UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[Mark One]
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number 0-26482
TRIKON TECHNOLOGIES, INC.
________________________________________________________________________________
(Exact name of registrant as specified in its character)
California 95-4054321
______________________________________________________________ ____________________________________
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
Ringland Way, Newport, South Wales NP6 2TA, United Kingdom
_______________________________________________________________ ___________________________________
(Address of principal executive offices) (Zip Code)
441-633-414-000
Registrant's telephone number, including area code _________________________________________________________________
Not Applicable
____________________________________________________________________________________________________________________
Former name, former address and former fiscal year, if changed since last report
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 May 4, 1999, the total number of outstanding shares of the Registrant's
common stock was 94,024,835.
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 March 31, 1999 (unaudited) and December 31, 1998.......................... 3
Unaudited Condensed Consolidated Statements of Operations for the Three Months ended March 31, 1999, and 1998...... 5
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 1999, and 1998...... 6
Notes to Condensed Consolidated Financial Statements (Unaudited)................................................... 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.......................................................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................................. 12
Item 6. Exhibits and Reports on Form 8-K................................................................................... 12
SIGNATURE PAGE................................................................................................................ 13
EXHIBITS...................................................................................................................... 14
2
Trikon Technologies, Inc.
PART 1 - FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
1999 1998(1)
--------------------------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents.................................... $ 5,095 $ 7,891
Accounts receivable, net of reserves......................... 9,770 6,122
Inventories, net of reserves................................. 13,703 16,237
Other current assets......................................... 1,558 2,856
----------- ------------
Total current assets......................................... 30,126 33,106
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization 17,282 18,666
Demonstration systems, net of accumulated depreciation 3,185 3,573
Bond financing costs, net of accumulated amortization 76 83
Other assets................................................. 324 324
----------- ------------
Total assets................................................ $ 50,993 $ 55,752
=========== ============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses........................ $ 3,903 $ 5,666
Sales returns payable........................................ 10,218 10,718
Restructuring costs.......................................... 985 1,099
Other current liabilities.................................... 3,494 2,432
----------- ------------
Total current liabilities.................................... 18,600 19,915
Convertible subordinated notes 4,147 4,147
Other non-current liabilities 4,690 4,750
----------- ------------
Total liabilities 27,437 28,812
See accompanying notes to the condensed consolidated financial statements.
3
ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
March 31, December 31,
1999 1998(1)
-----------------------------
(unaudited)
Shareholders' equity (deficiency):
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 - 2,953,074.............. 29,531 29,531
Common Stock, no par value
Authorized shares - 110,000,000
Issued and outstanding shares - 94,023,835 199,019 199,019
Cumulative translation adjustment............... (1,885) (751)
Deferred Compensation........................... (6,258) (6,637)
Accumulated deficit............................. (196,851) (194,222)
------------ ------------
Total shareholders' equity (deficiency)......... 23,556 26,940
------------ ------------
Total liabilities and shareholders' equity.......... $ 50,993 $ 55,752
============ ============
The Balance Sheet at December 31, 1998 has been derived from the audited
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 accompanying notes to the condensed consolidated financial statements.
4
Trikon Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
Three months ended
--------------------------------
March 31, March 31,
1999 1998
--------------------------------
Revenues:
Product revenues........................................ $ 8,716 $ 7,203
License revenues........................................ -- 10,000
------------ ------------
8,716 17,203
Costs and expenses:
Cost of goods sold...................................... 5,773 4,635
Research and development................................ 1,597 2,036
Selling, general and administrative..................... 3,863 4,803
------------ ------------
11,233 11,474
------------ ------------
Income (loss) from operations............................... (2,517) 5,729
Interest (expense), net..................................... (66) (1,941)
------------ ------------
Income (loss) before income tax benefit..................... (2,583) 3,788
Income tax (benefit)........................................ 46 (217)
------------ ------------
Net income (loss)........................................... (2,629) 4,005
============ ============
Net income (loss) applicable to common shares............... (3,229) 4,005
============ ============
Earnings (loss) per common share data:
Basic................................................... $ (0.03) $ 0.26
Diluted................................................. (0.03) 0.22
============ ===========
Average common shares used in calculation:
Basic................................................... 94,024 15,147
Diluted................................................. 94,024 18,109
============ ===========
See accompanying notes to the condensed consolidated financial statements.
5
Trikon Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Three months ended
---------------------------
March 31, March 31,
1999 1998
---------------------------
Cash arising from (used in) operating activities.................... $ (2,753) $ 8,460
Investing Activities
Net (purchases) sales of property, equipment and leasehold
improvements................................................ 26 (449)
Financing Activities
Payments on capital lease obligations .......................... (69) (67)
-------- --------
Net increase (decrease) in cash and cash equivalents................ (2,796) 7,944
Cash and cash equivalents at beginning of period.................... 7,891 9,260
-------- --------
Cash and cash equivalents at end of period.......................... $ 5,095 $ 17,204
======== ========
See accompanying notes to the condensed consolidated financial statements.
6
Trikon Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 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 three months ended March 31, 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):
March 31, December 31,
1999 1998
-------------- --------------
Components.......................... $ 3,030 $ 4,060
Work in process..................... 9,539 11,015
Finished goods...................... 1,134 1,162
-------------- --------------
$ 13,703 $ 16,237
============== ==============
NOTE B NET INCOME (LOSS) PER SHARE
Basic and diluted earnings 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. Diluted
earnings per share for the quarter ended March 31, 1999 excludes the effects of
all outstanding stock options since they are anti-dilutive for periods in which
the Company incurs a net loss. Earnings per share for the quarter ended March
31, 1998 excludes the effects of all outstanding stock options because the
exercise price of such stock options exceeded the market price of the underlying
stock and assumes the Series G Preferred Stock was converted into 2,962,032
shares of Common Stock as of January 1, 1998 under the if-converted method.
NOTE C COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) comprises net income (loss) and currency translation
adjustment for the period. Total comprehensive income (loss) for the quarters
ended March 31, 1999 and March 31, 1998 were $(3.8 million) and $4.6 million
respectively.
NOTE D 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
7
Trikon Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999 (cont'd)
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
--------------------------------------
March 31, March 31,
1999 1998
------------------ -----------------
Product revenues 100% 41.9%
License revenues -- 58.1
------------------ -----------------
Total revenues........................... 100.0 100.0
Cost of goods sold....................... 66.2 27.0
------------------ -----------------
Gross margin............................. 33.8 73.0
Operating expenses:
Research and development............... 18.3 11.8
Selling, general and administrative.... 44.3 27.9
------------------ -----------------
Total operating expenses................. 62.6 39.7
------------------ -----------------
Income (loss) from operations............ (28.8) 33.3
Interest expense, net.................... (0.8) (11.3)
------------------ -----------------
Income (loss) before income tax (benefit) (29.6) 22.0
Income tax (benefit)..................... 0.5 (1.3)
------------------ -----------------
Net income (loss)........................ (30.1)% 23.3%
================== =================
PRODUCT REVENUES. Product revenues for the first quarter of fiscal 1999
increased 21% to $8.7 million compared to $7.2 million for the first quarter of
fiscal 1998. The increase was attributable primarily to increased shipments of
systems.
9
Sales outside of the United States accounted for approximately 62% of total
revenues in the first quarter of 1999 and 21% of total revenues in the first
quarter of 1998. Excluding license revenues, sales outside the United States
accounted for 51% of product revenues for the first quarter of 1998. The
quantity of product shipped will fluctuate significantly from quarter to quarter
and the individual customers to which these products are sold can also change
from quarter to quarter. Given the significance of each individual sale, the
percentage of sales made outside of the United States will also fluctuate
significantly from quarter to quarter.
LICENSE REVENUES. License revenues in the quarter ended March 31, 1998,
comprise the sale of a non-exclusive worldwide license of MORI(TM) source
technology to Lam Research Corporation.
GROSS MARGIN ON PRODUCT REVENUES. The Company's gross margin on product
revenues for the first quarter of fiscal 1999 was 34% as compared to 36% for the
first quarter of fiscal 1998. Certain customer support costs which have been
included in selling, general and administrative expenses in previous accounting
periods are being included in cost of goods sold with effect from the first
quarter 1999. The effect of this adjustment is to increase cost of goods sold
and reduce selling, general and administrative expenses by $0.3 million.
Excluding this change in presentation the gross margin in the first quarter of
fiscal 1999 would have been 37%.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
first quarter of fiscal 1999 were $1.6 million, or 18% of total revenues,
compared to $2.0 million, or 12% of total revenues, for the first quarter 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 first quarter of fiscal 1999 were $3.9 million,
or 44 % of total revenues, compared to $4.8 million, or 28% of total revenues,
in the first quarter of fiscal 1998.
INCOME (LOSS) FROM OPERATIONS. The Company realized a $2.5 million loss from
operations, or 25% of total revenues, in the first quarter of fiscal 1999, as
compared with a $5.7 million income from operations, or 33% of total revenues,
in the first quarter of fiscal 1998. The profit from operations in the first
quarter of fiscal 1998 was due primarily to license revenues earned.
INTEREST EXPENSE, NET. Interest expense, net decreased to $0.1 million in the
first quarter of fiscal 1999 from $1.9 million in the first quarter of fiscal
1998. The interest expense in the first quarter 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 of 1998 and
the first quarter 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 at March 31, 1999 and 1998 is net of interest income
of $0.1 million in both quarters.
INCOME TAXES. The income tax charge for the quarter ended March 31, 1999
represents overseas tax on income for the quarter arising in certain foreign
subsidiaries. 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.
10
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had $5.1 million in cash and cash equivalents,
compared to $7.9 million at December 31, 1998. The decrease in cash and cash
equivalents principally resulted from cash used in 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.
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 and are
compliant where appropriate.
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.
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
11
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
March 31, 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 second
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 $3.6 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.
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 intends
to answer the second amended complaint by no later than May 7, 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.
12
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.
Date: May 7, 1999 TRIKON TECHNOLOGIES, INC.
/s/Nigel Wheeler
----------------
Nigel Wheeler
Chief Executive Officer, Chief
Operating Officer, President and
Director
/s/Jeremy Linnert
-----------------
Jeremy Linnert
Acting Chief Financial Officer
13
Trikon Technologies, Inc.
EXHIBIT INDEX
Exhibit No. Page No. Description
---------- ------- -----------
27.1 15 Financial Statement Data
14