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 ....February 1, 1998....
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 February 1, 1998
Common Stock, $.01 par value 24,314,790 Shares
PHOTRONICS, INC.
AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
at February 1, 1998 (unaudited) and
November 2, 1997 3-4
Condensed Consolidated Statement of
Earnings for the Three Months Ended
February 1, 1998 and February 2,
1997 (unaudited) 5
Condensed Consolidated Statement of
Cash Flows for the Three Months Ended
February 1, 1998 and February 2,
1997 (unaudited) 6
Notes to Condensed Consolidated
Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 9-12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(dollars in thousands)
ASSETS
February 1, November 2,
1998 1997
----------- -----------
(Unaudited)
Current assets:
Cash, cash equivalents and
short-term investments $ 36,475 $ 86,034
Accounts receivable (less allowance
for doubtful accounts of $235 in
1998 and 1997) 33,294 34,563
Inventories 12,795 11,302
Other current assets 8,934 7,038
-------- --------
Total current assets 91,498 138,937
Property, plant and equipment
(less accumulated depreciation of
$78,277 in 1998 and $71,900 in 1997) 219,853 203,813
Intangible assets (less accumulated
amortization of $4,381 in 1998
and $4,048 in 1997) 21,687 8,218
Investments and other assets 13,630 14,244
-------- --------
$346,668 $365,212
======== ========
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
February 1, November 2,
1998 1997
----------- -----------
(Unaudited)
Current liabilities:
Current portion of long-term debt $ 262 $ 272
Accounts payable 21,104 34,173
Income taxes payable 2,686 3,454
Accrued salaries and wages 4,792 7,423
Other accrued liabilities 7,610 12,217
-------- --------
Total current liabilities 36,454 57,539
Long-term debt 106,127 106,194
Deferred income taxes and other liabilities 15,648 15,504
-------- --------
Total liabilities 158,229 179,237
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value,
2,000,000 shares authorized,
none issued and outstanding - -
Common stock, $0.01 par value,
75,000,000 shares authorized,
24,314,790 shares issued in 1998
and 24,300,970 shares in 1997 243 243
Additional paid-in capital 85,303 85,129
Retained earnings 105,889 99,609
Unrealized gains on investments 2,900 3,251
Cumulative foreign currency
translation adjustment (5,691) (2,008)
Deferred compensation on restricted stock (205) (249)
-------- --------
Total shareholders' equity 188,439 185,975
-------- --------
$346,668 $365,212
======== ========
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
---------------------------
February 1, February 2,
1998 1997
----------- -----------
Net sales $50,932 $40,029
Costs and expenses:
Cost of sales 31,266 25,347
Selling, general and administrative 6,590 5,035
Research and development 2,933 2,302
------- -------
Operating income 10,143 7,345
Other income (expense), net (63) 1,280
------- -------
Income before income taxes 10,080 8,625
Provision for income taxes 3,800 3,300
------- -------
Net income $ 6,280 $ 5,325
======= =======
Earnings per share-basic $0.26 $0.22
===== =====
Earnings per share-diluted $0.25 $0.22
===== =====
Weighted average number of common
shares outstanding - basic 24,302 23,676
====== ======
Weighted average number of common
shares outstanding - diluted 28,987 24,705
====== ======
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(in thousands)
(Unaudited)
Three Months Ended
-------------------------
February 1, February 2,
1998 1997
----------- -----------
Cash flows from operating activities:
Net income $ 6,280 $ 5,325
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,045 4,490
Gain on sale of investments (632) (1,060)
Other 210 212
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable 803 (717)
Inventories (1,195) (1,110)
Other current assets (1,907) (617)
Accounts payable and other liabilities (20,295) (6,218)
------- -------
Net cash provided by (used in) operating activities (9,691) 305
------- -------
Cash flows from investing activities:
Acquisition of photomask operations (32,455) -
Deposits on and purchases of property,
plant and equipment (7,764) (15,730)
Net change in short-term investments 18,953 2,814
Proceeds from sale of investments 699 1,369
Other 140 70
------- -------
Net cash used in investing activities (20,427) (11,477)
------- -------
Cash flows from financing activities:
Repayment of long-term debt (67) (9)
Proceeds from issuance of common stock 175 251
------- -------
Net cash provided by financing activities 108 242
------- -------
Effect of exchange rate changes on cash flows (596) -
------- -------
Net decrease in cash and cash equivalents (30,606) (10,930)
Cash and cash equivalents at beginning of period 57,845 18,766
------- -------
Cash and cash equivalents at end of period $27,239 $ 7,836
======= =======
Cash paid during the period for:
Interest $3,146 $ 7
Income taxes $4,412 $155
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Three Months Ended February 1, 1998 and February 2, 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-month periods ended February 1, 1998 and February 2, 1997.
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 November 2, 1997, which give a complete discussion of
these matters.
NOTE 2 - EARNINGS PER SHARE
In the first quarter of fiscal 1998, the Company adopted 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.
A reconciliation of basic and diluted EPS for the three months ended
February 1, 1998 and February 2, 1997 is as follows (in thousands, except
per share amounts):
Average
Net Shares Earnings
Income Outstanding Per Share
------ ----------- ---------
1998:
Basic $6,280 24,302 $0.26
Effect of potential dilution =====
from exercise of stock options
and conversion of notes 1,037 4,685
------ ------
Diluted $7,317 28,987 $0.25
====== ====== =====
Average
Net Shares Earnings
Income Outstanding Per Share
------ ----------- ---------
1997:
Basic $5,325 23,676 $0.22
Effect of potential dilution =====
from exercise of stock options - 1,029
------ ------
Diluted $5,325 24,705 $0.22
====== ====== =====
All common share and per share data have been restated to give effect to
the 2-for-1 stock split of the Company's common stock paid to
shareholders of record on November 17, 1997.
NOTE 3 - ACQUISITION OF MOTOROLA'S PHOTOMASK OPERATIONS
In December 1997, the Company acquired the internal photomask
manufacturing operations of Motorola, Inc. ("Motorola") in Mesa, Arizona
for $29.1 million in cash. The assets acquired included modern
manufacturing systems capable of supporting a wide range of photomask
technologies. Additionally, the Company entered into a multi-year supply
agreement whereby it will supply the photomask requirements previously
provided by Motorola's internal operations. The acquisition was
accounted for as a purchase and, accordingly, the acquisition price was
allocated to property, plant and equipment as well as certain intangible
assets based on relative fair value. The excess of purchase price over
the fair value of assets acquired is being amortized over fifteen (15)
years. The Condensed Consolidated Statement of Earnings includes the
results of the former Motorola photomask operations from December 31,
1997, the effective date of the acquisition.
NOTE 4 - SUBSEQUENT EVENT
On March 13, 1998, the Company announced plans to optimize its North
American manufacturing network by re-organizing its two California
operations. The Company will dedicate its Milpitas facility to the
production of high-end technology photomasks and dedicate its Sunnyvale
facility to the production of mature technology photomasks. In addition,
the Company announced its plans to consolidate its Colorado Springs,
Colorado photomask manufacturing operations into its other North American
manufacturing facilities. The Colorado Springs consolidation was
precipitated primarily by the Company's acquisition of an additional
operation in Mesa, Arizona in connection with the Motorola transaction
(see Note 3). The Company also intends to sell its Large Area Mask (LAM)
Division. The Company has determined that the LAM business, which is
also located in Colorado Springs, does not represent a long-term
strategic fit with its core photomask business. The Company will
continue to maintain a sales office, photomask design center and re-
certification operation in Colorado Springs.
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition
Material Changes in Results of Operations
Three Months ended February 1, 1998 versus February 2, 1997
A significant portion of the changes in Photronics, Inc.
("Photronics") results of operations for the three months ended February
1, 1998, as compared to the same period during last fiscal year was
attributable to expansion of international operations in Europe and Asia.
Revenues and costs also have been affected by the increased demand for
higher technology photomasks which require more advanced manufacturing
capabilities and generally command 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, on December 31, 1997, the Company acquired the internal
photomask manufacturing operations of Motorola, Inc. in Mesa, Arizona.
The Motorola acquisition did not have a material effect on the results of
operations for the first quarter of 1998.
Net sales for the three months ended February 1, 1998, increased
27.2% to $50.9 million compared with $40.0 million for the three months
ended February 2, 1997. Approximately one-half of the increase came from
manufacturing operations outside of the United States. As a result of
the Company's globalization, revenues from foreign operations increased
to 17.0% in the first quarter of 1998, compared with 8.8% in the first
quarter of 1997. The remaining portion of the growth resulted
principally 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 for the three months ended February 1, 1998, increased
23.4% to $31.3 million, compared with $25.3 million for the same period
in the prior fiscal year. Gross margins increased to 38.6% of sales in
the first quarter of fiscal 1998, compared with 36.7% for the first
quarter of 1997. Favorable margins resulted from higher capacity
utilization and a more favorable mix of higher-end products in the U.S.
and Asia. Such increases were partially 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, especially in Europe. In
addition, margins were lower at the Company's Beta Squared subsidiary.
Selling, general and administrative expenses increased 30.9% to $6.6
million for the three months ended February 1, 1998, compared with $5.0
million for the same period in the prior fiscal year. As a percentage of
net sales, selling, general and administrative expenses increased to
12.9% for the three months ended February 1, 1998, compared with 12.6%
for the same period in the prior fiscal year. The higher expenses were
due principally to staffing and other costs associated with the Company's
growth, both domestically and internationally.
Research and development expenses for the three months ended
February 1, 1998, increased 27.4% to $2.9 million, compared with $2.3
million for the same period in the prior fiscal year. This increase
reflects the continuing development efforts on high-end, more complex
photomasks such as phase shift, optical proximity correction and deep
ultra-violet technologies which represent a fast growing segment of the
photomask market, as well as Beta Squared's development of PLASMAX. As
a percentage of net sales, research and development remained at 5.8% for
the three months ended February 1, 1998 and February 2, 1997.
Net other expenses of approximately $0.1 million in the first
quarter of 1998 was comprised principally of interest expense on the
convertible notes issued in the third quarter of 1997, offset by interest
and other income earned on investments, including a gain on the sale of
investment securities of $0.6 million. This compares to $1.3 million of
net interest and other income in the first quarter of 1997, which
included a gain of $1.1 million on the sale of investment securities.
Net income for the three months ended February 1, 1998, increased
17.9% to $6.3 million, or $0.26 per basic share and $0.25 per share on a
diluted basis, compared with $5.3 million or $0.22 per share on both a
basic and diluted basis, for the corresponding prior year period. Net
income in the first quarter of 1997 included $0.7 million, or $0.02 per
share, from the gain on the sale of investment securities. The weighted
average number of basic common shares outstanding increased to 24.3
million for the three months ended February 1, 1998, from 23.7 million
for the same period last year, principally as a result of the issuance of
shares in connection with employee stock option exercises since the first
quarter of 1997. The weighted average number of common shares
outstanding on a diluted basis increased to 29.0 million in the first
quarter of 1998, from 24.7 million in the first quarter of 1997,
principally as a result of the issuance of convertible notes. All the
shares outstanding and per share amounts reflect the two-for-one stock
split effected in December, 1997.
Liquidity and Capital Resources
Photronics' cash and short-term investments decreased $49.6 million
during the three months ended February 1, 1998, largely as a result of
the acquisition of Motorola's photomask operations in Mesa, Arizona,
together with capital expenditures for equipment and facilities in
connection with Photronics' expansion of manufacturing capacity,
aggregating $40 million.
Accounts receivable decreased slightly from November 2, 1997 as a
result of seasonally slower order activity compared with the fourth
quarter of 1997. Inventory increased $1.5 million or 13.2% primarily due
to the new Austin and Mesa locations. Other current assets increased
$1.9 million primarily as a result of increases in prepaid insurance and
other expenses at the beginning of the calendar year.
Property, plant and equipment increased to $219.9 million at
February 1, 1998, from $203.8 million at November 2, 1997, as a result of
the acquisition of Motorola's photomask assets, as well as continued
expansion of Photronics' existing manufacturing capacity. These
increases were offset by normal depreciation expense of $6.7 million.
Intangible and other assets increased $12.9 million during the
quarter ended February 1, 1998, principally due to the Motorola
acquisition.
Accounts payable and accruals decreased 36.8% or $21.1 million from
November 2, 1997, principally due to the payments for high year-end
accruals in connection with the substantial completion of construction in
Austin, Texas and in Manchester, U.K., and acceptance of a significant
amount of new capital equipment at the end of last year. In addition,
accrued salaries and wages decreased from November 2, 1997 largely as a
result of payments of fiscal 1997 incentive compensation.
Photronics' commitments represent investments in additional
manufacturing capacity as well as advanced equipment for research and
development of the next generation of high-end, more complex photomasks.
At February 1, 1998, Photronics had commitments outstanding for capital
expenditures of approximately $75 million. Additional commitments for
facilities under construction and other capital requirements are expected
to be incurred in fiscal 1998. Photronics will continue to use its
working capital, bank lines of credit and leasing arrangements to finance
its capital expenditures. Photronics believes that its currently
available resources, together with its capacity for substantial growth
and its access to other debt and equity financing sources, are sufficient
to satisfy its currently planned capital expenditures, as well as its
anticipated working capital requirements for the foreseeable future.
Subsequent Event
On March 13, 1998, the Company announced plans to optimize its North
American manufacturing network by re-organizing its two California
operations. The Company will dedicate its Milpitas facility to the
production of high-end technology photomasks and dedicate its Sunnyvale
facility to the production of mature technology photomasks. In addition,
the Company announced its plans to consolidate its Colorado Springs,
Colorado photomask manufacturing operations into its other North American
manufacturing facilities. The Colorado Springs consolidation was
precipitated primarily by the Company's acquisition of an additional
operation in Mesa, Arizona in connection with the Motorola transaction.
The Company also intends to sell its Large Area Mask (LAM) Division. The
Company has determined that the LAM business, which is also located in
Colorado Springs, does not represent a long-term strategic fit with its
core photomask business. The Company will continue to maintain a sales
office, photomask design center and re-certification operation in
Colorado Springs. The Company expects to record a one-time pre-tax
charge for the restructuring plan and sale of the LAM product line of
approximately $3 million to $4 million, or $0.06 to $0.08 per share on a
diluted basis, in the fiscal second quarter, which ends on May 3, 1998.
Effect of New Accounting Standards
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 effective for the Company in fiscal 1999. Neither of the new
statements is expected to have a material impact on the Company's current
financial reporting.
Year 2000 Costs
The Company is currently implementing new worldwide computerized
manufacturing and information systems which will be completed in 1998.
Such systems have the ability to process transactions with dates for the
year 2000 and beyond at no incremental cost and, accordingly, "Year 2000"
issues are not expected to have any material impact on the Company's
future financial condition or results of operations.
"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
27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter for which this report is filed, no reports on Form 8-K
were 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: March 13, 1998
FORMS\10Q-298/p
5
1,000
3-MOS
NOV-01-1998
FEB-01-1998
27,239
9,236
33,529
235
12,795
91,498
298,130
78,277
346,668
36,454
106,127
0
0
243
188,196
346,668
50,932
50,932
31,266
31,266
0
0
1,578
10,080
3,800
6,280
0
0
0
6,280
0.26
0.25
