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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
[ ] 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 026240
ALIGN-RITE INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-4528353
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2428 ONTARIO ST. BURBANK, CA 91504
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(818) 843-7220
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<S> <C>
CLASS OUTSTANDING AT SEPTEMBER 30, 1999
Common Stock, $.01 par value 4,677,869 Shares
</TABLE>
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ALIGN-RITE INTERNATIONAL, INC.
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets at September 30, 1999 and March
31, 1999.................................................... 3
Consolidated Statements of Operations for the Three and Six
Months ended September 30, 1999 and 1998.................... 4
Consolidated Statements of Comprehensive Income for the
Three and Six Months ended September 30, 1999 and 1998...... 5
Consolidated Statements of Cash Flows for the Six Months
ended September 30, 1999 and 1998........................... 6
Notes to Consolidated Financial Statements.................. 7
Management's Discussion and Analysis of Results of
Item 2. Operations and Financial Condition.......................... 10
Quantitative and Qualitative Disclosures about Market
Item 3. Risk........................................................ 13
PART II. FINANCIAL INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 14
Signatures.................................................. 15
Statement Regarding Computation of Earnings Per Share....... 16
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALIGN-RITE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED 000'S OMITTED)
ASSETS
<TABLE>
<CAPTION>
AT SEPT. 30, AT MARCH 31,
1999 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 6,846 $ 6,328
Accounts receivable, net.................................. 9,606 7,171
Inventories, primarily raw materials...................... 3,556 2,882
Prepaid and other current assets.......................... 1,499 1,318
------- -------
Total current assets.............................. 21,507 17,699
Property and equipment, net................................. 65,987 61,332
Intangible assets, net...................................... 8,518 809
Other assets................................................ 641 451
------- -------
Total assets...................................... $96,653 $80,291
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 6,116 $ 4,182
Equipment payables, current portion....................... 1,313 7,636
Accrued expenses and other................................ 3,327 3,328
Taxes payable............................................. 1,758 423
------- -------
Total current liabilities......................... 12,514 15,569
Equipment payables, long-term portion..................... 8,089 10,008
Long-term debt............................................ 23,489 5,200
Deferred taxes............................................ 5,355 5,355
Other liabilities......................................... 776 857
Shareholders' equity:
Common stock:
Authorized -- 35,000 shares $.01 par value;
Issued -- 4,678 and 4,540 shares, respectively........ 47 45
Additional paid-in capital.................................. 19,295 19,045
Retained earnings........................................... 26,171 24,098
Accumulated other comprehensive income...................... 917 114
------- -------
Total shareholders' equity........................ 46,430 43,302
------- -------
Total liabilities and shareholders' equity........ $96,653 $80,291
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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ALIGN-RITE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30,
(UNAUDITED -- 000'S OMITTED, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales........................................... $15,573 $13,993 $28,934 $27,683
Cost of sales....................................... 10,897 8,633 19,963 17,184
------- ------- ------- -------
Gross profit................................... 4,676 5,360 8,971 10,499
Selling, general and administrative expenses........ 2,551 2,240 4,789 4,343
Research and development............................ 306 215 566 417
------- ------- ------- -------
Income from operations......................... 1,819 2,905 3,616 5,739
Interest income (expense) and other, net............ (309) 2 (378) 38
------- ------- ------- -------
Income before provision for income taxes............ 1,510 2,907 3,238 5,777
Provision for income taxes.......................... 545 1,096 1,166 2,181
------- ------- ------- -------
Net income.......................................... $ 965 $ 1,811 $ 2,072 $ 3,596
======= ======= ======= =======
Per share information:
Basic earnings per share.......................... $ .21 $ .40 $ .45 $ .80
Shares used in per share computation.............. 4,637 4,480 4,591 4,473
Diluted earnings per share........................ $ .20 $ .37 $ .42 $ .74
Shares used in per share computation.............. 4,919 4,862 4,899 4,869
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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ALIGN-RITE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30,
(UNAUDITED -- 000'S OMITTED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
---------------- ----------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income.............................................. $ 965 $1,811 $2,072 $3,596
Other comprehensive income:
Foreign currency translation adjustments.............. 1,020 15 803 40
------ ------ ------ ------
Comprehensive income.................................... $1,985 $1,826 $2,875 $3,636
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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ALIGN-RITE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
(UNAUDITED -- 000'S OMITTED)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 2,072 $ 3,596
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization............................. 3,888 2,810
Compensation related to stock options granted............. 55 55
Changes in assets and liabilities:
Accounts receivable....................................... (2,340) (241)
Inventories............................................... (443) (322)
Prepaids and other assets................................. (364) (3,045)
Trade accounts payable.................................... 1,764 (544)
Equipment payables........................................ (6,323) 5,748
Accrued expenses and other liabilities.................... 1,147 858
-------- --------
Net cash (used in) provided by operating
activities...................................... (544) 8,915
-------- --------
Cash flows from investing activities
Purchase of property and equipment, including refinanced
long-term equipment payables.............................. (4,034) (16,574)
Payments for business acquisition......................... (13,525) --
-------- --------
Net cash used in investing activities............. (17,559) (16,574)
-------- --------
Cash flows from financing activities:
Proceeds from lines of credit............................. 18,289 6,200
Stock options exercised................................... 176 86
-------- --------
Net cash provided by financial activities.............. 18,465 6,286
Effect of exchange rate on cash............................. 156 13
Net increase (decrease) in cash............................. 518 (1,360)
-------- --------
Cash and cash equivalents, beginning of year................ 6,328 5,523
-------- --------
Cash and cash equivalents, end of period.................... $ 6,846 $ 4,163
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the six months ended September 30 for:
Income taxes........................................... $ 272 $ 380
Interest............................................... 306
Non-cash activities:
Equipment purchases refinanced under available lines of
credit................................................. $ 1,919 $ --
Assets recognized in connection with business acquisition:
Property and equipment.................................... 5,455 --
Goodwill.................................................. 7,875 --
Other current assets...................................... 195 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
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ALIGN-RITE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
1. BUSINESS AND BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Align-Rite
International, Inc. ("ARII"), a California corporation, incorporated on April
27, 1995, and its wholly-owned subsidiaries, Align-Rite International Limited
("ARI"), Align-Rite Corporation ("ARC"), Align-Rite Limited ("ARL"), Align-Rite
BV ("ARBV"), Align-Rite GmbH ("ARGMBH") and its newly acquired subsidiary,
Align-Rite Inc. ("ARF"). ARII and its subsidiaries are collectively referred to
as the "Company". All significant intercompany accounts and transactions have
been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with 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 statement presentation. In the opinion of management, the accompanying
consolidated balance sheets and related interim consolidated statements of
operations and cash flows include all adjustments (consisting only of normal
recurring items) considered necessary for their fair presentation. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses.
Actual results could differ from those estimates. The consolidated results of
operations for the six months ended September 30, 1999 are not necessarily
indicative of results to be expected for the year ended March 31, 2000. The
information included in this Form 10-Q should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto as of
March 31, 1999 and 1998 and for the three years in the period ended March 31,
1999 as filed on Form 10-K. Certain items shown in the prior financial
statements have been reclassified to conform with the presentation of the
current period.
The principal activity of ARII, ARI and ARBV is that of holding companies
into which their respective subsidiaries are consolidated. ARC, ARL, ARGMBH and
ARF manufacture and market quality photomasks in the United States and Europe.
Photomasks, which are precision photographic quartz or glass plates, contain
microscopic images of integrated circuits. These are used primarily by
semiconductor manufacturers as master images to transfer circuit patterns onto
silicon wafers during the fabrication of integrated circuits.
The Company maintains a policy and practice of restricting ARC from paying
dividends or making certain other distributions in order to minimize tax
consequences resulting from its current corporate structure.
2. SEGMENT INFORMATION
The company adopted SFAS No. 131 in fiscal year 1999. The company has two
reportable business segments: The United States and Europe.
The Company conducts operations worldwide and is managed on a geographical
basis, with those geographic segments being the United States and Europe. The
Untied States segment, which is based in Burbank, California and Melbourne,
Florida, covers the U.S., Canada and Latin America. The European segment, which
is based in Bridgend, Wales and Heilbronn, Germany, covers all European
countries. Sales to Asia Pacific from both segments are immaterial to the group
and therefore, not deemed a separate segment. The Company's operations are
primarily concentrated in the Untied States and Europe.
7
<PAGE> 8
ALIGN-RITE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
The accounting policies of the geographic segments are the same as those
described in the summary of significant accounting policies. The Company
allocates resources to and evaluates performance of its geographic segments
based on operating income. Transfers between geographic areas have not been
significant and are recorded using internal transfer prices set by the Company.
The following tables sets forth, for the periods indicated, relevant profit
and loss indicators by geographic area. (Unaudited -- 000's Omitted)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
1999
--------------------------------------
UNITED STATES EUROPE TOTAL
-------------- -------- --------
<S> <C> <C> <C>
Net revenue from unaffiliated customers............ $17,191 $11,743 $28,934
======= ======= =======
Income from operations............................. $ 1,079 $ 2,537 $ 3,616
======= ======= =======
Depreciation and amortization...................... $ 1,979 $ 1,909 $ 3,888
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
1998
--------------------------------------
UNITED STATES EUROPE TOTAL
-------------- -------- --------
<S> <C> <C> <C>
Net revenue from unaffiliated customers............ $15,063 $12,620 $27,683
======= ======= =======
Income from operations............................. $ 2,128 $ 3,611 $ 5,739
======= ======= =======
Depreciation and amortization...................... $ 1,590 $ 1,220 $ 2,810
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1999
-----------------------------------------
UNITED STATES EUROPE TOTAL
--------------- --------- ---------
<S> <C> <C> <C>
Net revenue from unaffiliated customers............ $ 9,443 $ 6,130 $15,573
======= ======= =======
Income from operations............................. $ 445 $ 1,374 $ 1,819
======= ======= =======
Depreciation and amortization...................... $ 1,079 $ 1,014 $ 2,093
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1998
-----------------------------------------
UNITED STATES EUROPE TOTAL
--------------- --------- ---------
<S> <C> <C> <C>
Net revenue from unaffiliated customers............ $ 7,561 $ 6,432 $13,993
======= ======= =======
Income from operations............................. $ 993 $ 1,912 $ 2,905
======= ======= =======
Depreciation and amortization...................... $ 810 $ 632 $ 1,442
======= ======= =======
</TABLE>
The following table sets forth, for the periods indicated, long-lived
assets by geographic areas. (Unaudited -- 000's Omitted)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 MARCH 31, 1999
------------------ --------------
<S> <C> <C>
United States........................................ $46,379 $33,239
Europe............................................... 28,126 28,902
------- -------
Total...................................... $74,505 $62,141
======= =======
</TABLE>
8
<PAGE> 9
ALIGN-RITE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
The following table sets forth, for the periods indicated, identifiable
assets by geographic area. (Unaudited -- 000's Omitted)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 MARCH 31, 1999
------------------ --------------
<S> <C> <C>
United States........................................ $55,084 $42,045
Europe............................................... 41,569 38,246
------- -------
Total...................................... $96,653 $80,291
======= =======
</TABLE>
3. ACQUISITION
On July 2, 1999, the Company acquired the business and certain assets that
are used in the manufacture of photomasks from Harris Corporation (Intersil).
The transaction has been accounted for under the purchase method of accounting
and resulted in goodwill of approximately $7.9 million, with an amortization
period of fifteen years. The total purchase price, including acquisition
expenses of $275,000, was allocated among the assets acquired based on their
estimated fair values as follows:
<TABLE>
<S> <C>
Property & Equipment........................................ $ 5,455
Goodwill.................................................... 7,875
Other Assets................................................ 195
-------
$13,525
=======
</TABLE>
The Company funded this acquisition with its available lines-of-credit.
Discrete historical financial information of Intersil's photomask business unit
is not available.
4. OTHER EVENTS
On September 15, 1999, the Company and Photronics, Inc., a Connecticut
corporation ("Photronics"), announced that they had signed an Agreement and Plan
of Merger (the "Merger Agreement") pursuant to which a wholly owned subsidiary
of Photronics will merge with and into Align-Rite, with Align-Rite to be the
survivor and to be a wholly owned subsidiary of Photronics.
Pursuant to the terms of the Merger Agreement, each outstanding share of
Align-Rite's common stock will be converted in to a number of shares of
Photronics common stock determined by dividing $23.09 by the average of the
daily average per share high and low sales prices of one share of Photronics
common stock as reported on Nasdaq for each of the 20 trading days ending three
days prior to Align-Rite's shareholder meeting provided, however, that (i) if
the average of Photronics share price during such 20-day trading period is less
than $21.00, the conversion rate will be 1.0995 and (ii) if the average
Photronics share price during such 20-day trading period is greater than $28.25,
the conversion rate will be 0.8173. Align-Rite may terminate the Merger
Agreement if the average Photronics share price during such 20-day trading
period is less than $16.00.
The transaction is subject to the approval of both Photronics and
Align-Rite shareholders. The transaction is also subject to various regulatory
and closing conditions, including compliance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. Certain of the major
shareholders of Align-Rite owning an aggregate of approximately 14.5% of the
total number of outstanding shares of Align-Rite common stock have entered into
voting agreements with Photronics pursuant to which such shareholders have
agreed, among other things, to vote or cause to be voted their shares of
Align-Rite common stock in favor of the transaction. A major shareholder of
Photronics owning an aggregate of approximately 12.3% of the total number of
outstanding shares of Photronics common stock has entered into a voting
agreement with Align-Rite pursuant to which such shareholder has agreed, among
other things, to vote or cause to be voted his shares of Photronics common stock
in favor of the transaction.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Net sales for the three and six months ended September 30, 1999, increased
11% to $15,573,000 and 5% to $28,934,000, respectively, compared to $13,993,000
and $27,683,000 in the same periods in the prior fiscal year. The increase in
net sales for the quarter of 11% is due to the Company's acquisition of certain
assets of Harris Corporation (Intersil) Photomask Business Unit on July 2, 1999.
The Company has been affected by the overall semiconductor industry's slowdown,
which has resulted in the slowdown of releases of new designs. Overall, unit
demand, absent the acquisition, was down and the Company continues to experience
strong competitive conditions including product-pricing pressures in most
sectors of the photomask market. Average selling prices have declined compared
to the prior year. However, the Company believes that pricing pressures, while
not improving dramatically, have stabilized throughout the industry.
European net sales for the three months ended September 30, 1999 decreased
5% to $6,130,000, compared with $6,432,000 for the same period in the prior
year. United States net sales for the three months ended September 30, 1999
increased 25% to $9,443,000, compared with $7,561,000 in the same period of the
prior year. This increase was entirely due to the acquisition of Harris
Corporation (Intersil). Absent the acquisition, U.S. sales would have been down
approximately 10% compared to the same period in the prior year.
Gross profit as a percentage of net sales for the three and six months
ended September 30, 1999, decreased to 30.0% and 31.0%, respectively, compared
to 38.3% and 37.9% in the same periods in the prior year. The decrease in gross
profit as a percentage of net sales for the three and six months ended September
30, 1999 is primarily attributable to higher operating costs, lower capacity
utilization and product pricing pressures. The adverse impact on sales from the
slowdown in the semiconductor industry combined with the Company's commitment to
increase its capabilities, resulted in higher fixed costs, primarily
depreciation expense, which for the six months ended September 30, 1999
increased 32% to $3,700,000, compared to $2,810,000 in the same period in the
prior fiscal year. As the Company continues to invest in capital equipment to
increase its capabilities, the Company anticipates that its gross profit will
fluctuate slightly based on the timing of equipment purchases and related
increases in depreciation expense.
Selling, general and administrative expenses include salaries of sales
personnel, marketing expense, general and administrative expense and product
distribution expense. Selling, general and administration expenses for the three
and six months ended September 30, 1999 increased slightly to $2,551,000 and
$4,789,000, respectively, compared with $2,240,000 and $4,343,000, in the same
period in the prior fiscal year. Selling, general and administrative expenses as
a percentage of net sales increased for the current quarter to 16.4% compared to
16.0% in the same periods due to decreased revenue leverage, while the current
six month's percentage increased to 16.6%, as compared to 15.7% in the same
period in the prior year. The Company believes selling, general and
administrative, as a percentage of sales will remain at approximately 16%, as
the Company continues to expand.
Research and development ("R&D") expense is comprised primarily of
personnel costs, material consumption, depreciation and engineering costs. The
Company spent $306,000 for the three months ended September 30, 1999, compared
to $215,000 in the related prior period. The Company believes it will continue
to spend approximately 2% of sales on R&D related projects. The Company
anticipates that R&D expense will continue to increase in absolute terms and as
a percentage of sales in the future, reflecting its strategy of advancing their
technology.
Net other expense of approximately $309,000 and $378,000 for the three and
six months ended September 30, 1999, respectively, were principally the result
of interest expense associated with the Company's $23.5 million draw-down on its
available line-of-credit. As the Company draws down further on its available
line, interest expense will continue to increase in the future.
For the three and six months ended September 30, 1999, the Company provided
for federal and state income tax at an estimated combined rate of 36%, which is
a decrease from the 37.7% rate used in the prior year. The decrease in the
effective income tax rate is attributable to lower state taxes due to
application of available credits from capital expenditure purchases.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $6,846,000 at September 30,
1999. Net cash used in operating activities amounted to $544,000 for the six
months ended September 30, 1999, compared to $8,915,000 provided by operations
for the same period in the prior year. Operating cash flows for the six months
ended September 30, 1999 reflect lower net income, increased non-cash charges
related to depreciation and amortization expenses and a decrease in equipment
payables primarily related to fixed assets purchased that were paid down during
the six months ended September 30, 1999.
For the six months ended September 30, 1999, cash used in investing
activities totaled $17,559,000 compared to $16,574,000 in the related prior year
period. The Company's investing activities during the six months ended September
30, 1999 increased substantially during the quarter due to the acquisition of
Harris Corporation's photomask business unit. Cash from financing activities
included $18,289,000 draw down from its $35 million line-of-credit. As of
September 30, 1999, the Company had borrowed $23.5 million from its available
line. Equipment payables for which the Company has the ability and intent to
refinance utilizing its Bank line's-of-credit during fiscal year 2000 have been
classified as long-term at September 30, 1999.
Management believes that funds generated from operations together with its
cash and cash equivalents will be sufficient to meet the Company's normal
operating requirements for the next 12 months. If these funds prove to be
insufficient, or if new opportunities require the Company to supplement its
financial resources, the Company may use established credit lines with its
corporate bankers or pursue other sources of financing; however, there can be no
assurance other sources of financing will be available at commercially viable
terms, if at all.
On July 2, 1999, the Company completed the acquisition of Harris Imaging
Technology Group (ITG), a photomask manufacturer located in Melbourne, Florida.
Under the terms of the asset purchase agreement, the purchase price paid by the
Company was $13,525,000, including $275,000 in acquisition expenses. The Company
borrowed the necessary funds from its existing lines-of-credit and has received
a commitment from the related bank to increase its lines-of-credit from $25
million to $35 million.
On September 15, 1999, the Company and Photronics, Inc., a Connecticut
corporation ("Photronics"), announced that they had signed an Agreement and Plan
of Merger (the "Merger Agreement") pursuant to which a wholly owned subsidiary
of Photronics will merge with and into Align-Rite, with Align-Rite to be the
survivor and to be a wholly owned subsidiary of Photronics.
Pursuant to the terms of the Merger Agreement, each outstanding share of
Align-Rite's common stock will be converted in to a number of shares of
Photronics common stock determined by dividing $23.09 by the average of the
daily average per share high and low sales prices of one share of Photronics
common stock as reported on Nasdaq for each of the 20 trading days ending three
days prior to Align-Rite's shareholder meeting provided, however, that (i) if
the average of Photronics share price during such 20-day trading period is less
than $21.00, the conversion rate will be 1.0995 and (ii) if the average
Photronics share price during such 20-day trading period is greater than $28.25,
the conversion rate will be 0.8173. Align-Rite may terminate the Merger
Agreement if the average Photronics share price during such 20-day trading
period is less than $16.00.
The transaction is subject to the approval of both Photronics and
Align-Rite shareholders. The transaction is also subject to various regulatory
and closing conditions, including compliance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. Certain of the major
shareholders of Align-Rite owning an aggregate of approximately 14.5% of the
total number of outstanding shares of Align-Rite common stock have entered into
voting agreements with Photronics pursuant to which such shareholders have
agreed, among other things, to vote or cause to be voted their shares of
Align-Rite common stock in favor of the transaction. A major shareholder of
Photronics owning an aggregate of approximately 12.3% of the total number of
outstanding shares of Photronics common stock has entered into a voting
agreement with Align-Rite pursuant to which such shareholder has agreed, among
other things, to vote or cause to be voted his shares of Photronics common stock
in favor of the transaction.
11
<PAGE> 12
READINESS FOR YEAR 2000
Background. As the year 2000 approaches, a critical issue has emerged
regarding how existing applications software programs, operating systems and
embedded computer chips can accommodate the year 2000 date value. The Company
has a year 2000 project team in place with overall responsibility for the
company's year 2000 compliance programs. In addition, executive management
regularly monitors the status of the Company's year 2000 remediation plans.
Project. The Company has identified potential year 2000 risks in four
categories; Software Information Systems Manufacturing Engineering facilities;
internal business software and information technology systems; systems other
than information technology systems ("Not-IT systems"); and third-party
suppliers to the Company. The Company's year 2000 project includes the following
phases for the first three categories above: (1) identifying year 2000 risks;
(2) assigning priorities to identified risks; (3) testing year 2000 compliance
for risks determined to be material to the Company; (4) correcting problems
determined to be material and not year 2000 compliant; (5) retesting corrections
that have been implemented; and (6) developing contingency plans. With respect
to the Company's third-party suppliers, the Company's year 2000 project consists
of the following phases: (1) contacting critical suppliers for information
concerning their year 2000 readiness; (2) prioritizing suppliers as to relative
importance; (3) validating supplier responses regarding year 2000 compliance.
Assessment. The product that the Company sells to customers consists of no
date related issues; therefore, the Company believes that its current product
offerings are year 2000 compliant.
Internal business software and systems consist primarily of the Company's
business information systems in the United States and Europe. The Company
believes that its internal business software and systems will be year 2000
compliant. However, if the Company's business systems are not year 2000
compliant, the Company could experience interruptions to its production process,
development programs and general business operations. The Company has been
advised by the suppliers of its manufacturing equipment, which consist primarily
of microlithography writing tools, process and inspection tools in the various
buildings the Company occupies, that such systems are year 2000 compliant.
Third-party suppliers provide raw materials and in some cases, manufacturing
services incorporated by the Company into the products and systems it sells. The
Company is requiring that each of its key suppliers certify whether they are
year 2000 compliant. The Company has also prioritized its suppliers as critical
or non-critical to the Company's business. Based on information received from
these suppliers, the Company estimates that approximately 90% of its critical
suppliers are presently year 2000 compliant. The Company plans to monitor its
critical suppliers and either develop alternate sources or increase inventory
levels prior to the year 2000 for those suppliers considered to be at risk of
not achieving year 2000 compliance. However, there can be no assurance that such
alternate sources will be available or that adequate inventory levels will be
attainable if necessary, and the Company could experience raw materials and or
parts shortages and production interruptions if one or more key third-party
suppliers experience year 2000 problems.
Costs. Incremental costs of the Company's year 2000 project have primarily
consisted of upgrades to the Company's existing manufacturing and inspection
equipment. Such costs in the aggregate have not been material to the Company's
financial position, results of operations or cash flows. The balance of the
effort for the Company's year 2000 project has been by employees of the Company
whose costs for this project are not tracked separately.
Risks. The Company's results of operations, financial condition and cash
flows could be materially and adversely affected if the Company or any of its
critical suppliers or customers do not achieve year 2000 compliance. Although
the Company's year 2000 compliance project is expected to minimize the Company's
risks of experiencing a year 2000 problem, inherent risks and uncertainties
exist despite the Company's efforts. There can be no assurance that a failure on
the part of the Company, its products, its suppliers or its customers will not
be disruptive to the Company's business. As a result of these uncertainties the
Company is unable to determine at this time whether the consequences of year
2000 failures will have a material effect on the Company's results of
operations, financial condition or cash flows.
12
<PAGE> 13
FOREIGN OPERATIONS AND INFLATION
Foreign operations are subject to certain risks inherent to conducting
business abroad, including product prices and currency exchange controls,
fluctuation in the relative value of currencies and restrictive governmental
actions. Changes in the relative value of currencies occur from time to time and
may, in certain instances, have a material adverse effect on the Company's
results of operations and cash flows. The Company does not hedge foreign
currency risks, and the effects of these risks are difficult to predict. The
risks associated with foreign operations have not, to date, had a material
adverse impact on the Company's results of operations and cash flows. There can,
however, be no assurance that such risks will not have a material adverse effect
on the Company's financial position, results of operations and cash flows in the
future.
The effects of inflation are experienced by the Company through increases
in cost of labor, services and raw materials. In general, these costs have been
anticipated and were offset by some degree by periodic increases in the prices
of its products or higher manufacturing capacity utilization rates. The Company
does not believe, however, that inflation has had a material effect on its
results of operations in the past. There can be no assurance that the Company's
financial positions, results of operations and cash flows will not be materially
affected by inflationary trends in the future.
Euro Conversion. A single currency called the euro was introduced in Europe
on January 1, 1999. Eleven of the fifteen member countries of the European Union
("EU") adopted the euro as their common legal currently as of that date. Fixed
conversion rates between these participating countries' existing currencies (the
"legacy currencies") and the euro were established as of that date. The legacy
currencies will remain legal tender as denominations of the euro until at least
2002 (but not later than July 1, 2002). During this transition period, parties
may settle transactions using either the euro or the participating country's
legal currency.
The Company is still in the process of evaluating the effect, if any, of
the euro on its pricing of products in the eleven participating countries. The
Company does not expect a material impact on its results of operations from
foreign currency gains or losses as a result of its transition to the euro as
the functional currency for its subsidiaries based in EU countries.
SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
In addition to historical information, this report includes certain
forward-looking statements regarding events and financial and industry trends
which may affect the Company's future operating results and financial position.
Such statements include, but are not limited to, statements as to: (i) the
Company's belief that its gross profit will fluctuate based upon the timing of
equipment purchases; (ii) the Company's belief that selling, general and
administrative costs as a percentage of sales should remain consistent; (iii)
the Company's belief that R&D expenses will continue to increase as a percentage
of sales; (iv) the sufficiency of funds to meet the Company's normal operating
requirements over the next 12 months; and (v) the Company's belief regarding
year 2000 compliance of its internal business software and systems and its
current product offerings. Such statements represent the Company's reasonable
judgment concerning the future and are subject to risks and uncertainties that
could cause the Company's actual operating results and financial position to
differ materially. Such risks and uncertainties include but are not limited to:
adverse economic conditions in the Company's markets which could adversely
affect the level of demand for the Company's products, failure of the Company to
anticipate, respond to or utilize changing technologies used in production of
photomasks; greater than anticipated levels of competition and competitive
pricing, manufacturing difficulties or capacity limitations; shortage of raw
materials; delays in delivery of recently purchased manufacturing equipment to
the Company; greater than anticipated capital investment requirements; and
currency fluctuations or changes in political conditions with respect to the
Company's foreign operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to "Quantitative and Qualitative Disclosures about Market
Risk" section of the Company's Annual Report on Form 10-K for the year ended
March 31, 1999.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<S> <C>
11.1 Statement regarding computation of Net Income per common
share.
27 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K.
On July 16, 1999, Align-Rite International, Inc., filed a report on Form
8-K relating to the acquisition of the business and certain assets from Harris
Corporation on July 2, 1999, as presented in the press releases dated May 4,
1999 and July 8, 1999.
On September 27, 1999, Align-Rite International, Inc., filed a report on
Form 8-K relating to the Agreement and Plan of Merger with Photronics, Inc., a
Connecticut corporation as presented in a press release of September 15, 1999.
14
<PAGE> 15
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.
Date: ALIGN-RITE INTERNATIONAL, INC.
James Mac Donald
Chairman of the Board, President &
Chief Executive Director
Petar Katurich
Vice President of Finance,
Chief Financial Officer & Secretary
15
<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
ALIGN-RITE INTERNATIONAL, INC.
The following table provides a reconciliation of the numerator and
denominators of the basic and diluted per-share computations for the three and
six months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
For the Three Months Ended September 30, 1999:
Basic EPS.............................................. $ 965,000 4,637,000 $0.21
Effect of dilutive securities:
Stock Options..................................... -- 282,000
---------- --------- -----
Diluted EPS.......................................... $ 965,000 4,919,000 $0.20
========== ========= =====
For the Three Months Ended September 30, 1998:
Basic EPS............................................ $1,811,000 4,480,000 $0.40
Effect of dilutive securities:
Stock Options..................................... -- 382,000
---------- --------- -----
Diluted EPS.......................................... $1,811,000 4,862,000 $0.37
========== ========= =====
</TABLE>
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
For the Six Months Ended September 30, 1999:
Basic EPS.............................................. $2,072,000 4,591,000 $0.45
Effective of dilutive securities:
Stock Options..................................... -- 308,000
---------- --------- -----
Diluted EPS.......................................... $2,072,000 4,899,000 $0.42
========== ========= =====
For the Six Months Ended September 30, 1998:
Basic EPS............................................ $3,596,000 4,473,000 $0.80
Effective of dilutive securities:
Stock Options..................................... -- 396,000
---------- --------- -----
Diluted EPS.......................................... $3,596,000 4,869,000 $0.74
========== ========= =====
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,846
<SECURITIES> 0
<RECEIVABLES> 9,606
<ALLOWANCES> 0
<INVENTORY> 3,556
<CURRENT-ASSETS> 21,507
<PP&E> 65,987
<DEPRECIATION> 3,888
<TOTAL-ASSETS> 96,653
<CURRENT-LIABILITIES> 12,514
<BONDS> 0
0
0
<COMMON> 47
<OTHER-SE> 46,383
<TOTAL-LIABILITY-AND-EQUITY> 96,653
<SALES> 28,934
<TOTAL-REVENUES> 28,934
<CGS> 19,963
<TOTAL-COSTS> 8,971
<OTHER-EXPENSES> 5,355
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (378)
<INCOME-PRETAX> 3,238
<INCOME-TAX> 1,166
<INCOME-CONTINUING> 2,072
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,072
<EPS-BASIC> 0.45<F1>
<EPS-DILUTED> 0.42
<FN>
<F1>FOR THE PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
