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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1999
COMMISSION FILE NUMBER 0-20839
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DUPONT PHOTOMASKS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 74-2238819
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
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131 OLD SETTLERS BOULEVARD
ROUND ROCK, TEXAS 78664
(Address of principal executive offices)
Registrant's telephone number, including area code: (512) 310-6500
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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 21, 1999, there were 15,315,518 shares of the registrant's
common stock, $.01 par value, outstanding.
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TABLE OF CONTENTS
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PART I
Item 1. Financial Statements
Income Statement for the Three Months Ended March 31, 1998 and 1999................................ 3
Income Statement for the Nine Months Ended March 31, 1998 and 1999................................. 4
Balance Sheet at June 30, 1998 and March 31, 1999.................................................. 5
Cash Flow Statement for the Nine Months Ended March 31, 1998 and 1999.............................. 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......................................................................................... 14
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2
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DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
INCOME STATEMENT
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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THREE MONTHS ENDED
MARCH 31,
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1998 1999
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Sales................................................................................. $ 67,563 $ 67,159
Cost of goods sold.................................................................... 45,191 47,419
Selling, general and administrative expense........................................... 7,055 8,657
Research and development expense...................................................... 3,356 4,574
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Operating profit...................................................................... 11,961 6,509
Other expense......................................................................... 166 209
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Income before income taxes and minority interest...................................... 11,795 6,300
Provision for income taxes............................................................ 4,010 2,003
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Income before minority interest....................................................... 7,785 4,297
Minority interest in loss of joint venture............................................ (158)
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Net income............................................................................ $ 7,785 $ 4,455
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Basic earnings per share.............................................................. $ 0.51 $ 0.29
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Basic weighted average shares outstanding............................................. 15,167,645 15,307,852
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Diluted earnings per share............................................................ $ 0.50 $ 0.28
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Diluted weighted average shares outstanding........................................... 15,554,304 15,918,677
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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)
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NINE MONTHS ENDED
MARCH 31,
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1998 1999
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Sales................................................................................. $ 203,700 $ 190,031
Cost of goods sold.................................................................... 134,195 135,897
Selling, general and administrative expense........................................... 22,678 24,552
Research and development expense...................................................... 9,687 12,306
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Operating profit...................................................................... 37,140 17,276
Other (income) expense................................................................ (282) 1,691
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Income before income taxes and minority interest...................................... 37,422 15,585
Provision for income taxes............................................................ 12,860 4,881
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Income before minority interest....................................................... 24,562 10,704
Minority interest in loss of joint venture............................................ (687) (158)
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Net income............................................................................ $ 25,249 $ 10,862
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Basic earnings per share.............................................................. $ 1.67 $ 0.71
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Basic weighted average shares outstanding............................................. 15,154,129 15,293,067
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Diluted earnings per share............................................................ $ 1.62 $ 0.69
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Diluted weighted average shares outstanding........................................... 15,628,215 15,734,017
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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)
ASSETS
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JUNE 30, MARCH 31,
1998 1999
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Current assets:
Cash and cash equivalents............................................................... $ 19,688 $ 51,175
Accounts receivable, trade.............................................................. 47,471 45,568
Accounts receivable, related parties.................................................... 3,349 2,690
Inventories............................................................................. 18,236 14,879
Deferred income taxes................................................................... 6,389 8,323
Prepaid expenses and other current assets............................................... 6,574 11,612
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Total current assets.................................................................. 101,707 134,247
Property and equipment.................................................................... 244,650 299,803
Accounts receivable, related parties...................................................... 1,106 1,248
Deferred income taxes..................................................................... 2,221 2,597
Other assets.............................................................................. 2,295 24,331
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Total assets.......................................................................... $ 351,979 $ 462,226
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade................................................................. $ 30,197 $ 22,515
Accounts payable, related parties....................................................... 10,391 4,491
Short-term borrowings................................................................... 2,143 1,519
Income taxes payable.................................................................... 1,828 3,164
Other accrued liabilities............................................................... 24,096 27,880
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Total current liabilities............................................................. 68,655 59,569
Long-term borrowings...................................................................... 7,519 5,510
Long-term borrowings, related parties..................................................... 9,000 100,000
Deferred income taxes..................................................................... 12,048 13,550
Other liabilities......................................................................... 1,800 2,280
Minority interest in net assets of joint venture.......................................... 16,236
Commitments and contingencies.............................................................
Stockholders' equity:
Common stock, $.01 par value; 25,000,000 shares authorized; 15,258,722 and 15,313,152
issued and outstanding................................................................ 152 153
Additional paid-in capital.............................................................. 160,269 161,530
Retained earnings....................................................................... 92,536 103,398
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Total liabilities and stockholders' equity............................................ $ 351,979 $ 462,226
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The accompanying notes are an integral part of this statement.
5
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DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
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NINE MONTHS ENDED
MARCH 31,
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1998 1999
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Cash flows from operating activities:
Net income............................................................................ $ 25,249 $ 10,862
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization....................................................... 23,159 29,284
Other............................................................................... (1,035) (1,505)
Cash provided (used) by changes in assets and liabilities:
Accounts receivable............................................................... (13,446) 3,578
Inventories....................................................................... 569 4,198
Prepaid expenses and other current assets......................................... (3,939) (4,264)
Accounts payable.................................................................. 17,648 (12,757)
Other accrued liabilities......................................................... 5,027 2,518
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Net cash provided by operating activities....................................... 53,232 31,914
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Cash flows from investing activities:
Capital expenditures.................................................................. (84,266) (63,926)
Payment for acquisitions.............................................................. (28,344) (40,355)
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Net cash used in investing activities........................................... (112,610) (104,281)
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Cash flows from financing activities:
Increase in borrowings................................................................ 23,769 88,253
Proceeds from issuance of common stock................................................ 1,098 876
Increase in minority interest in net assets of joint venture.......................... 16,394
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Net cash provided by financing activities....................................... 24,867 105,523
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Effect of exchange rate changes on cash................................................. (963) (1,669)
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Net increase (decrease) in cash and cash equivalents.................................... (35,474) 31,487
Cash and cash equivalents at beginning of period........................................ 51,351 19,688
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Cash and cash equivalents at end of period.............................................. $ 15,877 $ 51,175
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The accompanying notes are an integral part of this statement.
6
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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 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 1998 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 primarily of raw materials.
NOTE 3--BORROWINGS AND STOCKHOLDERS' EQUITY
In March 1999, the company completed a secondary public offering of its
common stock. The company did not receive any proceeds from the sale of common
stock by E.I. du Pont de Nemours and Company. After the offering, DuPont owns
approximately 54% of the company. Additionally, the Company has amended its
credit agreement with DuPont to add a second credit facility with an additional
borrowing capacity of $100,000. The new credit facility has a term of three
years and outstanding amounts bear interest at 0.25% per annum for the first two
years and LIBOR plus 0.25% per annum for the third year. The amended credit
agreement contains, among other things, covenants restricting the company's
ability to incur additional debt.
NOTE 4--COMMITMENTS AND CONTINGENCIES
The company and United Microelectronics Corporation have established a joint
venture to produce photomasks in Taiwan. There can be no assurance that the
joint venture will yield results that are favorable to the company. Furthermore,
the company began construction on a new photomask production facility in
Singapore designed to service the growing number of semiconductor manufacturers
in Southeast Asia. The company began construction on, and subsequently announced
a delay in completion of, a new photomask production facility in Gresham, Oregon
designed to service the growing number of semiconductor manufacturers in the
northwest United States. 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.
The company entered into an agreement with Etec to upgrade its existing
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 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. 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.
7
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DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 4--COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 5--RECLASSIFICATIONS AND RESTATEMENTS
Certain prior year balances have been reclassified to conform to 1999
presentation.
8
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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 company's financial
statements and related notes thereto. References to years are to fiscal years
ended June 30. Results for interim periods are not necessarily indicative of
results for the year.
OVERVIEW
Based on worldwide sales, the company believes it is the largest photomask
manufacturer in the world. It sells its products to over 200 customers in 20
different countries. Essentially all sales are to customers in the semiconductor
manufacturing industry. The company manufactures a broad range of photomasks
based on customer-supplied design data as well as photoblanks and pellicles, the
principal components of photomasks, primarily for internal consumption. The
company operates globally with established manufacturing facilities in North
America, Europe and Asia.
Photomask manufacturing operations are capital intensive. Accordingly, at a
given threshold of manufacturing capacity, a high proportion of the company's
operating costs are fixed and remain relatively constant as sales volume
increases or decreases. To the extent that the company has under-utilized
production capacity, operating profit increases or decreases significantly as
sales volume increases or decreases. In the early 1990's, the company had excess
capacity. Therefore, as sales increased through 1997, costs associated with
manufacturing remained relatively unchanged and the company's operating margin
over the period increased. In 1998, the company's operating cost on an absolute
basis increased more than sales. As a result, the company's operating margin
declined. The company anticipates that operating costs will continue to increase
as it adds capacity to position itself for future growth. If sales growth does
not keep pace with increases in operating costs, operating margin will be
negatively impacted.
RESULTS OF OPERATIONS
SALES. Sales are comprised primarily of photomask sales to semiconductor
manufacturers. Sales decreased 0.6% from $67.6 million in the quarter ended
March 31, 1998 to $67.2 million in the quarter ended March 31, 1999. Average
selling price decreases were offset by unit volume growth in this period. Sales
in North America and Asia increased from $37.9 million and $11.4 million in the
quarter ended March 31, 1998 to $40.1 million and $13.7 million in the quarter
ended March 31, 1999 primarily as a result of increased unit volume and
favorable product mix. Sales in Europe decreased from $18.3 million in the
quarter ended March 31, 1998 to $13.3 million in the quarter ended March 31,
1999 primarily as a result of competitive pricing pressure. Sales decreased 6.7%
from $203.7 million in the nine months ended March 31, 1998 to $190.0 million in
the nine months ended March 31, 1999. Sales in North America, Europe and Asia
decreased from $114.4 million, $49.6 million and $39.7 million in the nine
months ended March 31, 1998 to $111.2 million, $39.4 million and $39.4 million
in the nine months ended March 31, 1999. Average selling price decreases
accounted for approximately 80% of the revenue decrease in this period. The
balance of the revenue decrease came from decreased unit volume. However, the
company continues to experience an increase in demand for advanced photomasks.
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 from $45.2 million in
the quarter ended March 31, 1998 to $47.4 million in the quarter ended March 31,
1999 and increased from $134.2 million in the nine months ended March 31, 1998
to $135.9 million in the nine months ended March 31, 1999. The increases result
primarily from higher costs associated with increased manufacturing capacity
offset in part by ongoing cost containment initiatives. As a percentage of
sales, cost of goods sold increased from 66.9% in the quarter ended
9
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March 31, 1998 to 70.6% in the quarter ended March 31, 1999 and increased from
65.9% in the nine months ended March 31, 1998 to 71.5% in the nine months ended
March 31, 1999. The percentage of sales increase was primarily due to margin
compression as a result of competitive pricing pressures, 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. Selling,
general and administrative expense as a percentage of sales increased from 10.4%
in the quarter ended March 31, 1998 to 12.9% in the quarter ended March 31, 1999
and increased from 11.1% in the nine months ended March 31, 1998 to 12.9% in the
nine months ended March 31, 1999. The increase as a percentage of sales was
primarily the result of lower sales. Selling, general and administrative expense
increased 22.7% from $7.1 million in the quarter ended March 31, 1998 to $8.7
million in the quarter ended March 31, 1999 and increased 8.3% from $22.7
million in the nine months ended March 31, 1998 to $24.6 million in the nine
months ended March 31, 1999. The increases were primarily the result of
increased selling expenses in Asia associated with new ventures. The company
anticipates that selling, general and administrative expense will continue to
increase in the future.
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 $3.4 million in the quarter ended March 31, 1998 to $4.6 million in the
quarter ended March 31, 1999 and increased from $9.7 million in the nine months
ended March 31, 1998 to $12.3 million in the nine months ended March 31, 1999.
The increases were due primarily to increased focus on research and development
at the company's facility in Ichon, the company's joint venture participation
with Advanced Micro Devices, Micron Technology and Motorola in a limited
liability company called the RTC which was formed to develop advanced photomask
technology and fabricate leading-edge photomasks and a non-recurring technology
licensing fee. 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 dollars
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 (INCOME) EXPENSE. Other (income) expense was $0.2 million in the
quarters ended March 31, 1998 and 1999 and was ($0.3 million) in the nine months
ended March 31, 1998 and $1.7 million in the nine months ended March 31, 1999.
The increase during the nine months relates primarily to interest expense on the
company's credit agreement as discussed below.
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. Certain of the company's operations are
subject to a government granted tax exemptions.
MINORITY INTEREST IN LOSS OF JOINT VENTURE. The minority interest impact of
the company's joint ventures were ($0.7 million) in the nine months ended March
31, 1998 and were ($0.2 million) in the nine months ended March 31, 1999.
Minority interest reflects the partner's share of losses from the joint venture.
10
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LIQUIDITY AND CAPITAL RESOURCES
The company's working capital was $33.1 million at June 30, 1998 and $74.7
million at March 31, 1999. The increase in working capital is due principally to
higher cash resulting from borrowings on the company's credit agreement as
discussed below and lower accounts payable. Cash and cash equivalents were $19.7
million at June 30, 1998 and $51.2 million at March 31, 1999. Cash provided by
operations was $53.2 million in the nine months ended March 31, 1998 and $31.9
million in the nine months ended March 31, 1999.
Cash used in investing activities (capital expenditures and payment for
acquisition) was $112.6 million in the nine months ended March 31, 1998 and
$104.3 million in the nine months ended March 31, 1999. Management expects
capital expenditures for the remainder of 1999 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 $24.9 million in the nine months
ended March 31, 1998 and $105.5 million in the nine months ended March 31, 1999
and primarily reflects net borrowings on the company's credit agreement.
Pursuant to the company's credit agreement with DuPont, DuPont originally agreed
to provide a credit facility in an aggregate amount of $100.0 million. This
credit facility expires in 2001 and any loans thereunder will bear interest at
LIBOR plus 25 basis points. At the company's option, advances under this credit
facility are convertible into term loans with maturities up to seven years. The
company has borrowed a maximum of $64.0 million under this credit facility and
at March 31, 1999 no borrowings were outstanding under this credit facility. The
company has amended its credit agreement with DuPont to add a second credit
facility with an additional borrowing capacity of $100.0 million. The new credit
facility has a term of three years and outstanding amounts bear interest at
0.25% per annum for the first two years and LIBOR plus 0.25% per annum for the
third year. The company has borrowed a maximum of $100.0 million under this
credit facility and at March 31, 1999 borrowings of $100.0 million were
outstanding under this credit facility. The amended 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 and
United Microelectronics Corporation have established a joint venture to produce
photomasks in Taiwan. Furthermore, the company began construction on a new
photomask production facility in Singapore, began construction on, and
subsequently delayed completion of, a new photomask production facility in
Gresham, Oregon, and entered into an agreement with Etec to upgrade its existing
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 operations and the credit agreement 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.
11
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OTHER MATTERS
CHANGING ACCOUNTING STANDARDS. In June 1998, the Financial Accounting
Standards Board issued FAS 133 which is not expected to have a material impact
on the company.
CURRENCY EXPOSURES. 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 company's 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, French Franc and Japanese Yen 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.
YEAR 2000 ISSUES. Many currently installed computer systems are not capable
of distinguishing 21st century dates from 20th century dates. As a result, in
less than one year, computer systems and/or software used by many companies in a
wide variety of applications will experience operating difficulties unless they
are modified or upgraded to adequately process information involving, related to
or dependent upon the century change. Significant uncertainty exists concerning
the scope and magnitude of problems associated with the century change.
The company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures and has established a project
team to address Year 2000 risks. The project team has coordinated the
identification of and is coordinating the implementation of changes to computer
hardware and software applications that will attempt to ensure availability and
integrity of the company's information systems and the reliability of its
operational systems and manufacturing processes. The company has also assessed
the potential overall impact of the impending century change on its business,
results of operations and financial position.
The company has reviewed its information and operational systems and
manufacturing processes in order to identify those products, services or systems
that are not Year 2000 compliant. As a result of this review, the company has
determined that it will be required to modify or replace certain information and
operational systems so they will be Year 2000 compliant. These modifications and
replacements are being, and will continue to be, made in conjunction with the
company's overall systems initiatives. As of March 31, 1999, the company has
spent approximately $0.8 of the currently estimated $2.0 million total cost of
the Year 2000 compliance program. Costs incurred and expected to be incurred
consist of the costs of programmers, including third party consultants, utilized
to write software patches and to update applications and operating systems.
Funds for the Year 2000 compliance program being provided from available working
capital. The company's Year 2000 project is on schedule to be completed during
1999. Based on available information, the company does not believe any material
exposure to significant business interruption exist as a result of Year 2000
compliance issues. Accordingly, the company has not adopted any formal
contingency plan in the event that its Year 2000 project is not promptly
completed. These costs and the timing in which the company plans to complete its
Year 2000 modification and testing processes are based on management's best
estimates. However, there can be no assurance that the company will timely
identify and remediate all significant Year 2000 problems, that remediation
efforts will not involve significant time and expense, or that such problems
will not have a material adverse effect on the company's business, results of
operations or financial position.
The company also faces risk to the extent that suppliers of products,
services and systems purchased by the company and others with whom the company
transacts business on a worldwide basis do not comply
12
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with Year 2000 requirements. The company has initiated formal communications
with significant suppliers and customers to determine the extent to which the
company is vulnerable to these third parties failure to remediate their own Year
2000 issues. Areas being addressed include major third-party suppliers as well
as full reviews of our manufacturing equipment, telephone and voice mail
systems, security systems and other office support systems. Most of our
equipment suppliers are providing patches which will be tested and installed by
the end of fiscal 1999. In the event these third parties cannot provide the
company with products, services or systems that meet the Year 2000 requirements
on a timely basis, or in the event Year 2000 issues prevent such third parties
from timely delivery of products or services required by the company, the
company's results of operations could be materially adversely affected. To the
extent Year 2000 issues cause significant delays in, or cancellation of,
decisions to purchase the company's products or services, the company's
business, results of operations and financial position would be materially
adversely affected.
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, pricing pressures,
potential acquisitions and joint ventures, new manufacturing facilities, capital
expenditures, the global economic climate, 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
financing and the company's strategy. Such forward-looking statements are
generally accompanied by words such as "intend," "may," "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. Factors which
could cause or contribute to such differences include, but are not limited to,
those factors set forth below which are fully discussed under the caption "Risk
Factors" in the company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on September 18, 1998 as well as cautionary statements
and other factors set forth elsewhere herein. Risk Factors: (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
Form 8-K, dated February 18, 1999, filed in connection with the company's
proposed private offering of convertible subordinated notes and the company's
secondary public offering registration statement.
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 9, 1999 By: /s/ J. MICHAEL HARDINGER
-----------------------------------------
J. Michael Hardinger
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER (PRINCIPAL EXECUTIVE OFFICER)
Date: May 9, 1999 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, 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>
QUARTER ENDED
MARCH 31, 1999
--------------------------
BASIC DILUTED
------------ ------------
<S> <C> <C>
Weighted average shares outstanding............................................. 15,307,852 15,307,852
Dilutive effect of stock performance plans...................................... 610,825
------------ ------------
15,307,852 15,918,677
------------ ------------
Net income...................................................................... $ 4,455 $ 4,455
------------ ------------
Earnings per share.............................................................. $ 0.29 $ 0.28
------------ ------------
<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
------------ ------------
<CAPTION>
NINE MONTHS ENDED
MARCH 31, 1999
--------------------------
BASIC DILUTED
------------ ------------
<S> <C> <C>
Weighted average shares outstanding............................................. 15,293,067 15,293,067
Dilutive effect of stock performance plans...................................... 440,950
------------ ------------
15,293,067 15,734,017
------------ ------------
Net income...................................................................... $ 10,862 $ 10,862
------------ ------------
Earnings per share.............................................................. $ 0.71 $ 0.69
------------ ------------
</TABLE>
At March 31, 1999, the company had outstanding anti-dilutive commitments
under its stock performance plans covering 125,650 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-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 51,175
<SECURITIES> 0
<RECEIVABLES> 45,568
<ALLOWANCES> 0
<INVENTORY> 14,879
<CURRENT-ASSETS> 134,247
<PP&E> 531,834
<DEPRECIATION> 232,034
<TOTAL-ASSETS> 462,226
<CURRENT-LIABILITIES> 59,569
<BONDS> 105,510
0
0
<COMMON> 153
<OTHER-SE> 264,928
<TOTAL-LIABILITY-AND-EQUITY> 462,226
<SALES> 190,031
<TOTAL-REVENUES> 190,031
<CGS> 135,897
<TOTAL-COSTS> 135,897
<OTHER-EXPENSES> 12,306
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,691
<INCOME-PRETAX> 15,535
<INCOME-TAX> 4,881
<INCOME-CONTINUING> 10,862
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,862
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.69
</TABLE>
