<PAGE>
SECURITES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ______________
Commission file number 0-15451
-----------
PHOTRONICS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0854886
----------- ----------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1061 EAST INDIANTOWN ROAD, JUPITER, FL 33477
------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(561) 745-1222
------------------------------------------------------
(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 2000
COMMON STOCK, $.01 PAR VALUE 29,542,967 SHARES
1
<PAGE>
PHOTRONICS, INC.
AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet
at July 31, 2000 (unaudited) and
October 31, 1999 3 - 4
Condensed Consolidated Statement of
Income for the Three and Nine Months
Ended July 31, 2000 and August 1, 1999
(unaudited) 5
Condensed Consolidated Statement of
Cash Flows for the Nine Months Ended
July 31, 2000 and August 1, 1999
(unaudited) 6
Condensed Consolidated Statement of
Shareholders' Equity for the Nine Months
Ended July 31, 2000 and August 1, 1999
(unaudited) 7
Notes to Condensed Consolidated
Financial Statements (unaudited) 8 - 10
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 11 - 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports 14
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
2000 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash, cash equivalents
and short-term investments $ 50,272 $ 23,115
Accounts receivable (less allowance
for doubtful accounts of $815 in
2000 and $692 in 1999) 60,027 50,899
Inventories 19,504 17,444
Other current assets 19,553 16,256
-------- --------
Total current assets 149,356 107,714
Property, plant and equipment, net 396,352 348,144
Intangible assets (less accumulated amortization
of $8,807 in 2000 and $8,384 in 1999) 61,131 36,875
Investments and other assets 16,821 14,276
-------- --------
$623,660 $507,009
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(dollars in thousands, except per share amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
2000 1999
------------ ----------
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 2,022 $ 1,574
Accounts payable 34,032 51,724
Other current liabilities 11,797 16,232
--------- ---------
Total current liabilities 47,851 69,530
Long-term debt 223,396 148,281
Deferred taxes and other liabilities 32,743 35,068
--------- ---------
Total liabilities 303,990 252,879
--------- ---------
Minority interest 34,646 --
--------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value,
2,000,000 shares authorized,
none issued and outstanding -- --
Common stock, $0.01 par value,
75,000,000 shares authorized,
29,542,967 shares issued in 2000
and 27,925,000 shares in 1999 295 279
Additional paid-in capital 133,122 99,544
Retained earnings 158,457 156,929
Accumulated other comprehensive loss (6,654) (2,571)
Deferred compensation on restricted stock (196) (51)
--------- ---------
Total shareholders' equity 285,024 254,130
--------- ---------
$ 623,660 $ 507,009
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Income
(dollars in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ -------------------------
JULY 31, AUGUST 1, JULY 31, AUGUST 1,
2000 1999 2000 1999
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net sales $ 85,595 $ 72,395 $ 234,540 $ 198,796
Costs and expenses:
Cost of sales 56,676 49,818 158,065 140,482
Selling, general and administrative 11,485 10,222 32,585 29,404
Research and development 5,319 4,327 15,056 12,025
Merger related costs 5,500 -- 5,500 --
Restructuring and related charges -- -- 17,500 --
--------- --------- --------- ---------
Operating income 6,615 8,028 5,834 16,885
Other expense, net (1,857) (1,080) (3,647) (2,944)
--------- --------- --------- ---------
Income before income taxes 4,758 6,948 2,187 13,941
Provision for income taxes 1,600 2,600 800 5,200
--------- --------- --------- ---------
Net income $ 3,158 $ 4,348 $ 1,387 $ 8,741
========= ========= ========= =========
Earnings per share:
Basic $ 0.11 $ 0.16 $ 0.05 $ 0.31
========= ========= ========= =========
Diluted $ 0.11 $ 0.16 $ 0.05 $ 0.31
========= ========= ========= =========
Weighted average number of common shares outstanding:
Basic 29,148 27,723 28,466 27,802
========= ========= ========= =========
Diluted 29,148 27,723 28,466 27,802
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------
JULY 31, AUGUST 1,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,387 $ 8,741
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 38,817 35,055
Restructuring and related charges 17,500 --
Gains on sale of investments (5,305) (1,087)
Other (5) 2,316
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable (914) (6,917)
Inventories (583) 683
Other current assets 2,606 3,552
Accounts payable and accrued liabilities (34,317) (3,759)
-------- --------
Net cash provided by operating activities 19,186 38,584
-------- --------
Cash flows from investing activities:
Acquisitions of and investments
in photomask operations, net of cash acquired (34,782) --
Deposits on and purchases of property,
plant and equipment (26,918) (67,306)
Net change in short-term investments -- 7,532
Proceeds from sale of investments 5,557 1,184
Other (1,973) (2,518)
-------- --------
Net cash used in investing activities (58,116) (61,108)
-------- --------
Cash flows from financing activities:
Repayment of long-term debt (23,667) (2,998)
Borrowings under revolving credit facility 65,250 13,775
Proceeds from issuance of common stock 28,987 4,216
Purchase and retirement of common stock -- (6,900)
Other (131) (151)
-------- --------
Net cash provided by financing activities 70,439 7,942
-------- --------
Effect of exchange rate changes on cash flows (878) (1,298)
-------- --------
Net increase (decrease) in cash and cash equivalents 30,631 (15,880)
Cash and cash equivalents at beginning of period 23,115 28,004
Adjustment related to Align-Rite's net cash flows
from October 1, 1999 to October 31, 1999 (3,474) --
-------- --------
Cash and cash equivalents at end of period $ 50,272 $ 12,124
======== ========
Cash paid during the period for:
Interest $ 7,776 $ 6,607
Income taxes $ 192 $ 2,695
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders' Equity
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
COMMON STOCK ADD'L PAID- RETAINED
SHARES AMOUNT IN-CAPITAL EARNINGS
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED AUGUST 1, 1999:
BALANCE AT NOVEMBER 1, 1998 27,958 $ 280 $ 100,973 $ 138,885
Comprehensive income (loss):
Net income -- -- -- 8,741
Adjustment to reflect Align-Rite's results
for the period from April 1, 1998 to
September 30, 1998 -- -- -- 3,596
Change in unrealized gains on -- -- -- --
investments
Foreign currency translation adjustment -- -- -- --
---------
Total comprehensive income -- -- -- 12,337
Sale of common stock through
employee stock option and
purchase plans 315 3 4,571 --
Amortization of restricted stock to
compensation expense -- -- -- --
Common stock repurchase (500) (5) (6,895) --
--------- --------- --------- ---------
BALANCE AT AUGUST 1, 1999 27,773 $ 278 $ 98,649 $ 151,222
========= ========= ========= =========
NINE MONTHS ENDED JULY 31, 2000:
BALANCE AT OCTOBER 31, 1999 27,925 $ 279 $ 99,544 $ 156,929
Comprehensive income (loss):
Net income -- -- -- 1,387
Adjustment to reflect Align-Rite's results
for the period from October 1 to
October 31, 1999 -- -- -- 141
Change in unrealized gains on
investments -- -- -- --
Foreign currency translation adjustment -- -- -- --
---------
Total comprehensive income (loss) -- -- -- 1,528
Sale of common stock through
employee stock option and
purchase plans and private placement 1,618 16 33,317 --
Restricted stock awards, net -- -- 261 --
--------- --------- --------- ---------
BALANCE AT JULY 31, 2000 29,543 $ 295 $ 133,122 $ 158,457
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)
---------------------------------- DEFERRED
UNREALIZED FOREIGN COMPENSATION TOTAL
INVESTMENT CURRENCY ON RESTRICTED SHAREHOLDERS'
GAINS TRANSLATION TOTAL STOCK EQUITY
---------- ------------ --------- ------------- -----------
<S> <C> <C> <C> <C> <C>
NINE MONTHS ENDED AUGUST 1, 1999:
BALANCE AT NOVEMBER 1, 1998 $ 1,167 $ (2,970) $ (1,803) $ (139) $ 238,196
Comprehensive income (loss):
Net income -- -- -- -- 8,741
Adjustment to reflect Align-Rite's results
for the period from April 1, 1998 to
September 30, 1998 -- -- -- -- 3,596
Change in unrealized gains on 2,281 -- 2,281 -- 2,281
investments
Foreign currency translation adjustment -- (2,185) (2,185) -- (2,185)
--------- --------- --------- ---------
Total comprehensive income 2,281 (2,185) 96 -- 12,433
Sale of common stock through
employee stock option and
purchase plans -- -- -- -- 4,574
Amortization of restricted stock to
compensation expense -- -- -- 66 66
Common stock repurchase -- -- -- -- (6,900)
--------- --------- --------- --------- ---------
BALANCE AT AUGUST 1, 1999 $ 3,448 $ (5,155) $ (1,707) $ (73) $ 248,369
========= ========= ========= ========= =========
NINE MONTHS ENDED JULY 31, 2000:
BALANCE AT OCTOBER 31, 1999 $ 2,524 $ (5,095) $ (2,571) $ (51) $ 254,130
Comprehensive income (loss):
Net income -- -- -- -- 1,387
Adjustment to reflect Align-Rite's results
for the period from October 1 to
October 31, 1999 -- -- -- -- 141
Change in unrealized gains on
investments 2,922 -- 2,922 -- 2,922
Foreign currency translation adjustment -- (7,005) (7,005) -- (7,005)
--------- --------- --------- ---------
Total comprehensive income (loss) 2,922 (7,005) (4,083) -- (2,555)
Sale of common stock through
employee stock option and
purchase plans and private placement -- -- -- -- 33,333
Restricted stock awards, net -- -- -- (145) 116
--------- --------- --------- --------- ---------
BALANCE AT JULY 31, 2000 $ 5,446 $ (12,100) $ (6,654) $ (196) $ 285,024
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
PHOTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JULY 31, 2000 AND AUGUST 1, 1999
(UNAUDITED)
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and nine month
periods ended July 31, 2000 are not necessarily indicative of the results that
may be expected for the year ending October 31, 2000. Certain amounts in the
Condensed Consolidated Financial Statements for prior periods have been
reclassified to conform to the current presentation. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended October 31, 1999.
NOTE 2 - ALIGN-RITE MERGER
On June 7, 2000, Photronics completed its merger with Align-Rite
International, Inc. ("Align-Rite"), herein after collectively referred to as
the Company. Under the terms of the merger agreement, each of the 4,731,232
shares of common stock of Align-Rite issued and outstanding as of June 7,
2000 was converted into 0.85 shares of common stock of Photronics. Cash was
paid in lieu of the issuance of any fractional shares of Photronics that
would have been otherwise issued. Any stock options to acquire Align-Rite
common stock that had not been exercised as of June 7, 2000 became fully
vested options to acquire Photronics common stock in accordance with the
Merger Agreement. The merger constituted a tax free reorganization and has
been accounted for as a pooling-of-interests. The July 31, 2000 Condensed
Consolidated Financial Statements for the three and nine months ended July
31, 2000 and August 1, 1999 and the accompanying notes thereto reflect the
Company's financial position, results of operations and cash flows as if
Align-Rite had been a wholly-owned subsidiary of Photronics for all periods
presented. Prior to the merger, Align-Rite's fiscal year ended on March 31.
For purposes of the Condensed Consolidated Financial Statements, Align-Rite's
financial statements for the three and nine months ended June 30, 1999
(unaudited) have been combined with Photronics' three and nine months ended
August 1, 1999 (unaudited), respectively. The financial statement balances of
Align-Rite have been reclassified to conform to Photronics' presentation.
8
<PAGE>
In the third quarter of 2000, the Company recorded a pre-tax charge of
approximately $5.5 million for transaction costs incurred in connection with the
merger. Such costs consisted primarily of investment banking, legal, accounting,
financial printing and other related charges.
NOTE 3 - ACQUISITON OF PSMC
Effective June 20, 2000, the Company acquired approximately 51% of the
total share capital of Precision Semiconductor Mask Corporation (PSMC), a
photomask manufacturer based in Taiwan, for approximately $62.0 million. The
acquisition was accounted for as a purchase. Accordingly, a portion of the
purchase price has been allocated to assets acquired and liabilities assumed
based upon estimated fair value at the date of acquisition while the balance of
$26.0 million was recorded as goodwill and is being amortized over 15 years. The
purchase price allocation is preliminary and further refinements are likely to
be made based upon the completion of the final valuation. The operating results
of PSMC have been included in the Condensed Consolidated Statement of Income
from June 20, 2000. Had the acquisition of PSMC occurred at the beginning of
fiscal 1999, the unaudited pro forma condensed consolidated net sales for the
nine months ended July 31, 2000 and August 1, 1999 would have been $250.2
million and $206.7 million, respectively, and the pro forma net income (loss)
and earnings (loss) per share for the nine months ended July 31, 2000 and August
1, 1999 would have been ($2.9) million and ($0.10), and $5.1 million and $0.18,
respectively. In management's opinion, these unaudited pro forma amounts are not
necessarily indicative of what the actual combined results of operations might
have been if the acquisition of PSMC had been effective at the beginning of the
periods presented.
NOTE 4 - EARNINGS PER SHARE
Earnings per share ("EPS") 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 for the three and nine months
ended July 31, 2000 and August 1, 1999, respectively, is as follows (in
thousands, except per share amounts):
9
<PAGE>
AVERAGE
NET SHARES EARNINGS
INCOME OUTSTANDING PER SHARE
------ ----------- ---------
THREE MONTHS
------------
2000:
Basic and diluted (a) $3,158 29,148 $0.11
====== ====== =====
1999:
Basic and diluted (a) $4,348 27,723 $0.16
====== ====== =====
NINE MONTHS
-----------
2000:
Basic and diluted (a) $1,387 28,466 $0.05
====== ====== =====
1999:
Basic and diluted (a) $8,741 27,802 $0.31
====== ====== =====
(a) The effect of the exercise of stock options and the conversion of
notes for the three and nine months ended July 31, 2000 and August 1, 1999 is
anti-dilutive.
NOTE 5 - RESTRUCTURING AND RELATED CHARGES
During March, 2000, the Company implemented a plan to consolidate its
mature products group in order to increase capacity utilization, manufacturing
efficiencies and customer service activities worldwide. Total restructuring and
related charges associated with this consolidation plan of $17.5 million were
recorded in the second quarter of 2000. Of the total charge, $9.1 million
related to restructuring and $8.4 million related to the impairment of
intangible assets.
The significant components of the consolidation plan included the closing
of the Company's Sunnyvale, California and Neuchatel, Switzerland manufacturing
facilities and the consolidation and regionalization of sales and customer
service functions. The Company anticipates that the closing of the Sunnyvale and
Neuchatel facilities will maximize capacity utilization at its remaining mature
products facilities. As part of the plan, the Company reduced its work force by
approximately 125 employees. The restructuring charge of $9.1 million includes
$1.5 million of cash charges for severance benefits paid to terminated employees
which was disbursed over their entitlement periods and $2.3 million for
facilities closings and lease termination costs to be expended over the next
twelve months. Additionally, non-cash charges of $5.3 million approximated the
carrying value primarily of fixed assets associated with the manufacturing
consolidation based upon their expected disposition. Such assets, consisting
principally of specialized manufacturing tools and equipment, were subsequently
taken out of service.
The charges also included $8.4 million related to the impairment in value
of associated intangible assets. It was determined during the period that such
assets no longer had future economic benefit to the Company because the
anticipated undiscounted cumulative cash flows from these assets were
insufficient to support their carrying value.
NOTE 6 - COMMON STOCK
On June 1, 2000, the Company sold one million of its unregistered common
shares in a private placement to accredited institutional investors. The
proceeds of the sale, net of fees and expenses, amounted to $22 million.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
On June 7, 2000, Photronics, Inc. ("Photronics" or the "Company"),
completed its merger with Align-Rite International, Inc. ("Align-Rite"), an
independent publicly traded manufacturer of photomasks in the United States
and Europe. Under the terms of the merger agreement, each of the 4,731,232
shares of common stock of Align-Rite issued and outstanding as of June 7,
2000 was converted into 0.85 shares of common stock of Photronics. Cash was
paid in lieu of the issuance of any fractional shares of Photronics that
would have been otherwise issued. Any stock options to acquire Align-Rite
common stock that had not been exercised as of June 7, 2000 became fully
vested options to acquire Photronics common stock in accordance with the
Merger Agreement. The transaction was accounted for as a pooling-of-interests.
The condensed consolidated financial statements, the accompanying notes
and this management discussion and analysis have been restated to reflect the
Company's financial position, results of operations and cash flows as if
Align-Rite was a consolidated wholly-owned subsidiary of the Company for all
periods presented.
Effective June 20, 2000, the Company acquired approximately 51% of the
total share capital of Precision Semiconductor Mask Corporation (PSMC), a
photomask manufacturer based in Taiwan, for approximately $62.0 million. The
acquisition was accounted for as a purchase. The operating results of PSMC have
been included in the Condensed Consolidated Statement of Income from June 20,
2000.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED JULY 31, 2000 VERSUS AUGUST 1, 1999
Net sales for the three and nine months ended July 31, 2000 increased
18.2% to $85.6 million and 18.0% to $234.5 million, respectively, compared with
$72.4 million and $198.8 million for the corresponding prior year periods. The
increase for the three and nine months ended July 31, 2000 resulted primarily
from an increase in new design releases and higher average selling prices
resulting from an improved mix of high-end technology products, together with
the consolidation of PSMC's results from June 20, 2000.
Gross margins for the three and nine month periods ended July 31, 2000
increased to 33.8% and 32.6%, respectively, compared to 31.2% and 29.3% for the
corresponding prior year periods. The increases in gross margin, attributable to
a greater mix of high-end, higher margin revenues, increased capacity
utilization and efficiencies realized from the Company's recent restructurings,
were partially offset by substantially lower margins currently being experienced
at PSMC.
11
<PAGE>
During March, 2000, the Company implemented a plan to consolidate its
mature products group in order to increase capacity utilization, manufacturing
efficiencies and customer service activities worldwide. Total restructuring and
related charges associated with this consolidation plan of $17.5 million were
recorded in the second quarter of 2000. Of the total charge, $9.1 million
related to restructuring and $8.4 million related to the impairment of
intangible assets.
The significant components of the consolidation plan included the closing
of the Company's Sunnyvale, California and Neuchatel, Switzerland manufacturing
facilities and the consolidation and regionalization of sales and customer
service functions. The Company anticipates that the closing of the Sunnyvale and
Neuchatel facilities will maximize capacity utilization at its remaining mature
products facilities. As part of the plan, the Company reduced its work force by
approximately 125 employees. The restructuring charge of $9.1 million includes
$1.5 million of cash charges for severance benefits paid to terminated employees
which was disbursed over their entitlement periods and $2.3 million for
facilities closings and lease termination costs to be expended over the next
twelve months. Additionally, non-cash charges of $5.3 million approximated the
carrying value primarily of fixed assets associated with the manufacturing
consolidation based upon their expected disposition. Such assets, consisting
principally of specialized manufacturing tools and equipment, were subsequently
taken out of service.
The charges also included $8.4 million related to the impairment in value
of associated intangible assets. It was determined during the period that such
assets no longer had future economic benefit to the Company because the
anticipated undiscounted cumulative cash flows from these assets were
insufficient to support their carrying value.
Selling, general and administrative expenses increased 12.4% to $11.5
million, and 10.8% to $32.6 million for the three and nine months ended July 31,
2000, respectively, compared with $10.2 million and $29.4 million for the same
periods in the prior fiscal year. As a percentage of net sales, selling, general
and administrative expenses decreased to 13.4% and 13.9%, respectively, compared
to 14.1% and 14.8% for the same periods in the prior fiscal year. The higher
expenses were due principally to staffing and other costs associated with the
Company's expansion, both domestically and internationally, including increases
in information technology and communications costs.
Research and development expenses for the three and nine months ended July
31, 2000, increased 22.9% to $5.3 million and 25.2% to $15.1 million,
respectively, compared with $4.3 million and $12.0 million for the same periods
in the prior fiscal year. These increases reflect the continuing development
efforts on high-end, more complex photomasks such as phase shift, optical
proximity correction and next generation lithography applications. Research and
development was 6.2% and 6.4% of net sales for the three and nine months ended
July 31, 2000, respectively, compared to 6.0% in both of the corresponding prior
year periods.
12
<PAGE>
In the third quarter of fiscal 2000, the Company recorded a pre-tax charge
of approximately $5.5 million for transaction costs incurred in connection with
the Align-Rite merger. Such costs consisted primarily of investment banking,
legal, accounting, financial printing and other related charges.
Net other expense of $1.9 and $3.6 million for the three and nine months
ended July 31, 2000 increased by $0.8 million and $0.7 million, as compared to
the three and nine months ended August 1, 1999, respectively. The increases,
which were offset by income earned on investments, are primarily attributable to
increased interest costs associated with increased borrowings, principally for
the PSMC acquisition.
Net income for the three and nine months ended July 31, 2000, decreased to
$3.2 million and $1.4 million, respectively, or $0.11 and $0.05 per basic and
diluted share. These amounts compare to $4.3 million, or $0.16 per basic and
diluted share, and $8.7 million, or $0.31 per basic and diluted share, for the
corresponding prior year periods. Fiscal year 2000 includes the effect of the
restructuring and related charges and merger related costs amounting to $14.8
million after tax, or $0.52 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at July 31, 2000 was $101.5 million as
compared to $38.2 million at October 31, 1999. The increase in working capital
is due primarily to higher cash resulting from increased borrowings under the
Company's unsecured revolving credit agreement. Cash and cash equivalents at
July 31, 2000 were $50.3 million as compared to $23.1 million at October 31,
1999. Cash provided by operating activities for the nine months ended July 31,
2000 was $19.2 million as compared to $38.6 million for the nine months ended
August 1, 1999. This decrease is primarily attributable to a decrease in
accounts payable and accruals of $34.3 million from October 31, 1999,
principally due to the timing of progress payments for capital equipment coming
due during the period.
Cash used by investing activities of $58.1 million consisted principally
of the acquisition of PSMC and capital equipment purchases.
Cash flows from financing activities of $70.4 million included increased
net borrowings of $41.6 million, primarily associated with the PSMC acquisition,
and $29.0 million in proceeds from the issuance of common stock, the majority of
which resulted from the sale of one million shares of common stock to
institutional investors in June of 2000.
The Company's $125 million unsecured revolving credit facility was amended
as of April 28, 2000, in order to obtain the lenders' consent to the Align-Rite
and PSMC acquisitions, and to modify certain covenants and definitions in
connection with the restructuring. The Company is subject to compliance with and
maintenance of certain financial covenants and ratios set forth in the credit
facility, as amended. The Company had $78.0 million of outstanding borrowings
under the revolving credit facility at July 31, 2000.
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Photronics' commitments represent investments in additional manufacturing
capacity as well as advanced equipment for the production of high-end, more
complex photomasks. At July 31, 2000, Photronics had commitments outstanding for
capital expenditures of approximately $40.0 million. Additional commitments for
capital requirements are expected to be incurred during fiscal 2000. Photronics
will continue to use its working capital and bank lines of credit to finance its
capital expenditures. Photronics believes that its currently available
resources, together with its capacity for substantial growth and its access to
other debt and equity financing sources, are sufficient to satisfy its currently
planned capital expenditures, as well as its anticipated working capital
requirements for the foreseeable future.
"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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibits Index.
(b) Reports on Form 8-K
During the quarter for which this report is filed, the
following reports on Form 8-K were filed by the Company, each
reporting information under Form 8-K, Item 5:
(i) Form 8-K dated May 19, 2000.
(ii) Form 8-K dated May 26, 2000.
In addition, a report on Form 8-K dated June 21, 2000 was
filed by the Company reporting information under Form 8-K,
Items 2, 5 and 7 and a report on Form 8-KA dated June 30, 2000
was filed by the Company reporting the following financial
information:
financial statements of business acquired
and supplementary consolidated financial
statements as required by such Form 8-K.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHOTRONICS, INC.
Registrant
By: /s/ Robert J. Bollo
-------------------
Robert J. Bollo
Senior Vice President
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
DATE: SEPTEMBER 12, 2000
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