SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
Amendment No. 1
(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
None
<PAGE>
Photronics, Inc. (the "Company") is filing this amendment to its Form
10-K filed for the fiscal year ended October 31, 1999 in order to: (i)
provide certain additional disclosure in the third paragraph of Item 1,
"Business-Fiscal 1999 Developments"; (ii) revise certain disclosure in Item
7, Management's Discussion and Analysis of Financial Condition and Results
of Operation ("MD&A); and (iii) provide the information required by Part III,
rather than to incorporate the same by reference. The disclosure revisions
to the MD&A relate to the first paragraph of "Results of Operations - Net
Sales," and the last paragraph of "Liquidity of Capital Resources." As
revised, each of Item 1, Item 7 and Part III are being filed in their
entirety herewith, along with a consent of Deloitte & Touche LLP, the
Company's independent auditors.
<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.
<PAGE>
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 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. The Company and IBM generally have joint
ownership of copyrightable materials and inventions created in connection
with the venture.
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").
<PAGE>
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
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.
<PAGE>
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.
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.
<PAGE>
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.
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
<PAGE>
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
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.
<PAGE>
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.
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
<PAGE>
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.
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.
<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
technological changes in the industry, the Company expects those trends to
continue.
<PAGE>
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' European operations, partially
offset by a decrease in sales domestically and in Asia. European sales
increased as a result of higher unit volume. Sales in Asia decreased
primarily as a result of certain orders for Asian customers being
manufactured in the United States. 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.
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.
<PAGE>
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.
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,
<PAGE>
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.
This facility was amended in September 1999 to waive a default and to
relax certain financial covenants. The default resulted from the
Company's failure to meet the interest coverage ratio, due to earnings
being less than anticipated when the facility was established in November
1998. The facility was not otherwise amended and the Company continued to
borrow under it. 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.
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.
<PAGE>
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
Except for historical information, the matters discussed above may be
considered forward-looking statements and may be subject to certain risks
and uncertainties that could cause the actual results to differ materially
from those projected, including uncertainties in the market, pricing,
competition, procurement and manufacturing efficiencies, and other risks.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information as to directors and director nominees required by
Item 401 and 405 of Regulation S-K is set forth below. The information as
to executive officers is included in Part I, Item 1a of this report under
the caption "Executive Officers of Registrant."
The names of, and certain information with respect to, directors and
the nominees for election as directors at the Company's 2000 annual
shareholders meeting are set forth below and were furnished to the Company
by the nominees.
Nominees to be elected by the shareholders for a one year term:
Director
Name and (Age) Since Position with the Company
-------------- -------- -------------------------
Walter M. Fiederowicz(1)......... 1984 Director
(53 years)
Joseph A. Fiorita, Jr.(1)........ 1987 Director
(55 years)
Constantine S. Macricostas....... 1974 Chairman of the Board
(64 years)
Willem D. Maris .................. (2) Director Nominee
(60 years)
Michael J. Yomazzo................1977 Vice Chairman of the Board
(57 years)
- --------------
(1) Member of the Audit Committee and the Compensation Committee.
(2) Mr. Maris has been nominated for the first time for election as a
director.
- --------------
In addition to the information set forth in the table above, the
following provides certain information about each director and nominee for
election, including his principal occupation for at least the past five
years.
Walter M. Fiederowicz has been a private investor and consultant
since August 1997. From April 1997 until August 1997, he served as the
President and Chief Executive Officer of WorldCorp., Inc., the holding
company of World Airways, Inc., a provider of long-range passenger and
cargo air transportation services to major airlines, and of InteliData
<PAGE>
Technologies Corporation, a provider of caller identification based
telecommunications devices, smart telephones and on-line electronics
information services. Mr. Fiederowicz served as Chairman of Colonial Data
Technologies Corp., a distributor of telecommunications equipment which
subsequently merged into InteliData Technologies Corporation, from August
1994 to March 1996. From January 1991 until July 1994, he held various
positions, including Executive Vice President and Chairman and served as
a director of Conning and Company (the parent company of an investment
firm). He also serves as Chairman of the Board of Meacock Capital, PLC,
an investment vehicle for the Lloyd's insurance market. Mr. Fiederowicz
serves as a director of First Albany Companies, Inc., the parent of a
broker-dealer, and of Compensation Value Alliance, Inc., a provider of
workers' compensation-related services.
Joseph A. Fiorita is a partner in Fiorita, Kornhaas and Van Houten,
P.C., the independent certified public accountants for the Company from
May 1973 through October 1984.
Constantine S. Macricostas is Chairman of the Company, and served as
Chief Executive Officer of the Company from 1974 until August 1997. Mr.
Macricostas also serves as a director of Nutmeg Federal Savings and Loan
Association, and the DII Group, Inc., a provider of integrated electronic
manufacturing products and services.
Willem D. Maris was President and Chief Executive Officer of ASM
Lithography Holding N.V. ("ASML") from June 1990 until his retirement in
January 2000. Headquartered in the Netherlands, ASML develops,
manufactures, markets and services advanced lithography projection systems
for the fabrication of integrated circuits. Mr. Maris has an extensive
background in the semiconductor industry, having served in management and
other positions in the integrated circuit division of Koninklijke Philips
Electronics N.V. from 1964 until joining ASML in 1990. He is a director
of MEMC Electronic Materials, Inc., a company that produces silicon wafers
used to manufacture semiconductors, and he is a member of the supervisory
board of Detron Group N.V., a telecommunications company in the
Netherlands.
Michael J. Yomazzo has served as Vice Chairman of the Company since
January 1, 1999. He served as Chief Executive Officer of the Company from
August 1997 until December 31, 1998 and as President from January 1994
until December 31, 1998. From November 1990 until January 1994, he served
as Executive Vice President and from July 1989 until November 1990, he
served as Senior Vice President - Finance and Planning. Mr. Yomazzo is a
director of NMBT Corp., the bank holding company of New Milford Bank and
Trust Company.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K is set forth
below.
The following table sets forth certain information regarding
compensation paid by the Company for services rendered for each of the
three fiscal years during the period ended October 31, 1999 to each of the
individuals who served (i) as the Chief Executive Officer, or in a similar
capacity, during the 1999 fiscal year, and (ii) each executive officer of
the Company who served as of October 31, 1999 and whose cash compensation
exceeded $100,000 (such executives are collectively referred to as the
"Named Executives").
<PAGE>
SUMMARY COMPENSATION TABLE
___________________________________________________________________________
: Annual : Long-Term :
: Compensation : Compensation : All
:-------:-------:------------------: Other
: : : Awards : Comp-
: : :----------:-------: ensa-
: : :Restricted: Stock : tion
Name/Principal Position Year:Salary : Bonus : Stock :Options: ($)
: ($) : ($) : ($) : (#) : (1)
-------------------------------:-------:-------:----------:-------:-------
Constantine S. Macricostas 1999:181,836: 0: 0 : 0 : 78,200
Chairman (2) 1998:295,000: 5,673: 0 : 5,000: 79,992
1997:329,250:354,250: 0 : 0 : 79,750
- -------------------------------:--------:-------:----------:-------:-------
Michael J. Yomazzo 1999:189,529: 0: 0 : 0 : 57,841
Vice Chairman (2) 1998:325,000: 31,250: 0 :165,000: 60,042
1997:277,290:302,290: 0 : 0 : 60,196
- --------------------------------:-------:-------:----------:-------:-------
James R. Northup 1999:253,470: 0: 0 : 0 : 25,729
President (2) (3) : : : : :
- --------------------------------:-------:-------:----------:-------:-------
Jeffrey P. Moonan 1999:232,171: 0: 0 : 0 : 25,915
Executive Vice President, 1998:176,283: 23,393: 0 : 25,000: 26,035
General Counsel and 1997:169,628:189,628: 0 : 0 : 25,890
Secretary (2) : : : : :
- --------------------------------:-------:-------:----------:-------:-------
Robert J. Bollo 1999:150,939: 0: 0 : 7,500: 3,019
Vice President/Finance 1998:150,480: 22,896: 0 : 0 : 3,010
and Chief Financial 1997:133,421:126,673: 0 : 0 : 2,663
Officer : : : : :
___________________________________________________________________________
(1) Represents (i) premiums paid on life insurance policies owned by each of
the Named Executives or his designee, except for Mr. Bollo, as to which
the Company shall be entitled to be repaid unless the respective
individual satisfies certain length of service requirements; and (ii)
matching contributions made by the Company pursuant to the Company's
401(k) Savings and Profit Sharing Plan. The amount of premiums paid in
the 1999 fiscal year were as follows: Mr. Macricostas $75,000; Mr.
Yomazzo $55,000; Mr. Northup $22,500; and Mr. Moonan $22,500. The
matching 401(k) contributions made during fiscal year 1999 were as
follow: Mr. Macricostas, $3,200; Mr. Yomazzo, $2,841; Mr. Northup,
$3,229; Mr. Moonan, $3,415; and Mr. Bollo, $3,019.
(2) Mr. Macricostas served as Chief Executive Officer until August 15, 1997
and Mr. Yomazzo served as Chief Executive Officer from August 15, 1997
until December 31, 1998. Effective January 1, 1999, the Board of
Directors created the Office of the Chief Executive. In connection with
this, Mr. Yomazzo was elected Vice Chairman, and Messrs. Northup and
Moonan were promoted to President and Executive Vice President,
respectively. Prior to this Mr. Northup served as Senior Vice President
of North American Operations, and Mr. Moonan served as Senior Vice
President, General Counsel and Secretary. The Office of the Chief Executive
is comprised of Messrs. Macricostas, Yomazzo, Northup and Moonan, each
of who performs certain executive management functions.
(3) Mr. Northup has served as President since January, 1999 and prior to that,
he was not an executive officer of the Company. Therefore, amounts paid
to Mr. Northup prior to fiscal 1999 are not reported in the above table.
STOCK OPTIONS
The Company maintains stock option plans which allow for the grant
of stock options and restricted stock awards to directors and executive
officers of the Company as well as other employees of the Company. The
Company's stock option plans do not provide for the issuance of stock
appreciation rights ("SAR'S"). The following table sets forth certain
information with respect to (i) options granted to the Named Executives
during the 1999 fiscal year, and (ii) the value of such options at
assumed annual rates of stock price appreciation.
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
_________________________________________________________________________
: Potential Realizable
: Value at Assumed Annual
Individual Grants : Rates of Stock Price
: Appreciation for Option
: Term (a)
__________________________________________________________________________
_________________________________________________________________________
: : : : :
Name :Number of :% of Total :Exercise :Expira- : 5% / 10%
:Securities :Options :or Base :tion : $
:Underlying :Granted :Price :Date :
:Options :to Employees :($/Share) : :
:Granted :in Fiscal : : :
: :Year : : :
: : : : :
------------:------------:-------------:----------:--------:------------
Constantine : 0 : N/A : N/A : N/A : N/A
Macricostas : : : : :
------------:------------:-------------:----------:--------:------------
: : : : :
Michael J. : 0 : N/A : N/A : N/A : N/A
Yomazzo : : : : :
- -------------:------------:-------------:----------:--------:------------
: : : : :
James R. : 0 : N/A : N/A : N/A : N/A
Northup : : : : :
------------:------------:-------------:----------:--------:------------
: : : : :
Jeffrey P. : 0 : N/A : N/A : N/A : N/A
Moonan : : : : :
------------:------------:-------------:----------:--------:------------
: : : : : 85,490/
Robert J. : 7,500(b) : 3.3 : 18.125 : 11-4-08: 216,649
Bollo : : : : :
------------:------------:-------------:----------:--------:-----------
(a) No gain to the optionees is possible without appreciation in the price
of the Common Stock which will benefit all shareholders. The dollar amounts
under these columns are the result of calculations at the 5% and 10%
assumption rates set by the SEC and, therefore, are not intended to
forecast possible future appreciation of the Common Stock price or to
establish any present value of the options.
(b) The option granted to Mr. Bollo was granted at an exercise price equal
to the market price of the Common Stock on the date of grant and vests over
four years in four equal annual installments. The Board of Directors may
accelerate the vesting of the option if the Company merges or consolidates
with another company or sells substantially all of its assets.
<PAGE>
The following table sets forth certain information with respect to options
exercised during the 1999 fiscal year by the Named Executives and the
value of options held by the Named Executives on October 31, 1999.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
_________________________________________________________________________
: : : Number of : Value of
: : : Securities : Unexercised
: : : Underlying : In-the-money
: : : Unexercised : Options at
: Shares : : Options at : Fiscal Year End
: Acquired : : Fiscal Year End : ($)
: on : Value :-----------------:------------------
: Exercise : Realized : Exercisable / : Exercisable /
Name : (#) : ($) : Unexercisable : Unexercisable
- -------------:----------:-----------:-----------------:------------------
Constantine : : : :
Macricostas : -0- : -0- : 76,250/28,750 : 645,273/248,218
- ------------ :----------:-----------:-----------------:-----------------
Michael J. : -0- : -0- : 221,550/126,250 :2,445,373/184,933
Yomazzo : : : :
- ------------ :----------:-----------:-----------------:-----------------
James R. : : : :
Northup : -0- : -0- : 88,500/34,500 :1,026,870/325,861
- -------------:----------:-----------:-----------------:-----------------
: : : :
Jeffrey P. : : : :
Moonan : -0- : -0- : 130,000/27,500 :2,009,390/260,170
- -------------:----------:-----------:-----------------:-----------------
Robert J. : : : :
Bollo : -0- : -0- : 56,250/16,250 : 627,128/94,930
__________________________________________________________________________
CERTAIN AGREEMENTS
The Company has agreed that if the employment of Messrs.
Macricostas, Northup or Moonan is terminated under certain conditions,
such officer will be entitled to continued salary and benefits for one
year. In addition, the Company has entered into agreements providing
that each of Messrs. Macricostas and Yomazzo will serve as a consultant
to the Company upon their respective retirements for a period of up to
three (3) years for a consulting fee of up to $175,000 per year.
Messrs. Macricostas and Yomazzo are also entitled to continued benefits
until age 65.
DIRECTORS' COMPENSATION
Directors who are not employees of the Company receive a fee of
$2,500 for each directors' meeting attended and are granted a
restricted stock award of 3,000 shares per year. The restrictions on
these awards lapse quarterly over the year of service period. From
time to time, non-employee directors may also be granted stock options.
If Mr. Maris is elected to the Board at the Annual Meeting, he will
receive an option to purchase 5,000 shares of Common Stock at an
exercise price equal to the market value of the Common Stock on the
date of grant, and a restricted stock award of 3,000 shares of Common
Stock.
<PAGE>
During fiscal 1999, the Company retained Joseph A. Fiorita, Jr., a
director of the Company, as a consultant to perform certain accounting
and tax services. Fees paid to Mr. Fiorita in this capacity aggregated
$36,000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K is set
forth below.
To the best knowledge of the Company based on information filed
with the Securities and Exchange Commission and the Company's stock
records, the following table sets forth the beneficial ownership of the
Common Stock as of February 1, 2000, by (i) beneficial owners of more
than five percent of the Common Stock, (ii) each director, (iii) each
nominee for election as director, (iv) each executive officer named in
the summary compensation table set forth below, and (v) all directors
and executive officers of the Company as a group.
Name and Address Amount and Nature of Percentage
of Beneficial Owner Beneficial Ownership (1) of Class
- ------------------- ------------------------ ---------
Robert J. Bollo 58,410 (2) *
1061 East Indiantown Road
Jupiter, FL 33477
Walter M. Fiederowicz 61,580 (2) (3) *
39 Painter Hill Road
Woodbury, CT 06798
Joseph A. Fiorita, Jr. 49,650 (2) (4) *
146 Deer Hill Avenue
Danbury, CT 06810
Constantine S. Macricostas 2,993,742 (2) (5) 12.5
1061 East Indiantown Road
Jupiter, FL 33477
Macricostas Partners, L.P. 2,280,000 9.5
1122 Bel Air
Allen, Texas 75013
<PAGE>
Name and Address Amount and Nature of Percentage
of Beneficial Owner Beneficial Ownership (1) of Class
- ------------------- ----------------------- ----------
Willem D. Maris 0
De Run 1110
5503 La Veldhoven
The Netherlands
Jeffrey P. Moonan 152,834 (2) *
1061 East Indiantown Road
Jupiter, FL 33477
James R. Northup 91,435 (2) *
1061 East Indiantown Road
Jupiter, FL 33477
Michael J. Yomazzo 454,584 (2) (6) 1.8
1061 East Indiantown Road
Jupiter, FL 33477
Massachusetts Financial
Services Company 1,551,804 (7) 6.4
500 Boylston Street
Boston, MA 02116
Directors and Executive 3,862,235 (8) 15.7
Officers as a group
(seven persons)
- -------------
* Less than 1%
- -------------
(1) Except as otherwise indicated, the named person has the sole voting and
investment power with respect to the shares of Common Stock set forth
opposite such person's name.
(2) Includes shares of Common Stock subject to stock options exercisable
as of April 1, 2000 as follows: Mr. Bollo (58,125); Mr. Fiederowicz
(32,750); Mr. Fiorita (32,750); Mr. Macricostas (76,250); Mr. Northup
(90,500); Mr. Yomazzo (236,550); and Mr. Moonan (130,000). Also includes
shares subject to forfeiture under restricted stock award grants as follows:
Mr. Fiederowicz (5,000) and Mr. Fiorita (5,000).
(3) Includes 12,050 shares owned by the wife of Mr. Fiederowicz and 800
shares owned by his child, as to which shares he disclaims beneficial
ownership.
(4) Includes 300 shares owned by the wife of Mr. Fiorita, as to which shares
he disclaims beneficial ownership.
(5) Includes 34,000 shares held by the wife of Mr. Macricostas as to which
shares he disclaims beneficial ownership. Also includes 2,280,000
shares owned by Macricostas Partners, L.P., of which Mr. Macricostas is
a limited partner and 50,618 shares owned by the corporate general
partner of such partnership of which Mr. Macricostas is President and a
Director and a significant shareholder. Mr. Macricostas disclaims
beneficial ownership of those shares not represented by his ownership
interests.
(6) Includes 46,000 shares held by the wife of Mr. Yomazzo as to which
shares he disclaims beneficial ownership. Also includes 86,000 shares owned
by Yomazzo Associates Limited Partnership of which Mr. Yomazzo is a general
partner and a limited partner. Mr. Yomazzo disclaims beneficial ownership
of those shares not represented by his ownership interests.
(7) In a schedule 13G dated February 11, 2000 filed with the SEC,
Massachusetts Financial Services Company reported that of the 1,551,804
shares of Common Stock that it beneficially owns, it has sole voting power
with respect to 1,233,104 shares and has sole dispositive power with
respect to all shares.
(8) Includes the shares listed in notes (2), (3), (4), (5), and (6) above.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 404 of Regulation S-K is set
forth below.
The Company continues to lease a building at one of its
manufacturing facilities and a contiguous parcel of land from entities
controlled by Constantine S. Macricostas, the Chairman and a director
of the Company. The rent paid to these entities for the fiscal year
ended October 31, 1999 was approximately $135,000.
Financing for construction of such leased building and the
acquisition of certain equipment was provided through the sale of
industrial development bonds issued by the Connecticut Development
Authority (the "CDA"). As lessee, the Company was obligated to serve
as guarantor of certain of the bonds issued by the CDA. As of October
31, 1999 there was outstanding a total of approximately $339,000 in
principal amount of industrial development bonds for which the Company
is a guarantor.
The Company and Toppan Printing Co., Ltd. ("Toppan"), have engaged
in numerous ongoing commercial transactions for the purchase and sale
of raw materials and finished goods based upon competitive terms and
conditions, including market prices. Toppan was a beneficial owner of
more than 5% of the Common Stock during the 1999 fiscal year. The
total amount of sales by the Company to Toppan during fiscal year 1999
aggregated $133,550, and Toppan's sales to the Company aggregated $9,171,414.
In addition, in September 1998, the Company agreed to purchase from
Toppan one million shares of Common Stock that the Company had issued to
Toppan in 1993 as partial consideration for the Company's acquisition of
Toppan's photomask operations in Texas. The purchase prices of the shares
ranged from $13.50 to $13.90 per share, which prices were at or below the
then approximate fair market value of the Common Stock. Of these shares,
750,000 were purchased during September and December 1998 and the balance
were purchased during March 1999. The purchases during fiscal year 1999
aggregated approximately $6,900,000.
The Company believes that the terms of the transactions described
above with affiliated persons were negotiated at arm's-length and were
no less favorable to the Company than the Company could have obtained
from non-affiliated parties.
<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 /s/ JEFFREY P. MOONAN February 18, 2000
Jeffrey P. Moonan
Executive Vice President
Table of Exhibits
23 Consent of Deloitte & Touche LLP is filed herewith.
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
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/A
(Amendment No. 1) of Photronics, Inc. for the year ended October
31, 1999.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
February 16, 2000
