SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended ...November 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, Florida... ..33477..
(Address of principal executive offices) (Zip Code)
...(561) 745-1222...
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which
registered
______None______ ___________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
.....Common Stock, $0.01 par value per share.....
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained
to the best of registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of December 31, 1998, 23,944,075 shares of the registrant's Common
Stock were outstanding. The aggregate market value of registrant's voting
stock held by non-affiliates of the registrant as of December 31, 1998 was
approximately $497,417,000.
________________________
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the 1999 Incorporated into Part
Annual Meeting of Shareholders III of this Form 10-K.
to be held on March 23, 1999.
Photronics, Inc. (the "Company") is filing this amendment to its Form 10-K
filed for the fiscal year ended November 1, 1998 in order to revise Note 13
of the Notes to Consolidated Financial Statements that are part of the
financial statements contained in Item 8. The revised Note 13 is set forth in
Item 8 which is being filed in its entirety, along with a consent of Deloitte
& Touche LLP, the Company's independent auditors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENT
Page
Independent Auditors'
Report...................................................18
Consolidated Balance Sheet
at November 1, 1998 and November 2, 1997............19 - 20
Consolidated Statement of Earnings for
the years ended November 1, 1998,
November 2, 1997 and October 31, 1996....................21
Consolidated Statement of Shareholders'
Equity for the years ended
November 1, 1998, November 2, 1997
and October 31, 1996.....................................22
Consolidated Statement of Cash Flows
for the years ended November 1, 1998,
November 2, 1997 and October 31, 1996....................23
Notes to Consolidated
Financial Statements................................24 - 35
Independent Auditors' Report
Board of Directors and Shareholders
Photronics, Inc.
Jupiter, Florida
We have audited the accompanying consolidated balance sheets of
Photronics, Inc. and its subsidiaries as of November 1, 1998 and November
2, 1997, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the three years in the
period ended November 1, 1998. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the consolidated financial position of
Photronics, Inc. and its subsidiaries as of November 1, 1998 and November
2, 1997, and the results of their operations and their cash flows for each
of the three years in the period ended November 1, 1998 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
December 9, 1998
PHOTRONICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
November 1, 1998 and November 2, 1997
(dollars in thousands)
Assets 1998 1997
- ------ -------- --------
Current assets:
Cash and cash equivalents $ 23,841 $ 57,845
Short-term investments 7,532 28,189
Accounts receivable (less allowance
for doubtful accounts of $235 in
1998 and 1997) 31,515 34,563
Inventories 14,057 11,302
Deferred income taxes 5,923 4,764
Other current assets 4,507 2,274
-------- --------
Total current assets 87,375 138,937
Property, plant and equipment 253,781 203,813
Intangible assets (less accumulated
amortization of $6,009 in 1998
and $4,048 in 1997) 20,058 8,218
Investments 6,705 10,421
Other assets 3,630 3,823
-------- --------
$371,549 $365,212
======== ========
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
November 1, 1998 and November 2, 1997
(dollars in thousands, except per share amounts)
Liabilities and Shareholders' Equity 1998 1997
- ------------------------------------ -------- --------
Current liabilities:
Current portion of long-term debt $ 2,076 $ 272
Accounts payable 31,431 34,173
Accrued salaries and wages 4,170 7,423
Accrued interest payable 2,674 2,743
Other accrued liabilities 10,153 9,474
Income taxes payable - 3,454
-------- --------
Total current liabilities 50,504 57,539
Long-term debt 104,261 106,194
Deferred income taxes 11,222 10,508
Other liabilities 5,132 4,996
-------- --------
Total liabilities 171,119 179,237
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized,
none issued and outstanding - -
Common stock, $.01 par value,
75,000,000 shares authorized,
24,164,106 shares issued
and outstanding in 1998;
24,300,970 shares issued
and outstanding in 1997 242 243
Additional paid-in capital 82,377 85,129
Retained earnings 120,091 99,609
Unrealized gains on investments 1,167 3,251
Foreign currency translation adjustment (3,308) (2,008)
Deferred compensation on
restricted stock (139) (249)
-------- --------
Total shareholders' equity 200,430 185,975
-------- --------
$371,549 $365,212
======== ========
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Consolidated Statement of Earnings
Years Ended
-------------------------------------------
November 1, November 2, October 31,
1998 1997 1996
----------- ----------- -----------
(in thousands, except per share amounts)
Net sales $222,572 $197,451 $160,071
Costs and expenses:
Cost of sales 141,628 121,502 98,267
Selling, general
and administrative 28,793 24,940 21,079
Research and development 12,893 10,605 8,460
Non-recurring
restructuring charge 3,800 - -
------ ------ ------
Operating income 35,458 40,404 32,265
Other income and expense:
Interest income 2,721 2,424 1,601
Interest expense (6,143) (2,466) (160)
Other income, net 1,046 1,074 197
-------- -------- --------
Income before income taxes 33,082 41,436 33,903
Provision for income taxes 12,600 15,800 12,900
-------- -------- --------
Net income $ 20,482 $ 25,636 $ 21,003
======== ======== ========
Earnings per share:
Basic $0.84 $1.07 $0.89
===== ===== =====
Diluted $0.84 $1.03 $0.87
===== ===== =====
Weighted average number of
common shares outstanding:
Basic 24,350 23,910 23,496
====== ====== ======
Diluted 28,958 26,628 24,202
====== ====== ======
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
Years Ended November 1, 1998, November 2, 1997 and October 31, 1996
(in thousands)
Unreal- Foreign
ized Currency Deferred
Addi- Gains Trans- Compensa-
Common Stock tional on lation tion on Total
-------------- Paid-In Retained Invest- Treasury Adjust- Restricted Shareholders'
Shares Amount Capital Earnings ments Stock ment Stock Equity
------ ------ ------- -------- ------ -------- -------- ---------- -------------
Balance at
November 1, 1995 11,758 $118 $75,083 $52,970 $6,471 $ (245) $ - $ (352) $ 134,045
Net income - - - 21,003 - - - - 21,003
Sale of common stock
through employee
stock option and
purchase plans 215 2 2,750 - - - - - 2,752
Foreign currency
translation adjustment - - - - - - 58 - 58
Amortization of
restricted stock to
compensation expense - - - - - - - 352 352
Change in unrealized
gains on investments - - - - (1,793) - - - (1,793)
------ --- ------ ------ ----- --- -- --- -------
Balance at
October 31, 1996 11,973 120 77,833 73,973 4,678 (245) 58 - 156,417
Net income - - - 25,636 - - - - 25,636
Issuance of common
stock related to
acquisition 50 - 1,337 - - - - - 1,337
Sale of common stock
through employee
stock option and
purchase plans 258 3 6,060 - - - - - 6,063
Foreign currency
translation adjustment - - - - - - (2,066) - (2,066)
Restricted stock
awards, net 6 - 264 - - - - (249) 15
Retirement of
treasury stock (136) (1) (244) - - 245 - - -
Change in unrealized
gains on investments - - - - (1,427) - - - (1,427)
Two-for-one stock split 12,150 121 (121) - - - - - -
------ --- ------ ------ ----- ---- ----- --- -------
Balance at
November 2, 1997 24,301 243 85,129 99,609 3,251 - (2,008) (249) 185,975
Net income - - - 20,482 - - - - 20,482
Sale of common stock
through warrants and
employee stock option
and purchase plans 363 4 3,993 - - - - - 3,997
Foreign currency
translation adjustment - - - - - - (1,300) - (1,300)
Amortization of restricted
stock to compensation
expense - - - - - - - 110 110
Change in unrealized gains
on investments - - - - (2,084) - - - (2,084)
Common stock
repurchases (500) (5) (6,745) - - - - - (6,750)
------ ---- ------- -------- ------ ----- ------- ----- --------
Balance at
November 1, 1998 24,164 $242 $82,377 $120,091 $1,167 $ - $(3,308) $(139) $200,430
====== ==== ======= ======== ====== ===== ======= ===== ========
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Years Ended
-------------------------------------------------
November 1, November 2, October 31,
1998 1997 1996
----------- ----------- -----------
(in thousands)
Cash flows from operating activities:
Net income $20,482 $25,636 $21,003
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of
property, plant and equipment 31,461 19,817 12,120
Amortization of intangible assets 2,529 1,322 1,100
Gain on sale of investments (838) (1,562) -
Deferred income taxes 264 989 1,000
Non-recurring restructuring charges 3,800 - -
Other 224 98 626
Changes in assets and liabilities,
net of effects of acquisitions:
Accounts receivable 2,954 (9,405) (6,893)
Inventories (2,374) (3,157) (1,228)
Other current assets (3,318) (870) (3,260)
Accounts payable and accrued liabilities (10,115) 13,677 14,159
------- ------- -------
Net cash provided by operating activities 45,069 46,545 38,627
------- ------- -------
Cash flows from investing activities:
Acquisitions of and investments in
photomask operations (32,455) (1,065) (12,397)
Deposits on and purchases of property,
plant and equipment (66,448) (96,319) (55,762)
Net change in short-term investments 20,657 (20,271) 8,303
Proceeds from sale of investments 932 1,939 -
Other 2,218 2,151 1,635
------- -------- -------
Net cash used in investing activities (75,096) (113,565) (58,221)
------- -------- -------
Cash flows from financing activities:
Issuance of subordinated convertible notes,
net of deferred issuance costs - 99,697 -
Repayment of long-term debt (266) (151) (36)
Proceeds from issuance of common stock 3,997 6,063 2,752
Purchase and retirement of common stock (6,750) - -
------- ------- -------
Net cash provided (used) by financing activities (3,019) 105,609 2,716
------- ------- -------
Effect of exchange rate changes on cash (958) 490 -
------- ------- -------
Net increase (decrease) in cash and cash equivalents (34,004) 39,079 (16,878)
Cash and cash equivalents at beginning of year 57,845 18,766 35,644
------- ------- -------
Cash and cash equivalents at end of year $23,841 $57,845 $18,766
======= ======= =======
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended November 1, 1998, November 2, 1997 and October 31, 1996
(dollars in thousands, except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The accompanying consolidated financial statements include the
accounts of Photronics, Inc. and its subsidiaries. All significant
intercompany balances and transactions have been eliminated. The Company
adopted a 52 week fiscal year beginning in the first quarter of fiscal
1997.
Foreign Currency Translation
The Company's subsidiaries in Europe and Singapore maintain their
accounts in their respective local currencies. Assets and liabilities of
such subsidiaries are translated to U.S. dollars at year-end exchange
rates. Income and expenses are translated at average rates of exchange
prevailing during the year. Foreign currency translation adjustments are
accumulated in a separate component of shareholders' equity. The effects
of changes in exchange rates on foreign currency transactions are
included in income.
Cash and Cash Equivalents
Cash and cash equivalents include cash and highly liquid investments
purchased with an original maturity of three months or less. The
carrying values approximate fair value based on the short maturity of the
instruments.
Investments
The Company's debt and equity investments available for sale are
carried at fair value. Short-term investments include a diversified
portfolio of high quality marketable securities which will be liquidated
as needed to meet the Company's current cash requirements. All other
investments are classified as non-current assets. Unrealized gains and
losses, net of tax, are reported as a separate component of shareholders'
equity. Gains and losses are included in income when realized,
determined based on the disposition of specifically identified
investments.
Inventories
Inventories, principally raw materials, are stated at the lower of
cost, determined under the first-in, first-out (FIFO) method, or market.
Long-Lived Assets
Property, plant and equipment are recorded at cost less accumulated
depreciation. Repairs and maintenance as well as renewals and
replacements of a routine nature are charged to operations as incurred,
while those which improve or extend the lives of existing assets are
capitalized. Upon sale or other disposition, the cost of the asset and
accumulated depreciation are eliminated from the accounts, and any
resulting gain or loss is reflected in income.
For financial reporting purposes, depreciation and amortization are
computed on the straight-line method over the estimated useful lives of
the related assets. For income tax purposes, depreciation is computed
using various accelerated methods and, in some cases, different useful
lives than those used for financial reporting.
Goodwill and other intangibles are amortized on a straight-line
basis over periods estimated to be benefited, generally 5 to 20 years.
The future economic benefit of the carrying value of intangible assets is
reviewed periodically and any diminution in useful life or impairment in
value based on future anticipated cash flows would be recorded in the
period so determined.
Income Taxes
The provision for income taxes is computed on the basis of
consolidated financial statement income. Deferred income taxes reflect
the tax effects of differences between the carrying amounts of assets and
liabilities for financial reporting and the amounts used for income tax
purposes.
Net Income Per Common Share
The Company adopted Statement of Financial Accounting Standards No.
128 ("SFAS 128") "Earnings Per Share", in the first quarter of 1998.
Earnings per share amounts have been restated for all periods presented
to conform to the presentation requirements of SFAS 128.
Stock Based Compensation
The Company records stock option awards in accordance with the
provisions of Accounting Principles Board Opinion 25, "Accounting for
Stock Issued to Employees". The Company estimates the fair value of
stock option awards in accordance with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," and
discloses the resulting estimated compensation effect on net income on a
pro forma basis.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
NOTE 2 - INVESTMENTS
Short-term investments consist of:
November 1, November 2,
1998 1997
----------- -----------
Government agency securities $ 2,268 $ 4,205
Corporate bonds 3,010 18,178
Certificates of deposit 2,254 5,806
------- -------
$ 7,532 $28,189
======= =======
The estimated fair value of short-term investments, based upon
current yields of like securities, approximates cost, resulting in no
significant unrealized gains or losses. Short-term investments at
November 1, 1998, mature by their terms, as follows:
Due within one year $ 4,878
Due after one year, but within three years 1,654
Due after three years 1,000
-------
$ 7,532
=======
Other investments consist of available-for-sale equity securities of
publicly traded technology companies and a minority interest in a
photomask manufacturer in Korea. The fair values of available-for-sale
investments are based upon quoted market prices. In the absence of
quoted market prices, the estimated fair value is based upon the
financial condition and the operating results and projections of the
investee and is considered to approximate cost. Unrealized gains on
investments were determined as follows:
November 1, November 2,
1998 1997
----------- -----------
Fair value $ 6,705 $10,421
Cost 4,700 4,767
------- -------
2,005 5,654
Less deferred income taxes 838 2,403
------- -------
Net unrealized gains $ 1,167 $ 3,251
======= =======
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
November 1, November 2,
1998 1997
----------- -----------
Land $ 3,772 $ 2,735
Buildings and improvements 45,120 39,115
Machinery and equipment 294,826 220,199
Leasehold improvements 7,378 9,910
Furniture, fixtures and office equipment 6,642 3,754
-------- --------
357,738 275,713
Less accumulated depreciation and
amortization 103,957 71,900
-------- --------
Property, plant and equipment $253,781 $203,813
======== ========
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
November 1, November 2,
1998 1997
----------- -----------
6% Convertible Subordinated Notes
due June 1, 2004 $103,500 $103,500
Acquisition indebtedness payable
December 1, 1998, net of interest of
$9 in 1998 and $122 in 1997,
imputed at 7.45% 1,791 1,678
Installment note payable by foreign
subsidiary with interest at 4.75%
through June, 2001 665 867
Industrial development mortgage note,
secured by building, with interest at
6.58%, payable through November 2005 381 421
-------- --------
106,337 106,466
Less current portion 2,076 272
-------- --------
Long-term debt $104,261 $106,194
======== ========
Long-term debt matures as follows: 2000 - $288; 2001 - $231; 2002 -
$53; 2003 - $57; years after 2003 - $103,632. The fair value of long-
term debt not yet substantively extinguished is estimated based on the
current rates offered to the Company and is not significantly different
from carrying value, except that the fair value of the convertible
subordinated notes, based upon the most recently reported trade as of
November 1, 1998, amounted to $116.0 million.
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 3.7 million shares of the Company's common stock, at a conversion
price of $27.97 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.
In November, 1998, the Company replaced its prior credit commitments
with an unsecured revolving credit facility to provide for borrowings of
up to $125 million at any time through November, 2003. The Company is
charged a commitment fee on the average unused amount of the available
credit and is subject to compliance with and maintenance of certain
financial covenants and ratios. The Company did not have outstanding
borrowings under any of its credit facilities during 1998.
Cash paid for interest amounted to $6,311, $164 and $48 in 1998,
1997 and 1996 respectively.
NOTE 5 - EARNINGS PER SHARE
In the first quarter of fiscal 1998, the Company adopted Statement
of Financial Accounting Standards No. 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 follows (in thousands,
except per share amounts):
Average Earnings
Net Shares Per
Income Outstanding Share
-------- ----------- --------
1998:
Basic $ 20,482 24,350 $ 0.84
Effect of potential dilution ======
from exercise of stock options
and conversion of notes 3,809 4,608
-------- ------
Diluted $ 24,291 28,958 $ 0.84
======== ====== ======
1997:
Basic $ 25,636 23,910 $ 1.07
Effect of potential dilution ======
from exercise of stock options
and conversion of notes 1,841 2,718
-------- ------
Diluted 27,477 26,628 $ 1.03
======== ====== ======
1996:
Basic $ 21,003 23,496 $ 0.89
Effect of potential dilution ======
from exercise of stock options - 706
-------- ------
Diluted $ 21,003 24,202 $ 0.87
======== ====== ======
In September, 1997, the Company's Board of Directors authorized a
two-for-one stock split effected in the form of a stock dividend, which
was paid to shareholders of record on November 17, 1997. The stock split
resulted in the issuance of 12.2 million additional shares of common
stock. All applicable share and per share amounts reflect the stock
split.
NOTE 6 - ACQUISITIONS
On December 31, 1997, the Company acquired the internal photomask
manufacturing operations of Motorola, Inc. ("Motorola") in Mesa, Arizona
for $29 million in cash. The assets acquired include 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 Consolidated Statement of Earnings includes the results of
the former Motorola photomask operations from December 31, 1997, the
effective date of the acquisition.
On June 26, 1997, the Company acquired all of the outstanding shares
of MZD Maskenzentrum fur Mikrostruktrierung 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 assets and liabilities based on relative fair value.
In January, 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. The
acquisition was accounted for as a purchase and, accordingly, the
acquisition price was allocated to property and equipment based on
relative fair value.
In April, 1996, the Company, through a 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 initially retained the remaining interest in this
subsidiary, and in 1998 the Company acquired such interest for additional
consideration of $3.3 million. 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 excess of
purchase price over the fair value of assets acquired is being amortized
over 15 years.
The results of the acquisitions were not material to the Company for
the periods presented.
NOTE 7 - INCOME TAXES
The provision for income taxes consists of the following:
1998 1997 1996
------- ------- -------
Current: Federal $10,417 $11,993 $ 9,905
State 1,610 2,617 1,908
Foreign 309 201 87
------- ------- -------
12,336 14,811 11,900
------- ------- -------
Deferred: Federal 417 995 918
State (192) (6) 82
Foreign 39 - -
------- ------- -------
264 989 1,000
------- ------- -------
$12,600 $15,800 $12,900
======= ======= =======
The provision for income taxes differs from the amount computed by
applying the statutory U.S. Federal income tax rate to income before
taxes as a result of the following:
1998 1997 1996
------- ------- -------
U.S. Federal income tax at
statutory rate $11,579 $14,503 $11,866
State income taxes, net of
Federal benefit 921 1,697 1,294
Tax benefits of tax
exempt income (42) (35) (302)
Foreign tax rate differential (853) (681) (291)
Other, net 995 316 333
------- ------- -------
$12,600 $15,800 $12,900
======= ======= =======
The Company's net deferred tax liability consists of the following:
November 1, November 2,
1998 1997
----------- -----------
Deferred income tax liabilities:
Property, plant and equipment $8,840 $7,915
Investments 838 2,403
Other 1,544 190
------ ------
Total deferred tax liability 11,222 10,508
------ ------
Deferred income tax assets:
Reserves not currently deductible 3,712 2,667
Other 2,211 2,097
------ ------
Total deferred tax asset 5,923 4,764
------ ------
Net deferred tax liability $5,299 $5,744
====== ======
Cash paid for income taxes amounted to $15.0 million, $7.2 million
and $13.0 million in 1998, 1997 and 1996 respectively.
NOTE 8 - EMPLOYEE STOCK PURCHASE AND OPTION PLANS
In March 1998, the shareholders approved the adoption of the 1998
Stock Option Plan which includes provisions allowing for the award of
qualified and non-qualified stock options and the granting of restricted
stock awards. A total of 1.0 million shares of common stock may be
issued pursuant to options or restricted stock awards granted under the
Plan. Restricted stock awards do not require the payment of any cash
consideration by the recipient, but shares subject to an award may be
forfeited unless conditions specified in the grant are satisfied.
The Company has adopted a series of other stock option plans under
which incentive and non-qualified stock options and restricted stock
awards may be granted. All plans provide that the exercise price may not
be less than the fair market value of the common stock at the date the
options are granted and limit the maximum term of options granted to a
maximum of ten years.
The following table summarizes stock option activity under the plans:
Stock Options Exercise Prices
------------- ---------------
Balance at November 1, 1995 1,959,880 $ 0.92-13.69
Granted 964,100 10.75-12.50
Exercised (368,862) 0.92-13.69
Cancelled (171,592) 3.09-13.69
---------
Balance at October 31, 1996 2,383,526 1.59-13.69
Granted 275,300 14.88-21.97
Exercised (454,042) 1.59-13.69
Cancelled (65,006) 3.75-16.38
---------
Balance at November 2, 1997 2,139,778 1.75-21.97
Granted 826,100 11.00-31.44
Exercised (295,710) 1.75-16.38
Cancelled (94,877) 6.71-31.44
---------
Balance at November 1, 1998 2,575,291 $ 1.75-31.44
=========
The following table summarizes information concerning currently
outstanding and exercisable options:
Range of Exercise Prices
------------------------------------------------
$1.75-$10.00 $10.00-$20.00 $20.00-$31.44
------------ ------------- -------------
Outstanding:
Number of options 593,987 1,566,554 414,750
Weighted average
remaining years 4.6 8.3 9.1
Weighted average
exercise price $5.08 $12.47 $23.14
Exercisable:
Number of options 565,532 506,289 52,875
Weighted average
exercise price $4.87 $12.80 $21.61
At November 1, 1998, 586,700 shares were available for grant and
1,124,696 shares were exercisable at a weighted average exercise price of
$9.23.
The Company has not recognized compensation expense in connection
with stock option grants under the plans. However, had compensation
expense been determined based on the fair value of the options on the
grant dates, the Company's pro forma net income and earnings per share
for 1998 would have been reduced by approximately $1.9 million, or $0.07
per diluted share, for 1997 would have been reduced by approximately $1.5
million, or $0.06 per diluted share, and for 1996 would have been reduced
by approximately $0.3 million, or $0.01 per diluted share. The weighted
average fair value of options granted was $6.55 per share in 1998, $7.39
per share in 1997 and $5.05 per share in 1996. Fair value is estimated
based on the Black-Scholes option-pricing model with the following
weighted average assumptions: dividend yield of 0%; expected volatility
of 54.4% in 1998, 51.6% in 1997 and 50.8% in 1996; and risk-free
interest rates of 4.4% in 1998 and 6.4% in 1997 and 1996.
The Company maintains an Employee Stock Purchase Plan ("Purchase
Plan"), under which 600,000 shares of common stock are reserved for
issuance. The Purchase Plan enables eligible employees to subscribe,
through payroll deductions, to purchase shares of the Company's common
stock at a purchase price equal to 85% of the lower of the fair market
value on the commencement date of the offering and the last day of the
payroll payment period. At November 1, 1998, 315,376 shares had been
issued and 51,019 shares were subject to outstanding subscriptions under
the Purchase Plan.
NOTE 9 - EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) Savings and Profit-Sharing Plan (the
"Plan") which covers all domestic employees who have completed six months
of service and are eighteen years of age or older. Under the terms of
the Plan, an employee may contribute up to 15% of their compensation
which will be matched by the Company at 50% of the employee's
contributions which are not in excess of 4% of the employee's
compensation. Employee and employer contributions vest fully upon
contribution. Employer contributions amounted to $0.3 million in 1998
and $0.5 million in both 1997 and 1996.
The Company maintains a cafeteria plan to provide eligible domestic
employees with the option to receive non-taxable medical, dental,
disability and life insurance benefits. The cafeteria plan is offered to
all active full-time domestic employees and their qualifying dependents.
The Company's contribution amounted to $3.3 million in 1998, $3.0 million
in 1997 and $1.8 million in 1996.
The Company's foreign subsidiaries maintain benefit plans for their
employees which vary by country. The obligations and cost of these plans
are not significant to the Company.
NOTE 10 - LEASES
The Company leases various real estate and equipment under non-
cancelable operating leases. Rental expense under such leases amounted
to $4.4 million in 1998, $4.5 million in 1997 and $5.6 million in 1996.
Included in such amounts were $0.1 million in each year to affiliated
entities, which are owned, in part, by a significant shareholder of the
Company.
Future minimum lease payments under non-cancelable operating leases
with initial or remaining terms in excess of one year amounted to $5.4
million at November 1, 1998, as follows:
1999.....$2,934 2002...........$202
2000......1,543 2003.............72
2001........485 Thereafter......144
Included in such future lease payments are amounts to affiliated
entities of $0.1 million in each year from 1999 to 2003, and $0.1 million
thereafter.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company and a significant shareholder have jointly guaranteed a
loan totaling approximately $0.5 million as of November 1, 1998, on
certain real estate which is being leased by the Company. The Company is
subject to certain financial covenants in connection with the guarantee.
As of November 1, 1998, the Company had capital expenditure purchase
commitments outstanding of approximately $42 million.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions, including collectability of accounts
receivable, and depreciable lives and recoverability of property, plant,
equipment and intangible assets. Actual results may differ from such
estimates.
Financial instruments that potentially subject the Company to credit
risk consist principally of trade receivables and temporary cash
investments. The Company sells its products primarily to manufacturers
in the semiconductor and computer industries in North America, Europe and
Asia. The Company believes that the concentration of credit risk in its
trade receivables is substantially mitigated by the Company's ongoing
credit evaluation process and relatively short collection terms. The
Company does not generally require collateral from customers. The
Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends and
other information. Historically, the Company has not incurred any
significant credit related losses.
NOTE 12 - SEGMENT INFORMATION
The Company operates in a single industry segment as a manufacturer
of photomasks, which are high precision quartz plates containing
microscopic images of electronic circuits for use in the fabrication of
semiconductors. In addition to its manufacturing facilities in the
United States, the Company has operations in the United Kingdom,
Switzerland, Germany and Singapore. The Company's 1998, 1997 and 1996
net sales, operating profit and identifiable assets by geographic area
were as follows:
Net Operating Identifiable
Sales Income (Loss) Assets
-------- ------------- ------------
1998:
United States $185,772 $32,443 $285,115
Europe 20,008 (416) 51,326
Asia 16,792 3,431 35,108
-------- ------- --------
$222,572 $35,458 $371,549
======== ======= ========
1997:
United States $174,043 $37,989 $288,970
Europe 12,938 180 46,586
Asia 10,470 2,235 29,656
-------- ------- --------
$197,451 $40,404 $365,212
======== ======= ========
1996:
United States $153,227 $32,660 $181,255
Europe and Asia 6,844 (395) 30,648
-------- ------- --------
$160,071 $32,265 $211,903
======== ======= ========
Approximately 4% of net domestic sales in 1998 were for delivery
outside of the United States (7% in 1997 and 14% in 1996).
The Company's largest single customer represented approximately 16%
of total net sales in 1998, 23% in 1997 and 26% in 1996.
NOTE 13 - NON-RECURRING RESTRUCTURING CHARGE
In March, 1998, the Company initiated a plan to optimize its North
American manufacturing network. It re-organized its two California
operations, dedicating its Milpitas facility to the production of high-
end technology photomasks and its Sunnyvale facility to the production of
mature technology photomasks, and consolidated its Colorado Springs,
Colorado photomask manufacturing operations into other North American
manufacturing facilities. The Company determined that its Large Area
Mask (LAM) Division, which is also located in Colorado Springs, does not
represent a long-term strategic fit with its core photomask business, and
accordingly, intends to sell the LAM Division. The Company recorded a
$3.8 million charge in the second quarter of 1998 for the restructuring,
including $3.3 million of non-cash charges to reduce the carrying value of LAM
Division property, plant and equipment to its net realizable value based
upon the estimated proceeds from the sale of the LAM Division business taken
as a whole. Such assets, consisting prinicpally of specialized manufacturing
tools and equipment, had a carrying value of $3.6 million (prior to the
write-down), remain in use and continue to be depreciated pending the
disposition of the LAM division.
NOTE 14 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth certain unaudited quarterly financial
data:
First Second Third Fourth Year
------- ------- ------- ------- -------
1998:
Net sales $50,932 $61,307 $57,681 $52,652 $222,572
Gross profit 19,666 23,747 21,092 16,439 80,944
Net income 6,280 5,309 5,844 3,049 20,482
Earnings
per share:
Basic $ 0.26 $ 0.22 $ 0.24 $ 0.13 $ 0.84
Diluted $ 0.25 $ 0.22 $ 0.24 $ 0.13 $ 0.84
1997:
Net sales $40,029 $49,034 $53,081 $55,307 $197,451
Gross profit 14,682 18,751 20,661 21,855 75,949
Net income $ 5,325 $ 6,184 $ 6,839 $ 7,288 $ 25,636
Earnings
per share:
Basic $ 0.22 $ 0.26 $ 0.29 $ 0.30 $ 1.07
Diluted $ 0.22 $ 0.25 $ 0.27 $ 0.29 $ 1.03
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 JEFFREY P. MOONAN December 20, 1999
-------------------------- -----------------
Jeffry P. Moonan
Executive Vice President
Table of Exhibits
23 Consent of Deloitte & Touche LLP is filed herewith.
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
Nos. 333-02245, 333-50809, 33-17530, 33-28118, 33-47446 and 33-78102 of
Photronics, Inc. on Form S-8 of our report dated December 9, 1998
appearing in this Annual Report on Form 10-K/A (Amendment No. 1) of
Photronics, Inc. for the year ended November 1, 1998.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
December 13, 1999
