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..........May 2, 1999..........
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from..............to...............
Commission file number...0-15451...
...PHOTRONICS, INC...
(Exact name of registrant as specified in its charter)
...Connecticut... ...06-0854886...
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
......1061 East Indiantown Road, Jupiter, 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 May 2, 1999
Common Stock, $.01 par value 23,804,594 Shares
PHOTRONICS, INC.
AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Consolidated Balance Sheet
at May 2, 1999 (unaudited) and
November 1, 1998 3-4
Condensed Consolidated Statement of
Earnings for the Three and Six Months
Ended May 2, 1999 and May 3, 1998
(unaudited) 5
Condensed Consolidated Statement of
Cash Flows for the Six Months Ended
May 2, 1999 and May 3, 1998 (unaudited) 6
Condensed Consolidated Statement of
Shareholders Equity for the Six Months
Ended May 2, 1999 and May 3, 1998
(unaudited) 7
Notes to Condensed Consolidated
Financial Statements (unaudited) 8-9
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 10-12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security-Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(in thousands)
ASSETS
May 2, November 1,
1999 1998
----------- -----------
(Unaudited)
Current assets:
Cash, cash equivalents and
short-term investments $ 14,772 $ 31,373
Accounts receivable (less allowance
for doubtful accounts of $235 in
1999 and 1998) 32,661 31,515
Inventories 13,012 14,057
Other current assets 9,583 10,430
-------- --------
Total current assets 70,028 87,375
Property, plant and equipment
(less accumulated depreciation of
$121,164 in 1999 and $103,957 in 1998) 277,278 251,381
Intangible assets
(less accumulated amortization of
$7,103 in 1999 and $6,009 in 1998) 22,764 22,458
Investments and other assets 15,961 10,335
-------- --------
$386,031 $371,549
======== ========
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
May 2, November 1,
1999 1998
----------- -----------
(Unaudited)
Current liabilities:
Current portion of long-term debt $ 263 $ 2,076
Accounts payable 51,116 31,431
Accrued salaries and wages 2,514 4,170
Other accrued liabilities 10,589 12,827
------- -------
Total current liabilities 64,482 50,504
Long-term debt 104,089 104,261
Deferred income taxes and other liabilities 17,241 16,354
------- -------
Total liabilities 185,812 171,119
------- -------
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,
23,804,594 shares issued in 1999
and 24,164,106 shares in 1998 238 242
Additional paid-in capital 77,763 82,377
Retained earnings 122,776 120,091
Accumulated other comprehensive
loss (463) (2,141)
Deferred compensation on restricted
stock (95) (139)
-------- --------
Total shareholders' equity 200,219 200,430
-------- --------
$386,031 $371,549
======== ========
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 Six Months Ended
--------------------- ----------------------
May 2, May 3, May 2, May 3,
1999 1998 1999 1998
------- ------- -------- --------
Net sales $53,826 $61,307 $101,641 $112,239
Costs and expenses:
Cost of sales 38,151 37,560 73,438 68,826
Selling, general and administrative 7,652 7,661 14,915 14,251
Research and development 3,670 3,152 7,189 6,085
Non-recurring restructuring charge - 3,800 - 3,800
------- ------- ------- --------
Operating income 4,353 9,134 6,099 19,277
Other income (expense), net (985) (525) (1,714) (588)
------- ------- ------- --------
Income before income taxes 3,368 8,609 4,385 18,689
Provision for income taxes 1,300 3,300 1,700 7,100
------- ------- ------- --------
Net income $ 2,068 $ 5,309 $ 2,685 $ 11,589
======= ======= ======= ========
Earnings per share:
Basic $0.09 $0.22 $0.11 $0.48
===== ===== ===== =====
Diluted $0.09 $0.22 $0.11 $0.47
===== ===== ===== =====
Weighted average number of common
shares outstanding:
Basic 23,939 24,355 24,021 24,328
====== ====== ====== ======
Diluted 23,939 29,201 24,021 29,095
====== ====== ====== ======
See accompanying notes to condensed consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(in thousands)
(Unaudited)
Six Months Ended
------------------------
May 2, May 3,
1999 1998
---------- ----------
Cash flows from operating activities:
Net income $ 2,685 $11,589
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 19,454 15,277
Non-recurring restructuring charge - 3,800
Other (214) (438)
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable (1,551) (5,331)
Inventories 946 (2,333)
Other current assets 832 (339)
Accounts payable and accrued liabilities 15,695 200
------- -------
Net cash provided by operating activities 37,847 22,425
------- -------
Cash flows from investing activities:
Acquisition of photomask operations - (32,455)
Deposits on and purchases of property,
plant and equipment (45,465) (41,625)
Net change in short-term investments 7,420 15,409
Other (1,751) 2,132
------- -------
Net cash used in investing activities (39,796) (56,539)
------- -------
Cash flows from financing activities:
Repayment of long-term debt (1,934) (136)
Proceeds from issuance of common stock 2,282 1,068
Purchase and retirement of common stock (6,900) -
Other (300) -
------- -------
Net cash provided by (used in)
financing activities (6,852) 932
------- -------
Effect of exchange rate changes on cash flows (380) (491)
------- -------
Net decrease in cash and cash equivalents (9,181) (33,673)
Cash and cash equivalents at beginning of period 23,841 57,845
------- -------
Cash and cash equivalents at end of period $14,660 $24,172
======= =======
Cash paid during the period for:
Interest $3,177 $3,188
Income taxes $533 $9,779
See accompanying notes to condensed consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders' Equity
(in thousands)
(unaudited)
Accumulated Comprehensive Income (Loss)
-----------------------------------------
Other
------------------------------ Deferred
Foreign Compensa- Total
Common Stock Add'l Unrealized Currency tion on Share-
--------------- Paid-In Retained Investment Trans- Restricted holders'
Shares Amount Capital Earnings Gains lation Total Stock Equity
------ ------ ------- -------- ---------- -------- ----- ---------- --------
Six Months Ended
May 3, 1998:
Balance at
November 2, 1997 24,301 $243 $85,129 $99,609 $3,251 $(2,008) $1,243 $(249) $185,975
------- ------ ------- ------ --------
Comprehensive Income:
Net income - - - 11,589 - - - - 11,589
Change in unrealized
gains on investments - - - - (686) - (686) - (686)
Foreign currency translation
adjustment - - - - - (267) (267) - (267)
------- ------ ------- ------ ----- --------
Total comprehensive income - - - 11,589 (686) (267) (953) - 10,636
Sale of common stock
through employee stock
option and purchase plans 96 1 1,067 - - - - - 1,068
Amortization of restricted
stock to compensation
expense - - - - - - - 66 66
------ ---- ------- -------- ------ ------- ---- ----- --------
Balance at
May 3, 1998 24,397 $244 $86,196 $111,198 $2,565 $(2,275) $290 $(183) $197,745
====== ==== ======= ======== ====== ======= ==== ===== ========
Six Months Ended
May 2, 1999:
Balance at
November 1, 1998 24,164 $242 $82,377 $120,091 $1,167 $(3,308) $(2,141) $(139) $200,430
-------- ------ ------- ------- --------
Comprehensive income:
Net income - - - 2,685 - - - - 2,685
Change in unrealized
gains on investments - - - - 2,617 - 2,617 - 2,617
Foreign currency translation
adjustment - - - - - (939) (939) - (939)
-------- ------ ------- ------- --------
Total comprehensive income - - - 2,685 2,617 (939) 1,678 - 4,363
Sale of common stock
through employee stock
option and purchase plans 141 1 2,281 - - - - - 2,282
Common stock repurchases (500) (5) (6,895) - - - - - (6,900)
Amortization of restricted
stock to compensation
expense - - - - - - - 44 44
------ ---- ------- -------- ------ ------- ----- ---- --------
Balance at
May 2, 1999 23,805 $238 $77,763 $122,776 $3,784 $(4,247) $(463) $(95) $200,219
====== ==== ======= ======== ====== ======= ===== ==== ========
See accompanying notes to Condensed Consolidated Financial Statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Three and Six Months Ended May 2, 1999 and May 3, 1998
(Unaudited)
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the 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 statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended May
2, 1999 are not necessarily indicative of the results that may be expected for
the year ending October 31, 1999. Certain amounts in the condensed consolidated
financial statements for prior periods have been reclassified to conform to the
current presentation. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended November 1, 1998.
NOTE 2 - EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
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 and six months
ended May 2, 1999 and May 3, 1998 is as follows (in thousands, except per share
amounts):
Average
Net Shares Earnings
Income Outstanding Per Share
------- ----------- ---------
Three Months
- ------------
1999:
Basic $ 2,068 23,939 $ 0.09
Effect of potential dilution ======
from exercise of stock options
and conversion of notes (a) - -
------- ------
Diluted $ 2,068 23,939 $ 0.09
======= ====== ======
1998:
Basic $ 5,309 24,355 $ 0.22
Effect of potential dilution ======
from exercise of stock options
and conversion of notes 987 4,846
------- ------
Diluted $ 6,296 29,201 $ 0.22
======= ====== ======
Average
Net Shares Earnings
Income Outstanding Per Share
------- ----------- ---------
Six Months
- ----------
1999:
Basic $ 2,685 24,021 $ 0.11
======
Effect of potential dilution
from exercise of stock options
and conversion of notes (a) - -
------- ------
Diluted $ 2,685 24,021 $ 0.11
======= ====== ======
1998:
Basic $11,589 24,328 $ 0.48
======
Effect of potential dilution
from exercise of stock options
and conversion of notes 2,024 4,767
------- ------
Diluted $13,613 29,095 $ 0.47
======= ====== ======
(a) The effect of the exercise of stock options and the conversion of notes
for the three and six months ended May 2, 1999 is anti-dilutive.
NOTE 3 - SALE OF LARGE AREA MASK DIVISION
During 1998, the Company announced its intention to dispose of its Large
Area Mask (LAM) Division located in Colorado Springs, Colorado. In January
1999, the Company sold its LAM Division. The sale did not materially affect the
operating results for the six months ended May 2, 1999.
NOTE 4 - COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income".
The Statement, which the Company adopted in the first quarter of 1999,
establishes standards for reporting comprehensive income and its components in
financial statements. Where applicable, earlier periods have been restated to
conform to the standards set forth in SFAS No. 130. The Company's comprehensive
income as reported in the Condensed Consolidated Statement of Shareholders'
Equity, consists of net earnings, and all changes in equity during a period
except those resulting from investments by owners and distributions to owners,
which are presented before tax. The Company does not provide for U.S. income
taxes on foreign currency translation adjustments because it does not provide
for such taxes on undistributed earnings of foreign subsidiaries. Accumulated
other comprehensive income consists of unrealized gains and losses on certain
investments in equity securities and foreign currency translation adjustments.
The pre-tax unrealized investment gain/(loss) was $4,221 and ($1,106) for the
six month periods ended May 2, 1999 and May 3, 1998, respectively.
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition
Material Changes in Results of Operations
Three and Six Months ended May 2, 1999 versus May 3, 1998
The changes in Photronics, Inc. ("the Company") results of operations for
the three and six months ended May 2, 1999 as compared to the same periods
during the prior fiscal year were primarily attributable to a slow-down
experienced by the semiconductor industry which began impacting the Company
during the third quarter of 1998. This downturn in the global semiconductor
industry resulted in extended customer shut-downs, a slow-down in the releases
of new designs, and price reductions for mature technologies. The resulting
adverse impact on sales, combined with Photronics' continued increase in
capability which resulted in higher fixed costs, accounted for the majority of
the decrease in operating income.
Net sales for the three and six months ended May 2, 1999 decreased 12.2%
to $53.8 million and 9.4% to $101.6 million, respectively, compared with $61.3
million and $112.2 million for the corresponding prior year periods. The
decrease for the three and six months ended May 2, 1999 resulted primarily from
lower average selling prices partially offset by an increase in unit volumes.
As a result of the Company's globalization, sales outside of the U.S increased
to approximately 23% of net sales for the three and six months ended May 2,
1999, compared with approximately 19% and 20% in the corresponding prior year
periods.
Cost of sales for the three and six months ended May 2, 1999, increased
1.6% to $38.2 million, and 6.7% to $73. 4 million, compared with $37.6 million
and $68.8 million for the same periods in the prior fiscal year. Gross margins
decreased to 29.1% and 27.7% of sales, respectively, compared with 38.7% for
both the three and six month periods in the prior year. The gross margin
decrease for the three and six months ended May 2, 1999 was attributable to
lower revenues together with the Company's commitment to expand its
technological capability, which resulted in significantly higher depreciation
and service contract expenses. These investments have been made to position the
Company to satisfy customer demands for higher technological capability, as well
as increased volumes.
Selling, general and administrative expenses remained flat at $7.7 million
and increased 4.7% to $14.9 million for the three and six months ended May 2,
1999, respectively, compared with $7.7 million and $14.3 million for the same
periods in the prior fiscal year. As a percentage of net sales, selling,
general and administrative expenses increased to 14.2% and 14.7%, respectively,
compared to 12.5% and 12.7% for the same periods in the prior fiscal year. The
higher year-to-date expenses were due primarily to staffing and other costs
associated with the Company's expansion, both domestically and internationally.
Research and development expenses for the three and six months ended May
2, 1999, increased 16.4% to $3.7 million and 18.1% to $7.2 million,
respectively, compared with $3.2 million and $6.1 million for the same periods
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 Next Generation Lithography or NGL applications. As
a percentage of net sales, research and development was 6.8% and 7.1% of net
sales for the three and six months ended May 2, 1999, compared to 5.1% and 5.4%
in the corresponding prior year periods.
Net other expenses of approximately $1.0 million and $1.7 million for the
three and six months ended May 2, 1999 were comprised principally of interest
expense on the convertible notes, partially offset by interest and other income
earned on investments. This compares to $0.5 million and $0.6 million of net
interest and other expenses in the corresponding periods in fiscal 1998, which
included higher investment income.
Net income for the three and six months ended May 2, 1999 decreased to $2.1
million and $2.7, respectively, or $0.09 and $0.11 per share on a basic and a
diluted basis. These amounts compare to $5.3 million or $0.22 per basic and
diluted share, and $11.6 million or $0.48 per basic share and $0.47 per diluted
share for the corresponding prior year periods.
LIQUIDITY AND CAPITAL RESOURCES
Photronics' cash and short-term investments decreased $16.6 million during
the six months ended May 2, 1999, primarily as a result of capital expenditures
for equipment of approximately $45 million. In addition, $6.9 million of cash
was utilized to repurchase 500,000 shares of the Company's common stock and $1.9
million of cash was utilized to repay long-term debt. These decreases were
offset by cash provided by operations of approximately $38 million.
Accounts receivable increased 3.6% from November 1, 1998 as a result of
increased order activity in the second quarter of 1999 compared with the fourth
quarter of 1998. Inventory decreased by 7.4% from the end of last year.
Inventory levels at November 1, 1998 were higher as a result of less than
expected unit volumes.
Property, plant and equipment increased to $277.3 million at May 2, 1999,
from $251.4 million at November 1, 1998, as a result of the expansion of
Photronics' manufacturing capability and capacity. These increases were
partially offset by depreciation expense.
Intangible and other assets increased $5.9 million during the six months
ended May 2, 1999, principally due to an increase in the market value of assets
available for sale.
Accounts payable and accruals increased 32.6% or $15.8 million from
November 1, 1998, principally due to an increase in the accrual of amounts for
capital equipment coming due during the period.
Photronics' commitments represent investments in additional manufacturing
capacity as well as advanced equipment for the production of high-end, more
complex photomasks. At May 2, 1999, Photronics had commitments outstanding for
capital expenditures of approximately $52 million. Additional commitments for
capital requirements are expected to be incurred during fiscal 1999. Photronics
will continue to use its working capital and bank lines of credit 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.
Substantially, all of the Company's consolidated Asian sales have been
denominated in U.S. dollars resulting in minimal foreign currency exchange risk
on transactions in that region.
EFFECT OF NEW ACCOUNTING STANDARDS
In April, 1998, the American Institute of Certified Public Accountants
issued Statement of Position, 98-5, "Reporting on the Costs of Start-up
Activities." In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities." Each
of these statements establish new standards for financial statement reporting
and disclosure of certain information effective for the Company in future fiscal
years. The Company does not expect these new standards to have a material
impact on its financial position, results of operations or cash flows.
YEAR 2000
The Company has recognized that much of its operating software for its
manufacturing and financial systems may not have had the ability to recognize
date information when the year changes to 2000, and initiated a program in 1997
to replace such software to ensure, among other things, proper date recog-
nition. To date, the Company has successfully installed the new financial and
manufacturing software in certain of its U.S. locations, and is in the process
of implementing such system at the remainder of its sites worldwide. It is
expected that both these installations will be completed by the end of 1999.
In addition, the Company has been reviewing year 2000 compliance with respect
to equipment used in the manufacturing process, and the systems used by its
customers and suppliers.
The Company estimates that the total cost for all its current software
replacement efforts, including becoming Year 2000 compliant, will be
approximately $7 million, of which more than half has been incurred to date.
The Company believes that, based on its review performed to date, there will not
be any significant interruption in its normal operations; however should any of
its suppliers or customers not be successful in their efforts, there could be
an adverse impact on the Company. The Company is currently in the process of
evaluating alternatives in the event that its suppliers and customers are not
able to demonstrate within an appropriate timeline that they will be able to
successfully address their Year 2000 issues.
"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 4. Submission of Matters to a Vote of Security-Holders
(a) The matters set forth in this Item 4 were submitted to a vote of
security holders of the Company at an Annual Meeting of
Shareholders held on March 23, 1999.
(b) The following directors, constituting the entire Board of
Directors, were elected at the Annual Meeting of Shareholders
held on March 23, 1999. Also indicated are the affirmative,
negative and authority withheld votes for each director.
Authority
For Against Withheld
---------- ------- ---------
Walter M. Fiederowicz 22,137,084 - 247,141
Joseph A. Fiorita, Jr. 22,135,819 - 248,406
Constantine S. Macricostas 22,119,375 - 264,850
Michael J. Yomazzo 22,120,420 - 263,805
(c) The following additional matter, and the affirmative and
negative votes and abstentions and broker non-votes with respect
thereto, was approved at the Annual Meeting of Shareholders held
on March 23, 1999.
The ratification of the appointment of Deloitte & Touche LLP as
the independent certified public accountants of the Company for
the fiscal year ending October 31, 1999:
Affirmative Votes 22,357,537
Negative Votes 7,373
Abstentions/Broker Non-Votes 19,315
Item 6. Exhibits and Reports on 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: June 11, 1999
5
1000
6-MOS
OCT-31-1999
MAY-02-1999
14,660
112
32,896
235
13,012
70,028
398,442
121,164
386,031
64,482
104,089
0
0
238
199,981
386,031
101,641
101,641
73,438
73,438
0
0
3,017
4,385
1,700
2,685
0
0
0
2,685
0.11
0.11
