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 ......August 3, 1997.........
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 August 3, 1997
Common Stock, $.01 par value 11,960,952 Shares
PHOTRONICS, INC.
AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
at August 3, 1997 (unaudited) and
October 31, 1996 3-4
Condensed Consolidated Statement of
Earnings for the Three and Nine Months
Ended August 3, 1997 and July 31,
1996 (unaudited) 5
Condensed Consolidated Statement of
Cash Flows for the Nine Months Ended
August 3, 1997 and July 31, 1996
(unaudited) 6
Notes to Condensed Consolidated
Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 8-12
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
August 3, October 31,
1997 1996
----------- -----------
(Unaudited)
Current assets:
Cash, cash equivalents and
short-term investments $ 93,678 $ 26,684
Accounts receivable (less allowance
for doubtful accounts of $235 in
1997 and 1996) 33,758 24,750
Inventories 9,421 7,992
Other current assets 6,093 6,154
-------- --------
Total current assets 142,950 65,580
Property, plant and equipment
(less accumulated depreciation of
$66,595 in 1997 and $52,740 in 1996) 170,668 123,666
Intangible assets (less accumulated
amortization of $3,777 in 1997
and $3,256 in 1996) 8,483 9,305
Investments and other assets 15,508 13,352
-------- --------
$337,609 $211,903
======== ========
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(dollars in thousands, except per share amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY
August 3, October 31,
1997 1996
----------- -----------
(Unaudited)
Current liabilities:
Current portion of long-term debt $ 40 $ 38
Accounts payable 24,044 34,168
Accrued salaries and wages 7,181 5,561
Other accrued liabilities 9,050 4,200
-------- --------
Total current liabilities 40,315 43,967
Long-term debt 106,412 1,987
Deferred income taxes and other liabilities 13,616 9,532
-------- --------
Total liabilities 160,343 55,486
-------- --------
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,
11,960,952 shares issued in 1997
and 11,973,290 shares in 1996 120 120
Additional paid-in capital 82,047 77,833
Retained earnings 92,321 73,973
Unrealized gains on investments 3,923 4,678
Treasury stock, 136,500 shares
at cost - (245)
Cumulative foreign currency
translation adjustment (896) 58
Deferred compensation on restricted stock (249) -
-------- --------
Total shareholders' equity 177,266 156,417
-------- --------
$337,609 $211,903
======== ========
See accompanying notes to 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
-------------------- --------------------
August 3, July 31, August 3, July 31,
1997 1996 1997 1996
--------- --------- --------- ---------
Net sales $53,081 $42,677 $142,144 $117,859
Costs and expenses:
Cost of sales 32,420 26,249 88,050 72,312
Selling, general and
administrative 6,671 5,587 17,950 15,619
Research and development 2,788 2,218 7,712 6,166
------- ------- -------- --------
Operating income 11,202 8,623 28,432 23,762
Interest and other income
(expense), net (263) 290 1,116 1,169
------- ------- ------- --------
Income before income taxes 10,939 8,913 29,548 24,931
Provision for income taxes 4,100 3,400 11,200 9,500
------- ------- ------- --------
Net income $ 6,839 $ 5,513 $18,348 $ 15,431
======= ======= ======= ========
Net income per common share $0.55 $0.46 $1.48 $1.28
===== ===== ===== =====
Weighted average number of
common shares outstanding 12,509 12,111 12,403 12,072
====== ====== ====== ======
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(in thousands)
(Unaudited)
Nine Months Ended
---------------------
August 3, July 31,
1997 1996
--------- --------
Cash flows from operating activities:
Net income $18,348 $15,431
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15,142 9,400
Gain on disposition of investments (1,308) -
Other 724 (1,142)
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable (9,008) (7,389)
Inventories (1,429) (1,159)
Other current assets 61 (104)
Accounts payable and other liabilities (380) 9,491
------- -------
Net cash provided by operating activities 22,150 24,528
------- -------
Cash flows from investing activities:
Acquisition of photomask operations (1,065) (12,396)
Deposits on and purchases of property,
plant and equipment (57,416) (40,834)
Net change in short-term investments (20,440) 13,961
Proceeds from sale of investments 1,658 -
Other (875) 1,556
------- -------
Net cash used in investing activities (78,138) (37,713)
------- -------
Cash flows from financing activities:
Repayment of long-term debt (28) (26)
Issuance of subordinated notes, net
of $3,803 financing costs 99,697 -
Proceeds from and tax effects of
exercise of stock options and other 2,873 2,274
------- -------
Net cash provided by financing activities 102,542 2,248
------- -------
Net increase (decrease) in cash
and cash equivalents 46,554 (10,937)
Cash and cash equivalents at beginning of period 18,766 35,644
------- -------
Cash and cash equivalents at end of period $65,320 $24,707
======= =======
Cash paid during the period for:
Interest $157 $ 24
Income taxes $6,981 $9,857
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Three and Nine Months Ended August 3, 1997
(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 August 3, 1997 and July 31,
1996. 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, 1996, which give a complete discussion of
these matters.
The Company adopted a fifty-two (52) week fiscal year beginning in the
first quarter of 1997.
NOTE 2 - 6% CONVERTIBLE SUBORDINATED NOTES DUE JUNE 1, 2004
On May 29, 1997, the Company sold $103.5 million of convertible
subordinated notes, due in 2004, in a public offering. The notes bear
interest at 6% per annum and are convertible at any time by the holders
into 1.85 million shares of the Company's common stock, at a conversion
price of $55.94 per share. The notes are redeemable at the Company's
option, in whole or in part, at any time after June 1, 2000 at certain
premiums decreasing through the maturity date. Interest is payable semi-
annually commencing December 1, 1997.
NOTE 3 - ACQUISITION OF MZD
On June 26, 1997, the Company acquired all of the outstanding shares of
MZD Maskenzentrum fur Mikrostrukturierung Dresden GmbH (MZD), an
independent photomask manufacturer located in Dresden, Germany, for $3.1
million in cash and common shares of the Company. The acquisition was
accounted for as a purchase and, accordingly, the acquisition price was
allocated to property and equipment based on relative fair value. The
results of MZD were not material to the Company for the periods
presented.
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition
Three and Nine Months ended August 3, 1997 versus July 31, 1996
OVERVIEW
Photronics established its first operations outside of the United
States beginning in fiscal 1996, by acquiring two European operations,
opening a new manufacturing facility in Singapore and acquiring a
minority interest in an independent photomask manufacturer in Korea. In
addition, during the third quarter of 1997 the Company acquired MZD
Maskenzentrum fur Mikrostrukturierung Dresden GmbH (MZD), an independent
photomask manufacturer in Dresden, Germany. These facilities, together
with the Company's five U.S. facilities, comprise a global manufacturing
network of ten facilities supporting semiconductor fabricators in the
Asian, European and North American markets. As a result, revenues from
foreign markets increased in the first nine months of 1997, compared with
the first nine months of 1996, and that trend is expected to continue.
Revenues and costs also have been affected by the increased demand
for higher technology photomasks which have higher average selling
prices. To meet this demand and position the Company for future growth,
the Company continues to make substantial investments in high-end
manufacturing technology and capacity both at existing and new
facilities. In addition to the Singapore facility, the Company completed
construction of its new state-of-the-art facility in Allen, Texas, to
which it relocated its Dallas, Texas, operation in the fourth quarter of
fiscal 1996. The Company currently has two new manufacturing facilities
under construction, one in Manchester, U.K., to which the existing
Oldham, U.K. operation is currently being relocated, and a new
manufacturing facility near Austin, Texas, which the Company expects will
be operational in late 1997. In addition, the Company has announced its
plans to break ground during the fourth quarter of 1997 for a new
facility in Hillsboro, Oregon, which it expects to be operational in late
1998.
RESULTS OF OPERATIONS
Net Sales:
Net sales for the three and nine months ended August 3, 1997
increased 24.4% to $53.1 million and 20.6% to $142.1 million,
respectively, compared with $42.7 million and $117.9 million for the
corresponding prior year periods. Sales from Photronics' new
international manufacturing operations accounted for nearly one-half of
the 1997 year-to-date increase. The remaining portion of the growth
resulted from increased shipments to customers from existing facilities
due to stronger high-end product demand and the availability of greater
advanced manufacturing capability, reflecting the implementation of the
Company's capacity expansion program.
Cost of Sales:
Gross profit for the three and nine months ended August 3, 1997,
increased 25.8% to $20.7 million, and 18.8% to $54.1 million,
respectively, compared with $16.4 million and $45.5 million for the same
periods in the prior fiscal year. Gross margins increased to 38.9% for
the three months ended August 3, 1997, compared with 38.5% in the third
quarter of 1996. The increase in gross margins resulted principally from
a higher capacity utilization of the Company's installed equipment base,
resulting in better absorption of costs from the Company's new
manufacturing capacity and comparatively better margins in Europe and at
Beta Squared. Year-to-date gross margins, however, were lower than in the
previous year. Gross margins for the first nine months of 1997 amounted
to 38.1% of sales whereas the gross margins for the same period in the
prior year were 38.6%. Favorable margins resulting from a higher
capacity utilization and a more favorable mix of higher-end products were
offset by the cost of the Company's expanded manufacturing base, which
was still in the process of ramping-up to higher levels of utilization
earlier in the year, and the inclusion of international operations which
generated margins below those generally experienced in the Company's
domestic operations. In addition, margins were lower at the Company's
Beta Squared subsidiary. To allow for increased manufacturing
capability, the Company has continued to increase its staffing levels and
added to its manufacturing systems, resulting in higher labor and
equipment-related costs, including depreciation expense. The Company
anticipates that its fixed operating costs will increase in connection
with its continuing capacity expansion which it expects to offset with
increases in net sales.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses increased 19.4% to $6.7
million and 14.9% to $18.0 million, respectively, for the three and nine
months ended August 3, 1997, compared with $5.6 million and $15.6 million
for the same periods in the prior fiscal year. However, as a percentage
of net sales, selling, general and administrative expenses decreased to
12.6% for the three and nine months ended August 3, 1997, compared with
13.1% and 13.3% for the same periods in the prior fiscal year. The
increases in costs resulted from the addition of the new international
operations, as well as increased staffing and other costs associated with
the Company's expansion domestically.
Research and Development:
Research and development expenses for the three and nine months
ended August 3, 1997, increased 25.7% to $2.8 million and 25.1% to $7.7
million, respectively, compared with $2.2 million and $6.2 million for
the same periods in the prior fiscal year. These increases reflect
continued engineering on more complex photomasks, including phase shift,
optical proximity correction and deep ultra-violet technologies, as well
as on Beta Squared's development of PLASMAX. As a percentage of net
sales, research and development expenses increased to 5.3% and 5.4% for
the three and nine months ended August 3, 1997, respectively, compared
with 5.2% in each of the corresponding prior fiscal periods.
Other Income:
Other income and expense decreased $0.6 million in the third quarter
of 1997, principally as a result of interest expense on borrowings,
including interest on the newly issued convertible notes. Interest and
other income and expense, net, for the nine months ended August 3, 1997,
was approximately the same as the prior fiscal year. However, the 1997
period included a $1.3 million gain from the sale of investment
securities, offset by an increase in net interest expense resulting from
borrowings and lower levels of funds available for investment, whereas
the 1996 period consisted principally of interest income.
Net Income:
Net income for the three and nine months ended August 3, 1997,
increased 24.1% to $6.8 million, or $0.55 per share, and 18.9% to $18.3
million, or $1.48 per share, respectively, compared with $5.5 million, or
$0.46 per share and $15.4 million, or $1.28 per share, for the same
periods in the prior fiscal year. Net income in the first nine months of
1997 included $0.8 million, or $0.06 per share, from the gain on the sale
of investment securities. The weighted average number of common shares
outstanding increased to 12.5 million and 12.4 million for the three and
nine months ended August 3, 1997, from 12.1 million for each of the
periods in the prior fiscal year principally as a result of the issuance
of shares in connection with employee stock option exercises.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments
increased $67.0 million during the first nine months of fiscal 1997,
largely as a result of $100 million of proceeds from the sale, during the
third quarter, of a new issue of convertible subordinated notes.
Offsetting this increase were $58.5 million of capital expenditures for
building construction and equipment purchases in connection with the
Company's expansion of manufacturing capacity, together with the
acquisition of MZD in Dresden, Germany. Other increases in cash during
the first nine months of 1997, included proceeds from the sale of
investments of $1.6 million and $2.9 million from sales of stock under
the employee stock option and purchase plans.
Accounts receivable increased 36% to $33.8 million at August 3, 1997
from $24.8 million at October 31, 1996, primarily as a result of higher
order activity over the course of the third quarter of 1997, and sales by
the new foreign operations. Inventories increased $1.4 million, or 17.9%
from October 1996 to $9.4 million at August 3, 1997, as a result of the
purchase in 1997 of several machines for refurbishment and resale by Beta
Squared.
Property, plant and equipment increased to $170.7 million at August
3, 1997, from $123.7 million at October 31, 1996. Deposits on and
purchases of equipment and construction in progress on new facilities
aggregated $57.4 million during the nine months ended August 3, 1997.
These increases were offset by depreciation expense totaling $14.4
million in the first nine months of fiscal 1997. The decrease in
intangible assets from $9.3 million at October 31, 1996 to $8.5 million
at August 4, 1997, was due primarily to amortization expense during the
period.
Investments and other assets increased from $13.4 million at October
31, 1996 to $15.5 million at August 3, 1997 due to the deferral of
certain costs and fees incurred in connection with the convertible notes
offering as well as the net increase in the fair value of investment
securities during the period. These increases were offset by the sale of
certain investment securities.
Accounts payable decreased $10.1 million from October 31, 1996 to
$24.0 million at August 3, 1997, due to payments made of unusually high
payables at October 31, 1996 which had resulted from the acceptance of
significant equipment purchases at the end of fiscal 1996. Accrued
salaries and wages and other accrued liabilities increased to $16.2
million at August 3, 1997 from $9.8 million at October 31, 1996, largely
as a result of fiscal 1997 accruals, including incentive compensation and
timing of other expenses.
During the third quarter of fiscal 1997, the Company sold $103.5
million of convertible subordinated notes, due in 2004, in a public
offering. The notes bear interest at 6% per annum and are convertible
into 1.85 million shares of the Company's common stock. The Company
received the proceeds, net of the underwriting discounts and costs, of
$100 million on May 29, 1997, and repaid $15 million outstanding under
its revolving credit facility. Other changes in long-term debt were due
to the imputation of interest on the obligation incurred in connection
with the Micro Mask acquisition. Deferred income taxes and other
liabilities increased from $9.5 million at October 31, 1996, to $13.6
million at August 3, 1997, largely due to increases in deferred income
taxes on unrealized gains on investments and amounts due in the future in
connection with the acquisition of MZD.
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 August 3, 1997, the Company had commitments
outstanding for capital expenditures of approximately $70 million.
Additional commitments are expected to be incurred during 1997.
The Company has amended its revolving credit facility to permit
borrowings of up to $30.0 million at any time through October 31, 1998.
All amounts outstanding at October 31, 1998 will be due and payable on
such date. 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.
EFFECT OF NEW ACCOUNTING STANDARD
In February, 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings per Share", which establishes new standards for the computation
and disclosure of earnings per share ("EPS"). The new statement requires
dual presentation of "basic" EPS and "diluted" EPS. Basic EPS is based
on the weighted average number of common shares outstanding for the
period, excluding any dilutive common share equivalents. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted. The Company
cannot adopt SFAS 128 until the first quarter of fiscal year 1998. The
effect of SFAS 128, had it been adopted beginning in fiscal year 1996,
would have been to present basic EPS that would have been greater than
EPS actually reported by $0.01 for the third quarter of 1996 and $0.02
for the third quarter of 1997, and by $0.04 for the first nine months of
1996 and $0.06 for the first nine months of 1997. The presentation of
diluted EPS would have been the same as EPS actually reported for the
respective periods.
In June, 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income", and SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information". Both of these statements
establish new standards for financial statement reporting and disclosure
of certain information. Neither of the new statements is expected to
have a material impact on the Company's current financial reporting.
"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 II. OTHER INFORMATION
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant.
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 15, 1997
FORMS\10Q897/p
5
1,000
9-MOS
OCT-31-1996
AUG-3-1997
65,320
28,358
33,993
235
9,421
142,950
237,263
66,595
337,609
40,315
106,412
0
0
120
177,146
337,609
142,144
142,144
88,050
88,050
0
0
1,408
29,548
11,200
18,348
0
0
0
18,348
1.48
0.00
