<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 September 30, 1999
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)
<TABLE>
<CAPTION>
California 95-4054321
- ------------------------------------------------------------------- ----------------------------------------
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
<CAPTION>
Ringland Way, Newport, Gwent NP18 2TA, United Kingdom
- ------------------------------------------------------------------------ -----------------------------------
<S> <C>
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code 44-1633-414-000
-----------------------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _______
-------
As of October 29, 1999, the total number of outstanding shares of the
Registrant's common stock was 94,046,057.
1
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Trikon Technologies, Inc.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at September 30, 1999 (unaudited) and
December 31, 1998........................................................................... 3
Unaudited Condensed Consolidated Statements of Operations for the Three
Months ended September 30, 1999, and 1998 and for the Nine Months ended
September 30, 1999 and 1998................................................................. 5
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine
Months ended September 30, 1999, and 1998................................................... 6
Notes to Unaudited Condensed Consolidated Financial Statements.............................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................................. 9
Item 3. Quantitative and Qualitative Disclosure about Market Risk................................... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 14
Item 6. Exhibits and Reports on Form 8-K`........................................................... 14
SIGNATURE PAGE ............................................................................................ 15
EXHIBITS ............................................................................................ 16
</TABLE>
2
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Trikon Technologies, Inc.
PART 1 FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
-------------
1999 1998(1)
---- ------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents................................... $ 8,593 $ 7,891
Accounts receivable, net of reserves........................ 12,478 6,122
Inventories, net of reserves................................ 15,552 16,237
Other current assets........................................ 2,331 2,856
------------- ------------
Total current assets........................................ 38,954 33,106
Property, equipment and leasehold improvements, net of
accumulated depreciation and amortization................ 16,304 18,666
Demonstration systems, net of accumulated depreciation...... 1,006 3,573
Deferred bond financing costs............................... 62 83
Other assets................................................ 327 324
------------- ------------
Total assets................................................ $ 56,653 $ 55,752
============= ============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses....................... 8,943 5,666
Sales returns payable....................................... 3,914 10,718
Restructuring costs......................................... 656 1,099
Other current liabilities................................... 3,975 2,432
------------- ------------
Total current liabilities................................... 17,488 19,915
Convertible subordinated notes.............................. 4,147 4,147
Other non-current liabilities............................... 4,192 4,750
------------- ------------
25,827 28,812
</TABLE>
3
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ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1999 1998 (1)
---- --------
(unaudited)
-----------
<S> <C> <C>
Shareholders' equity:
Preferred Stock:
Authorized shares -- 20,000,000
Series H Preferred Stock, no par value $10 per share
liquidation preference
Designated shares - 3,500,000
Issued and outstanding -- 3,073,043 at September 30,
1999 and 2,953,074 at December 31, 1998.................... 30,730 29,531
Common Stock, no par value:
Authorized shares -- 110,000,000
Issued and outstanding -- 94,046,057 at
September 30, 1999 and 94,023,835 at
December 31, 1998.......................................... 199,019 199,019
Cumulative translation adjustment.............................. (1,419) (751)
Deferred compensation.......................................... (5,499) (6,637)
Accumulated deficit............................................ (192,005) (194,222)
------------ -----------
Total shareholders' equity..................................... 30,826 26,940
------------ -----------
Total liabilities and shareholders' equity..................... $ 56,653 $ 55,752
============ ===========
</TABLE>
(1) The Balance Sheet at December 31, 1998, 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.
4
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Trikon Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- ---------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Product sales.................... $ 13,154 $ 4,477 $ 32,683 $ 19,972
License revenues................. - - 2,144 10,000
--------------- -------------- -------------- --------------
13,154 4,477 34,827 29,972
Costs and expenses:
Cost of goods sold............... 7,017 3,230 19,415 14,411
Research and development......... 1,612 2,056 4,806 6,429
Selling, general and
administrative................ 4,405 5,377 11,035 15,634
Restructuring costs.............. - - - 1,843
Release of sales returns payable
allowance..................... (4,054) - (4,054) -
--------------- -------------- -------------- --------------
8,980 10,663 31,202 38,317
=============== ============== ============== ==============
Income (Loss) from operations.... 4,174 (6,186) 3,625 (8,345)
Interest (expense), net.......... (42) 569 (156) (2,320)
--------------- -------------- -------------- --------------
Income (Loss) before income tax
provision..................... 4,132 (5,617) 3,469 (10,665)
Income tax provision (benefit)... (31) -- 53 (217)
--------------- -------------- -------------- ---------------
Net income (loss) before
extraordinary item............ $ 4,163 $ (5,617) $ 3,416 $ (10,448)
Extraordinary item................. - - - 20,293
--------------- -------------- -------------- --------------
Net income (loss).................. $ 4,163 $ (5,617) $ 3,416 $ 9,845
=============== ============== ============== ==============
Net income (loss) applicable
to common shares.............. $ 3,539 $ (6,197) $ 1,572 $ 8,967
=============== ============== ============== ==============
Earnings (loss) per common share
data:
Basic:
Earnings (loss) before
extraordinary gain....... $ 0.04 $ (0.08) $ 0.02 $ (0.23)
Extraordinary gain........... - - - 0.41
--------------- -------------- -------------- --------------
Net income (loss)............ 0.04 (0.08) 0.02 0.18
=============== ============= ============= =============
Diluted:
Earnings (loss) before
extraordinary gain....... 0.04 (0.08) 0.02 (0.23)
Extraordinary gain........... - - - 0.41
--------------- -------------- -------------- --------------
Net income (loss)............ 0.04 (0.08) 0.02 0.18
=============== ============= ============= =============
Average common shares used in
the calculation:
- Basic.......... 82,553 82,284 82,538 49,200
- Diluted........ 86,468 84,284 84,525 49,712
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
5
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Trikon Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
------------------------------------------------------
September 30, September 30,
1999 1998
-------------------- ----------------------
<S> <C> <C>
Net cash arising from operating activities...................... $ 991 $ 317
INVESTING ACTIVITIES
Net purchases of property, equipment and leasehold
improvements.............................................. (125) (272)
FINANCING ACTIVITIES
Payments on capital lease obligations......................... (164) (267)
Costs relating to Exchange Offer.............................. -- (700)
-------------------- ----------------------
Net cash used in financing activities......................... (164) (967)
-------------------- ----------------------
Net increase in cash and cash equivalents..................... 702 (922)
Cash and cash equivalents at beginning of period.............. 7,891 9,260
-------------------- ----------------------
Cash and cash equivalents at end of period.................... $ 8,593 $ 8,338
==================== ======================
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
6
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Trikon Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
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 nine months ended September 30,
1999, are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. 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, 1998.
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>
September 30, December 31,
1999 1998
--------------------- --------------------
<S> <C> <C>
Components.......................... $ 2,820 $ 4,060
Work in process..................... 11,207 11,015
Finished goods...................... 1,525 1,162
--------------------- --------------------
$ 15,552 $ $16,237
===================== ====================
</TABLE>
NOTE C NET INCOME (LOSS) APPLICABLE TO COMMON SHARES
Net income (loss) applicable to common shares is the net income (loss) for the
period less Preferred Stock dividend costs for the period. Preferred Stock
dividend costs was $624,000 for the quarter ended September 30, 1999 and $1.84
million for the nine months ended September 30, 1999 compared with $580,000 for
the quarter ended September 30, 1998 and $878,000 for the nine months ended
September 30, 1998.
NOTE D NET INCOME (LOSS) PER SHARE
Basic and diluted earnings (loss) per share is calculated in accordance with
FASB Statement No. 128, "Earnings Per Share," which specifies the computation,
presentation and disclosure requirements for earnings per share. Basic earnings
(loss) per share for the three and nine months ended September 30, 1999 and
September 30, 1998 excludes the effect of 11,492,806 restricted shares of common
stock which are contingently issuable to the Company's Chairman of the Board.
Diluted earnings per share for the three and nine months ended September 30,
1999 excludes the effects of the restricted common stock because under the
treasury stock method these shares are anti-dilutive. Diluted earnings (loss)
per share for the three and nine months ended September 30, 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, exclude the
restricted shares issued to the Company's Chairman of the Board because under
the treasury stock method these shares are anti-dilutive and assumes Series G
Preferred Stock was converted into 2,962,032 shares of Common Stock as of
January 1, 1998 under the if-converted method.
NOTE E COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) comprises net income (loss) and currency translation
adjustment for the period. Translation adjustments were $1.4 million and $(0.7
million) for the three and nine months ended September 30, 1999, respectively,
and $0.5 million and $1.0 million for the three and nine months ended September
30, 1998, respectively. Total comprehensive income (loss) for the three and nine
months ended September 30, 1999 was $5.6
7
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million and $2.7 million, respectively, and for the three and nine months ended
September 30, 1998 was $(5.1) million and $10.8 million, respectively.
NOTE F PREFERRED STOCK
The Board of Directors has the authority to issue up to 20,000,000 shares of
Preferred Stock in one or more series with rights, preferences, privileges and
restrictions to be determined at the Board's discretion.
In May, 1998 in conjunction with an exchange offer made to the holders of
Convertible Notes, the Company issued 2,855,754 new shares of Series H 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. Dividends due on October 15, 1998 and April 15, 1999 to holders of
Series H Preferred Stock have been paid by the issue of 97,320 and 119,969 new
shares of Series H Preferred Stock, respectively.
8
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TRIKON TECHNOLOGIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations of Trikon should be read in conjunction with the
consolidated financial statements of Trikon and notes thereto included elsewhere
in this Report. This discussion 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 forward-looking statements are based on
current expectations, assumptions and projections and entail various risks and
uncertainties that could cause actual results to differ materially from those
projected in the forward-looking statements. Such risks and uncertainties
include but are not limited to, availability of financial resources adequate for
the Company's medium- and long-term needs, product demand and market acceptance,
uncertainty about the effectiveness of the restructuring, as well as those set
forth under "Quantitative and Qualitative Disclosure about Market Risk," 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.
OVERVIEW
The Company develops, manufactures, markets and services semiconductor equipment
for the worldwide semiconductor manufacturing industry.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of total
revenue for the periods indicated:
<TABLE>
<CAPTION>
Three months ended Nine months ended
-----------------------------------------------------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Product revenues........................... 100.0% 100.0% 93.8% 66.6%
License revenues........................... 0.0 0.0 6.2 33.4
-------------------------------------------------------------------------
Total revenues............................. 100.0 100.0 100.0 100.0
Cost of goods sold......................... 53.3 72.2 55.7 48.1
-------------------------------------------------------------------------
Gross margin............................... 46.7 27.8 44.3 51.9
Operating expenses:
Research and development.............. 12.3 45.9 13.8 21.4
Selling, general and administrative... 33.5 120.1 31.7 52.1
Restructuring costs................... - - - 6.2
Release of sales returns payable
allowance............................. (30.8) - (11.6) -
-------------------------------------------------------------------------
Total operating expenses................... 15.0 166.0 33.9 79.7
-------------------------------------------------------------------------
Income (loss) from operations.............. 31.7 (138.2) 10.4 (27.8)
Interest income (expense), net............. (0.3) 12.7 (0.4) (7.7)
-------------------------------------------------------------------------
Income (loss) before income tax benefit.... 31.4 (125.5) 10.0 (35.5)
Income tax provision (benefit)............. (0.2) - 0.2 ( 0.7)
-------------------------------------------------------------------------
Net income (loss).......................... 31.6% (125.5)% 9.8% (34.8)%
=========================================================================
</TABLE>
9
<PAGE>
PRODUCT REVENUES. Product revenues for the third quarter of fiscal 1999
increased 194% to $13.2 million compared to $4.5 million for the third quarter
of fiscal 1998. The increase was attributable primarily to increased shipments
of systems. Product revenues for the nine months ended September 30, 1999
increased by 64% to $32.7 million compared with $20.0 million for the nine
months ended September 30, 1998.
Sales outside of the United States accounted for approximately 63% of total
revenues in the third quarter of 1999 and 77% of total revenues in the third
quarter of 1998. Sales outside the United States accounted for approximately
63% and 48% of total revenues in the nine months ended September 30, 1999 and
1998, respectively. Excluding license revenues, sales outside the United States
accounted for 67% and 73% of product revenues for the nine months ended
September 30, 1999 and 1998, 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 may also fluctuate significantly from quarter to quarter.
LICENSE REVENUES. License revenues in the nine months ended September 30, 1999
and 1998, are primarily in respect of portions of the fee due on the sale of a
non-exclusive worldwide license of MORI(TM) source technology to Lam Research
Corporation.
GROSS MARGIN ON PRODUCT REVENUES. The Company's gross margin on product
revenues for the third quarter of fiscal 1999 was 47% as compared to 28% for the
third quarter of fiscal 1998. Excluding license revenues, the gross margin on
product sales was 41% for the nine months ended September 30, 1999 compared with
28% for the nine months ended September 30, 1998. Gross margins on product sales
for the nine months ended September 30, 1998 were impacted by an inventory
write-down of $0.6 million. Without giving effect to the inventory write-down,
gross margins on product sales for that period would have been 31%. Certain
customer support costs which have been included in selling, general and
administrative expenses in previous accounting periods are being included in
cost of goods sold with effect from the first quarter 1999. The effect of this
adjustment is to increase cost of goods sold and reduce selling, general and
administrative expenses by $0.3 million in the third quarter of 1999 and $0.8
million in the nine months ended September 30, 1999. Excluding this change in
presentation, and for comparative purposes only, the gross margin in the third
quarter of fiscal 1999 and the nine months ended September 30, 1999 would have
been 49% and 47%, respectively. The improvements in gross margins in the current
periods compared with the same periods of 1998 result from productivity gains
from increased production volumes, reductions in costs as a result of cost
cutting measures carried out in the fourth quarter of 1998 and a fall of 3% in
the average value of the British Pound, in which almost all production costs are
incurred, relative to the United States Dollar, in which most revenues are
expressed.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
three and nine months ended September 30, 1999 were $1.6 million and $4.8
million, or 12% and 14% of total revenues, respectively. This compares with $2.1
million and $6.4 million, or 46% and 21% of total revenues, respectively, for
the same periods of fiscal 1998. The major focus of the Company's research and
development efforts continues to be 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 third quarter of fiscal 1999 were $4.4 million,
or 33% of total revenues, compared to $5.4 million, or 120% of total revenues,
in the third quarter of fiscal 1998. Selling, general and administrative
expenses for the first nine months of 1999 were $11.0 million, or 32% of total
revenues, compared with $15.6 million, or 52% of total revenues, in the same
period of 1998. Selling, general and administrative expenses in the nine months
ended September 30, 1999 are stated after release of an allowance against
accounts receivable of $1.1 million. The reduction in these expenses between the
first nine months of 1998 and the first nine months of 1999 is primarily due to
the cost cutting measures carried out in the fourth quarter of 1998 and the
release of $1.1 million of the allowance against accounts receivable in the
first nine months of 1999.
10
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RELEASE OF SALES RETURNS PAYABLE ALLOWANCE
In the third quarter 1999, the Company completed negotiations concerning the
return by certain customers of etch equipment manufactured by its predecessor
company, Plasma & Materials Technologies, Inc. As a result, the allowance for
sales returns payable has been reduced by $4.1 million.
INCOME (LOSS) FROM OPERATIONS. The Company realized a profit from operations of
$4.2 million in the third quarter of 1999 compared with a $6.2 million loss from
operations in the third quarter of fiscal 1998. The improvement in operating
result between the two quarters was due to increased revenues, improved gross
margins, lower operating expenses, and the release of part of the allowance for
sales returns payable. During the first nine months of 1999 the operating profit
was $3.6 million compared with an operating loss of $8.3 million in the same
period of 1998. The operating result for the first nine months of 1999 included
license revenues of $2.1 million compared with $10.0 million in the same period
of 1998.
INTEREST EXPENSE, NET. Interest expense, net was $0.1 million in the third
quarter of fiscal 1999 compared with interest income, net of $0.6 million in the
third quarter of fiscal 1998. Interest income, net in the third quarter of 1998
included a credit of $0.6 million arising on the waiver of interest payable
previously accrued. Interest expense, net was $0.2 million in the first nine
months of 1999 and $2.3 million in the same period of 1998. Interest expense in
1999 is primarily in respect of interest payable to the holders of the $4.2
million of convertible debt. The reduction in interest expense between the nine
months ended September 30, 1998 and the same period of 1999 principally arises
from the elimination of interest due on $82.103 million of Convertible Notes as
a consequence of the exchange of these Notes in May 1998. Interest expense for
the nine months ended September 30, 1999 and 1998 is net of interest income of
$0.1 million and $0.5 million, respectively.
INCOME TAXES. The income tax benefit for the three months ended September 30,
1999 results from the recovery of foreign income tax on payment of a
distribution less allowance made for taxes on overseas income for the period.
The tax provision in the first nine months of 1999 represents tax on earnings of
overseas subsidiaries less tax recovered on distributions. The tax benefit in
the first nine months of 1998 represented benefit associated with Trikon
Limited's operating loss and no tax liability on domestic profits which were
fully absorbed by tax losses brought forward.
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, as amended 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 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 September 30, 1999, the Company had $8.6 million in cash and cash
equivalents, compared to $7.9 million at December 31, 1998. The increase in cash
and cash equivalents principally resulted from cash generated from operating
activities. The Company also had unused credit facilities of approximately $7.5
million at September 30, 1999. The Company expects that its cash balance and
anticipated cash flow will be sufficient to meet its normal operating
requirements over the near term.
11
<PAGE>
YEAR 2000
The Company has carried out a review of computer hardware and software used by
the Company for information purposes. The Company believes that all critical
hardware used by the Company is year 2000 compliant. Other proprietary non-
information technology hardware and software used in factory and office
management systems has been reviewed and updated where necessary.
Many of the Company's products include hardware/software that has been either
produced by the Company or supplied by outside vendors. The Company does not
consider year 2000 issues relevant to the continued safe operation of these
products because the use of time and date data by the Company's products is
limited to non-critical functions such as time stamping data log reference files
and time and date displays. The Company has carried out testing in accordance
with SEMATECH year 2000 readiness test procedures and in all material aspects
the Company's products comply with these test procedures.
Nevertheless, certain of the Company's products are controlled by the Company's
software operating on commercially available desktop type personal computers.
The Company believes that many of these personal computers contain BIOS that
are not year 2000 compliant. As a result, incorrect dates may be displayed, used
or transmitted in certain circumstances after December 31, 1999. The BIOS of
personal computers may be upgraded or the date reset in accordance with the
manufacturer's instructions that are publicly available. In addition, the
Company has written and made available to its customers special software that
automatically corrects the date in the BIOS of personal computers.
The Company has no control over, nor in most cases any actual knowledge of, the
personal computers used by customers in connection with the Company's products
nor does it have any control over the implementation by its customers of
available compliance upgrades. It therefore has little knowledge of the actual
compliance status of its products in operation at customers' facilities. Systems
currently shipped by the Company are compliant with year 2000 readiness tests as
defined by SEMATECH.
The Company has circulated compliance questionnaires to relevant suppliers,
which address continuity of supply and compliance of past and present product.
The Company does not believe that there is any significant risk to future
supplies nor any impact on inventory values or past supplies as a result of this
issue.
The Company has completed the systems and programming changes necessary to
address year 2000 issues at no significant cost to the Company.
12
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The following discussion and analysis about market risk disclosures may contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Such statements include declarations
regarding the intent, belief or current expectations of the Company and its
management and involve risks and uncertainties. Actual results could differ
materially from those projected in the forward-looking statements.
The Company's earnings and cash flow are subject to fluctuations in foreign
currency exchange rates. Significant factors affecting this risk include the
Company's manufacturing and administrative cost base which is predominately in
British Pounds, and product sales outside the United States which may be
expressed in currencies other than the United States dollar. The Company
constantly monitors currency exchange rates and matches currency availability
and requirements whenever possible. The Company may from time to time enter
into forward foreign exchange transactions in order to minimize risk from firm
future positions arising from trading. As at September 30, 1999 and December
31, 1998 the Company had no open forward currency transactions.
Based upon budgeted income and expenditures, a hypothetical increase of 10% in
the value of the British Pound against all other currencies in the fourth
quarter of 1999 would have no material effect on revenues expressed in United
States dollars and would increase operating costs and reduce cash-flow by
approximately $1.5 million. The same increase in the value of the British Pound
would increase the value of the net assets of the Company expressed in United
States dollars by approximately $2.7 million. The effect of the hypothetical
change in exchange rates ignores the affect this movement may have on other
variables including competitive risk. If it were possible to quantify this
impact, the results might be different than the sensitivity effects shown above.
In addition, it is unlikely that all currencies would uniformly strengthen or
weaken relative to the British Pound. In reality, some currencies may weaken
while others may strengthen.
13
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the third quarter the Company reached agreement with Dallas Semiconductor
Corporation regarding a legal claim relating to the return of MORI etch
equipment supplied by the Company. Under the agreement Dallas Semiconductor
Corporation released all claims against the Company in return for a payment by
the Company of $1.75 million. This payment was made in the quarter. Reference is
made to the legal proceeding in Item 3 of Part I of the Company's Form 10-Q for
the quarter ended June 30, 1999.
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.
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: November 1, 1999 /s/ Nigel Wheeler
--------------------------------------
Nigel Wheeler
Chief Executive Officer, Chief
Operating Officer, President and
Director
/s/ Jeremy Linnert
--------------------------------------
Jeremy Linnert
Chief Financial Officer
15
<PAGE>
Trikon Technologies, Inc.
Trikon Technologies, Inc.
EXHIBIT INDEX
Exhibit No. Page No. Description
---------- ------- -----------
27.1 Financial Statement Data
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,593
<SECURITIES> 0
<RECEIVABLES> 13,703
<ALLOWANCES> (1,225)
<INVENTORY> 15,552
<CURRENT-ASSETS> 38,954
<PP&E> 24,684
<DEPRECIATION> (8,380)
<TOTAL-ASSETS> 56,653
<CURRENT-LIABILITIES> 17,488
<BONDS> 4,147
0
30,730
<COMMON> 199,019
<OTHER-SE> (198,923)
<TOTAL-LIABILITY-AND-EQUITY> 56,653
<SALES> 13,154
<TOTAL-REVENUES> 13,154
<CGS> 7,017
<TOTAL-COSTS> 8,980
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (42)
<INCOME-PRETAX> 4,132
<INCOME-TAX> (31)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,163
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
