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 ....January 31, 1995....
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.)
...P.O. Box 5226, 15 Secor Rd., Brookfield, CT... ..06804..
(Address of principal executive offices) (Zip Code)
...(203) 775-9000...
(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 January 31, 1995
Common Stock, $.01 par value 6,577,304 Shares
PHOTRONICS, INC.
AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at January 31,
1995 (unaudited) and October 31, 1994 3-4
Consolidated Statement of Earnings for
the Three Months Ended January 31,
1995 and 1994 (unaudited) 5
Consolidated Statement of Cash Flows
for the Three Months Ended January 31,
1995 and 1994 (unaudited) 6
Notes to Consolidated Financial
Statements (unaudited) 7-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10-12
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
Consolidated Balance Sheet
(Dollars in thousands)
ASSETS
January 31, October 31,
1995 1994
----------- -----------
(Unaudited)
Current assets:
Cash and cash equivalents $ 17,361 $25,092
Short-term investments 4,248 2,535
Accounts receivable (less allowance
for doubtful accounts of $155 in
1995 and $135 in 1994) 15,289 10,218
Inventories 3,505 2,469
Other current assets 2,449 2,140
-------- -------
Total current assets 42,852 42,454
Property, plant and equipment 42,066 36,948
Intangible assets (less accumulated
amortization of $1,351 in 1995
and $1,117 in 1994) 10,989 5,523
Investments 15,116 11,095
Other assets 2,153 2,326
-------- -------
$113,176 $98,346
======== =======
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(Dollars in thousands, except per share amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY
January 31, October 31,
1995 1994
----------- -----------
(Unaudited)
Current liabilities:
Short-term debt and current
portion of long-term debt $ 3,034 $ 467
Accounts payable 7,695 5,053
Accrued salaries and wages 1,942 2,615
Other accrued liabilities 1,336 1,423
Income taxes 1,938 567
-------- -------
Total current liabilities 15,945 10,125
Long-term debt 1,855 495
Deferred income taxes 8,854 7,077
Other liabilities 239 247
-------- -------
Total liabilities 26,893 17,944
-------- -------
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,
10,000,000 shares authorized,
6,668,304 shares issued in 1995
and 6,659,929 shares in 1994 67 67
Additional paid-in capital 41,452 41,338
Retained earnings 37,605 34,338
Unrealized gains on investments 8,020 5,608
Treasury stock, 91,000 shares at cost (245) (245)
Deferred compensation on restricted stock (616) (704)
-------- -------
Total shareholders' equity 86,283 80,402
-------- -------
$113,176 $98,346
======== =======
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Consolidated Statement of Earnings
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
January 31,
--------------------------
1995 1994
------- -------
Net sales $26,176 $18,857
Costs and expenses:
Cost of sales 16,417 12,525
Selling, general and administrative 3,543 2,274
Research and development 1,348 1,137
------- -------
Operating income 4,868 2,921
Interest income 248 89
Interest expense (32) (21)
Other income 118 8
------- -------
Income before income taxes and
cumulative effect of change
in accounting for income taxes 5,202 2,997
Provision for income taxes 1,935 959
------- -------
Income before cumulative
effect of change in
accounting for income taxes 3,267 2,038
Cumulative effect of change in
accounting for income taxes - 237
------- -------
Net income $ 3,267 $ 2,275
======= =======
Net income per common share:
Income before cumulative effect of change
in accounting for income taxes $0.48 $0.31
Cumulative effect of change in
accounting for income taxes - 0.03
----- -----
Net income $0.48 $0.34
===== =====
Weighted average number of
common shares outstanding 6,837 6,625
===== =====
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Dollars in thousands)
(Unaudited)
Three Months Ended
January 31,
--------------------
1995 1994
------- -------
Cash flows from operating activities:
Net income $ 3,267 $ 2,275
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property,
plant and equipment 2,069 2,009
Amortization of intangible assets 234 161
Deferred income taxes (54) (229)
Cumulative effect of change in
accounting for income taxes - (237)
Other (130) -
Changes in assets and liabilities:
Accounts receivable (5,071) 466
Inventories (156) 354
Other current assets (141) (722)
Accounts payable and accrued liabilities 1,882 (1,971)
Income taxes payable 1,371 1,131
------- -------
Net cash provided by operating activities 3,271 3,237
------- -------
Cash flows from investing activities:
Acquisition of assets of Hoya Micro Mask, Inc. (7,400) -
Expenditures for property, plant and equipment (1,308) (1,576)
Deposits on equipment (656) -
Net change in short-term investments (1,713) 1,087
Proceeds from sale of investments 410 -
Other (7) (6)
------- -------
Net cash used in investing activities (10,674) (495)
------- -------
Cash flows from financing activities:
Repayment of long-term debt (442) (161)
Proceeds from issuance of common stock 114 158
------- -------
Net cash used in financing activities (328) (3)
------- -------
Net increase (decrease) in cash and cash equivalents (7,731) 2,739
Cash and cash equivalents at beginning of period 25,092 8,226
------- -------
Cash and cash equivalents at end of period $17,361 $10,965
======= =======
Cash paid during the period for:
Interest $ 13 $21
Income taxes $567 $19
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three Months Ended January 31, 1995
(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 January 31, 1995 and 1994. 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, 1994, which give a complete discussion of these matters.
NOTE 2 - ACQUISITION OF PHOTOMASK OPERATIONS
OF HOYA MICRO MASK, INC.
On December 1, 1994, the Company acquired certain assets held by Hoya
Micro Mask, Inc. ("Micro Mask"), an independent photomask manufacturer
with manufacturing operations located in Sunnyvale, California. The
transaction included the purchase of land, buildings, inventory and
certain assets other than cash and receivables. In addition, significant
manufacturing systems owned by Micro Mask were leased by the Company from
Micro Mask. The acquisition was financed through available cash reserves
and involved the payment of approximately $7.2 million in cash at closing
and the obligation to pay $3.0 million and $1.8 million, without
interest, six months and four years after the closing, respectively. In
addition, the Company incurred approximately $0.2 million of costs in
connection with the acquisition. The operating lease of the significant
manufacturing systems has a term ranging from 44 to 62 months and
includes the right to purchase the systems at fair market value at the
end of the lease.
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. Intangible
assets include goodwill of approximately $5.2 million which will be
amortized over twenty (20) years. The consolidated statement of earnings
includes the results of Micro Mask's operations from December 1, 1994,
the effective date of the acquisition.
The consolidated results of the Company's operations on a proforma basis
for the three months ended January 31, 1994, as though the purchase had
been made as of the beginning of that period, would have reflected sales
of approximately $24.7 million. Net income and earnings per share would
not have been materially different in the first quarter of 1994. The
proforma results of operations are not necessarily indicative of the
actual operating results that would have occurred had the transaction
been consummated at the beginning of the period, or of the future
operating results of the combined companies.
NOTE 3 - THREE-FOR-TWO STOCK SPLIT
In January 1995, the Company's Board of Directors approved a three-for-
two stock split effective March 20, 1995, contingent upon approval of an
amendment to its Certificate of Incorporation increasing the number of
shares the Company is authorized to issue. This amendment will be
considered by the Company's shareholders at the annual meeting to be held
on March 16, 1995.
Shareholders of record on March 20, 1995 will receive three shares of
common stock for each two they own on that date. The Company is
currently authorized to issue 10 million shares, par value $0.01, of
common stock and the proposed amendment would increase this authorization
to 20 million shares. When the stock split is effective, there will be
approximately 11.4 million shares outstanding or reserved for issuance.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Material Changes in Results of Operations
Quarter Ended January 31, 1995 versus January 31, 1994
A significant portion of the material changes in each category of
the Company's results of operations for the current quarter as compared
to the same period last year are attributable to the acquisition, on
December 1, 1994, of the photomask manufacturing operations and certain
assets of Hoya Micro Mask, Inc. ("Micro Mask"), an independent photomask
manufacturer with manufacturing operations located in Sunnyvale,
California. The operations acquired represent a full-service, state-of-
the-art photomask manufacturing facility.
Net sales for the quarter ended January 31, 1995 increased 38.8% to
$26.2 million compared with $18.9 million in the same period in the prior
year. The increase is attributable to the inclusion of two months' sales
by the Company's new Sunnyvale facility and generally stronger demand
from its existing customer base. The Company anticipates that its new
Sunnyvale operation will contribute to continued sales growth in each
quarter of fiscal 1995 as compared to the corresponding quarters of the
prior year.
Cost of sales in the quarter ended January 31, 1995, increased 31.1%
from the same period last year, resulting primarily from increased sales,
together with higher employee incentive compensation expense resulting
from the Company's performance. In addition, employee benefit costs for
the first quarter of 1995 increased as the majority of the employees at
the Texas facility were not yet eligible for benefits in the first
quarter of 1994. As a percentage of net sales, cost of sales decreased
to 62.7% in the first quarter of 1995 as compared with 66.4% in the prior
year quarter. The decrease was primarily due to improved capacity
utilization and greater operating efficiencies resulting from sales
volume increases at the Company's Brookfield, Dallas and Milpitas
existing facilities. This improvement was offset somewhat by a change in
business mix and lower margins in the Sunnyvale operation. The Company
anticipates that its fixed operating costs will increase in connection
with its planned expansion of capacity (see "Liquidity and Capital
Resources"), but that increased sales levels will largely compensate for
such cost increases.
Selling, general and administrative expenses increased 55.8% in the
quarter ended January 31, 1995, compared with the same period in the
prior year. The increase was due largely to higher employee incentive
compensation expense provisions as a result of performance and the
inclusion of two months' expenses of the Company's Sunnyvale facility.
Furthermore, the Company had increases in staffing levels, as well as
general increases in wages and other expenses. As a percentage of net
sales, selling, general and administrative expenses increased to 13.5% in
the first quarter of 1995, compared with 12.1% in the corresponding 1994
period.
Research and development expenses for the first quarter of fiscal
1995 increased 18.6% from the same period last year, primarily as a
result of several projects dealing with advanced technology photomasks.
However, as a percentage of net sales, research and development expenses
declined to 5.1% in the quarter ended January 31, 1995, compared to 6.0%
in the corresponding prior year period, reflecting increased net sales.
The Company anticipates that the increased revenue base provided by the
Sunnyvale facility will allow for increased research and development
efforts.
Interest income for the three months ended January 31, 1995,
increased 178.7% from the same period last year due to higher levels of
investable funds, coupled with higher prevailing interest rates.
Interest expense increased 52.4% compared with the first quarter of the
previous year. This increase was attributable to interest expense
incurred in connection with the Micro Mask acquisition, offset by a
reduction in other long-term debt. The net increase in other income of
$0.1 million compared with the same period in the prior year was
primarily due to net gains on investments during the first quarter of
fiscal 1995.
For the first quarter of fiscal 1995 the Company provided Federal
and state income taxes at an estimated combined effective annual rate of
approximately 37% as compared to 32% in the same period last year. The
increase in the Company's estimated tax rate is primarily due to a larger
portion of income being subject to the 35% incremental Federal income tax
rate and a greater portion of the Company's income being sourced in
California. In the first quarter of fiscal 1994, the Company recognized
the cumulative effect of the adoption of FAS 109, "Accounting for Income
Taxes," resulting in a benefit of $0.2 million, or $0.03 per share.
Net income in the first quarter ended January 31, 1995 increased
43.6% to $3.3 million, or $0.48 per share, compared with $2.3 million, or
$0.34 per share, for the same period in the prior year. The weighted
average number of common shares outstanding increased to 6,837,000 for
the first quarter of fiscal 1995 from 6,625,000 for last year's first
quarter.
Liquidity and Capital Resources
The Company's cash, cash equivalents and short-term investments
decreased $6.0 million during the quarter ended January 31, 1995. During
the first quarter, the Company funded $7.4 million of acquisition costs
in connection with the Micro Mask acquisition. Excluding the Micro Mask
acquisition, investing activities used cash totaling $3.3 million,
principally for deposits on and purchases of property and equipment, and
financing activities used an additional $0.3 million. These decreases in
liquidity were offset by $3.3 million of cash provided by operating
activities after utilizing approximately $2.0 million for initial working
capital at the Sunnyvale site.
Accounts receivable at January 31, 1995 increased 49.6% from October
31, 1994, principally as a result of increases in sales including those
at the new Sunnyvale operation. The 42.0% increase in inventories also
is attributable to the addition of the Sunnyvale facility. Other current
assets increased 14.4% primarily due to increases in various prepaid
expenses.
Property, plant and equipment and intangible assets at January 31,
1995 increased 13.9% and 99.0%, respectively, from October 31, 1994,
principally due to the acquisition of $5.1 million of fixed assets and
$5.7 million of intangible assets in connection with the Micro Mask
acquisition, and other fixed asset additions totaling $1.3 million,
offset by normal depreciation and amortization expense.
Investments increased 36.2% due to additional unrealized gains
recorded in the first quarter of fiscal 1995 as a result of the increased
fair value of the Company's investments, net of dispositions during the
quarter.
Other assets at January 31, 1995 decreased 7.4% from October 31,
1994, as assets which were previously accounted for as deposits were
reclassified when the equipment was placed in service. Partially
offsetting this decrease were additional deposits on equipment of $0.7
million.
Accounts payable increased 52.3% primarily due to the addition of
the Sunnyvale operation and increased payables related to equipment
purchases. Accrued salaries decreased 25.7% principally as a result of
the payment during the first quarter of fiscal 1994 of prior year
incentive compensation. This decrease was offset by the addition of the
Sunnyvale operation and provisions for incentive compensation for fiscal
1995. Other accrued liabilities at January 31, 1995 decreased 6.1% from
October 31, 1994 due to the payment, in 1995, of certain 1994 annual
expenses, offset by increases resulting from the addition of the
Sunnyvale operation. Current income taxes payable increased to $1.9
million due to the results of operations, the Company's tax estimates,
and the Company's normal income tax payment practice.
In connection with the Micro Mask acquisition, the Company incurred
an obligation to pay $3.0 million and $1.8 million, without interest, six
months and four years after the closing, respectively. As a result of
these obligations and a $0.4 million balloon payment which became due,
short-term debt and the current portion of long-term debt increased by
$2.6 million and long-term debt, less the current portion, increased $1.4
million (net of imputed interest on the Micro Mask debt) during the first
quarter of fiscal 1995. Deferred income taxes at January 31, 1995
increased $1.8 million from October 31, 1994 to $8.9 million largely due
to amounts provided on the unrealized gains on investments.
As of January 31, 1995, the Company had commitments for the purchase
or lease of property, plant and equipment with an acquisition cost of
approximately $24.4 million, of which approximately $4.8 million had
been paid at that date. Included in commitments are $6.6 million related
to the construction of the Company's new facility in the Dallas area.
Additional commitments for construction as well as the relocation of the
Company's current Texas operation will be incurred later in 1995. The
Company's 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.
The Company will use its working capital, bank credit lines and
leasing arrangements to finance its capital investments. The Company has
a revolving credit commitment for borrowings of up to $10 million a year
in each of the next three years. Further, the Company believes that it
has the capacity for substantial growth and access to equity and other
financing sources to fulfill its cash requirements for the foreseeable
future.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed by the Company on December 5, 1994
reporting the acquisition of substantially all of the operating assets of
Hoya Micro Mask, Inc. The financial statements required to be filed
under Form 8-K were filed by an Amendment to Form 8-K, dated January 27,
1995. The financial statements filed were as follows:
(1) Financial Statements of Business Acquired
Hoya Micro Mask, Inc.
... Report of KPMG Peat Marwick LLP, dated November 18, 1994
... Balance Sheets, dated March 31, 1994 and 1993
... Statements of Operations, Accumulated Deficit and Cash
Flows for the years ended March 31, 1994 and 1993
... Notes to Financial Statements
Unaudited Interim Financial Statements
... Condensed Balance Sheets as of September 30, 1994 and
March 31, 1994
... Condensed Statements of Operations and Accumulated Deficit for
the six-month periods ended September 30, 1994 and 1993
... Condensed Statements of Cash Flows for the six-month periods
ended September 30, 1994 and 1993
... Notes to Condensed Financial Statements
(2) Pro Forma Financial Information
Photronics, Inc. and Hoya Micro Mask Inc.
... Pro Forma Condensed Consolidated Balance Sheet as of October
31, 1994
... Pro Forma Condensed Combined Statement of Operations for the
twelve months ended October 31, 1994
... Notes to Pro Forma Financial Statements
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 9, 1995