<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 ENDED COMMISSION FILE NUMBER
MARCH 31, 1997 0-20839
</TABLE>
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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
Organization) No.)
</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 April 23, 1997, 15,100,000 shares of the registrant's common stock,
$.01 par value, were outstanding.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C> <C> <C>
PART I Item 1. Financial Statements
Income Statement for the Three Months Ended March 31, 1996, Pro Forma Income
Statement for the Three Months Ended March 31, 1996 and Income Statement for the
Three Months Ended March 31, 1997................................................ 3
Income Statement for the Nine Months Ended March 31, 1996, Pro Forma Income
Statement for the Nine Months Ended March 31, 1996 and Income Statement for the
Nine Months Ended March 31, 1997................................................. 4
Balance Sheet at June 30, 1996 and March 31, 1997.................................. 5
Statement of Cash Flows for the Nine Months Ended March 31, 1996 and 1997.......... 6
Notes to Financial Statements...................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 8
PART II
Item 1. Legal Proceedings.................................................................. 13
Item 2. Changes in Securities.............................................................. 13
Item 3. Defaults Upon Senior Securities.................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders................................ 13
Item 5. Other Information.................................................................. 13
Item 6. Exhibits and Reports on Form 8-K................................................... 13
Signatures......................................................................... 14
</TABLE>
2
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DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
INCOME STATEMENT
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
1996 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Sales............................................................... $ 55,874 $ 55,874 $ 62,760
Cost of goods sold.................................................. 35,374 35,217 37,657
Selling, general and administrative expense......................... 5,979 6,787 7,463
Research and development expense--net............................... 2,047 2,030 3,185
Other operating expense--net........................................ 972 972 535
------------- ------------- -------------
Operating profit.................................................... 11,502 10,868 13,920
Interest (income) expense--net...................................... 1,625 8 (845)
Exchange (gain) loss................................................ (80) (121) 212
------------- ------------- -------------
Income before income taxes, minority interest and extraordinary
item.............................................................. 9,957 10,981 14,553
Provision for income taxes.......................................... 973 3,843 5,087
------------- ------------- -------------
Income before minority interest and extraordinary item.............. 8,984 7,138 9,466
Minority interest in loss of majority owned joint venture........... (428) (428) (256)
------------- ------------- -------------
Income before extraordinary item.................................... 9,412 7,566 9,722
Extraordinary item--net............................................. (22,242)
------------- ------------- -------------
Net income.......................................................... $ 9,412 $ 7,566 $ 31,964
------------- ------------- -------------
------------- ------------- -------------
Earnings per share before extraordinary item........................ $ 0.50 $ 0.62
Extraordinary item--net............................................. (1.43)
------------- -------------
Earnings per share.................................................. $ 0.50 $ 2.05
------------- -------------
------------- -------------
Weighted average shares outstanding................................. 15,194,913 15,596,131
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of this statement.
3
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DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
INCOME STATEMENT
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
1996 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Sales.................................................................. $ 152,192 $ 152,192 $ 191,264
Cost of goods sold..................................................... 98,717 97,724 115,844
Selling, general and administrative expense............................ 18,164 19,214 23,434
Research and development expense--net.................................. 6,955 6,113 8,556
Other operating expense--net........................................... 3,219 2,941 1,808
------------ ------------ ------------
Operating profit....................................................... 25,137 26,200 41,622
Interest (income) expense--net......................................... 5,091 102 (1,341)
Exchange (gain) loss................................................... 228 (68) 613
------------ ------------ ------------
Income before income taxes, minority interest and extraordinary item... 19,818 26,166 42,350
Provision for income taxes............................................. 1,899 9,158 14,822
------------ ------------ ------------
Income before minority interest and extraordinary item................. 17,919 17,008 27,528
Minority interest in loss of majority owned joint venture.............. (483) (483) (642)
------------ ------------ ------------
Income before extraordinary item....................................... 18,402 17,491 28,170
Extraordinary item--net................................................ (22,242)
------------ ------------ ------------
Net income............................................................. $ 18,402 $ 17,491 $ 50,412
------------ ------------ ------------
------------ ------------ ------------
Earnings per share before extraordinary item........................... $ 1.15 $ 1.81
Extraordinary item--net................................................ (1.43)
------------ ------------
Earnings per share..................................................... $ 1.15 $ 3.24
------------ ------------
------------ ------------
Weighted average shares outstanding.................................... 15,194,913 15,543,578
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of this statement.
4
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DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 20,179 $ 70,200
Accounts receivable, trade--net......................................................... 32,293 33,417
Accounts receivable, related parties.................................................... 4,726 3,629
Inventories............................................................................. 10,227 15,788
Deferred income taxes................................................................... 1,543 1,812
Prepaid expenses and other current assets............................................... 3,238 6,688
---------- ----------
Total current assets.................................................................. 72,206 131,534
Property and equipment--net............................................................... 123,048 138,264
Accounts receivable, related parties...................................................... 1,928 1,586
Deferred income taxes..................................................................... 3,245 3,236
Other assets.............................................................................. 27,466 3,752
---------- ----------
Total assets.......................................................................... $ 227,893 $ 278,372
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade................................................................. $ 8,376 $ 12,229
Accounts payable, related parties....................................................... 5,885 4,554
Accounts payable, other................................................................. 2,006 2,900
Short-term borrowings................................................................... 1,454 1,779
Income taxes payable.................................................................... 2,333 13,387
Other accrued liabilities............................................................... 17,694 18,637
---------- ----------
Total current liabilities............................................................. 37,748 53,486
Long-term borrowings...................................................................... 9,324 8,905
Deferred income taxes..................................................................... 11,588 5,611
Other liabilities......................................................................... 3,747 2,234
Minority interest in net assets of majority owned joint venture........................... 872 948
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 25,000,000 shares authorized; 15,100,000 issued and
outstanding........................................................................... 151 151
Additional paid-in capital.............................................................. 152,880 156,625
Unrealized holding gain................................................................. 11,583
Retained earnings....................................................................... 50,412
---------- ----------
Total liabilities and stockholders' equity............................................ $ 227,893 $ 278,372
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE>
DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................................................. $ 18,402 $ 50,412
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization......................................................... 20,595 19,305
Other................................................................................. (771) (779)
Gain.................................................................................. (34,219)
Cash provided (used) by changes in assets and liabilities
Accounts receivable................................................................. (4,000) (1,035)
Inventories......................................................................... (1,328) (5,581)
Prepaid expenses and other current assets........................................... (1,606) (2,970)
Accounts payable.................................................................... (8,220) 7,277
Other accrued liabilities........................................................... 13,204 16,000
---------- ----------
Net cash provided by operating activities............................................. 36,276 48,410
---------- ----------
Cash flows from investing activities:
Capital expenditures.................................................................... (13,690) (37,153)
Payments for acquisitions............................................................... (6,000)
Other................................................................................... 920
Proceeds from sale of investment........................................................ 39,219
---------- ----------
Net cash provided by (used in) investing activities................................... (18,770) 2,066
---------- ----------
Cash flows from financing activities:
Increase in borrowings.................................................................. 1,799 699
Cash paid to DuPont--net................................................................ (18,520)
---------- ----------
Net cash provided by (used in) financing activities................................... (16,721) 699
---------- ----------
Effect of exchange rate changes on cash................................................... (306) (1,154)
---------- ----------
Net increase in cash and cash equivalents................................................. 479 50,021
Cash and cash equivalents at beginning of period.......................................... 8,412 20,179
---------- ----------
Cash and cash equivalents at end of period................................................ $ 8,891 $ 70,200
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
6
<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 1996 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, MARCH 31,
1996 1997
--------- -----------
<S> <C> <C>
Raw materials and supplies............................................. $ 7,006 $ 11,980
Work-in-process........................................................ 785 1,191
Finished product....................................................... 2,436 2,617
--------- -----------
Inventories............................................................ $ 10,227 $ 15,788
--------- -----------
--------- -----------
</TABLE>
NOTE 3--EXTRAORDINARY ITEM
Between January 20 and 23, 1997, the Company sold its entire investment in
Etec Systems, Inc. common stock. Aggregate net proceeds from the sale of $39,219
will be used in operations. The Company realized a $34,219 gain on the sale. The
related provision for income taxes was $11,977.
NOTE 4--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.
7
<PAGE>
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. Prior to the Company's initial public
offering (the IPO) on June 13, 1996, it was a wholly-owned subsidiary of E.I.
duPont de Nemours and Company (DuPont). The Company's historical results prior
to the IPO are not necessarily indicative of the results that would have been
achieved if the Company had been independent and may not be an accurate
indication of future results.
The pro forma income statement estimates the effects of certain events
associated with the IPO as if such events had taken place on July 1, 1995. The
pro forma income statement does not purport to represent what the results of
operations of the Company would actually have been had certain events in fact
occurred on July 1, 1995 or to project the results of operations of the Company
for any future period.
RESULTS OF OPERATIONS
SALES
Sales are comprised primarily of photomask sales to semiconductor
manufacturers. Sales increased 12.3% from $55.9 million in the quarter ended
March 31, 1996 to $62.8 million in the quarter ended March 31, 1997. Sales in
North America, Europe and Asia increased from $31.7 million, $14.4 million, and
$9.8 million in the quarter ended March 31, 1996 to $35.9 million, $16.1
million, and $10.8 million in the quarter ended March 31, 1997. Sales increased
25.7% from $152.2 million in the nine months ended March 31, 1996 to $191.3
million in the nine months ended March 31, 1997. Sales in North America, Europe
and Asia increased from $88.8 million, $37.5 million, and $25.9 million in the
nine months ended March 31, 1996 to $107.0 million, $46.2 million, and $38.1
million in the nine months ended March 31, 1997. A continued increase in the
demand for advanced photomasks which have higher average selling prices was a
primary contributor to the increase in sales during these periods. This shift in
demand reflects what the Company believes to be a 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 6.5% from $35.4 million in the quarter ended March
31, 1996 to $37.7 million in the quarter ended March 31, 1997 and increased
17.3% from $98.7 million in the nine months ended March 31, 1996 to $115.8
million in the nine months ended March 31, 1997, resulting primarily from higher
costs associated with increased sales. As a percentage of sales, cost of goods
sold decreased from 63.3% in the quarter ended March 31, 1996 to 60.0% in the
quarter ended March 31, 1997 and from 64.9% in the nine months ended March 31,
1996 to 60.6% in the nine months ended March 31, 1997. The percentage decrease
was primarily due to continued improvements in capacity utilization including
increased use of internally sourced photoblanks and pellicles.
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. Prior to January 1, 1996, general and administrative
expense principally included allocated costs for services provided by
centralized DuPont organizations. The allocated costs are not necessarily
indicative of the costs that would have been incurred if the Company had been
independent. Since January 1, 1996, general and administrative expense has
included fees incurred by the Company under Administrative Service Agreements
with DuPont. Selling, general and administrative expense as a percentage of
sales increased from 10.7% in the quarter ended March 31, 1996 to 11.9% in the
quarter ended March 31, 1997 and increased from 11.9% in the
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nine months ended March 31, 1996 to 12.3% in the nine months ended March 31,
1997. Selling, general and administrative expense increased 24.8% from $6.0
million in the quarter ended March 31, 1996 to $7.5 million in the quarter ended
March 31, 1997 and increased 29.0% from $18.2 million in the nine months ended
March 31, 1996 to $23.4 million in the nine months ended March 31, 1997. The
increase was due largely to increases in selling expenses corresponding to
increased sales and increases in incentive compensation expenses corresponding
to increases in earnings.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense consists primarily of employee costs, cost
of material consumed, depreciation of equipment, engineering related costs, the
Company's share of costs of the limited liability company discussed below, and
the Company's allocated share of DuPont's central research and development.
These allocations were $1.1 million in the six months ended December 31, 1995.
Such allocations terminated December 31, 1995. Since that time, the Company has
received services from DuPont central research and development pursuant to
Administrative Service Agreements with DuPont. Research and development expense,
excluding DuPont allocations, increased from $2.0 million in the quarter ended
March 31, 1996 to $3.2 million in the quarter ended March 31, 1997 and increased
from $7.0 million in the nine months ended March 31, 1996 to $8.6 million in the
nine months ended March 31, 1997. The increase was due primarily to the
Company's share of pre-operating losses from the limited liability company.
Research and development expense is net of funds the Company received from
customers, industry groups such as SEMATECH Inc. 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.
OTHER OPERATING EXPENSE
Other operating expense consists primarily of costs not directly related to
the manufacture of the Company's products. Historically, a significant portion
of this item has been the expense associated with the early retirement of
equipment resulting from technological obsolescence. The photomasks industry is
characterized by rapid technological change and new product introductions and
enhancements which may, in the future, result in additional technological
obsolescence. The timing and amounts of these retirements are uncertain and
difficult to predict. Other operating expense decreased from $1.0 million in the
quarter ended March 31, 1996 to $0.5 million in the quarter ended March 31, 1997
and decreased from $3.2 million in the nine months ended March 31, 1996 to $1.8
million in the nine months ended March 31, 1997. The decreases were primarily
related to reduced early retirement of equipment which was partially offset by
increased pre-operating losses from the Company's joint venture in China and the
Company's greenfield site in Scotland.
INTEREST (INCOME) EXPENSE
Interest expense was $1.6 million in the quarter ended March 31, 1996 and
interest income was $0.8 million in the quarter ended March 31, 1997. Interest
expense was $5.1 million in the nine months ended March 31, 1996 and interest
income was $1.3 million in the nine months ended March 31, 1997. The primary
source of interest expense in the periods ended March 31, 1996 was the Company's
master note arrangements with DuPont. On June 28, 1996, DuPont contributed the
$90.5 million balance outstanding on the master notes to the Company as a
capital contribution. Interest income results from short-term investment of the
Company's cash balances.
9
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EXCHANGE (GAIN) LOSS
Exchange (gain) loss consists of 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 gain was $0.1
million in the quarter ended March 31, 1996 compared to a $0.2 million exchange
loss in the quarter ended March 31, 1997 and exchange loss was $0.2 million in
the nine months ended March 31, 1996 compared to $0.6 million in the nine months
ended March 31, 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
Prior to the IPO, tax expense was determined and allocated to the Company by
applying the separate taxpayer approach outlined in FAS 109. Under this
approach, the Company had net operating loss carryforwards in the U.S. and
Europe some of which became fully utilized during the year ended June 30, 1996.
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. In actuality, the Company's results were included
in consolidated tax returns filed by DuPont and the tax benefit of prior year
losses was realized by DuPont. Since the IPO, tax expense has been determined in
accordance with FAS 109 and approximates the U.S. statutory rate.
MINORITY INTEREST IN LOSS OF MAJORITY OWNED JOINT VENTURE
The minority interest impact of the Company's joint venture in China was
($0.5 million) in the nine months ended March 31, 1996 compared to ($0.6
million) in the nine months ended March 31, 1997, reflecting increased
pre-operating losses from, and partner funding of, the joint venture.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $34.5 million at June 30, 1996 and $78.0
million at March 31, 1997. The increase in working capital for the nine months
ended March 31, 1997 is due principally to higher cash balances. Cash and cash
equivalents were $20.2 million at June 30, 1996 and $70.2 million at March 31,
1997. The increase was primarily due to the Company retaining a portion of the
cash generated from operations and cash proceeds from the sale of the Company's
investment in Etec Systems, Inc. common stock. The Company's ongoing cash
requirement will be for capital expenditures, research and product development,
and working capital.
Cash provided by operations was $36.3 million in the nine months ended March
31, 1996 and $48.4 million in the nine months ended March 31, 1997. The increase
was primarily the result of higher sales and resultant net income. The Company
believes that cash provided by operations will be its primary source of
liquidity. Cash used in investing activities was $18.8 million in the nine
months ended March 31, 1996 and cash provided by investing activities was $2.1
million in the nine months ended March 31, 1997. The Company's most significant
use of cash for investing activities was capital expenditures. The Company
expects capital expenditures for the remainder of the year ended June 30, 1997
will be approximately $10 to $15 million. These capital expenditures will be
used primarily to expand the Company's manufacturing capacity and advance the
Company's technical capability. Cash used in financing activities was $16.7
million in the nine months ended March 31, 1996 and cash provided by financing
activities was $0.7 million in the nine months ended March 31, 1997. Prior to
the IPO, the Company participated in DuPont's centralized cash management system
whereby substantially all of the net cash generated by the Company was
transferred, principally via the master notes, to DuPont.
The Company and DuPont have entered into a two-year credit agreement
effective as of January 1, 1996 pursuant to which DuPont has agreed to provide a
revolving credit/working capital facility to the
10
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Company in an aggregate amount of $30.0 million. The credit facility serves as a
back-up to cash from operations. 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
The Company has executed an agreement with three other companies that
resulted in the formation of a limited liability company that will pursue
development of advanced photomask fabrication technologies. The Company believes
that, through its participation, it will be able to help meet the future
technology needs of the semiconductor industry for advanced photomasks. There
can be no assurance that the limited liability company will yield results that
are favorable to the Company.
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. Prior to the
IPO, DuPont managed the Company's exposure to fluctuations in currency exchange
rates as part of its overall management of exchange rate exposure. No separate
hedging of the Company's exchange rate exposure was undertaken. Accordingly, the
financial statements prior to the IPO do not reflect any hedging activities.
Effective with the completion of the IPO, the Company monitors its exchange rate
exposure and attempts to reduce such exposure by hedging. In July 1996, the
Company entered into a Korean Won forward contract designed to reduce such
exposure. There can be no assurance that such forward contract 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.
DISCUSSION OF PRO FORMA
The pro forma income statement estimates the effects that the IPO, various
realignment transactions, and the following would have had on the Company's
results of operations had they occurred as of July 1, 1995: (i) the
discontinuance of DuPont's postretirement benefits and replacement of DuPont's
defined benefit pension plan with the Company's defined contribution pension
plan; (ii) the elimination of DuPont allocated overhead expenses that are not
expected to be incurred by the Company following the IPO; (iii) the cost of
services to be provided by third parties or DuPont, pursuant to Administrative
Service Agreements with DuPont and its subsidiaries, and additional employees
assumed to be hired by the Company to replace those services previously provided
by DuPont; and (iv) recognition of expenses relating to the Company's stock
performance plan. The principal effect of these adjustments would have been a
decrease in costs of goods sold of $1.0 million for the nine months ended March
31, 1996. In addition, selling, general and administrative expense would have
increased by $1.0 million and research and development expense would have
decreased $0.8 million. As a result of these adjustments, operating profit would
have increased by $1.1 million for the nine months ended March 31, 1996.
Furthermore, elimination of the master notes would have decreased interest
expense by $5.0 million. Consequently, net
11
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income (offset by an increase in the provision for income taxes) would have
decreased by $0.9 million for the nine months ended March 31, 1996.
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 10 to 13: (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 IPO, (xi) intellectual property,
(xii) fluctuations in quarterly and annual earnings and (xiii) changes in
governmental laws and regulations.
12
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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
13
<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: April 30, 1997 By: /s/ J. MICHAEL HARDINGER
-----------------------------------------
J. Michael Hardinger
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER (PRINCIPAL
EXECUTIVE OFFICER)
Date: April 30, 1997 By: /s/ DAVID S. GINO
-----------------------------------------
David S. Gino
EXECUTIVE VICE PRESIDENT--FINANCE
AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
14
<PAGE>
EXHIBIT 11
DUPONT PHOTOMASKS, INC.
EARNINGS PER SHARE COMPUTATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, 1997
--------------------------
FULLY
PRIMARY DILUTED
------------ ------------
<S> <C> <C>
Weighted average shares outstanding................................................... 15,100,000 15,100,000
Dilutive effect of stock performance plans............................................ 496,131 496,131
------------ ------------
15,596,131 15,596,131
------------ ------------
------------ ------------
Income before extraordinary item...................................................... $ 9,722 $ 9,722
Extraordinary item--net............................................................... (22,242) (22,242)
------------ ------------
Net income............................................................................ $ 31,964 $ 31,964
------------ ------------
------------ ------------
Earnings per share before extraordinary item.......................................... $ 0.62 $ 0.62
Extraordinary item--net............................................................... (1.43) (1.43)
------------ ------------
Earnings per share.................................................................... $ 2.05 $ 2.05
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, 1997
--------------------------
FULLY
PRIMARY DILUTED
------------ ------------
<S> <C> <C>
Weighted average shares outstanding................................................... 15,100,000 15,100,000
Dilutive effect of stock performance plans............................................ 394,075 443,578
------------ ------------
15,494,075 15,543,578
------------ ------------
------------ ------------
Income before extraordinary item...................................................... $ 28,170 $ 28,170
Extraordinary item--net............................................................... (22,242) (22,242)
------------ ------------
Net income............................................................................ $ 50,412 $ 50,412
------------ ------------
------------ ------------
Earnings per share before extraordinary item.......................................... $ 1.82 $ 1.81
Extraordinary item--net............................................................... (1.43) (1.43)
------------ ------------
Earnings per share.................................................................... $ 3.25 $ 3.24
------------ ------------
------------ ------------
</TABLE>
<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
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 70,200
<SECURITIES> 0
<RECEIVABLES> 33,417
<ALLOWANCES> 0
<INVENTORY> 15,788
<CURRENT-ASSETS> 131,534
<PP&E> 317,044
<DEPRECIATION> 178,780
<TOTAL-ASSETS> 278,372
<CURRENT-LIABILITIES> 53,486
<BONDS> 8,905
0
0
<COMMON> 151
<OTHER-SE> 207,037
<TOTAL-LIABILITY-AND-EQUITY> 278,372
<SALES> 191,264
<TOTAL-REVENUES> 191,264
<CGS> 115,844
<TOTAL-COSTS> 115,844
<OTHER-EXPENSES> 10,364
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,341)
<INCOME-PRETAX> 42,350
<INCOME-TAX> 14,822
<INCOME-CONTINUING> 28,170
<DISCONTINUED> 0
<EXTRAORDINARY> (22,242)
<CHANGES> 0
<NET-INCOME> 50,412
<EPS-PRIMARY> 3.25
<EPS-DILUTED> 3.24
</TABLE>
