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
For the fiscal year ended ...October 31, 1999...
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, 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, 1999, 23,974,668 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, 1999 was
approximately $594,900,722.
________________________
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the 2000 Incorporated into Part
Annual Meeting of Shareholders III of this Form 10-K.
to be held on April 4, 2000.
<PAGE>
PART I
ITEM 1. BUSINESS
General
Photronics, Inc. (the "Company" or "Photronics") 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. The Company operates principally from ten
facilities, six of which are located in the United States, three in Europe
and one in Singapore.
In addition to manufacturing photomasks, the Company, through its
wholly-owned subsidiary Beta Squared, Inc. ("Beta Squared"), services
wafer plasma etching systems and conducts research and development related
to cleaning and etching processes. The Company also provides mask-related
technology consulting and data processing services through its D2W
division. See "Related Sales and Services."
During fiscal 1999, the Company continued to invest in its global
manufacturing network and enhance its technological and manufacturing
capabilities. In addition, the Company increased its research and
development activities and 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 provide it with
the facilities and expertise to continue to expand its sales base.
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.
Fiscal 1999 Developments
In January 1999, the Company sold its large area mask operation that
was located in Colorado Springs, Colorado.
In March 1999, the Company acquired from Cirrus Logic, Inc., a
leading supplier of semiconductor products, substantially all of the
assets of its mask engineering group. As part of this acquisition, the
Company established a new business unit, "D2W." D2W offers mask-related
technology consulting and data processing services to the semiconductor
industry to optimize the integration of the various processes used to
produce semiconductors. D2W is based in Fremont, California and is
staffed primarily by those employees formerly with Cirrus Logic, Inc.'s
mask engineering group.
In July 1999, the Company and International Business Machines, Inc.
("IBM") began a joint research and development venture related to "next
generation lithography" technologies. These "post-optical" manufacturing
technologies involve an exposure source other than light (such as an X-ray
or electron beam source) for circuits having critical dimensions smaller
than believed possible with currently utilized optical exposure
<PAGE>
methods. The purpose of the venture is to further develop and create a
commercialization path for masks for use in wafer exposure systems
proposed for introduction when current optically-based wafer exposure
systems become incapable of producing smaller circuit patterns. The
venture is being conducted at an advanced manufacturing facility at IBM's
Burlington, Vermont location.
Also in July 1999, the Company leased a building in Phoenix, Arizona
to relocate the photomask manufacturing operations currently being
conducted in Mesa, Arizona at facilities leased from Motorola, Inc.
("Motorola"). This operation resulted from the Company's December 1997
acquisition of Motorola's internal photomask manufacturing operations.
The Company anticipates that the new Phoenix facility will be complete in
the second half of fiscal 2000.
On September 15, 1999, the Company, AL Acquisition Corp., a wholly
owned subsidiary of the Company, and Align-Rite International, Inc.
("Align-Rite"), entered into an Agreement and Plan of Merger, as amended
by Amendment No. 1 to the Agreement and Plan of Merger, dated January 10,
2000 (as amended, the "Merger Agreement") pursuant to which the Company
would acquire Align-Rite in a merger transaction (the "Merger"). The
Merger Agreement provides, among other things, that each outstanding share
of Align-Rite's common stock will be converted into .85 shares of the
Company's common stock on the effective date of the Merger, resulting in
Align-Rite shareholders holding approximately 15% of the Company's
outstanding shares of common stock when the Merger is complete. The
Merger is subject to the approval of Align-Rite's shareholders, and to
various regulatory and closing conditions, including compliance with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Align-Rite manufactures photomasks using electron beam, laser beam
and optical-based technologies at four facilities located in Burbank,
California; Melbourne, Florida; Bridgend, Wales;and Heilbronn, Germany.
Align-Rite is a public company whose shares trade on the NASDAQ Stock
Market under the symbol "MASK."
On November 1, 1999, the Company sold substantially all the assets
and transferred to the buyer substantially all of the liabilities of the
Company's Beta Squared business unit that sold refurbished semiconductor
manufacturing equipment and replacement parts and provided engineering and
field services for such equipment (the "Beta Lithography Equipment
Division").
Manufacturing Technology
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. The typical
manufacturing process for one of the Company's photomasks involves receipt
and conversion of circuit design data to manufacturing pattern data. This
manufacturing data is then used to control the lithography system that
exposes the circuit pattern onto the photomask blank. The exposed areas
are dissolved and etched to produce that pattern on the photomask. The
photomask is inspected for defects and conformity to the customer design
data, any defects are repaired, any required pellicles (or protective
<PAGE>
membranes) are applied and, after final cleaning, the photomask is shipped
to the customer.
The Company currently supports customers across the full spectrum of
integrated circuit production technologies by manufacturing photomasks
using electron beam or laser-based technologies and, to a significantly
lesser degree, optical-based technologies. Laser-based or electron beam
systems are the predominant technologies used for photomask manufacturing.
Such technologies are capable of producing the finer line resolution,
lighter 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 VLSI (very large scale integrated circuit) devices. The Company
currently owns a number of laser writing systems and electron beam systems
and has committed to purchase additional advanced systems in order to
maintain technological leadership. 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
traditionally is used on less complex and lower priced photomasks.
The first several levels of photomasks sometimes are required to be
delivered by the Company within 24 hours from the time it receives 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
that 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 clean rooms 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.
Sales and Marketing
The market for photomasks primarily consists of semiconductor
manufacturers and designers, both domestic and international, including
manufacturers that have the capability to manufacture photomasks.
Generally, the Company and each of its customers engage in a qualification
and correlation process before the Company becomes an approved supplier.
Thereafter, the Company typically negotiates pricing parameters 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.
<PAGE>
The Company conducts its sales and 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; Allen and Austin, Texas; Dresden, Germany;
Manchester, United Kingdom; Neuchatel, Switzerland; and Singapore, the
Company has sales offices in Carlsbad and Pasadena, California; Colorado
Springs, Colorado; Hillsboro, Oregon; and Taiwan. The Company also has a
sales representative in Korea.
The Company supports international customers through both its
domestic and foreign facilities and has sub-contract manufacturing
arrangements in Taiwan. The Company considers its presence in
international markets important to attracting new customers, providing
global solutions to its existing customers and serving customers that
utilize manufacturing foundries outside of the United States, principally
in Asia. For a statement of the amount of net sales, operating income or
loss, and identifiable assets attributable to each of the Company's
geographic areas of operations, see Note 12 of Notes to the Consolidated
Financial Statements.
Related Sales and Services
In addition to the manufacture of photomasks, the Company, through
its wholly-owned subsidiary, Beta Squared, services a wafer plasma etching
system used in the processing of semiconductor wafers. The original
system was developed by Texas Instruments which licensed to Beta Squared
the right to manufacture and sell the system. Beta Squared also conducts
research and development related to cleaning and etching processes. Prior
to the sale of the Beta Lithography Equipment Division, Beta Squared also
sold refurbished semiconductor manufacturing equipment, engineering
services and replacement parts and field service for such equipment on a
third-party basis. Such activities represented approximately 2% of the
Company's net sales during fiscal 1999.
The Company's D2W division offers mask-related technology consulting
and data processing services to the semiconductor industry. D2W's
activities represented less than 1% of the Company's net sales during
fiscal 1999.
Customers
The Company primarily sells its products to leading semiconductor
manufacturers. The Company's largest customers during fiscal 1999
included the following:
Analog Devices, Inc. Lucent Technologies, Inc.
Atmel Corporation Motorola, Inc.
Chartered Semiconductor National Semiconductor Corp.
Manufacturing, Ltd. Philips Electronics NV
Cirrus Logic, Inc. Raytheon Company
Compaq Computer Corp. ST Microelectronics
Cypress Semiconductor Corp. Texas Instruments, Inc.
Fairchild Semiconductor Corp. Triquint Semiconductor, Inc.
Integrated Device Technology, Inc. Vitesse Semiconductor Corp.
International Business Machines, Inc. VLSI Technology, Inc.
LSI Logic Corp.
<PAGE>
The Company has continually expanded its customer base and, during
fiscal 1999, sold its products and services to approximately 400
customers. During fiscal 1999, no single customer other than Texas
Instruments or Motorola accounted for more than 10% of the Company's net
sales. The Company's five largest customers, in the aggregate, accounted
for approximately 40% of net sales in fiscal 1999. A significant decrease
in the amount of sales to any of these customers could have a material
adverse effect on the Company.
Research and Development
The Company conducts ongoing research and development programs
intended to maintain the Company's leadership in technology and
manufacturing efficiency. Since fiscal 1994, the Company has increased
its investment in research and development activities and current efforts
include deep ultraviolet, phase-shift and optical proximity correction
photomasks for advanced semiconductor manufacturing as well as photomasks
for next generation "post-optical" manufacturing technologies. Phase-
shift and optical proximity correction photomasks use advanced lithography
techniques for enhanced resolutions of images on a semiconductor wafer.
Next generation "post-optical" manufacturing technologies use an exposure
source other than light (such as an x-ray or electron beam source) for
wafer patterning and are designed for the manufacture of integrated
circuits with critical dimensions below that believed possible with
currently utilized optical exposure methods. Post-optical manufacturing
technologies are still under development and have not yet been adopted as
standard production methods. Since July 1999, next generation lithography
research and development has been conducted in connection with the
Company's research and development venture with IBM, described above. The
Company incurred expenses of $10.6 million, $12.9 million and $15.5
million for research and development in fiscal 1997, 1998 and 1999,
respectively. 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. The Company holds only two patents and
has applications pending for three other patents.
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 believes that its utilization of a
broad range of suppliers enables it to access the most advanced material
technology available. 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.
The Company relies on a limited number of equipment suppliers to
develop and supply the equipment used in the photomask manufacturing
process. Although the Company has been able to obtain equipment on a
<PAGE>
timely basis, the inability to obtain equipment when required could
adversely affect the Company's business and results of operations. The
Company also relies on these suppliers to develop future generations of
manufacturing systems to support the Company's requirements.
Backlog
The first several levels of photomasks for a circuit sometimes are
required to be shipped within 24 hours 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 facilities and its experienced technical
employees.
Since the mid-1980s there has been a decrease in the number of
independent manufacturers as a result of 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 the past, 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 experienced increased demand
since late 1993, demand softened and pricing pressures re-emerged,
particularly in 1998. Although demand has been increasing since late 1998
as a part of a cyclical upturn in the semiconductor industry, intense
competition has continued to pressure pricing for photomasks.
Based upon available market information, the Company believes that it
has a larger share of the United States market than any other photomask
manufacturer and that it is one of the largest photomask manufacturers in
the world. Competitors in the United States include DuPont Photomasks and
Align-Rite; and in international markets, Dai Nippon Printing, Toppan,
Hoya, DuPont, Taiwan Mask Corp., Innova, Precision Semiconductor Mask
Corp., Align-Rite and Compugraphics. In addition, some of the Company's
customers possess their own captive facilities for manufacturing
photomasks and certain semiconductor manufacturers market their photomask
manufacturing services to outside customers as well as to their internal
organization.
<PAGE>
Employees
As of October 31, 1999, the Company employed approximately 1,200
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.
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, 64 Chairman of the 1974
Board, Member of the
Office of the Chief
Executive and Director
Michael J. Yomazzo, 57 Vice Chairman, Member 1977
of the Office of the
Chief Executive and
Director
James R. Northup, 39 President and Member of 1994
the Office of the Chief
Executive
Jeffrey P. Moonan, 43 Executive Vice President - 1988
Finance and Administration,
Member of the Office of the
Chief Executive, General
Counsel and Secretary
Robert J. Bollo, 55 Vice President/Finance 1994
and Chief Financial
Officer
For the past five years each of the executive officers of the Company
held the office shown, except as follows:
Constantine S. Macricostas served as Chief Executive Officer until
August 1997. Mr. Macricostas also serves as a Director of Nutmeg Federal
Savings and Loan Association and the DII Group, Inc., a supplier of
integrated electronic manufacturing products and services.
Michael J. Yomazzo has been Vice Chairman since January 1, 1999. From
August 1997 until January 1999, he served as President and Chief Executive
Officer, from January 1994 until August 1997 he served as President and
Chief Operating Officer and from November 1990 until January 1994, he
served as Executive Vice President and Chief Financial Officer. Mr.
Yomazzo is a member of the Board of Directors of NMBT Corp., the bank
holding company of New Milford Bank and Trust Company.
<PAGE>
James R. Northup has been President since January 1, 1999. From
November 1996 until January, 1999, he served as Senior Vice President -
North American Operations, from January 1996 to November 1996, he served
as Vice President - Operations, and from January 1994 to January 1996, he
served as Director of Connecticut Operations.
Jeffrey P. Moonan has been Executive Vice President since January 1,
1999. From January 1994 until January 1999, he served as Senior Vice
President. He has also served as 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.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's properties include buildings in which the Company
currently conducts manufacturing operations or land for future
construction of facilities. The following table presents certain
information about the Company's manufacturing facilities.
Facility Size Type of
Location (sq.ft.) Interest
Brookfield, CT (Building #1) 19,600 Owned
Brookfield, CT (Building #2) 20,000 Leased
Milpitas, CA (2 buildings) 49,000 Leased
Sunnyvale, CA (3 buildings) 40,000 Owned
Allen, TX 60,000 Owned
Austin, TX 50,000 Owned
Phoenix, AZ 30,000 Leased
Manchester, UK 42,000 Owned
Neuchatel, Switzerland 7,000 Leased
Singapore 20,000 Leased
Dresden, Germany 10,000 Leased
Lease terms range from five years with options to renew to up to
twenty years for other facilities. In addition, the Company leases office
space in Jupiter, Florida; Carlsbad and Pasadena, California; Hillsboro,
Oregon and certain adjacent property in Brookfield, Connecticut. The
Company has also obtained property in Brookfield, Connecticut and
Hillsboro, Oregon for the construction of additional facilities.
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. Mr. Macricostas is Chairman of
the Board and a Director of the Company.
<PAGE>
For the year ended October 31, 1999, the Company leased real property
and equipment at an aggregate annual rental of approximately $4.0 million.
Other than new manufacturing facilities or equipment which have not
yet been placed into service and property held for the possible
construction of facilities, the Company believes it substantially utilized
its facilities during the 1999 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 matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS' MATTERS
The Common Stock of the Company is traded 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 1999 and 1998, as reported on the NASDAQ NMS. All per share prices
have been adjusted for a two-for-one stock split for shareholders of
record on November 17, 1997.
High Low
------ ------
Fiscal Year Ended October 31, 1999:
Quarter Ended January 31, 1999 $28.13 $18.00
Quarter Ended May 2, 1999 26.25 18.63
Quarter Ended August 1, 1999 28.88 19.13
Quarter Ended October 31, 1999 29.50 17.88
Fiscal Year Ended November 1, 1998:
Quarter Ended February 1, 1998 $25.75 $18.00
Quarter Ended May 3, 1998 37.88 23.00
Quarter Ended August 2, 1998 37.13 16.38
Quarter Ended November 1, 1998 22.94 9.50
On December 31, 1999, the closing sale price for the Common Stock as
reported by NASDAQ was $28.63. Based on information available to the
Company, the Company believes it has approximately 8,000 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. All share and
per share amounts have been adjusted for a two-for-one stock split for
shareholders of record on November 17, 1997.
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------------------------------------
October 31, November 1, November 2, October 31, October 31,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales $223,702 $222,572 $197,451 $160,071 $125,299
Costs and expenses:
Cost of sales 156,278 141,628 121,502 98,267 76,683
Selling, general and
administrative 31,063 28,793 24,940 21,079 17,127
Research and development 15,536 12,893 10,605 8,460 7,899
Non-recurring restructuring charge - 3,800 - - -
------- ------- ------- ------- -------
Operating income 20,825 35,458 40,404 32,265 23,590
Other income and expense:
Interest income 1,149 2,721 2,424 1,601 1,627
Interest expense (6,445) (6,143) (2,466) (160) (141)
Other income, net 1,439 1,046 1,074 197 4,766
------- ------- ------- ------- -------
Income before income taxes 16,968 33,082 41,436 33,903 29,842
Provision for income taxes 6,300 12,600 15,800 12,900 11,210
------- ------- ------- ------- -------
Net income $10,668 $20,482 $25,636 $21,003 $18,632
======= ======= ======= ======= =======
Earnings per share:
Basic $0.45 $0.84 $1.07 $0.89 $0.87
===== ===== ===== ===== =====
Diluted $0.45 $0.84 $1.03 $0.87 $0.83
===== ===== ===== ===== =====
Weighted average number of
common shares outstanding:
Basic 23,958 24,350 23,910 23,496 21,504
====== ====== ====== ====== ======
Diluted 23,958 28,958 26,628 24,202 22,414
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------------------------------------
October 31, November 1, November 2, October 31, October 31,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(in thousands, except per share amounts)
BALANCE SHEET DATA:
Working capital $ 29,191 $ 36,871 $ 81,398 $ 21,613 $ 49,653
Property, plant and equipment 282,157 249,389 203,813 123,666 72,063
Total assets 410,356 371,549 365,212 211,903 174,218
Long-term debt 116,703 104,261 106,194 1,987 1,809
Shareholders' equity 207,700 200,430 185,975 156,417 134,045
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, 1999, November 1, 1998 and November 2, 1997
OVERVIEW
A significant portion of the changes in Photronics, Inc.
("Photronics") results of operations over the course of the three years
ended October 31, 1999 are attributable to expansion of the Company's
international operations in Europe and Asia. In fiscal 1996, Photronics
established its first operations outside of the United States by acquiring
operations in the U.K., and in Switzerland, opening a new manufacturing
facility in Singapore and acquiring a minority interest in an independent
photomask manufacturer in Korea. In addition, during fiscal 1997 the
company acquired an independent photomask manufacturer in Germany. These
facilities, together with the Company's U.S. facilities, comprise a global
manufacturing network supporting semiconductor fabricators in the Asian,
European and North American markets. As a result of the Company's
globalization, revenues from foreign operations have grown to
approximately 22% in 1999 compared to 20% in 1998 and 19% in 1997.
Management believes that this trend will continue. Substantially all of
the Company's consolidated Asian sales have been denominated in U.S.
Dollars resulting in minimal foreign currency exchange risk on
transactions in that region.
In addition to its international expansion, on December 31, 1997, the
Company acquired the internal photomask manufacturing operations of
Motorola, Inc. in Mesa, Arizona, and in February 1998, commenced
operations in its newly constructed Austin, Texas facility. The Company's
growth has also been affected by the rapid technological changes taking
place in the semiconductor industry resulting in a greater mix of high-end
photomask requirements for more complex integrated circuit designs.
A cyclical slow-down experienced by the semiconductor industry began
impacting the release of new integrated circuit designs to photomask
manufacturers in the middle of fiscal 1998. As a result, the Company
experienced weakness in photomask demand and accentuated competitive
pressures, especially for more mature technologies, during the second half
of fiscal 1998. During fiscal 1999, the Company continued to see a
weakness in selling prices for more mature technologies, but began
experiencing an increase in unit volumes and a better mix of orders for
high-end technology products. The Company cannot predict the duration of
such cyclical industry conditions or their impact on its future operating
results.
Both revenues and costs have been affected by the increased demand
for higher technology photomasks which require more advanced manufacturing
capabilities but generally command higher average selling prices. To meet
the technological demands of its customers and position the Company for
future growth, the Company continues to make substantial investments in
high-end manufacturing capability both at existing and new facilities.
The Company's capital expenditures for new facilities and equipment to
support its customers requirements for high technology products exceeded
$235 million for the three years ended October 31, 1999, resulting in
significant increases in operating expenses. Based on the anticipated
<PAGE>
technological changes in the industry, the Company expects those trends to
continue.
RESULTS OF OPERATIONS
Net Sales:
Net sales for the fiscal year ended October 31, 1999 increased 1% to
$223.7 million, compared to $222.6 million in 1998. The increase was due
to an increase in sales from Photronics' foreign operations, partially
offset by a decrease in sales domestically. The domestic decrease was
primarily attributable to a decrease in average selling prices on mature
technologies, offset by higher unit volumes and a better mix of high-end
products.
Net sales for the fiscal year ended November 1, 1998 increased 13% to
$222.6 million, compared with $197.5 million in the prior year. Sales
from Photronics' international manufacturing operations accounted for
approximately 55% of the increase. The remaining portion of the growth
resulted from the new Mesa and Austin operations and increased volume from
the Company's other U.S. operations during the first six months of 1998.
These increases were partially offset by pricing pressures and lower
volumes in the second half of the year precipitated generally by the
cyclical slow-down in the semiconductor industry.
Cost of Sales:
Cost of sales for the year ended October 31, 1999 increased 10.3% to
$156.3 million compared with $141.6 million in fiscal 1998. Gross margins
decreased to 30.1% of sales compared to 36.4% in 1998 principally because
of higher depreciation and other fixed costs incurred in anticipation of
the industry's rapid move to higher-end technologies. Depreciation and
amortization increased 21.0% in 1999 to $35.7 million from $29.5 million
in 1998. In addition, the Company experienced higher equipment
maintenance, materials and labor costs in fiscal 1999.
Cost of sales for the year ended November 1, 1998 increased 16.6% to
$141.6 million compared with $121.5 million in fiscal 1997. Gross margins
decreased to 36.4% of sales compared to 38.5% in 1997 because of the lower
sales in the second half of 1998 and higher fixed costs resulting from the
strategic investments in new facilities and capital equipment.
Depreciation and amortization increased 58% in 1998 to $29.5 million from
$18.6 million in 1997. In addition, the Company experienced lower margins
in the formerly captive Mesa, Arizona operation that was acquired earlier
in the year.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses increased 7.9% during
1999 to $31.1 million or 13.9% of sales, from $28.8 million, or 12.9% of
sales in 1998. The increase was primarily due to growth related expenses
including information systems and communications costs which were expended
to ensure an infrastructure commensurate with Photronics' expansion.
Other growth related costs, including compensation and travel, also
increased in 1999.
<PAGE>
Selling, general and administrative expenses increased 15.4% during
1998 to $28.8 million or 12.9% of sales, from $24.9 million or 12.6% of
sales in 1997 due to higher staffing costs associated with the Company's
growth, including the expansion into Austin, Texas and Mesa, Arizona, as
well as the full year impact of additions made in 1997, especially in
Europe and Asia. Such increases were partially offset by lower incentive
compensation expenses in fiscal 1998, and reduction in discretionary
spending, especially in the second half of the year in response to the
semiconductor industry slow-down.
Research and Development:
Research and development expenses for the year ended October 31, 1999
increased by 20.5% to $15.5 million, or 6.9% of sales,from $12.9 million
or 5.8% of sales in 1998. The increase reflects continued work on
advanced photomasks utilizing optical enhancement features, as well as
expenses incurred in connection with our Next Generation Lithography Mask
Center of Competency, a joint effort with IBM which was established in
July 1999.
Research and development expense for 1998 increased by 21.6% to $12.9
million, or 5.8% of sales from $10.6 million in 1997, or 5.4% of sales in
1997. The increase is the result of the continued work on advanced
photomask engineering projects including phase shift, optical proximity
correction and deep ultra-violet applications.
Non-Recurring Restructuring Charge:
The Company recorded a non-recurring restructuring charge of $3.8
million in the second quarter of fiscal 1998 in connection with the
optimization of its North American operations. The Company reorganized
its two California operations, dedicating its Milpitas facility to the
production of high-end technology photomasks and its Sunnyvale facility to
the production of mature technology photomasks. In addition, it
consolidated its Colorado Springs, Colorado photomask manufacturing
operations into its other North American manufacturing facilities. The
Company determined that its Large Area Mask (LAM) Division, which was also
located in Colorado Springs, did not represent a long-term strategic fit
with its core photomask business, and, accordingly, announced plans to
sell the LAM Division. The major component of the non-recurring charge
related to a reduction in the value of equipment. After tax, the charge
amounted to $2.4 million, or $.08 per share on a diluted basis. The LAM
division was sold in 1999 without any additional effect on results of
operations.
Other Income and Expense:
Net other expenses increased $1.5 million to a net expense of $3.9
million in 1999 as a result of higher interest expense, due primarily to
utilization of the Company's unsecured revolving line of credit, as well
as lower investment income due to a decrease in short-term investment
balances throughout the year.
<PAGE>
Interest income in 1998 increased as a result of higher average
short-term investment balances. Interest expense increased to $6.1
million in 1998 from $2.5 million in 1997, primarily due to the effect of
a full year of interest expense on the convertible notes in 1998 compared
to only five months of interest expense on the convertible notes, which
were issued in fiscal 1997.
Foreign currency transaction gains or losses were not significant in
fiscal 1999, 1998 or 1997.
Income Taxes:
The Company provided federal, state and foreign income taxes at a
combined effective annual tax rate of 37.1% in 1999 as compared to 38.1%
in 1998 and 1997. The lower rate in 1999 was primarily due to higher
available research and development expense credits.
Net Income:
Net income for the year ended October 31, 1999 decreased 47.9% to
$10.7 million, or $0.45 per diluted share, compared to $20.5 million, or
$0.84 per diluted share in the prior year. Net income for the year ended
November 1, 1998 decreased 20.1% to $20.5 million, or $0.84 per diluted
share, compared with $25.6 million or $1.03 per diluted share in the prior
year.
Fiscal 1998 included a non-recurring after tax charge of $2.4
million, $0.08 per diluted share. All share and earnings per share
amounts reflect a two-for-one stock split effected in November 1997 (see
Note 5 of Notes to the Consolidated Financial Statements).
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments
decreased $15.1 million during fiscal 1999 to $16.3 million. The decrease
is attributable to capital expenditures for facilities and equipment of
$72.4 million. In addition, $6.9 million of cash was utilized to
repurchase 500,000 shares of the Company's common stock. The decrease was
partially offset by positive cash flows generated by operations of more
than $55.0 million and borrowings of $12.8 million.
Accounts receivable increased 31.0% to $41.3 million because of
stronger sales in the fourth quarter of 1999 compared to the fourth
quarter of 1998.
Other current assets increased to $9.3 million in 1999 from $4.5
million in 1998, primarily due to refundable income taxes.
Property, plant and equipment increased to $282.2 million at October
31, 1999 from $249.4 million at November 1, 1998. Deposits on and
purchases of equipment aggregated $72.4 million during the year ended
November 1, 1999. These increases were reduced by depreciation expense
totalling $37.9 million in fiscal 1999. The increase in intangible
assets to $28.4 million at October 31, 1999 from $24.4 million at November
2, 1998, was primarily due to the costs incurred to develop our
manufacturing and financial software systems.
<PAGE>
Investments and other non-current assets increased to $13.6 million
at October 31, 1999 from $10.3 million at November 1, 1998 due to the
increase in the market value of investments available for sale.
Accounts payable and other accrued liabilities increased at October
31, 1999 to $51.6 million compared to $41.6 million at November 1, 1998
primarily due to the timing of payments related to capital equipment.
Accrued salaries and wages decreased to $2.5 million as of October 31,
1999 from $4.2 million as of November 1, 1998, largely as a result of
lower incentive compensation accruals in 1999.
Total amounts due on borrowings of $117.0 million at October 31, 1999
increased from $106.3 million as of November 1, 1998 principally due to
the borrowings in 1999 of $12.8 million under the Company's revolving
credit facility.
Deferred income taxes and other liabilities increased to $28.9
million at October 31, 1999 compared to $16.4 million at November 1, 1998,
largely due to increases in deferred income taxes resulting from the
differences between the carrying amounts of assets and liabilities for
financial reporting and the amounts used for income tax purposes.
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 November 1, 1999, the Company had commitments
outstanding for capital expenditures of approximately $20 million.
Additional commitments are expected to be incurred during 2000. The
Company maintains an unsecured, $125 million committed revolving credit
facility available at any time through the end of fiscal year 2003. 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.
YEAR 2000
As of the date of this filing, the Company has not experienced any
Year 2000 problems that have affected its operations, the realization of
financial assets, or the Company's results of operations. The Company
will continue to monitor its operations for non-compliant components. The
Company is also monitoring its open transactions with customers and
vendors to ensure that there are no undetected problems that could have a
future impact.
As of the date of this filing, the Company believes there are no
remaining significant risks or exposure as a result of the Year 2000
issue.
<PAGE>
EFFECT OF NEW ACCOUNTING STANDARDS
In April 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities." In June 1998, the FASB issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." In
September 1999, the AICPA issued Statement of Position 99-3, "Accounting
and Reporting of Certain Defined Contribution Plan Investments and Other
Disclosure Matters." Each of these statements establish new standards for
financial statement reporting and disclosure of certain information
effective for the Company in future fiscal years. The Company does not
expect these new standards to have a material impact on its financial
position, results of operations or cash flows.
"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.
Item 7A
Quantitative and Qualitative Disclosures about Market Risk
The Company, in the normal course of doing business, is exposed to
the risks associated with foreign currency exchange rates and changes in
interest rates.
Foreign Currency Exchange Rate Risk
The Company conducts business in several major international
currencies through its worldwide operations, and as a result is subject to
foreign exchange exposures due to changes in exchange rates of the various
currencies. Changes in exchange rates can positively or negatively effect
the Company's sales, gross margins and retained earnings. The Company
attempts to minimize currency exposure risk by producing its products in
the same country or region in which the products are sold and thereby
generating revenues and incurring expenses in the same currency and by
managing its working capital; although there can be no assurance that this
approach will be successful, especially in the event of a significant and
sudden decline in the value of any of the international currencies of the
Company's worldwide operations. At October 31, 1999 the Company had no
outstanding foreign exchange contracts. The Company does not engage in
purchasing forward exchange contracts for speculative purposes.
Interest Rate Risk
The majority of the Company's borrowings are in the form of its
convertible subordinated notes which bear interest at the fixed rate of
6%. Accordingly, the Company does not expect changes in interest rates to
have a material effect on income or cash flows in 2000, although there can
be no assurances that interest rates will not significantly change.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENT
Page
Independent Auditors'
Report...................................................19
Consolidated Balance Sheet
at October 31, 1999 and November 1, 1998............20 - 21
Consolidated Statement of Earnings for
the years ended October 31, 1999,
November 1, 1998 and November 2, 1997....................22
Consolidated Statement of Shareholders'
Equity for the years ended
October 31, 1999, November 1, 1998
and November 2, 1997.....................................23
Consolidated Statement of Cash Flows
for the years ended October 31, 1999,
November 1, 1998 and November 2, 1997....................24
Notes to Consolidated
Financial Statements................................25 - 37
<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 its subsidiaries as of October 31, 1999 and November
1, 1998, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the three years in the
period ended October 31, 1999. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based on
our audits.
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, 1999 and November
1, 1998, and the results of their operations and their cash flows for each
of the three years in the period ended October 31, 1999 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
December 6, 1999
(except as to Footnote 15,
as to which the date
is January 10, 2000)
<PAGE>
<TABLE>
PHOTRONICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
October 31, 1999 and November 1, 1998
(dollars in thousands)
<CAPTION>
Assets 1999 1998
- ------ -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,269 $ 23,841
Short-term investments - 7,532
Accounts receivable (less allowance
for doubtful accounts of $235 in
1999 and 1998) 41,293 31,515
Inventories 13,888 14,057
Deferred income taxes 5,458 5,923
Other current assets 9,299 4,507
-------- --------
Total current assets 86,207 87,375
Property, plant and equipment 282,157 249,389
Intangible assets (less accumulated
amortization of $8,062 in 1999
and $6,009 in 1998) 28,357 24,450
Investments 8,594 6,705
Other assets 5,041 3,630
-------- --------
$410,356 $371,549
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
PHOTRONICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
October 31, 1999 and November 1, 1998
(dollars in thousands, except per share amounts)
<CAPTION>
Liabilities and Shareholders' Equity 1999 1998
- ------------------------------------ -------- --------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 261 $ 2,076
Accounts payable 45,608 31,431
Accrued salaries and wages 2,490 4,170
Accrued interest payable 2,636 2,674
Other accrued liabilities 6,021 10,153
------- -------
Total current liabilities 57,016 50,504
Long-term debt 116,703 104,261
Deferred income taxes 19,942 11,222
Other liabilities 8,995 5,132
------- -------
Total liabilities 202,656 171,119
------- -------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized,
none issued and outstanding - -
Common stock, $.01 par value,
75,000,000 shares authorized,
23,948,807 shares issued
and outstanding in 1999;
24,164,106 shares issued
and outstanding in 1998 239 242
Additional paid-in capital 80,242 82,377
Retained earnings 130,759 120,091
Accumulated other comprehensive loss (3,489) (2,141)
Deferred compensation on
restricted stock (51) (139)
-------- --------
Total shareholders' equity 207,700 200,430
-------- --------
$410,356 $371,549
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
PHOTRONICS, INC. AND SUBSIDIARIES
Consolidated Statement of Earnings
<CAPTION>
Years Ended
-------------------------------------------
October 31, November 1, November 2,
1999 1998 1997
----------- ----------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net sales $223,702 $222,572 $197,451
Costs and expenses:
Cost of sales 156,278 141,628 121,502
Selling, general
and administrative 31,063 28,793 24,940
Research and development 15,536 12,893 10,605
Non-recurring
restructuring charge - 3,800 -
-------- -------- --------
Operating income 20,825 35,458 40,404
Other income and expense:
Interest income 1,149 2,721 2,424
Interest expense (6,445) (6,143) (2,466)
Other income, net 1,439 1,046 1,074
-------- -------- --------
Income before income taxes 16,968 33,082 41,436
Provision for income taxes 6,300 12,600 15,800
-------- -------- --------
Net income $ 10,668 $ 20,482 $ 25,636
======== ======== ========
Earnings per share:
Basic $0.45 $0.84 $1.07
===== ===== =====
Diluted $0.45 $0.84 $1.03
===== ===== =====
Weighted average number of
common shares outstanding:
Basic 23,958 24,350 23,910
====== ====== ======
Diluted 23,958 28,958 26,628
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
PHOTRONICS, INC. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
Years Ended October 31, 1999, November 1, 1998 and November 2, 1997 (in thousands)
<CAPTION> Accumulated Other Comprehensive Income
(Loss)
-------------------------- Deferred
Unreal- Compen-
ized Foreign sation Total
Common Stock Add'l Invest- Currency on Re- Share
-------------- Paid-In Retained ment Trans- Treasury stricted holders'
Shares Amount Capital Earnings Gains lation Total Stock Stock Equity
------ ------ ------- -------- ------ ------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
November 1, 1996 11,973 $120 $77,833 $73,973 $4,678 $ 58 $4,736 $ (245) - $156,417
Comprehensive Income:
Net income - - - 25,636 - - - - - 25,636
Change in unrealized
gains on investments - - - - (1,427) - (1,427) - - (1,427)
Foreign currency
translation adjustment - - - - - (2,066) (2,066) - - (2,066)
------ ------ ------ ------ ------
Total comprehensive income 25,636 (1,427) (2,066) (3,493) 22,143
Issuance of common stock
related to acquisition 50 - 1,337 - - - - - - 1,337
Sale of common stock
through employee stock
option and purchase plans 258 3 6,060 - - - - - - 6,063
Restricted stock awards, net 6 - 264 - - - - - $(249) 15
Retirement of treasury
stock (136) (1) (244) - - - - 245 - -
Two-for-one stock split 12,150 121 (121) - - - - - - -
------ --- ------ ------ ----- ------ ----- --- ---- -------
Balance at
November 2, 1997 24,301 243 85,129 99,609 3,251 (2,008) 1,243 - (249) 185,975
Comprehensive Income:
Net Income - - - 20,482 - - - - - 20,482
Change in unrealized
gains on investments - - - - (2,084) - (2,084) - - (2,084)
Foreign currency
translation adjustment - - - - - (1,300) (1,300) - - (1,300)
------ ----- ------ ------ ------
Total comprehensive income 20,482 (2,084) (1,300) (3,384) 17,098
Sale of common stock
through employee stock
option and purchase plans 363 4 3,993 - - - - - - 3,997
Amortization of re-
stricted stock to
compensation expense - - - - - - - - 110 110
Common stock repurchases (500) (5) (6,745) - - - - - - (6,750)
------ --- ------ ------- ----- ------ ------ ---- -------
Balance at
November 1, 1998 24,164 242 82,377 120,091 1,167 (3,308) (2,141) - (139) 200,430
Comprehensive Income:
Net income - - - 10,668 - - - - - 10,668
Change in unrealized
gains on investments - - - - 1,357 - 1,357 - - 1,357
Foreign currency
translation adjustment - - - - - (2,705) (2,705) - - (2,705)
------ ----- ------ ------ -----
Total comprehensive income 10,668 1,357 (2,705) (1,348) 9,320
Sale of common stock
through employee stock
option and purchase plans 285 2 4,760 - - - - - - 4,762
Amortization of re-
stricted stock to
compensation expense - - - - - - - - 88 88
Common stock repurchases (500) (5) (6,895) - - - - - - (6,900)
------ ---- ------- -------- ------ ------- ------- ----- -------- --------
Balance at
October 31, 1999 23,949 $239 $80,242 $130,759 $2,524 $(6,013) $(3,489) $ - $ (51) $207,700
====== ==== ======= ======== ====== ======= ======= ===== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
PHOTRONICS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
<CAPTION>
Years Ended
-------------------------------------------------
October 31, November 1, November 2,
1999 1998 1997
----------- -------------- -----------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $10,668 $20,482 $25,636
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of
property, plant and equipment 37,948 31,461 19,817
Amortization of intangible assets 2,783 2,529 1,322
Gain on sale of investments (1,479) (838) (1,562)
Deferred income taxes 7,175 264 989
Non-recurring restructuring charges - 3,800 -
Other 97 224 98
Changes in assets and liabilities,
net of effects of acquisitions:
Accounts receivable (10,003) 2,954 (9,405)
Inventories 120 (2,374) (3,157)
Other current assets (4,437) (3,318) (870)
Accounts payable and accrued liabilities 12,463 (10,115) 13,677
------ ------ ------
Net cash provided by operating activities 55,335 45,069 46,545
------ ------ ------
Cash flows from investing activities:
Acquisitions of and investments in
photomask operations - (32,455) (1,065)
Deposits on and purchases of property,
plant and equipment (72,373) (66,448) (96,319)
Net change in short-term investments 7,532 20,657 (20,271)
Proceeds from sale of investments 1,578 932 1,939
Other (7,817) 2,218 2,151
------- ------- --------
Net cash used in investing activities (71,080) (75,096) (113,565)
------- ------- --------
Cash flows from financing activities:
Issuance of subordinated convertible notes,
net of deferred issuance costs - - 99,697
Borrowings under revolving credit facility 12,750 - -
Repayment of long-term debt (2,068) (266) (151)
Proceeds from issuance of common stock 4,762 3,997 6,063
Purchase and retirement of common stock (6,900) (6,750) -
Other (351) - -
----- ------ -------
Net cash provided (used) by financing activities 8,193 (3,019) 105,609
----- ------ -------
Effect of exchange rate changes on cash (20) (958) 490
------- ------- -------
Net increase (decrease) in cash and cash equivalents (7,572) (34,004) 39,079
Cash and cash equivalents at beginning of year 23,841 57,845 18,766
------- ------- -------
Cash and cash equivalents at end of year $16,269 $23,841 $57,845
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PHOTRONICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended October 31, 1999, November 1, 1998 and November 2, 1997
(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.
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 and reported as other comprehensive income (loss) as 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. Short-term investments include a diversified
portfolio of high quality marketable securities are liquidated as needed
to meet the Company's current cash requirements. All other investments
are classified as available for sale non-current assets. Unrealized
gains and losses, net of tax, are reported as other comprehensive income
(loss) 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 (FIFO) method, or market.
<PAGE>
Long-Lived Assets
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.
Goodwill and other intangibles are amortized on a straight-line
basis over periods estimated to be benefited, generally 5 to 20 years.
The future economic benefit of the carrying value of all long-lived
assets is reviewed periodically and any diminution 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.
Net Income Per Common Share
Net income per common share is computed in accordance with the
provision of Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("SFAS 128").
Stock Based Compensation
The Company records stock option awards in accordance with the
provisions of Accounting Principles Board Opinion 25, "Accounting for
Stock Issued to Employees". The Company estimates the fair value of
stock option awards in accordance with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," and
discloses the resulting estimated compensation effect on net income on a
pro forma basis.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
<PAGE>
NOTE 2 - INVESTMENTS
Short-term investments consist of:
November 1,
1998
-----------
Government agency securities $ 2,268
Corporate bonds 3,010
Certificates of deposit 2,254
-------
$ 7,532
=======
There were no short-term investments as of October 31, 1999.
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. In the absence of
quoted market prices, the estimated fair value 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, November 1,
1999 1998
----------- -----------
Fair value $ 8,594 $ 6,705
Cost 4,523 4,700
------- -------
4,071 2,005
Less deferred income taxes 1,547 838
------- -------
Net unrealized gains $ 2,524 $ 1,167
======= =======
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
October 31, November 1,
1999 1998
----------- -----------
Land $ 3,937 $ 3,772
Buildings and improvements 38,800 33,943
Machinery and equipment 355,647 301,611
Leasehold improvements 7,818 7,378
Furniture, fixtures
and office equipment 15,697 6,642
-------- --------
421,899 353,346
Less accumulated depreciation
and amortization 139,742 103,957
-------- --------
Property, plant and equipment $282,157 $249,389
======== ========
<PAGE>
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
October 31, November 1,
1999 1998
----------- -----------
Revolving credit facility, $ 12,750 -
effective interest rate of 6.21%
6% Convertible Subordinated Notes
due June 1, 2004 103,500 $103,500
Acquisition indebtedness payable
December 1, 1998, net of interest of
$9 in 1998, imputed at 7.45% - 1,791
Installment note payable by foreign
subsidiary with interest at 4.75%
through June, 2001 376 665
Industrial development mortgage note,
secured by building, with interest at
6.58%, payable through November 2005 338 381
-------- --------
116,964 106,337
Less current portion 261 2,076
-------- --------
Long-term debt $116,703 $104,261
======== ========
Long-term debt matures as follows: 2001 - $211; 2002 -$53; 2003 -
$58; 2004 - $116,311; years after 2004 - $70. 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, except that the fair value of the convertible
subordinated notes, based upon the most recently reported trade as of
October 31, 1999, amounted to $101.4 million.
The Company has an unsecured revolving credit facility to provide
for borrowings of up to $125.0 million at any time through November,
2003. 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. The Company had
$12.8 million of outstanding borrowings under its revolving credit
facility at October 31, 1999.
On May 29, 1997, the Company sold $103.5 million of convertible
subordinated notes, due in 2004, in a public offering. The notes bear
interest at 6% per annum and are convertible at any time by the holders
into 3.7 million shares of the Company's common stock, at a conversion
price of $27.97 per share. The notes are redeemable at the Company's
option, in whole or in part, at any time after June 1, 2000 at certain
premiums decreasing through the maturity date. Interest is payable semi-
annually.
Cash paid for interest amounted to $6,606, $6,311 and $164 in 1999,
1998 and 1997 respectively.
<PAGE>
NOTE 5 - EARNINGS PER SHARE
Earnings per share amounts are calculated in accordance with the
provisions of SFAS No. 128. 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 follows (in thousands,
except per share amounts):
Average Earnings
Net Shares Per
Income Outstanding Share
-------- ----------- --------
1999:
Basic $ 10,668 23,958 $ 0.45
Effect of potential dilution ======
from exercise of stock options
and conversion of notes (a) - -
-------- ------
Diluted $ 10,668 23,958 $ 0.45
======== ====== ======
1998:
Basic $ 20,482 24,350 $ 0.84
Effect of potential dilution ======
from exercise of stock options
and conversion of notes 3,809 4,608
-------- ------
Diluted $ 24,291 28,958 $ 0.84
======== ====== ======
1997:
Basic $ 25,636 23,910 $ 1.07
Effect of potential dilution ======
from exercise of stock options
and conversion of notes 1,841 2,718
-------- ------
Diluted $ 27,477 26,628 $ 1.03
======== ====== ======
(a) The effect of the exercise of stock options and the conversion of
notes for 1999 is anti-dilutive.
In September, 1997, the Company's Board of Directors authorized a
two-for-one stock split effected in the form of a stock dividend, which
was paid to shareholders of record on November 17, 1997. The stock split
resulted in the issuance of 12.2 million additional shares of common
stock. All applicable share and per share amounts reflect the stock
split.
<PAGE>
NOTE 6 - BUSINESS COMBINATIONS
On December 31, 1997, the Company acquired the internal photomask
manufacturing operations of Motorola, Inc. ("Motorola") in Mesa, Arizona
for $29 million in cash. The assets acquired include 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 Motorola's internal 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 Consolidated Statement of Earnings includes the results of
the former Motorola photomask operations from December 31, 1997, the
effective date of the acquisition.
On June 26, 1997, the Company acquired all of the outstanding shares
of MZD Maskenzentrum fur Mikrostruktrierung Dresden GmbH (MZD), an
independent photomask manufacturer located in Dresden, Germany, for $3.1
million in cash and common shares of the Company. The acquisition was
accounted for as a purchase and, accordingly, the acquisition price was
allocated to assets and liabilities based on relative fair value.
NOTE 7 - INCOME TAXES
The provision for income taxes consists of the following:
1999 1998 1997
------- ------- -------
Current: Federal $(1,129) $10,417 $11,993
State 228 1,610 2,617
Foreign 26 309 201
------- ------- -------
(875) 12,336 14,811
------- ------- -------
Deferred: Federal 6,641 417 995
State 569 (192) (6)
Foreign (35) 39 -
------- ------- -------
7,175 264 989
------- ------- -------
$ 6,300 $12,600 $15,800
======= ======= =======
<PAGE>
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:
1999 1998 1997
------- ------- -------
U.S. Federal income tax at
statutory rate $ 5,940 $11,579 $14,503
State income taxes, net of
Federal benefit 718 921 1,697
Tax benefits of tax
exempt income (14) (42) (35)
Foreign tax rate differential 398 (853) (681)
Other, net (742) 995 316
------- ------- -------
$6,300 $12,600 $15,800
======= ======= =======
The Company's net deferred tax liability consists of the following:
October 31, November 1,
1999 1998
----------- -----------
Deferred income tax liabilities:
Property, plant and equipment $17,021 $8,840
Investments 1,547 838
Other 1,374 1,544
------- ------
Total deferred tax liability 19,942 11,222
------- ------
Deferred income tax assets:
Reserves not currently deductible 1,691 3,712
Other 3,767 2,211
------- ------
Total deferred tax asset 5,458 5,923
------- ------
Net deferred tax liability $14,484 $5,299
======= ======
Cash paid for income taxes amounted to $1.2 million, $15.0 million
and $7.2 million in 1999, 1998 and 1997 respectively.
NOTE 8 - EMPLOYEE STOCK PURCHASE AND OPTION PLANS
In March 1998, the shareholders approved the adoption of the 1998
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 1.0 million 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 may be granted. 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
<PAGE>
maximum of ten years.
The following table summarizes stock option activity under the
plans:
Stock Options Exercise Prices
------------- ---------------
Balance at November 1, 1996 2,383,526 $ 1.59-13.69
Granted 275,300 14.88-21.97
Exercised (454,042) 1.59-13.69
Cancelled (65,006) 3.75-16.38
---------
Balance at November 2, 1997 2,139,778 1.75-21.97
Granted 826,100 11.00-31.44
Exercised (295,710) 1.75-16.38
Cancelled (94,877) 6.71-31.44
---------
Balance at November 1, 1998 2,575,291 1.75-31.44
Granted 226,000 18.13-25.88
Exercised (253,323) 3.08-21.97
Cancelled (135,003) 3.75-31.44
---------
Balance at October 31, 1999 2,412,965 $1.75-31.44
=========
The following table summarizes information concerning currently
outstanding and exercisable options:
Range of Exercise Prices
------------------------------------------------
$1.75-$10.00 $10.00-$20.00 $20.00-$31.44
------------ ------------- -------------
Outstanding:
Number of options 514,132 1,381,258 517,575
Weighted average
remaining years 3.5 7.5 8.5
Weighted average
exercise price $4.82 $12.80 $23.21
Exercisable:
Number of options 514,132 714,808 126,177
Weighted average
exercise price $4.82 $12.51 $22.87
At October 31, 1999, 488,203 shares were available for grant and
1,355,117 shares were exercisable at a weighted average exercise price of
$10.56.
The Company has not recognized compensation expense in connection
with stock option grants under the plans. However, had compensation
expense been determined based on the fair value of the options on the
grant dates, the Company's pro forma net income and earnings per share
for 1999 would have been reduced by approximately $1.7 million, or $0.07
per diluted share, for 1998 would have been reduced by approximately $1.9
million, or $0.07 per diluted share, and for 1997 would have been reduced
by approximately $1.5 million, or $0.06 per diluted share. The weighted
average fair value of options granted was $21.35 per share in 1999, $6.55
per share in 1998 and $7.39 per share in 1997. Fair value is estimated
based on the Black-Scholes option-pricing model with the following
weighted average assumptions: dividend yield of 0%; expected volatility
<PAGE>
of 67.1% in 1999, 54.4% in 1998 and 51.6% in 1997; and risk-free interest
rates of 6.2% in 1999, 4.4% in 1998 and 6.4% in 1997.
The Company maintains an Employee Stock Purchase Plan ("Purchase
Plan"), under which 600,000 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, 1999, 346,254 shares had been
issued and 71,413 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 $0.6 million in 1999,
$0.3 million in 1998 and $0.5 million in 1997.
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 domestic employees and their qualifying dependents.
The Company's contribution amounted to $4.5 million in 1999, $3.3 million
in 1998 and $3.0 million in 1997.
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.
NOTE 10 - LEASES
The Company leases various real estate and equipment under non-
cancelable operating leases. Rental expense under such leases amounted
to $4.0 million in 1999, $4.4 million in 1998 and $4.5 million in 1997.
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 $6.5
million at October 31, 1999, as follows:
2000........$2,053 2003...........$485
2001...........918 2004............462
2002...........609 Thereafter....2,014
<PAGE>
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company and a significant shareholder have jointly guaranteed a
loan totaling approximately $0.3 million as of October 31, 1999, 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, 1999, the Company had capital expenditure purchase
commitments outstanding of approximately $20 million.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions, including collectability of accounts
receivable, depreciable lives and recoverability of property, plant,
equipment, intangible assets and certain accrued liabilities. 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.
NOTE 12 - 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, Germany and Singapore. The Company's 1999, 1998 and 1997
net sales, operating profit and identifiable assets by geographic area
were as follows:
Net Operating Identifiable
Sales Income (Loss) Assets
-------- ------------- ------------
1999:
United States $184,564 $22,465 $314,434
Europe 26,488 145 65,953
Asia 12,650 (1,785) 29,969
-------- ------- --------
$223,702 $20,825 $410,356
======== ======= ========
1998:
United States $185,772 $32,443 $285,115
Europe 20,008 (416) 51,326
Asia 16,792 3,431 35,108
-------- ------- --------
$222,572 $35,458 $371,549
======== ======= ========
1997:
United States $174,043 $37,989 $288,970
Europe 12,938 180 46,586
Asia 10,470 2,235 29,656
-------- ------- --------
$197,451 $40,404 $365,212
======== ======= ========
<PAGE>
Approximately 5% of net domestic sales in 1999 were for delivery
outside of the United States (4% in 1998 and 7% in 1997).
The Company had two customers who represented approximately 11% of
total net sales in 1999, and one customer who represented 16% in 1998 and
23% in 1997.
NOTE 13 - COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) NO. 130 "Reporting
Comprehensive Income." The Statement, which the Company adopted in the
first quarter of 1999, establishes standards for reporting comprehensive
income and its components in financial statements. Where applicable,
earlier periods have been restated to conform to the standards set forth
in SFAS No. 130. The Company's comprehensive income as reported in the
Condensed Consolidated Statement of Shareholders' Equity, consists of net
earnings, and all changes in equity during a period except those
resulting from investments by owners and distributions to owners, which
are presented before tax. The Company does not provide for U.S. income
taxes on foreign currency translation adjustments because it does not
provide for such taxes on undistributed earnings of foreign subsidiaries.
Accumulated other comprehensive income consists of unrealized gains and
losses on certain investments in equity securities and foreign currency
translation adjustments. The related tax effects allocated to each
component of other comprehensive income (loss) were as follows for the
three years ended October 31, 1999:
<TABLE>
<CAPTION>
Before-Tax Tax (Expense) Net-of-Tax
Amount or Benefit Amount
--------- ------------ ---------
<S> <C> <C> <C>
1999:
Foreign currency translation
adjustment $(2,705) - $(2,705)
------- ------ -------
Unrealized gains on investments:
Unrealized holding gains arising
during the period 4,574 (1,738) 2,836
Less: reclassification adjustment
for gains realized in net income (2,385) 906 (1,479)
------- ------ -------
Net unrealized gains 2,189 (832) 1,357
------- ------ -------
Other comprehensive loss (516) $(832) $(1,348)
======= ====== =======
1998:
Foreign currency translation
adjustment $(1,300) $ - $(1,300)
------- ----- -------
Unrealized losses on investments:
Unrealized holding losses arising
during the period $(2,010) $ 764 $(1,246)
Less: reclassification adjustment
for gains realized in net income (1,351) 513 (838)
------- ------ -------
Net unrealized losses (3,361) 1,277 (2,084)
------- ------ -------
Other comprehensive loss $(4,661) $1,277 $(3,384)
======= ====== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Before-Tax Tax (Expense) Net-of-Tax
Amount or Benefit Amount
--------- ------------ ---------
<S> <C> <C> <C>
1997:
Foreign currency translation
adjustment $(2,066) - $(2,066)
------- ----- -------
Unrealized losses on investments:
Unrealized holding gains arising
during the period 218 (83) 135
Less: reclassification adjustment
for gains realized in net income (2,519) 957 (1,562)
------- ----- -------
Net unrealized losses (2,301) 874 (1,427)
------- ----- -------
Other comprehensive loss $(4,367) $ 874 $(3,493)
======= ===== =======
</TABLE>
NOTE 14 - NON-RECURRING RESTRUCTURING CHARGE
In March, 1998, the Company initiated a plan to optimize its North
American manufacturing network. It re-organized its two California
operations, dedicating its Milpitas facility to the production of high-
end technology photomasks and its Sunnyvale facility to the production of
mature technology photomasks, and it consolidated its Colorado Springs,
Colorado photomask manufacturing operations into its other North American
manufacturing facilities. The Company determined that its Large Area
Mask (LAM) Division, which was also located in Colorado Springs, did not
represent a long-term strategic fit with its core photomask business, and
accordingly, announced its intention to sell the LAM Division. The
Company recorded a $3.8 million charge in the second quarter of 1998 for
the restructuring, including $3.3 million of non-cash charges to reduce
the carrying value of LAM Division property, plant and equipment to its
net realizable value based upon the estimated proceeds from the sale of
the LAM Division business taken as a whole. Such assets, consisting
principally of specialized manufacturing tools and equipment, had a
carrying value of $3.6 million (prior to the write-down), remained in use
and continued to be depreciated pending the disposition of the LAM
division. The LAM division was sold in January 1999 without any
additional effect on results of operations.
NOTE 15 - ALIGN-RITE MERGER
On September 15, 1999, the Company signed a definitive agreement to
merge with Align-Rite International, Inc., an independent photomask
manufacturer based in Burbank, California. The agreement, as amended on
January 10, 2000, provides for the exchange of .85 shares of the
Company's common stock for each share of Align-Rite's common stock.
Approximately 4.2 million shares of the Company's common stock will be
issued in connection with the transaction. The merger will be accounted
for a pooling-of-interests and Align-Rite will become a wholly-owned
subsidiary of the Company.
The transaction is expected to be completed during the Company's
second fiscal quarter of 2000, and is subject to approval of Align-Rite's
shareholders, as well as various regulatory and closing conditions,
including compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
<PAGE>
NOTE 16 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth certain unaudited quarterly financial
data:
First Second Third Fourth Year
------- ------- ------- ------- --------
1999:
Net sales $47,815 $53,826 $59,034 $63,027 $223,702
Gross profit 12,528 15,675 18,282 20,939 67,424
Net income 617 2,068 3,240 4,743 10,668
Earnings
per share:
Basic $ 0.03 $ 0.09 $ 0.14 $ 0.20 $ 0.45
Diluted $ 0.03 $ 0.09 $ 0.14 $ 0.20 $ 0.45
1998:
Net sales $50,932 $61,307 $57,681 $52,652 $222,572
Gross profit 19,666 23,747 21,092 16,439 80,944
Net income 6,280 5,309 5,844 3,049 20,482
Earnings
per share:
Basic $ 0.26 $ 0.22 $ 0.24 $ 0.13 $ 0.84
Diluted $ 0.25 $ 0.22 $ 0.24 $ 0.13 $ 0.84
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, 1999 or for the period from October 31, 1999 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 set forth in 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 under the caption "ELECTION OF
DIRECTORS" and is incorporated herein by reference. The information as to
Executive Officers is included in Part I, Item 1a of this report under the
caption "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K is set forth in
the Definitive Proxy Statement under the captions "EXECUTIVE COMPENSATION"
and "DIRECTORS' COMPENSATION" and is incorporated herein by reference.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K is set forth in
the Definitive Proxy Statement under the caption "OWNERSHIP OF COMMON STOCK
BY DIRECTORS, NOMINEES, OFFICERS AND CERTAIN BENEFICIAL OWNERS" and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 404 of Regulation S-K is set forth in
the Definitive Proxy Statement under the caption "CERTAIN TRANSACTIONS" and
is incorporated herein by reference.
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, 1999 and November 1,
1998
Consolidated Statement of Earnings for the years
ended October 31, 1999, November 1, 1998 and November 2, 1997
Consolidated Statement of Shareholders' Equity for the
years ended October 31, 1999, November 1, 1998 and November 2,
1997
Consolidated Statement of Cash Flows for the years
ended October 31, 1999, November 1, 1998 and
November 2, 1997
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 Exhibits Index.
(B) Reports on Form 8-K
A report on Form 8-K was filed by the Company on September 24, 1999.
The Form 8-K disclosed under Item 5 that the Company entered into an
Agreement and Plan of Merger dated September 15, 1999 with Align-Rite
International, Inc. and AL Acquisition Corp., a wholly owned subsidiary of
the Company, pursuant to which the Company would acquire Align-Rite in a
Merger transaction. No financial statements were filed with the Form 8-K.
<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 JAMES R. NORTHUP January 20, 2000
James R. Northup
President
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 20, 2000
Constantine S. Macricostas
Chairman of the Board
and Director
By MICHAEL J. YOMAZZO January 20, 2000
Michael J. Yomazzo
Vice Chairman and Director
By JAMES R. NORTHUP January 20, 2000
James R. Northup
President
By JEFFREY P. MOONAN January 20, 2000
Jeffrey P. Moonan
Executive Vice President
By ROBERT J. BOLLO January 20, 2000
Robert J. Bollo
Vice President/Finance
Chief Financial Officer
By WALTER M. FIEDEROWICZ January 20, 2000
Walter M. Fiederowicz
Director
By JOSEPH A. FIORITA, JR. January 20, 2000
Joseph A. Fiorita, Jr.
Director
<PAGE>
EXHIBITS INDEX
Exhibit
Number Description
2.1 Agreement and Plan of Merger dated as of September 15, 1999
among Photronics, Inc., AL Acquisition Corp. and Align-Rite
International, Inc. was filed as Exhibit 2.1. to the Form 8-K
dated September 24, 1999 filed by Photronics, Inc. and is
incorporated herein by reference.
2.2 Amendment No. 1 to Agreement and Plan of Merger dated January
10, 2000 among Photronics, Inc., AL Acquisition Corp. and Align-
Rite International, Inc. was filed as Exhibit 2.1 to the Form 8-K
dated January 14, 2000 filed by Photronics, Inc. and is
incorporated herein by reference.
3.1 Certificate of Incorporation. (1)
3.2 By-Laws, as amended. (1)
3.3 Amendment to Certificate of Incorporation, dated March 16, 1990.
(3)
3.4 Amendment to Certificate of Incorporation, dated March 16, 1995.
(10)
3.5 Amendment to Certificate of Incorporation, dated November 13,
1997. (13)
4.1 Form of Stock Certificate. (1)
10.1 Voting Agreement dated as of September 15, 1999 among
Photronics, Inc. and certain shareholders of Align-Rite
International, Inc. was filed as Exhibit 10.1 to the Form 8-K
dated September 24, 1999 filed by Photronics, Inc. and is
incorporated herein by reference.
10.2 Reaffirmation of Voting Agreement dated January 10, 2000 among
Photronics, Inc. and certain shareholders of Align-Rite
International, Inc. was filed as Exhibit 10.1 to the Form 8-K
dated January 14, 2000 filed by Photronics, Inc. and is
incorporated herein by reference.
10.3 Loan Agreement, dated August 10, 1984, among the Company,
Fairfield Associates, and the Connecticut Development Authority.
(1)
10.4 Indenture of Trust, dated August 10, 1984, between the
Connecticut Development Authority and Citytrust. (1)
10.5 Security Agreement, dated August 10, 1984, between the Company
and the Connecticut Development Authority, with assignment to
Citytrust, as Trustee. (1)
10.6 Lease Agreement, dated August 10, 1984, between the Company and
Fairfield Associates. (1)
<PAGE>
10.7 Guaranty Agreement, dated August 10, 1984, by the Company and
Constantine Macricostas to Citytrust, as Trustee. (1)
10.8 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. (6)
10.9 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. (6)
10.10 The Company's 1986 Non-Qualified Stock Option Plan, as amended.
(2) +
10.11 The Company's 1988 Non-Qualified Stock Option Plan. (8) +
10.12 Amendment #1 to the Company's 1988 Non-Qualified Stock Option
Plan. (3) +
10.13 Amendment to Security Agreements, dated October 31, 1988, by and
among the Company, Citytrust, Constantine S. Macricostas and Mayo
Associates. (8)
10.14 Amendment to Loan Agreements between the Company and the
Connecticut Development Authority, dated as of June 8, 1990. (3)
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. (4)
10.16 Form of severance agreement between the Company and each of
Messrs. Macricostas, Northup and Moonan. (8) +
10.17 Lease dated as of November 1, 1989 between the Company, MC3,
Inc. and Alpha-Omega Associates. (8)
10.18 Consulting Agreement, dated June 1, 1992, between Joseph Fiorita
and the Company. (6)
10.19 The Company's 1992 Stock Option Plan. (5) +
10.20 The Company's 1992 Employee Stock Purchase Plan. (5)
10.21 The Company's 1994 Employee Stock Option Plan. (7) +
10.22 Form of Agreement regarding Life Insurance between the Company
and each of Messrs. Macricostas, Yomazzo, Northup and Moonan. (9)
+
<PAGE>
10.23 Credit Agreement between the Company and various lenders, dated
November 19, 1998 was filed as Exhibit 10.21 to the Form 10-K of
the Company for the fiscal year ended November 1, 1998 and is
incorporated herein by reference.
10.24 First Amendment Agreement to Credit Agreement dated as of
September 13, 1999 among the Company and various lenders. *
10.25 The Company's 1996 Stock Option Plan. (11) +
10.26 Letter Agreement between the Company and Michael J. Yomazzo,
dated October 10, 1997. (13) +
10.27 Consulting Agreement between the Company and Michael J. Yomazzo,
dated October 10, 1997. (13) +
10.28 Consulting Agreement between the Company and Constantine S.
Macricostas, dated October 10, 1997. (13) +
10.29 Form of Indenture between The Chase Manhattan Bank, as Trustee,
and the Company relating to the 6% Convertible Subordinated Notes
due June 1, 2004. (12)
10.30 The Company's 1998 Stock Option Plan. (18) +
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 33-17530, which was declared effective on
October 19, 1987, and incorporated herein by reference.
(3) 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.
(4) 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.
<PAGE>
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) 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.
(10) Filed as an exhibit to the Company's Current Report on Form 8-K,
dated March 24, 1995, and incorporated herein by reference.
(11) 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.
(12) Filed as an exhibit to the Company's Registration Statement on
Form S-3, File Number 333-26009, which was declared effective by
the Commission on May 22, 1997, and incorporated herein by
reference.
(13) Filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended November 2, 1997, and incorporated
herein by reference.
(14) Filed as an exhibit to the Company's Registration Statement on
Form S-8, File Number 333-50809, which was filed on April 23,
1998, and incorporated herein by reference.
FIRST AMENDMENT AGREEMENT
Dated as of September 13, 1999
among
PHOTRONICS, INC.
The Lenders Party Hereto
THE CHASE MANHATTAN BANK,
as Administrative Agent
and
THE BANK OF NEW YORK,
as Documentation Agent
<PAGE>
FIRST AMENDMENT AGREEMENT, dated as of September 13, 1999, among
PHOTRONICS, INC., a Connecticut corporation (the "Company"), the LENDERS
party hereto, THE CHASE MANHATTAN BANK, as Administrative Agent, and THE
BANK OF NEW YORK, as Documentation Agent.
WHEREAS, the Company, the Borrowing Subsidiaries, the Lenders, the
Administrative Agent and the Documentation Agent have entered into that
certain Credit Agreement dated as of November 19, 1998 (as in effect prior
to the effectiveness of this Agreement, the "Existing Credit Agreement,"
and, as amended by this Agreement, the "Amended Credit Agreement"), pursuant
to which the Lenders have agreed, subject to the terms and conditions
therein set forth, to make or participate in Loans to, and to issue or
participate in Letters of Credit for the account of, the Borrowers;
WHEREAS, the Company, the Lenders, the Administrative Agent and the
Documentation Agent have agreed to enter into this Agreement to provide for,
among other things, the modification of certain covenants and the waivers
of certain Defaults and Events of Default; and
WHEREAS, the Loan Documents (including, without limitation, this
Agreement and the Amended Credit Agreement), as amended and supplemented by
this Agreement and as each may be amended or supplemented from time to time,
are referred to herein as the "Amended Loan Documents".
NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
Amendments to Existing Credit Agreement.
Each of the Company and, subject to the satisfaction of the conditions
set forth in Article III, the Lenders hereby consents and agrees to the
amendments to the Existing Credit Agreement set forth below:
(a) The definition of "Capital Expenditure Ratio" contained in
Section 1.01 of the Existing Credit Agreement is hereby amended and restated
to read as follows:
"Capital Expenditure Ratio" means, on any date, the ratio of
(a) Consolidated Capital Expenditures (exclusive of amounts
expended in connection with Permitted Business Acquisitions) for
the period of four consecutive fiscal quarters of the Company
most recently ended as of such date to (b) (i) Consolidated
EBITDA for the period of four consecutive fiscal quarters of the
Company most recently ended as of such date, plus (ii) solely for
the purpose of determining the Capital Expenditure Ratio for the
fiscal quarter of the Company ending on January 30, 2000,
$10,000,000.
<PAGE>
(b) Section 6.13 of the Existing Credit Agreement is hereby
amended and restated to read as follows:
SECTION 6.13. Interest Coverage Ratio. The Company will
not permit the Interest Coverage Ratio as determined as of the
end of each fiscal quarter of the Company to be less than (a) if
such fiscal quarter ends on October 31, 1999, 3.00 to 1.00 or (b)
if such fiscal quarter ends thereafter, 4.00 to 1.00.
(c) Section 6.14 of the Existing Credit Agreement is hereby
amended and restated to read as follows:
SECTION 6.14. Fixed Charge Coverage Ratio. The Company
will not permit the Fixed Charge Coverage Ratio as determined as
of the end of each fiscal quarter of the Company ending on or
after July 30, 2000 to be less than (a) if such fiscal quarter
ends on July 30, 2000, 1.25 to 1.00 or (b) if such fiscal quarter
ends thereafter, 2.00 to 1.00.
(d) Section 6.16 of the Existing Credit Agreement is hereby
amended and restated to read as follows:
SECTION 6.16. Capital Expenditure Ratio. The Company
will not permit the Capital Expenditure Ratio as determined as of
the end of each fiscal quarter of the Company to exceed (a) if
such fiscal quarter ends on October 31, 1999, 1.25 to 1.00, (b)
if such fiscal quarter ends on January 30, 2000 or on April 30,
2000, 1.00 to 1.00 or (c) if such fiscal quarter ends after April
30, 2000, 1.25 to 1.00.
ARTICLE II
Representations and Warranties
The Company hereby represents and warrants that as of the Effective
Date:
Section 2.01 Existing Representations and Warranties. Each of the
representations and warranties contained in Article III of the Existing
Credit Agreement and in each of the other Loan Documents is true and
correct, except that any representation or warranty limited by its terms
to a specific date shall be true and correct as of such specific date.
<PAGE>
Section 2.02 No Defaults. After giving effect to the waivers
granted under Article IV, no event has occurred and no condition exists
which would constitute a Default or an Event of Default as defined in the
Existing Credit Agreement, and no event has occurred and no condition
exists which would constitute a Default or an Event of Default as defined
in the Amended Credit Agreement.
Section 2.03 Power and Authority; No Conflicts. The execution,
delivery and performance by each of the Loan Parties of the Amended Loan
Documents to which it is a party are within such Loan Party's corporate,
partnership or limited liability company powers and have been duly
authorized by all necessary corporate, partnership or limited liability
company and, if required, stockholder, partner or member action. Each
Amended Loan Document to which any Loan Party is a party has been duly
executed and delivered by such Loan Party and constitutes a legal, valid
and binding obligation of such Loan Party, enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and subject
to general principles of equity, regardless of whether considered in a
proceeding in equity or at law.
Section 2.04 Governmental Approvals; No Conflicts. The execution,
delivery and performance by each of the Loan Parties of the Amended Loan
Documents to which it is a party (a) do not require the Company or any
Subsidiary to obtain or make any consent or approval of, registration or
filing with, or other action by, any Governmental Authority, except such
as have been obtained or made and are in full force and effect or that
could not reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Effect, (b) will not violate any law or
regulation applicable to the Company or any Subsidiary, or the charter,
by-laws or other organizational documents of the Company or any
Subsidiary, or any order of any Governmental Authority applicable to the
Company or any Subsidiary, except as to any law, regulation or order the
violation of which could not reasonably be expected, individually or in
the aggregate, to result in a Material Adverse Effect, (c) will not
violate or result in a default under any indenture, agreement or other
instrument binding upon the Company or any Subsidiary or their respective
assets, or give rise to a right thereunder to require any payment to be
made by the Company or any of its Subsidiaries, except for any such
violations, defaults or rights to require payment that could not
reasonably be expected, individually or in the aggregate, to result in a
Material Adverse Effect, and (d) will not result in the creation or
imposition of any Lien on any asset of the Company or any of its
Subsidiaries.
<PAGE>
Section 2.05 Financial Condition; No Material Adverse Change. (a)
The Company has heretofore furnished to the Lenders the consolidated and
consolidating balance sheets of the Company and its consolidated
Subsidiaries and the related statements of income, stockholders equity and
cash flows (i) as of and for the fiscal years ended October 31, 1996,
November 2, 1997 and November 1, 1998, such consolidated financial
statements being reported on by Deloitte & Touche LLP, independent public
accountants, and (ii) as of and for the fiscal quarter and the portion of
the fiscal year ended August 1, 1999. Such financial statements present
fairly, in all material respects, the financial condition and results of
operations and cash flows of the Company and its consolidated Subsidiaries
as of such dates and for such periods in accordance with GAAP, subject to
year-end audit adjustments and the absence of footnotes in the case of the
statements referred to in clause (ii) above.
(b) Since August 1, 1999, there has been no material adverse
change in the business, assets, operations, prospects or condition,
financial or otherwise, of the Company and the Subsidiaries, taken as a
whole.
ARTICLE III
Conditions Precedent
The effectiveness of this Agreement is subject to the condition
precedent that the Administrative Agent, the Documentation Agent and the
Lenders shall have received on or before September 13, 1999 (the
"Effective Date") each of the following, in form and substance
satisfactory to the Administrative Agent, the Documentation Agent and the
Required Lenders:
(a) counterparts of this Agreement executed by each of the
Company, the Required Lenders, the Administrative Agent and the
Documentation Agent;
(b) certified complete and correct copies of each of the
financial statements referred to in Section 2.05; and
(c) an amendment fee for the account of each Lender equal to
.04% of such Lender's Commitment together with all fees and disbursements
required to be paid pursuant to Section 5.04.
ARTICLE IV
Waivers
Subject to the satisfaction of the conditions set forth in Article
III, each of the Lenders hereby waives any Default or Event of Default
arising from noncompliance by the Company with Section 6.13 of the
Existing Credit Agreement for the fiscal quarter of the Company ended
August 1, 1999 so long as the Interest Coverage Ratio as determined for
such fiscal quarter is not less than 3.00 to 1.00.
<PAGE>
ARTICLE V
Miscellaneous
Section 5.01 Defined Terms. The terms used herein and not defined
herein shall have the meanings assigned to such terms in the Existing
Credit Agreement.
Section 5.02 Nonwaiver. Except as set forth in Article IV, the
terms of this Agreement shall not operate as a waiver by the
Administrative Agent, the Issuing Bank or any Lender or otherwise
prejudice the rights, remedies or powers of the Administrative Agent, the
Issuing Bank or any Lender under the Amended Credit Agreement, under any
other Amended Loan Document or under applicable law. Except as set forth
in Article I: (x) no terms and provisions of the Loan Documents are
modified or changed by this Agreement; and (y) the terms and provisions of
the Loan Documents shall continue in full force and effect.
Section 5.03 Waivers; Amendments. Any provision of this Agreement
may be amended or modified only by an agreement or agreements in writing
signed by the Company and the Required Lenders, or by the Company and the
Administrative Agent acting with the consent of the Required Lenders.
Section 5.04 Expenses. The Company shall pay all reasonable
out-of-pocket expenses incurred by the Administrative Agent and its
Affiliates, including the reasonable fees, charges and disbursements of
counsel for the Administrative Agent, in connection with the preparation
and administration of this Agreement, the other Amended Loan Documents or
any amendments, modifications or waivers of the provisions hereof or
thereof (whether or not the transactions contemplated hereby or thereby
shall be consummated).
Section 5.05 Notices. All notices and other communications provided
for herein shall be in writing and shall be delivered by hand or overnight
courier service, mailed by certified or registered mail or sent by
telecopy in accordance with the terms of the Amended Credit Agreement.
Section 5.06 Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part
of this Agreement and shall not affect the construction of, or be taken
into consideration in interpreting, this Agreement.
Section 5.07 Severability. Any provision of this Agreement held to
be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality
or unenforceability without affecting the validity, legality and
enforceability of the remaining provisions hereof; and the invalidity of
a particular provision in a particular jurisdiction shall not invalidate
such provision in any other jurisdiction.
<PAGE>
Section 5.08 Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto
on different counterparts), each of which shall constitute an original,
but all of which when taken together shall constitute a single contract.
The Amended Loan Documents and the separate letter agreements with respect
to fees payable to the Administrative Agent and the Documentation Agent
constitute the entire contract among the parties relating to the subject
matter thereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof.
Subject to the satisfaction of the conditions set forth in Article III,
this Agreement shall become effective when it shall have been executed by
the Administrative Agent and when the Administrative Agent shall have
received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Delivery of an executed counterpart of
a signature page of this Agreement by telecopy shall be effective as
delivery of a manually executed counterpart of this Agreement.
Section 5.09 Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
PHOTRONICS, INC., a Connecticut corporation
By _______________________________________
Name:
Title:
THE CHASE MANHATTAN BANK, individually
and as Administrative Agent,
By _____________________________________
Name:
Title:
THE BANK OF NEW YORK, individually and as
Documentation Agent
By _____________________________________
Name:
Title:
FIRST UNION NATIONAL BANK
By _____________________________________
Name:
Title:
FLEET NATIONAL BANK
By _____________________________________
Name:
Title:
<PAGE>
HSBC BANK USA
By _____________________________________
Name:
Title:
PEOPLE'S BANK
By _____________________________________
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
By _____________________________________
Name:
Title:
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. Switzerland
Chip Canal Associates, Ltd. England
Photronics Germany GmbH & Co. KG Germany
Photronics MZD Verwaltungs GmbH Germany
Photronics MZD GmbH Germany
Photronics Arizona, Inc. Arizona
Photronics Oregon, Inc. Oregon
Photronics Texas I, L.P. Texas
Photronics Texas II, L.P. Texas
Beta Squared I, L.P. Texas
Photronics Texas I, LLC Delaware
Photronics Texas II, LLC Delaware
Beta Squared I, LLC Delaware
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Shareholders
Photronics, Inc.
Jupiter, Florida
We consent to the incorporation by reference in Registration Statements
Nos. 333-02245, 333-50809, 33-17530, 33-28118, 33-47446 and 33-78102 of
Photronics,Inc. on Form S-8 of our report dated December 6, 1999, except as
to Footnote 15, as to which the date is January 10, 2000, appearing in this
Annual Report on Form 10-K of Photronics, Inc. for the year ended
October 31, 1999.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
January 20, 2000
<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> 12-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> OCT-31-1999
<CASH> 16,269
<SECURITIES> 0
<RECEIVABLES> 41,528
<ALLOWANCES> 235
<INVENTORY> 13,888
<CURRENT-ASSETS> 86,207
<PP&E> 421,899
<DEPRECIATION> 139,742
<TOTAL-ASSETS> 410,356
<CURRENT-LIABILITIES> 57,016
<BONDS> 116,703
0
0
<COMMON> 239
<OTHER-SE> 207,461
<TOTAL-LIABILITY-AND-EQUITY> 410,356
<SALES> 223,702
<TOTAL-REVENUES> 223,702
<CGS> 156,278
<TOTAL-COSTS> 156,278
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,445
<INCOME-PRETAX> 16,968
<INCOME-TAX> 6,300
<INCOME-CONTINUING> 10,668
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