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 June 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.
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(Exact name of registrant as specified in its charter)
California 95-4054321
- ------------------------------------ ---------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
Ringland Way, Newport, Gwent NP18 2TA, United Kingdom
- ----------------------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 44-1633-414-000
----------------------------
Not Applicable
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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 July 29, 1999, the total number of outstanding shares of the
Registrant's common stock was 94,024,835.
1
Trikon Technologies, Inc.
INDEX
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at June 30, 1999 (unaudited) and December 31, 1998............. 3
Unaudited Condensed Consolidated Statements of Operations for the Three Months ended June 30,
1999 and 1998 and for the Six Months ended June 30, 1999 and 1998.................................... 5
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended June 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
2
Trikon Technologies, Inc.
PART 1 FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
1999 1998(1)
-------------------- -----------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents......................................... $ 8,206 $ 7,891
Accounts receivable, net of reserves.............................. 12,280 6,122
Inventories, net of reserves...................................... 12,902 16,237
Other current assets.............................................. 1,313 2,856
----------------------- --------------------
Total current assets ............................................. 34,701 33,106
Property, equipment and leasehold improvements, net of
accumulated depreciation and amortization..................... 16,705 18,666
Demonstration systems, net of accumulated depreciation............ 838 3,573
Deferred bond financing costs..................................... 69 83
Other assets...................................................... 334 324
----------------------- --------------------
Total assets...................................................... $ 52,647 $ 55,752
======================= ====================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses............................. $ 5,175 $ 5,666
Sales returns payable............................................. 9,968 10,718
Restructuring costs............................................... 768 1,099
Other current liabilities......................................... 3,391 2,432
----------------------- --------------------
Total current liabilities......................................... 19,302 19,915
Convertible subordinated notes.................................... 4,147 4,147
Other non-current liabilities..................................... 4,335 4,750
----------------------- --------------------
27,784 28,812
3
Trikon Technologies, Inc.
ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
June 30, December 31,
1999 1998(1)
----------------------- --------------------
(unaudited)
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 June 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 -- 94,023,835 at June 30,
1999 and December 31, 1998.................................... 199,019 199,019
Cumulative translation adjustment................................. (2,840) (751)
Deferred compensation............................................. (5,878) (6,637)
Accumulated deficit............................................... (196,168) (194,222)
----------------------- --------------------
Total shareholders' equity........................................ 24,863 26,940
----------------------- --------------------
Total liabilities and shareholders' equity........................ $ 52,647 $ 55,752
======================= ====================
(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
Trikon Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands)
Three Months Ended Six Months Ended
-------------------------------------- -----------------------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
--------------- ----------------- --------------- ----------------
Revenues:
Product sales.................................. $ 10,813 $ 8,292 $ 19,529 $ 15,495
License revenues............................... 2,144 -- 2,144 10,000
--------------- ----------------- --------------- ----------------
12,957 8,292 21,673 25,495
Costs and expenses:
Cost of goods sold............................. 6,625 6,546 12,398 11,181
Research and development....................... 1,597 2,337 3,194 4,373
Selling, general and administrative............ 2,767 5,455 6,630 10,257
Restructuring costs............................ - 1,843 - 1,843
--------------- ----------------- --------------- ----------------
10,989 16,181 22,222 27,654
--------------- ----------------- --------------- ----------------
Income (Loss) from operations.................. 1,968 (7,889) (549) (2,159)
Interest (expense), net........................ (48) (948) (114) (2,889)
--------------- ----------------- --------------- ----------------
Income (Loss) before income tax provision......... 1,920 (8,837) (663) (5,048)
Income tax provision (benefit)................. 38 -- 84 (217)
--------------- ----------------- --------------- ----------------
Net income (loss) before extraordinary item ...... $ 1,882 $ (8,837) $ (747) $ (4,831)
Extraordinary item................................ - 20,293 - 20,293
--------------- ----------------- --------------- ----------------
Net income (loss)................................. $ 1,882 $ 11,456 $ (747) $ 15,462
=============== ================= =============== ================
Net income (loss) applicable to common shares..... $ 1,262 $ 11,158 $ (1,967) $ 15,164
=============== ================= =============== ================
Earnings (loss) per common share data:
Basic:
Earnings (loss) before extraordinary gain.... $ 0.02 $ (0.18) $ (0.02) $ (0.15)
Extraordinary gain........................... - 0.41 - 0.62
--------------- ----------------- --------------- ----------------
Net income (loss)............................ 0.02 0.23 (0.02) 0.47
=============== ================= =============== ================
Diluted:
Earnings (loss) before extraordinary gain.... 0.02 (0.18) (0.02) (0.16)
Extraordinary gain........................... - 0.40 - 0.61
--------------- ----------------- --------------- ----------------
Net income (loss)............................ 0.02 0.22 (0.02) 0.45
=============== ================= ============== ================
Average common shares used in
the calculation: -- Basic................ 82,531 49,794 82,531 32,566
-- Diluted.............. 84,051 51,226 82,531 33,335
See Notes to Unaudited Condensed Consolidated Financial Statements.
5
Trikon Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six months ended
----------------------------------------------
June 30, June 30,
1999 1998
--------------------- ---------------------
Net cash arising from operating activities.......................... $ 471 $ 5,525
INVESTING ACTIVITIES
Net purchases of property, equipment and leasehold
improvements............................................... (35) (520)
FINANCING ACTIVITIES
Payments on capital lease obligations.......................... (121) (160)
Costs relating to Exchange Offer............................... -- (700)
--------------------- ---------------------
Net cash used in financing activities.......................... (121) (860)
--------------------- ---------------------
Net increase in cash and cash equivalents...................... 315 4,145
Cash and cash equivalents at beginning of period............... 7,891 9,260
--------------------- ---------------------
Cash and cash equivalents at end of period..................... $ 8,206 $ 13,405
===================== =====================
See Notes to Unaudited Condensed Consolidated Financial Statements.
6
Trikon Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 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 six months ended June 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):
June 30, December 31,
1999 1998
------------------------- ---------------------
Components................................ $ 2,759 $ 4,060
Work in process........................... 8,189 11,015
Finished goods............................ 1,954 1,162
------------------------- ---------------------
$ 12,902 $ 16,237
========================= =====================
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 amounted to $620,000 for the quarter ended June 30, 1999 and
$1.22 million for the six months ended June 30, 1999 compared with $298,000 for
the three and six months ended June 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 six months ended June 30, 1999 and June 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 (loss) per share for the three and six months ended June 30, 1999
excludes the effects of the restricted common stock because under the treasury
stock method these shares are anti-dilutive. Diluted loss per share for the six
months ended June 30, 1999 also excludes the effect of all outstanding stock
options since they are anti-dilutive for periods in which the Company incurs a
net loss. Diluted earnings (loss) per share for the three and six months ended
June 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 $(1.0 million) and
$(2.1 million) for the three and six months ended June 30, 1999
7
respectively and $0.6 million and $0.5 million for the three and six months
ended June 30, 1998 respectively. Total comprehensive income (loss) for the
three and six months ended June 30, 1999 were $0.9 million and $(2.8 million)
respectively, and for the three and six months ended June 30, 1998 were $12.0
million and $15.9 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
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 short-, medium- and long-term needs, product demand and market
acceptance, uncertainty about the effectiveness of the restructuring and the
adequacy of the provisions made in connection with 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:
Three months ended Six months ended
---------------------------------- ------------------------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
------------------ --------------- ----------------- ------------------
Product revenues............................... 83.5% 100.0% 90.1% 60.8%
License revenues............................... 16.5 0.0 9.9 39.2
------------------ --------------- ----------------- ------------------
Total revenues................................. 100.0 100.0 100.0 100.0
Cost of goods sold............................. 51.1 78.9 57.2 43.9
------------------ --------------- ----------------- ------------------
Gross margin................................... 48.9 21.1 42.8 56.1
Operating expenses:
Research and development.................. 12.3 28.2 14.7 17.2
Selling, general and administrative....... 21.4 65.8 30.6 40.2
Restructuring costs....................... - 22.2 - 7.2
------------------ --------------- ----------------- ------------------
Total operating expenses....................... 33.7 116.2 45.3 64.6
------------------ --------------- ----------------- ------------------
Income (loss) from operations.................. 15.2 (95.1) (2.5) (8.5)
Interest expense, net.......................... (0.4) (11.3) (0.5) (11.3)
------------------ --------------- ----------------- ------------------
Income (loss) before income tax benefit........ 14.8 (106.4) (3.0) (19.8)
Income tax provision (benefit)................. 0.3 (1.3) 0.4 (0.9)
------------------ --------------- ----------------- ------------------
Net income (loss).............................. 14.5% (105.1)% (3.4)% (18.9)%
================== ================ ================ ==================
PRODUCT REVENUES. Product revenues for the second quarter of fiscal 1999
increased 30% to $10.8 million compared to $8.3 million for the second quarter
of fiscal 1998. The increase was attributable primarily to increased
9
shipments of systems. Product revenues for the six months ended June 30, 1999
increased by 26% to $19.5 million compared with $15.5 million for the six months
ended June 30, 1998.
Sales outside of the United States accounted for approximately 63% of total
revenues in the second quarter of 1999 and 93% of total revenues in the second
quarter of 1998. Sales outside the United States accounted for approximately 63%
and 44% of total revenues in the six months ended June 30, 1999 and 1998
respectively. Excluding license revenues, sales outside the United States
accounted for 76% and 72% of product revenues for the second quarter of 1999 and
1998 respectively and 70% and 72% of product revenues for the six months ended
June 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 quarter ended June 30, 1999, are
primarily in respect of a further portion 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. Excluding license revenues, the Company's
gross margin on product revenues for the second quarter of fiscal 1999 was 39%
as compared to 21% for the second quarter of fiscal 1998. For the six months
ended June 30, 1999, the gross margin on product sales was 37% compared with 28%
for the six months ended June 30, 1998. Gross margins on product sales for the
three and six months ended June 30, 1998 were impacted by an inventory write-
down of $0.6 million. Excluding this write-down gross margins on product sales
for those periods would have been 28% and 32% respectively. 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 $0.2 million in the second quarter of 1999 and $0.5 million in the
six months ended June 30, 1999. Excluding this change in presentation, and for
comparative purposes only, the gross margin in the second quarter of fiscal 1999
and the six months ended June 30, 1999 would have been 41% and 39% respectively.
The improvements in gross margins in the current period reflect productivity
gains resulting 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 4% between second quarter 1998 and second quarter 1999 and 2% between
first half 1998 and first half 1999 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 six months ended June 30, 1999 were $1.6 million and $3.2 million, or
12% and 15% of total revenues respectively. This compares with $2.3 million and
$4.4 million, or 28% and 17% 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 second quarter of fiscal 1999 were $2.8 million,
or 21% of total revenues, compared to $5.5 million, or 66% of total revenues, in
the second quarter of fiscal 1998. Selling, general and administrative expenses
for the first six months of 1999 were $6.6 million or 31% of total revenues
compared with $10.3 million or 40% of total revenues in the same period of 1998.
Selling, general and administrative expenses in the three and six months ended
June 30, 1999 are stated after release of an allowance against accounts
receivable of $1.1 million. Excluding the release, selling, general and
administrative expenses were 30% and 36% of total revenues during the three and
six months ended June 30, 1999 respectively. The reduction in these expenses
between the first two quarters of 1998 and the first two quarters of 1999 is
primarily due to the cost cutting measures carried out in the fourth quarter of
1998.
10
INCOME (LOSS) FROM OPERATIONS. The Company realized a profit from operations of
$2.0 million in the second quarter of 1999 compared with a $7.9 million loss
from operations in the second quarter of fiscal 1998. The improvement in
operating result between the two quarters was due to increased revenues,
improved gross margins, and lower operating expenses. During the first half of
1999 the operating loss was $0.5 million compared with an operating loss of $2.2
million in the same period of 1998. The operating loss for the first half of
1999 included license revenues of $2.1 million compared with $10.0 million in
the first half of 1998.
INTEREST EXPENSE, NET. Interest expense, net decreased to $0.1 million in the
second quarter of fiscal 1999 from $0.9 million in the second quarter of fiscal
1998, and to $0.1 million in the first half of 1999 from $2.9 million in the
first half of 1998. The interest expense in the first quarter and half of 1999
is primarily due to the accrual of interest payable to the holders of the $4.2
million of convertible debt. The reduction in interest expense between the first
quarter and half of 1998 and the same periods of 1999 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
half years ended June 30, 1999 and 1998 is net of interest income of $0.1
million and $0.4 million respectively.
INCOME TAXES. The income tax charge for the three and six months ended June 30,
1999 represents overseas tax on income arising in certain foreign subsidiaries
in those periods. The tax benefit in the first quarter of 1998 represents the
combination of a foreign tax benefit associated with Trikon Limited's operating
loss and no tax liability on domestic profits which are fully absorbed by tax
losses brought forward.
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 June 30, 1999, the Company had $8.2 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 expects that its cash balance and anticipated cash flow will be
sufficient to meet its normal operating requirements over the near term.
11
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. Certain of the proprietary
software used by the Company is not year 2000 compliant and in those cases the
Company has received assurances from the suppliers that compliance upgrades will
be provided in a timely manner. Non-information technology hardware and software
used in factory and office management systems have been reviewed
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.
Non-compliance responses are being investigated.
The Company expects to implement successfully the systems and programming
changes necessary to address year 2000 issues and , based on the information
currently available, does not believe that the cost of such actions will have a
material effect on the Company's results of operations or financial condition.
There can be no assurance, however, that there will not be a delay in, or
increased costs associated with, the implementation of such changes, and the
Company's inability to implement such changes could have an adverse effect on
future results of operations.
12
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 June 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 third 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
$1.2 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 could
well 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
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Dallas Semiconductor Corporation ("Dallas Semiconductor") filed on April 9, 1998
an action against the Company in state court in Dallas County, Texas. The
complaint alleges breach of warranty, fraud, negligent misrepresentation, and
breach of contract regarding the purchase of two PMT Pinnacle Polysilicon Etch
Systems from the Company. Dallas Semiconductor seeks damages of $8.0 million and
exemplary damages of $16.0 million. The lawsuit was removed on May 7, 1998 to
federal court in the Northern District Court of Texas. The Company filed a
motion to dismiss the claims in federal court on May 27, 1998. In response,
Dallas Semiconductor decided not to oppose the merits of the motion but instead
exercise its "one time" right to amend its pleading under applicable law. On
June 26, 1998, Dallas Semiconductor filed a first amended complaint setting
forth its claims with greater specificity. The Company filed a motion to dismiss
the amended claims on July 30, 1998. On March 25, 1999, the federal court
granted in part and denied in part the Company's motion to dismiss. On April 14,
1999, Dallas Semiconductor filed a second amended complaint, which seeks damages
of $8.0 million and unspecified exemplary damages. The Company answered the
second amended complaint on May 11, 1999. The Company believes that the claims
are without merit and intends to vigorously defend them. At this early stage,
the Company cannot determine the total expense or the ultimate outcome of the
lawsuit. Although Management does not believe the claim will have a material
adverse effect on the Company's financial position, results of its operations or
cash flow, there can be no assurance to that effect.
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
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: July 30, 1999 /s/ Nigel Wheeler
----------------------------------------
Nigel Wheeler
Chief Executive Officer,
Chief Operating Officer,
President and Director
/s/ Jeremy Linnert
----------------------------------------
Jeremy Linnert
Acting Chief Financial Officer
15
Trikon Technologies, Inc.
EXHIBIT INDEX
Exhibit No. Page No. Description
----------- -------- -----------
27.1 Financial Statement Data
16