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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-K
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 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 charter)
CALIFORNIA 95-4054321
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Ringland Way,
Newport, Gwent NP6 2TA, United Kingdom
(Address of principal executive offices) (Zip Code)
+44 (0)1633 414 000
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of Class)
Indicate 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 period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of
the registrant on March 22, 2000, based on the closing price of the Common Stock
as recorded on the OTC Bulletin Board on such date, was approximately $105.1
million. Shares of Common Stock held by each officer and director and by each
person who owns 5% or more of the outstanding Common Stock have been excluded
from this computation in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of March 22, 2000 , the registrant had outstanding 10,634,004 shares
of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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TRIKON TECHNOLOGIES, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
For the year ended December 31, 1999
Page
----
PART I...................................................................................................... 1
ITEM 1. Business....................................................................................... 1
ITEM 2. Properties..................................................................................... 8
ITEM 3. Legal Proceedings.............................................................................. 8
ITEM 4. Submission of Matters to a Vote of Security Holders............................................ 8
PART II..................................................................................................... 9
ITEM 5. Market for Registrant's Common Equity and Related Shareholder Matters.......................... 9
ITEM 6. Selected Consolidated Financial Data of Trikon................................................. 9
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Of Trikon 11
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk...................................... 19
ITEM 8. Financial Statements and Supplementary Data.................................................... 20
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 20
PART III.................................................................................................... 21
ITEM 10. Directors and Executive Officers of Trikon..................................................... 21
ITEM 11. Executive compensation......................................................................... 21
ITEM 12. Security Ownership of Certain Beneficial Owners and Management................................. 21
ITEM 13. Certain Relationships and Related Transactions................................................. 21
PART IV..................................................................................................... 22
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................ 22
PART I
This Report 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. Words such as "expects," "anticipates, "intends," "plans,"
"believes," "seeks," "estimates" and other similar expressions or variations of
such words are intended to identify these forward-looking statements.
Additionally, statements concerning future matters such as the development of
new products, enhancements or technologies, possible changes in legislation and
other statements regarding matters that are not historical fact are forward-
looking statements. The forward-looking statements involve risks and
uncertainties. Actual results could differ materially from those projected in
the forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, availability of financial resources
adequate for medium and long-term needs, product demand, market acceptance, the
Company's reliance on a limited number of customers for a substantial portion of
its sales and the Company's ability to improve its existing technologies and
develop new technologies, as well as those discussed in "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Factors Affecting
Operating Results" and elsewhere in this Report.
ITEM 1. Business
Trikon Technologies, Inc. and its subsidiaries ("Trikon" or the "Company")
develop, manufacture, market and service processing equipment primarily for the
formation of interconnect layers on semiconductor wafers. The Company's
headquarters are in Newport, United Kingdom.
Trikon supplies three main categories of products; chemical vapor
deposition (CVD), sputtering--a type of physical vapor deposition (PVD) and
plasma etch. Trikon currently offers its process technologies on three
platforms. The fxP high throughput cluster system (PVD and CVD), the "200"
series cluster system (PVD and
1
CVD) and single and two chamber non cluster systems (plasma etch and plasma
CVD). The Company's leading-edge products include the Flowfill and Low K
Flowfill systems for inter-metal dielectric CVD and the Sigma(R) sputter system
for PVD, with optional Forcefill(R) module. Trikon's Flowfill CVD process
technology forms high quality silicon dioxide layers possessing the properties
of both gap fill and planarization. Forcefill(R) technology allows manufacturers
to eliminate the use of multistep CVD tungsten- plug based metalization
processes and to utilize an entirely aluminum-based PVD multi-level metal scheme
in sub-0.5 micron Integrated Circuit (IC) manufacturing. Trikon also offers
various products for the etch market, including its Omega(R) Inductively Coupled
Plasma (ICP) system and its patented MORITM source technology for dielectric,
polysilicon and metal etch applications in the fabrication of semiconductor
devices.
Development of the Company
Initial Public Offering. On August 29, 1995, the Company completed an
initial public offering of its common stock, no par value ("Common Stock"),
resulting in approximately $40,093,235 of net proceeds to the Company. Since
that date, the Company has been subject to the reporting requirements of Section
13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Convertible Subordinated Note Offering. In October 1996, the Company
issued and sold 7 1/8% Convertible Subordinated Notes due 2001 (the "Convertible
Notes") in the aggregate amount of $86,250,000. A portion of the net proceeds
from the issuance and sale of the Convertible Notes were used by the Company to
pay the cash portion of the purchase price paid to the shareholders of Trikon
Limited (as hereinafter defined) in the Acquisition (as hereinafter defined).
Electrotech Acquisition. In November 1996, the Company completed the
acquisition (the "Acquisition") of 100% of the outstanding capital stock of
Electrotech Limited, an English corporation, and Electrotech Equipments Limited,
an English corporation for an aggregate consideration of $145.7 million,
consisting of $75 million in cash and 5.6 million shares of newly issued Common
Stock having a fair market value of $70.7 million. Subsequent to the
Acquisition, Electrotech Limited and Electrotech Equipments Limited formally
changed their names to Trikon Technologies Limited and Trikon Equipments
Limited. As a result of the Acquisition, each of Trikon Technologies Limited and
Trikon Equipments Limited became a direct, wholly-owned subsidiary of the
Company. Trikon has since reorganized its ownership of Trikon Technologies
Limited and Trikon Equipments Limited such that Trikon Technologies Limited and
Trikon Equipments Limited are directly owned by holding companies (collectively,
with Trikon Technologies Limited and Trikon Equipments Limited, referred to as
"Trikon Limited") that, in turn, are directly wholly-owned by Trikon. Unless the
context otherwise requires, all references herein to "Trikon" or the "Company"
include Trikon Limited with respect to all periods on or after November 15,
1996.
Name Change. In March 1997, the Company changed its name from Plasma &
Materials Technologies, Inc. to Trikon Technologies, Inc.
Series G Preferred Stock Private Placement. On June 30, 1997, the
Company offered and sold 2,962,032 shares of its Series G Preferred Stock to
investors at a price of $6.75 per share in a private placement (the "Series G
Private Placement"). The investors in the Series G Private Placement also
received a total of 888,610 presently exercisable three-year warrants to
purchase Common Stock, at a price of $8.00 per share (the "Series G Warrants").
The Series G Private Placement resulted in net proceeds of approximately
$19,349,000 to the Company.
Non-Exclusive Licenses of Technology to Applied Materials. In November
1997, the Company granted non-exclusive, worldwide, paid-up licenses of its
MORI(TM) source and Forcefill(R) PVD technologies to Applied Materials for a
total consideration of $29.5 million.
Restructuring of Operations. Also in November 1997, the Company
announced the closure of its MORI etch division located in Chatsworth,
California and the sale of non-exclusive licenses of MORI(TM) source and
Forcefill PVD technologies to Applied Materials. The restructuring of the MORI
etch division, the shutdown of operations in Chatsworth, and other impairment
write-downs of the intangible assets established upon the acquisition of Trikon
Limited, resulted in charges to earnings in 1997 aggregating $77.6 million.
2
Non-Exclusive License of Technology to Lam Research. On March 18, 1998,
the Company granted a non-exclusive, worldwide license of its MORI (TM) source
technology to Lam Research. Under the terms of the license agreement, Lam
Research will pay up to $20.0 million, $13.0 million of which was paid in 1998,
$2.0 million in 1999, and $5.0 million of which consists of future contingent
payments and royalties.
Exchange Offer. In May 1998, the Company accepted for exchange or
conversion $82,103,000 principal amount of Convertible Notes (approximately 95%
of the aggregate principal amount outstanding), 2,873,143 shares of Series G
Preferred Stock (approximately 97% of the total shares outstanding) and 866,388
Series G Warrants (approximately 97% of the Series G Warrants outstanding).
Because more than two-thirds of the outstanding shares of Series G Preferred
Stock were tendered, all other outstanding shares of Series G Preferred Stock
automatically converted into shares of Common Stock. The $82,103,000 principal
amount of Convertible Notes tendered were exchanged for 22,660,798 shares of
Common Stock, 2,855,754 new shares of Series H Preferred Stock, and 29,264.625
new shares of Series I Junior Participating Preferred Stock. The shares of
Series G Preferred Stock and Series G Warrants were exchanged for 7,183,224 new
shares of Common Stock and 7,997.489 new shares of Series I Junior Participating
Preferred Stock.
Charter Amendment. In July 1998, the shareholders approved an amendment
(the "Charter Amendment") to the Articles of Incorporation of the Company to
provide for an increase in the number of authorized shares of Common Stock.
Upon approval of the Charter Amendment, each share of Series I Preferred Stock
automatically converted into 1,000 shares of Common Stock.
Delisting from The Nasdaq National Market. Between April 9, 1998 and
until after the reverse stock split in December 1999, the bid price of the
Company's shares of Common Stock was below $1 per share and consequently the
Company was out of compliance with the minimum bid price requirement of The
Nasdaq Stock Market for listing on the Nasdaq National Market. On November 11,
1998, following a hearing before the Nasdaq Listing Qualification Panel, the
Company's shares of Common Stock were delisted from the Nasdaq National Market.
The Company's shares of Common Stock are now quoted on the OTC Bulletin Board.
Reverse Stock Split. In December 1999, the Company effected a 10 for 1
reverse stock split. The reverse split reduced the number of outstanding shares
of Common stock from 94,046,057 to approximately 9,405,000.
Exchange of Convertible Notes and Series H Preferred Stock. In March
2000, the Company exchanged $1.0 million of the Convertible Notes plus accrued
interest and 1,596,339 shares of Series H Preferred Stock with accrued dividends
for a total of 1,229,398 shares of Common Stock.
Products
Chemical Vapor Deposition
Flowfill(R) and Low -K Flowfill(TM)
The inter-metal dielectric market requires a suitable planarized
insulating material to separate the many levels of microscopic wiring in an
integrated circuit (IC). The most common insulating material is silicon dioxide,
which, when deposited by conventional techniques, is unable to fill the
increasingly small gap spacing required by next generation ICs. Trikon has
developed a new CVD process technology, Flowfill, to form high quality silicon
dioxide layers that possess the properties of both gap fill and planarization.
Flowfill has the ability to fill sub-micron features less than 0.18 micron wide,
with a 5 to 1 height to width ratio, and achieve typical planarization of 80%
for gaps up to 20 microns.
As a result of increased interest from customers in low dielectric
constant materials to enable faster devices to be made Trikon has developed Low
K Flowfill(TM). In November 1999 LSI Logic Corporation ordered Low K Flowfill
systems for production.
While it is widely understood within the Company's industry that copper
will replace aluminum as the interconnect material of choice for some metal
layers on some semiconductor devices it is the Company's belief that there is an
expanding market for low-k material with gap fill capabilities primarily for
insulating aluminum lines formed by subtractive etch processes. In contrast
copper is deposited upon etched dielectric layers with excess material removed
by chemical mechanical polishing leaving metal lines inlayed into the insulator;
a process also known as damascene. Copper processing by such means has no
requirement for gap fill dielectric.
3
Physical Vapor Deposition
Sigma(R)
Layers of metal alloys and other materials can be deposited by Trikon's
Sigma(R) product line, a PVD machine with multiple process chambers. This
equipment deposits a uniform layer of very pure material on the whole surface of
a substrate by a process known as sputtering. If required, subsequent
lithography and etching may turn this layer into an intricate pattern e.g.
interconnect wiring. Sigma is designed to be one of the cleanest PVD systems on
the market, with particular application in multi-layer metalization. Various
process chambers are available for specific functions. In particular, there are
advanced PVD chambers for depositing high quality barrier layers for advanced
metalization structures. These consist of Hi-Fill and ionized PVD chambers for
improved barrier deposition into high aspect ratio structures. A Forcefill(R)
chamber is also available which fills contact holes on semiconductor wafers with
deposited metal by applying heat and isostatic high pressure.
Etch
Omega(R) and MORI(TM) Omega(R)
Trikon's Omega(R) is a one or two chamber plasma etch system available
with M0RI, ICP and other etch technologies. The MORI(TM)Omega(R) etch system
has been designed to address the special requirements of high density plasma
etch while minimizing the space utilized in the clean room.
Trikon develops, manufactures, markets and services semiconductor
processing equipment for the worldwide semiconductor manufacturing industry.
Customers
Trikon sells its systems to semiconductor manufacturers located throughout
the United States, Europe, Asia/Pacific, South Korea and Japan.
Trikon's total revenue includes amounts from individual customers
that exceed 10% of total revenue. Revenue from Infineon Technologies (formerly
Siemens), Triquint, and Philips represented 23%, 11% and 10% of total revenue,
respectively, for the year ended December 31, 1999. Revenue from two customers
represented 40% and 15% each of total revenue for the year ended December 31,
1998, and two customers represented 35% and 13% each of total revenue for the
year ended December 31, 1997.
International revenues accounted for approximately 66%, 52% and 37% of
total revenues in the years ended December 31, 1999, 1998 and 1997,
respectively. During 1999, 62% and 4% of total revenues were sales in Europe and
Asia, respectively. Sales outside of the United States will continue to account
for a substantial amount of the Company's total revenue.
The Company must obtain export licenses from the Export Control
Organization of the United Kingdom Department of Trade and Industry for
shipments to certain countries, including South Korea and Israel. Although
Trikon has experienced no difficulty in obtaining these licenses, the Company's
failure to obtain these licenses in the future could have an adverse effect on
Trikon's results of operations. A number of other risks arise in the
international market place, including unexpected changes in regulatory
requirements, exchange rates, tariffs and other barriers, political and economic
instability, difficulties in accounts receivable collections, extended payment
terms, the challenges of maintaining a readily available supply of spare parts,
difficulties in managing distributors or representatives, difficulties in
staffing and managing foreign subsidiary operations, potentially adverse tax
consequences, and the fluctuation of foreign currency exchange rates. Wherever
possible, international sales of Trikon's products are denominated in U.S.
dollars in order to reduce the risks associated with such currency fluctuation.
There can be no assurance that the Company will be able to avoid these and other
risks relating to the conduct of business internationally.
Marketing, Sales and Customer Support
4
Trikon has established multiple sales channels to market products and
services to match Trikon's efforts in each region. Trikon currently markets and
sells its products and technologies primarily through four separate sales
channels; direct sales, agency and distributor arrangements, and license
agreements.
In the United States, Trikon markets and sells its products principally
through its direct sales organization. In South Korea, Trikon markets and sells
its products directly through the sales staff of its wholly-owned South Korean
subsidiary. The European market is served by a direct sales group in the United
Kingdom, France and Germany which offers sales, customer support and spare
parts.
In Japan, Trikon has a distribution agreement with Innotech Corporation.
Trikon has no distributor arrangement in Japan for etch products. Support to
Innotech Corporation is provided from the Company's United Kingdom and Korea
offices.
In other sales territories, the Company uses a mixture of sales agents and
distributors are used.
Trikon believes that providing its customers with evaluation systems of its
equipment products is critical to its sales efforts. The ability to evaluate
Trikon's systems on a trial basis is expected by the semiconductor manufacturing
customers to whom Trikon markets. The average duration of a trial period for
systems is approximately one year. Consequently, as Trikon expands its sales
efforts, it believes that it will need to significantly increase its investment
in demonstration and evaluation systems.
Research, Development and Engineering
Trikon believes that its future success will depend, in large part, upon
its ability to continue to improve its systems and its process technologies. It
will also need to develop new technologies and systems that compete effectively
on the basis of total cost of ownership and performance. These technologies and
systems will need to meet customer requirements and emerging industry standards.
Accordingly, Trikon devotes a significant portion of its personnel and financial
resources to research and development programs and seeks to maintain close
relationships with its customers in order to remain responsive to their product
needs.
As of December 31, 1999, the Company employed 57 professional and technical
personnel in research, development and engineering. These employees are
organized in the following departments: research and development, hardware
engineering, software engineering, customer specials engineering, systems
engineering, documentation and manufacturing engineering, and customer
applications.
The research and development group is responsible for identifying new
technology applications and developing processes to meet customer requirements.
Major research and development programs currently address CVD and PVD
applications, polysilicon and integrated stack etch applications, metal etch
applications, including aluminum and oxide etch applications.
Trikon's research, development and engineering expenses were approximately
$6.5 million, $8.1 million and $17.0 million for the years ended December 31,
1999, 1998 and 1997, respectively, and represented approximately 13.0%, 21.2%
and 20.0% of total revenue for these three periods, respectively. In addition to
direct research and development expenses, the Company recognized a charge of
$3.0 million in connection with a CVD research acquisition during the year ended
December 31, 1997.
Although Trikon believes that it has allocated sufficient resources to its
research, development and engineering efforts, the success of new system
introductions is dependent on a number of factors, including timely completion
of new system designs and market acceptance. There can be no assurance that the
Company will be able to improve its existing systems and process technologies or
develop new technologies or systems. In addition, the Company may incur
substantial unanticipated costs to establish the functionality and reliability
of its future product introductions early in the product's life cycle.
Manufacturing
At the Company's Newport, United Kingdom facility, Trikon takes full
responsibility for the manufacturing of virtually all key technology components
for the Company's products. This approach has enabled the Company to ensure
quality control and compliance with government regulation and reduce dependence
on third party suppliers.
Competition
5
The markets served by Trikon's products are very conservative, highly
competitive and subject to rapid technological change. Historically, new
technologies have only gained acceptance when industry leaders concurrently
adopted such new technologies. Significant competitive factors include timing of
new product offerings, system performance, cost of ownership (which is dependent
upon yield, throughput and reliability), size of installed base, depth and
breadth of product line and customer support.
Trikon faces significant competition from various suppliers of systems that
utilize similar technologies, including other manufactures of HDP systems. In
the high density plasma CVD market, Trikon's primary competitors are Applied
Materials, Novellus and Lam Research. Trikon's Flowfill and Low-K Flowfill
technology faces competition from other CVD manufacturers and track
manufacturers for spin on glass (SOG) deposition, primarily Tokyo Electron. In
the PVD market, Trikon's Sigma technologies face competition from suppliers such
as Applied Materials, Novellus, Tokyo Electron and Leybold and a number of other
competitors, including Anelva, and Ulvac. In the etch market, the Company faces
competition from suppliers of reactive ion etch (RIE) systems, including Applied
Materials, Lam Research and Tokyo Electron. Trikon's MORI based etch systems
also face competition from ICP based etch systems marketed by Applied Materials
and Lam Research, as well as the electron cyclotron resonance (ECR) based etch
system marketed by Hitachi.
Virtually all of the Company's primary competitors are substantially larger
companies with broader product lines, have well established reputations in
the CVD, PVD, etch and SOG markets, longer operating histories, greater
experience with high volume manufacturing, broader name recognition,
substantially larger customer bases, and substantially greater financial,
technical, manufacturing and marketing resources than the Company. Trikon also
faces potential competition from new entrants in the market, including
established manufacturers in other segments of the semiconductor capital
equipment market, who may decide to diversify into the Company's market segment.
There can be no assurance that the Company's competitors will not develop
enhancements to, or future generations of, competitive products that will offer
price and performance features that are superior to those offered by the
Company's systems.
The Company has granted non-exclusive, worldwide, paid-up licenses of its
MORI source and Forcefill PVD technologies to Applied Materials and of its MORI
source technology to Lam Research in addition to existing licensees. As a
result, in the future the Company's PVD and etch products may have to compete
with products of Applied Materials and, with respect to etch products, Lam
Research based on the Company's technologies. Nevertheless, Trikon believes
that, in addition to the license income, such "second sourcing" will demonstrate
to the semiconductor manufacturing industry the value of Trikon's technologies,
make more likely a large base of research on its technologies to support
acceptance of these technologies in the marketplace and enable customers to buy
the Company's products, assured that alternative sources of supply are
available. The license agreements do not preclude the Company from utilizing, or
licensing to other third parties, the licensed technologies.
Intellectual Property
Trikon relies on a variety of types of intellectual property protection to
protect its proprietary technology, including patent, copyright, trademark and
trade secret laws, non-disclosure agreements, and other intellectual property
protection methods. Although the Company believes that its patents and
trademarks may have value, the Company believes that its future success will
also depend on the innovation, technical expertise and marketing abilities of
its personnel. The Company currently holds eleven patents in the United States,
three patents in the United Kingdom, three patents in Taiwan, and one patent in
each of Germany, France, Italy and the Netherlands. The Company currently has
approximately 98 patent applications pending worldwide and intends to file
additional patent applications, as appropriate. The Company's patents and patent
applications pending are all in the field of semiconductor manufacture and are
predominantly concerned with high density plasma processing, the global
planarization by a dielectric film (Flowfill) and the process of filling
semiconductor contact holes by deformation of interconnect metal by high
pressure (Forcefill(R)) and the equipment related to these processes. In
addition, the Company has trademarks that are registered with the United States
and other nations patent and trademark offices, including OMEGA(R), SOFT SPUTTER
ETCH(R), PLANAR 200(R), FORCEFILL(R), FLOWFILL(R), HI-FILL(R).
There can be no assurance that patents will be issued on the pending
applications or that competitors will not be able to legitimately ascertain
proprietary information embedded in the Company's products which is not covered
by patent or copyright. In such case, the Company may be precluded from
preventing the competitor from making use of such information. In addition,
should the Company wish to assert its patent rights against a particular
competitor's product, there can be no assurance that any claim in a Company
patent will be sufficiently broad nor, if sufficiently broad, any assurance that
the Company's patent will not be challenged, invalidated or circumvented, or
that the Company will have sufficient resources to prosecute its rights. The
Company's policy is to vigorously protect and defend its patents, trademarks and
trade secrets.
6
In March 1999, the German Federal Patent Court determined that Ulvac, one
of the Company's competitors, issued German patent P4020324.7-34 concerning a
process similar to Forcefill(R) is cancelled and invalid from the date of issue.
Ulvac withdrew one of the patent's claims prior to the decision and has given
notice that it will file a divisional application.
The Company's involvement in any patent or other intellectual property
dispute or in any action to protect trade secrets and know-how, even if
successful, could have a material adverse effect on the Company and its
business. Adverse determinations in any such action could subject the Company to
significant liabilities, require the Company to seek licenses from third
parties, which might not be available, and possibly prevent the Company from
manufacturing and selling its products, any of which could have a material
adverse effect on the Company and its business.
Environmental Matters
The Company is subject to a variety of federal, state and local laws, rules
and regulations relating to the use, storage, discharge and disposal of
hazardous chemicals and gases used during its customer demonstrations and in
research and development activities. Public attention has increasingly been
focused on the environmental impact of operations that use hazardous materials.
In 1995, the United Kingdom adopted a new and comprehensive environmental law
known as the Environmental Act 1995 (the "Environmental Act"), which, among
other things, deals with the allocation of responsibility for the cleanup of
contaminated property and expands potential liability with respect to the
remediation of such contamination. Trikon owns or leases a number of facilities
in the United Kingdom, and failure to comply with present or future regulations
could result in substantial liability to the Company, suspension or cessation of
the Company's operations, restrictions on the Company's ability to expand at its
present locations, or requirements for the acquisition of significant equipment
or other significant expense. To date, compliance with environmental rules and
regulations has not had a material effect on the Company's operations. At the
present time, the Company believes that it is in material compliance with all
applicable environmental rules and regulations.
Backlog
As of February 29, 2000, the Company's backlog was approximately $25.9
million, as compared to approximately $0.5 million at February 28, 1999. The
Company's backlog consists of system purchase orders that provide for delivery
within fiscal 2000. The Company's business is characterized by large purchase
contracts for standard products with related customized options. All orders are
subject to cancellation or delay by the customer with limited or no penalty.
Because of possible changes in delivery schedules and cancellations of orders,
the Company's backlog at any particular date is not necessarily representative
of actual sales for any succeeding periods.
Employees
At December 31, 1999, the Company had 333 regular employees, including 57
engaged in research, development and engineering, 16 in sales and marketing, 73
in customer support, 148 in manufacturing, and 39 in general administration and
finance.
None of the employees are covered by a collective bargaining agreement.
The Company has an employment agreement with Nigel Wheeler, the Company's
President and Chief Executive Officer, dated November 15, 1996 which is renewed
annually and an employment agreement with Christopher D Dobson, the Company's
Chairman and Chief Scientific Officer dated May 14, 1998. There are no other
employment agreements with employees.
Cyclical nature of the business
The semiconductor industry has experienced significant growth as a result
of increased demand for computers, communications and consumer products. However
the market for the company's products is cyclical by nature. Semiconductor
production facilities are extremely expensive and the rewards from being early
to market high. As a result production capacity tends to increase rapidly as new
semiconductor devices are first marketed, followed then by overcapacity and
declining prices leading to a reduction in spending on production equipment such
as that made by the company.
Additionally technological change in the industry is rapid and widely
adopted when introduced. As a result new technologies or types of equipment are
introduced at many customers at around the same time again increasing the
cyclicality of the market.
7
ITEM 2. Properties
Certain information concerning the Company's principal properties at
December 31, 1999 is set forth below:
Square Property
Location Type Principal Use Footage Interest
-------- ---- ------------- ------- --------
Newport, Office, Manufacturing & Headquarters, Manufacturing, Sales and 110,000 leased
United Kingdom Laboratories Customer Support, Research & Engineering
Bristol, Office, Manufacturing & Not in use 55,700 fee simple
United Kingdom Warehouse
Santa Clara, Office United States Administration and Field 3,000 fee simple
CA Service Operations
The Company has a number of smaller properties and field offices located in
the United States, the United Kingdom, Germany, France and South Korea. The
Company believes that its properties adequately serve the Company's present
needs.
ITEM 3. Legal Proceedings
On September 30, 1999, the Company reached agreement with Dallas
Semiconductor Corporation ("Dallas Semiconductor") regarding a claim filed
against the Company on April 9, 1998 relating to the return of Pinnacle plasma
etch equipment supplied by the Company. Settlement under the terms of the
agreement was made during fiscal 1999.
ITEM 4. Submission Of Matters To A Vote Of Security Holders
None.
8
PART II
ITEM 5. Market for Registrant's Common Equity and Related Shareholder Matters
Market for the Registrant's Common Equity
The Common Stock trades on the OTC Bulletin Board and dealing prices are
recorded under the symbol "TRKN". The quarterly high and low sale prices for
Common Stock as reported by the Nasdaq National Market until November 11, 1998
and the OTC Bulletin Board thereafter, for the periods indicated below are as
follows.
All prices shown have been adjusted to reflect the one for ten reverse
stock split effective December 17, 1999.
High Low
---- ---
1998
First Quarter....... $ 18.25 $10.00
Second Quarter...... $ 11.56 $ 5.31
Third Quarter....... $ 5.94 $ 1.25
Fourth Quarter...... $ 1.25 $ 0.31
1999
First Quarter ...... $ 2.19 $ 0.31
Second Quarter...... $ 1.88 $ 0.94
Third Quarter....... $ 4.06 $ 3.13
Fourth Quarter...... $ 14.22 $ 3.13
As of March 22, 2000, there were 162 shareholders of record of Common
Stock.
The Company has not declared or paid cash dividends to holders of its
shares of Common Stock. Dividends due to holders of Series H Preferred Stock
during 1999 and 1998 totaling $2,448,100 and $973,238 were paid with 244,810 and
97,320 new shares of Series H Preferred Stock respectively.
The Company anticipates that any earnings in the near future will be
retained for the development and expansion of its business and, therefore, does
not anticipate paying dividends on its Common Stock in the foreseeable future.
In addition, any declaration of dividends on the Common Stock will depend, among
other things, upon levels of indebtedness, the effect on the conversion ratio of
the Convertible Notes, restrictions in future debt agreements, future earnings,
the operating and financial condition of the Company, its capital requirements
and general business conditions.
During the first quarter of 2000, the Company issued 1,229,398 new shares
of common stock in exchange for surrender of $1,017,000 face value of 7-1/8%
Subordinated Convertible Notes, 2001 plus accrued interest and approximately
$15.96 million face value of Series H Preferred Stock plus accrued dividend.
On March 22, 2000, the closing price of the Common Stock as reported on the
OTC Bulletin Board was $14.625 per share.
Unregistered Sales of Registrant's Equity Securities During Last Fiscal Year
None.
ITEM 6. Selected Consolidated Financial Data of Trikon
The following selected consolidated financial data of Trikon is qualified
by reference to and should be read in conjunction with the consolidated
financial statements and notes thereto of Trikon and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Trikon," which
are included elsewhere herein. The selected consolidated financial data set
forth below as of December 31, 1999, and 1998 and for the years ended December
31, 1999, 1998, and 1997 have been derived from the audited financial statements
of Trikon included elsewhere in this annual report. The selected consolidated
financial data set forth below as of December 31, 1996 and 1995 has been derived
from audited financial statements of Trikon not included in this annual report.
9
Year Ended December 31
-----------------------------------------------------------------------
1999 1998 1997 1996(2) 1995(1)
-----------------------------------------------------------------------
(In thousands of U.S. dollars, except share information)
Operating Data:
Revenues:
Product sales.................................... $48,363 $ 25,125 $ 55,609 $ 39,386 $20,890
License revenues................................. 2,144 13,000 29,500 -- 400
Contract revenues................................ -- -- -- 2,841 --
-----------------------------------------------------------------------
Total revenues.................................. 50,507 38,125 85,109 42,227 21,290
-----------------------------------------------------------------------
Costs and expenses:
Cost of goods sold............................... 27,735 20,378 61,974 24,597 11,144
Research and development......................... 6,545 8,087 17,033 10,145 4,567
Selling, general and administrative.............. 15,723 19,533 34,734 16,592 5,943
Amortization of intangibles...................... -- -- 3,116 482 --
Purchased in-process technology.................. -- -- 2,975 86,028 --
Restructuring costs.............................. (4,361) 1,843 18,273 -- --
Impairment write-downs........................... -- -- 44,135 -- --
-----------------------------------------------------------------------
Total costs and expenses........................ 45,642 49,841 182,240 137,844 21,654
-----------------------------------------------------------------------
Income (loss) from operations 4,865 (11,716) (97,131) (95,617) (364)
Interest:
Interest expense................................. (413) (2,923) (12,068) (1,821) (294)
Interest income.................................. 222 590 674 1,628 777
-----------------------------------------------------------------------
Income (loss) before income tax
Provision (benefit)............................. 4,674 (14,049) (108,525) (95,810) 119
Income tax provision (benefit).................... 100 (1,821) (9,248) (1,335) 1
-----------------------------------------------------------------------
Net income (loss) before extraordinary item....... 4,574 (12,228) (99,277) (94,475) 118
Extraordinary item................................ -- 20,293 -- -- --
-----------------------------------------------------------------------
Net income (loss)................................. $ 4,574 $ 8,065 $ (99,277) $(94,475) $ 118
=======================================================================
Net income (loss) applicable to common shares $ 2,084 $ 6,579 $ (99,277) $(94,475) $ 118
=======================================================================
Earnings (loss) per common share data (3):
Basic:
Earnings (loss) applicable to common
shares before extraordinary item.................. 0.25 (2.38) (67.08) (100.29) 0.21
Extraordinary gain................................ -- 3.52 -- -- --
-----------------------------------------------------------------------
Earnings (loss)................................... $ 0.25 $ 1.14 $ (67.08) $(100.29) $ 0.21
=======================================================================
Diluted:
Earnings (loss) applicable to common
shares before extraordinary item.................. 0.24 (2.33) (67.08) (100.29) 0.20
Extraordinary gain................................ -- 3.45 -- -- --
-----------------------------------------------------------------------
Earnings (loss)................................... $ 0.24 $ 1.12 $ (67.08) $(100.29) $ 0.20
=======================================================================
Average common shares used (3)
in the calculation - Basic........................ 8,254 5,769 1,480 942 561
- Diluted...................................... 8,593 5,878 1,480 942 603
10
December 31
---------------------------------------------------------------------------
1999 1998 1997 1996(2) 1995(1)
----------- ------------- ------------- --------------- ----------------
(In thousands of U.S. dollars)
Balance Sheet Data:
Working capital (deficiency)(4)..................... $23,371 $13,191 $(65,794) $ 58,071 $47,670
Total assets........................................ 57,278 55,752 79,690 183,180 59,293
Long-term debt (including capital lease and pension 4,115 4,750 5,245 6,651 686
obligations and excluding deferred taxes and
convertible subordinated notes), less current
portion............................................
Convertible Subordinated Notes, less amounts 4,147 4,147 -- 86,250 --
classified as current at December 31, 1997.........
Shareholders' equity (deficit), excluding 31,604 26,940 (44,943) 31,248 53,413
redeemable convertible preferred stock.............
(1) On August 29, 1995, Trikon completed its initial public offering, resulting
in approximately $40,093,235 of net proceeds to Trikon. The funds were used
to cover Trikon's working capital needs, its investment in evaluation
systems and capital expenditures, and to continue to expand its research
and development and operational activities. The remaining funds were used
to finance the cash portion of the acquisition of Electrotech Limited and
Electrotech Equipments Limited acquired on November 15, 1996 and related
transaction costs and expenses.
(2) Includes the assets and liabilities, as of December 31, 1996, and the
results of operations from November 15, 1996 to December 31, 1996 of
Electrotech Limited and Electrotech Equipments Limited.
(3) The average number of common shares used for all years to compute per share
amounts has been adjusted to reflect the one for ten reverse stock split
effective December 17, 1999. See Note 1 of Notes to Consolidated Financial
Statements in this Report for further explanation of the method used to
determine the number of shares used to compute per share amounts.
(4) Working capital deficiency in 1997 includes the Convertible Notes.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations Of Trikon
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations of Trikon should be read in conjunction with the
section entitled "Selected Consolidated Financial Data of Trikon" above, with
the audited 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 and Section
21E of the Exchange Act. These forward-looking statements are based on current
expectations, assumptions, estimates 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
medium and long-term needs, product demand and market acceptance, the Company's
reliance on a limited number of customers for a substantial portion of its sales
and the Company's ability to improve its existing technologies and develop new
technologies, as well as those set forth below under "--Factors Affecting Future
Operating Results."
Overview
For the years ended December 31, 1999, 1998 and 1997, the Company reported
revenues of $50.5 million, $38.1 million and $85.1 million, respectively. For
the years ended December 31, 1999 and 1998, the Company reported net income of
$4.6 million and $8.1 million respectively. For the year ended December 31, 1997
the Company reported a net loss of $99.3 million. The results of operations for
the year ended December 31, 1997 were significantly affected by a restructuring
of the Company.
Results of Operations
The following table sets forth certain operating data as a percentage of
total revenues for the periods indicated:
11
Year ended December 31
-----------------------------------------------------
1999 1998 1997
-------------- ---------------- ------------------
Product sales........................................... 95.8% 65.9% 65.3%
License revenues......................................... 4.2 34.1 34.7
------ ------ ------
Total revenues........................................... 100.0 100.0 100.0
Cost of goods sold....................................... 54.9 53.5 72.8
------ ------ ------
Gross profit............................................. 45.1 46.5 27.2
Operating expenses:
Research and development............................... 13.0 21.2 20.0
Selling, general and administrative.................... 31.1 51.2 40.8
Amortization of intangibles............................ -- -- 3.7
Purchased in-process technology........................ -- -- 3.5
Restructuring costs.................................... (8.6) 4.9 21.5
Impairment write-downs................................. -- -- 51.8
------ ------ ------
Total operating expenses............................. 35.5 77.3 141.3
------ ------ ------
Income (loss) from operations............................ 9.6 (30.8) (114.1)
Interest expense, net.................................... (0.4) (6.1) (13.4)
------ ------ ------
Income (loss) before income tax provision (benefit)...... 9.2 (36.9) (127.5)
Income tax provision (benefit)........................... 0.2 ( 4.8) (10.9)
------ ------ ------
Net income (loss) before extraordinary item.............. 9.0 (32.1) (116.6)
Extraordinary item -- 53.2 --
====== ====== ======
Net income (loss) 9.0% 21.1% (116.6)%
====== ====== ======
Gross margin (deficiency) on product sales............... 42.7% 18.9% (11.4)%
====== ====== ======
Comparison of the Years Ended December 31, 1998 and 1999
Product Sales. Product sales for the year ended December 31, 1999
increased 93% to $48.4 million as compared to $25.1 million for the same period
in 1998. System shipments increased 162% to $38.2 million in fiscal 1999
compared with $14.5 million in fiscal 1998. Sales of Sigma PVD systems were
$25.2 million in 1999 compared with $7.1 million in 1998, an increase of 258%.
Within the 1999 Sigma sales figure were sales of $10.5 million in respect of the
Sigma fxp, a product launched during 1999. Sales of Omega etch systems increased
191% to $10.5 million in fiscal 1999 compared with $3.6 million in fiscal 1998.
Product sales outside of the United States accounted for 69% and 78% of
product revenues for the year ended December 31, 1999 and 1998, respectively.
The Company expects that sales outside of the United States will continue to
represent a significant percentage of the Company's product sales through 2000.
In addition, because of the large unit price associated with the Company's
systems, the Company anticipates that its product sales will continue to be made
to a small number of customers in any given quarter. See Note 1 of Notes to
Consolidated Financial Statements. 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 earned during the year ended
December 31, 1999 amounted to $2.1 million compared to $13.0 million for the
year ended December 31, 1998. License revenues primarily result from the grant
of a non-exclusive license of MORI(TM) source technology to Lam Research.
Gross Margin (Deficiency) on Product Sales. For the year ended
December 31, 1999, the gross margin on product sales was 42.7% as compared to
18.9% for the same period in 1998. Gross margins in the first half of fiscal
1999 were adversely affected by low sales volumes. The gross margin for fiscal
1998 includes inventory
12
write-downs amounting to $2.6 million. Excluding the inventory write-downs, the
gross margin on product sales was 29.1% in fiscal 1998. Gross margins in 1998
were negatively impacted by issues related to weakened product demand such as
unabsorbed manufacturing overhead associated with the reduced units sold.
Research and Development Expenses. For the year ended December 31,
1999, research and development expenses were $6.5 million, or 13.0 % of total
revenues as compared to $8.1 million, or 21.2% of total revenues for the year
ended December 31, 1998. The major focus of the Company's research and
development efforts during the year ended December 31, 1999 continued 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 Expense. For the year ended
December 31, 1999, selling, general and administrative expenses were $15.7
million, or 31.1% of total revenues as compared to $19.5 million, or 51.2% of
total revenues for the fiscal 1998. Selling general and administrative expenses
for the year ended December 31, 1999 include a credit for the release of an
allowance for doubtful debts of $1.1 million and a charge of $1.5 million for
deferred compensation costs relating to the issue of restricted Common Stock to
the Company's Chairman. Expenses for the year ended December 31, 1998 included a
charge of $1.0 million for deferred compensation costs and $0.6 million for
severance costs. The reduction in selling, general and administrative costs
between fiscal 1998 and fiscal 1999 is primarily due to cost cutting measures
implemented in the fourth quarter of 1998 and the release of $1.1 million of the
allowance against doubtful debts in 1999.
Restructuring Costs. In the fourth quarter of 1997, the Company
commenced a restructuring which included the closure of its MORI etch operations
located in Chatsworth, California. The cost of the restructuring was estimated
to be $18.3 million which was charged to operations in the year ended December
31, 1997. The restructuring reserve included provision for certain MORI etch
related product returns and vendor claims. During 1999 the Company concluded
negotiations with customers and vendors and as a result released $4.4 million of
the allowance set up for this matter. During 1998 and 1999, the restructuring
liability has been reduced by actual payments by the Company and the balance of
the reserve at December 31, 1999 is management's estimate of the remaining
liability. During the year to December 31, 1998 the company set up an additional
reserve of $1.8 million for future support costs relating to MORI equipment
supplied to customers prior to the commencement of restructuring in November
1997. The additional reserve has been reduced by actual payments as anticipated
by the Company.
Income (Loss) from Operations. For the year ended December 31, 1999,
the Company realized income from operations of $4.9 million, or 9.6% of total
revenues as compared with a $11.7 million loss from operations, or 30.8% of
total revenues for the same period in 1998.
Interest Expense. For the year ended December 31, 1999 interest
expense primarily related to interest on outstanding 7 1/8% convertible notes.
Interest expense decreased to $0.4 million as compared to $2.9 million for the
year ended December 31, 1998 as a result of the exchange of $82.1 million of 7
1/8% convertible notes for equity effective May 14, 1998. As a consequence of
the convertible note exchange, the charge to interest expense in respect of the
amortization of the costs associated with the issuance of the Convertible Notes
was proportionately reduced in fiscal 1998.
Interest Income. For the year ended December 31, 1999, interest income
was $0.2 million as compared to $0.6 million for the year ended December 31,
1998.
Income Taxes. For the year ended December 31, 1999, the Company has
recorded a tax charge of $0.1 million compared with a tax benefit $1.8 million
for the year ended December 31, 1998. The tax charge for fiscal 1999 is in
respect of alternative minimum taxes and tax on overseas income. The tax benefit
in fiscal 1998 represents a recovery of overseas tax following a distribution of
retained profits by an overseas subsidiary, and the reversal of deferred tax
liabilities 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 losses
incurred for which no benefit has been provided. The Company's ability to use
its domestic and foreign net operating losses and credit carry forwards 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. See Note 10
of Notes to Consolidated Financial Statements.
Upon closing of the Exchange Offer (see Liquidity and Capital
Resources below), a change of ownership occurred under section 382 of the
Internal Revenue Code, which will substantially limit the availability of the
Company's net operating loss carry forward. Due to the limitation, a substantial
amount of net operating loss carry forward may expire unused.
13
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
Comparison of the Years Ended December 31, 1997 and 1998
Product Sales. Product sales for the year ended December 31, 1998
decreased 54.9% to $25.1 million as compared to $55.6 million for the same
period in 1997. Product sales were reduced as a result of the shipment of 10
systems for the year ended December 31, 1998, as compared to 39 systems in the
year ended December 31, 1997.
Product sales outside of the United States accounted for 78% and 39% of
product revenues for the year ended December 31, 1998 and 1997, respectively.
License Revenues. License revenues earned during the year ended December
31, 1998 amounted to $13.0 million compared to $29.5 million for the year ended
December 31, 1997. License revenues consists of a non-exclusive license of
MORITM source technology to Lam Research.
Gross Margin (Deficiency) on Product Sales. For the year ended December 31,
1998, the gross margin on product sales was 18.9% as compared to a gross margin
deficiency of 11.4% for the same period in 1997. The gross margin for fiscal
1998 included inventory write-downs amounting to $2.6 million. The gross margin
deficiency for fiscal 1997 included inventory write-downs relating to the
Company's restructuring amounting to $20.7 million. Excluding the inventory
write-downs, the gross margin on product sales was 29.1% in fiscal 1998. Gross
margins were negatively impacted due to issues related to the weakened product
demand such as unabsorbed manufacturing overhead associated with the reduced
units sold. The low gross margin in fiscal 1997 was also due in part to the
relatively low gross margin on the products of Trikon Limited shipped during
1997. The relatively low gross margin on the products of Trikon Limited resulted
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
("APB") No. 16. The write-up increased cost of goods sold by approximately $5.2
million in the year ended December 31, 1997 as the related products were
shipped. Excluding the charge to cost of goods sold relating to the APB No. 16
adjustment and inventory write downs attributable to the restructuring, gross
profit margins on product sales for the year ended December 31, 1997 would have
been 35.1%. Substantially all of the original inventory write-up was recorded
through costs of goods sold during 1996 and 1997.
Research and Development Expenses. For the year ended December 31, 1998,
research and development expenses were $8.1 million, or 21.2% of total revenues
as compared to $17.0 million, or 20.0% of total revenues for the year ended
December 31, 1997. Included in research and development expenses during the year
ended December 31, 1997 was $7.8 million related to research and development by
the MORITM etch division which was closed during fourth quarter 1997. The major
focus of the Company's research and development efforts during the year ended
December 31, 1998 was on the development of new processes in further advancing
its proprietary PVD, CVD and etch technologies as well as adding enhancements to
its existing products.
Selling, General and Administrative Expense. For the year ended December
31, 1998, selling, general and administrative expenses were $19.5 million, or
51.2% of total revenues as compared to $34.7 million, or 40.8% of total revenues
for the same period in 1997. Selling general and administrative expenses for
the year ended December 31, 1998 included severance costs of $0.6 million and
deferred compensation costs of $1.0 million relating to the issue of restricted
Common Stock to the Company's Chairman. Expenses for the year ended December 31,
1997 included $14.5 million of selling, general and administrative expenses
related to the Etch Division operations based in Chatsworth, California which
was closed during fourth quarter 1997.
Amortization of Intangibles. Amortization of intangibles in the year ended
December 31, 1997 related to the amortization of intangibles established upon
the acquisition of Trikon Limited. Those intangibles were written off in
connection with the restructuring in 1997.
Purchased In-Process Technology. The charge to operations for the purchase
of in-process technology during the year ended December 31, 1997 arose on
acquisition of the CVD partnership.
14
Restructuring Costs and Impairment Write-downs. In the fourth quarter of
1997, the Company commenced a restructuring which included the closure of its
MORI etch operations located in Chatsworth, California. The cost of the
restructuring was estimated to be $18.3 million which was charged to operations
in the year ended December 31, 1997. During 1998, the restructuring liability
was reduced by actual payments as anticipated by the Company. During the year
ended December 31, 1998 the Company set up an additional reserve of $1.8 million
for future support costs relating to MORI equipment supplied to customers prior
to the commencement of restructuring in November 1997.
In connection with the restructuring, the Company wrote-off certain MORI
etch accounts receivable and property, plant and equipment and certain
intangible assets established on the Acquisition of Trikon Limited. The
impairment write-down charged to operations in the year ended December 31, 1997
amounted to $44.1 million.
As a result of the Company's decision to substantially exit the MORI etch
business, the Company anticipated certain MORI etch related product returns. At
December 31, 1997, the reserve for restructuring costs included an amount of
$11.5 million for the cost of such sales returns. During the year ended December
31, 1998, the Company paid $0.75 million in respect of sales returns, and the
balance of the reserve at December 31, 1998 was management's estimate of the
remaining liability.
Loss from Operations. For the year ended December 31, 1998, the Company
realized a $11.7 million loss from operations, or 30.8% of total revenues as
compared with a $97.1 million loss from operations, or 114.1% of total revenues
for the same period in 1997. The loss from operations in the year ended December
31, 1997 included costs and charges of a one-time nature amounting to $91.3
million.
Interest Expense. For the year ended December 31, 1998 interest expense
primarily related to interest on outstanding 7 1/8% convertible notes. Interest
expense decreased to $2.9 million as compared to $12.1 million for the year
ended December 31, 1997 as a result of the exchange of $82.1 million of 7 1/8%
convertible notes for equity effective May 14, 1998, and the termination of a
working capital facility in November 1997. In addition, in the year ended
December 31, 1997, $1.7 million of financing costs were written off and charged
to interest expense in connection with the termination of the Company's working
capital facility. As a consequence of the convertible note exchange and the
termination of the working capital facility, the charge to interest expense in
respect of the amortization of the costs associated with the issuance of the
convertible notes was proportionately reduced in fiscal 1998, and those relating
to obtaining the working capital facility were eliminated.
Interest Income. For the year ended December 31, 1998 interest income was
$0.6 million as compared to $0.7 million for the year ended December 31, 1997.
Income Taxes. For the year ended December 31, 1998, the Company recorded a
$1.8 million tax benefit as compared to the recording of a $9.2 million tax
benefit for the year ended December 31, 1997. The tax benefit represented a
recovery of overseas tax following a distribution of retained profits by an
overseas subsidiary during fiscal 1998, and the reversal of deferred tax
liabilities established at November 15, 1996 for the difference in the tax basis
and financial reporting basis of the Trikon Limited assets acquired. The tax
benefit for the year ended December 31, 1997, included approximately $9.2
million for the reversal of a deferred tax liability related to the write-off of
the intangible assets established upon the Acquisition of Trikon Limited. The
effective tax rate differs from the statutory federal tax rate due to losses
incurred for which no benefit has been provided. The Company's ability to use
its domestic and foreign net operating losses and credit carry forwards 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. See Note 10
of Notes to Consolidated Financial Statements.
Upon closing of the Exchange Offer, a change of ownership occurred under
section 382 of the Internal Revenue Code, which substantially limited the
availability of the Company's net operating loss carry forward. Due to the
limitation, a substantial amount of net operating loss carry forward may expire
unused.
Extraordinary Gain. On May 14, 1998, the Company accepted for exchange
approximately $82.1 million principal amount of Convertible Notes tendered in
the Exchange Offer. The Convertible Notes were exchanged for 22,660,798 shares
of Common Stock, 29,264.625 shares of Series I Junior Participating Preferred
Stock and 2,855,754 shares of Series H Preferred Stock. The shares of Common
Stock and equivalents had an average value of $0.66 each following the exchange.
The extraordinary gain arising on the exchange is as follows (in thousands):
Principal amount of Convertible Notes exchanged..... $ 82,103
Interest waived..................................... 3,635
--------
15
85,738
Value of Common Stock and equivalents issued........ (34,271)
Series H Preferred Stock issued - principal amount.. (28,558)
Convertible Note issuance costs written off......... (1,916)
Costs relating to the exchange offer................ (700)
--------
Gain on exchange.................................... $ 20,293
--------
Liquidity and Capital Resources
At December 31, 1999 the Company had $3.9 million in cash compared to $7.9
million at December 31, 1998. The decrease in cash primarily resulted from the
use of cash in operating activities of $1.8 million. The Company has an
overdraft (credit) facility of (Pounds)5 million ($8.1 million at the year-end
exchange rate) with a British bank. The facility is secured on the British
assets of the Company and is subject to review on July 31, 2000. At December 31,
1999 the Company had utilized (Pounds)1.6 million ($2.6 million at year end
exchange rates) of the facility in the form of guarantees issued by the bank on
behalf of the Company. Management believes that the cash flow from future
operations taken with the continuance of the existing credit facility is
sufficient to fund the Company's operations over the fiscal year ending December
31, 2000.
In connection with the acquisition of Trikon Limited, the Company issued
$86,250,000 of convertible notes. On April 14, 1998, the Company commenced an
exchange offer for all of the outstanding convertible notes, Series G Preferred
Stock and warrants. On May 14, 1998, the Company accepted for exchange
$82,103,000 principal amount of convertible notes (approximately 95% of the
aggregate principal amount outstanding). The $82,103,000 principal amount of
convertible notes tendered were exchanged for 22,660,798 new shares of Common
Stock, 29,264.625 new shares of Series I Junior Participating Preferred Stock
and 2,855,754 new shares of Series H Preferred Stock. Each share of Series I
Junior Participating Preferred Stock automatically converted into 1,000 shares
of Common Stock upon shareholder approval on July 28, 1998. The Series H
Preferred Stock is redeemable at the option of the Company for cash at a
redemption price equal to the stated amount ($10 per share) plus accrued and
unpaid dividends and the holders of the Series H Preferred Stock will 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. If the Company has not redeemed all of the outstanding Series H
Preferred Stock on or prior to June 30, 2001, then the holders of Series H
Preferred Stock shall be entitled to elect the number of directors that will
constitute a majority of the Board of Directors. Dividends of $2.4 million and
$1.0 million due to the holders of Series H Preferred Stock in 1999 and 1998
respectively were paid with 244,810 and 97,320 new shares of Preferred Stock.
The Company is likely to pay future dividends with new Preferred Stock until
cash resources increase above the amount considered adequate to meet the needs
of the Company.
During the first quarter of 2000, the Company issued 1,229,398 new
shares of common stock in exchange for surrender of $1,017,000 face value of 7-
1/8% Subordinated Convertible Notes, 2001 plus accrued interest and
approximately $15.96 million face value of Series H Preferred Stock plus accrued
dividend.
Factors Affecting Future Operating Results
Cash Resources. The Company is capital intensive and requires significant
funds to conduct operations and requires regular and significant investments in
working capital and research and development. In order to remain competitive,
the Company must continue to make significant investments in technology and
systems, in the expansion of its operations, in evaluation systems and in
research and development.
International Exposure. Revenue outside the United States accounted
for approximately 66%, 52% and 37% of the Company's total revenues for the years
ended December 31, 1999, 1998 and 1997, respectively. The Company anticipates
that sales outside of the United States will continue to account for a
substantial amount of the Company's total revenues. International sales are
subject to certain risks, including unexpected changes in regulatory
requirements, exchange rates, tariffs and other barriers, political and economic
instability, difficulties in accounts receivable collections, extended payment
terms, the challenges of maintaining a readily available supply of spare parts,
difficulties in managing distributors or representatives, difficulties in
staffing and managing foreign subsidiary operations, and potentially adverse tax
consequences. In addition, international sales may be materially adversely
affected by currency risks associated with devaluation of certain currencies.
There can be no assurance that these and other factors will not have a material
adverse effect on revenue and net earnings (losses).
16
Recent Developments in Semiconductor Industry. The semiconductor
industry is aggressively pursuing copper, CMP and novel low dielectric constant
insulating materials for future metalization structures. These changes present
both opportunities and threats to Trikon. Presently Trikon's Forcefill product
is not compatible for copper and therefore developments are underway to enable a
viable copper Forcefill process. Trikon's Flowfill product is well placed to
take advantage of the high level of interest in low dielectric insulators.
300mm. The semiconductor industry has historically moved to larger diameter
wafers requiring new equipment as a strategy to reduce their per-die
manufacturing costs. To meet this requirement, Trikon and its competitors have
over the years developed equipment suitable for processing these even larger
wafers. However, in the case of 300mm. wafers there is uncertainty over its
early adoption. So far there has been little demand for 300mm. capable
equipment, however this may change rapidly. The Company's 300mm. development
strategy is to meet the 300mm. timetable of its major customers who are not
"early adopters". If, however these customers rapidly accelerate their 300mm.
programs, then there can be no assurance that Trikon will be able to meet these
accelerated programs. As a result, Trikon might loose these customers which
would have a material adverse effect on revenue and net earnings.
Development and Acceptance of New Products and Systems. While the
Company sells several conventional products, it also offers novel technologies.
Its Flowfill system uses a CVD technique applied to silicon dioxide that allows
for gap filling and planarization. Competing products include spin on glass
(SOG) and high density plasma (HDP) coupled with a chemical mechanical polishing
(CMP) process. The Company's Sigma Forcefill system incorporates an alternative
technology to conventional PVD techniques by using aluminum forced by high
pressure argon to fill small diameter deep holes and vias on ICs. The Company's
competitors produce systems that use a conventional CVD tungsten system to fill
deep holes and vias. Trikon's MORI source offers an alternative etch environment
for the manufacture of IC to the reactive ion etch (RIE), inductively coupled
plasma (ICP) and electron cyclotron resonance (ECR) etch technology currently
used by Trikon's competitors.
The Company's Low-K Flowfill product is currently at the stage of customer
review and evaluation. Considerable efforts are being applied by the Company in
attaining product functionality and reliability levels acceptable to the
Company's target markets, with an emphasis being given to the Low-K Flowfill. To
date, the Company's sales of its Flowfill systems have been low volume purchases
by customers. Typically, semiconductor manufacturers initially purchase
individual systems and deploy them in a development or preproduction environment
prior to purchasing multiple systems for production. There can be no assurance
that customers will purchase additional systems from the Company for deployment
in production or that any additional customers will enter into licensing
agreements for the MORI source technology.
Given that certain of the Company's systems represent an alternative to
conventional CVD, PVD and etch systems currently marketed by competitors,
management believes that continued growth depends in large part upon the ability
of the Company to gain acceptance of its systems and technology. Due to the
substantial investment required by semiconductor manufacturers to install and
integrate capital equipment into a semiconductor production line, these
manufacturers will tend to choose equipment manufacturers based on past
relationships, product compatibility and proven financial performance. Once a
semiconductor manufacturer has selected a particular vendor, management believes
that the manufacturer generally relies upon the equipment supplied by that
vendor for the specific production line application, and frequently will attempt
to consolidate its other capital equipment requirements with the same vendor. As
a result, semiconductor manufacturers will normally engage in a long period of
analysis and planning before determining to convert to a new vendor of capital
equipment. Given these factors, there can be no assurance that the Company will
be successful in obtaining broader acceptance of its new systems or of its
Flowfill technologies, Forcefill or MORI source.
Rapid Technological Change. The markets in which the Company and its
customers compete are characterized by rapidly changing technology, the
introduction of alternative technologies, evolving industry standards and
continuous improvements in products and services. Management believes that the
Company's future success will depend, in part, upon its ability to continue to
improve its systems and process technologies and to develop new technologies and
systems which compete effectively on the basis of total cost of ownership and
performance and which adequately address customer requirements. Due to the risks
inherent in transitioning to new products, the Company will be required to
accurately forecast demand for new products while managing the transition from
older products. If new products have reliability or quality problems, reduced
orders, higher manufacturing costs, delays in acceptance of and payment for new
products and additional service and warranty expense may result. There can be no
assurance that the Company will successfully develop and manufacture new
products, or that new products introduced by the Company will be accepted in the
marketplace. If the Company does not successfully introduce new products, the
Company's results of operations will be materially adversely affected.
17
Although the Company expects to continue to make significant investments in
research and development, there can be no assurance that the Company will be
able to develop and introduce new products or enhancements to its existing
products which satisfy customer needs in a timely manner or achieve market
acceptance with the planned research and development investment in 2000. The
failure to do so could adversely affect the Company's business.
Quarterly Operating Results Affected by Many Business Factors. The
Company has routinely experienced fluctuations in quarterly results and
historically derived most of its quarterly revenue from the sale of a small
number of systems which typically have list prices ranging from approximately
$750,000 to $4,000,000. The Company ships a significant portion of its systems
in the last week of each quarter. Accordingly, the timing of the shipment of a
single system could have a significant impact on the Company's recognition of
revenue and its quarterly operating results. A delay in a shipment near the end
of a particular quarter may cause product sales in that quarter to fall below
expectations, and may thus materially and adversely affect operating results for
such quarter, which will have an adverse impact on the market price of the
Common Stock of the Company. Historically, the Company's backlog at the
beginning of a quarter has not included all sales required to achieve its sales
objectives for that quarter. As such, the Company's quarterly product sales and
operating results have historically depended on the receipt of orders and the
shipment of products in that same quarter.
During December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements". SAB
101 provides guidance on the recognition, presentation and disclosure of revenue
in the financial statements. Implementation of guidance prescribed in the
Bulletin and which all registrants are expected to apply, may result in a change
in the Company's revenue recognition policy as applied to system sales from the
date of shipment and transfer of title to the date of final acceptance which may
therefore have the effect of later revenue recognition. Because the Company has
complied with generally accepted accounting principles for its historical
revenue recognition, a change in its revenue recognition policy resulting from
SAB 101 would be reported in the quarter ending June 30, 2000. Any consequent
deferral of revenue for shipments previously reported as revenue which had not
been accepted by customers as of December 31, 1999 would result in a cumulative
adjustment in the second quarter of fiscal 2000. This adjustment might have
a material adverse effect on reported net income for the second quarter of
fiscal 2000, the six months ending June 30, 2000, and for fiscal 2000 as a
whole. The Company is still in the process of assessing the detailed impact of
SAB 101 on its financial statements. However, implementation of SAB 101 will not
affect the fundamental aspects of the Company's operations as measured by its
shipments and cash flows.
As a result of its continued investments in research, development and
engineering, and the development of a worldwide sales and marketing
organization, the Company has significant fixed costs that it will not be able
to reduce rapidly if its sales goals for a particular period are not met. The
impact of this factor on operating results in any future period cannot be
forecasted accurately.
Highly Competitive Industry. The markets served by the Company's
products are extremely competitive. The Company faces significant competition
from various suppliers of systems that utilize alternative technologies. In the
CVD market, the Company's Flowfill technology faces competition from a number of
CVD competitors, including Applied Materials, Lam Research, Novellus and
Watkins-Johnson. In the PVD market, the Company's Forcefill technology faces
competition from suppliers of aluminum PVD systems, such as Applied Materials,
Tokyo Electron, MRC, Varian and Ulvac. In the etch market, the Company's MORITM
based etch systems and other etch products face competition from suppliers of
RIE systems, including Applied Materials, Lam Research and Tokyo Electron, from
ICP-based etch systems marketed by Applied Materials and Lam Research, as well
as the ECR-based etch system marketed by Hitachi. In addition, as a result of
the non-exclusive licenses sold to Applied Material and Lam Research, in the
future, the Company's PVD and etch products may have to compete with products of
Applied Materials and, with respect to the Company's etch products, Lam
Research, based upon the Company's technologies.
Many of these competitors are substantially larger companies with broader
product lines, and have well established reputations in the markets in which the
Company competes, longer operating histories, greater experience with high
volume manufacturing, broader name recognition, substantially larger customer
bases and substantially greater financial, technical and marketing resources
than the Company and, among other things, may therefore be less vulnerable than
the Company to long-term industry downturns. The Company also faces potential
competition from new entrants in its respective markets, including established
manufacturers in other segments of the semiconductor capital equipment market,
who may decide to diversify into the Company's market segments. There can be no
assurance that these competitors will not develop enhancements to or future
generations of competitive products that will offer price and performance
features superior to those offered by the Company's systems.
Lengthy Sales Cycle. Sales of the Company's systems typically involve
a lengthy period during which it may expend substantial funds and management
effort. Such sales will depend, in significant part, upon the decision of a
prospective customer to increase manufacturing capacity or to expand current
manufacturing capacity, both of which involve a significant capital commitment
by the customer. The amount of time from initial contact with a customer to the
first order is typically nine to twelve months, and may be longer, and may
involve competing capital budget considerations for the customer, thus making
the timing of customers' orders uneven and difficult to predict.
Failure to Retain Key Personnel. The Company's future success depends, to a
large extent, upon the efforts and abilities of a number of its current key
personnel. Such key personnel include, but are not limited to, Christopher D.
Dobson, Chairman of the Board and Chief Scientific Officer, Nigel Wheeler,
President and Chief Executive Officer, Nicholas Carrington, Senior Vice
President, Sales and Field Operations, and Jeremy Linnert, Chief Financial
Officer and Secretary. The loss of certain of these people or the Company's
inability to retain other key employees could materially and adversely affect
its operations.
Intellectual Property Rights. The Company relies on a variety of types
of intellectual property protection to protect proprietary technology, including
patent, copyright, trademark and trade secret laws, non-disclosure agreements
and other intellectual property protection methods. Although management believes
that the Company's
18
patents and trademarks may have value, management believes that its future
success will also depend on the innovation, technical expertise and marketing
abilities of its personnel.
The Company currently holds a number of patents in the United Kingdom, the
United States, Taiwan, Germany, France, Italy and the Netherlands, and has
patent applications pending in South Korea, Japan and Europe.
There can be no assurance that patents will be issued on the Company's
pending patent applications or that competitors will not be able to legitimately
ascertain proprietary information embedded in its products which is not covered
by patent or copyright. In such case, the Company may be precluded from
preventing the competitor from making use of such information. In addition,
should the Company wish to assert its patent rights against a particular
competitor's product, there can be no assurance that any claim in a Company
patent will be sufficiently broad nor, if sufficiently broad, any assurance that
the Company patent will not be challenged, invalidated or circumvented, or that
the Company will have sufficient resources to prosecute its rights. The Company
has a policy to protect and defend vigorously its patents, trademarks and trade
secrets. In connection with the non-exclusive licenses of technologies sold to
Applied Materials, the Company released Applied Materials from all claims or
actions arising from acts, omissions or dealings of Applied Materials prior to
the licenses, other than claims against Applied Materials for infringement of
the patent or patent applications of the Company relating to its Flowfill
technology.
There are no pending lawsuits against the Company regarding infringement of
any existing patents or other intellectual property rights or any unresolved
claim where the Company has received notice that it is infringing the
intellectual property rights of others. There can be no assurance, however, that
such infringement claims will not be asserted in the future nor can there be any
assurance, if such claims were made, that the Company would be able to defend
against such claims successfully or, if necessary, obtain licenses on reasonable
terms. In addition, management believes that litigation in the semiconductor
equipment industry over patent and other intellectual property rights has been
increasing in recent years.
Any involvement in a patent or other intellectual property dispute or in
any action to protect trade secrets and know-how, even if successful, could
materially and adversely affect operations. Adverse determinations in any such
action could subject the Company to significant liabilities, require it to seek
licenses from third parties, which might not be available, and possibly prevent
it from manufacturing and selling its products, any of which could materially
and adversely affect operations.
Customer Concentration. To date the Company's product sales have been
highly concentrated, with approximately 24% and 12% and 10% of its product
revenues for the year ended December 31, 1999 derived from sales to Infineon
(Siemens), Triquint and Philips and 24% and 11% of its product revenues for the
year ended December 31, 1998 derived from sales to Siemens and Tower
Semiconductor. There can be no assurance that Infineon, Triquint and Philips
will continue to purchase systems and technology from the Company at current
levels, or at all.
Year 2000. The Company has not suffered any material failure of
hardware or software in use by the Company as a result of the year 2000 date
change.
The Company is not aware of any material failure of its products in use in
customers operations, and the Company does not believe that there will be any
significant future effect on the Company's results of operations or financial
condition as a result of product failures related to the Year 2000 issue.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's earnings and cash flow are subject to fluctuations in foreign
currency exchange rates. Significant factors affecting the 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 December 31, 1999 and 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 first
quarter of 2000 would have no material effect on revenues expressed in United
States dollars and would increase operating costs and reduce cash-flow by
approximately $1.5 million for the quarter. 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 $3.5 million. The effect of
this hypothetical change in exchange rates ignores the affect this movement may
have on other variables including competitive risk. If it were
19
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.
ITEM 8. Financial Statements and Supplementary Data
See the Index included at "Item 14. Exhibits and Financial Statements
Schedules and Reports on Form 8-K."
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
20
PART III
ITEM 10. Directors and Executive Officers of Trikon.
The information required by this item is included under "Proposal No. 1:
Election of Directors," "Other Information - Executive Officers" and "Compliance
with Section 16(a) of the Exchange Act" in the Company's Definitive Proxy
Statement to be filed in connection with its 2000 Annual Meeting of Shareholders
and is incorporated herein by reference.
ITEM 11. Executive compensation.
The information required by this item is included under "Other
Information - Executive Compensation" in the Company's Definitive Proxy
Statement to be filed in connection with its 2000 Annual Meeting of Shareholders
and is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is included under "Other Information
- - Security Ownership of Certain Beneficial Owners and Management" in the
Company's Definitive Proxy Statement to be filed in connection with its 2000
Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions.
The information required by this item is included under "Other Information
- - Certain Transactions" in the Company's Definitive Proxy Statement to be filed
in connection with its 2000 Annual Meeting of Shareholders and is incorporated
herein by reference.
----------------
The following are some of the companies mentioned in this Report: Anelva
Corporation, a subsidiary of NEC Corporation ("Anelva Corporation"), AT&T Corp.
("AT&T"), Applied Materials, Inc. ("Applied Materials"), Dallas Semiconductor
Corporation ("Dallas Semiconductor"), Infineon AG ("Infineon"), Hitachi, Ltd.
("Hitachi"), KLA-Tencor Corporation ("KLA-Tencor"), Lam Research Corporation
("Lam Research"), Leybold, Inc ("Leybold"), LSI Logic Corporation ("LSI Logic"),
Material Resources Corp. ("MRC"), Novellus Systems, Inc. ("Novellus"), Philips
Electronics NV ("Philips"), Siemens AG ("Siemens"), Tokyo Electron Ltd. ("Tokyo
Electron"), TriQuint Semiconductor, Inc. ("TriQuint"), Varian Associates, Inc.
("Varian"), Ulvac Japan, Ltd. ("Ulvac") and the Watkins- Johnson Company
("Watkins-Johnson").
21
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Index to Financial Statements
PAGE
----
Report of Independent Auditors............................................................................................... F-1
Consolidated Balance Sheets--December 31, 1999, and 1998.................................................................... F-2
Consolidated Statements of Operations--Years ended December 31, 1999, 1998 and 1997........................................... F-4
Consolidated Statements of Shareholders' Equity (Deficiency)--Years ended December 31, 1999, 1998 and 1997................... F-5
Consolidated Statements of Cash Flows--Years ended December 31, 1999, 1998 and 1997........................................... F-6
Notes to Consolidated Financial Statements.................................................................................... F-8
(a)(2) Index to Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable
accounting requirements of the Securities and Exchange Commission are not
required under the related instructions or are not applicable and therefore have
been omitted.
(a)(3) List of Exhibits
Number Description
(b) Reports on Form 8-K
None
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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:
TRIKON TECHNOLOGIES, INC.
By: /s/ Nigel Wheeler
--------------------------------
Nigel Wheeler
Chief Executive Officer, President
and Chief Operating Officer
By: /s/ Jeremy Linnert
--------------------------------
Jeremy Linnert
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Nigel Wheeler and Jeremy Linnert, and
each of them with all power to act without the other, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, to sign any and all amendments (including post-effective
amendments) to this Annual Report on Form 10-K and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any of them, shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Nigel Wheeler Chief Executive Officer, President and Chief Operating March 30, 2000
Officer and Director (Principal Executive Officer)
- -----------------------------
Nigel Wheeler
/s/ Jeremy Linnert Chief Financial Officer and Secretary March 30, 2000
- ----------------------------- (Principal Financial and Accounting
Jeremy Linnert Officer)
/s/ Christopher D. Dobson Chairman of the Board, Director and Chief Scientific March 30, 2000
- ----------------------------- Officer
Christopher D. Dobson
/s/ Richard M Conn Director March 30, 2000
- -----------------------------
Richard M. Conn
/s/ Stephen N. Wertheimer Director March 30, 2000
- -----------------------------
Stephen N. Wertheimer
23
REPORT OF INDEPENDENT AUDITORS
To: The Board of Directors
Trikon Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Trikon
Technologies, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity (deficiency)
and cash flows for each of the three years in the period ended December 31,
1999. Our audits also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Trikon
Technologies, Inc. at December 31, 1999 and 1998, and the consolidated results
of their operations and their cash flows for the three years ended December 31,
1999, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ ERNST & YOUNG
Bristol, England
March 30, 2000
F-1
TRIKON TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
December 31,
--------------------------------
Assets 1999 1998
--------------------------------
Current Assets
Cash and cash equivalents............................... $ 3,927 $ 7,891
Accounts receivable, less allowances of $46 and $2,539
at December 31, 1999 and 1998, respectively............. 15,471 6,122
Inventories............................................. 19,256 16,237
Other current assets.................................... 2,129 2,856
--------------------------------
Total current assets.................................... 40,783 33,106
Property, equipment and leasehold improvements:
Land.................................................... 1,729 1,780
Machinery and equipment................................. 9,654 11,210
Furniture and fixtures.................................. 2,489 2,388
Leasehold improvements.................................. 9,540 9,687
--------------------------------
23,412 25,065
Less accumulated depreciation and amortization.......... 8,195 6,399
--------------------------------
15,217 18,666
Demonstration systems, net of accumulated depreciation 860 3,573
Intangible assets, net of accumulated amortization:
Financing costs......................................... 55 83
Other assets 363 324
--------------------------------
Total assets............................................ $57,278 $55,752
================================
See accompanying notes to the consolidated financial statements.
F-2
TRIKON TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS--(Continued)
(In thousands, except for share data)
December 31
------------------------------------
1999 1998
------------------------------------
Liabilities and shareholders' equity
Current Liabilities:
Accounts payable....................................... 6,860 3,367
Accrued expenses....................................... 2,786 2,299
Warranty and related expenses.......................... 1,120 936
Restructuring cost..................................... 183 1,099
Sales returns payable.................................. 3,664 10,718
Current portion of long-term debt and capital lease obligations 93 225
Other 2,706 1,271
------------------------------------
Total current liabilities............................ 17,412 19,915
Long-term debt and capital lease obligations, less current portion 4 99
Other.................................................... 1,270 1,444
Pension obligations...................................... 2,841 3,207
Convertible subordinated notes........................... 4,147 4,147
------------------------------------
Total liabilities 25,674 28,812
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 at
December 31, 1999 and 1998
Issued and outstanding 3,197,898 at December 31, 1999 and 31,979 29,531
2,953,074 at December 31, 1998
Common Stock, no par value
Authorized shares - 11,000,000
Issued and outstanding -- 9,404,606 at December 31, 1999
and 9,402,384 at December 31,1998 199,019 199,019
Cumulative translation adjustment (2,177) (751)
Deferred Compensation (5,121) (6,637)
Accumulated deficit (192,096) (194,222)
------------------------------------
Total shareholders' equity 31,604 26,940
------------------------------------
Total liabilities and shareholders' equity $57,278 $55,752
====================================
See accompanying notes to the consolidated financial statements.
F-3
TRIKON TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share data)
Year Ended December 31
--------------------------------------------------
1999 1998 1997
--------------------------------------------------
Revenues:
Product sales................................ $ 48,363 $ 25,125 $55,609
License revenues............................. 2,144 13,000 29,500
--------------------------------------------------
50,507 38,125 85,109
--------------------------------------------------
Costs and expenses:
Cost of goods sold........................... 27,735 20,378 61,974
Research and development..................... 6,545 8,087 17,033
Selling, general and administrative.......... 15,723 19,533 34,734
Amortization of intangibles.................. -- -- 3,116
Purchased in-process technology.............. -- -- 2,975
Restructuring costs.......................... (4,361) 1,843 18,273
Impairment write-downs....................... -- -- 44,135
--------------------------------------------------
45,642 49,841 182,240
--------------------------------------------------
Income (loss) from operations......................... 4,865 (11,716) (97,131)
Interest:
Interest expense............................. (413) (2,923) (12,068)
Interest income.............................. 222 590 674
--------------------------------------------------
Income (loss) before income tax charge (benefit) 4,674 (14,049) (108,525)
Income tax charge (benefit)................. 100 (1,821) (9,248)
--------------------------------------------------
Net income (loss) before extraordinary 4,574 (12,228) (99,277)
item..............................
Extraordinary item -- 20,293 --
--------------------------------------------------
Net income (loss) $ 4,574 $ 8,065 $ (99,277)
==================================================
Net income (loss) applicable to common shares $2,084 $ 6,579 $ (99,277)
==================================================
Earnings (loss) per common share data : Basic:
Income (loss) applicable to common shares before
extraordinary item $ 0.25 $ (2.38) $ (67.08)
Extraordinary gain -- 3.52 --
--------------------------------------------------
Net income (loss) $0.25 $ 1.14 $ (67.08)
==================================================
Diluted:
Loss applicable to common shares before
extraordinary item $ 0.24 $ (2.33) $ (67.08)
Extraordinary gain -- 3.45 --
--------------------------------------------------
Net income (loss) $0.24 $ 1.12 $ (67.08)
==================================================
Average common shares used in the calculation- Basic 8,254 5,769 1,480
- Diluted 8,593 5,878 1,480
See accompanying notes to the consolidated financial statements.
F-4
TRIKON TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(In thousands)
Series G Series H
Preferred Preferred Trans-
Stock Stock Common Stock Accum- lation
------------ ------------- -------------- ulated Adjust- Deferred
Shares Amount Shares Amount Shares Amount Deficit ment Compensation Total
------ ------ ------ ------ ------ ------ ------- ------ ------------ -------
Balance at January 1, 1997 -- -- -- -- 14,310 131,873 (102,037) 1,412 -- 31,248
Exercise of options.... -- -- -- -- 150 268 -- -- -- 268
Issuance of Stock...... -- -- -- -- 7 49 -- -- -- 49
Issuance of Common Stock for
acquisition of CVD
Limited Partnership -- -- -- -- 680 5,183 -- -- -- 5,183
Issuance of Series G
Convertible Preferred
Stock 2,962 19,349 -- -- -- -- -- -- -- 19,349
Issuance of warrants to
purchase Common Stock. -- -- -- -- -- 394 -- -- -- 394
Cumulative translation
adjustments........... -- -- -- -- -- -- -- (2,157) -- (2,157)
Net Loss............... -- -- -- -- -- -- (99,277) -- -- (99,277)
---------
Comprehensive loss -- -- -- -- -- -- -- -- -- (101,434)
----------------------------------------------------------------------------------------------
Balance at December 31, 1997 2,962 19,349 -- -- 15,147 137,767 (201,314) (745) -- (44,943)
Exchange Offer for
Series G
Preferred Stock (2,962)(19,349) 2,856 28,558 15,158 19,349 -- -- -- 28,558
Exchange Offer for $82.103m.
Convertible Notes (1) -- -- -- -- 51,925 34,271 -- -- -- 34,271
Restricted Stock issued
to Chairman -- -- -- -- 11,493 7,585 -- -- (7,585) --
Shares issued to holders of CVD
Partnership shares -- -- -- -- 300 47 -- -- -- 47
Amortization of restricted stock 948 948
Cumulative translation
adjustments........... -- -- -- -- -- -- -- (6) -- (6)
Net Income............... -- -- -- -- -- -- 8,065 -- -- 8,065
-----
Comprehensive income 8,059
-----
Preference dividend -- -- 97 973 -- -- (973) -- -- --
----------------------------------------------------------------------------------------------
Balance at December 31, 1998 0 0 2,953 29,531 94,023 199,019 (194,222) (751) (6,637) 26,940
Issuance of Stock...... 22
Adjustment arising on reverse
stock split (2) (84,641)
Amortization of restricted stock 1,516 1,516
Cumulative translation
adjustments........... -- -- -- -- -- -- -- (1,426) -- (1,426)
Net Income............... -- -- -- -- -- -- 4,574 -- -- 4,574
-----
Comprehensive income 3,148
-----
Preference dividend -- -- 245 2,448 -- -- (2,448) -- -- --
----------------------------------------------------------------------------------------------
Balance at December 31, 1999 0 0 3,198 $31,979 9,404 $199,019 $(192,096) $ (2,177) $(5,121) $31,604
==============================================================================================
(1) The $82.103 million of Convertible Notes were exchanged for 22,660,798 new
shares of Common Stock and 29,264.625 new shares of Series I Preferred Stock.
Each share of Series I Preferred Stock automatically converted to 1,000 shares
of Common Stock upon shareholder approval on July 28, 1998.
(2) The shares of common stock in issue at December 17, 1999 were subject to a
reverse stock split of one for ten.
See accompanying notes to the consolidated financial statements.
F-5
TRIKON TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
Year Ended December 31
-----------------------------------------
1999 1998 1997
-----------------------------------------
Operating activities
Net income (loss)....................................................... $4,574 $8,065 $ (99,277)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Extraordinary item.................................................. -- (20,293) --
Depreciation and amortization of plant, equipment, leasehold........
improvements, and demonstration systems........................ 3,294 3,891 7,161
Amortization of intangibles......................................... 28 15 3,116
Amortization of financing costs..................................... -- 300 931
Amortization of deferred compensation............................... 1,516 948 --
Provision for loss on accounts receivable........................... (2,493) (64) 632
Write-off of financing cost......................................... -- -- 1,680
Write-off of purchased in-process technology........................ -- -- 2,975
Impairment write-downs.............................................. -- -- 44,135
Inventory write-downs............................................... -- -- 20,735
Deferred income taxes............................................... -- -- (9,660)
Changes in operating assets and liabilities:........................
Accounts receivable........................................... (6,856) 12,784 6,615
Inventories (including demonstration systems)................. (306) 5,166 13,003
Other current assets.......................................... 727 (1,234) 3,101
Sales returns................................................. (7,054) (750) 11,419
Restructuring cost............................................ (916) (2,853) 3,952
Accounts payable and other liabilities........................ 6,420 (3,260) (16,581)
Income tax payable............................................ (14) (1,524) (2,705)
Deferred revenue.............................................. (807) (977) 1,923
-----------------------------------------
Net cash (used in) provided by operating activities.................... (1,887) 214 (6,845)
Investing Activities
Purchases of property, equipment and leasehold improvements............ (1,560) (511) (10,684)
Proceeds from sale of property, equipment and leasehold improvements... 1,112 484 1,288
Proceeds from sales of short-term investments.......................... -- -- 11,800
Purchase of short-term investments..................................... -- -- (10,336)
Other assets and liabilities........................................... (579) 92 (172)
-----------------------------------------
Net cash (used in) provided by investing activities.................... (1,027) 65 (8,104)
Financing Activities
Costs relating to Exchange Offer....................................... -- (700) --
Net repayments under bank credit lines................................. -- (325) (14,151)
Proceeds from sale of Preferred Stock (net of insurance costs)......... -- -- 19,349
Cash received in purchase of CVD Partnership with issuance of common -- -- 2,208
stock..................................................................
Proceeds from sale of Common Stock and Warrants........................ -- -- 317
Payments on capital lease obligations.................................. (227) (617) (1,545)
-----------------------------------------
Net cash provided by (used in) financing activities.................... (227) (1,642) 6,178
Effect of exchange rate changes in cash................................ (823) (6) (2,157)
-----------------------------------------
Net decrease in cash and cash equivalents.............................. (3,964) (1,369) (10,928)
Cash and cash equivalents at beginning of year......................... 7,891 9,260 20,188
-----------------------------------------
Cash and cash equivalents at end of year............................... $ 3,927 $ 7,891 $ 9,260
=========================================
F-6
TRIKON TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(In thousands of dollars)
- --------------------------------------------------------------------------------------------------------------------
Year Ended December 31
1999 1998 1997
Supplemental Statements of Cash Flows Information
Cash paid during the year for:
Interest............................................................ $ 365 $ 422 $ 1,238
Taxes (primarily foreign)........................................... 54 368 2,885
Non-cash investing and financing activities:
Equipment acquired under capital lease.............................. -- 269 --
Acquisition of CVD Limited Partnership:
Fair market value of assets acquired................................ -- -- $5,183,000
Issuance of common stock............................................ -- -- (5,183,000)
Cash acquired....................................................... -- -- (2,208,000)
----------------------------------
$ -- $ -- $(2,208,000)
================================
See accompanying notes to the consolidated financial statements.
F-7
TRIKON TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Significant Accounting Policies
Background
Trikon Technologies, Inc. and its subsidiaries (the "Company") operates in
one segment, designing, manufacturing and marketing advanced high density, low
pressure plasma sources, process modules and plasma processing systems. These
products are used for chemical and physical vapor deposition and etch
applications and are sold to semiconductor manufacturers worldwide.
The consolidated financial statements of the Company include the accounts
of its subsidiaries all of which are wholly owned. All significant intercompany
accounts and transactions have been eliminated.
Revenue Recognition
Product sales consist primarily of system, component and spare parts sales.
Revenues related to system, component and spare parts sales are recognized upon
shipment and transfer of title or upon customer acceptance and transfer of title
in the case of demonstration inventory unit sales. Estimated costs to be
incurred by the Company related to product installation (which are not
significant) and warranty fulfillment are accrued at the date of shipment.
During December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements". SAB
101 provides guidance on the recognition, presentation and disclosure of revenue
in the financial statements. Implementation of guidance prescribed in the
Bulletin and which all registrants are expected to apply, may result in a change
in the Company's revenue recognition policy as applied to system sales from the
date of shipment and transfer of title to the date of final acceptance which may
therefore have the effect of later revenue recognition. Because the Company has
complied with generally accepted accounting principles for its historical
revenue recognition, a change in its revenue recognition policy resulting from
SAB 101 would be reported in the quarter ending June 30, 2000. Any consequent
deferral of revenue for shipments previously reported as revenue which had not
been accepted by customers as of December 31, 1999 would result in a cumulative
adjustment in the second quarter of fiscal 2000. This adjustment might have
a material adverse effect on reported net income for the second quarter of
fiscal 2000, the six months ending June 30, 2000, and for fiscal 2000 as a
whole. The Company is still in the process of assessing the detailed impact of
SAB 101 on its financial statements. However, implementation of SAB 101 will not
affect the fundamental aspects of the Company's operations as measured by its
shipments and cash flows.
Deferred revenues represent payments received toward future product sales
and services which have not been recognized.
Licensing Agreements
Income from licensing agreements represents amounts received in respect of
licenses granted in previous fiscal years. On March 18, 1998, the Company
granted a non-exclusive, worldwide license of its MORITM source technology to
Lam Research Corporation ("Lam Research"). Under the terms of the agreement, Lam
Research may pay up to $5 million in future royalties contingent upon adopting
the licensed technology. The license agreement with Lam Research does not
preclude Trikon from utilizing, or licensing to third parties, the licensed
technology.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents represent short-term investments that are highly liquid,
are of limited credit risk and have original maturities of three months or less
when purchased.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist of the following at December 31:
F-8
TRIKON TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
December 31, 1999
1999 1998
----------------------------
(In thousands)
Components $ 3,614 $ 4,060
Work-in-process 13,840 11,015
Finished goods 1,802 1,162
----------------------------
$19,256 $16,237
============================
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets (5 years) or the lease term. Owned
buildings are depreciated using the straight-line method over 50 years.
Demonstration Systems
Demonstration or evaluation systems are completed systems located at
certain strategic customer sites ("beta sites") or at the Company's facilities.
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 required specifications, management
expects that the customer, while not obligated to do so, will purchase the
system. Demonstration systems are stated at the lower of cost or estimated net
realizable value and are depreciated on a straight line method over four years,
if the product is not sold after one year.
Intangible Assets
Financing costs consists of costs incurred primarily related to the
issuance of the convertible subordinated notes and in obtaining the working
capital facility. Financing costs are amortized over the term of the related
credit facility using the effective interest method. In connection with the
Exchange Offer (Note 4), approximately $1,916,000 of costs relating to the
issuance of the Convertible Subordinated Notes accepted in the exchange were
charged against the extraordinary gain arising on exchange (Note 5).
Other intangible assets consist primarily of patents and are amortized on a
straight line basis over 5 years.
The Company periodically reviews intangible assets for impairment in value.
Intangible assets are reflected net of accumulated amortization of $85,000 at
December 31, 1999.
Accounting for Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under SFAS No. 109, the liability method is used in
accounting for income taxes.
Research and Development Costs
Research and development costs are expensed as incurred.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with
Accounting Principles Board Opinion (APB) No. 25 "Accounting for Stock Issued to
Employees" which generally measures compensation expense based on the excess of
the quoted market price of the Company's Common Stock over the option price on
the measurement date. In October 1995, SFAS No. 123 "Accounting for Stock Based
Compensation" was issued. SFAS No. 123 provides alternative accounting treatment
to APB No. 25 with respect to
F-9
TRIKON TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
December 31, 1999
stock-based compensation and requires certain additional disclosures, including
disclosures if the Company elects not to adopt the accounting requirements of
SFAS No. 123. The Company has adopted the disclosure requirements of SFAS No.
123 and has elected to continue to measure compensation costs following present
accounting rules under APB No. 25, and, accordingly, recognizes no compensation
for the stock option grants, since the exercise price of stock options granted
equals the quoted market price of the underlying stock at the date of grant.
Earnings (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. The following
table sets forth the computation of basic and diluted earnings (loss) per share
(in thousands, except per shares amounts).
1999 1998 1997
(In thousands)
Numerator:
Net income (loss) before extraordinary item......... $ 4,574 $(12,228) $(99,277)
Extraordinary item -- 20,293 --
----------------------------------
Net income after extraordinary item 4,574 8,065 (99,277)
Dividend applicable to Preferred Stock.............. 2,490 1,486 --
----------------------------------
Net income (loss) applicable to common shares $ 2,084 $ 6,579 $(99,277)
==================================
Denominator:
For basic earnings (loss) per share
Weighted average shares outstanding................. 9,403 6,496 1,480
Restricted shares................................... (1,149) (727) --
----------------------------------
8,254 5,769 1,480
----------------------------------
For diluted earnings (loss) per share...............
Adjusted weighted average shares outstanding 8,254 5,769 1,480
Employee stock options.............................. 339 -- --
Series G Preferred Stock conversion................. -- 109 --
----------------------------------
8,593 5,878 1,480
==================================
Basic earnings (loss) per share for the years ended December 31, 1999 and
1998 exclude the effect of 1,149,281 restricted shares of common stock which are
contingently issuable to the Company's Chairman of the Board. Diluted earnings
per share for the years ended December 31, 1999 and December 31, 1998 exclude
the effects of the restricted shares issued to the Company's Chairman of the
Board because under the treasury stock method these shares are anti-dilutive.
The calculation of diluted earnings per share for the year ended December 31,
1998 assumes that the Series G Preferred Stock was converted into 296,204 shares
of Common Stock as of January 1, 1998 under the if-converted method.
The number of shares used in the denominator for each year has been
adjusted to reflect the one for ten reverse stock split effected on December 17,
1999.
Comprehensive Income
Comprehensive income (loss) comprises net income (loss) and currency
translation adjustment for the year. Translation adjustments were $(1.4
million), $(6,000) and $(2.2 million) during the years ended December 31, 1999,
1998 and 1997 and total comprehensive income (loss) amounted to $3.1 million,
$8.1 million, and $(101.4 million) for the same years respectively.
F-10
TRIKON TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
December 31, 1999
Foreign Currency Translation
The functional currency of most of the Company's foreign subsidiaries is
the local currency. The Company translates the assets and liabilities of its
foreign subsidiaries at the rate of exchange in effect at the balance sheet date
and translates the income statement items at the average exchange rate for the
year. Translation adjustments are recorded as a component of shareholders'
equity in the consolidated balance sheet. Transaction gains and losses, other
than those that relate to transactions deemed to be of a long- term nature, are
recognized in earnings. During the years ended December 31, 1999 and 1998, the
exchange gains credited to selling, general and administrative costs were
$149,000 and $639,000 respectively. During the year ended December 31, 1997, the
exchange loss charged to earnings amounted to $667,000.
2. RESTRUCTURING AND IMPAIRMENT WRITE-DOWNS
Restructuring
In the second half of 1997, the Company began a restructuring of its
operations which included the closure of its Mori etch operations located in
Chatsworth, California. The costs of the restructuring which were charged to
operations in the year ended December 31, 1997 were estimated to be $18.3
million. Of this amount, $11.5 million related to reserves for the cost of sales
returns which might arise as a result of the Company's decision to substantially
exit the MORI etch business. During the year ended December 31, 1999 the Company
completed negotiations concerning the return of equipment and, as a result, the
reserve for the cost of sales returns has been reduced by $4.1 million. The
Company has made payments in respect of sales returns of $3.0 million during
the year ended December 31, 1999 and the balance of the reserves at December 31,
1999 remains the Company's estimate of the outstanding liability for Mori etch
product returns.
At June 30, 1998, the Company set up an additional reserve of $1.8 million
for future support costs relating to MORI equipment supplied to customers
prior to the commencement of the restructuring. During the year ended December
31,1999, support costs of $0.4 million relating to MORI equipment have been
charged against this reserve, in line with Company estimates.
Impairment Write-downs
During the year ended December 31, 1997, in connection with the closure of
the Chatsworth Etch operations and the sale of the MORITM Source and
Forcefill(R) PVD licenses, the Company recorded non cash related charges of
approximately $32.5 million for the write-off of certain accounts receivable,
inventory and long-lived assets which due to the sale of the licenses and the
decision to close the facility have become impaired. The inventory write-downs
amounted to $20.7 million and were charged to cost of goods sold and the
remaining write-offs are included in impairment losses on the accompanying
statement of operations. In addition, based on recent and projected operating
results, the Company evaluated its long-lived assets, principally the intangible
assets established in the acquisition of Trikon Limited, for impairment under
SFAS No. 121. The carrying amount of these assets exceeded the projected
undiscounted future cash flows, and accordingly, the carrying amount was written
down to fair value. Fair value was determined based on an analysis of the
projected future discounted cash flows of the underlying operations, including
cash generated from the disposal of underlying assets, which resulted in a near
zero valuation of these assets. A write-off of $32.3 million was recorded and
included in impairment losses in the accompanying statement of operations.
The impairment write-downs, excluding inventory write-downs of $20.7
million recorded in cost of goods sold, reflected in the statement of operations
consisted of the following non-cash related charges:
F-11
TRIKON TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
December 31, 1999
Amount
--------------
(In thousands)
Accounts receivable........... $ 1,141
Property plant and equipment.. 10,228
Other assets.................. 440
Developed technology.......... 27,106
Assembled workforce........... 4,947
Covenant not to compete....... 273
-------
$44,135
=======
4. EXCHANGE OFFER
On April 14, 1998, the Company commenced an exchange offer (the "Exchange
Offer") for all outstanding Convertible Subordinated Notes (the "Convertible
Notes"), and Series G Preferred Stock and Warrants, and filed a Schedule 13E-4
with the Securities and Exchange Commission. The Exchange Offer expired on May
14, 1998, and immediately thereafter, the Company accepted for exchange or
conversion all validly tendered Convertible Subordinated Notes, series G
Preferred Stock and Warrants. (See Notes 7 and 8.)
In connection with the consummation of the Exchange Offer, the Company
issued 1,149,281 shares of restricted Common Stock to the Company's Chairman of
the Board. Subject to certain conditions, the restricted Stock will vest one
hundred percent (100%) upon the earlier of (i) May 14, 2003, or (ii) the sale of
all or substantially all of the assets of the Company. The restricted Stock
represents approximately 11% of the outstanding Common Stock (after giving
effect to the elimination of the restrictions on the Stock). The restricted
Stock was valued at $7.6 million based upon average traded prices immediately
after the grant. This amount has been accounted for as an addition to Common
Stock and as deferred compensation within the Statement of Shareholders Equity.
The deferred compensation is being amortized on a straight line basis over a
five year period resulting in a charge against operations of $1.5 million during
the year ended December 31, 1999.
5. EXTRAORDINARY GAIN
On May 14, 1998, the Company accepted for exchange $82.1 million principal
amount of Convertible Notes tendered in the Exchange Offer (See Note 4). The
Convertible Notes were exchanged for 519,255 shares of Common Stock and
2,855,754 Series H Preferred Stock. The shares of Common Stock and equivalents
had an average value of $6.60 each following the exchange. The extraordinary
gain arising on the exchange is as follows (in thousands):
Principal amount of Convertible Notes exchanged $ 82,103
Interest waived 3,635
------------
85,738
Value of Common Stock and equivalents issued (34,271)
Series H Preferred Stock issued - principal amount (28,558)
Convertible Note issuance costs written off (1,916)
Costs relating to the exchange offer (700)
------------
Gain on exchange of Convertible Notes $ 20,293
============
F-12
TRIKON TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
December 31, 1999
6. FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES
Year Ended December 31
------------------------------------------
1999(1) 1998(2) 1997(3)(4)
------------------------------------------
(In thousands)
Revenues:
Unaffiliated Customers
North America(1)(2)(3).............................. $17,027 $ 18,704 $ 45,946
Foreign (primarily Europe)(3)....................... 33,480 19,421 39,163
Inter-geographic:
North America....................................... 314 169 653
Foreign (primarily Europe).......................... 9,193 2,645 16,382
Eliminations........................................ (9,507) (2,814) (17,035)
------------------------------------------
$50,507 $ 38,125 $ 85,109
==========================================
Operating income (loss):
North America(1)(2)(3).............................. $ 4,328 $ 9,421 $(50,991)
Foreign (primarily Europe)(3)....................... 537 (21,137) (46,140)
------------------------------------------
$ 4,865 $(11,716) $(97,131)
==========================================
Identifiable assets:
United States....................................... $ 5,184 $ 4,029 $ 15,893
Foreign (primarily Europe).......................... 52,094 51,723 63,797
------------------------------------------
$57,278 $ 55,752 $ 79,690
==========================================
Export Sales from the United States.................... $ 500 $ 250 $ 187
==========================================
(1) The year to December 31, 1999 includes $2.1 million of license revenues.
(2) The year to December 31, 1998 includes $13 million of license revenues.
(3) Included in North America and Foreign revenues in the year to December 31,
1997 is $19.5 million and $10.0 million, respectively, of revenues under
the MORI source and the Forcefill PVD license agreements.
(4) The North America operating loss for the year ended December 31, 1997
includes a restructuring charge of $18.3 million and asset impairment
write-downs of $28.2 million, including inventory write downs of $16.4
million. The foreign operating loss for the year ended December 31, 1997
includes impairment write downs of $36.6 million, including inventory write
downs of $4.3 million.
7. LONG-TERM DEBT
Convertible Notes
The Company has in issue $4,147,000 of Convertible Notes. The Convertible
Notes bear interest at 7-1/8% which is payable semi-annually on April 15 and
October 15. The Convertible Notes mature on October 15, 2001, and are unsecured
obligations of the Company and are subordinated in right of payment to all
existing and future debt (as defined) of the Company. The Notes are convertible,
at the option of the holder, into shares of Common Stock at a conversion price
of $156.35 per share, subject to adjustment in certain events.
In the first quarter of fiscal 2000, the Company exchanged $1.0 million of
Convertible Notes and accrued interest thereon for 84,456 shares of Common
Stock.
F-13
TRIKON TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
December 31, 1999
8. PREFERRED STOCK AND WARRANTS
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. The Board has
authorized the issue of up to 3.5 million shares of Series H Preferred Stock.
In conjunction with the Exchange Offer, the Company issued 2,855,754 new
shares of Series H Preferred Stock, $10 stated amount per share. The Series H
Preferred Stock will be redeemable at the option of the Company for cash at a
redemption price equal to the stated amount plus accrued and unpaid dividends
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 semiannually
on October 15 and April 15, in cash or additional shares of Preferred Stock or
any combination thereof at the option of the Company. The Series H Preferred
Stock will be subject to automatic conversion if the Company's Common Stock
price reaches certain levels and increased dividend rate if certain EBITDA
levels are achieved. If the Company has not redeemed all of the outstanding
Series H Preferred Stock on or prior to June 30, 2001, then the holders of
Series H Preferred Stock shall be entitled to elect the number of directors that
will constitute a majority of the Board of Directors. Dividends due to holders
of Series H Preferred Stock during 1999 and 1998 totaling $2,448,100 and
$973,238 were paid by the issue of 244,824 and 97,320 new shares of Series H
Preferred Stock respectively.
In the first quarter of fiscal 2000, the Company exchanged 1,596,339
shares of Series H Preferred Stock plus accrued dividend for 1,144,932 shares of
Common Stock.
Warrants:
In conjunction with the initial issue of Convertible Notes referred to in
Note 7, warrants (the Note Purchase Agreement Warrants) to acquire up to 24,510
shares of Common Stock with an exercise price of $127.5 per share were issued.
The Note Purchase Agreement Warrants vested 50% upon the execution of the Note
Purchase Agreement and 50% upon funding of borrowings under the Note Purchase
Agreement. No borrowings were ever funded under the Note Purchase Agreement and,
accordingly, warrants to purchase 12,255 shares of Common Stock are exercisable.
All such warrants expire on December 16, 2001. The Company has not assigned any
value to the warrants that are currently exercisable, because such amounts are
not significant to the financial statements.
On June 30, 1997, in conjunction with the issue of an amended Working
Capital Facility agreement, the Company issued to the lending Banks, and their
administrative agents, warrants to purchase an aggregate of 17,818 shares of
Common Stock at an exercise price of $67.50 per share. The warrants expired
unexercised on November 16, 1999.
At December 31, 1999, the following warrants were outstanding:
Number Shares Exercise
Warrant of Shares Exercisable Price Expiration Date
------- ---------------------------------------------------------------------------
Note Purchase Agreement Warrants............ 24,510 12,255 $ 127.5 October 7, 2001
F-14
TRIKON TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
December 31, 1999
10. INCOME TAXES
The income tax provision (benefit) consists of the following:
Year Ended December 31
---------------------------------------------
1999 1998 1997
---------------------------------------------
(In thousands)
Current:
Federal............................................. $ --- $ --- $ --
State............................................... 53 --- --
Foreign............................................. 47 (1,821) --
---------------------------------------------
100 (1,821) --
Deferred:
Foreign............................................. --- --- (9,248)
---------------------------------------------
Total deferred provision (benefit).................. $ --- $(1,821) $(9,248)
=============================================
A reconciliation of the statutory federal income tax rate, as a percentage of income (loss) before
tax, is as follows:
Year Ended December 31
---------------------------------------------
1999 1998 1997
---------------------------------------------
(In thousands)
Statutory federal income tax rate--provision
(benefit)........................................... 35% (35)% (35)%
Change in valuation reserve due to net
operating loss carryforwards not utilized........... (33) 22 26
---------------------------------------------
2% (13)% (9)%
=============================================
F-15
TRIKON TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
December 31, 1999
Significant components of the Company's deferred tax liabilities and assets
are as follows at December 31:
1999 1998 1997
(in thousands)
Deferred Tax liabilities
Domestic:
State taxes not benefited............................. -- -- $1,603
Tax depreciation in excess of book depreciation....... -- -- 38
Foreign:
Tax depreciation in excess of book.................... 901 1,236 --
----------------------------------------------
901 1,236 1,641
Deferred tax assets:
Domestic:
State taxes 248 172 --
Allowances not currently deductible for tax purposes.. 482
Accrued expenses not currently deductible for tax pur-
poses................................................ -- -- 11
Net operating loss carryforwards...................... 4,069 3,902 12,121
Foreign tax credit carryforwards...................... -- -- 285
Research and development and other credits............ -- -- 1,770
Inventory write-downs................................. -- -- 10,598
Restructuring costs................................... -- -- 7,044
Foreign:
Allowances and accruals not currently deductible for
tax purposes......................................... 6,350 7,022 --
----------------------------------------------
10,667 11,096 32,311
Less valuation reserve on domestic deferred tax assets.... 9,766 9,860 30,670
----------------------------------------------
Net deferred tax assets................................... 901 1,236 1,641
----------------------------------------------
Net deferred tax liabilities.............................. $-- $-- $--
==============================================
The income tax benefit for the year ended December 31, 1997 includes a
benefit of $9,248,000, representing the reversal of a deferred tax liability as
a result of the impairment write-down of certain long-lived intangible assets
established in connection with the acquisition of Trikon Limited in November
1996.
The income (loss) before income taxes of the Company's foreign subsidiaries
for the years ended December 31, 1999, 1998 and 1997 was approximately $633,000,
$(20,668,000) and $(47,865,000) respectively.
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of approximately $11 million and $4 million respectively. The
net operating loss carryforwards will expire at various dates beginning in years
2003 through 2018, if not utilized. Foreign loss carryforwards amounted to
approximately $19 million and may be carried forward indefinitely against future
income originating from the same sources.
Utilization of the net operating losses and credits is subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1996 and similar state provisions. The annual
limitation may result in the expiration of net operating losses before
utilization.
11. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
United States 401(k)
In November 1993, the Company established a 401(k) plan (the Plan) covering
substantially all of its United States employees. The Plan allows eligible
employees to contribute up to 15% of their compensation.
F-16
TRIKON TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
December 31, 1999
Company contributions are voluntary and at the discretion of the Board of
Directors. There were no contributions made by the Company for the years ended
December 31, 1999, 1998, and 1997.
United Kingdom Pension Plan
The group operates a pension plan known as "The Electrotech Retirements
Benefits Scheme," (the Plan), which undertakes to provide retirement benefits to
participating employees based upon their final pensionable salary. The assets of
the Plan are administered by the Trustees and are separate from those of the
Company.
Information required in respect of the net periodic benefit cost and
related obligation determined in accordance with US Statements of Financial
Accounting Standards 87 and 132 is given below.
Benefits under the pension plan are principally determined by years of
service and employee remuneration.
Pension plan funding policy is based on annual contributions at a rate that
is intended to fund benefits as a level percentage of pay over the working
lifetime of the plan participants. The assets of the scheme are invested
primarily in equities, UK fixed interest stocks and property.
There are no other post-retirement benefits provided to employees.
Assumptions used to determine the net periodic benefit cost for the 1999
and 1998 financial years and related benefit obligation are shown below.
1999 1998
Discount rate 6.00% 7.00%
Long term rate of return on plan assets 7.75% 8.50%
Increase in compensation levels 5.50% 6.00%
The actuarial calculations in respect of the plan assume a rate of increase
of pensions in payment of 3.5% per cent per annum (1998 - 4% per annum).
The components of net benefit expense are detailed in the table below.
1999 1998 1997
$'000s $'000s $'000s
Service cost 331 400 367
Interest cost on benefit obligation 731 802 710
Expected return on plan assets (561) (532) (498)
Net amortization and deferral:
- - recognized (gains) and losses 30 37 --
--------------------------------------
Net benefit expense 531 707 579
======================================
F-17
TRIKON TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
December 31, 1999
The funded status of the plan is summarized in the table below.
1999 1998
$ '000 $ '000
------- -------
Benefit obligation at end of year 12,733 12,312
Fair value of plan assets 9,343 7,037
-----------------------------
Benefit obligation in excess of plan assets 3,390 5,275
Unrecognized prior service cost 0 0
Unrecognized net loss 101 1,514
-----------------------------
Net amount recognized at end of year 3,289 3,761
=============================
Change in benefit obligation
1999 1998
$ '000 $ '000
------- -------
Benefit obligation at start of year 12,312 11,116
Translation difference (363) 135
Service cost 331 400
Interest cost 731 802
Contributions by plan participants 83 93
Actuarial (gains) and losses (290) (134)
Benefits (paid) (71) (100)
Plan amendments 0 0
-----------------------------
Benefit obligation at end of year 12,733 12,312
=============================
Change in plan assets
1999 1998
$ '000 $ '000
------- -------
Fair value of plan assets at start of year 7,037 5,922
Translation difference (219) 72
Actual return (loss) on plan assets 1,758 487
Contributions by plan participants 83 93
Contributions by employer 755 563
Benefits (paid) (71) (100)
-----------------------------
Fair value of plan assets at end of year 9,343 7,037
=============================
The group also makes contributions to a Group Personal Pension plan for
employees who are not members of the final salary plan. Total contributions to
the Group Personal Pension plan for the year ended December 31, 1999 and 1998
amounted to $277,000 and $315,000 respectively.
F-18
TRIKON TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
December 31, 1999
12. COMMITMENTS AND CONTINGENCIES
Leases:
The Company leases certain equipment under capital leases. The Company also
leases its offices, manufacturing facilities and certain equipment under
noncancelable operating lease agreements. Certain leases are subject to
escalation clauses based on applicable inflation indexes.
Cost of equipment under capital leases included in property and equipment
at December 31, 1999 and 1998 was $254,000 and $965,000, and accumulated
amortization was $76,000 and $451,000, respectively. Amortization expense under
these leases is included in depreciation expense.
Future minimum lease payments under capital leases and noncancelable
operating leases with initial terms of one year or more consisted of the
following at December 31, 1999:
Capital Operating
Leases Leases
------------------------------------
(In thousands)
2000.................................................................. 93 1,457
2001.................................................................. 4 1,294
2002.................................................................. -- 1,268
2003.................................................................. -- 1,223
2004.................................................................. 1,177
-------------------------------
97 6,419
==================
Less amounts representing imputed interest............................ 11
-------------
Present value of net minimum lease payments, including
amounts classified as current......................................... $86
=============
Rental expense for operating leases was $1.6 million, $1.8 million and $1.5
million for the years ended December 31, 1999, 1998, and 1997, respectively.
Contingencies:
In the ordinary course of business and in connection with the Company's
restructuring, the Company is involved with various types of claims and legal
proceedings which may result in litigation or other legal proceedings. The
Company does not anticipate that any of these proceedings will have a material
adverse effect on the Company's financial position, cash flow or results of
operations.
13. FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, cash
equivalents, accounts receivable, accounts payable, capital lease obligations,
and the convertible subordinated notes. The carrying amounts at December 31,
1999 of these financial instruments approximates their fair value, except for
the convertible subordinated notes for which the fair market value was below
face value.
Major Customers and Concentration of Credit Risk
Accounts receivable consist primarily of amounts due from original
equipment manufacturers, end use customers, and distributors within the
Company's industry. At December 31, 1999 three customers represented 21%, 19%,
and 16% of the total accounts receivable. At December 31, 1998, four customers
represented 20%, 15%, 14% and 13%, respectively, of the Company's total accounts
receivable.
F-19
TRIKON TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
December 31, 1999
The Company performs credit evaluations and analysis of amounts due from
its customers; however, the Company does not require collateral. Credit losses
have been within management's expectations and an estimate of uncollectible
accounts has been provided for in the financial statements.
Total revenue includes amounts from certain individual customers that
exceed 10% of total revenue. Revenue from three customers represented 23%, 11%
and 10% each of total revenue for the year ended December 31, 1999, revenue from
two customers represented 40% and 15% each of the total revenue for the year
ended December 31, 1998 and revenue from two customers represented 35% and 13%
each of total revenue for the year ended December 31, 1997.
14. REVENUE BY GEOGRAPHIC AREA
The Company's revenue by geographic area approximated the following:
Year Ended December 31
-------------------------------------------
1999 1998 1997
-------------------------------------------
(In thousands)
United States.......................................................... $17,027 $18,339 $53,433
Europe................................................................. 31,201 17,900 25,087
Asia Pacific (primarily Japan and Korea)............................... 2,279 1,886 6,589
-------------------------------------------
Total.................................................................. $50,507 $38,125 $85,109
===========================================
15. STOCK OPTIONS
In October 1996, the Company changed its "Non-Qualified" Employee Option
Plan to an Incentive Stock Option Plan (the Option Plan) on a go forward basis.
At the Annual Meeting of Shareholders held on June 14, 1999, the number of
shares of Common Stock reserved for issuance under the option plan was increased
from 887,000 to 1,050,000. The Company also has a Directors Plan that provides
for the issue of up to 50,000 shares of Common Stock to Non-Employee Directors.
The Option Plan provides options to purchase shares of the Company's Common
Stock for officers, directors, and key employees, at an exercise price equal to
the fair market value on the date of grant as determined by the Board of
Directors. The shares issued under the Option Plan shall become vested over
periods up to five years and have a maximum term of ten years. A summary of the
changes in the status of options is as follows:
Weighted
Average
Options Price Range Per Price
Outstanding Share Per Share
--------------------------------------------------------------
Outstanding at January 1, 1997.............. 95,400 10.5 - 147.50 76.30
Granted..................................... 127,700 70.0 - 122.50 109.20
Cancelled................................... (50,200) 10.5 - 147.50 93.80
Exercised................................... (15,000) 10.5 - 88.80 17.80
-----------
Outstanding at December 31, 1997............ 157,900 10.5 - 147.50 101.60
Granted..................................... 546,200 0.50 - 14.38 6.90
Cancelled................................... (399,700) 6.30 - 147.50 44.30
Exercised.................................. --
------------
Outstanding at December 31, 1998............ 304,400 0.50 - 14.38 5.90
Granted..................................... 473,046 0.31 - 13.75 16.80
Cancelled................................... (21,192) 1.33 - 14.38 8.54
Exercised................................... --
------------
Outstanding at December 31, 1999............ 756,254 $0.31 - $ 14.38 $ 3.38
============
F-20
TRIKON TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
December 31, 1999
At December 31, 1999, 1998 and 1997, 178,000, 17,500, and 30,200 shares
were exercisable at weighted-average prices of $4.78, $14.40, and $77.70,
respectively. There were 290,000 Option shares available for grant under the
Option Plan and 26,600 under the Directors Plan at December 31, 1999.
Information regarding stock options outstanding as of December 31, 1999 is
as follows:
Price Range Options Outstanding Options Exercisable
----------- ------------------- -------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Shares Exercise Price Contractual Life Shares Exercise Price
- ------ -------------- ---------------- ------ --------------
From $0.31 to $14.38........................ 3.38 8.9 178,000 4.78
Fair Value Disclosure
SFAS No. 123, Accounting for Awards of Stock-Based Compensation to
Employees requires the use of option valuation models to provide supplemental
information regarding options granted after 1994. Pro forma information
regarding net income (loss) and earnings per share shown below was determined as
if the Company had accounted for its employee stock options under the fair value
method of that statement.
The fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998, and 1997, respectively: Risk-free interest rates of
6.7%, 5.5%, and 6.0%; a zero dividend yield in all three years; volatility
factors of the expected market price of the Company's Common Stock of 158.1%,
378.1% and 65.7% and an expected life of the options of 4.6 years, 7.0 years and
5.5 years. These assumptions resulted in weighted-average fair values of $3.06,
$5.90, and $68.50 per share for stock options granted in 1999, 1998, and 1997,
respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options. The Company's employee stock
options have characteristics significantly different from those of traded
options such as vesting restrictions and extremely limited transferability. In
addition, the assumptions used in option valuation models (see above) are highly
subjective, particularly the expected stock price volatility of the underlying
stock. Because changes in these subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting periods. The Company's pro forma
information is as follows:
F-21
- --------------------------------------------------------------------------------------------------------------------
Years ended December 31
1999 1998 1997
Pro forma net income (loss).............................. $4,103,000 $7,681,000 $(100,946,000)
Pro forma earnings (loss) per common share:
Basic:
Income (loss) applicable to common shares before
extraordinary item $ 0.20 $ (2.45) $ (68.21)
Extraordinary item --- 3.52 ----
-----------------------------------------------------
Net income (loss) $ 0.20 $ 1.07 $ (68.21)
-----------------------------------------------------
Diluted:
Income (loss) applicable to common shares before
extraordinary item $ 0.19 $ (2.40) $ (68.21)
Extraordinary item -- 3.45 --
-----------------------------------------------------
Net income (loss) $ 0.19 $ 1.05 $ (68.21)
=====================================================
F-22
TRIKON TECHNOLOGIES, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1999, 1998 and 1997
Additions Deductions
----------------------------------------------------------
Description Balance at Charged Charged to Other Amount Charged Balance at
Beginning of (Credited) to Accounts to Reserve Net End of
Period Costs and Expenses of Reinstatement Period
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999 asset $2,539,000 $(1,145,000) $ -- $1,349,000 $ 46,000
accounts:
Allowance for doubtful items
Year ended December 31, 1998 asset $2,657,000 $ -- $ -- $ 118,000 $2,539,000
accounts:
Allowance for doubtful items
Year ended December 31, 1997 asset $4,732,000 $ 1,773,000 $ -- $3,848,000 $2,657,000
accounts:
Allowance for doubtful items