SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ......July 31, 1996.......
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from................. to ................
Commission file number...0-15451...
...PHOTRONICS, INC....
(Exact name of registrant as specified in its charter)
...Connecticut... ...06-0854886...
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
......1061 East Indiantown Road, Jupiter, FL...... ..33477..
(Address of principal executive offices) (Zip Code)
...(561) 745-1222...
(Registrant's telephone number, including area code)
...............................................................
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ..X.. No .....
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at July 31, 1996
Common Stock, $.01 par value 11,810,777 Shares
PHOTRONICS, INC.
AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at July 31
1996 (unaudited) and October 31, 1995 3-4
Condensed Consolidated Statement of Earnings
for the three and nine months ended July 31,
1996 and 1995 (unaudited) 5
Condensed Consolidated Statement of Cash Flows
for the nine months ended July 31,
1996 and 1995 (unaudited) 6
Notes to Condensed Consolidated Financial
Statements (unaudited) 7
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 8-11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(dollars in thousands)
ASSETS
July 31, October 31,
1996 1995
----------- -----------
(Unaudited)
Current assets:
Cash, cash equivalents and
short-term investments $ 26,967 $ 51,865
Accounts receivable (less allowance
for doubtful accounts of $195 in
1996 and 1995) 25,246 17,857
Inventories 7,899 6,357
Other current assets 4,914 3,380
-------- --------
Total current assets 65,026 79,459
Property, plant and equipment (less
accumulated depreciation of $49,523
in 1996 and $40,917 in 1995) 112,252 72,063
Intangible assets (less accumulated
amortization of $2,950 in 1996
and $2,156 in 1995) 9,530 10,289
Investments and other assets 13,382 12,407
-------- --------
$200,190 $174,218
======== ========
See accompanying notes to condensed consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(dollars in thousands, except per share amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY
July 31, October 31,
1996 1995
----------- -----------
(Unaudited)
Current liabilities:
Current portion of long-term debt $ 38 $ 36
Accounts payable 27,705 17,850
Accrued liabilities 11,556 11,920
-------- --------
Total current liabilities 39,299 29,806
Long-term debt 1,781 1,809
Deferred income taxes and other liabilities 9,023 8,558
-------- --------
Total liabilities 50,103 40,173
-------- --------
Commitments and contingencies - -
Shareholders' equity:
Preferred stock, $0.01 par value,
2,000,000 shares authorized,
none issued and outstanding - -
Common stock, $0.01 par value,
20,000,000 shares authorized,
11,947,277 shares issued in 1996
and 11,758,292 shares issued in 1995 119 118
Additional paid-in capital 77,356 75,083
Retained earnings 68,401 52,970
Unrealized gains on investments,
net of income taxes 4,662 6,471
Other (451) (597)
-------- ---------
Total shareholders' equity 150,087 134,045
-------- --------
$200,190 $174,218
======== ========
See accompanying notes to condensed consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Earnings
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ -----------------
1996 1995 1996 1995
-------- -------- -------- --------
Net sales $42,677 $32,854 $117,859 $89,067
Costs and expenses:
Cost of sales 26,249 20,015 72,312 54,854
Selling, general and administrative 5,587 4,489 15,619 12,136
Research and development 2,218 3,177 6,166 6,120
------- ------- -------- -------
Operating income 8,623 5,173 23,762 15,957
Interest and other income, net 290 5,187 1,169 5,700
------- ------- -------- -------
Income before income taxes 8,913 10,360 24,931 21,657
Provision for income taxes 3,400 3,900 9,500 8,110
------- ------- -------- -------
Net income $ 5,513 $ 6,460 $ 15,431 $13,547
======= ======= ======== =======
Net income per common share $0.46 $0.54 $1.28 $1.24
===== ===== ===== =====
Weighted average number of
common shares outstanding 12,111 11,945 12,072 10,905
====== ====== ====== ======
See accompanying notes to condensed consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(in thousands)
(Unaudited)
Nine Months Ended
July 31,
--------------------
1996 1995
------- -------
Cash flows from operating activities:
Net income $15,431 $13,547
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,400 7,270
Other (1,142) (3,347)
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable (7,389) (7,863)
Inventories (1,159) (1,832)
Other current assets (104) 739
Accounts payable and accrued liabilities 9,491 13,069
------- -------
Net cash provided by operating activities 24,528 21,583
------- -------
Cash flows from investing activities:
Acquisitions of and investments in
photomask operations (12,396) (10,468)
Deposits on and purchases of property,
plant and equipment (40,834) (20,942)
Net change in short-term investments 13,961 (5,444)
Proceeds from sale of investments - 5,750
Other 1,556 (14)
------- -------
Net cash used in investing activities (37,713) (31,118)
------- -------
Cash flows from financing activities:
Repayment of long-term debt (26) (431)
Net proceeds from issuance of common stock 2,274 31,457
------- -------
Net cash provided by financing activities 2,248 31,026
------- -------
Net increase (decrease) in cash and
cash equivalents (10,937) 21,491
Cash and cash equivalents at beginning of period 35,644 25,092
------- -------
Cash and cash equivalents at end of period $24,707 $46,583
======= =======
Cash paid during the period for:
Interest $24 $32
Income taxes $9,857 $6,684
See accompanying notes to condensed consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Three and Nine Months Ended July 31, 1996
(Unaudited)
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements of the Company included
herein have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission and, in the
opinion of management, reflect all adjustments which are necessary
to present fairly the results for the three and nine-month periods
ended July 31, 1996 and 1995. Interim financial data presented
herein are unaudited. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations; however,
management believes that the disclosures are adequate to make the
information presented not misleading. This report should be read
in conjunction with the consolidated financial statements and
footnotes as of October 31, 1995, which give a complete discussion
of these matters.
NOTE 2 - ACQUISITION OF PHOTOMASK OPERATIONS
On January 24, 1996, the Company acquired the photomask
manufacturing operations and assets of Plessey Semiconductors
Limited ("Plessey"), located in Oldham, United Kingdom, for $4.9
million in cash. In connection with the transaction, the Company
leased the facilities from Plessey previously utilized by them for
the manufacture of photomasks. It is the Company's intention to
relocate the operation to an independent facility in the
Manchester, United Kingdom, area in approximately one year. The
acquisition was accounted for as a purchase and, accordingly, the
acquisition price was allocated to property and equipment based on
relative fair value. The results of the acquired operations are
not material to the Company for the periods presented.
On April 1, 1996, the Company, through its majority-owned
subsidiary, acquired the photomask manufacturing operations and
assets of the Litomask Division ("Litomask") of Centre Suisse
d'Electronique et de Microtechnique S.A. ("CSEM") located in
Neuchatel, Switzerland for $3.4 million in cash. CSEM holds the
remaining interest in this subsidiary and the Company has an option
to acquire CSEM's interest within a two-year period. In connection
with the transaction, the Company leased the facilities and
retained certain services from CSEM previously utilized by
Litomask. The acquisition was accounted for as a purchase and,
accordingly, the acquisition price was allocated to property and
equipment based on relative fair value. The results of the
acquired operations are not material to the Company for the periods
presented.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Material Changes in Results of Operations
Three and Nine Months Ended July 31, 1996 versus July 31, 1995
A portion of the changes in each category of the Company's
results of operations for the three and nine months ended July 31,
1996, as compared to the same periods in the prior fiscal year are
attributable to recent acquisitions, including acquisition of the
photomask manufacturing operations and assets of Plessey
Semiconductors Limited ("Plessey") located in Oldham, United
Kingdom, on January 24, 1996, and the Litomask Division of Centre
Suisse d'Electronique et de Microtechnique S.A. ("Litomask")
located in Neuchatel, Switzerland, on April 1, 1996. Individually,
neither of these acquisitions had a material effect on the results
of operations for the periods presented. In the prior fiscal year,
the Company acquired the photomask manufacturing operations and
assets of Hoya Micro Mask, Inc. in Sunnyvale, California, and
Microphase Laboratories, Inc. ("Microphase") in Colorado Springs,
Colorado, on December 1, 1994 and on June 20, 1995, respectively.
Net sales for the three and nine months ended July 31, 1996,
increased 29.9% to $42.7 million and 32.3% to $117.9 million,
respectively, compared to $32.9 million and $89.1 million for the
same periods in the prior fiscal year. The majority of the growth
was from increased shipments to customers from existing facilities
due to greater manufacturing capacity as the Company executed its
capacity expansion program, and from increased average selling
prices due to the larger proportion of higher technology photomask
shipments in fiscal 1996. A portion of these increases is also
attributable to the European acquisitions, the inclusion of a full
three and nine months of sales for the Company's Colorado facility
and, for the nine-month period, the inclusion of a full nine months
of sales for the Sunnyvale facility. In addition, the increase in
each period included sales increases from the Company's wholly-
owned subsidiary, Beta Squared, Inc. ("Beta Squared").
Cost of sales for the three and nine months ended July 31,
1996, increased 31.1% to $26.2 million and 31.8% to $72.3 million,
respectively, compared to $20.0 million and $54.9 million for the
same periods in the prior fiscal year. These increases resulted
principally from increases in sales volume, including those
resulting from the Company's recent acquisitions. To meet
increased customer demands, the Company has increased its staffing
levels and manufacturing capacity, resulting in, among other
things, increased labor and benefits costs and depreciation
expense. As a percentage of net sales, cost of sales increased
slightly to 61.5% for the three months ended July 31, 1996, but
decreased slightly to 61.4% for the nine-month period, as compared
with 60.9% and 61.6% in the corresponding periods last year.
Improvements from higher capacity utilization of the Company's
installed equipment base and a more favorable mix of complex
photomasks were offset by increased costs resulting from
manufacturing capacity expansion, and lower margins generally at
recently acquired operations and at Beta Squared. The Company
anticipates that its fixed operating costs will increase in
connection with its continuing capacity expansion, including the
commencement of operations at its Allen, Texas, and Singapore
facilities during the last quarter of fiscal 1996. The Company
expects to match these higher costs with continued increases in
revenues.
Selling, general and administrative expenses increased 24.5%
to $5.6 million and 28.7% to $15.6 million for the three and nine
months ended July 31, 1996, compared to $4.5 million and $12.1
million for the same periods in the prior fiscal year. These
increases were primarily due to the addition of the Company's
foreign operations and its Colorado facility and, for the nine-
month period, the inclusion of a full nine months of expenses for
the Company's Sunnyvale facility. In addition, to accommodate the
Company's significant global expansion, the Company increased its
staffing levels and experienced increases in other related costs.
As a percentage of net sales, selling, general and administrative
expenses decreased to 13.1% and 13.3% for the three and nine months
ended July 31, 1996, compared with 13.7% and 13.6% for the same
periods last year.
Research and development expenses decreased 30.2% to $2.2
million for the three months ended July 31, 1996, but increased
0.8% to $6.2 million for the nine-month period, compared to $3.2
million and $6.1 million for the same periods in the prior fiscal
year. During the prior year period, the Company recorded a one-
time charge of $1.5 million in connection with the Microphase
acquisition, representing amounts assigned to certain Microphase
research and development projects, principally for the manufacture
of large area masks, which were expensed upon acquisition.
Excluding this non-recurring charge, research and development
expenses for the three and nine month periods ended July 31, 1996,
increased 31.0% and 33.0%, respectively, compared to the same
periods last year. These increases reflect the expansion of the
Company's research and development organization and the resultant
increase in its development efforts that have focused on new high-
end, more complex photomasks utilizing phase shift, optical
proximity correction and deep ultra-violet technologies. As a
percentage of net sales, excluding the Microphase charge, research
and development expenses remained fairly constant at 5.2% for all
periods presented.
Interest and other income, net, for the three and nine months
ended July 31, 1996, decreased to $290,000 and $1.2 million,
respectively, compared to $5.2 million and $5.7 million for the
same periods in the prior fiscal year principally due to a net gain
of $4.7 million from the sale of an equity investment during the
prior year period. The Company had additional net gains on the
disposition of investments in the first quarter of fiscal 1995.
Interest income for the three months ended July 31, 1996, decreased
to $309,000 compared with $519,000 for the prior year period as
investable funds are utilized to expand manufacturing capacity.
Due to higher levels of funds available for investment during the
nine months ended July 31, 1996, interest income increased to $1.3
million compared with $1.0 million in the prior year's
corresponding period.
For the three and nine months ended July 31, 1996, the Company
provided Federal and state income taxes at an estimated combined
effective annual tax rate of 38.1%, as compared with 37.6% and
37.4% in the same periods for the prior fiscal year. The increase
in the Company's estimated tax rate primarily is the result of a
larger portion of income being subject to the 35% incremental
Federal income tax rate and a decrease in estimated tax-exempt
investment income for the current fiscal year.
Excluding the non-recurring research and development charge
and net gains from the sale of equity investments in the third
quarter of fiscal 1995 which increased prior year net income by
approximately $2 million, or $0.16 per share, net income for the
three and nine months ended July 31, 1996, increased 23.0% to $5.5
million, or $0.46 per share, and 33.4% to $15.4 million, or $1.28
per share, compared with $4.5 million, or $0.38 per share, and
$11.6 million, or $1.08 per share, for the corresponding prior year
periods. The weighted average number of common shares outstanding
increased to 12.1 million for the three and nine months ended July
31, 1996, from 11.9 million and 10.9 million for the same periods
last year principally as a result of the public offering of 1.5
million shares in April and May 1995, and the issuance of
approximately 100,000 shares in connection with the Microphase
acquisition in June 1995.
Liquidity and Capital Resources
The Company's cash, cash equivalents and short-term
investments decreased $24.9 million during the nine months ended
July 31, 1996, largely as a result of funding $40.8 million of
capital expenditures for building construction and equipment in
connection with the Company's expansion of manufacturing capacity
and $12.5 million for the acquisitions of the photomask
manufacturing operations of Plessey and Litomask, and the
investment in PK Limited, a photomask manufacturer in Korea.
Offsetting these decreases were cash provided by operating
activities totaling $24.5 million, $2.3 million from sales of stock
under employee stock option and purchase plans and $1.3 million of
financial assistance to be utilized for the Company's new
Manchester, United Kingdom, operation.
Accounts receivable increased to $25.2 million at July 31,
1996, from $17.9 million at October 31, 1995, primarily as a
result of higher sales levels, including sales by the new European
operations. Inventories increased to $7.9 million at July 31,
1996, from $6.4 million at October 31, 1995, primarily due to
general increases to accommodate the escalating sales volume and
the addition of the European facilities. Other current assets
increased to $4.9 million at July 31, 1996, from $3.4 million at
October 31, 1995, primarily due to an increase in prepaid income
taxes and other expenses.
Property, plant and equipment increased to $112.3 million at
July 31, 1996, from $72.1 million at October 31, 1995. Deposits
on and purchases of equipment and construction in progress on the
new Allen, Texas, and Singapore plants totaled $40.8 million and
fixed assets totaling $8.1 million were acquired in connection with
the Plessey and Litomask acquisitions. These increases were offset
by depreciation expense totaling $8.6 million. Intangible assets
decreased to $9.5 million at July 31, 1996, from $10.3 million at
October 31, 1995, due to amortization expense.
Investments and other assets increased to $13.4 million at
July 31, 1996, from $12.4 million at October 31, 1995, due to the
Company's investment in PK Limited, offset by a decrease in the
fair values of the Company's available-for-sale investments during
the period.
Accounts payable increased to $27.7 million at July 31, 1996,
from $17.9 million at October 31, 1995, primarily due to increased
payables related to recent major equipment purchases, the addition
of the European operations and a higher level of raw materials
purchases due to growing production needs. Accrued liabilities
decreased to $11.6 million at July 31, 1996, from $11.9 million at
October 31, 1995. This decrease is largely attributable to
payments of prior year incentive compensation accruals, employee
withholding taxes from stock option exercises as of October 31,
1995 and a lower sales and use tax liability because of timing
differences in settlement of the scheduled payments, offset by
provisions for current year incentive compensation.
There was no significant change in long-term debt balances
during the period. Deferred income taxes and other liabilities
increased to $9.0 million at July 31, 1996, from $8.6 million at
October 31, 1995, principally due to financial assistance received
in connection with the Company's new Manchester, United Kingdom,
operations and minority interest associated with the Company's
Swiss subsidiary, offset by a reduction in deferred income taxes on
unrealized gains on investments.
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, more complex photomasks. At July 31, 1996, the
Company had commitments outstanding for capital expenditures of
approximately $51 million, including commitments for new facilities
in Manchester, Singapore and Texas. Additional commitments are
expected to be incurred during the current fiscal year.
The Company will use its working capital, bank credit lines
and leasing arrangements to finance its capital expenditures. 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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter for which this report is filed, no
report on Form 8-K was filed by the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PHOTRONICS, INC.
(Registrant)
By:______ROBERT J. BOLLO_________
Robert J. Bollo
Vice President/Finance
(Duly Authorized Officer and
Principal Financial Officer)
Date: September 13, 1996
FORMS\10Q796/p
5
1,000
9-MOS
OCT-31-1996
JUL-31-1996
24,707
2,260
25,441
195
7,899
4,914
161,303
49,051
200,190
39,302
1,781
119
0
0
149,968
200,190
117,859
117,859
72,312
72,312
0
0
36
24,931
9,500
15,431
0
0
0
15,431
1.28
0
