SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended ...October 31, 1996...
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from................. to ................
Commission file number...0-15451...
...PHOTRONICS, INC....
(Exact name of registrant as specified in its charter)
...Connecticut... ...06-0854886...
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
...1061 East Indiantown Road, Jupiter, Florida... ..33477..
(Address of principal executive offices) (Zip Code)
...(561) 745-1222...
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on which
Title of each class registered
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
.....Common Stock, $0.01 par value per share.....
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ..X.. No .....
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained to the best of registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
As of December 31, 1996, 11,837,490 shares of the registrant's Common Stock
were outstanding. The aggregate market value of registrant's voting stock
held by non-affiliates of the registrant as of December 31, 1996 was
approximately $278,630,000.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the 1997 Incorporated into Part
Annual Meeting of Shareholders III of this Form 10-K.
to be held on March 20, 1997.
<PAGE>
PART I
ITEM 1. BUSINESS
General
Photronics, Inc. (the "Company") is a leading manufacturer of
photomasks, which are high precision photographic quartz plates
containing microscopic images of electronic circuits. Photomasks are a
key element in the manufacture of semiconductors and are used as masters
to transfer circuit patterns onto semiconductor wafers during the
fabrication of integrated circuits and, to a lesser extent, other types
of electrical components.
During fiscal 1996, the Company significantly expanded its
operations outside of the United States through the acquisition of
existing photomask operations located in Europe and the establishment of
manufacturing operations in Singapore. In addition, the Company
acquired an equity interest in a photomask manufacturing operation in
Korea. The Company also continued its aggressive investment program in
its manufacturing operations in the United States with the construction
of new state-of-the-art manufacturing facilities and the addition of
leading edge manufacturing systems to its manufacturing operations.
As part of its expansion into the European photomask market, on
January 24, 1996, the Company acquired the photomask manufacturing
assets of Plessey Semiconductors Limited ("Plessey") and became the
photomask supplier to Plessey. The transaction included the purchase of
the photomask manufacturing assets of Plessey and a lease to occupy the
facilities previously utilized by Plessey for manufacturing photomasks.
The operations acquired represent a modern photomask manufacturing
operation located in the Manchester, United Kingdom, region, which were
dedicated to supporting Plessey's internal requirements for photomasks.
The acquisition was funded with available cash reserves. The Company
has continued to operate this facility in place while it is constructing
a new facility for the relocation of these operations on land owned by
it in the Manchester area. It is expected that the new facility will
commence operations in the second half of fiscal 1997.
On April 1, 1996, the Company acquired the Litomask Division
("Litomask") of Centre Suisse d'Electronique et de Microtechnique, S.A.
("CSEM") located in Neuchatel, Switzerland. The transaction included
the purchase of the photomask manufacturing assets of CSEM and a lease
to occupy the facilities previously utilized by CSEM for manufacturing
photomasks. The operations acquired represent a modern photomask
manufacturing operation which supported CSEM and its shareholders as
well as outside customers. The acquisition was funded with available
cash reserves. As part of the transaction, CSEM retained a minority
interest in the Photronics subsidiary company which holds the acquired
operations, subject to Photronics' right to acquire this retained
interest. The Company continues to operate this facility in place.
In May, 1996, the Company acquired a minority interest in P.K.
Limited of Korea ("PKL"), formerly a division Anam S&T Co. PKL is an
independent photomask manufacturer maintaining an advanced manufacturing
operation in Korea. The Company has an option to acquire additional
equity interests in PKL which, if acquired, would give the Company a
majority interest. The initial investment in PKL was funded with
available cash reserves.
<PAGE>
In August and October 1996, the Company held official grand
openings of its new state-of-the-art manufacturing facilities in
Singapore and Allen, Texas, respectively. As part of the establishment
of the Allen, Texas facility, the Company relocated its manufacturing
operations in Dallas, Texas to the new facility and vacated its Dallas
premises. In August 1996, the Company also commenced construction of an
Austin, Texas facility on land owned by it. It is expected that the
Austin facility will commence operations late in fiscal 1997 or early
fiscal 1998.
In addition to its other efforts during 1996, the Company has
continued to focus on maintaining technological leadership at its
existing facilities. As a result, the Company has increased its
research and development activities and has continued to invest in
advanced manufacturing equipment to allow it to meet future
technological and volume demands.
The Company believes that its efforts have established it as a
leading independent photomask manufacturer on a global basis and
provided it with the facilities and expertise to continue to expand its
sales base.
The Company, through its wholly owned subsidiary Beta Squared Inc.
("Beta"), sells and services wafer plasma etching systems and engages in
the sale of refurbished semiconductor manufacturing equipment,
engineering services and replacement parts and field service for such
equipment on a third-party basis.
The Company is a Connecticut corporation, organized in 1969. Its
principal executive offices are located at 1061 East Indiantown Road,
Jupiter, Florida, telephone (561) 745-1222.
Products and Services
The Company manufactures photomasks, which are primarily used as
masters to transfer circuit patterns onto semiconductor wafers. The
Company's photomasks are manufactured in accordance with circuit designs
provided on a confidential basis by its customers. Each circuit design
consists of a series of separate patterns, each of which is imaged onto
a different photomask. The resulting series of photomasks is then used
by the customer to successively layer the patterns onto a semiconductor
wafer. While advanced photomasks generally have an indefinite life span
and are not customarily consumed by customers' manufacturing processes,
the demand for photomasks has increased with the growth in the number of
new semiconductor designs as applications for semiconductors have
expanded and the use of application specific (or custom) integrated
circuits ("ASIC") has increased. Further, the increase in complexity of
integrated circuits has increased the number of photomasks used in the
manufacture of a single circuit.
The Company currently manufactures photomasks using electron beam
or laser-based technologies and, to a significantly lesser degree,
optical-based technologies. A laser-based or electron beam system is
capable of producing the finer line resolution, tighter overlay and
larger die size for the larger and more complex circuits currently being
designed. Laser and electron beam generated photomasks can be used with
the most advanced processing techniques to produce very large scale
integrated circuit ("VLSI") devices. The Company currently owns a
number of CORE and ALTA laser writing systems and MEBES electron beam
systems and has made commitments to purchase additional advanced systems
to maintain technological superiority. The CORE and ALTA laser-based
systems and the MEBES electron beam systems are the predominant
lithography systems used for photomask manufacture worldwide.
<PAGE>
Compared to laser or electron beam generated photomasks, the
production of photomasks by the optical method is less expensive, but
also less precise. The optical method is traditionally used on less
complex and lower priced photomasks.
The first several levels of photomasks frequently are required to
be delivered by the Company within 24 hours of receiving a customer's
design. The ability to manufacture high quality photomasks within short
time periods is dependent upon efficient manufacturing methods, high
yields and high equipment reliability. The Company believes it meets
these requirements and has made significant investments in manufacturing
and data processing systems and statistical process control methods to
optimize the manufacturing process and reduce cycle times.
Quality control is an integral part of the photomask manufacturing
process. Photomasks are manufactured in temperature, humidity and
particulate controlled cleanrooms because of the high level of
precision, quality and yields required. Each photomask is inspected
several times during the manufacturing process to ensure compliance with
customer specifications. The Company has made a substantial investment
in equipment to inspect and repair photomasks and to ensure that
customer specifications are met. After inspection and any necessary
repair, the Company utilizes technological processes to clean the
photomasks prior to shipment.
In addition to the manufacture of photomasks, the Company, through
Beta, manufactures, sells and services a wafer plasma etching system
used in the processing of semiconductor wafers. The original system was
developed by Texas Instruments Incorporated ("Texas Instruments") which
licensed to Beta the right to manufacture and sell the system. Beta
also sells refurbished semiconductor manufacturing equipment,
engineering services and replacement parts and field service for such
equipment on a third-party basis. Such activities represented
approximately 5% of the Company's sales during fiscal 1996.
Research and Development
The Company has ongoing research and development programs which are
intended to enhance the Company's leadership in terms of technology and
manufacturing efficiency. Since 1994, the Company has increased its
commitment to research and development activities and current efforts
include deep ultra-violet, phase-shift and optical proximity correction
photomasks for advanced semiconductor manufacturing as well as large
area photomasks for other applications. Phase-shift and optical
proximity correction photomasks use advanced lithography techniques for
enhanced resolutions of images on a semiconductor wafer. The Company
incurred expenses of $8.5 million, $7.9 million (including a non-
recurring charge of $1.5 million in connection with an acquisition) and
$4.7 million for research and development in 1996, 1995 and 1994,
respectively. The Company also leverages the investments in research
and development made by its equipment and material suppliers. While the
Company believes that it possesses valuable proprietary information and
has received licenses under certain patents, the Company does not
believe that patents are a material factor in the photomask
manufacturing business and it holds only one patent.
<PAGE>
Materials and Supplies
Raw materials utilized by the Company generally include high
precision quartz plates, which are used as photomask blanks, primarily
obtained from Japanese suppliers (including Toppan Printing Co., Ltd.
["Toppan"] and Hoya Corporation ["Hoya"]), pellicles (which are
protective transparent cellulose membranes) and electronic grade
chemicals used in the manufacturing process. Such materials are
generally available from a number of suppliers and the Company is not
dependent on any one supplier for its raw materials. The Company has
established purchasing arrangements with each of Toppan and Hoya and it
is expected that the Company will purchase substantially all of its
photomask blanks from Toppan and Hoya so long as their price, quality,
delivery and service are competitive.
Sales and Marketing
The market for photomasks consists primarily of semiconductor
manufacturers and designers, both domestic and international, including
semiconductor manufacturers that have the capability to manufacture
photomasks. Since the mid-1980s, in the United States and Europe there
has been a trend toward the divestiture or closing of captive photomask
manufacturing operations by semiconductor companies, and an increase in
the purchase of photomasks from independent photomask manufacturers.
These trends create a greater market opportunity for the Company and the
Company believes they are due to various reasons including the
increasing capital requirements and costs related to these operations,
the presence of a cost effective source of supply from independent
suppliers such as the Company and a general desire by semiconductor
manufacturers to focus on core business matters.
During the early 1990s, the total photomask market was relatively
flat. This resulted from a number of factors, including: (i)
recessionary pressures on the semiconductor industry; (ii) improvements
in design technology which reduced the number of design iterations
required to create a functioning semiconductor design; (iii) shortened
photomask delivery cycles (less than 24 hours), which reduced the need
for back-up photomask sets; and (iv) changes that resulted in advanced
photomasks having a relatively indefinite life span which reduced the
need for replacement photomasks.
Beginning in late 1993, independent manufacturers experienced
increased demand as a result of several factors. First, the Company
believes that semiconductor design activity increased due both to new
generic semiconductor designs and proliferating use of ASICs, each of
which requires a separate set of photomasks. In addition, the Company
believes factors that adversely affected the photomask industry in the
early 1990s no longer significantly affected the growth in demand for
photomasks. Other factors include the additional semiconductor
fabrication facilities established by manufacturers as well as
increasing device complexity and the decreasing size of semiconductor
designs. For example, according to industry statistics, a typical 16
Mbit DRAM in production today utilizes 18 photomasks compared to 14
photomasks for a 1 Mbit DRAM.
<PAGE>
The Company conducts its marketing activities through a staff of
full-time sales personnel and customer service representatives who work
closely with the Company's general management and technical personnel.
In addition to the sales personnel at the Company's manufacturing
facilities in Brookfield, Connecticut; Milpitas and Sunnyvale,
California; Colorado Springs, Colorado; Allen, Texas; Manchester, United
Kingdom; Neuchatel, Switzerland and Singapore, the Company has sales
offices in Carlsbad, California; Austin, Texas; Raleigh, North Carolina,
Hillsboro, Oregon; Lancaster, United Kingdom; and Taiwan.
The Company supports international customers through both its
domestic and foreign facilities. The Company also has sub-contract
manufacturing arrangements in Taiwan. The Company considers its
presence in international markets important to attracting new customers,
to providing global solutions to its existing customers and to service
certain customers' manufacturing foundries outside of the United States,
principally in the Pacific Rim. Current customers include companies in
Taiwan, Singapore, the United Kingdom, Canada, Germany, Japan,
Switzerland, Italy and Australia. For a statement of the amount of net
sales, operating income or loss, and identifiable assets attributable to
the Company's geographic areas of operations, see Note 13 to the
Consolidated Financial Statements.
The Company has continually expanded its customer base. However,
as a result of the acquisition of the Company's Dallas, Texas operation
in 1993, Texas Instruments has become a more significant customer of the
Company, representing approximately 26% of net sales in 1996, and the
loss of Texas Instruments or a significant decrease in the amount of the
purchases by Texas Instruments from the Company could have a material
adverse effect on the Company. During 1996, no single customer other
than Texas Instruments accounted for more than 10% of the Company's net
sales. The Company's five largest customers, in the aggregate,
accounted for approximately 45% of net sales. In addition to Texas
Instruments, the Company's major customers include Analog Devices, Inc.,
LSI Logic Corp., Motorola, Inc. and VLSI Technology, Inc. During fiscal
1996, the Company sold its products and services to approximately 400
customers.
The Company typically negotiates an established price for a
customer's orders based on the customer's specifications in order to
expedite the placement of individual purchase orders. Some of these
prices may remain in effect for an extended period. The Company also
negotiates prices, and occasionally enters into purchase arrangements,
based on the understanding that, so long as the Company's performance is
competitive, the Company will receive a specified percentage of that
customer's photomask requirements. As part of the acquisition of the
Company's Dallas, Texas operation, the Company assumed an agreement with
Texas Instruments, which continues until March 31, 2000 and provides
that the Company is Texas Instruments' principal photomask supplier so
long as the Company's price, quality, service and delivery are
competitive. The agreement also requires the Company to ensure that
prices charged to Texas Instruments are not less favorable than those
otherwise extended by the Company to other customers with similar
specifications, volume, delivery and other requirements.
<PAGE>
Backlog
The first several levels of photomasks for a circuit are sometimes
required to be shipped within one day of receiving a customer's design.
Because of the short period between order and shipment dates (typically
from one day to two weeks) for the principal portion of the Company's
sales, the dollar amount of current backlog is not considered to be a
reliable indication of future sales volume.
Competition
The photomask industry is highly competitive and most of the
Company's customers utilize more than one photomask supplier. The
Company's ability to compete depends primarily upon the consistency of
product quality and timeliness of delivery, as well as pricing,
technical capability and service. The Company also believes that
proximity to customers is an important factor in certain markets.
Certain competitors have considerably greater financial and other
resources than the Company. The Company believes that it is able to
compete effectively because of its dedication to customer service, its
investment in state-of-the-art photomask equipment and its experienced
technical employees.
There has been a decrease since the mid-1980s in the number of
independent manufacturers as a result of some independents being
acquired or discontinuing operations. The Company believes that entry
into the market by a new independent manufacturer would require a major
investment of capital, a significant period of time to establish a
commercially viable operation and additional time to attain meaningful
market share and achieve profitability. In prior years, competition and
relatively flat demand led to pressure to reduce prices which the
Company believes contributed to the decrease in the number of
independent manufacturers. Although independent photomask manufacturers
have experienced increased demand since late 1993, there can be no
assurance that past trends in pricing and demand will not re-emerge.
Based upon market information available to it, the Company believes
that it is one of the four largest independent photomask manufacturers
in the world and the largest in the United States. Competitors in the
United States include DuPont Photomasks ("DuPont") and Align-Rite
International ("Align-Rite"); and in the international market, Dai
Nippon Printing, Toppan, Hoya, DuPont, Taiwan Mask Corp., Innova, Align-
Rite and Compugraphics. In addition, some of the Company's customers
possess their own facilities for manufacturing photomasks and certain
manufacturers market their photomask manufacturing services to outside
customers as well as to their internal organization. The Company
competes for business with these and other companies' internal
facilities.
Employees
As of October 31, 1996, the Company employed a total of
approximately 900 persons on a full-time basis. The Company believes
that it offers competitive compensation and other benefits and that its
employee relations are good. Except for employees in the United
Kingdom, none of the Company's employees is represented by a union.
<PAGE>
ITEM 1A. EXECUTIVE OFFICERS OF REGISTRANT
The names of the executive officers of the Company are set forth
below, together with the positions held by each person in the Company.
All executive officers are elected annually by the Board of Directors
and serve until their successors are duly elected and qualified.
SERVED AS AN
NAME AND AGE POSITION OFFICER SINCE
------------ -------- -------------
Constantine S. Macricostas, 61 Chairman of the 1974
Board,
Chief Executive
Officer and Director
Michael J. Yomazzo, 54 President, 1977
Chief Operating
Officer and Director
Jeffrey P. Moonan, 40 Senior Vice President, 1988
General Counsel and
Secretary
Robert J. Bollo, 52 Vice President/Finance 1994
and Chief Financial
Officer
The terms of certain financing for the Company specify that if Mr.
Macricostas ceases to maintain day-to-day control of the Company, Mr.
Yomazzo, or another acceptable replacement, must assume such duties,
otherwise the Company may be declared in default.
For the past five years each of the executive officers of the
Company held the office shown, except as follows:
Mr. Macricostas also serves as a Director of Nutmeg Federal Savings
and Loan Association, of InteliData Technologies Corporation, a provider
of caller identification based telecommunications devices, smart
telephone and on-line electronic information services, and the DII
Group, Inc., a supplier of integrated electronic manufacturing products
and services.
Michael J. Yomazzo has been President and Chief Operating Officer
since January 1994. From November 1990 until January 1994, he served as
Executive Vice President and Chief Financial Officer.
Jeffrey P. Moonan has been Senior Vice President since January 1994
and General Counsel and Secretary since July 1988. From July 1989 until
January 1994, he also served as Vice President/Administration.
Robert J. Bollo has been Vice President/Finance and Chief Financial
Officer since November 1994. From August 1994 to November 1994, he
served as Director of Finance. From April 1992 to July 1994, he was a
Principal of CFO Associates, Inc., a financial management firm. Prior
to April 1992, he was with Kollmorgen Corporation, serving as a Vice
President since January 1990 and Controller and Chief Accounting Officer
from February 1985 until January 1990.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company's properties include buildings in which the Company
currently conducts manufacturing operations or is constructing
facilities for future manufacturing operations. The following table
presents certain information about the Company's manufacturing
facilities.
Facility Size Type of
Location (sq.ft.) Interest
-------------- ------------- --------
Brookfield, CT 19,600 Owned
(Building #1)
Brookfield, CT 20,000 Leased
(Building #2)
Milpitas, CA 49,000 Leased
(2 buildings)
Sunnyvale, CA 40,000 Owned
(3 buildings)
Colorado Springs, CO 27,000 Leased
Allen, TX 60,000 Owned
Austin, TX 50,000 Owned
(under construction)
Oldham, UK 13,000 Leased
(current facility)
Manchester, UK 42,000 Owned
(new facility under
construction)
Neuchatel, Switzerland 7,000 Leased
Singapore 20,000 Leased
Lease terms range from less than one year for facilities from which
the Company is planning to relocate, to up to five years with options to
renew for other facilities. In addition, the Company leases office
space in Jupiter, Florida; Austin, Texas; Carlsbad, California;
Hillsboro, Oregon and certain adjacent property in Brookfield,
Connecticut.
The Company believes it has made adequate arrangements for the
lease or ownership of its current manufacturing facilities and
continually evaluates opportunities for further expansion, both
domestically and internationally.
The leased properties in Brookfield, Connecticut, are leased from
entities controlled by Constantine S. Macricostas under fixed lease
rates which were determined by reference to fair market value rates at
the beginning of the respective lease term.
<PAGE>
For the year ended October 31, 1996, the Company leased real
property and equipment at an aggregate annual rental of approximately
$2.3 million and $3.3 million, respectively.
Other than new manufacturing facilities or equipment which have not
yet been placed into service, the Company believes it substantially
utilized its facilities during the 1996 fiscal year.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal
proceedings, nor is the property of the Company subject to any such
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of the Company's fiscal year ended October 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
The Common Stock of the Company is traded in the over-the-counter
market on the NASDAQ National Market System (NMS) under the symbol PLAB.
The table below shows the range of high and low sale prices per share
for each quarter for fiscal year 1996 and 1995, as reported on the
NASDAQ NMS. All per share prices have been adjusted for a three-for-two
stock split effected in March 1995.
High Low
------ ------
Fiscal Year Ended October 31, 1996:
Quarter Ended January 31, 1996 $32.75 $19.25
Quarter Ended April 30, 1996 27.50 18.75
Quarter Ended July 31, 1996 30.00 19.75
Quarter Ended October 31, 1996 35.00 24.75
Fiscal Year Ended October 31, 1995:
Quarter Ended January 31, 1995 $20.50 $16.00
Quarter Ended April 30, 1995 24.50 19.17
Quarter Ended July 31, 1995 36.00 21.75
Quarter Ended October 31, 1995 40.48 25.50
On December 31, 1996, the closing sale price for the Common Stock
as reported by NASDAQ was $27.25. Based on information available to the
Company, the Company believes it has approximately 7,500 beneficial
shareholders.
The Company has not paid any cash dividend to date and, for the
foreseeable future, anticipates that earnings will continue to be
retained for use in its business.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is derived from the
Company's consolidated financial statements. The data should be read in
conjunction with the consolidated financial statements and notes thereto
and other financial information included elsewhere in this Form 10-K.
Common stock and per share amounts have been restated to give effect for
the three-for-two stock split effected in March 1995.
<TABLE>
<CAPTION> Years Ended October 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- ------- ------- -------
(in thousands, except per share amounts)
<S>
OPERATING DATA:
<C> <C> <C> <C> <C>
Net sales $160,071 $125,299 $80,696 $48,363 $41,305
Costs and expenses:
Cost of sales 98,267 76,683 51,204 32,048 27,142
Selling, general and
administrative 21,079 17,127 10,517 6,580 5,746
Research and development 8,460 7,899 4,738 2,744 2,549
-------- -------- ------- ------- -------
Operating income 32,265 23,590 14,237 6,991 5,868
Interest income 1,601 1,627 568 547 866
Interest expense (160) (141) (75) (101) (102)
Other income (expense), net 197 4,766 571 (1) 87
-------- -------- ------- ------- -------
Income before income taxes
and cumulative effect of
change in accounting for
income taxes 33,903 29,842 15,301 7,436 6,719
Provision for income taxes 12,900 11,210 5,202 2,528 2,352
-------- -------- ------- ------- -------
Income before cumulative effect
of change in accounting
for income taxes 21,003 18,632 10,099 4,908 4,367
Cumulative effect of change in
accounting for income taxes - - 237 - -
-------- -------- ------- ------- -------
Net income $ 21,003 $ 18,632 $10,336 $ 4,908 $ 4,367
======== ======== ======= ======= =======
Net income per share:
Income before cumulative effect
of change in accounting
for income taxes $1.74 $1.66 $1.01 $0.59 $0.55
Cumulative effect of change in
accounting for income taxes - - 0.02 - -
----- ----- ----- ----- -----
Net income $1.74 $1.66 $1.03 $0.59 $0.55
===== ===== ===== ===== =====
Weighted average number of
common shares outstanding 12,101 11,207 10,062 8,372 7,998
====== ====== ====== ===== =====
October 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- ------- ------- -------
BALANCE SHEET DATA:
Working capital $ 21,613 $ 49,653 $32,329 $17,577 $20,771
Property, plant and equipment 123,666 72,063 39,205 41,585 25,418
Total assets 211,903 174,218 98,346 74,441 52,026
Long-term debt 1,987 1,809 495 1,051 1,698
Shareholders' equity 156,417 134,045 80,402 62,626 44,011
Cash dividends declared per share - - - - -
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the
Years Ended October 31, 1996, 1995 and 1994
Overview
Photronics established itself as a multi-national Company during
the fiscal year ended October 31, 1996, acquiring two European
operations, opening a new, state-of-the-art manufacturing facility in
Singapore and acquiring a minority interest in PK Limited, a leading
independent photomask manufacturer in Korea. With the international
expansion in fiscal 1996, the Company expanded its five domestic
manufacturing site network to a global manufacturing network comprised
of nine manufacturing facilities, supporting semiconductor manufacturers
in the Asian, European and North American markets. Foreign and export
sales represented approximately 18% of total sales in fiscal 1996
compared with approximately 11% and 13% in fiscal 1995 and 1994,
respectively. The Company expects that the percentage of sales to
foreign markets will increase as a result of this expansion.
The European expansion included the acquisition of the photomask
manufacturing operations and assets of Plessey Semiconductors Limited
("Plessey") located in Oldham, United Kingdom, on January 24, 1996, and
the Litomask Division ("Litomask") of Centre Suisse d'Electronique et de
Microtechnique S.A. ("CSEM") located in Neuchatel, Switzerland, on April
1, 1996 (see Note 6 to the Consolidated Financial Statements).
Individually, neither of these acquisitions had a material effect on the
results of operations in fiscal 1996.
Sales and gross margins in fiscal 1996 were also affected by the
increased demand for higher technology photomasks, which have higher
average selling prices. To meet the customers' advanced photomask needs
and position itself for future growth, the Company continues to make
substantial investments in manufacturing technology and capacity both at
existing facilities and in new facilities. In addition to the Singapore
plant, the Company completed construction of its new state-of-the-art
facility in Allen, Texas, to which it relocated its Dallas operation in
the fourth quarter of fiscal 1996. Further, construction is currently
in progress on new facilities in Manchester, United Kingdom, to which
its Oldham, United Kingdom, operation will be relocated in fiscal 1997,
and on the Company's tenth manufacturing plant, a new facility near
Austin, Texas, which is expected to be operational in late fiscal 1997
or early fiscal 1998.
The Company acquired the photomask manufacturing operations and
assets of Hoya Micro Mask, Inc. ("Micro Mask") in Sunnyvale, California,
on December 1, 1994, and Microphase Laboratories, Inc. ("Microphase") in
Colorado Springs, Colorado, on June 20, 1995. The acquisition of Micro
Mask contributed significantly to the Company's growth in fiscal 1995
and, to a lesser extent, in fiscal 1996. Except for a non-recurring
charge in fiscal 1995 to research and development expenses (see Note 6
to the Consolidated Financial Statements), the financial results of the
new Colorado facility did not have a material effect on the Company's
results of operations or financial position.
<PAGE>
Sales
Net sales in fiscal 1996 increased 27.8% to $160.1 million compared
with net sales of $125.3 million in the prior fiscal year. The majority
of the growth was from increased shipments to customers from existing
facilities due to greater manufacturing capacity resulting from the
Company's capital expansion program, and from increased average selling
prices due to a larger proportion of higher technology photomask
shipments in fiscal 1996. Approximately 20% of the increase is
attributable to the European acquisitions, including sales to Plessey
under a long-term supply agreement which was executed in connection with
the acquisition. The increase in sales was also favorably affected by
the inclusion of a full year's sales for the Company's Colorado and
Sunnyvale facilities which were acquired during fiscal 1995 and
increased sales from the Company's wholly owned subsidiary, Beta
Squared, Inc. ("Beta"). Net sales for fiscal 1995 represented an
increase of 55.3% over fiscal 1994 sales of $80.7 million.
Approximately one-half of the fiscal 1995 increase was attributable to
the inclusion of the Company's new Sunnyvale facility, commencing
December 1, 1994. Furthermore, shipments to customers from existing
facilities increased due to stronger demand generally and greater
manufacturing capacity as the Company implemented its capacity expansion
program.
Cost of Sales
Cost of sales for fiscal 1996 increased 28.1% to $98.3 million
compared to $76.7 million for the prior fiscal year. These increases
resulted principally from increases in sales volume, including those
resulting from the Company's recent acquisitions. To meet the increased
production demands, the Company has increased its staffing levels and
manufacturing capacity, resulting in, among other things, increased
labor costs, depreciation expense and equipment maintenance costs. As
a percentage of net sales, cost of sales increased slightly to 61.4% in
fiscal 1996, compared with 61.2% in fiscal 1995. Improvements from
higher capacity utilization of the Company's installed equipment base
and a more favorable mix of advanced photomasks were offset by the
absorption of increased costs resulting from manufacturing capacity
expansion and lower margins generally at recently acquired operations,
at Beta, and on sales contracted to foreign manufacturing partners. The
Company anticipates that its fixed operating costs will increase in
connection with its continuing capacity expansion. While cost of sales
may increase initially, the Company expects to match these higher costs
with continued increases in revenues as the new facilities and equipment
progress to a higher level of utilization.
Cost of sales for fiscal 1995 increased 49.8% over fiscal 1994 cost
of sales of $51.2 million. This increase resulted principally from
increases in sales volume, including those resulting from the Micro Mask
acquisition. Staffing levels were increased to meet production demands
and higher employee incentive compensation expenses were incurred as a
result of the Company's performance. The addition of manufacturing
capacity resulted in increased equipment-related costs, including
maintenance and depreciation. However, as a percentage of net sales,
cost of sales in fiscal 1995 decreased to 61.2% from 63.4% in fiscal
1994. This improvement was due primarily to the continued higher
capacity utilization and greater operating efficiencies afforded by
sales volume increases, most notably at the Company's Dallas, Texas,
operation which was acquired from Toppan Printronics (USA), Inc. on
October 1, 1993, and a more favorable mix of more complex photomasks.
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 23.1% to
$21.1 million in fiscal 1996 compared to $17.1 million in fiscal 1995.
Nearly half of the increase was due to the addition of the Company's
foreign operations. The remaining increase primarily is attributable to
the inclusion of a full year's expenses for the Company's Colorado and
Sunnyvale facilities which were acquired during fiscal 1995 and
increased staffing levels to accommodate the Company's significant
growth, partially offset by lower incentive compensation expense. As a
percentage of net sales, selling, general and administrative expenses
decreased to 13.2% for fiscal 1996 compared to 13.7% in the prior fiscal
year, largely due to the lower level of employee incentive compensation
expense in fiscal 1996. Selling, general and administrative expenses in
fiscal 1995 increased 62.9% over fiscal 1994 expenses of $10.5 million.
This increase was principally due to the inclusion of the Company's
Sunnyvale facility and higher employee incentive compensation expenses
resulting from the Company's performance. Moreover, increased staffing
levels and other associated costs were incurred in the latter part of
1994 and in 1995 to accommodate the Company's business expansion. As a
percentage of net sales, selling, general and administrative expenses in
fiscal 1995 increased to 13.7% from 13.0% in fiscal 1994.
Research and Development
Research and development expenses for fiscal 1996 increased 7.1% to
$8.5 million from $7.9 million for the prior fiscal year. In connection
with the Microphase acquisition in fiscal 1995, the Company recorded a
one-time charge of $1.5 million, representing amounts assigned to
certain Microphase research and development projects, principally for
the manufacture of large area masks, which were expensed upon
acquisition. Excluding this non-recurring charge, research and
development expenses for fiscal 1996 increased approximately 32%
compared to fiscal 1995. This increase reflects the expansion of the
Company's research and development organization and the resulting
increase in its development efforts that have focused on new high-end,
more complex photomasks utilizing phase shift, optical proximity
correction and deep ultra-violet technologies, and on large area
photomasks. As a percentage of net sales, excluding the Microphase
charge, research and development expenses increased slightly to 5.3% in
fiscal 1996 from 5.1% in fiscal 1995. Research and development expenses
in fiscal 1995, excluding the Microphase charge, increased approximately
35% over fiscal 1994 expenses of $4.7 million. As a percentage of net
sales, research and development expenses, excluding the Microphase
charge, declined to 5.1% in fiscal 1995 from 5.9% of net sales in fiscal
1994 because of the substantial increase in net sales.
Other Income and Expense
Interest income for fiscal 1996 remained fairly constant at $1.6
million. Other income, net, decreased to $197,000 for fiscal 1996
compared to $4.8 million for the prior fiscal year principally due to
the $5.1 million net gain from the sales of equity investments during
fiscal 1995. Gains on disposition of investments in fiscal 1994 totaled
$831,000. Minority interest expense and foreign currency transaction
gains or losses were not significant in fiscal 1996.
<PAGE>
Income Taxes
For fiscal 1996, the Company provided Federal, state and foreign
income taxes at an estimated combined effective annual tax rate of 38.0%
as compared to 37.6% in fiscal 1995 and 34.0% in fiscal 1994. The
increase in the Company's estimated tax rate primarily is the result of
a decrease in tax-exempt investment income for fiscal 1996. The change
in the estimated tax rate from fiscal 1994 to fiscal 1995 was the result
of a larger portion of income being subject to the 35% incremental
Federal income tax rate and a greater portion of the Company's income
being generated in California following the Micro Mask acquisition. In
1994, the Company recognized the cumulative effect of the adoption of
SFAS 109, "Accounting for Income Taxes," resulting in a benefit of
$237,000, or $0.02 per share.
Net Income
Net income for fiscal 1996 amounted to $21.0 million, or $1.74 per
share, compared with $18.6 million, or $1.66 per share, in fiscal 1995
and $10.3 million, or $1.03 per share, in fiscal 1994. Excluding the
non-recurring research and development charge and the net gain from the
sale of equity investments in the third quarter of fiscal 1995 which
increased prior year net income by approximately $2 million, or $0.16
per share, net income for fiscal 1996 increased approximately 26%.
Earnings per share were based on 12.1 million weighted average shares
outstanding in fiscal 1996, compared with 11.2 million shares in 1995
and 10.1 million shares in 1994. The increases in weighted average
shares outstanding in fiscal 1996 and 1995 principally are the result of
a public offering of 1.5 million shares in April and May 1995 and the
issuance of approximately 100,000 shares in connection with the
Microphase acquisition in June 1995. All share and earnings per share
amounts reflect a three-for-two stock split effected in March 1995.
Liquidity and Capital Resources
The Company's cash, cash equivalents and short-term investments
decreased $25.2 million during fiscal 1996, largely as a result of $55.8
million of capital expenditures for building construction and equipment
in connection with the Company's expansion of manufacturing capacity and
$12.4 million for the acquisitions of the photomask manufacturing
operations and assets of Plessey and Litomask and the investment in PK
Limited. Offsetting these decreases were cash provided by operating
activities totaling $38.6 million, $2.8 million from sales of stock
under employee stock option and purchase plans and the receipt of
approximately $1 million of local government financial incentives to be
utilized for the Company's new Manchester (UK) operation.
<PAGE>
Accounts receivable increased to $24.8 million at October 31, 1996,
from $17.9 million at October 31, 1995, primarily as a result of higher
year-end sales levels, including sales by the new foreign operations,
and slower collections generally. Inventories increased to $8.0 million
at October 31, 1996, from $6.4 million at October 31, 1995, primarily
due to general increases to accommodate the escalating sales volume and
the addition of the foreign facilities. Other current assets increased
to $6.2 million at October 31, 1996, from $3.4 million at October 31,
1995, primarily due to an increase in prepaid income taxes and prepaid
expenses at the newly acquired foreign operations.
Property, plant and equipment increased to $123.7 million at
October 31, 1996, from $72.1 million at October 31, 1995. Deposits on
and purchases of equipment, building construction at the new Allen,
Texas and Singapore plants, and construction in progress on the new
Manchester and Austin, Texas facilities totaled $55.8 million and fixed
assets totaling $8.1 million were acquired in connection with the
Plessey and Litomask acquisitions. These increases were offset by
depreciation expense totaling $12.1 million. Intangible assets
decreased to $9.3 million at October 31, 1996, from $10.3 million at
October 31, 1995, primarily due to amortization expense in fiscal 1996.
Investments increased to $13.2 million at October 31, 1996, from
$12.3 million at October 31, 1995, due to the Company's investment in PK
Limited, offset by a decrease in the fair values of the Company's
available-for-sale investments during fiscal 1996.
Accounts payable increased to $34.2 million at October 31, 1996,
from $17.9 million at October 31, 1995, primarily due to increased
payables related to the completion of new facilities during the fourth
quarter, recent major equipment purchases, the addition of the foreign
operations and a higher level of purchases generally due to the
Company's growth. Other accrued liabilities decreased to $4.2 million
at October 31, 1996, from $6.1 million at October 31, 1995. This
decrease is largely attributable to the settlement of fees in connection
with the conclusion of several of the Company's expansion projects,
together with lower sales, use and property tax liabilities because of
the resolution of related assessments.
The Company did not incur any long-term debt during 1996. Long-term
debt increased $178,000 due to the imputation of interest on the
obligation incurred in connection with the Micro Mask acquisition.
Deferred income taxes decreased to $7.5 million at October 31, 1996,
from $8.3 million at October 31, 1995, largely due to a reduction in
unrealized gains on investments. Other liabilities increased to $2.1
million at October 31, 1996, from $265,000 at October 31, 1995,
principally due to financial incentives received in connection with the
Company's new Manchester operations, and minority interest associated
with the Company's Swiss subsidiary.
<PAGE>
The Company's commitments represent on-going investments in
additional manufacturing capacity as well as advanced equipment for
research and development of the next generation of higher technology,
more complex photomasks. At October 31, 1996, the Company had
commitments outstanding for capital expenditures of approximately $54
million, including commitments for the new facilities in Austin, Texas
and Manchester, U.K. Additional commitments are expected to be incurred
during fiscal 1997.
The Company will use its working capital, bank credit lines and
other available sources of capital to finance its future fixed asset
expenditures. The Company believes that its currently available
resources, together with its capacity for substantial growth and its
accessibility to other debt and equity financing sources, are sufficient
to satisfy its cash requirements for the foreseeable future.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report....................... 19
Consolidated Balance Sheet
at October 31, 1996 and 1995.................... 20 - 21
Consolidated Statement of Earnings for
the years ended October 31, 1996,
1995 and 1994................................... 22
Consolidated Statement of Shareholders'
Equity for the years ended
October 31, 1996, 1995 and 1994................. 23
Consolidated Statement of Cash Flows
for the years ended
October 31, 1996, 1995 and 1994................. 24
Notes to Consolidated Financial Statements......... 25 - 36
<PAGE>
Independent Auditors' Report
Board of Directors and Shareholders
Photronics, Inc.
Jupiter, Florida
We have audited the accompanying consolidated balance sheets of
Photronics, Inc. and subsidiaries at October 31, 1996 and 1995, and the
related consolidated statements of earnings, shareholders' equity and
cash flows for each of the three years in the period ended October 31,
1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the consolidated financial position of
Photronics, Inc. and its subsidiaries as of October 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the
three years in the period ended October 31, 1996 in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1994
the Company changed its method of accounting for investments and income
taxes.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
December 9, 1996
<PAGE>
<TABLE>
PHOTRONICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
October 31, 1996 and 1995
(dollars in thousands)
<CAPTION>
Assets 1996 1995
- ------ -------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 18,766 $ 35,644
Short-term investments 7,918 16,221
Accounts receivable (less allowance
for doubtful accounts of $235 in
1996 and $195 in 1995) 24,750 17,857
Inventories 7,992 6,357
Other current assets 6,154 3,380
-------- --------
Total current assets 65,580 79,459
Property, plant and equipment 123,666 72,063
Intangible assets (less accumulated
amortization of $3,256 in 1996
and $2,156 in 1995) 9,305 10,289
Investments 13,239 12,329
Other assets 113 78
-------- --------
$211,903 $174,218
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
PHOTRONICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
October 31, 1996 and 1995
(dollars in thousands, except per share amounts)
<CAPTION>
Liabilities and Shareholders' Equity 1996 1995
- ------------------------------------ -------- --------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 38 $ 36
Accounts payable 34,168 17,850
Accrued salaries and wages 5,561 5,810
Other accrued liabilities 4,200 6,110
-------- --------
Total current liabilities 43,967 29,806
Long-term debt 1,987 1,809
Deferred income taxes 7,481 8,293
Other liabilities 2,051 265
-------- --------
Total liabilities 55,486 40,173
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized,
none issued and outstanding - -
Common stock, $.01 par value,
20,000,000 shares authorized,
11,973,290 shares issued in 1996 and
11,758,292 shares issued in 1995 120 118
Additional paid-in capital 77,833 75,083
Retained earnings 73,973 52,970
Unrealized gains on investments 4,678 6,471
Treasury stock, 136,500 shares at cost (245) (245)
Cumulative foreign currency translation
adjustment 58 -
Deferred compensation on
restricted stock - (352)
-------- --------
Total shareholders' equity 156,417 134,045
-------- --------
$211,903 $174,218
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
PHOTRONICS, INC. AND SUBSIDIARIES
Consolidated Statement of Earnings
Years Ended October 31, 1996, 1995 and 1994
(in thousands, except per share amounts)
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Net sales $160,071 $125,299 $80,696
Costs and expenses:
Cost of sales 98,267 76,683 51,204
Selling, general and administrative 21,079 17,127 10,517
Research and development 8,460 7,899 4,738
-------- -------- -------
Operating income 32,265 23,590 14,237
Interest income 1,601 1,627 568
Interest expense (160) (141) (75)
Other income, net 197 4,766 571
-------- -------- -------
Income before income taxes and
cumulative effect of change in
accounting for income taxes 33,903 29,842 15,301
Provision for income taxes 12,900 11,210 5,202
-------- -------- -------
Income before cumulative effect of
change in accounting for income taxes 21,003 18,632 10,099
Cumulative effect of change in
accounting for income taxes - - 237
-------- -------- -------
Net income $ 21,003 $ 18,632 $10,336
======== ======== =======
Net income per common share:
Income before cumulative effect of
change in accounting for income taxes $1.74 $1.66 $1.01
Cumulative effect of change in
accounting for income taxes - - 0.02
----- ----- -----
Net income $1.74 $1.66 $1.03
===== ===== =====
Weighted average number of common
shares outstanding 12,101 11,207 10,062
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
PHOTRONICS, INC. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
Years Ended October 31, 1996, 1995 and 1994
(in thousands)
<CAPTION>
Cumula-
tive
Unreal- Foreign
ized Currency Deferred
Addi- Gains Trans- Compensa-
Common Stock tional on lation tion on Total
-------------- Paid-In Retained Invest- Treasury Adjust- Restricted Shareholders'
Shares Amount Capital Earnings ments Stock ment Stock Equity <S>
------ ------ ------- -------- ------- -------- -------- ---------- -------------
Balance at <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 1, 1993 6,484 $65 $38,804 $24,002 $ - $(245) $ - $ - $ 62,626
Net income - - - 10,336 - - - - 10,336
Sale of common stock
through employee
stock option and
purchase plans 124 1 1,478 - - - - - 1,479
Restricted stock awards 52 1 1,056 - - - - (1,057) -
Amortization of
restricted stock to
compensation expense - - - - - - - 353 353
Cumulative effect of
change in accounting
for investments - - - - 5,608 - - - 5,608
----- ---- ------- ------- ------ ----- --- ------ --------
Balance at
October 31, 1994 6,660 67 41,338 34,338 5,608 (245) - (704) 80,402
Net income - - - 18,632 - - - - 18,632
Sale of common stock
in connection with
public offering 1,500 15 29,336 - - - - - 29,351
Issuance of common
stock related to
acquisition 98 1 2,399 - - - - - 2,400
Sale of common stock
through warrants and
employee stock option
and purchase plans 170 2 2,043 - - - - - 2,045
Amortization of
restricted stock to
compensation expense - - - - - - - 352 352
Change in unrealized
gains on investments - - - - 863 - - - 863
Three-for-two stock
split 3,330 33 (33) - - - - - -
------ ---- ------- ------- ------ ----- --- ------ --------
Balance at
October 31, 1995 11,758 118 75,083 52,970 6,471 (245) - (352) 134,045
Net income - - - 21,003 - - - - 21,003
Sale of common stock
through employee
stock option and
purchase plans 215 2 2,750 - - - - - 2,752
Foreign currency
translation
adjustment - - - - - - 58 - 58
Amortization of
restricted stock to
compensation expense - - - - - - - 352 352
Change in unrealized
gains on investments - - - - (1,793) - - - (1,793)
------ ---- ------- ------- ------ ----- --- ------ --------
Balance at
October 31, 1996 11,973 $120 $77,833 $73,973 $4,678 $(245) $58 $ - $156,417
====== ==== ======= ======= ====== ===== === ====== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
PHOTRONICS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Years Ended October 31, 1996, 1995 and 1994
(dollars in thousands)
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $21,003 $18,632 $10,336
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of
property, plant and equipment 12,120 8,747 7,953
Amortization of intangible assets 1,100 1,039 694
Gain on disposition of investments - (5,110) (831)
Deferred income taxes 1,000 (842) 847
Cumulative effect of change in
accounting for income taxes - - (237)
Research and development expense
from acquisition - 1,484 -
Other 626 377 403
Changes in assets and liabilities,
net of effects of acquisitions:
Accounts receivable (6,893) (7,639) (372)
Inventories (1,228) (2,922) 437
Other current assets (3,260) 199 (533)
Accounts payable and accrued liabilities 14,159 19,587 2,305
------- ------- -------
Net cash provided by operating activities 38,627 33,552 21,002
------- ------- -------
Cash flows from investing activities:
Acquisitions of and investment
in photomask operations (12,397) (10,536) -
Deposits on and purchases of property,
plant and equipment (55,762) (35,547) (6,187)
Net change in short-term investments 8,303 (13,686) 961
Proceeds from sale of investments - 5,750 615
Other 1,635 90 (269)
------- ------- -------
Net cash used in investing activities (58,221) (53,929) (4,880)
------- ------- -------
Cash flows from financing activities:
Repayment of long-term debt (36) (467) (735)
Proceeds from issuance of common stock 2,752 31,396 1,479
------- ------- -------
Net cash provided by financing activities 2,716 30,929 744
------- ------- -------
Net increase (decrease) in cash and cash equivalents (16,878) 10,552 16,866
Cash and cash equivalents at beginning of year 35,644 25,092 8,226
------- ------- -------
Cash and cash equivalents at end of year $18,766 $35,644 $25,092
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PHOTRONICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended October 31, 1996, 1995 and 1994
(dollars in thousands, except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The accompanying consolidated financial statements include the accounts
of Photronics, Inc. and its subsidiaries. All significant intercompany
balances and transactions have been eliminated. Certain amounts in the
consolidated financial statements for periods prior to October 31, 1996
have been reclassified to conform to the current presentation.
Foreign Currency Translation
The Company's subsidiaries in Europe and Singapore maintain their
accounts in their respective local currencies. Assets and liabilities
of such subsidiaries are translated to U.S. dollars at year-end exchange
rates. Income and expenses are translated at average rates of exchange
prevailing during the year. Foreign currency translation adjustments
are accumulated in a separate component of shareholders' equity. The
effects of changes in exchange rates on foreign currency transactions
are included in income.
Cash and Cash Equivalents
Cash and cash equivalents include cash and highly liquid investments
purchased with an original maturity of three months or less. The
carrying values approximate fair value based on the short maturity of
the instruments.
Investments
The Company's debt and equity investments available for sale are carried
at fair value. Prior to 1994, such investments were carried at cost.
Short-term investments include a diversified portfolio of high quality
marketable securities which will be liquidated as needed to meet the
Company's current cash requirements. All other investments are
classified as non-current assets. Unrealized gains and losses, net of
tax, are reported as a separate component of shareholders' equity.
Gains and losses are included in income when realized, determined based
on the disposition of specifically identified investments.
Inventories
Inventories, principally raw materials, are stated at the lower of cost,
determined under the first-in, first-out method, or market.
<PAGE>
Property, Plant and Equipment
Property, plant and equipment are recorded at cost less accumulated
depreciation. Repairs and maintenance as well as renewals and
replacements of a routine nature are charged to operations as incurred,
while those which improve or extend the lives of existing assets are
capitalized. Upon sale or other disposition, the cost of the asset and
accumulated depreciation are eliminated from the accounts, and any
resulting gain or loss is reflected in income.
For financial reporting purposes, depreciation and amortization are
computed on the straight-line method over the estimated useful lives of
the related assets. Buildings and improvements are depreciated over 15
to 40 years, machinery and equipment over 3 to 10 years and furniture,
fixtures and office equipment over 3 to 5 years. Leasehold improvements
are amortized over the life of the lease or the estimated useful life of
the improvement, whichever is less. For income tax purposes,
depreciation is computed using various accelerated methods and, in some
cases, different useful lives than those used for financial reporting.
Intangible Assets
Intangible assets include goodwill which represents the excess of cost
over fair value of assets acquired and is being amortized on a straight-
line basis over fifteen to twenty years. Costs allocated to sales, non-
compete and technology agreements arising from business acquisitions and
other intangible assets are being amortized on a straight-line basis
over the respective agreement periods ranging from three to ten years.
The future economic benefit of the carrying value of intangible assets
is reviewed periodically and any dimunition in useful life or impairment
in value based on future anticipated cash flows would be recorded in the
period so determined.
Income Taxes
The provision for income taxes is computed on the basis of consolidated
financial statement income. Deferred income taxes reflect the tax
effects of differences between the carrying amounts of assets and
liabilities for financial reporting and the amounts used for income tax
purposes. The Company adopted Statement of Financial Accounting
Standards No. 109 "SFAS 109", "Accounting for Income Taxes," effective
November 1, 1993. The cumulative effect of adopting SFAS 109 was an
increase in income of $237, or $0.02 per share, for fiscal year 1994.
Net Income Per Common Share
Net income per common and common equivalent share is calculated using
the weighted average number of common and common equivalent shares
outstanding during each year. When dilutive, stock options and stock
purchase warrants are included as common equivalent shares using the
treasury stock method.
<PAGE>
Stock Options
The Company records stock option awards in accordance with the
provisions of Accounting Principles Board Opinion 25, "Accounting for
Stock Issued to Employees". In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
123 ( SFAS 123), "Accounting for Stock-Based Compensation," which the
Company will be required to adopt in fiscal 1997. Under SFAS 123,
companies can elect, but are not required, to recognize compensation
expense for all stock-based awards, using a fair value methodology. The
Company does not believe that adoption of SFAS 123 will have a material
effect on its financial statements.
NOTE 2 - INVESTMENTS
Short-term investments consist principally of municipal bonds,
commercial paper, and money market and bond funds. The estimated fair
value of short-term investments, based upon current yields of like
securities, approximates cost, resulting in no significant unrealized
gains or losses. Short-term investments at October 31, 1996, mature by
their terms, as follows:
Due within one year $4,113
Due after one year, but within three years 3,276
Due after three years 529
-------
$7,918
=======
Other investments consist of available-for-sale equity securities of
publicly traded technology companies and a minority interest in a
photomask manufacturer in Korea. The fair values of available-for-sale
investments are based upon quoted market prices. The Company is a
supplier to one of the investee companies. The estimated fair value of
the non-available-for-sale investment is based upon the financial
condition and the operating results and projections of the investee and
is considered to approximate cost. Unrealized gains on investments were
determined as follows:
October 31,
---------------------
1996 1995
------- -------
Fair value $13,239 $12,329
Cost 5,104 1,075
------- -------
8,135 11,254
Less deferred
income taxes 3,457 4,783
------- -------
Net unrealized gains $ 4,678 $ 6,471
======= =======
<PAGE>
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
October 31,
--------------------
1996 1995
-------- -------
Land $ 2,735 $ 2,200
Buildings and improvements 21,798 13,305
Machinery and equipment 140,297 89,269
Leasehold improvements 9,703 7,213
Furniture, fixtures and office equipment 1,873 993
-------- --------
176,406 112,980
Less accumulated depreciation and
amortization 52,740 40,917
-------- -------
Property, plant and equipment $123,666 $72,063
======== =======
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
October 31,
-----------------
1996 1995
------ -----
Acquisition indebtedness payable
December 1, 1998, net of interest of
$234 at October 31, 1996 and $450 at
October 31, 1995, imputed at 7.45% $1,566 $1,350
Industrial development mortgage note,
secured by building, with interest at
6.58%, payable through November 2005 459 495
------ ------
2,025 1,845
Less current portion 38 36
------ ------
Long-term debt $1,987 $1,809
====== ======
Long-term debt matures as follows: 1998-$41; 1999-$1,610; 2000-$46;
2001-$50; years after 2001-$240. The fair value of long-term debt not
yet substantively extinguished is estimated based on the current rates
offered to the Company and is not significantly different from carrying
value.
In March 1995, the Company entered into an unsecured revolving credit
facility that provides for borrowings of up to $10 million per year in
each of the following three years, subject to a carryover in the second
and third year of up to the lesser of $3 million and the amount of
borrowing capacity not used in the prior years. The Company is charged
a commitment fee on the average unused amount of the available credit
and is subject to compliance with and maintenance of certain financial
covenants and ratios. At October 31, 1996, the Company had not borrowed
any amounts under this agreement.
Cash paid for interest was $48, $38 and $75 in 1996, 1995 and 1994,
respectively.
<PAGE>
NOTE 5 - SHAREHOLDERS' EQUITY
In January 1995, the Company's Board of Directors authorized a three-
for-two stock split effected in the form of a stock dividend payable to
shareholders of record as of March 20, 1995. The stock split resulted
in the issuance of 3.3 million additional shares of common stock. All
applicable share and per share amounts included in the financial
statements reflect the stock split. On March 16, 1995, the shareholders
approved an amendment to the Company's Certificate of Incorporation
increasing the number of common shares, $0.01 par value, which the
Company is authorized to issue from 10 million to 20 million shares.
In connection with a public offering, in April and May 1995, the Company
issued 1,500,000 new shares of common stock at a price of $21.00 per
share ($19.85 per share after underwriting discounts), 40,000 shares of
common stock due to the exercise of stock options at prices ranging from
$1.83 to $3.17 per share and 7,500 additional shares of common stock
resulting from the exercise of a warrant at $5.24 per share. The
proceeds, net of costs of the issue, amounted to $29.6 million.
In June 1995, the Company issued 98,559 shares of common stock in
connection with the acquisition of Microphase Laboratories, Inc. (see
Note 6).
NOTE 6 - ACQUISITIONS
European Photomask Operations
In January 1996, the Company acquired the photomask manufacturing
operations and assets of Plessey Semiconductors Limited ("Plessey")
located in Oldham, United Kingdom, for $4.9 million in cash. In
connection with the transaction, the Company leased the facilities from
Plessey previously utilized by them for the manufacture of photomasks.
The acquisition was accounted for as a purchase and, accordingly, the
acquisition price was allocated to property and equipment based on
relative fair value.
In April 1996, the Company, through its majority-owned subsidiary,
acquired the photomask manufacturing operations and assets of the
Litomask Division ("Litomask") of Centre Suisse d'Electronique et de
Microtechnique S.A. ("CSEM") located in Neuchatel, Switzerland for $3.4
million in cash. CSEM holds the remaining interest in this subsidiary
and the Company has an option to acquire CSEM's interest within a two-
year period. In connection with the transaction, the Company leased the
facilities and retained certain services from CSEM previously utilized
by Litomask. The acquisition was accounted for as a purchase and,
accordingly, the acquisition price was allocated to property and
equipment based on relative fair value.
The consolidated statement of earnings includes the results of European
photomask operations beginning on the effective date of the respective
acquisition. Such results were not material to the Company.
<PAGE>
Hoya Micro Mask, Inc.
In December 1994, the Company acquired certain assets held by Hoya Micro
Mask, Inc. ("Micro Mask"), an independent photomask manufacturer with
manufacturing operations located in Sunnyvale, California. The
transaction included the purchase of the land, buildings, inventory and
certain assets other than cash and receivables. In addition,
significant manufacturing systems owned by Micro Mask were leased by the
Company from Micro Mask. The acquisition was financed through the
payment of approximately $10.2 million in cash and the obligation to pay
$1.8 million, without interest, four years after the closing. The
operating lease of the significant manufacturing systems has a term
ranging from 44 to 62 months and includes the right to purchase the
systems at fair market value at the end of the lease. The acquisition
was accounted for as a purchase and, accordingly, the acquisition price
was allocated to property, plant and equipment as well as certain
intangible assets based on relative fair value. The excess of purchase
price over the fair value of assets acquired is being amortized over 20
years. The consolidated statement of earnings includes the results of
Micro Mask's operations from December 1, 1994, the effective date of the
acquisition. The consolidated results of the Company's operations on a
proforma basis (unaudited) for the year ended October 31, 1994, as
though the purchase had been made as of the beginning of the year, would
have reflected sales of approximately $106 million and net income of
approximately $11 million, or $1.10 per common share. The proforma
results of operations are not necessarily indicative of the actual
operating results that would have occurred had the transactions been
consummated at the beginning of the year, or of the future combined
operating results.
Microphase Laboratories, Inc.
In June 1995, the Company acquired the manufacturing operations and
assets, exclusive of cash and accounts receivable, of Microphase
Laboratories, Inc. ("Microphase"), an independent photomask manufacturer
located in Colorado Springs, Colorado, in exchange for 98,559 shares of
common stock of the Company valued at $2.4 million. The acquisition was
accounted for as a purchase. Of the total purchase price, $1.5 million
was allocated to Microphase's research and development projects and,
accordingly, was charged to research and development expenses. The
consolidated statement of earnings includes the results of the
Microphase operations beginning June 20, 1995, the effective date of the
acquisition. Such results were not material to the Company.
<PAGE>
NOTE 7 - INCOME TAXES
The provision for income taxes consists of the following:
1996 1995 1994
Current: ------ ------- ------
Federal $ 9,905 $10,234 $3,722
State 1,908 1,818 633
Foreign 87 - -
------- ------- ------
11,900 12,052 4,355
Deferred: ------- ------- ------
Federal 918 (617) 832
State 82 (225) 15
------- ------- ------
1,000 (842) 847
------- ------- ------
$12,900 $11,210 $5,202
======= ======= ======
The provision for income taxes differs from the amount computed by
applying the statutory U.S. Federal income tax rate to income before
taxes as a result of the following:
1996 1995 1994
------- ------- ------
U.S. Federal income tax at
statutory rate $11,866 $10,445 $5,255
State income taxes, net of
Federal benefit 1,294 1,035 428
Tax benefits of tax
exempt income (302) (389) (168)
Foreign tax rate differential (291) - -
Other, net 333 119 (313)
------- ------- ------
$12,900 $11,210 $5,202
======= ======= ======
The Company's net deferred tax liability consists of the following:
October 31,
---------------------
1996 1995
------ ------
Deferred income tax liabilities:
Property, plant and equipment $3,876 $3,761
Investments 3,457 4,783
Other 454 31
------ ------
Total deferred tax liability 7,787 8,575
------ ------
Deferred income tax assets:
Reserves not currently deductible 1,226 1,528
Other 483 643
------ ------
Total deferred tax asset 1,709 2,171
------ ------
Net deferred tax liability $6,078 $6,404
====== ======
Cash paid for income taxes was $13.0 million, $11.6 million and $3.7
million in 1996, 1995 and 1994, respectively.
<PAGE>
NOTE 8 - EMPLOYEE STOCK OPTION AND PURCHASE PLANS
In March 1996, the shareholders approved the adoption of the 1996 Stock
Option Plan which includes provisions allowing for the award of
qualified and non-qualified stock options and the granting of restricted
stock awards. A total of 600,000 shares of common stock may be issued
pursuant to options or restricted stock awards granted under the Plan.
Restricted stock awards do not require the payment of any cash
consideration by the recipient, but shares subject to an award may be
forfeited unless conditions specified in the grant are satisfied.
The Company has adopted a series of other stock option plans under which
incentive and non-qualified stock options and restricted stock awards
for a total of 1,800,000 shares of the Company's common stock may be
granted to employees and directors. All plans provide that the exercise
price may not be less than the fair market value of the common stock at
the date the options are granted and limit the maximum term of options
granted to a range of from five to ten years.
The following table summarizes stock option activity under the plans:
Stock Options Exercise Prices
------------- ---------------
Balance at November 1, 1993 964,242 $ 1.83-8.67
Granted 249,150 10.17-14.83
Exercised (166,017) 1.83-8.67
Canceled (124,613) 6.17-13.42
-------
Balance at October 31, 1994 922,762 1.83-14.83
Granted 241,640 18.67-27.38
Exercised (145,273) 1.83-13.42
Canceled (39,189) 6.17-24.00
-------
Balance at October 31, 1995 979,940 1.83-27.38
Granted 482,050 21.50-25.00
Exercised (184,431) 1.83-27.38
Canceled (85,796) 6.17-27.38
---------
Balance at October 31, 1996 1,191,763 $ 3.17-27.38
=========
<PAGE>
At October 31, 1996, 270,657 shares were available for grant and 471,296
shares were exercisable.
In 1994, restricted stock awards representing a total of 78,750 shares
were awarded to certain key employees. The market value of the grant
amounted to $1.1 million at the date of grant and was charged to
"Deferred Compensation on Restricted Stock", a component of
shareholders' equity. Such amount was amortized as compensation expense
over the three-year period during which the shares under these awards
were subject to forfeiture.
In 1992, the shareholders approved the Company's adoption of an Employee
Stock Purchase Plan (Purchase Plan), under which 300,000 shares of
common stock are reserved for issuance. The Purchase Plan enables
eligible employees to subscribe, through payroll deductions, to purchase
shares of the Company's common stock at a purchase price equal to 85% of
the lower of the fair market value on the commencement date of the
offering and the last day of the payroll payment period. At October 31,
1996, 92,801 shares had been issued and 32,968 shares were subject to
outstanding subscriptions under the Purchase Plan.
NOTE 9 - EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) Savings and Profit-Sharing Plan (the
"Plan") which covers all domestic employees who have completed six
months of service and are eighteen years of age or older. Under the
terms of the Plan, an employee may contribute up to 15% of their
compensation which will be matched by the Company at 50% of the
employee's contributions which are not in excess of 4% of the employee's
compensation. Employee and employer contributions vest fully upon
contribution. Employer contributions amounted to $0.5 million in 1996
and 1995 and $0.3 million in 1994.
The Company maintains a cafeteria plan to provide eligible domestic
employees with the option to receive non-taxable medical, dental,
disability and life insurance benefits. The cafeteria plan is offered
to all active full-time employees and their qualifying dependents. The
Company's contribution amounted to $1.8 million in 1996, $1.4 million in
1995, and $1.2 million in 1994.
The Company's foreign subsidiaries maintain benefit plans for their
employees which vary by country. The obligations and cost of these
plans are not significant to the Company.
<PAGE>
NOTE 10 - LEASES
The Company leases various real estate and equipment under non-
cancelable operating leases. Rental expense under such leases amounted
to $5.6 million in 1996, $4.9 million in 1995 and $2.0 million in 1994.
Included in such amounts were $0.1 million in each year to affiliated
entities, which are owned, in part, by a significant shareholder of the
Company.
Future minimum lease payments under non-cancelable operating leases with
initial or remaining terms in excess of one year amounted to $11.4
million at October 31, 1996, as follows:
1997.....$3,979 2000...........$980
1998..... 3,611 2001........... 350
1999..... 2,167 Thereafter..... 312
Included in such future lease payments are amounts to affiliated
entities of $0.1 million in each year from 1997 to 2000, and $0.3
million in years thereafter.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company and a significant shareholder have jointly guaranteed a loan
totaling approximately $0.5 million as of October 31, 1996, on certain
real estate which is being leased by the Company. The Company is
subject to certain financial covenants in connection with the guarantee.
As of October 31, 1996, the Company had capital expenditure purchase
commitments outstanding of approximately $54 million.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions, including collectibility of accounts
receivable, and depreciable lives and recoverability of property, plant,
equipment and intangible assets. Actual results may differ from such
estimates.
Financial instruments that potentially subject the Company to credit
risk consist principally of trade receivables and temporary cash
investments. The Company sells its products primarily to manufacturers
in the semiconductor and computer industries in North America, Europe
and Asia. The Company believes that the concentration of credit risk in
its trade receivables is substantially mitigated by the Company's
ongoing credit evaluation process and relatively short collection terms.
The Company does not generally require collateral from customers. The
Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical
trends and other information. Historically, the Company has not
incurred any significant credit related losses.
<PAGE>
NOTE 12 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth certain unaudited quarterly financial
data:
First Second Third Fourth Year
------- ------- ------- ------- --------
1996:
Net sales $34,668 $40,514 $42,677 $42,212 $160,071
Gross profit 13,416 15,703 16,428 16,257 61,804
Net income $ 4,651 $ 5,267 $ 5,513 $ 5,572 $ 21,003
Net income
per share(a) $ 0.39 $ 0.44 $ 0.46 $ 0.46 $ 1.74
1995:
Net sales $26,176 $30,037 $32,854 $36,232 $125,299
Gross profit 9,759 11,615 12,839 14,403 48,616
Net income $ 3,267 $ 3,820 $ 6,460(b) $ 5,085 $ 18,632
Net income
per share(a) $ 0.32 $ 0.36 $ 0.54(b) $ 0.42 $ 1.66
- -----
(a) Quarterly per share data may not equal the annual amounts due to changes
in weighted average shares and share equivalents outstanding.
(b) Includes a non-recurring net gain from the sale of equity investments of
$2.9 million, or $0.24 per share, after tax, and a non-recurring charge
related to the acquisition of Microphase Laboratories, Inc. of
$0.9 million, or $0.08 per share, after tax.
- -----
NOTE 13 - SEGMENT INFORMATION
The Company operates in a single industry segment as a manufacturer of
photomasks, which are high precision quartz plates containing
microscopic images of electronic circuits for use in the fabrication of
semiconductors. In addition to its manufacturing facilities in the
United States, the Company has operations in the United Kingdom,
Switzerland and Singapore. Prior to 1996, the Company had no operations
outside of the United States. The Company's net sales and operating
profit for the year ended October 31, 1996 and identifiable assets at
October 31, 1996, by geographic area were as follows:
Net Operating Identifiable
Sales Income(Loss) Assets
-------- ------------ ------------
United States $153,227 $32,660 $181,255
Europe and Asia 6,844 (395) 30,648
-------- ------- --------
$160,071 $32,265 $211,903
======== ======= ========
Approximately 14% of net domestic sales in 1996 were for delivery
outside of the United States (11% in 1995 and 13% in 1994).
The Company's largest single customer represented approximately 26% of
total net sales in 1996, 32% in 1995 and 36% in 1994
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements on any accounting and financial
disclosure matters between the Company and its independent certified
public accountants for which a Form 8-K was required to be filed during
the 24 months ended October 31, 1996 or for the period from October 31,
1996 to the date hereof.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information as to Directors required by Item 401 and 405 of
Regulation S-K is incorporated by reference to the Company's definitive
proxy statement (the "Definitive Proxy Statement") which will be filed
with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days after the end of the fiscal year covered by this Form
10-K. The information as to Executive Officers is included in Part I,
Item 1a of this report, "Executive Officers of Registrant".
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K is
incorporated by reference to the Definitive Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 403 of Regulation S-K is
incorporated by reference to the Definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 404 of Regulation S-K is
incorporated by reference to the Definitive Proxy Statement.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(A) The following documents are filed as part of this report:
1) Financial Statements
Independent Auditors' Report
Consolidated Balance Sheet at October 31, 1996 and 1995
Consolidated Statement of Earnings for the years
ended October 31, 1996, 1995 and 1994
Consolidated Statement of Shareholders' Equity for the
years ended October 31, 1996, 1995 and 1994
Consolidated Statement of Cash Flows for the years
ended October 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
2) Financial Statement Schedules
Schedules for which provision is made in Regulation
S-X of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and,
therefore, have been omitted.
3) Exhibits: See Table of Exhibits, page 41.
(B) Reports on Form 8-K
No report on Form 8-K was filed by the Company during the fourth
quarter of the Company's fiscal year ended October 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PHOTRONICS, INC.
(Registrant)
By CONSTANTINE S. MACRICOSTAS January 24, 1997
Constantine S. Macricostas
Chairman of the Board,
Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
By CONSTANTINE S. MACRICOSTAS January 24, 1997
Constantine S. Macricostas
Chairman of the Board,
Chief Executive Officer
and Director
By MICHAEL J. YOMAZZO January 24, 1997
Michael J. Yomazzo
President and Director
By ROBERT J. BOLLO January 24, 1997
Robert J. Bollo
Vice President/Finance
Chief Financial Officer
<PAGE>
By WALTER M. FIEDEROWICZ January 24, 1997
Walter M. Fiederowicz
Director
By JOSEPH A. FIORITA, JR. January 24, 1997
Joseph A. Fiorita, Jr.
Director
By ______________ January 24, 1997
Yukio Tagawa
Director
96\10-K/p
<PAGE>
TABLE OF EXHIBITS
3.1 Certificate of Incorporation. (1)
3.2 By-Laws, as amended. (1)
3.3 Amendment to Certificate of Incorporation, dated March 16,
1990. (4)
3.4 Amendment to Certificate of Incorporation, dated March 16,
1995. (13)
4.1 Form of Stock Certificate. (1)
10.1 Loan Agreement, dated August 10, 1984, among the Company,
Fairfield Associates, and the Connecticut Development
Authority. (1)
10.2 Indenture of Trust, dated August 10, 1984, between the Connecticut
Development Authority and Citytrust. (1)
10.3 Security Agreement, dated August 10, 1984, between the Company and
the Connecticut Development Authority, with assignment to
Citytrust, as Trustee. (1)
10.4 Lease Agreement, dated August 10, 1984, between the Company and
Fairfield Associates. (1)
10.5 Guaranty Agreement, dated August 10, 1984, by the Company and
Constantine Macricostas to Citytrust, as Trustee. (1)
10.6 Assumption Agreement between the Company, MC2 and the Connecticut
Development Authority, dated October 15, 1992, and related Note,
Mortgage and Collateral Assignment of Leases and amendments
thereto. (7)
10.7 Assumption Agreement, Third Amendment to Loan Agreement and
Amendment to Guaranty Photronic Labs Incorporated Project - 1984
Series, dated August 28, 1992, by and among Photronics California,
Inc., Photronics Financial Services, Inc., Photronics Investment
Services, Inc., Photronics Texas, Inc., the Company, Constantine
Macricostas, the Connecticut Development Authority, The Chase
Manhattan Bank of Connecticut, N.A. and Fairfield Associates. (7)
10.8 The Company's 1986 Amended and Restated Incentive Stock Option
Plan. (2) +
10.9 Amendment #1 to the Company's 1986 Amended and Restated Incentive
Stock Option Plan. (4) +
10.10 The Company's 1986 Non-Qualified Stock Option Plan, as amended.
(3) +
10.11 The Company's 1988 Non-Qualified Stock Option Plan. (11) +
<PAGE>
10.12 Amendment #1 to the Company's 1988 Non-Qualified Stock Option
Plan. (4) +
10.13 Amendment to Security Agreements, dated October 31, 1988, by and
among the Company, Citytrust, Constantine S. Macricostas and Mayo
Associates. (11)
10.14 Amendment to Loan Agreements between the Company and the
Connecticut Development Authority, dated as of June 8, 1990. (4)
10.15 Second Amendment to Loan Agreement dated as of December 20, 1991
by and among the Company, the Connecticut Development Authority
and The Chase Manhattan Bank of Connecticut, N.A. (5).
10.16 Form of severance agreement between the Company and each of
Messrs. Macricostas, Yomazzo and Moonan. (11) +
10.17 Lease dated as of November 1, 1989 between the Company, MC3, Inc.
and Alpha-Omega Associates. (11)
10.18 Consulting Agreement, dated June 1, 1992, between Joseph Fiorita
and the Company. (7) +
10.19 The Company's 1992 Stock Option Plan. (6) +
10.20 The Company's 1992 Employee Stock Purchase Plan. (6)
10.21 The Company's 1994 Employee Stock Option Plan. (9) +
10.22 Overall Agreement for Strategic Alliance, dated September 13,
1993, by an among Toppan Printing Co., Ltd. ("Toppan"), Toppan
Printronics (USA), Inc. ("TPI") and Toppan Electronics (USA), Inc.
("TEI") and the Company. (8)
10.23 Asset Purchase Agreement, dated September 13, 1993, by and among
the Company, Toppan and TPI. (8)
10.24 Stock Purchase Agreement, dated September 13, 1993, by and between
the Company and Toppan. (8)
10.25 Technology Transfer Agreement, dated October 1, 1993, by and among
the Company, Toppan and TPI. (8)
10.26 Purchase Agreement by and among Toppan, TPI and Texas Instruments
Incorporated ("TI"), dated March 31, 1990, amendments thereto and
related assignment to the Company dated October 1, 1993. (8)
10.27 Asset Purchase Agreement, dated October 26, 1994, by and among the
Company, Hoya Micro Mask, Inc. ("Micro Mask") and Hoya Corporation
USA ("Hoya"). (10)
10.28 Equipment Lease Agreement, dated December 1, 1994, by and between
the Company and Micro Mask. (10)
10.29 Agreement of Sale and Purchase, dated October 26, 1994, by and
between Photronics California, Inc. and Micro Mask. (10)
<PAGE>
10.30 Continuing Guaranty of the Company, dated December 1, 1994. (10)
10.31 Continuing Guaranty of Hoya, dated December 1, 1994. (10)
10.32 Form of Agreement regarding Life Insurance between the Company and
each of Messrs Macricostas, Yomazzo and Moonan. (12) +
10.33 Revolving Credit and Term Loan Agreement between the Company and
Chemical Bank, dated as of March 1, 1995. (13)
10.34 The Company's 1996 Stock Option Plan. (14) +
21 List of Subsidiaries. *
23 Consent of Deloitte & Touche LLP. *
27 Financial Data Schedule. *
- --------------------
* Filed herewith.
+ Represents a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this form
pursuant to item 14(c) of this report.
- --------------------
(1) Filed as an exhibit to the Company's Registration Statement on
Form S-1, File Number 33-11694, which was declared effective by the
Commission on March 10, 1987, and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Registration Statement on Form
S-8, File Number 33-17405, which was declared effective on October
13, 1987, and incorporated herein by reference.
(3) Filed as an exhibit to the Company's Registration Statement on Form
S-8, File Number 33-17530, which was declared effective on October
19, 1987, and incorporated herein by reference.
(4) Filed as an exhibit to the Company's Registration Statement on Form
S-2, File Number 33-34772 which was declared effective by the
Commission on June 22, 1990, and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1991 and incorporated herein by
reference.
(6) Filed as an exhibit to the Company's Registration Statement on Form
S-8, File Number 33-47446, which was filed on April 24, 1992, and
incorporated herein by reference.
(7) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1992, and incorporated herein by
reference.
(8) Filed as an exhibit to the Company's Current Report on Form 8-K,
dated October 8, 1993, and incorporated herein by reference.
<PAGE>
(9) Filed as an exhibit to the Company's Registration Statement on Form
S-8, File Number 33-78102, which was filed on April 22, 1994, and
incorporated herein by reference.
(10) Filed as an exhibit to the Company's Current Report on Form 8-K,
dated December 6, 1994, and incorporated herein by reference.
(11) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1993, and incorporated herein by
reference.
(12) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ended July 31, 1995, and incorporated herein by
reference.
(13) Filed as an exhibit to the Company's Current Report on Form 8-K,
dated March 24, 1995, and incorporated herein by reference.
(14) Filed as an exhibit to the Company's Registration Statement on Form
S-8, File Number 333-02245, which was filed on April 4, 1996, and
incorporated herein by reference.
Exhibit 21
LIST OF SUBSIDIARIES
State or Jurisdiction
Name of Incorporation
---- ---------------------
Photronics International
Engineering, Inc. Virgin Islands
Photronics California, Inc. California
Photronics Texas, Inc. Texas
Photronics Financial Services, Inc. Florida
Photronics Investment Services, Inc. Nevada
Photronics-Toppan Texas, Inc. Texas
Beta Squared, Inc. Connecticut
PLI Management Corp. Florida
Photronics Singapore Pte., Ltd. Singapore
Photronics (UK) Limited England
Photronics Connecticut, Inc. Connecticut
Photronics Colorado, Inc. Colorado
Photronics, S.A. (60% owned) Switzerland
Chip Canal Associates, Ltd. England
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statements Nos. 333-02245, 33-17405, 33-17530, 33-28118, 33-47446
and 33-78102 of Photronics, Inc. on Form S-8 and in Registration
Statement No. 33-60945 of Photronics, Inc. on Form S-3 of our
report dated December 9, 1996 appearing in this Annual Report on
Form 10-K of Photronics, Inc. for the year ended October 31, 1996.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
January 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Earnings and the Condensed Consolidated
Balance Sheet and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 18,766
<SECURITIES> 7,918
<RECEIVABLES> 24,750
<ALLOWANCES> 235
<INVENTORY> 7,992
<CURRENT-ASSETS> 65,580
<PP&E> 176,406
<DEPRECIATION> 52,740
<TOTAL-ASSETS> 211,903
<CURRENT-LIABILITIES> 43,967
<BONDS> 1,987
0
0
<COMMON> 120
<OTHER-SE> 156,297
<TOTAL-LIABILITY-AND-EQUITY> 211,903
<SALES> 160,071
<TOTAL-REVENUES> 160,071
<CGS> 98,267
<TOTAL-COSTS> 98,267
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 40
<INTEREST-EXPENSE> 160
<INCOME-PRETAX> 33,903
<INCOME-TAX> 12,900
<INCOME-CONTINUING> 21,003
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,003
<EPS-PRIMARY> 1.74
<EPS-DILUTED> 0
</TABLE>
