<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
For the quarterly period ended March 31, 1998 Commission file number
0-20839
------------------------
DUPONT PHOTOMASKS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2238819
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
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 22, 1998, there were 15,169,018 shares of the registrant's
common stock, $.01 par value, outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PART I
Item 1. Financial Statements
Income Statement for the Three Months Ended March 31, 1997 and 1998............................ 3
Income Statement for the Nine Months Ended March 31, 1997 and 1998............................. 4
Balance Sheet at June 30, 1997 and March 31, 1998.............................................. 5
Statement of Cash Flows for the Nine Months Ended March 31, 1997 and 1998...................... 6
Notes to Financial Statements.................................................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 9
PART II
Item 1. Legal Proceedings............................................................................. 14
Item 2. Changes in Securities......................................................................... 14
Item 3. Defaults Upon Senior Securities............................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders........................................... 14
Item 5. Other Information............................................................................. 14
Item 6. Exhibits and Reports on Form 8-K................................................................... 14
Signatures........................................................................................... 15
</TABLE>
2
<PAGE>
DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
INCOME STATEMENT
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Sales................................................................................. $ 62,760 $ 67,563
Cost of goods sold.................................................................... 38,192 45,191
Selling, general and administrative expense........................................... 7,463 7,055
Research and development expense...................................................... 3,185 3,356
------------ ------------
Operating profit...................................................................... 13,920 11,961
Interest (income) expense............................................................. (845) 30
Exchange loss......................................................................... 212 136
------------ ------------
Income before income taxes, minority interest and extraordinary item.................. 14,553 11,795
Provision for income taxes............................................................ 5,087 4,010
------------ ------------
Income before minority interest and extraordinary item................................ 9,466 7,785
Minority interest in loss of majority owned joint venture............................. (256)
------------ ------------
Income before extraordinary item...................................................... 9,722 7,785
Extraordinary item.................................................................... (22,242)
------------ ------------
Net income............................................................................ $ 31,964 $ 7,785
------------ ------------
------------ ------------
Basic earnings per share before extraordinary item.................................... $ 0.65 $ 0.51
Extraordinary item.................................................................... (1.47)
------------ ------------
Basic earnings per share.............................................................. $ 2.12 $ 0.51
------------ ------------
------------ ------------
Basic weighted average shares outstanding............................................. 15,100,000 15,167,645
------------ ------------
------------ ------------
Diluted earnings per share before extraordinary item.................................. $ 0.62 $ 0.50
Extraordinary item.................................................................... (1.43)
------------ ------------
Diluted earnings per share............................................................ $ 2.05 $ 0.50
------------ ------------
------------ ------------
Diluted weighted average shares outstanding........................................... 15,596,131 15,554,304
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
INCOME STATEMENT
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Sales................................................................................. $ 191,264 $ 203,700
Cost of goods sold.................................................................... 117,652 134,195
Selling, general and administrative expense........................................... 23,434 22,678
Research and development expense...................................................... 8,556 9,687
------------ ------------
Operating profit...................................................................... 41,622 37,140
Interest income....................................................................... (1,341) (515)
Exchange loss......................................................................... 613 233
------------ ------------
Income before income taxes, minority interest and extraordinary item.................. 42,350 37,422
Provision for income taxes............................................................ 14,822 12,860
------------ ------------
Income before minority interest and extraordinary item................................ 27,528 24,562
Minority interest in loss of majority owned joint venture............................. (642) (687)
------------ ------------
Income before extraordinary item...................................................... 28,170 25,249
Extraordinary item.................................................................... (22,242)
------------ ------------
Net income............................................................................ $ 50,412 $ 25,249
------------ ------------
------------ ------------
Basic earnings per share before extraordinary item.................................... $ 1.87 $ 1.67
Extraordinary item.................................................................... (1.47)
------------ ------------
Basic earnings per share.............................................................. $ 3.34 $ 1.67
------------ ------------
------------ ------------
Basic weighted average shares outstanding............................................. 15,100,000 15,154,129
------------ ------------
------------ ------------
Diluted earnings per share before extraordinary item.................................. $ 1.82 $ 1.62
Extraordinary item.................................................................... (1.43)
------------ ------------
Diluted earnings per share............................................................ $ 3.25 $ 1.62
------------ ------------
------------ ------------
Diluted weighted average shares outstanding........................................... 15,494,075 15,628,215
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1998
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................... $ 51,351 $ 15,877
Accounts receivable, trade.............................................................. 38,973 49,273
Accounts receivable, related parties.................................................... 3,670 3,110
Inventories............................................................................. 15,651 17,228
Deferred income taxes................................................................... 3,351 3,874
Prepaid expenses and other current assets............................................... 8,711 13,030
---------- ----------
Total current assets.................................................................. 121,707 102,392
Property and equipment.................................................................... 162,310 237,175
Accounts receivable, related parties...................................................... 1,746 1,104
Deferred income taxes..................................................................... 2,386 2,525
Other assets.............................................................................. 3,430 2,521
---------- ----------
Total assets.......................................................................... $ 291,579 $ 345,717
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade................................................................. $ 27,207 $ 25,539
Accounts payable, related parties....................................................... 4,889 4,626
Short-term borrowings................................................................... 1,845 1,701
Income taxes payable.................................................................... 1,295 1,824
Other accrued liabilities............................................................... 20,389 28,244
---------- ----------
Total current liabilities............................................................. 55,625 61,934
Long-term borrowings...................................................................... 10,473 8,007
Long-term borrowings, related parties..................................................... 24,000
Deferred income taxes..................................................................... 6,300 6,962
Other liabilities......................................................................... 2,597 1,697
Minority interest in net assets of majority owned joint venture........................... 687
Commitments and contingencies.............................................................
Stockholders' equity:
Common stock, $.01 par value; 25,000,000 shares authorized; 15,104,568 and 15,168,766
issued and outstanding................................................................ 151 152
Additional paid-in capital.............................................................. 156,742 158,712
Retained earnings....................................................................... 59,004 84,253
---------- ----------
Total liabilities and stockholders' equity............................................ $ 291,579 $ 345,717
---------- ----------
---------- ----------
</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,
-----------------------
1997 1998
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................................. $ 50,412 $ 25,249
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization........................................................ 19,305 23,159
Other................................................................................ (779) (1,035)
Gain................................................................................. (34,219)
Cash provided (used) by changes in assets and liabilities:
Accounts receivable................................................................ (1,035) (13,446)
Inventories........................................................................ (5,581) 569
Prepaid expenses and other current assets.......................................... (2,970) (3,939)
Accounts payable................................................................... 7,277 17,648
Other accrued liabilities.......................................................... 16,000 5,027
---------- -----------
Net cash provided by operating activities........................................ 48,410 53,232
---------- -----------
Cash flows from investing activities:
Capital expenditures................................................................... (37,153) (84,266)
Proceeds from sale of investment....................................................... 39,219
Payment for acquisition................................................................ (28,344)
---------- -----------
Net cash provided by (used in) investing activities.............................. 2,066 (112,610)
---------- -----------
Cash flows from financing activities:
Increase in borrowings................................................................. 699 23,769
Net proceeds from issuance of common stock............................................. 1,098
---------- -----------
Net cash provided by financing activities........................................ 699 24,867
---------- -----------
Effect of exchange rate changes on cash.................................................. (1,154) (963)
---------- -----------
Net increase (decrease) in cash and cash equivalents..................................... 50,021 (35,474)
Cash and cash equivalents at beginning of period......................................... 20,179 51,351
---------- -----------
Cash and cash equivalents at end of period............................................... $ 70,200 $ 15,877
---------- -----------
---------- -----------
</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)
(UNAUDITED)
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, MARCH 31,
1997 1998
--------- -----------
<S> <C> <C>
Raw materials and supplies.......................................... $ 13,122 $ 13,988
Work-in-process..................................................... 902 1,156
Finished product.................................................... 1,627 2,084
--------- -----------
Inventories....................................................... $ 15,651 $ 17,228
--------- -----------
--------- -----------
</TABLE>
NOTE 3--ACQUISITION
On March 16, 1998, the Company entered into a strategic alliance with
Hyundai Electronics Industries Co., Ltd. ("Hyundai") whereby the Company
purchased selected photomask manufacturing equipment located at Hyundai's
captive photomask manufacturing facility in Kanam, Republic of Korea ("Korea")
and entered into a five-year sales and supply agreement with Hyundai. The
Company acquired, through its Korean subsidiary, approximately $28,800 of
equipment and approximately $1,000 in inventory. Consideration for the assets
included $28,344 in cash, and was partially financed by $24,000 in borrowings
under the Company's credit facility with DuPont.
NOTE 4--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 were
$39,219 and the Company realized a $34,219 gain on the sale. The related
provision for income taxes was $11,977.
NOTE 5--COMMITMENTS AND CONTINGENCIES
The Company is currently negotiating an agreement with United
Microelectronics Corporation to establish a joint venture to produce photomasks
in Taiwan. There can be no assurance that final agreements will be executed or
that, if executed, the resultant joint venture will yield results that are
favorable to the Company.
7
<PAGE>
DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 5--COMMITMENTS AND CONTINGENCIES (CONTINUED)
On April 14, 1998, the Company announced that it plans to build a new
photomask production facility in Singapore. The site will service the growing
number of semiconductor manufacturers in Singapore and the rest of Southeast
Asia. Current plans are to invest $50 million over the next five years. The
Company previously announced plans for, and has begun construction on, a new
photomask production facility in Gresham, Oregon. The site will service the
growing number of semiconductor manufacturers in northwest United States.
Current plans are to invest $75 million over the next four years. There can be
no assurance that construction on either facility will be completed or that, if
completed, either facility will yield results that are favorable to the Company.
On April 22, 1998, the Company announced that it had entered into an
agreement with Etec to upgrade its MEBES-Registered Trademark- electron-beam
pattern generation tools. The hardware and software upgrades will enhance the
capability of the tools while simultaneously increasing the speed at which they
operate. As part of the agreement, Etec has purchased the use of technology
developed by the Company. The tools to be upgraded currently reside throughout
the Company's integrated network of production facilities. As part of the
agreement, Etec is scheduled to deliver, and the Company is committed to
purchase, the initial upgraded MEBES-Registered Trademark- tool in early 1999,
with additional tools scheduled for upgrades over the course of the next four
years. There can be no assurance that the Company will be successful in
upgrading its tools or that such upgraded tools will yield results that are
favorable to the Company.
Also on April 22, 1998, the Company announced the formation of a strategic
alliance with Hoya Corporation to develop and produce advanced photoblanks. A
primary goal of the alliance will be the development of advanced photoblanks
used in the production of binary and phase shift photomasks supporting the
manufacture of semiconductor devices with 0.18 micron design rules and below.
The companies have also agreed to exchange technical information related to the
production of photoblanks. The relationship calls for Hoya to supply the Company
with developmental photoblanks based on agreed-upon design and performance
specifications. As part of the agreement, the Company will have exclusive rights
to use photoblanks and technology developed under the relationship.
Additionally, the Company has agreed to utilize Hoya's photoblanks in its
photomask manufacturing operations, supplementing its internal supply. There can
be no assurance that the alliance will yield results that are favorable to the
Company.
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 6--RECLASSIFICATIONS AND RESTATEMENTS
Certain prior year balances have been reclassified to conform to the 1998
presentation. In addition, the Company adopted FAS 128 in the quarter ended
December 31, 1997. Earnings per share have been restated for all periods
presented to conform to the requirements of FAS 128.
8
<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. 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 7.7% from $62.8 million in the quarter ended
March 31, 1997 to $67.6 million in the quarter ended March 31, 1998. Sales in
North America, Europe and Asia increased from $35.9 million $16.1 million and
$10.8 million in the quarter ended March 31, 1997 to $37.9 million, $18.3
million and $11.4 million in the quarter ended March 31, 1998. Sales increased
6.5% from $191.3 million in the nine months ended March 31, 1997 to $203.7
million in the nine months ended March 31, 1998. Sales in North America, Europe
and Asia increased from $107.0 million, $46.2 million and $38.1 million in the
nine months ended March 31, 1997 to $114.4 million, $49.6 million and $39.7
million in the nine months ended March 31, 1998. 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 these periods. 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. Product mix related average selling price increases contributed
approximately one half of the revenue growth in the quarter and nine months
ended March 31, 1998. The balance of the revenue growth came from increased unit
volume. The strength of the U.S. Dollar against the Korean Won, and to a lesser
extent, the German Mark and French Franc, adversely impacted sales by
approximately $4.0 million and $10.5 million in the quarter and nine months
ended March 31, 1998 and thus adversely impacted sales growth in the quarter and
nine months ended March 31, 1998 as compared to the same periods in the previous
year.
COST OF GOODS SOLD
Cost of goods sold consists of material, labor, depreciation and overhead.
Cost of goods sold increased 18.3% from $38.2 million in the quarter ended March
31, 1997 to $45.2 million in the quarter ended March 31, 1998 and increased
14.1% from $117.7 million in the nine months ended March 31, 1997 to $134.2
million in the nine months ended March 31, 1998 resulting primarily from higher
costs associated with increased sales, costs related to new facilities and costs
related to continued capacity expansions at existing facilities. As a percentage
of sales, cost of goods sold increased from 60.9% in the quarter ended March 31,
1997 to 66.9% in the quarter ended March 31, 1998 and increased from 61.5% in
the nine months ended March 31, 1997 to 65.9% in the nine months ended March 31,
1998. The percentage of sales increases were primarily due to margin compression
as a result of the strength of the U.S. Dollar, 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 E.I. duPont de Nemours and Company ("DuPont"), the Company's majority
stockholder, and certain DuPont subsidiaries. Selling, general and
administrative expense as a percentage of sales decreased from 11.9% in the
quarter ended March 31, 1997 to 10.4% in the quarter ended March 31, 1998 and
decreased
9
<PAGE>
from 12.3% in the nine months ended March 31, 1997 to 11.1% in the nine months
ended March 31, 1998. Selling, general and administrative expense decreased 5.5%
from $7.5 million in the quarter ended March 31, 1997 to $7.1 million in the
quarter ended March 31, 1998 and decreased 3.2% from $23.4 million in the nine
months ended March 31, 1997 to $22.7 million in the nine months ended March 31,
1998 as a result of reductions in discretionary spending.
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 $3.2 million in the quarter ended March 31,
1997 to $3.4 million in the quarter ended March 31, 1998 and increased from $8.6
million in the nine months ended March 31, 1997 to $9.7 million in the nine
months ended March 31, 1998. The increases were 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, LLC ("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 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.
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) EXPENSE
Interest income was $0.8 million in quarter ended March 31, 1997 and
interest expense was negligible in the quarter ended March 31, 1998. Interest
income was $1.3 million in the nine months ended March 31, 1997 and $0.5 million
in the nine months ended March 31, 1998. Interest income results from short-term
investment of the Company's cash balances. Interest expense results from the
Company's borrowings.
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 $0.2
million in the quarter ended March 31, 1997 and $0.1 million in the quarter
ended March 31, 1998. Exchange loss was $0.6 million in the nine months ended
March 31, 1997 compared to $0.2 million in the nine months ended March 31, 1998
primarily due to fluctuations of the U.S. Dollar against the Korean Won, German
Mark and French Franc. 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
($0.3 million) in the three months ended March 31, 1997 and was ($0.6 million)
in the nine months ended March 31, 1997 compared
10
<PAGE>
to ($0.7 million) in the nine months ended March 31, 1998. Minority interest
reflects the partner's share of losses from the joint venture.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $66.1 million at June 30, 1997 and $40.5
million at March 31, 1998. The decrease in working capital for the nine months
ended March 31, 1998 is due principally to lower cash balances, as partially
offset by higher accounts receivable and inventory balances, and higher accrued
liabilities.
Cash and cash equivalents were $51.4 million at June 30, 1997 and $15.9
million at March 31, 1998. Cash provided by operations was $48.4 million in the
nine months ended March 31, 1997 and $53.2 million in the nine months ended
March 31, 1998.
Cash provided by investing activities was $2.1 million in the nine months
ended March 31, 1997 while cash used in investing activities was $112.6 million
in the nine months ended March 31, 1998. The cash provided by investing
activities in the nine months ended March 31, 1997 is the net of cash proceeds
from the sale of the Company's investment in Etec Systems, Inc. ("Etec") common
stock and capital expenditures. The cash used in investing activities in the
nine months ended March 31, 1998 is a combination of capital expenditures and
payment for the Company's strategic alliance with Hyundai Electronics Industries
Co., Ltd. ("Hyundai") whereby the Company purchased selected photomask
manufacturing equipment located at Hyundai's captive photomask manufacturing
facility in Kanam, Republic of Korea ("Korea") and entered into a five-year
sales and supply agreement with Hyundai. The Company acquired, through its
Korean subsidiary, approximately $29 million of equipment and approximately $1
million in inventory. Consideration for the assets included $28.3 million in
cash, and was partially financed by $24.0 million in borrowings on the Company's
credit facility with DuPont. In recent periods, the Company's most significant
use of cash in investing activities has been capital expenditures. Management
expects capital expenditures for the remainder of the year ending June 30, 1998
will be approximately $20 million. Capital expenditures have been and will be
used primarily to expand the Company's manufacturing capacity and advance the
Company's technical capability. The Company may in the future pursue additional
acquisitions of businesses, products and technologies, or enter into other joint
venture arrangements that could complement or expand the Company's business. Any
material acquisition or joint venture could result in a decrease to the
Company's working capital depending on the amount, timing and nature of the
consideration to be paid.
Cash provided by financing activities was $0.7 million in the nine months
ended March 31, 1997 and was $24.9 million in the nine months ended March 31,
1998 and, for 1998, primarily reflects borrowings on the Company's credit
agreement. 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 expires in 2001 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. To
date, the Company has borrowed a maximum of $35.0 million under the credit
facility and at March 31, 1998 borrowings of $24.0 million were outstanding
under the Credit Agreement. The Credit Agreement contains, among other things,
covenants restricting the Company's ability to incur additional debt.
The Company's ongoing cash requirements will be for capital expenditures,
acquisitions, research and development and working capital. The Company is
currently negotiating an agreement with United Microelectronics Corporation to
establish a joint venture facility to produce photomasks in Taiwan, has
announced that it plans to build a new photomask production facility in
Singapore, has begun construction on a new photomask production facility in
Gresham, Oregon and has announced that it has entered into an agreement with
Etec to upgrade its MEBES-Registered Trademark- electron-beam pattern generation
tools. These plans reflect a significant capital investment over the next five
years. Management believes that cash provided by
11
<PAGE>
operations, the Credit Agreement and a planned offering of the Company's common
stock will be sufficient to meet the Company's cash requirements for at least
the next 12 months. Based on its current operating plans, the Company will
require external financing from time to time to fund its capital expenditures.
There can be no assurance that the Company will be able to obtain the additional
financing required to fund these capital investments on reasonable terms, or at
all.
Furthermore, there can be no assurance that alternative sources of financing
will be available upon expiration of the Credit Agreement or that alternative
sources of funding will be available if the Company's borrowing requirements
exceed the facility. 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. The Company has entered into Korean Won and French Franc forward
contracts designed to reduce such exposure. There can be no assurance that such
forward contracts or any other hedging activity will be available or adequate to
eliminate, or even mitigate, the impact of the Company's exchange rate exposure.
There can 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.
In June 1997, the Financial Accounting Standards Board issued FAS 130 and
FAS 131. Neither FAS will have a material impact on the Company.
The Company is currently reviewing its information and operational systems
and manufacturing processes in order to identify and modify those products,
services or systems that are not Year 2000 compliant. The total cost of these
Year 2000 compliance activities has not been, and is not anticipated to be,
material to the Company's financial position or its results of operations.
FORWARD LOOKING STATEMENTS
Certain statements contained in this document that are not historical facts,
are "forward-looking statements," as that term is defined in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
that involve a number of risks and uncertainties. Such forward-looking
statements may concern growth and future operating results, potential
acquisitions and joint ventures, new manufacturing facilities, capital
expenditures, new products and product enhancements, the future importance of
photomask technology, the demand for products, competitive factors, research and
development activities and expenditures, strategic relationships with third
parties, liquidity and the Company's strategy. Such forward-looking statements
are generally accompanied by words such as "plan," "estimate," "expect,"
"believe," "should," "would," "could," "anticipate" or other words that convey
uncertainty of future events or outcomes. Such forward-looking statements are
based upon management's current plans, expectations, estimates and assumptions
and are subject to a number of risks and uncertainties that could significantly
affect current plans, anticipated actions, the timing of such actions and the
Company's business, financial position and results of operations. As a
consequence, actual results may differ materially from expectations, estimates
or assumptions expressed in or implied by any forward-looking statements made by
or on behalf of the Company. Risks and uncertainties that could significantly
affect such forward
12
<PAGE>
looking statements including the risk factors set forth below which are fully
described in the Company's Registration Statement on Form S-3 filed May 12, 1998
in "Risk Factors" pages 6 to 11: (i) Capital Intensive Industry; Significant
Fixed Costs, (ii) Rapid Technological Change, (iii) Relationship with and
Dependence on Semiconductor Industry, (iv) Fluctuations in Quarterly and Annual
Earnings, (v) Competition, (vi) Significant International Operations, (vii)
Asian Market Volatility, (viii) Manufacturing Risks, (ix) Concentration of
Customers, (x) Concentration of and Dependence on Suppliers, (xi) Dependence on
Management and Technical Personnel, (xii) Control by and Relationship with
DuPont, (xiii) Volatility of Market Price, (xiv) Potential Acquisitions, (xv)
Intellectual Property, (xvi) Changes in Governmental Laws and Regulations,
(xvii) Year 2000 Compliance and (xviii) Potential Effect of Shares Eligible for
Future Sales; Registration Rights.
13
<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
14
<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.
<TABLE>
<S> <C> <C>
DUPONT PHOTOMASKS, INC.
(Registrant)
Date: May 12, 1998 By: /s/ J. MICHAEL HARDINGER
-----------------------------------------
J. Michael Hardinger
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER (PRINCIPAL EXECUTIVE OFFICER)
Date: May 12, 1998 By: /s/ DAVID S. GINO
-----------------------------------------
David S. Gino
EXECUTIVE VICE PRESIDENT--FINANCE AND
CHIEF FINANCIAL OFFICER (PRINCIPAL
FINANCIAL AND ACCOUNTING OFFICER)
</TABLE>
15
<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
--------------------------
BASIC DILUTED
------------ ------------
<S> <C> <C>
Weighted average shares outstanding................................................ 15,100,000 15,100,000
Dilutive effect of stock performance plans......................................... 496,131
------------ ------------
15,100,000 15,596,131
------------ ------------
------------ ------------
Net income......................................................................... $ 31,964 $ 31,964
------------ ------------
------------ ------------
Earnings per share................................................................. $ 2.12 $ 2.05
------------ ------------
------------ ------------
<CAPTION>
QUARTER ENDED MARCH 31,
1998
--------------------------
BASIC DILUTED
------------ ------------
<S> <C> <C>
Weighted average shares outstanding................................................ 15,167,645 15,167,645
Dilutive effect of stock performance plans......................................... 386,659
------------ ------------
15,167,645 15,554,304
------------ ------------
------------ ------------
Net income......................................................................... $ 7,785 $ 7,785
------------ ------------
------------ ------------
Earnings per share................................................................. $ 0.51 $ 0.50
------------ ------------
------------ ------------
<CAPTION>
NINE MONTHS ENDED MARCH
31, 1997
--------------------------
BASIC DILUTED
------------ ------------
<S> <C> <C>
Weighted average shares outstanding................................................ 15,100,000 15,100,000
Dilutive effect of stock performance plans......................................... 394,075
------------ ------------
15,100,000 15,494,075
------------ ------------
------------ ------------
Net income......................................................................... $ 50,412 $ 50,412
------------ ------------
------------ ------------
Earnings per share................................................................. $ 3.34 $ 3.25
------------ ------------
------------ ------------
<CAPTION>
NINE MONTHS ENDED MARCH
31, 1998
--------------------------
BASIC DILUTED
------------ ------------
<S> <C> <C>
Weighted average shares outstanding................................................ 15,154,129 15,154,129
Dilutive effect of stock performance plans......................................... 474,086
------------ ------------
15,154,129 15,628,215
------------ ------------
------------ ------------
Net income......................................................................... $ 25,249 $ 25,249
------------ ------------
------------ ------------
Earnings per share................................................................. $ 1.67 $ 1.62
------------ ------------
------------ ------------
</TABLE>
At March 31, 1998, the Company had outstanding anti-dilutive commitments
under its stock performance plans covering 523,082 shares.
<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-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 15,877
<SECURITIES> 0
<RECEIVABLES> 49,273
<ALLOWANCES> 0
<INVENTORY> 17,228
<CURRENT-ASSETS> 102,392
<PP&E> 444,007
<DEPRECIATION> 206,832
<TOTAL-ASSETS> 345,717
<CURRENT-LIABILITIES> 61,934
<BONDS> 8,007
0
0
<COMMON> 152
<OTHER-SE> 242,965
<TOTAL-LIABILITY-AND-EQUITY> 345,717
<SALES> 203,700
<TOTAL-REVENUES> 203,700
<CGS> 134,195
<TOTAL-COSTS> 134,195
<OTHER-EXPENSES> 9,687
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (515)
<INCOME-PRETAX> 37,422
<INCOME-TAX> 12,860
<INCOME-CONTINUING> 25,249
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,249
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 1.62
</TABLE>
