SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended .........May 3, 1998.........
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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, FL...... ..33477..
(Address of principal executive offices) (Zip Code)
...(561) 745-1222...
(Registrant's telephone number, including area code)
..............................
(Former name, former address and former fiscal year,
if changed since last report)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 3, 1998
Common Stock, $.01 par value 24,397,170 Shares
<PAGE>
PHOTRONICS, INC.
AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
at May 3, 1998 (unaudited) and
November 2, 1997 3-4
Condensed Consolidated Statement of
Earnings for the Three and Six Months
Ended May 3, 1998 and May 4,
1997 (unaudited) 5
Condensed Consolidated Statement of
Cash Flows for the Six Months Ended
May 3, 1998 and May 4, 1997
(unaudited) 6
Notes to Condensed Consolidated
Financial Statements (unaudited) 7-9
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 10-13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote 13
of Security Holders
Item 6. Exhibits and Reports on Form 8-K 14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(in thousands)
ASSETS
<CAPTION> May 3, November 2,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash, cash equivalents and
short-term investments $ 36,952 $ 86,034
Accounts receivable (less allowance
for doubtful accounts of $235 in
1998 and 1997) 39,834 34,563
Inventories 13,992 11,302
Other current assets 7,376 7,038
-------- --------
Total current assets 98,154 138,937
Property, plant and equipment
(less accumulated depreciation of
$86,561 in 1998 and $71,900 in 1997) 248,036 203,813
Intangible assets (less accumulated
amortization of $5,012 in 1998
and $4,048 in 1997) 21,055 8,218
Investments and other assets 12,984 14,244
-------- --------
$380,229 $365,212
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE> PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(dollars in thousands, except share and per share amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION> May 3, November 2,
1998 1997
----------- -----------
<S> (Unaudited)
Current liabilities: <C> <C>
Current portion of long-term debt $ 1,990 $ 272
Accounts payable 39,272 34,173
Income taxes payable 788 3,454
Accrued salaries and wages 5,572 7,423
Other accrued liabilities 14,460 12,217
-------- --------
Total current liabilities 62,082 57,539
Long-term debt 104,361 106,194
Deferred income taxes and other liabilities 16,041 15,504
-------- --------
Total liabilities 182,484 179,237
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value,
2,000,000 shares authorized,
none issued and outstanding - -
Common stock, $0.01 par value,
75,000,000 shares authorized,
24,397,170 shares issued in 1998
and 24,300,970 shares in 1997 244 243
Additional paid-in capital 86,196 85,129
Retained earnings 111,198 99,609
Unrealized gains on investments 2,565 3,251
Cumulative foreign currency
translation adjustment (2,275) (2,008)
Deferred compensation on restricted stock (183) (249)
-------- --------
Total shareholders' equity 197,745 185,975
-------- --------
$380,229 $365,212
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE> PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Earnings
(in thousands, except per share amounts)
(Unaudited)
<CAPTION> Three Months Ended Six Months Ended
------------------ -------------------
May 3, May 4, May 3, May 4,
1998 1997 1998 1997
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales $61,307 $49,034 $112,239 $89,063
Costs and expenses:
Cost of sales 37,560 30,283 68,826 55,630
Selling, general and
administrative 7,661 6,244 14,251 11,279
Research and development 3,152 2,622 6,085 4,924
Non-recurring restructuring
charge 3,800 - 3,800 -
------- ------- -------- -------
Operating income 9,134 9,885 19,277 17,230
Interest and other income
(expense), net (525) 99 (588) 1,379
------- ------- -------- -------
Income before income taxes 8,609 9,984 18,689 18,609
Provision for income taxes 3,300 3,800 7,100 7,100
------- ------- -------- -------
Net income $ 5,309 $ 6,184 $ 11,589 $11,509
======= ======= ======== =======
Earnings per share - basic $ 0.22 $ 0.26 $ 0.48 $ 0.48
======= ======= ======== =======
Earnings per share - diluted $ 0.22 $ 0.25 $ 0.47 $ 0.46
======= ======= ======== =======
Weighted average number of common
shares outstanding-basic 24,355 24,013 24,328 23,845
======= ======= ======== =======
Weighted average number of common
shares outstanding - diluted 29,201 24,941 29,095 24,785
======= ======= ======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE> PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(in thousands)
(Unaudited)
<CAPTION> Six Months Ended
-------------------
May 3, May 4,
1998 1997
<S> ------- -------
Cash flows from operating activities: <C> <C>
Net income $11,589 $11,509
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 15,277 9,496
Non-recurring restructuring charge 3,800 -
Gain on disposition of investments (838) (1,060)
Other 400 426
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable (5,331) (5,653)
Inventories (2,333) (1,300)
Other current assets (339) (1,010)
Accounts payable and other liabilities 200 (13,109)
------- --------
Net cash provided by (used in)
operating activities 22,425 (701)
------- ---------
Cash flows from investing activities:
Acquisition of photomask operations (32,455) -
Deposits on and purchases of property,
plant and equipment (41,625) (32,540)
Net change in short-term investments 15,409 7,918
Proceeds from sale of investments 932 1,369
Other 1,200 488
------- -------
Net cash used in investing activities (56,539) (22,765)
------- -------
Cash flows from financing activities:
Repayment of long-term debt (136) (19)
Borrowings under revolving credit facility - 15,000
Proceeds from issuance of common stock 1,068 834
------- -------
Net cash provided by financing activities 932 15,815
------- -------
Effect of exchange rate changes on cash flows (491) -
------- -------
Net decrease in cash and cash equivalents (33,673) (7,651)
Cash and cash equivalents at beginning of period 57,845 18,766
------- -------
Cash and cash equivalents at end of period $24,172 $11,115
======= =======
Cash paid during the period for:
Interest $ 3,188 $ 14
Income taxes $ 9,779 $ 3,026
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
PHOTRONICS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Three and Six Months Ended May 3, 1998 and May 4, 1997
(Unaudited)
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The condensed consolidated financial statements of the Company included
herein have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission and, in the opinion
of management, reflect all adjustments which are necessary to present
fairly the results for the three and six-month periods ended May 3, 1998
and May 4, 1997. Interim financial data presented herein are unaudited.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations; however, management believes that the disclosures
are adequate to make the information presented not misleading. This
report should be read in conjunction with the consolidated financial
statements and footnotes for the year ended November 2, 1997 included in
the Company's Annual Report on Form 10-K for the year ended November 2,
1997, which gives a complete discussion of these matters.
NOTE 2 - EARNINGS PER SHARE
In the first quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share", which
establishes new standards for the computation and disclosure of earnings
per share ("EPS"). The new statement requires dual presentation of
"basic" EPS and "diluted" EPS. Basic EPS is based on the weighted
average number of common shares outstanding for the period, excluding any
dilutive common share equivalents. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue
common stock were exercised or converted.
A reconciliation of basic and diluted EPS for the three and six months
ended May 3, 1998 and May 4, 1997 is as follows (in thousands, except per
share amounts):
Average
Net Shares Earnings
Income Outstanding Per Share
------- ----------- ---------
Three Months
- - -----------
1998:
Basic $ 5,309 24,355 $ 0.22
Effect of potential dilution ======
from exercise of stock options
and conversion of notes 987 4,846
------- ------
Diluted $ 6,296 29,201 $ 0.22
======= ====== ======
<PAGE>
Average
Net Shares Earnings
Income Outstanding Per Share
------- ----------- ---------
1997:
Basic $ 6,184 24,013 $ 0.26
Effect of potential dilution ======
from exercise of stock options - 928
------- ------
Diluted $ 6,184 24,941 $ 0.25
======= ====== ======
Six Months
- - ----------
1998:
Basic $11,589 24,328 $ 0.48
Effect of potential dilution ======
from exercise of stock options
and conversion of notes 2,024 4,767
------- ------
Diluted $13,613 29,095 $ 0.47
======= ====== ======
1997:
Basic $11,509 23,845 $ 0.48
Effect of potential dilution ======
from exercise of stock options - 940
------- ------
Diluted $11,509 24,785 $ 0.46
======= ====== ======
All common share and per share data have been restated to give effect to
the 2-for-1 stock split of the Company's common stock paid to
shareholders of record on November 17, 1997.
NOTE 3 - ACQUISITION OF MOTOROLA'S PHOTOMASK OPERATIONS
In December 1997, the Company acquired the internal photomask
manufacturing operations of Motorola, Inc. ("Motorola") in Mesa, Arizona
for $29.1 million in cash. The assets acquired included modern
manufacturing systems capable of supporting a wide range of photomask
technologies. Additionally, the Company entered into a multi-year supply
agreement whereby it will supply the photomask requirements previously
provided by the acquired operations. 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 fifteen (15) years. The
Condensed Consolidated Statement of Earnings includes the results of the
former Motorola photomask operations from December 31, 1997, the
effective date of the acquisition.
<PAGE>
NOTE 4 - NON-RECURRING RESTRUCTURING CHARGE
On March 13, 1998, the Company announced its plans to optimize its North
American manufacturing network by re-organizing its two California
operations. The Company will dedicate its Milpitas facility to the
production of high-end technology photomasks and dedicate its Sunnyvale
facility to the production of mature technology photomasks. In addition,
the Company announced its plans to consolidate its Colorado Springs,
Colorado photomask manufacturing operations into its other North American
manufacturing facilities. The Company also intends to sell its Large
Area Mask (LAM) Division. The Company has determined that the LAM
business, which is also located in Colorado Springs, does not represent
a long-term strategic fit with its core photomask business. The Company
will continue to maintain a sales office, photomask design center and
recertification operation in Colorado Springs. The Company recorded a
$3.8 million charge in the second quarter of 1998 for the restructuring.
<PAGE>
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition
Three and Six Months ended May 3, 1998 versus May 4, 1997
A significant portion of the changes in Photronics, Inc.
("Photronics") results of operations for the three and six months ended
May 3, 1998, as compared to the same periods during the last fiscal year,
was attributable to expansion of international operations in Europe and
Asia, together with the acquisition, on December 31, 1997, of the
internal photomask manufacturing operations of Motorola, Inc. in Mesa,
Arizona and the commencement of operations in its Austin, Texas facility
in February 1998. Revenues and costs also have been affected by the
increased demand for higher technology photomasks which require more
advanced manufacturing capabilities and generally command higher average
selling prices. To meet this demand and position the Company for future
growth, the Company continues to make substantial investments in high-
end manufacturing technology and capacity both at existing and new
facilities.
Net sales for the three and six months ended May 3, 1998 increased
25% to $61.3 million and 26% to $112.2 million, respectively, compared
with $49.0 million and $89.1 million for the corresponding prior year
periods. The increase for the three months ended May 3, 1998 resulted
primarily from new facilities in Mesa, Arizona and Austin, Texas as well
as growth in Photronics' international operations. The year-to-date
increase resulted from the new facilities in Mesa and Austin, continued
growth from Photronics' international operations and from increased
shipments to customers from existing facilities due to stronger high-end
product demand and the availability of greater advanced manufacturing
capability, reflecting the implementation of the Company's capacity
expansion program.
Gross profit for the three and six months ended May 3, 1998,
increased 27% to $23.7 million, and 30% to $43.3 million, respectively,
compared with $18.8 million and $33.4 million for the same periods in the
prior fiscal year. Gross margins increased to 38.7% of sales in the
second quarter ended May 3, 1998, compared with 38.2% in the second
quarter of 1997. For the six month period ended May 3, 1998 the gross
margin was 38.7% compared to 37.5% for the first six months in the prior
year. The increase in gross margins resulted principally from a higher
capacity utilization of the Company's installed equipment base, resulting
in better absorption of new manufacturing capacity and the related mix of
more advanced products. These increases were partially offset by lower
margins from the start-up of the Austin, Texas facility and lower margins
in the recently acquired Mesa, Arizona operation. To allow for increased
manufacturing capability, the Company has continued to increase its
staffing levels and added to its manufacturing systems, resulting in
higher labor and equipment-related costs, including depreciation expense.
The Company anticipates that its fixed operating costs will increase in
connection with its continuing capacity expansion which it expects to
offset with increases in net sales.
<PAGE>
Selling, general and administrative expenses increased 23% to $7.7
million and 26% to $14.3 million, respectively, for the three and six
months ended May 3, 1998, compared with $6.2 million and $11.3 million
for the same periods in the prior fiscal year. However, as a percentage
of net sales, selling, general and administrative expenses decreased to
12.5% for the three months ended May 3, 1998, compared with 12.7% for the
same period in the prior fiscal year. The increases in costs resulted
from the addition of the new operations in Austin and Mesa, as well as
increased staffing and other costs associated with the Company's
expansion. Selling, general and administrative expenses were 12.7% of
sales for both of the six month periods in 1998 and 1997.
Research and development expenses for the three and six months ended
May 3, 1998, increased 20% to $3.2 million and 24% to $6.1 million,
respectively, compared with $2.6 million and $4.9 million for the same
periods in the prior fiscal year. These increases reflect continued
engineering on more complex photomasks, including phase shift, optical
proximity correction and deep ultra-violet technologies, as well as on
Beta Squared's development of PLASMAX. As a percentage of net sales,
research and development expenses were 5.1% and 5.4% for the three and
six months ended May 3, 1998, respectively, compared with 5.3% and 5.5%
in the corresponding prior fiscal periods.
As previously announced, Photronics instituted a plan to optimize
its North American operations. The plan includes the transfer of the
photomask manufacturing operations in Colorado Springs to other sites
within the network and the disposition of the Large Area Mask business
unit which is also housed in Colorado Springs. In addition, the Company
is also reorganizing its Silicon Valley Operations by having the Milpitas
facility concentrate on advanced photomask applications, and the facility
in Sunnyvale focus on more mature technologies. A pretax restructuring
charge of $3.8 million ($2.4 million after tax or $0.08 per share on a
diluted basis) was recorded in the second quarter to cover the associated
costs.
Net other expenses increased $0.6 million and $2.0 million for the
three and six months ended May 3, 1998, principally as a result of
interest expense on the newly issued convertible notes, partially offset
by interest income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments
decreased to $37.0 million from $86.0 million during the first six months
of fiscal 1998, due primarily to the acquisition of the Motorola
photomask operations, as well as capital expenditures for facilities and
equipment in connection with the Company's expansion of its manufacturing
capacity. These expenditures, which aggregated $74.1 million were
partially offset by positive cash generated from operations of $22.4
million.
Accounts receivable increased 15% to $39.8 million at May 3, 1998
from $34.6 million at November 2, 1997, and inventories increased $2.7
million, or 24% from November 2, 1997 to $14.0 million at May 3, 1998,
primarily as a result of higher order activity and the addition of the
new manufacturing locations in Austin and Mesa.
<PAGE>
Property, plant and equipment, net, increased to $248.0 million at
May 3, 1998, from $203.8 million at November 2, 1997. Deposits on and
purchases of equipment, construction in progress of new facilities, and
the acquisition of Motorola's photomask operation aggregated $74.1
million during the six months ended May 3, 1998. These increases were
offset by depreciation expense totaling $14.4 million in the first six
months of fiscal 1998. The increase in net intangible assets to $21.0
million at May 3, 1998 from $8.2 million at November 2, 1997, was due
primarily to the Motorola acquisition.
Investments and other assets decreased to $13.0 million at May 3,
1998 from $14.2 million at November 2, 1997, due to the sale of certain
investment securities, the amortization of deferred financing fees and
the valuation of investment securities at their market values.
Current liabilities, exclusive of current portion of long-term debt
increased $2.8 million to $60.1 million at May 3, 1998, primarily due to
the restructuring charge.
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 and
more complex photomasks. At May 3, 1998, the Company had commitments
outstanding for capital expenditures of approximately $50 million.
Additional commitments are expected to be incurred during 1998.
The Company has a revolving credit facility that permits borrowings
of up to $30.0 million at any time through October 31, 1998. There have
been no amounts outstanding during 1998. Any amounts outstanding at
October 31, 1998 will be due and payable on such date. 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.
EFFECT OF NEW ACCOUNTING STANDARDS
In June, 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." In April, 1998, the AICPA issued
SOP 98-5, "Reporting on the Costs of Start-Up Activities." Each of these
statements establishes new standards for financial statement reporting
and disclosure of certain information. The Company has evaluated these
standards and they are not expected to have a material impact on the
Company's financial position, results of operations or cash flows.
YEAR 2000 COSTS
The Company is currently implementing new worldwide computerized
manufacturing and information systems which will be completed in 1998.
Such systems have the ability to process transactions with dates for the
year 2000 and beyond at no incremental cost and, accordingly, "Year 2000"
issues are not expected to have any material impact on the Company's
future financial condition or results or operations.
<PAGE>
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995:
Except for historical information, the matters discussed above may
be considered forward-looking statements and may be subject to certain
risks and uncertainties that could cause the actual results to differ
materially from those projected, including uncertainties in the market,
pricing, competition, procurement and manufacturing efficiencies, and
other risks.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
(a) The matters set forth in this Item 4 were submitted to a vote
of security holders of the Company at an Annual Meeting of
Shareholders held on March 18, 1998.
(b) The following directors, constituting the entire Board of
Directors, were elected at the Annual Meeting of Shareholders
held on March 18, 1998. Also indicated are the affirmative,
negative and authority withheld votes for each director.
Authority
For Against Withheld
Walter M. Fiederowicz 21,379,055 - 59,610
Joseph A. Fiorita, Jr. 21,367,642 - 71,023
Constantine S. Macricostas 21,366,992 2,000 69,673
Yukio Tagawa 21,342,192 - 96,473
Michael J. Yomazzo 21,368,692 - 69,973
(c) The following additional matters, and the affirmative and
negative votes and abstentions and broker non-votes with
respect thereto, were approved at the Annual Meeting of
Shareholders held on March 18, 1998.
The approval of the 1998 Stock Option Plan of the Company:
Affirmative votes 19,611,070
Negative votes 1,764,040
Abstentions/Broker non-votes 63,555
The ratification of the appointment of Deloitte and Touche LLP
as the independent certified public accountants of the Company
for the fiscal year ending November 1, 1998:
Affirmative Votes 21,419,255
Negative Votes 7,499
Abstentions/Broker Non-Votes 11,911
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter for which this report is filed, no
reports on Form 8-K were filed by the Company.
SIGNATURES
Pursuant to the requirements 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:______ROBERT J. BOLLO___________
Robert J. Bollo
Vice President/Finance
(Duly Authorized Officer and
Principal Financial Officer)
Date: June 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Earnings and the Consolidated Balance
Sheet and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-01-1998
<PERIOD-END> MAY-03-1998
<CASH> 24,172
<SECURITIES> 12,780
<RECEIVABLES> 40,069
<ALLOWANCES> 235
<INVENTORY> 13,992
<CURRENT-ASSETS> 98,154
<PP&E> 334,597
<DEPRECIATION> 86,561
<TOTAL-ASSETS> 380,229
<CURRENT-LIABILITIES> 62,082
<BONDS> 104,361
0
0
<COMMON> 244
<OTHER-SE> 197,501
<TOTAL-LIABILITY-AND-EQUITY> 380,229
<SALES> 112,239
<TOTAL-REVENUES> 112,239
<CGS> 68,826
<TOTAL-COSTS> 68,826
<OTHER-EXPENSES> 3,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,022
<INCOME-PRETAX> 18,689
<INCOME-TAX> 7,100
<INCOME-CONTINUING> 11,589
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,589
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.47
</TABLE>
