Capital
Facility under similar terms as currently exist (with revised financial ratio
requirements and covenants), the Company's ability to generate adequate cash,
and as a result the Company's operations, would be materially and adversely
affected.
13
<PAGE>
Trikon Technologies, Inc.
PART II - OTHER INFORMATION
---------------------------
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
-------------------------------
At December 31, 1996 and March 31, 1997, the Company was out of compliance
with certain financial ratios and covenants established under its three-year
senior secured $35 million credit facility with certain domestic and U.K.
lenders entered into on November 15, 1996 (the "Working Capital Facility"). The
Company obtained from its lending banks waivers of such covenant violations as
of December 31, 1996 and March 31, 1997, and for the year and quarter then
ended, which waivers extend until June 30, 1997, provided that (1) the Company
fully draws $6,250,000 of subordinated debt under an existing Note Purchase
Agreement with five investors no later than May 30, 1997, with the failure to do
so resulting in the expiration of the waiver on May 30, 1997, and (2) aggregate,
outstanding borrowings under the Working Capital Facility are limited to
$19,000,000 during the waiver period. The Company is negotiating with the
lenders to make various amendments to the Working Capital Facility, including
revising its financial ratio requirements and covenants for its duration, in
light of recent and anticipated operating results of the Company. The Company
has not defaulted in respect of the payment of any principal or interest on the
Working Capital Facility. As of April 30, 1997, outstanding borrowings under the
Working Capital Facility were approximately $15.6 million.
ITEM 5 - OTHER INFORMATION
-----------------
Name Change. On March 31, 1997, the Company, formerly named Plasma &
Materials Technologies, Inc., changed its name to Trikon Technologies, Inc. The
Company believes that the Trikon name better suits a company with a multi-
continent presence and a number of non-plasma based products.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) The following exhibits are included herein:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
None.
14
<PAGE>
Trikon Technologies, Inc.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRIKON TECHNOLOGIES, INC.
Date May 14, 1997 /s/ John W. LaValle
------------ -----------------------
John W. LaValle
Senior Vice President, Chief Financial
Officer and Secretary
15
<PAGE>
Trikon Technologies, Inc.
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Number Description Page Number
- ------------- ------------ -----------
<S> <C> <C>
11.1 Computation of Earnings Per Share.........
27.1 Financial Data Schedule..................
</TABLE>
16
<PAGE>
Trikon Technologies, Inc.
EXHIBIT 11.1 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
--------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1997 1996
-------------- -----------
<S> <C> <C>
Primary:
Average common shares outstanding................................................... 14,322,327 8,666,527
Net effect of dilutive stock options -
based on the treasury stock method using average fair market price................. -- 370,134
Net effect of dilutive warrants - based
on the treasury stock method using average fair market price....................... ------------- -----------
-- 50,329
------------- ----------
Total shares........................................................................ 14,322,327 9,086,990
============ ==========
Net income (loss)................................................................... $(11,618,906) $1,257,501
============ ==========
Per share amount.................................................................... $ (0.81) $ 0.14
============ ==========
Fully diluted:
Average common shares outstanding................................................... 14,322,327 8,666,527
Net effect of dilutive stock options - based on the treasury stock
method using fair market price at the end of the period............................ -- 377,480
Net effect of dilutive warrants - based on the treasury stock
method using fair market price at the end of the period............................ -- 51,200
------------ ----------
Total shares........................................................................ 14,322,327 9,095,207
============ ==========
Net income (loss)................................................................... $(11,618,906) $1,257,501
============ ==========
Per share amount.................................................................... $ (0.81) $ 0.14
============ ==========
</TABLE>
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,330
<SECURITIES> 1,566
<RECEIVABLES> 26,338
<ALLOWANCES> (3,402)
<INVENTORY> 49,727
<CURRENT-ASSETS> 83,962
<PP&E> 36,306
<DEPRECIATION> (6,319)
<TOTAL-ASSETS> 159,234
<CURRENT-LIABILITIES> 40,224
<BONDS> 86,250
0
0
<COMMON> 131,918
<OTHER-SE> (114,510)
<TOTAL-LIABILITY-AND-EQUITY> 159,234
<SALES> 11,952
<TOTAL-REVENUES> 11,952
<CGS> 9,849
<TOTAL-COSTS> 22,692
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,344
<INCOME-PRETAX> (13,084)
<INCOME-TAX> (1,465)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,619)
<EPS-PRIMARY> (0.81)
<EPS-DILUTED> (0.81)
</TABLE>
