<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, 1998
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 (IRS Employer Identification number)
of incorporation or organization)
Ringland Way, Newport, Gwent NP6 2TA, United Kingdom
----------------------------------------------------
(Address of principle executive offices)(Zip Code)
441 633 414 000
---------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicated 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 periods 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, 1998, the total number of outstanding shares of the Registrant's
common stock was 15,147,115.
<PAGE>
Trikon Technologies, Inc.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets 3
at March 31, 1998 (unaudited) and December 31, 1997
Unaudited Condensed Consolidated Statements of Operations 4
for the Three Months ended March 31, 1998, and 1997
Unaudited Condensed Consolidated Statements of Cash Flows 5
for the Three Months ended March 31, 1998, and 1997
Notes to Unaudited Condensed Consolidated Financial 6
Statements
Item 2. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURE PAGE 21
EXHIBITS 22
2
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<TABLE>
<CAPTION>
Trikon Technologies, Inc.
PART 1 -- FINANCIAL INFORMAITON
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
MARCH 31, DECEMBER 31,
1998 1997 (1)
----------------------- -----------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................................................. $ 17,204 $ 9,260
Accounts receivable, net of reserves....................................... 10,278 18,842
Inventories, net of reserves............................................... 23,732 23,870
Other current assets....................................................... 1,987 1,622
-------------- -----------------------
Total current assets..................................................... 53,201 53,594
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization........................... 21,926 22,140
Demonstration systems, net of accumulated depreciation...................... 1,227 1,227
Bond financing costs, net of accumulated amortization....................... 2,127 2,313
Other assets................................................................ 400 416
-------------- -----------------------
Total assets............................................................. $ 78,881 $ 79,690
============== =======================
Liabilities and shareholders' equity
Current liabilities:
Convertible unsecured notes................................................ $ 86,250 $ 86,250
Accounts payable and accrued expenses...................................... 5,799 9,765
Sales returns payable...................................................... 11,468 11,468
Restructuring costs........................................................ 1,561 3,952
Other current liabilities.................................................. 8,415 7,953
-------------- -----------------------
Total current liabilities................................................ 113,493 119,388
Other non-current liabilities............................................... 5,744 5,245
Shareholders' equity (deficiency):
Preferred Stock:
Authorized shares--20,000,000,
3,125,000 designated as Series G Preferred Stock--$6.75 per share
liquidation preference
Series G Preferred Stock issued and outstanding--
2,962,032 at March 31, 1998 and December 31, 1997....................... 19,349 19,349
Common Stock, no par value:
Authorized shares--50,000,000
Issued and outstanding--15,147,000 at March 31, 1998 and December 31,
1997.................................................................... 137,767 137,767
Cumulative translation adjustment.......................................... (163) (745)
Accumulated deficit........................................................ (197,309) (201,314)
-------------- -----------------------
Total shareholders' equity (deficiency)................................ (40,356) (44,943)
-------------- -----------------------
Total liabilities and shareholders' equity (deficiency)................ $ 78,881 $ 79,690
============== =======================
</TABLE>
(1) The Balance Sheet at December 31, 1997, 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
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Trikon Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------
MARCH 31, MARCH 31,
1998 1997
----------------- ------------------
<S> <C> <C>
Revenues:
Product revenues.......................................... $ 7,203 $ 11,952
License revenues.......................................... 10,000 -
----------------- ------------------
17,203 11,952
Costs and expenses:
Cost of goods sold........................................ 4,635 9,849
Research and development.................................. 2,036 4,904
Selling, general and administrative....................... 4,802 7,035
Amortization of intangibles............................... 1 904
----------------- ------------------
11,474 22,692
Income (loss) from operations.............................. 5,729 (10,740)
Interest (expense), net.................................... (1,941) (2,344)
----------------- ------------------
Income (loss) before income tax benefit.................... 3,788 (13,084)
Income tax benefit......................................... ( 217) ( 1,465)
----------------- ------------------
Net income (loss).......................................... $ 4,005 $ (11,619)
================= ==================
Basic earnings (loss) per share:........................... $0.26 $(0.81)
================= ==================
Diluted earnings (loss) per share:........................ $0.22 $(0.81)
================= ==================
Average common shares basic............................... 15,147,000 14,322,327
Average common shares diluted............................. 18,109,000 14,322,327
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
Trikon Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------
MARCH 31, MARCH 31,
1998 1997
--------------------- -----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss)........................................................... $ 4,005 $(11,619)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization of property, equipment, leasehold
improvements and demonstration systems.................................... 873 1,633
Amortization of intangible assets.......................................... 1 904
Amortization of financing costs............................................ 185 404
Deferred income taxes...................................................... - (1,067)
Changes in operating assets and liabilities:
Accounts receivable...................................................... 8,564 3,919
Inventories.............................................................. 138 3,466
Demonstration systems.................................................... - 488
Other current assets..................................................... (365) 2,320
Accounts payable, accrued expenses and other current liabilities......... (5,895) (12,475)
Other liabilities........................................................ 372 38
Other................................................................. 582 ( 181)
--------------------- -----------------
Net cash generated (used) in operating activities........................... 8,460 (12,170)
INVESTING ACTIVITIES
Purchases of property, equipment and leasehold improvements................. (449) (1,343)
Proceeds from sales of short-term investments............................... - 2,132
Purchases of short-term investments......................................... - (2,234)
Acquisition costs........................................................... - (1,042)
Other assets................................................................ - (437)
--------------------- -----------------
Net cash used in investing activities....................................... (449) (2,924)
FINANCING ACTIVITIES
Net borrowings (repayments) under bank credit line.......................... - 2,332
Proceeds from sale of common stock and warrants............................. - 45
Payments on capital lease obligations....................................... ( 67) (141)
--------------------- -----------------
Net cash provided by (used in) financing activities......................... (67) 2,236
--------------------- -----------------
Net increase (decrease) in cash and cash equivalents........................ 7,944 (12,858)
Cash and cash equivalents at beginning of period............................ 9,260 20,188
--------------------- -----------------
Cash and cash equivalents at end of period.................................. $17,204 $ 7,330
===================== =================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
Trikon Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
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, 1998,
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. 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, 1997.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. During 1997, following significant losses
from operations, negative cash flows from operating activities, and violations
of debt covenants, the Company's working capital facility was terminated (Note
G). The Company does not currently have a credit facility with any lenders.
Management's plans with respect to these conditions include the sale of
licenses, as discussed in Note I, restructuring of its operations, obtaining a
new working capital facility and the Exchange Offer discussed in Note J.
Management believes that the successful implementation of these actions and the
cash flow from future operations will be sufficient to fund the Company's
operations. However any increase in costs or decrease or elimination of
anticipated sources of revenues or the inability of the Company to successfully
implement management's plans would raise significant doubt as to the Company's
ability to fund its operations in the ordinary course.
At March 31, 1998, based on the current financial position of the Company, it
was probable that a "Designated Event" under the terms of the Convertible Notes
(as defined in Note G below) could occur, causing the Convertible Notes to be
callable. Accordingly, the Convertible Notes have been classified as a current
liability in the accompanying financial statements. On May 14, 1998, the Company
consummated an exchange offer for $82,103,000 principal amount of the
Convertible Notes (See Note J below).
NOTE B INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. The components of inventory consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Components $ 7,239 $ 7,864
Work in process 14,318 13,680
Finished goods 2,175 2,326
--------- ------------
$23,732 $23,870
========= ============
</TABLE>
NOTE C DEMONSTRATION SYSTEMS
Demonstration systems represent completed systems at certain strategic customer
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
6
<PAGE>
Trikon Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(Continued)
MARCH 31, 1998
agreed upon evaluation period, provided that the equipment performs to
specifications, management expects that the customer will purchase the system,
though they are not obligated to do so. If the system is returned, it is
refurbished for resale or used for research and development. Demonstration
systems 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
In the first quarter of fiscal 1997, the Company determined that certain
characteristics of the CVD technology of Trikon Limited, known as "Flowfill",
were superior to the high density plasma CVD processes then being pursued by a
limited partnership sponsored by the Company (the "Limited Partnership")
pursuant to a 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
performed all research and development work for the Limited Partnership). The
Company 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, upon the Flowfill(R) CVD technology
used in the equipment developed and manufactured by Trikon Technologies Limited
and Trikon Equipments Limited (collectively "Trikon Limited"). Accordingly, a
settlement of any and all rights and claims by the limited partners of the
Limited Partnership was made on June 30, 1997 ("CVD Purchase Agreement") to
terminate the R&D Agreement and all related agreements, and purchase all of the
outstanding interests in the Limited Partnership for 679,680 shares of the
Company's Common Stock (the "CVD Partnership Shares"). The assets acquired
included approximately $2.2 million of cash and approximately $3.0 million of
in-process research and development which was recorded as a one-time charge as
purchased in-process technology expense in the quarter ended June 30, 1997. In
connection with the purchase of all of the outstanding interests in the Limited
Partnership, the Company agreed to cause a registration statement covering the
CVD Partnership Shares filed under the Securities Act of 1933, as amended (the
"Securities Act"), to become effective on or prior to September 1, 1997. In
the event that the Company did not cause a registration statement to become
effective on or prior to September 1, 1997, the Company originally agreed to
pay the holders of the CVD Partnership Shares liquidated damages comprising a
one-time fee of $75,000 and an amount equal to $2,500 per day for each day
after September 1, 1997, and prior to the effective date of the registration
statement. The Company and the holders of the CVD Partnership Shares amended
the CVD Purchase Agreement on December 12, 1997, to provide for (i) the
immediate payment of liquidated damages accrued through November 1, 1997, of
$225,000, (ii) no further incurrence of liquidated damages should the
registration statement be effective by March 15, 1998, (iii) in the event that
Trikon did not cause the registration statement to become effective by March
15, 1998, resumption of liquidated damages accruing at a rate of $2,500 for
each day thereafter until the Registration Statement becomes effective, and
(iv) should the registration statement not be effective by April 1, 1998,
Trikon will become obligated to the holders of CVD Partnership Shares for the
liquidated damages for the period between November 1, 1997, and March 15,
1998, $335,000. As of March 31, 1998, the Company had not caused a
registration statement to become effective.
NOTE E INCOME TAXES
The tax benefit in the first fiscal quarter of 1998 represents the combination
of a foreign tax benefit associated with Trikon Limited's operating loss and no
tax liability on domestic profits because they are fully absorbed by tax losses
brought forward. In the first fiscal quarter of 1997, the tax benefit represents
the combination of a foreign tax benefit associated with Trikon Limited's
operating loss and no tax liability on domestic losses. For these reasons the
effective tax rates differ from the statutory federal tax rate. The Company's
ability to use its domestic and foreign net operating losses and credit
carryforwards will depend upon future income and will be subject to an annual
limitation, required by the Internal Revenue Code of 1986 and similar state
provisions.
Upon closing of the Exchange Offer (defined in Note J), a change of ownership
will have occurred under section 382 of the Internal Revenue Code, which will
substantially limit the availability of the Company's net operating loss
carryforward. Due to the limitation, a substantial amount of net operating
loss carryforward may expire unused.
7
<PAGE>
Trikon Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(Continued)
MARCH 31, 1998
The Company has operating subsidiaries in several countries, and each subsidiary
is taxed based on the laws of the jurisdiction in which it operates. Because
taxes are incurred at the subsidiary level, and one subsidiary's tax losses
cannot be used to offset the taxable income of subsidiaries in other
jurisdictions, the Company's consolidated effective tax rate may increase to the
extent it reports tax losses in some subsidiaries and taxable income in others.
The subsidiaries are subject to taxation in countries where they operate, and
such operations generally are taxed at rates similar to or higher than tax rates
in the United States. The payment of dividends or distributions by the
subsidiaries to the United States would be subject to withholding taxes in the
country of domicile and may be mitigated under the terms of relevant double tax
treaties.
NOTE F NET INCOME (LOSS) PER SHARE
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," which changes the method previously
used to compute earnings per share and requires restating all prior periods.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options are excluded. Diluted earnings per share for
the quarter ended March 31, 1998 excludes the effects of all outstanding stock
options because the exercise price of such stock options exceeded the market
price of the underlying stock and assumes the Series G Preferred Stock was
converted into 2,962,032 shares of Common Stock as of January 1, 1998 under the
if-converted method. Diluted earnings per share for the quarter ended March
31, 1997 excludes the effects of all options and convertible preferred stock
because such securities were antidilutive for the period. Basic and diluted
earnings (loss) per share under Statement 128 for the three months ending March
31, 1997 was the same as previously reported as primary loss per share.
NOTE G LINE OF CREDIT AND LONG-TERM DEBT
During the period from November 14, 1996 to November 12, 1997, the Company had a
senior secured credit facility with certain domestic and U.K. lenders (the
"Working Capital Facility") that permitted 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. The Company was out of
compliance with certain financial ratios and covenants established under the
Working Capital Facility at December 31, 1996, March 31, 1997, June 30, 1997 and
September 30, 1997.
On November 12, 1997, in connection with the sale of licenses to Applied
Materials, Inc., the Company entered into a pay-off agreement with its domestic
and U.K. lenders relating to the Working Capital Facility (the "Pay-off
Agreement"). Under the Pay-off Agreement, among other things, the Company made
payments in the aggregate of approximately $12.5 million (which included all
outstanding principal and interest due at November 12, 1997) to its lenders
under the Working Capital Facility, the lenders under the Working Capital
Facility released all of their liens on the assets of the Company and the
Working Capital Facility was terminated. In addition, in order to collateralize
certain obligations of Trikon Limited relating to bankers' guarantees and a
credit facility with the Company's U.K. lender, the Company provided cash
collateral of approximately $1.4 million to the U.K. lender. As of March 31,
1998, the cash collateral provided was $1.1 million.
In connection with the acquisition of Trikon Limited, the Company issued
$86,250,000 principal amount of Convertible Subordinated Notes (the "Convertible
Notes"). The Convertible Notes bear interest at 7-1/8% which is payable in
semi-annual installments beginning on April 15, 1997. Since January 1997, the
Convertible Notes have borne an additional 0.5% interest per annum due to the
Company's noncompliance with certain registration rights of the Convertible
Notes.
8
<PAGE>
Trikon Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(Continued)
MARCH 31, 1998
The Convertible Notes contain certain provisions which, upon the occurrence of
an "Event of Default" (as defined in the Convertible Notes) 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 in the
Convertible Notes, caused by the failure to pay principal and interest payments
when due or resulting from the acceleration of any such indebtedness prior to
its express maturity in excess of $10.0 million.
On May 14, 1998, the Company accepted for exchange $82.1 million principal
amount of Convertible Notes duly tendered in the Exchange Offer described in
Note J below.
As outlined in the offering document disseminated in connection with the
Exchange Offer, the Company did not pay interest of $3.3 million accrued to
and due on April 15, 1998. Interest was paid to the holders of the Convertible
Notes which did not accept the Exchange Offer on May 15, 1998. In accordance
with the terms of the Exchange Offer, any accrued and unpaid interest on
Convertible Notes accepted in the Exchange Offer will not be paid and will be
included in the calculation of the profit or loss arising on the exchange of
the Convertible Notes.
The Company's United Kingdom subsidiary has a term-loan from Lloyd's Bank PLC
which is secured by property in Bristol, United Kingdom. Interest is payable
monthly for borrowings at a fixed rate of 10.0025% per annum. At December 31,
1997, the amount outstanding was $0.3 million which is repayable on May 23,
1998. This agreement places no restrictions on the Company and does not require
the Company to comply with financial ratios or covenants.
NOTE H PREFERRED STOCK
During the quarter ended June 30, 1997, the Company commenced a private offering
(the "Private Placement") of shares of its newly-authorized Series G Preferred
Stock together with three-year warrants to purchase Common Stock at an exercise
price of $8.00 per share (the "Warrants"). The Company sold an aggregate of
2,962,032 shares of Series G Preferred Stock (together with Warrants to purchase
an aggregate of 888,610 shares of Common Stock) with net proceeds to the Company
of approximately $19,349,000. Investors in the Private Placement received
Warrants exercisable for a number of shares of Common Stock equal to 30% of the
number of shares of Series G Preferred Stock purchased, at a total price of
$6.75 per share of Series G Preferred Stock. The Series G Preferred Stock has a
liquidation preference of $6.75 per share which is generally applicable to any
liquidation or acquisition of the Company, such that the Series G Preferred
Stock receives the first $6.75 per share of available proceeds, the shares of
Common Stock then receive the next $6.75 per share, and thereafter the Series G
Preferred Stock and the Common Stock share any remaining proceeds pro rata (on
an as converted basis assuming conversion of all of the Series G Preferred Stock
into Common Stock). The Series G Preferred Stock is convertible at the option
of the holders on a share-for-share basis into Common Stock commencing September
30, 1997 (subject to antidilution adjustments), bears no dividend (except as may
be paid on the Common Stock into which it is convertible) and will be
automatically converted into Common Stock on June 30, 2000.
The Articles of Incorporation of the Company provide that, except for any
amendment, alteration or repeal of the preferences, privileges, special rights
or other powers of the Series G Preferred Stock or the authorization of any
other preferred stock (all of which require the approval of a majority of the
Series G Preferred Stock voting as a separate class), the Series G Preferred
Stock and the Common Stock vote together as a single class, with each share of
Series G Preferred Stock being entitled to that number of votes equal to the
number of shares of Common Stock into which it is then convertible (presently,
one vote per share). Additionally, the purchasers of the Series G Preferred
Stock have entered into a ten-year
9
<PAGE>
Trikon Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(Continued)
MARCH 31, 1998
Voting Agreement with the Company pursuant to which they have agreed that, if a
separate class vote of the Series G Preferred Stock is required by law (rather
than by the Articles of Incorporation of the Company), and if the proposal being
presented to the shareholders has been approved by the Board of Directors and
approved by the vote of the holders of the Common Stock and Series G Preferred
Stock voting as a single class as described above, they will vote their shares
of Series G Preferred Stock in favor of such proposal when voting the Series G
Preferred Stock as a separate class.
On May 14,1998, the Company accepted for conversion 2,873,143 shares of G
Preferred Stock, or approximately 97% of the outstanding shares, duly tendered
in the Exchange Offer. In accordance with the terms of the Certificate of
Determination of the Company that sets forth the rights, preferences and
privileges of the Series G Preferred Stock, the conversion of more than two-
thirds of the outstanding shares of Series G Preferred Stock has caused the
automatic conversion of all the outstanding shares of Series G Preferred
Stock.
NOTE I LICENSE AGREEMENTS
On November 12, 1997, the Company granted non-exclusive, worldwide, paid-up
licenses of its MORI(TM) source and Forcefill(R) PVD technologies to Applied
Materials. Under the terms of the license agreements and related technology
transfer agreements, Applied Materials paid the Company $29.5 million, $26.5
million of which was paid in 1997 and an additional $3 million of which was paid
in the first quarter of 1998 upon completion of the technology transfer. Under
one of the license agreements, Applied Materials also purchased four MORI(TM)
sources for $0.5 million prior to December 31, 1997.
On March 18, 1998, the Company granted a nonexclusive, worldwide license of its
MORI(TM) source technology to Lam Research. Under the terms of the license
agreement, Lam Research will pay up to $20.0 million, $9.0 million of which was
paid in the first quarter of 1998, $1.0 million of which is due in the second
quarter of 1998 and $10.0 million of which consists of contingent payments and
royalties. License revenue of $10 million has been recognized in the
consolidated income statement for the three months ended March 31, 1998. The
license agreements with Applied Materials and Lam Research do not preclude
Trikon from utilizing, or licensing to other third parties, the licensed
technology.
NOTE J EXCHANGE OFFER
On April 14, 1998, the Company commenced an exchange offer (the "Exchange
Offer") for all of the outstanding Convertible Notes, Series G Preferred Stock
and Warrants and filed a Schedule 13E-4 with the Securities and Exchange
Commission. The Exchange Offer expired at 5:00, New York City time, on May 14,
1998, and immediately thereafter, the Company accepted for exchange or
conversion all validly tendered Convertible Notes, Series G Preferred Stock
and Warrants. $82,103,000 principal amount of Convertible Notes (approximately
95% of the aggregate principal amount outstanding), 2,873,143 shares of Series
G Preferred Stock (approximately 97% of the total shares outstanding) and
866,388 Warrants (approximately 97% of the Warrants outstanding) had been
validly tendered for exchange. Because more than two-thirds of the outstanding
shares of Series G Preferred Stock tendered, in accordance with the terms of
the Certificate of Determination of the Company establishing the rights,
preferences and privileges of the Series G Preferred Stock, all other
outstanding shares of Series G Preferred Stock automatically converted into
shares of Common Stock. The $82,103,000 principal amount of Convertible Notes
tendered will be exchanged for approximately 22.6 million new shares of Common
Stock, approximately 2.85 million new shares of Series H Preferred Stock, $10
stated amount per share, and approximately 29,000 new shares of Series I
Junior Participating Preferred Stock. The shares of Series G Preferred Stock
and warrants will be exchanged for approximately 7.2 million new shares of
Common Stock and approximately 8,000 new shares of Series I Junior
Participating Preferred Stock. The Series H Preferred Stock will be redeemable
at the option of the Company for cash on June 30, 2001, at a redemption price
equal to the stated amount and the holders of the Series H Preferred Stock
shall be entitled to receive dividends at an annual rate of 8-1/8% of the
stated amount payable annually, at the option of the Company, in cash or
additional shares of preferred stock or any combination thereof. The Series H
Preferred Stock will be subject to automatic conversion if the Company's
Common Stock price reaches certain levels and accelerated redemption if
certain cash flow levels are achieved. The Company intends to call a special
meeting of shareholders to approve an amendment (the "Charter Amendment") to
the Articles of Incorporation of the Company to provide for an increase in the
number of authorized shares of Common Stock. Upon approval of the Charter
Amendment, each share of Series I Preferred Stock will automatically convert
into 1,000 shares of Common Stock. In connection with the consummation of the
Exchange Offer, the Company has agreed to issue 5.0 million shares of
10
<PAGE>
Trikon Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(Continued)
MARCH 31, 1998
restricted Common Stock and 6,476 shares of restricted Series I Preferred Stock
to the Company's Chairman of the Board. On conversion of the Series I Preferred
Stock into Common Stock the issue will represent approximately 11,500,000
shares or 12% of outstanding Common Stock (after giving effect to the Exchange
Offer).
As outlined in the offering documents disseminated in connection with the
Exchange Offer, the Company did not pay interest of $3.3 million accrued to
and due on April 15, 1998. Interest was paid to the holders of Convertible
Notes which did not accept the Exchange Offer on May 15, 1998. In accordance
with the terms of the Exchange Offer, any accrued and unpaid interest on
Convertible Notes accepted in the Exchange Offer will not be paid and will be
included in the calculation of the profit or loss arising on the exchange of
the Convertible Notes.
The Exchange Offer will be accounted for under SFAS No. 15, "Troubled Debt
Restructuring."
NOTE K - RESTRUCTURING
At December 31, 1997 the Company recorded a liability for certain restructuring
costs related to the closure of its Chatsworth operations. For the quarter ended
March 31, 1998, the restructuring liability has been reduced by actual payments
as anticipated by the Company.
As a result of the Company's decision to substantially exit the MORI(TM) Etch
business, the Company anticipates certain MORI(TM) Etch related product returns.
Although the Company is not required to accept all such returns, the Company
believes it may be necessary to maintain certain customer relationships.
Accordingly, the sales return reserve recorded as of December 31, 1998 is
management's estimate of the liability for MORI(TM) Etch products that may be
returned due to the Company's decision to substantially exit the MORI(TM) Etch
business. There have been no payments made for sales returns in the quarter
ended March 31, 1998. During the quarter ended March 31, 1998 a legal claim was
filed against the Company relating to a dispute over a product return.
Management believes the claim is without merit and does not believe the claim
will have a material effect on the Company's financial position or results of
its operations.
In the ordinary course of business and in connection with the Company's
restructuring, the Company is involved in various types of claims and legal
proceedings which will result in litigation or other legal proceedings. The
Company does not anticipate that any of the proceedings will have a material
adverse effect on the Company's financial position, cash flow or results of
operations.
11
<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 with respect to the financial condition, results
of operations and business of the Company. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially and adversely from those set forth in the forward-looking
statements, including, without limitation, the availability of financial
resources adequate for the Company's short-, medium- and long-term needs, the
Company's ability to successfully implement its strategy of reorganizing its
product lines and overall business, varying customer demand for the Company's
new products and system products, potential material adverse effects on such
demand resulting from the Company's licensing of its MORI(TM) source and
Forcefill(R) physical vapor deposition ("PVD") technologies to Applied
Materials, and Lam Research, supply and manufacturing constraints and costs,
dependence on outside suppliers, the various effects on revenue, margins,
inventories and operating expenses of reorganizing in the Company's product
lines and overall business, the Company's ability to build and maintain adequate
staff infrastructure in the area of PVD and chemical vapor deposition ("CVD")
design, product engineering and development, sales and marketing, and
administrations, customer warranty claims, slowing growth in the demand for
semiconductors, challenges from the Company's competition, general economic
conditions, including the economic downturn in Asia, potential delisting from
the Nasdaq National Market if the Company cannot meet the listing requirements,
year 2000 problems, and the other risks and uncertainties described from time to
time in the Company's public announcements and SEC filings, including without
limitation the Company's Quarterly and Annual Reports on Form 10-Q and 10-K,
respectively. The Company cautions that the foregoing list of important factors
is not exclusive. In addition, such list of important factors speaks only as of
the date hereof and the Company does not undertake to update any written or oral
forward-looking statement that may be made from time to time by or on behalf of
the Company.
OVERVIEW
The Company develops, manufactures, markets and services semiconductor
equipment for the worldwide semiconductor manufacturing industry.
On November 15, 1996, the Company acquired (the "Acquisition") Electrotech
Limited and Electrotech Equipments Limited, privately-owned United Kingdom
companies founded in 1968, for an aggregate consideration of $75.0 million in
cash and 5.6 million shares of Common Stock, with an estimated fair market value
of $70.7 million, based on the closing sale 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. During the second
quarter of 1997, Electrotech Limited and Electrotech Equipments Limited changed
their names to Trikon Limited and Trikon Equipments Limited (collectively
"Trikon Limited"). Trikon Limited develops, manufactures, markets and services
semiconductor fabrication equipment with products and technologies for CVD, PVD
and etch 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.
In the second half of 1997, in response to continuing losses, violations of debt
covenants and the limited availability of financing, the Company began a
restructuring effort that included exploring various strategic alternatives as
to the future of the business. In October 1997, the Company announced a 20%
reduction in its workforce. In November 1997, the Company sold worldwide, non-
exclusive, paid up licenses of its MORI/TM/ source and Forcefill(R) PVD
technologies to Applied Materials for $29.5 million. With the sale of the
MORI/TM/ source license, the Company began executing a plan to close its Etch
Division
12
<PAGE>
Trikon Technologies, Inc.
located in Chatsworth, California, resulting in the termination of an
additional 13% of its work force. In connection with the closure of the
Chatsworth Etch operations and the sale of the licenses, the Company incurred
during the fourth quarter of 1997, non-cash related charges of approximately
$32.5 million for the write-off of certain accounts receivable, inventories and
long-lived assets which due to the sale of the licenses and the decision to
close the Etch Division had become impaired. In addition, due to the continuing
losses, reduced sales and changes in the Company's business, since the
acquisition of Trikon Limited, the Company wrote off, during the fourth quarter
of 1997, approximately $32.3 million of intangible assets established in the
allocation of the purchase price of Trikon Limited. The Company incurred
certain cash related charges of approximately $18.3 million associated with the
termination of employees of the Etch Division and of the Company's worldwide
operations, closing of the Chatsworth Etch operations and anticipated product
returns. During the first fiscal quarter of 1998 the Company settled
approximately $2.4 million of the accrued restructuring costs and management
considers the remaining provision of $13.0 million adequate to meet the
Company's remaining restructuring needs and cover the cost of potential sales
returns. The Company anticipates approximately $8.9 million of the remaining
liability at March 31, 1998 will be paid in 1998 and $4.1 million in 1999,
however, actual payments could vary significantly depending on the Company's
cash flows and continuing negotiations with its customers. As a result of the
closure of the Chatsworth Etch operations, operating costs for the first quarter
of 1998 are significantly reduced by comparison with the first quarter of 1997.
Costs of $97.6 million relating to the restructuring of the Company were charged
in the consolidated Statement of Operations for the year ended December 31,
1997.
As a result of the restructuring, the remaining business consists of the
worldwide operations of Trikon Limited, the Company acquired by Trikon on
November 15, 1996, with headquarters located in the United Kingdom.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of total
revenue for the periods indicated:
13
<PAGE>
Trikon Technologies, Inc.
<TABLE>
<CAPTION>
Three months ended
---------------------------------------------
March 31, March 31,
1998 1997
------------------ ------------------
<S> <C> <C>
Product revenues................................... 41.9% 100.0%
License revenues................................... 58.1 0.0
------------------ ------------------
Total revenues..................................... 100.0 100.0
Cost of goods sold................................. 27.0 82.4
------------------ ------------------
Gross margin.................................. 73.0 17.6
Operating expenses:
Research and development...................... 11.8 41.0
Selling, general and administrative........... 27.9 58.9
Amortization of intangibles................... 0.0 7.6
------------------ ------------------
Total operating expenses...................... 39.7 107.5
------------------ ------------------
Income (loss) from operations...................... 33.3 ( 89.9)
Interest expense, net.............................. (11.3) (19.6)
------------------ ------------------
Income (loss) before income tax benefit............ 22.0 (109.5)
Income tax benefit................................. ( 1.3) ( 12.3)
------------------ ------------------
Net income (loss).................................. 23.3% (97.2)%
================== ==================
</TABLE>
PRODUCT REVENUES. Product revenues for the first quarter of fiscal 1998
decreased 40% to $7.2 million compared to $12.0 million for the first quarter of
fiscal 1997. These decreases were attributable primarily to reduced shipments
of systems and to a change in the mix of product sales. During the first
quarter of fiscal 1998, the Company shipped one Sigma, one Delta and one
PINNACLE system as compared to two Sigma ForceFill(TM) and two Omega(TM) etch
systems during the first quarter of fiscal 1997.
Sales outside of the United States accounted for approximately 21% of total
revenues in the first quarter of 1998 and 32% of total revenues in the first
quarter of 1997. Excluding the license revenues, sales outside the United
States accounted for 51% and 32% of product revenues for the first quarters of
1998 and 1997, respectively. The quantity of product shipped will fluctuate
significantly from quarter to quarter and the individual customers to which
these products are sold can also change from quarter to quarter. Given the
significance of each individual sale, the percentage of sales made outside of
the United States will also fluctuate significantly from quarter to quarter.
LICENSE REVENUES. License revenues in the quarter ended March 31, 1998, comprise
the sale of a non-exclusive worldwide license of MORI(TM) source technology to
Lam Research Corporation (see Note J to Notes to Condensed Consolidated
Financial Statements).
GROSS MARGIN ON PRODUCT REVENUES. The Company's gross margin on product
revenues for the first quarter of fiscal 1998 was 36% as compared to 18% for the
first quarter of fiscal 1997. The relatively low gross margin in 1997 resulted
from the write-up of Trikon Limited inventory shipped in the first quarter of
1997 on hand as of November 15, 1996, to the fair market value of such inventory
14
<PAGE>
Trikon Technologies, Inc.
resulting from the allocation of the purchase price of Trikon Limited as
required under Accounting Principles Board Opinion No. 16 ("APB No. 16"). Gross
margins have been negatively impacted due to issues related to weakened product
demand such as unabsorbed manufacturing overhead associated with reduced units
sold and will continue to be adversely affected in the remainder of 1998.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
first quarter of fiscal 1998 were $2.0 million, or 12% of total revenues,
compared to $4.9 million, or 41% of total revenues, for the first quarter of
fiscal 1997. Included in research and development expenses during the first
quarter of fiscal 1997 is $2.5 million related to the Chatsworth Etch division.
The major focus of the Company's research and development efforts during the
quarter ended March 31, 1998, was on the development of new processes in further
advancing its proprietary PVD, CVD and etch technologies as well as adding
enhancements to its existing products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the first quarter of fiscal 1998 were $4.8 million,
or 28% of total revenues, compared to $7.0 million, or 59% of total revenues,
in the first quarter of fiscal 1997. The dollar decreases were primarily due to
the reduced overhead resulting from the closure of the Chatsworth Etch
operations.
INCOME (LOSS) FROM OPERATIONS. The Company realized a $5.7 million profit from
operations, or 33% of total revenues, in the first quarter of fiscal 1998, as
compared with a $10.7 million loss from operations, or 90% of total revenues, in
the first quarter of fiscal 1997. The profit from operations in the first
quarter of fiscal 1998 was due primarily to license revenues earned. The
Company anticipates that operating results will continue to be unfavorably
impacted by weak product demand during the remainder of fiscal 1998.
INTEREST EXPENSE, NET. Interest expense, net decreased to $1.9 million in the
first quarter of fiscal 1998 from $2.3 million in the first quarter of fiscal
1997. The interest expense in the first quarter of 1998 is primarily due to the
accrual of interest payable to the holders of the $86.3 million of convertible
debt. The reduction in interest expense between the first quarter of 1997 and
the first quarter of 1998 arises from the repayment and non-utilization of the
Working Capital Facility since November 1997. Interest expense at March 31, 1998
and 1997 is net of interest income of $0.1 million and $0.7 million,
respectively.
INCOME TAXES. The Company recorded a $0.2 million tax benefit in the first
quarter of fiscal 1998 compared to a $1.5 million tax benefit in the first
quarter of fiscal 1997. The tax benefit in the first quarter of 1998 represents
the combination of a foreign tax benefit associated with Trikon Limited's
operating loss and no tax liability on domestic profits which are fully absorbed
by tax losses brought forward. In the first fiscal quarter of 1997, the tax
benefit represents the combination of a foreign tax benefit associated with
Trikon Limited's operating loss and no tax liability on domestic losses.
The Company's ability to use its domestic and foreign net operating losses and
credit carryforwards will depend upon future income and 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 the subsidiary level, and one subsidiary's tax losses
cannot be used to offset the taxable income of subsidiaries in other
jurisdictions, the Company's consolidated effective tax rate may increase to the
extent it reports tax losses in some subsidiaries and taxable income in others.
The subsidiaries are subject to taxation in countries where they
15
<PAGE>
Trikon Technologies, Inc.
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, 1998, the Company had $17.2 million in cash and cash equivalents,
compared to $9.3 million at December 31, 1997. The increase in cash and cash
equivalents principally arose from cash generated from operating activities of
$8.5 million offset by cash used in investing activities of $0.4 million.
On March 18, 1998, the Company granted a non-exclusive, worldwide license of its
MORI(TM) source technology to Lam Research. Under the terms of the license
agreement, Lam Research will pay up to $20.0 million, $9.0 million of which was
paid in the first quarter of 1998, $1.0 million of which is due in the second
quarter of 1998 and $10.0 million of which consists of contingent payments and
royalties.
On November 12, 1997, the Company granted nonexclusive, worldwide, paid-up
licenses of its MORI(TM) source and Forcefill(R) PVD technologies to Applied
Materials. Under the terms of the license agreements and related technology
transfer agreements, Applied Materials paid the Company $29.5 million, $26.5
million of which was paid in 1997 and an additional $3 million of which was paid
in the first quarter of 1998 upon completion of the technology transfer. Under
one of the license agreements, Applied Materials also purchased four MORI(TM)
sources for $0.5 million prior to December 31, 1997. The license agreements with
Applied Materials and Lam Research do not preclude Trikon from utilizing, or
licensing to other third parties, the licensed technology.
During the period from November 14, 1996 to November 12, 1997, the Company had a
senior secured credit facility with certain domestic and U.K. lenders (the
"Working Capital Facility") that permitted 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. The Company was out of
compliance with certain financial ratios and covenants established under the
Working Capital Facility at December 31, 1996, March 31, 1997, June 30, 1997 and
September 30, 1997.
On November 12, 1997, in connection with the sale of licenses to Applied
Materials, the Company entered into a pay-off agreement (the "Pay-off"
Agreement) with its domestic and U.K. lenders relating to the Working Capital
Facility. Under the terms of the Pay-off Agreement, the Company made payments in
the aggregate of approximately $12.5 million (including all outstanding
principal and interest due at November 12, 1997) to its lenders under the
Working Capital Facility, the lenders under the Working Capital Facility
released all of their liens on the assets of the Company and the Working Capital
Facility and all of the Company's obligations under the Working Capital
Agreement were terminated. In order to collateralize certain obligations of
Trikon Limited relating to bankers guarantees and a credit facility with the
Company's U.K. lender, the Company provided cash collateral of approximately
$1.4 million to the U.K. lender. As of March 31, 1998, the cash collateral
provided was $1.1 million.
The $29.5 million in proceeds from the sale of the license agreements to Applied
Materials was used to pay off the $12.5 million balance on the Working Capital
Facility and $3.1 million in interest due on the Convertible Notes. The Company
is using the remainder to fund the closure of the Chatsworth, California, Etch
operations, including the employee termination cost and debt service
requirements.
Trikon Limited has a term-loan from Lloyd's Bank Plc which is secured by
property in Bristol, United Kingdom. Interest is payable monthly for borrowings
at a fixed rate of 10.0025% per annum. At
16
<PAGE>
Trikon Technologies, Inc.
March 31, 1998, the amount outstanding was $0.3 million which is repayable on
May 23, 1998. This loan places no restrictions on the Company and does not
require the Company to comply with any covenants.
In connection with the Acquisition of Trikon Limited, the Company issued
$86,250,000 of 7-1/8% Convertible Subordinated Notes due 2001 (the "Convertible
Notes"). The Convertible Notes contain certain provisions which provide that
the occurrence of an "Event of Default" (as defined therein) 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 therein)
caused by the failure to pay principal and interest payments when due or
resulting in the acceleration of such indebtedness prior to its express maturity
in excess of $10.0 million.
On April 14, 1998, the Company commenced an exchange offer (the "Exchange
Offer") for all of the outstanding Convertible Notes, Series G Preferred Stock
and warrants to purchase its Common Stock issued in connection with the
placement of the Series G Preferred Stock (the "Warrants"). The Exchange Offer
expired at 5:00, New York City time, on May 14, 1998, and immediately
thereafter, the Company accepted for exchange or conversion all validly tendered
Convertible Notes, its Series G Preferred Stock and Warrants. $82,103,000
principal amount of Notes (approximately 95% of the aggregate principal amount
outstanding), 2,873,143 shares of Series G Preferred Stock (approximately 97% of
the total shares outstanding) and 866,388 Warrants (approximately 97% of the
Warrants outstanding) had been validly tendered for exchange. $4,147,000
principal amount of Convertible Notes did not except the Exchange Offer and
remain outstanding. As outlined in the offering document issued in connection
with the Exchange Offer, the Company did not pay interest of $3.3 million
accrued to and due on April 15, 1998. Interest was paid to the holders of the
Convertible Notes which did not accept the Exchange Offer on May 15, 1998. In
accordance with the terms of the Exchange Offer, any accrued and unpaid interest
on Convertible Notes accepted in the Exchange Offer will not be paid and will be
included in the calculation of the profit or loss arising on the exchange of the
Convertible Notes.
As previously disclosed, in early 1997 the Company determined that certain
characteristics of the chemical vapor deposition ("CVD") technology of Trikon
Limited known as "Flowfill" are superior to the high density plasma CVD
processes which were being pursued by PMT CVD Partners, L.P. (the "Limited
Partnership"), a limited partnership sponsored by the Company for MORI(TM) CVD
development pursuant to an R&D agreement (the "R&D Agreement") entered into as
of March 29, 1997 between the Limited Partnership and the Company (under which
the Company agreed to perform all research and development work for the Limited
Partnership). Accordingly, during the first quarter of 1997, the Company
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, upon the FlowFill(R) CVD technology used
in the Trikon Limited equipment. Certain of the limited partners of the Limited
Partnership asserted that this decision was inconsistent with the R&D Agreement
and representations made by the Company in connection with the Limited
Partnership and that, accordingly, a settlement of any and all claims that the
limited partners of the Limited Partnership might have in connection with such
discontinuation was appropriate.
Effective June 30, 1997, the Company acquired all of the outstanding limited
partnership interests of the Limited Partnership and all of the shares of the
Limited Partnership's corporate general partner, in exchange for the Company's
issuance of an aggregate of 679,680 shares of Common Stock of the Company (the
"CVD Partnership Shares") pro rata to the limited partners of the Limited
Partnership (excluding the Company) (the "CVD Purchase Agreement"). Pursuant to
this transaction, all CVD technology which had been developed by the Limited
Partnership prior to such discontinuation, together with approximately $2.2
million of unspent funds of the Limited Partnership, are now owned solely by the
Company, and any and all claims that the limited partners of the Limited
Partnership may have had in connection with the termination of the research and
development project thereunder or otherwise relating to the Limited Partnership
have been resolved. In connection with the purchase of all of the outstanding
interests in the Limited Partnership and its corporate general partner, the
Company agreed to cause a registration statement covering the CVD Partnership
Shares under the Securities Act of 1933, as amended (the "Securities Act"), to
become effective on or prior to September 1, 1997. In the event that the Company
did not cause a registration statement to become effective on or prior to
September 1, 1997, the Company originally agreed to pay the holders of the CVD
Partnership Shares liquidated damages comprising a one-time fee of $75,000 and
an amount equal to $2,500 per day for each day after September 1, 1997, and
prior to the effective date of the registration statement. The Company and the
holders of the CVD Partnership Shares amended the CVD Purchase Agreement on
December 12, 1997, to provide for (i) the immediate payment of liquidated
damages accrued through November 1, 1997, of $225,000, (ii) no further
incurrence of liquidated damages should the registration statement be effective
by March 15, 1998, (iii) in the event that Trikon does not cause the
registration statement to become effective by March 15, 1998, resumption of
liquidated damages accruing at a rate of $2,500 for each day
17
<PAGE>
Trikon Technologies, Inc.
thereafter until the Registration Statement becomes effective, and (iv) should
the registration statement not be effective by April 1, 1998, Trikon will become
obligated to the holders of CVD Partnership Shares for the liquidated damages
for the period between November 1, 1997, and March 15, 1998, $335,000. As of
March 31, 1998, the Company had not caused a registration statement to become
effective.
The Company anticipates that it will spend between $2.0 and $3.0 million for
capital expenditures for the months remaining in fiscal 1998. 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.
During 1997, following significant losses from operations, negative cash flows
from operating activities, and violations of debt covenants, the Company's
working capital facility was terminated (Note G). The Company does not currently
have a credit facility with any lenders. Management's plan with respect to
these conditions includes the sale of licenses, restructuring of its operations,
obtaining a new working capital facility and the exchange offer discussed in
Note J to the Notes to the Condensed Consolidated Financial Statements.
Management believes that the successful implementation of these actions and the
cash flow from future operations will be sufficient to fund the Company's
operations. However, any increase in costs or decrease or elimination of
anticipated sources of revenues or the inability of the Company to successfully
implement management's plans would raise significant doubt as to the Company's
ability to fund its operations in the ordinary course.
18
<PAGE>
Trikon Technologies, Inc.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Dallas Semiconductor Corporation ("Dallas Semiconductor") filed on April 9, 1998
an action against the Company in state court in Dallas County, Texas. The
complaint alleges breach of warranty, fraud, negligent misrepresentation, and
breach of contract regarding the purchase of two PMT Pinnacle Polysilicon Etch
Systems from the Company. Dallas Semiconductor seeks damages of $8.0 million and
exemplary damages of $16.0 million. The lawsuit was removed on May 7, 1998 to
federal court in the Northern District Court of Texas. The Company will file a
motion to dismiss the claims in federal court on May 27, 1998. The Company
believes that the claims are without merit and intends to vigorously defend
them.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
Number Description
- ------ -----------
27.1 Financial Statement Data
(b) Reports on Form 8-K:
None.
19
<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.
<TABLE>
<S> <C>
TRIKON TECHNOLOGIES, INC.
Date May 15, 1998 /s/ Christopher D. Dobson
----------------------------------------------
Christopher D. Dobson
Chief Executive Officer, Chairman of the
Board and Director
</TABLE>
20
<PAGE>
Trikon Technologies, Inc.
EXHIBIT INDEX
Exhibit Page
Number Description Number
- ------ ----------- ------
27.1 Financial Statement Data
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 17,204
<SECURITIES> 0
<RECEIVABLES> 12,867
<ALLOWANCES> (2,589)
<INVENTORY> 23,732
<CURRENT-ASSETS> 53,201
<PP&E> 25,722
<DEPRECIATION> (3,796)
<TOTAL-ASSETS> 78,881
<CURRENT-LIABILITIES> 113,492
<BONDS> 86,250
0
19,349
<COMMON> 137,767
<OTHER-SE> 197,472
<TOTAL-LIABILITY-AND-EQUITY> 78,881
<SALES> 7,203
<TOTAL-REVENUES> 17,203
<CGS> 4,635
<TOTAL-COSTS> 11,474
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,941)
<INCOME-PRETAX> 3,788
<INCOME-TAX> (217)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,005
<EPS-PRIMARY> .26
<EPS-DILUTED> .22
</TABLE>
