<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
FOR THE QUARTERLY PERIOD COMMISSION FILE
ENDED NUMBER:
SEPTEMBER 30, 1997 0-20839
</TABLE>
------------------------
DUPONT PHOTOMASKS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 74-2238819
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification No.)
Organization)
</TABLE>
100 TEXAS AVENUE
ROUND ROCK, TEXAS 78664
(Address of principal executive offices)
Registrant's telephone number, including area code: 512-310-6559
------------------------
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. Yes /X/ No / /
As of October 21, 1997, there were 15,165,081 shares of the registrant's
common stock, $.01 par value, outstanding.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I
Item 1. Financial Statements
Income Statement for the Three Months Ended September 30, 1996 and 1997............................ 3
Balance Sheet at June 30, 1997 and September 30, 1997.............................................. 4
Statement of Cash Flows for the Three Months Ended September 30, 1996 and 1997..................... 5
Notes to Financial Statements...................................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 7
PART II
Item 1. Legal Proceedings............................................................................. 10
Item 2. Changes in Securities......................................................................... 10
Item 3. Defaults Upon Senior Securities............................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders........................................... 10
Item 5. Other Information............................................................................. 10
Item 6. Exhibits and Reports on Form 8-K.............................................................. 10
Signatures..................................................................................... 11
</TABLE>
2
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DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
INCOME STATEMENT
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Sales..................................................... $ 64,244 $ 68,809
Cost of goods sold........................................ 39,756 44,172
Selling, general and administrative expense............... 8,310 7,878
Research and development expense.......................... 2,438 3,271
------------ ------------
Operating profit.......................................... 13,740 13,488
Interest income........................................... (200 ) (377)
Exchange loss............................................. 304 175
------------ ------------
Income before income taxes and minority interest.......... 13,636 13,690
Provision for income taxes................................ 4,773 4,791
------------ ------------
Income before minority interest........................... 8,863 8,899
Minority interest in loss of majority owned joint
venture................................................. (152 ) (304)
------------ ------------
Net income................................................ $ 9,015 $ 9,203
------------ ------------
------------ ------------
Earnings per share........................................ $ 0.58 $ 0.58
------------ ------------
------------ ------------
Weighted average shares outstanding....................... 15,445,651 15,785,769
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1997
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<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................ $ 51,351 $ 40,079
Accounts receivable, trade........................................................... 38,973 39,841
Accounts receivable, related parties................................................. 3,670 3,630
Inventories.......................................................................... 15,651 15,227
Deferred income taxes................................................................ 3,351 3,643
Prepaid expenses and other current assets............................................ 8,711 7,119
---------- -------------
Total current assets............................................................... 121,707 109,539
Property and equipment................................................................. 162,310 177,536
Accounts receivable, related parties................................................... 1,746 1,625
Deferred income taxes.................................................................. 2,386 2,395
Other assets........................................................................... 3,430 3,179
---------- -------------
Total assets....................................................................... $ 291,579 $ 294,274
---------- -------------
---------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade.............................................................. $ 27,207 $ 18,795
Accounts payable, related parties.................................................... 4,889 4,859
Short-term borrowings................................................................ 1,845 2,143
Income taxes payable................................................................. 1,295 4,406
Other accrued liabilities............................................................ 20,389 17,644
---------- -------------
Total current liabilities.......................................................... 55,625 47,847
Long-term borrowings................................................................... 10,473 10,030
Deferred income taxes.................................................................. 6,300 6,601
Other liabilities...................................................................... 2,597 2,600
Minority interest in net assets of majority owned joint venture........................ 687 383
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 25,000,000 shares authorized;
15,104,568 and 15,161,008 issued and outstanding................................... 151 152
Additional paid-in capital........................................................... 156,742 158,454
Retained earnings.................................................................... 59,004 68,207
---------- -------------
Total liabilities and stockholders' equity......................................... $ 291,579 $ 294,274
---------- -------------
---------- -------------
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1997
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................................... $ 9,015 $ 9,203
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization.......................................................... 6,282 7,569
Other.................................................................................. (444) (119)
Cash provided (used) by changes in assets and liabilities:
Accounts receivable.................................................................. (1,045) (978)
Inventories.......................................................................... (3,176) 417
Prepaid expenses and other current assets............................................ 600 1,616
Accounts payable..................................................................... 2,256 8,810
Other accrued liabilities............................................................ 4,583 1,209
--------- ----------
Net cash provided by operating activities.......................................... 18,071 27,727
--------- ----------
Cash flows from investing activities:
Capital expenditures..................................................................... (5,362) (39,689)
--------- ----------
Net cash used in investing activities.............................................. (5,362) (39,689)
--------- ----------
Cash flows from financing activities:
Decrease in borrowings................................................................... (167) (58)
Net proceeds from issuance of common stock............................................... 958
--------- ----------
Net cash provided by (used in) financing activities................................ (167) 900
--------- ----------
Effect of exchange rate changes on cash.................................................... (439) (210)
--------- ----------
Net increase (decrease) in cash and cash equivalents....................................... 12,103 (11,272)
Cash and cash equivalents at beginning of period........................................... 20,179 51,351
--------- ----------
Cash and cash equivalents at end of period................................................. $ 32,282 $ 40,079
--------- ----------
--------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE>
DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of DuPont
Photomasks, Inc. and its subsidiaries (the Company) have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements should be
read in conjunction with the audited financial statements and accompanying notes
thereto included in the Company's 1997 Annual Report on Form 10-K. The unaudited
interim financial statements include all adjustments, consisting only of normal
recurring adjustments, which management considers necessary for the fair
presentation of the interim periods. Results for interim periods are not
necessarily indicative of results for the year.
NOTE 2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1997
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<S> <C> <C>
Raw materials and supplies.......................................... $ 13,122 $ 12,297
Work-in-process..................................................... 902 1,035
Finished product.................................................... 1,627 1,895
--------- -------------
Inventories....................................................... $ 15,651 $ 15,227
--------- -------------
--------- -------------
</TABLE>
NOTE 3. COMMITMENTS AND CONTINGENCIES
The Company has various purchase commitments incident to the normal course
of business including non-refundable deposits to purchase equipment. In the
aggregate, such commitments are not at prices in excess of current market. The
Company is subject to litigation in the normal course of business. Management
believes the effect, if any, of an unfavorable settlement of such litigation
would not have a material adverse effect on the financial position, results of
operations, cash flows or liquidity of the Company.
NOTE 4. RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the 1998
presentation.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations should be read in conjunction with the financial statements of the
Company and the related notes thereto. Results for interim periods are not
necessarily indicative of results for the year.
RESULTS OF OPERATIONS
SALES
Sales are comprised primarily of photomask sales to semiconductor
manufacturers. Sales increased 7.1% from $64.2 million in the quarter ended
September 30, 1996 to $68.8 million in the quarter ended September 30, 1997.
Sales in North America and Asia increased from $35.4 million and $13.5 million
in the quarter ended September 30, 1996 to $39.4 million and $14.9 million in
the quarter ended September 30, 1997. Sales in Europe decreased from $15.3
million in the quarter ended September 30, 1996 to $14.5 million in the quarter
ended September 30, 1997. Sales and sales growth in the quarter ended September
30, 1997 were adversely impacted by the strength of the U.S. Dollar. A continued
increase in the demand for advanced photomasks, which have higher average
selling prices, was a primary contributor to the overall increase in sales
during this period. This shift in demand reflects what the Company believes to
be a continued trend toward higher utilization of complex semiconductor devices
with finer line-widths.
COST OF GOODS SOLD
Cost of goods sold consists of material, labor, depreciation and overhead.
Cost of goods sold increased 11.1% from $39.8 million in the quarter ended
September 30, 1996 to $44.2 million in the quarter ended September 30, 1997
resulting primarily from higher costs associated with increased sales. As a
percentage of sales, cost of goods sold increased from 61.9% in the quarter
ended September 30, 1996 to 64.2% in the quarter ended September 30, 1997. The
percentage of sales increase was primarily due to costs related to new
facilities and costs related to continued capacity expansions at existing
facilities. As the Company adds capacity to position itself for future growth,
it will incur additional costs related to new facilities and costs related to
capacity expansions at existing facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense includes salaries of sales
personnel, marketing expense, general and administrative expense and product
distribution expense. Since January 1, 1996, general and administrative expense
includes fees incurred by the Company under administrative services agreements
with DuPont and certain DuPont subsidiaries. Selling, general and administrative
expense as a percentage of sales decreased from 12.9% in the quarter ended
September 30, 1996 to 11.4% in the quarter ended September 30, 1997. Selling,
general and administrative expense decreased 5.2% from $8.3 million in the
quarter ended September 30, 1996 to $7.9 million in the quarter ended September
30, 1997.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense consists primarily of employee costs, cost
of material consumed, depreciation, engineering related costs and the Company's
share of costs of the limited liability company discussed below. Research and
development expense increased from $2.4 million in the quarter ended September
30, 1996 to $3.3 million in the quarter ended September 30, 1997. The increase
was due primarily to the Company's joint venture participation with Advanced
Micro Devices, Micron Technology and Motorola in a limited liability company
called the DPI Reticle Technology Center, L.L.C. ("RTC") which was formed to
develop advanced photomask technology and pilot line fabricate leading edge
photomasks. The Company believes that, through its participation in the RTC, it
will be able to help meet
7
<PAGE>
the future technology needs of the semiconductor industry for advanced
photomasks. There can be no assurance that the RTC will yield results that are
favorable to the Company.
Research and development expense is net of funds the Company received from
customers, industry groups such as SEMATECH and the Joint European Submicron
Strategic Initiative and government sources. The Company anticipates that
research and development expense will continue to increase in absolute terms in
the future reflecting the Company's strategy of advancing its technological
leadership. However, there can be no assurance that such expenditures will
enable the Company to develop new technologies or to maintain its technological
leadership.
INTEREST INCOME
Interest income was $0.2 million in the quarter ended September 30, 1996 and
$0.4 million in the quarter ended September 30, 1997. Interest income results
from short-term investment of the Company's cash balances.
EXCHANGE LOSS
Exchange loss consists of net gains and losses resulting from the
remeasurement of the Company's accounts denominated in non-U.S. currencies into
U.S. Dollars, which is the Company's functional currency. Exchange loss was $0.3
million in the quarter ended September 30, 1996 and $0.2 million in the quarter
ended September 30, 1997 primarily due to fluctuations of the U.S. Dollar
against the German Mark, French Franc and Korean Won. Exchange loss is net of
the impact of hedging activities designed to reduce exchange rate exposure.
PROVISION FOR INCOME TAXES
The Company's tax expense has been determined in accordance with FAS 109 and
is based on the statutory rates in effect in the countries in which the Company
operates. The Company's operations in Korea are subject to a government granted
tax exemption. The Company will continue to enjoy the full benefits of the tax
exemption in Korea until 2001 and a partial benefit thereafter until the tax
exemption terminates in 2003.
MINORITY INTEREST IN LOSS OF MAJORITY OWNED JOINT VENTURE
The minority interest impact of the Company's joint venture in China was
($0.2 million) in the three months ended September 30, 1996 compared to ($0.3
million) in the three months ended September 30, 1997, reflecting increased
losses from, and partner funding of, the joint venture.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $66.1 million at June 30, 1997 and $61.7
million at September 30, 1997. The decrease in working capital for the three
months ended September 30, 1997 is due principally to lower cash balances. Cash
and cash equivalents were $51.4 million at June 30, 1997 and $40.1 million at
September 30, 1997. The decrease was primarily due to capital expenditures. The
Company's ongoing cash requirement will be for capital expenditures, research
and product development and working capital.
Cash provided by operations was $18.1 million in the three months ended
September 30, 1996 and $27.7 million in the three months ended September 30,
1997. The increase was primarily the result of higher depreciation expense and
shifts in assets and liabilities. Management believes that cash provided by
operations will be the Company's primary source of liquidity. Cash used in
investing activities (capital expenditures) was $5.4 million in the three months
ended September 30, 1996 and $39.7 million in the three months ended September
30, 1997. Management expects capital expenditures for the remainder of the year
ending June 30, 1998 will be approximately $50 million. These capital
expenditures will be used
8
<PAGE>
primarily to expand the Company's manufacturing capacity and advance the
Company's technical capability. Cash used in financing activities was $0.2
million in the three months ended September 30, 1996 and cash provided by
financing activities was $0.9 million in the three months ended September 30,
1997.
The Company and DuPont have entered into a credit agreement (the "Credit
Agreement") pursuant to which DuPont has agreed to provide a credit facility to
the Company in an aggregate amount of $100.0 million. The Credit Agreement has a
term of 48 months and any loans thereunder will bear interest at LIBOR plus 25
basis points. At the Company's option, advances under the Credit Agreement are
convertible into term loans with maturities up to seven years. The Credit
Agreement will serve as a back-up to cash from operations. Management believes
that cash provided by operations and the Credit Agreement will be sufficient to
meet the Company's cash requirements through 1999. To date, there have been no
borrowings under the credit facility. There can be no assurance that alternative
sources of financing will be available upon expiration of the credit facility or
that alternative sources of funding will be available if the Company's borrowing
requirements exceed the facility. The Credit Agreement contains, among other
things, covenants restricting the Company's ability to incur additional debt. In
addition, there can be no assurance that, even if funding is available, the
terms thereof will be attractive to the Company.
OTHER MATTERS
Non-U.S. operations are subject to certain risks inherent in conducting
business abroad, including price and currency exchange controls, fluctuation in
the relative value of currencies and restrictive governmental actions. Changes
in the relative value of currencies occur from time to time and may, in certain
instances, have a material effect on the Company's results of operations. The
financial statements reflect remeasurement of items denominated in non-U.S.
currencies to U.S. Dollars, the Company's functional currency. Exchange gains or
losses are included in income in the period in which they occur. The Company
monitors its exchange rate exposure and attempts to reduce such exposure by
hedging. In 1997, the Company entered into a Korean Won forward contracts
designed to reduce such exposure. There can be no assurance that such forward
contracts or any other hedging activity will be adequate to eliminate, or even
mitigate, the impact of the Company's exchange rate exposure. The risks
associated with non-U.S. operations have not, to date, had a material adverse
impact on the Company's liquidity and results of operations. There can, however,
be no assurance that such risks will not have a material adverse impact on the
Company's liquidity and results of operations in the future. Inflation impacts
the Company through increases in the cost of labor, services, and raw materials.
In general, these increases have been mitigated by periodic increases in the
prices of the Company's products.
FORWARD LOOKING STATEMENTS
The discussion in this document contains analysis or trends and other
forward looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These statements involve management assumptions and are subject to
risks and uncertainties, including the risk factors set forth below which are
fully described in the Company's Annual Report on Form 10-K in "Business--Risk
Factors" pages 9 to 12: (i) capital intensive industry, (ii) rapid technological
change, (iii) relationship with and dependence on semiconductor industry, (iv)
concentration of customers, (v) concentration of and dependence on suppliers,
(vi) competition; reversal of consolidation trend, (vii) significant
international operations, (viii) dependence on management and technical
personnel, (ix) control by and relationship with DuPont, (x) no independent
operating history prior to the initial public offering, (xi) intellectual
property, (xii) fluctuations in quarterly and annual earnings and (xiii) changes
in governmental laws and regulations.
9
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
(11) Statement re Computation of Per Share Earnings
(27) Financial Data Schedule
(B) Reports on Form 8-K
Not applicable
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DUPONT PHOTOMASKS, INC.
(Registrant)
Date: November 3, 1997 By: /s/ J. MICHAEL HARDINGER
-----------------------------------
J. Michael Hardinger
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
Date: November 3, 1997 By: /s/ DAVID S. GINO
-----------------------------------
David S. Gino
EXECUTIVE VICE PRESIDENT--FINANCE
AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
11
<PAGE>
EXHIBIT 11
DUPONT PHOTOMASKS, INC.
EARNINGS PER SHARE COMPUTATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER
30, 1996
--------------------------
FULLY
PRIMARY DILUTED
------------ ------------
<S> <C> <C>
Weighted average shares outstanding................................................... 15,100,000 15,100,000
Dilutive effect of stock performance plans............................................ 246,912 345,651
------------ ------------
15,346,912 15,445,651
------------ ------------
------------ ------------
Net income............................................................................ $ 9,015 $ 9,015
------------ ------------
------------ ------------
Earnings per share.................................................................... $ 0.58 $ 0.58
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER
30, 1997
--------------------------
FULLY
PRIMARY DILUTED
------------ ------------
<S> <C> <C>
Weighted average shares outstanding................................................... 15,129,611 15,129,611
Dilutive effect of stock performance plans............................................ 555,379 656,158
------------ ------------
15,684,990 15,785,769
------------ ------------
------------ ------------
Net income............................................................................ $ 9,203 $ 9,203
------------ ------------
------------ ------------
Earnings per share.................................................................... $ 0.59 $ 0.58
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of this statement.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF DUPONT PHOTOMASKS, INC. AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 40,079
<SECURITIES> 0
<RECEIVABLES> 39,841
<ALLOWANCES> 0
<INVENTORY> 15,227
<CURRENT-ASSETS> 109,539
<PP&E> 369,701
<DEPRECIATION> 192,165
<TOTAL-ASSETS> 294,274
<CURRENT-LIABILITIES> 47,847
<BONDS> 10,030
0
0
<COMMON> 152
<OTHER-SE> 226,661
<TOTAL-LIABILITY-AND-EQUITY> 294,274
<SALES> 68,809
<TOTAL-REVENUES> 68,809
<CGS> 44,172
<TOTAL-COSTS> 44,172
<OTHER-EXPENSES> 3,271
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (377)
<INCOME-PRETAX> 13,690
<INCOME-TAX> 4,791
<INCOME-CONTINUING> 9,203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,203
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.58
</TABLE>
