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, 1997
OR
[ _ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
_________ _________
Commission File Number: 0-26482
TRIKON TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
California 95-4054321
------------------- -----------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) number)
9255 Deering Avenue, Chatsworth, California 91311
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(Address of principle executive offices) (Zip Code)
(818) 886-8000
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(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 September 30, 1997, the total number of outstanding shares of the
Registrant's common stock was 15,118,168.
Trikon Technologies, Inc.
INDEX Page
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at September 30, 1997 (unaudited)
and December 31, 1996 3
Unaudited Condensed Consolidated Statements of Operations for the
Three Months ended September 30, 1997 and 1996 and for the Nine
Months ended September 30, 1997 and 1996 4
Unaudited Condensed Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 1997 and 1996 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
PART II. OTHER INFORMATION 18
Item 3. Defaults upon Senior Securities 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURE PAGE 19
EXHIBITS 20
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Trikon Technologies, Inc.
ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1997 1996 (1)
------------------ ------------------
(UNAUDITED)
Assets
Current assets:
Cash and cash equivalents............................. $ 7,730,233 $ 20,187,662
Short-term investments................................ 6,353,292 1,464,165
Accounts receivable, net of reserves.................. 19,209,704 27,229,806
Inventories, net of reserves.......................... 45,041,241 53,837,131
Other current assets.................................. 3,552,765 4,723,449
------------- -------------
Total current assets........................... 81,887,235 107,442,213
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization...... 32,672,026 28,743,886
Demonstration systems, net of accumulated
depreciation.......................................... 6,395,910 6,080,431
Intangible assets, net of accumulated amortization...... 37,097,234 40,484,079
Other assets............................................ 1,217,147 429,596
------------- -------------
Total assets............................................ $ 159,269,552 $ 183,180,205
============= =============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses................. $ 16,646,184 $ 24,114,756
Bank credit line...................................... 14,567,366 14,151,000
Other current liabilities............................. 9,924,987 12,661,580
------------- -------------
Total current liabilities...................... 41,138,537 50,927,336
Convertible subordinated notes.......................... 86,250,000 86,250,000
Other non-current liabilities........................... 12,995,773 14,754,721
Commitments and contingencies
Shareholders' equity:
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 issued and outstanding --
2,962,032 at September 30, 1997.................. 19,547,592 --
Common Stock, no par value:
Authorized shares -- 50,000,000
Issued and outstanding -- 15,118,168 at
September 30, 1997 and 14,310,410 at
December 31, 1996................................ 137,766,446 131,873,023
Cumulative translation................................ (351,103) 1,412,200
Accumulated deficit................................... (138,077,693) (102,037,075)
------------- -------------
Total shareholders' equity.............................. 18,885,242 31,248,148
------------- -------------
Total liabilities and shareholders' equity.............. $ 159,269,552 $ 183,180,205
============= =============
(1) The Balance Sheet at December 31, 1996 has been derived from the audited
consolidated financial statements at that date, but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Notes to Condensed Consolidated Financial Statements.
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Trikon Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------------- --------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 (1) 1996 1997 (1) 1996
------------------ ----------------- ------------------ -----------------
Revenues:
Product revenues.................... $ 12,656,560 $7,904,906 $ 43,719,799 $25,851,165
Contract revenues................... -- 918,449 -- 1,767,127
---------- ---------- -----------
12,656,560 8,823,355 43,719,799 27,618,292
Costs and expenses:
Cost of goods sold.................. 9,159,222 3,863,568 31,626,066 12,991,004
Research and development............ 4,259,185 1,992,661 13,413,880 5,449,346
Selling, general and administrative. 9,823,355 2,755,340 25,203,296 7,125,153
Purchased in-process technology..... -- -- 2,974,410 --
Amortization of intangibles......... 903,950 -- 2,711,848 --
------------ ---------- ------------ -----------
24,145,712 8,611,569 75,929,500 25,565,503
------------ ---------- ------------ -----------
Income (loss) from operations.......... (11,489,152) 211,786 (32,209,701) 2,052,789
Other:
Interest income (expense), net (2,812,824) 293,880 (7,578,695) 1,086,698
------------ ---------- ------------ -----------
Income (loss) before income tax
provision (benefit)................... (14,301,976) 505,666 (39,788,396) 3,139,487
Income tax provision (benefit)......... (841,475) 4,495 (3,747,778) 16,977
------------ ---------- ------------ -----------
Net income (loss)...................... $(13,460,501) $ 501,171 $(36,040,618) $ 3,122,510
============ ========== ============ ===========
Net income (loss) per share:
Primary....................... ($0.75) $0.06 ($2.32) $0.34
============ ========== ============ ===========
Average common shares and
equivalents..................... 17,902,391 9,103,103 15,565,784 9,120,709
============ ========== ============ ===========
(1) Includes the results of operations of Trikon Equipments Limited and Trikon
Limited (collectively, "Trikon Limited"), which was acquired on November 15,
1996 (see Note A of Notes to Condensed Consolidated Financial Statements).
See Notes to Condensed Consolidated Financial Statements.
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Trikon Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
---------------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 (1) 1996
-------------------- -------------------
OPERATING ACTIVITIES
Net income (loss)................................. $(36,040,618) $ 3,122,510
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization of plant,
equipment, leasehold improvements and
demonstration systems...................... 5,177,973 1,199,912
Amortization of intangible assets............. 2,772,094 -
Amortization of financing costs............... 614,751 -
Purchased in-process technology............... 2,974,410 -
Deferred income taxes......................... (3,420,093) -
Changes in operating assets and liabilities:
Accounts receivable......................... 7,818,961 (8,096,151)
Inventories................................. 8,394,774 (10,311,960)
Demonstration systems....................... (1,326,587) (3,110,975)
Other current assets........................ 1,095,166 (270,949)
Accounts payable, accrued expenses
and other current liabilities........... (10,439,454) 7,965,165
Other liabilities........................... 1,883,137 -
------------ ------------
Net cash used in operating activities............. (20,495,486) (9,502,448)
INVESTING ACTIVITIES
Purchases of property, equipment and leasehold
improvements..................................... (8,571,543) (6,548,355)
Proceeds from sales of short-term investments..... 1,216,156 19,914,800
Purchases of short-term investments............... (6,113,072) (18,481,907)
Other assets...................................... (381,847) (2,476,735)
------------ ------------
Net cash used in investing activities............. (13,850,306) (7,592,197)
FINANCING ACTIVITIES
Net borrowings (repayments) under bank
credit line................................... 416,366 -
Proceeds from sale of Series G Preferred Stock,
net.............................................. 19,547,592 -
Proceeds from sale of common stock and warrants... 2,328,570 132,902
Payments on capital lease obligations............. (404,165) (358,977)
------------ ------------
Net cash provided by (used in) financing 21,888,363 (226,075)
activities....................................... ------------ ------------
Net decrease in cash and cash equivalents......... (12,457,429) (17,320,720)
Cash and cash equivalents at beginning of
period.......................................... 20,187,662 24,770,363
------------ ------------
Cash and cash equivalents at end of period........ $ 7,730,233 $ 7,449,643
============ ============
(1) Includes the cash flows of Trikon Limited, which was acquired on November
15, 1996 (see Note A of Notes to Condensed Consolidated Financial
Statements).
See Notes to Condensed Consolidated Financial Statements.
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Trikon Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The operating results for the nine months ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in Trikon
Technologies, Inc.'s (the "Company") Annual Report on Form 10-K for the year
ended December 31, 1996.
On November 15, 1996, the Company acquired all the issued and outstanding shares
of Electrotech Limited and Electrotech Equipments Limited. 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 for the worldwide semiconductor
manufacturing industry. The aggregate purchase price paid by the Company,
excluding approximately $7,976,000 in acquisition costs, was $145,700,000
consisting of $75,000,000 paid in cash and the issuance of 5,600,000 shares of
Common Stock of the Company with an estimated fair market value of $70,700,000,
based on the quoted market price on the last day prior to the public
announcement of the parties' agreement to the acquisition terms. The acquisition
was accounted for as a purchase and, accordingly, the acquired assets and
liabilities were recorded at their estimated fair market values at the date of
acquisition. The Company's consolidated assets, liabilities and results of
operations include the assets, liabilities, and operating results of Trikon
Limited after, but not prior to, the November 15, 1996 acquisition date.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. A number of factors, including the Company's
history of significant losses, negative cash flows, the termination of the
company's Working Capital Facility (as defined below) and the debt service costs
associated with the Company's historically high level of debt, raise substantial
doubts about the Company's ability to continue as a going concern. (See Note J)
On November 12, 1997, the Company announced plans to reorganize the Company's
U.S. etch operations, with the goal of reducing costs, helping the Company to
return to profitability and to generate future postive cash flow. (See Note J)
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:
SEPTEMBER 30, December 31,
1997 1996
------------- ------------
Components........................... $22,114,737 $17,754,456
Work in process...................... 20,536,410 32,993,125
Finished goods....................... 2,390,094 3,089,550
----------- -----------
$45,041,241 $53,837,131
=========== ===========
NOTE C - DEMONSTRATION SYSTEMS
Demonstration Systems represent completed systems at certain strategic customer
sites, "Beta Sites". The Company provides these demonstration systems at no
charge for a specified evaluation period. All operating costs incurred during
the evaluation period are paid by the customer. At the conclusion of the agreed
upon evaluation period, 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
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Trikon Technologies, Inc.
NOTE C - DEMONSTRATION SYSTEMS (CONTINUED)
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 an R&D Agreement (the "R&D Agreement") entered into as of March 29,
1996 between the Limited Partnership and the Company (under which the Company
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 CVD technology used
in the Trikon Limited equipment. Accordingly, a settlement of any and all rights
and claims by the limited partners of the Limited Partnership was made on June
30, 1997 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 common stock (the "LP 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 LP Shares filed
under the Securities Act of 1933, as amended (the "Securities Act"), to become
effective on or prior to September 1, 1997. As of the date hereof, the Company
has not filed such a registration statement, and as a result, the Company must
pay the holders of the LP Shares liquidated damages in the amount of a one-time
fee of $75,000, and an amount equal to $2,500 per day for each day after
September 1, 1997 that such a registration statement has not become effective.
NOTE E - IMPACT ON FINANCIAL STATEMENTS OF RECENTLY ISSUED ACCOUNTING
STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share, which is required to be adopted as of December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded and the calculation will be referred to as
basic earnings per share. Basic earnings (loss) per share under Statement 128
would have been $0.06 and $0.36 per share for the three and nine months ending
September 30, 1996 and would be the same as primary loss per share for the three
and nine months ending September 30, 1997. The impact of Statement 128 on the
calculation of fully diluted earnings per share for these quarters is not
expected to be material.
NOTE F - INCOME TAXES
The tax benefit represents the combination of a foreign tax benefit associated
with Trikon Limited's operating loss and the reversal of deferred tax credits
established at November 15, 1996 for the difference in the tax basis and
financial reporting basis of the Trikon Limited assets acquired. The effective
tax rate differs from the statutory Federal tax rate due to certain one-time
nondeductible charges and losses for which no benefit has been provided. The
Company's ability to use its domestic and foreign net operating losses and
credit carryforwards will depend upon future income and will be subject to an
annual limitation, required by the Internal Revenue Code of 1986 and similar
state provisions.
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Trikon Technologies, Inc.
NOTE F - INCOME TAXES (CONTINUED)
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 G - NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
shares of Common Stock outstanding. Common equivalent shares from stock options
and warrants (using the treasury stock method) have been included in the
computation when dilutive. The weighted average number of shares used in the
computation for the three and nine months ended September 30, 1997 excludes
common equivalent shares from options and warrants because they would be
antidilutive.
NOTE H - LINE OF CREDIT AND LONG-TERM DEBT
On November 15, 1996 the Company entered into a three-year senior secured credit
facility with certain domestic and U.K. lenders (the "Working Capital Facility")
that 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. As of September 30, 1997, the Company had approximately
$14.6 million in outstanding borrowings under the Working Capital Facility. The
Working Capital Facility placed certain restrictions on the Company, which,
among other things, prohibited the Company from paying cash dividends, limited
the amount of capital expenditures and required the Company to comply with
certain financial ratios and covenants.
In connection with the acquisition of Trikon Limited, the Company issued
$86,250,000 of Convertible Subordinated Notes (the "Convertible Notes"). The
Convertible Notes bear interest at 7 1/8% which is payable in semi-annual
installments 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.
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.
At December 31, 1996, March 31, 1997, June 30, 1997 and September 30, 1997, the
Company was out of compliance with certain financial ratios and covenants
established under the Working Capital Facility. The lenders had granted the
Company a waiver of such covenant violations as of December 31, 1996 and March
31, 1997 and for the year and quarter, respectively, then ended, which waivers
expired June 30, 1997. Concurrent with the June 30, 1997 first closing of the
Private Placement (as defined below), the Company entered into an amendment
agreement with its lending banks (the "Amendment") to amend its Working Capital
Facility. The Amendment, among other things, revised certain financial ratios
and covenants as to which the Company had previously been in default. In
connection with and as consideration for the Amendment, the Company issued to
the lending banks and their administrative agent, warrants to purchase an
aggregate of 178,182 shares of Common Stock at an exercise price of $6.75 per
share.
As a result of the substantial loss incurred during the June 30, 1997 and
September 30, 1997 quarters, the Company violated the financial ratio and
covenants requirements set forth in the Amendment. The Company received waivers
from its lending banks with regard to the June 30, 1997 covenant violations
which extended the Working Capital Facility through September 30, 1997. Under
the terms of one June 30, 1997 waiver, the lending banks suspended their
obligation to advance any further funds under the Working Capital Facility.
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Trikon Technologies, Inc.
NOTE H - LINE OF CREDIT AND LONG-TERM DEBT (CONTINUED)
As a result of the Company being in default under the Working Capital Facility,
the lenders issued on October 7, 1997 a payment blockage notice to the holders
of the Convertible Notes (the "Payment Blockage Notice"). The Payment Blockage
Notice would have prevented the payment of any principal or interest due and
payable under the Convertible Notes until the earlier of the curing of any event
of default under the Working Capital Agreement or 180 days.
On November 12, 1997, the Company entered into a pay-off agreement with its
domestic and U.K. lenders under 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 includes 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, the Working
Capital Facility was terminated, and the Payment Blockage Notice was cancelled.
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.
On November 12, 1997, the Company made an interest payment of approximately $3.1
to the holders of the Convertible Notes, which payment was originally due on
October 15, 1997. Having made this payment, the Company remains in compliance
with the terms of the Convertible Notes.
NOTE I - 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 733,332 shares of Common Stock) with net proceeds to the Company
of approximately $19,500,000. 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 Voting Agreement with the Company pursuant to
which they have agreed that, if a separate class vote of the Series
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Trikon Technologies, Inc.
NOTE I - PREFERRED STOCK (CONTINUED)
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.
NOTE J - SUBSEQUENT EVENTS
In October 1997, the Company announced a 20% reduction in its workforce, which
was completed during the month. In November 1997, the Company announced plans to
reorganize the Company's U.S. etch operations during the fourth quarter. As a
result of the reduction in its workforce and the reorganization, the Company
expects to incur a substantial charge to earnings in the fourth quarter of 1997.
On November 12, 1997, the Company granted non-exclusive, worldwide, paid-up
licenses of its MORI etch and Forcefill PVD technologies to Applied Materials,
Inc. Under the terms of the license agreements and related technology transfer
agreements, Applied Materials, Inc. will pay the Company $30 million, $27
million of which has been paid and an additional $3 million of which will be
paid upon completion of the technology transfer.
On November 12, 1997, the Company also entered into the Pay-off Agreement with
its domestic and U.K. lenders. Under the terms of the Pay-off agreement, among
other things, the Company made payments in the aggregate of approximately $12.5
million 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 related 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.
On November 12, 1997, the Company made the approximately $3.1 million interest
payment, originally due on October 15, 1997, to the holders of the Convertible
Notes.
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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
products, including potential material adverse effects on such demand resulting
from the Company's licensing of its MORI etch and Forcefill physical vapor
deposition ("PVD") technologies to Applied Materials, Inc., 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, 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. These products
are used for etch, chemical vapor deposition (CVD), and physical vapor
deposition (PVD) applications. The etch systems consist of the PINNACLE 8000R
and PINNACLE 8000R(TM) systems (selling price between $1,800,000 for a standard
two-module system to $3,400,000 for a four-module system), the Omega(TM) 201-2
system (selling price between $700,000 and $1,400,000, depending on the
configuration of the system), and a stand-alone MORI(TM) plasma source process
module which lists for approximately $500,000. The Company's CVD products
consist of the Delta 201 (selling price approximately $600,000), and the Planar
200 Flowfill(TM) system, selling price ranging between $1,400,000 and
$2,500,000, depending on the configuration of the system. The Company's PVD
products are the Sigma system (selling price ranges from $1,500,000 to
$2,500,000) and the Sigma Forcefill(TM) whose selling price ranges from
$3,500,000 to $4,000,000, depending on the configuration of the system.
The Omega(TM) 201-2 system, the Delta 201, the Planar 200 Flowfill(TM) and the
Sigma and Sigma Forcefill(TM) products were obtained with the acquisition of
Trikon Limited on November 15, 1996.
ELECTROTECH ACQUISITION. 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 5,600,000 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 etch, CVD and PVD applications. The Acquisition
expanded the Company's product lines and its sales and service organization
which has enabled the Company to have a greater presence throughout the United
States, Europe and Asia.
11
Trikon Technologies, Inc.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of total
revenue for the periods indicated:
Three months ended Nine months ended
--------------------------------------- ---------------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
-------------- -------------- -------------- --------------
Product revenues.................... 100.0% 89.6% 100.0% 93.6%
Contract revenues................... --% 10.4% --% 6.4%
-------------- -------------- -------------- --------------
Total revenues...................... 100.0% 100.0% 100.0% 100.0%
Cost of sales....................... 72.4% 43.8% 72.3% 47.0%
-------------- -------------- -------------- --------------
Gross profit...................... 27.6% 56.2% 27.7% 53.0%
Operating expenses:
Research and development.......... 33.7% 22.6% 30.7% 19.7%
Selling, general and adminsitrative 77.6% 31.2% 57.6% 25.8%
Purchased in-process technology --% --% 6.8% --%
Amortization of intangibles....... 7.1% --% 6.2% --%
-------------- -------------- -------------- --------------
Total operating expenses.......... 118.4% 53.8% 101.3% 45.5%
-------------- -------------- -------------- --------------
Income (loss) from operations....... (90.8)% 2.4% (73.7)% 7.5%
Interest income (expense), net...... (22.2)% 3.3% (17.3)% 3.9%
-------------- -------------- -------------- --------------
Income (loss) before income tax
provision (benefit)................ (113.0)% 5.7% (91.0)% 11.4%
Income tax provision (benefit)...... (6.6)% (8.6)% 0.1%
-------------- -------------- -------------- --------------
Net income (loss)................... (106.4)% 5.7% (82.4)% 11.3%
============== ============== ============== ==============
PRODUCT REVENUES. Product revenues for the third quarter of fiscal 1997
increased 60% to $12.7 million compared to $7.9 million for the third quarter of
fiscal 1996. Product revenues for the nine months ending September 30, 1997
increased 69% to $43.7 million as compared to $25.9 million for the same period
in 1996. These increases were attributable primarily to revenues derived from
products acquired in connection with the Company's acquisition of Trikon
Limited. During the third quarter of fiscal 1997, the Company shipped eight
systems as compared to two systems during the third quarter of fiscal 1996.
Included in product revenues for the third quarter of fiscal 1997 was a $1.0
million reserve for the return of a MORI system shipped and recognized as
revenue in fiscal 1995. Product revenues increased as a result of the shipment
of twenty-two systems for the nine months ended September 30, 1997 as compared
to eleven systems for the nine months ended September 30, 1996.
Sales outside of the United States accounted for approximately 88% and 94% of
total revenue in the third quarters of fiscal years 1997 and 1996, respectively.
Sales outside of the United States accounted for 48% and 82% of total revenue
for the nine months ended September 30, 1997 and 1996, 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.
12
Trikon Technologies, Inc.
CONTRACT REVENUES. The Company did not receive any contract revenues during the
third quarter or nine months ended September 30, 1997 as compared to $0.9
million and $1.8 million for the comparable third quarter and nine month period
of fiscal 1996, respectively. The contract revenue received in fiscal 1996 was
due to an R&D agreement entered into in March 1996 between Trikon and PMT CVD
Partners, L.P. which the Company terminated in the first quarter of 1997. (See
Note D to Notes to Condensed Consolidated Financial Statements (Unaudited)). As
a result of the termination of this R&D agreement, the Company will not receive
any additional contract revenue associated with this R&D agreement.
GROSS MARGIN ON PRODUCT REVENUES. The Company's gross margin on product revenues
for the third quarter of fiscal 1997 was 28% as compared to 51% for the third
quarter of fiscal 1996. For the nine months ended September 30, 1997, gross
margin on product revenues was 28% as compared to 50% for the same period in
1996. The decrease in gross margin was due in part to the relatively low gross
margin on the products of Trikon Limited shipped in the first three quarters of
fiscal 1997. The relatively low gross margin on the products of Trikon Limited
results from the write-up of its inventory on hand as of November 15, 1996,
to the fair market value of such inventory resulting from the allocation of the
purchase price of Trikon Limited as required under Accounting Principles Board
Opinion No. 16 ("APB No. 16"). The write-up increased cost of goods sold by
approximately $0.6 million in the third quarter of fiscal 1997 and $4.4 million
in the nine months ended September 30, 1997 as the related products were
shipped. Excluding the charge to cost of goods sold relating to the APB No. 16
adjustment, gross profit margins on product sales for the three months and nine
months ended September 30, 1997 would have been 32% and 38%, respectively. There
is approximately $2.1 million in inventory that, as of September 30, 1997,
relates to the write-up of inventory to its fair market value at the date of the
Acquisition based on APB No. 16. The $2.1 million write-up will increase cost of
goods sold and continue to adversely affect gross margins as products are
shipped from Trikon Limited in fiscal year 1997. In addition, gross margins were
negatively impacted in the third quarter of fiscal 1997 by the return of one of
the Company's MORI systems that was shipped in fiscal 1995. Gross margins
have also been negatively impacted due to issues related to the weakened product
demand such as unabsorbed manufacturing overhead associated with the reduced
units sold, and will continue to be adversely affected in 1997.
RESEARCH & DEVELOPMENT EXPENSES. Research and development expenses for the third
quarter of fiscal 1997 were $4.3 million, or 34% of total revenues compared to
$2.0 million, or 23% of total revenues for the third quarter of fiscal 1996.
Included in research and development expenses during the third quarter of fiscal
1997 is $2.2 million related to Trikon Limited. For the nine months ended
September 30, 1997, research and development expenses were $13.4 million, or 31%
of total revenues as compared to $5.4 million, or 20% of total revenues for the
nine months ended September 30, 1996. The major focus of the Company's research
and development efforts during the nine months of ended September 30, 1997 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 third quarter of fiscal 1997 were $9.8 million
or 78% of total revenues, compared to $2.8 million, or 31% of total revenues in
the third quarter of fiscal 1996. Included in the fiscal 1997 third quarter
expenses is $3.6 million in selling, general and administrative expenses related
to Trikon Limited. The dollar increases were primarily due to the continued
expansion of the Company's foreign operations, expenses incurred in the
construction of a new facility in Newport, South Wales, and marketing support
related charges directed at communicating the organizations' developments to the
marketplace. In addition to the reduction in revenue due to the return of a unit
shipped in a prior period, $1.1 was recognized as a bad debt expense with this
customer. For the nine months ended September 30, 1997, selling, general and
administrative expenses were $25.2 million, or 58% of total revenues as compared
to $7.1 million, or 26% of total revenues for the same period in 1996.
13
Trikon Technologies, Inc.
Income (Loss) From Operations. The Company realized a $11.5 million loss from
operations, or 91% of total revenues in the third quarter of fiscal 1997, as
compared with a $0.2 million gain from operations, or 2% of total revenues in
the third quarter of fiscal 1996. The loss from operations in the third quarter
of fiscal 1997 was due primarily to reduced sales, in addition to the allocated
cost of inventory charged through cost of goods sold during the third quarter of
fiscal 1997 of $0.6 million related to the write-up of the inventory of Trikon
Limited. In addition, a loss of $2.1 million was incurred for the return of a
MORI etch system shipped in a prior year, as discussed above, and lower margins
on shipments and bad debt write-offs related to this customer during the
quarter. For the nine months ended September 30, 1997, the Company realized a
$32.2 million loss from operations, or 74% of total revenue as compared with a
$2.1 million gain from operations, or 8% of total revenue for the same period in
1996. The Company anticipates that operating results will continue to be
unfavorably impacted during the remaining quarter of fiscal 1997 and the first
two quarters of fiscal 1998 due to continued weak product demand and the write-
up of Trikon Limited's inventory required by APB No. 16 as discussed above.
INTEREST INCOME. Interest income decreased to $0.1 million in the third quarter
of fiscal 1997 from $0.3 million in the third quarter of fiscal 1996. For the
nine months ended September 30, 1997 interest income was $0.6 million as
compared to $1.2 million for the nine months ended September 30, 1996. This was
due to lower cash balances during the 1997 periods.
INTEREST EXPENSE increased to $3.1 million in the third quarter of fiscal 1997
from $0.1 million in the third quarter of fiscal 1996. For the nine months ended
September 30, 1997 interest expense increased to $8.2 million as compared to
$0.1 million for the nine months ended September 30, 1996. This was due to the
accrual of interest payable to the holders of the $86.3 million of convertible
debt raised to fund part of the Acquisition and interest associated with
borrowings under the Working Capital Facility (as defined below). In addition,
interest expense was recognized for the amortization of the costs associated
with obtaining the Working Capital Facility.
INCOME TAXES. The Company recorded a $0.8 million tax benefit in the third
quarter of fiscal 1997 compared to the recording of a nominal income tax
provision in the third quarter of fiscal 1996. For the nine months ended
September 30, 1997, the Company has recorded a $3.7 million tax benefit as
compared to the recording of a nominal income tax provision for the nine months
ended September 30, 1996. The tax benefit represents the combination of a
foreign tax benefit associated with Trikon Limited's operating loss and the
reversal of deferred tax credits established at November 15, 1996 for the
difference in the tax basis and financial reporting basis of the Trikon Limited
assets acquired. The effective tax rate differs from the statutory Federal tax
rate due to certain one-time nondeductible charges and losses for which no
benefit has been provided. The Company's ability to use its domestic and foreign
net operating losses and credit carryforwards will depend upon future income and
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 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.
14
Trikon Technologies, Inc.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997 the Company had $14.1 million in cash, cash equivalents
and short-term investments, compared to $21.7 million at December 31, 1996. The
decrease in cash, cash equivalents and short-term investments resulted from the
use of cash in operating activities of $20.5 million and $13.9 million of cash
used in investing activities, offset by $21.9 million of cash provided from
financing activities, including the Private Placement (as defined below) of
$19.5 million of Series G Preferred Stock and Warrants. (See Note I to Notes to
Unaudited Condensed Consolidated Financial Statements).
On November 12, 1997, the Company granted non-exclusive, worldwide, paid-up
licenses of its MORI etch and Forcefill technologies to Applied Materials, Inc.
Under the terms of the license agreements and related technology transfer
agreements, Applied Materials, Inc. will pay the Company $30 million, $27
million of which has been paid and an additional $3 million of which will be
paid upon completion of the technology transfer.
On November 12, 1997, the Company also entered into a pay-off agreement (the
"Pay-off" Agreement) with its domestic and U.K. lenders under the Working
Capital Facility (as defined below). 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, the
Working Capital Facility and all of the Company's obligations under the Working
Capital Agreement were terminated, and the Payment Blockage Notice (as defined
below) was cancelled. 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.
On November 12, 1997, the Company made an interest payment of approximately $3.1
million, originally due on October 15, 1997, to the holders of the Convertible
Notes. Having made the interest payment the Company remains in compliance with
the terms of the Conertible Notes.
On November 15, 1996 the Company entered into a three-year senior secured credit
facility with certain domestic and U.K. lenders (the "Working Capital Facility")
that 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. As of September 30, 1997, the Company had approximately
$14.6 million in outstanding borrowings under the Working Capital Facility. The
Working Capital Facility placed certain restrictions on the Company, which,
among other things, prohibited the Company from paying cash dividends, limited
the amount of capital expenditures and required the Company to comply with
certain financial ratios and 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. An interest payment was due under the Convertible
Notes on October 15, 1997, but not paid by the Company because the Payment
Blockage Notice (as defined below) prevented the making of such payment. As
described above, the Company made this overdue payment on November 12, 1997, and
thus cured its Event of Default under the Convertible Notes. The next interest
payment under the Convertible Notes is due on April 15, 1998.
At December 31, 1996, March 31, 1997, June 30, 1997 and September 30, 1997, the
Company was out of compliance with certain financial ratios and covenants
established under the Working Capital Facility. The lenders had granted the
Company a waiver of such covenant violations as of December 31, 1996 and March
31, 1997 and for the year and quarter, respectively, then ended, which waivers
expired June 30, 1997. Concurrent with the first closing of the Private
Placement on June 30, 1997, the Company entered into an amendment agreement with
its lending banks (the "Amendment") to amend its secured bank credit facility
which, among other things, revised certain financial ratios and covenants as to
which the Company had previously been in default. In connection with and as
consideration for the Amendment, the Company issued to the lending banks and
their administrative agent, warrants to purchase an aggregate of 178,182 shares
of Common Stock at an exercise price of $6.75 per share.
As a result of the substantial losses incurred during the quarters ended June
30, 1997 and September 30, 1997, the Company was out of compliance with the
amended financial ratio and covenants requirements set forth in the Amendment.
The Company received waivers from its lending banks with regard to the June 30,
1997 covenant violations which extended the Working Capital Facility through
September 30, 1997. Under the terms of the June 30, 1997 waiver, the lending
banks suspended their obligation to advance any further funds under the Working
Capital Facility.
As a result of the Company being in default of its Working Capital Facility, the
banks issued a payment blockage notice to the holders of the Convertible
Notes on October 7, 1997 (the "Payment Blockage Notice"). The Payment Blockage
Notice prevented the payment of any principal or interest due and payable under
the Convertible Notes until the earlier of the curing of any event of default
under the Working Capital Agreement or 180 days.
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 CVD
development pursuant to an R&D agreement (the "R&D Agreement") entered into as
of March 29, 1996 between the Limited Partnership and the Company (under which
the Company agreed to perform all research and development work for the Limited
Partnership). Accordingly, during the first quarter of 1997, the Company decided
to
15
Trikon Technologies, Inc.
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 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
"LP Shares") pro rata to the limited partners of the Limited Partnership
(excluding the Company). 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 LP Shares filed under the Securities Act of 1933, as amended (the
"Securities Act"), to become effective on or prior to September 1, 1997. As of
the date hereof, the Company has not filed such a registration statement, and
as a result, the Company must pay the holders of LP Shares liquidated damages in
the amount of a one-time fee of $75,000, and an amount equal to $2,500 per day
for each day after September 1, 1997 that such registration statement has not
become effective.
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 warrant to purchase Common Stock at an exercise
price of $8.00 per share (the "Warrants"). 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 customary anti-dilution
adjustments), bears no dividend, and will be automatically converted into Common
Stock on June 30, 2000. The Company received net proceeds of approximately $19.5
million during and after the second quarter of 1997 from the Private Placement.
The Company anticipates that it will spend between $2.0 to $4.0 million for
capital expenditures for the months remaining in fiscal 1997. This is expected
to include investments in demonstration and test equipment, information systems,
leasehold improvements and other capital items that should enable the Company to
expand its ability to support and develop new products and services. In
addition, the Company expects to increase its investment in inventory of
evaluation systems at customer sites.
16
Trikon Technologies, Inc.
On October 1997, the Company announced a 20% reduction in its workforce,
which was completed during the month.
On November 12, 1997, the Company announced that it intends to reorganize its
U.S. etch operations during the fourth quarter of 1997. The Company expects the
reorganization to result in a substantial one-time charge to earnings in the
fourth quarter of 1997.
As discussed in Note A to the Notes to the Company's Condensed Consolidated
Financial Statement (Unaudited), there is substantial doubt with respect to the
Company's ability to continue as a going concern. There can be no assurance that
Company will operate profitably in the future and that the Company will not
continue to sustain losses. Absent outside debt or equity financing, and even
assuming that the Company is successful in reorganizing its business, there is
significant doubt that the Company has adequate resources to fund its operations
in the ordinary course through the remainder of 1997 and during 1998. At this
time, the Company does not have a credit facility with any lenders or any other
readily available source of debt financing. Any significant increase in planned
capital expenditures or other costs or any decrease in, or elimination of,
anticipated sources of revenue or the inability of the Company to negotiate a
new credit facility, among other factors, may cause the Company to further
restrict its business.
17
Trikon Technologies, Inc.
PART II - OTHER INFORMATION
---------------------------
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
At September 30, 1997, the Company was out of compliance with certain
financial ratios and covenants established under its amended three-year senior
secured credit facility with certain domestic and U.K. lenders entered into on
November 15, 1996 (the "Working Capital Facility") and amended June 30, 1997.
The Company had obtained from its lending banks waivers of such covenant
violations only through September 30, 1997.
In addition, as a result of the Company being in default under the Working
Capital Facility, the lenders issued a payment blockage notice to the holders of
the Company's 7 1/8% Convertible Subordinated Notes due 2001.
On November 12, 1997, the Company entered into a pay-off agreement with its
domestic and U.K. lenders (the "Pay-off Agreement"). Under the Pay-off
Agreement, the Company made payments in the aggregate of approximately $12.5
million to its domestic and U.K. lenders and the Working Credit Facility was
terminated. As of the date of the filing of this report, the Company is not in
material default in the payment of principal or interest with respect to any of
its indebtedness.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
Number Description
- ------ -----------
10.27+ M0RI(TM) Source Technology License Agreement dated November 12,
1997 by and between the Company and Applied Materials, Inc., a
Delaware corporation ("Applied").
10.28+ FORCEFILL(TM) Technology License Agreement dated November 12, 1997
by and between Applied and Trikon Equipments Limited, a company
incorporated under the laws of England and Wales under registered
number 939289
10.29+ FORCEFILL(TM) Technology License Agreement dated November 12, 1997
by and between Applied and Trikon Technologies Limited, a company
incorporated under the laws of England and Wales under registered
number 1373344
11.1 Computation of Per Share Earnings
27.1 Financial Statement Data
- -------------------------------
+ Certain portions of this exhibit have been omitted from the copies
filed as part of this Form 10-Q and are the subject of an application
for confidential treatment.
(b) Reports on Form 8-K:
None.
18
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 14, 1997 /s/ Dr. Gregor A. Campbell
----------------- --------------------------
Dr. Gregor A. Campbell
Chief Executive Officer
Vice President and Principal Financial Officer
19
Trikon Technologies, Inc.
EXHIBIT INDEX
Exhibit Page
Number Description Number
- ------ ----------- ------
10.27 M0RI(TM) Source Technology License Agreement...............................
10.28 FORCEFILL(TM) Technology License Agreement.................................
10.29 FORCEFILL(TM) Technology License Agreement.................................
11.1 Computation of Per Share Earnings..........................................
27.1 Financial Statement Data...................................................
20