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 ......July 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.)
......1061 East Indiantown Road, Jupiter, FL...... ..33477..
(Address of principal executive offices) (Zip Code)
...(203) 775-9000...
(Registrant's telephone number, including area code)
......P.O. Box 5226, 15 Secor Road, Brookfield, CT 06804......
(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 July 31, 1995
Common Stock, $.01 par value 11,599,938 Shares
PHOTRONICS, INC.
AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at July 31,
1995 (unaudited) and October 31, 1994 3-4
Condensed Consolidated Statement of Earnings
for the three and nine months ended July 31,
1995 and 1994 (unaudited) 5
Condensed Consolidated Statement of Cash Flows
for the nine months ended July 31,
1995 and 1994 (unaudited) 6
Notes to Condensed Consolidated Financial
Statements (unaudited) 7-8
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 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(dollars in thousands)
ASSETS
July 31, October 31,
1995 1994
----------- -----------
(Unaudited)
Current assets:
Cash, cash equivalents and
short-term investments $ 54,562 $27,627
Accounts receivable (less allowance
for doubtful accounts of $195 in
1995 and $135 in 1994) 18,081 10,218
Inventories 5,267 2,469
Other current assets 2,094 2,140
-------- -------
Total current assets 80,004 42,454
Property, plant and equipment 59,714 39,205
Intangible assets (less accumulated
amortization of $1,883 in 1995
and $1,117 in 1994) 10,494 5,523
Investments and other assets 20,966 11,164
-------- -------
$171,178 $98,346
======== =======
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
July 31, October 31,
1995 1994
----------- -----------
(Unaudited)
Current liabilities:
Current portion of long-term debt $ 35 $ 467
Accounts payable 14,184 5,053
Accrued salaries and wages 4,005 2,615
Other accrued liabilities 4,496 1,423
Income taxes payable 1,214 567
-------- -------
Total current liabilities 23,934 10,125
Long-term debt 1,846 495
Deferred income taxes 11,307 7,077
Other liabilities 275 247
-------- -------
Total liabilities 37,362 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 in 1994
and 20,000,000 shares authorized in 1995,
11,736,438 shares issued in 1995
and 6,659,929 shares in 1994 117 67
Additional paid-in capital 75,145 41,338
Retained earnings 47,885 34,338
Unrealized gains on investments 11,354 5,608
Treasury stock, 136,500 shares in 1995
and 91,000 shares in 1994, at cost (245) (245)
Deferred compensation on restricted stock (440) (704)
-------- --------
Total shareholders' equity 133,816 80,402
-------- -------
$171,178 $98,346
======== =======
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Earnings
(in thousands, except per share amounts)
(Unaudited)
<CAPTIONS>
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ -----------------
1995 1994 1995 1994
--------- ------- -------- -------
Net sales $32,854 $21,313 $89,067 $58,811
Costs and expenses:
Cost of sales 20,015 13,096 54,854 37,799
Selling, general and administrative 4,489 3,088 12,136 7,621
Research and development 3,177 1,254 6,120 3,495
------- ------- ------- -------
Operating income 5,173 3,875 15,957 9,896
Interest and other income, net 5,187 405 5,700 575
------- ------- ------- -------
Income before income taxes and
cumulative effect of change
in accounting for income taxes 10,360 4,280 21,657 10,471
Provision for income taxes 3,900 1,515 8,110 3,558
------- ------- ------- -------
Income before cumulative
effect of change in
accounting for income taxes 6,460 2,765 13,547 6,913
Cumulative effect of change in
accounting for income taxes - - - 237
------- ------- ------- -------
Net income $ 6,460 $ 2,765 $13,547 $ 7,150
======= ======= ======= =======
Net income per common share:
Income before cumulative effect
of change in accounting for
income taxes $0.54 $0.27 $1.24 $0.69
Cumulative effect of change in
accounting for income taxes - - - 0.02
----- ----- ----- -----
Net income $0.54 $0.27 $1.24 $0.71
===== ===== ===== =====
Weighted average number of
common shares outstanding 11,945 10,098 10,905 10,023
====== ====== ====== ======
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(in thousands)
(Unaudited)
Nine Months Ended
July 31,
--------------------
1995 1994
------- -------
Cash flows from operating activities:
Net income $13,547 $ 7,150
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,270 6,485
Net gain on disposition of investments (5,110) -
Deferred income taxes (113) 227
Cumulative effect of change in
accounting for income taxes - (237)
Research and development expense
from acquisition 1,484 -
Other 392 124
Changes in assets and liabilities, net of
effects of acquisitions in 1995:
Accounts receivable (7,863) (814)
Inventories (1,832) (111)
Other current assets 92 (1,129)
Accounts payable and accrued liabilities 13,069 133
Income taxes payable 647 1,694
------- -------
Net cash provided by operating activities 21,583 13,522
------- -------
Cash flows from investing activities:
Acquisition of photomask operations (10,468) -
Deposits on and purchases of property,
plant and equipment (20,942) (3,351)
Net change in short-term investments (5,444) 559
Proceeds from sale of investments 5,750 -
Other (14) (282)
------- -------
Net cash used in investing activities (31,118) (3,074)
------- -------
Cash flows from financing activities:
Repayment of long-term debt (431) (485)
Net proceeds from issuance of common stock 31,457 1,142
------- -------
Net cash provided by financing activities 31,026 657
------- -------
Net increase in cash and cash equivalents 21,491 11,105
Cash and cash equivalents at beginning of period 25,092 8,225
------- -------
Cash and cash equivalents at end of period $46,583 $19,330
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $32 $58
Income taxes $6,684 $1,273
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Three and Nine Months Ended July 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 and nine-month periods ended July 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, $3.0 million on
June 1, 1995, and the obligation to pay $1.8 million, without interest, four
years after the closing. In addition, the Company incurred approximately
$0.3 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 and nine months ended July 31, 1994, as though the purchase had
been made as of the beginning of that period, would have reflected sales of
approximately $27.9 million and $77.2 million and net income of $3.3 million,
or $0.33 per share, and $7.7 million, or $0.77 per share before the change in
accounting for income taxes. 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 - ACQUISITION OF PHOTOMASK OPERATIONS OF MICROPHASE LABORATORIES, INC.
On June 20, 1995, the Company acquired the manufacturing operations and
assets, exclusive of cash and accounts receivable, of Microphase
Laboratories, Inc. ("Microphase"), an independent photomask manufacturer
located in Colorado Springs, Colorado, in exchange for 98,559 shares of
common stock of the Company valued at $2.4 million. The acquisition was
accounted for as a purchase. The fair value of assets acquired was
approximately $2.4 million, including $1.5 million of Microphase's research
and development projects that have no alternative future use and,
accordingly, was charged to research and development expenses. The results
of the Microphase operations are not material to the Company.
NOTE 4 - SHAREHOLDERS' EQUITY
In January 1995, the Company's Board of Directors approved a three-for two
stock split which became effective on March 20, 1995. On March 16, 1995, the
shareholders approved an amendment to the Company's Certificate of
Incorporation increasing the number of common shares which the Company is
authorized to issue from 10,000,000 shares to 20,000,000 shares.
Shareholders of record on March 20, 1995, received three shares of common
stock for each two they owned on that date. A total of 3.3 million shares
were issued in connection with the stock split which was effected in the form
of a dividend. All applicable share and per share data reflected in the
financial statements have been adjusted to reflect the stock split.
On April 18, 1995, the Company issued 1,290,000 new shares of common stock at
a price of $21.00 per share ($19.85 per share after underwriting discounts),
40,000 shares of common stock due to the exercise of stock options at prices
ranging from $1.83 to $3.17 per share and 7,500 additional shares of common
stock resulting from the exercise of a warrant at $5.24 per share. The gross
proceeds and costs of the issue were $25.7 million and approximately $0.3
million, respectively. Issuance costs were recorded as a reduction of
additional paid-in capital. On May 16, 1995, the underwriters exercised the
210,000 share over-allotment option at a net price of $19.85 per share,
providing additional proceeds totaling $4.2 million. The net proceeds will
be used to fund current expansion plans.
NOTE 5 - REVOLVING CREDIT AGREEMENT
In March 1995, the Company entered into a new unsecured revolving credit
facility that provides for borrowings of up to $10 million per year in each
of the next three years, subject to a carryover in the second and third year
of up to $3 million. Such borrowings are convertible into term loans,
payable in equal quarterly installments over five years. The new facility
provides for essentially the same terms and conditions as the Company's
previous revolving credit agreement, including compliance with and
maintenance of certain financial covenants and ratios.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Material Changes in Results of Operations
Three and Nine Months Ended July 31, 1995 versus July 31, 1994
A significant portion of the material changes in each category of the
Company's results of operations for the three and nine months ended July 31,
1995, as compared to the same periods in the prior fiscal year are
attributable to the acquisition, on December 1, 1994, of the photomask
manufacturing operations and 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. Further, on June 20,
1995, the Company acquired the manufacturing operations of Microphase
Laboratories, Inc. ("Microphase") in Colorado Springs, Colorado. Except for
a one-time charge to research and development expenses (see Note 3), the
financial results of the new Colorado facility did not have a material effect
on the Company's results of operations or financial position.
Net sales for the three and nine months ended July 31, 1995, increased
54.2% to $32.9 million and 51.4% to $89.1 million, respectively, compared
with $21.3 million and $58.8 million in the same periods in the prior fiscal
year. The increases are attributable to the inclusion of sales, commencing
December 1, 1994, by the Company's new Sunnyvale facility and increased
shipments to customers from existing facilities due to stronger demand
generally and greater manufacturing capacity resulting from the
implementation of the Company's capacity expansion program.
Cost of sales for the three and nine months ended July 31, 1995,
increased 52.8% to $20.0 million and 45.1% to $54.9 million, respectively,
compared to $13.1 million and $37.8 million for the same periods in the prior
fiscal year. These increases principally are due to increased sales,
together with greater personnel-related expenses, resulting from staffing
increases to meet production demands and higher employee incentive
compensation expenses resulting from the Company's performance. As a
percentage of net sales, cost of sales decreased to 60.9% and 61.6% for the
three and nine months ended July 31, 1995 as compared with 61.4% and 64.3% in
the corresponding periods last year. The improvement primarily was due to
the higher capacity utilization and greater operating efficiencies afforded
by sales volume increases and a more favorable mix of more complex
photomasks. The Company anticipates that its fixed operating costs will
increase in connection with its continuing capacity expansion. However, the
Company expects to match these higher costs with continued increases in sales
levels.
Selling, general and administrative expenses increased 45.4% to $4.5
million and 59.2% to $12.1 million for the three and nine months ended July
31, 1995, respectively, compared with $3.1 million and $7.6 million for the
same periods in the prior fiscal year. The increases were due largely to the
inclusion of expenses of the Company's Sunnyvale facility, charges for
certain non-recoverable assets and increased staffing levels, as well as
general increases in wages. Employee incentive compensation expense
provisions for the three months ended July 31, 1994, were higher than the
corresponding current year period; however, as a result of the Company's
sequential quarterly performance increases in fiscal 1995, incentive
compensation expenses were provided more ratably over the nine months ended
July 31, 1995, as compared with the same period in the prior year. As a
percentage of net sales, selling, general and administrative expenses
decreased to 13.7% for the three months ended July 31, 1995, compared with
14.5% for the same period last year primarily due the larger employee
incentive compensation provisions in the prior year period. For the nine
months ended July 31, 1995, selling, general and administrative expenses
increased to 13.6%, as compared with 13.0% in the corresponding period last
year.
Research and development expenses for the three and nine months ended
July 31, 1995, increased 153.3% to $3.2 million and 75.1% to $6.1 million,
respectively, compared to $1.3 million and $3.5 million from the same periods
for the prior fiscal year. In connection with the Microphase acquisition,
the Company recorded a one-time charge of $1.5 million. This charge
represented amounts assigned to certain Microphase research and development
projects, principally for the manufacture of large area masks, which were
expensed upon acquisition. Excluding this non-recurring charge, research and
development expenses for the three and nine month periods ended July 31,
1995, increased 34.9% and 32.6%, respectively, compared to the same periods
last year. These increases reflect the expansion of the Company's research
and development organization and its development efforts, focusing on
developing new photomask technologies such as phase shift and optical
proximity corrected photomasks. As a percentage of net sales, excluding the
Microphase charge, research and development expenses declined to 5.2% for the
three and nine months ended July 31, 1995, respectively, compared to 5.9% in
the corresponding prior fiscal year periods, reflecting increased net sales.
Interest and other income, net, for the three and nine months ended July
31, 1995, increased to $5.2 million and $5.7 million, respectively, compared
to $405,000 and $575,000 for the same periods in the prior fiscal year
principally due to a net gain of $4.7 million from the sale of an equity
investment during the three months ended July 31, 1995. The Company had
additional net gains on the disposition of investments in the first quarter
of fiscal 1995 and during the three months ended July 31, 1994. Interest
income for the three and nine months ended July 31, 1995, increased to
$519,000 and $1.0 million, respectively, compared with $150,000 and $346,000
in the prior year's corresponding periods primarily due to higher levels of
funds available for investment.
For the three and nine months ended July 31, 1995, the Company provided
Federal and state income taxes at an estimated combined effective annual tax
rate of 37.6% and 37.4%, respectively, as compared to 35.4% and 34.0% in the
same periods for the prior fiscal year. The increase in the Company's
estimated tax rate primarily is the result of 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 generated in California. For the nine
months ended July 31, 1994, the Company recognized the cumulative effect of
the adoption of SFAS 109, "Accounting for Income Taxes," resulting in a
benefit of $237,000, or $0.02 per share.
Liquidity and Capital Resources
The Company's cash, cash equivalents and short-term investments
increased $26.9 million during the nine months ended July 31, 1995, largely
as a result of the $29.6 million of net proceeds from the issuance of
1,500,000 new shares of common stock in a public equity offering completed
during the period and the $5.8 million of proceeds from the disposition of
investments. These proceeds were offset by cash of $10.5 million expended to
fund the acquisition of Micro Mask. Excluding the net proceeds from the
stock offering, sales of equity investments and the funds utilized in the
Micro Mask acquisition, investing activities used cash totaling $26.4
million, principally for deposits on and purchases of property, plant and
equipment and the increase in short-term investments, and financing
activities provided cash totaling $1.4 million, largely from exercises of
stock options. Operating activities, however, provided cash totaling $21.6
million, after utilizing approximately $2.0 million for initial working
capital at the Sunnyvale site.
Accounts receivable increased to $18.1 million at July 31, 1995, from
$10.2 million at October 31, 1994, principally as a result of higher sales
levels, particularly due to the inclusion of sales from the new Sunnyvale and
Colorado operations. Inventories increased to $5.3 million at July 31, 1995,
from $2.5 million at October 31, 1994, primarily due to higher equipment
inventory levels at the Company's wholly-owned subsidiary, Beta Squared,
Inc., the addition of the Sunnyvale and Colorado facilities and general
increases to accommodate the escalating sales volume.
Property, plant and equipment increased to $59.7 million at July 31,
1995, from $39.2 million at October 31, 1994, largely as a result of the $5.1
million and $820,000 of fixed assets acquired in connection with the Micro
Mask and Microphase acquisitions, respectively, and other deposits on and
purchases of property, plant and equipment totaling $21.1 million. These
increases were offset by normal depreciation expense totaling $6.5 million.
Intangible assets increased to $10.5 million at July 31, 1995, from $5.5
million at October 31, 1994, due to the $5.7 million of intangible assets
resulting from the Micro Mask acquisition, offset by normal amortization
totaling $766,000.
Investments and other assets increased to $21.0 million at July 31,
1995, from $11.2 million at October 31, 1994, principally due to additional
unrealized gains recorded as a result of the increased fair value of the
Company's investments, net of dispositions, during the period.
Accounts payable and other accrued liabilities at July 31, 1995,
increased from October 31, 1994, primarily due to increased payables related
to recent equipment purchases, higher levels of raw materials purchases due
to growing production needs, and the addition of the Sunnyvale and Colorado
operations. Accrued salaries and wages increased from October 31, 1994,
largely as a result of provisions for incentive compensation for fiscal 1995,
offset by payments during the period of fiscal 1994 and current year
incentive compensation, and the addition of the Sunnyvale and Colorado
operations.
As a result of an obligation incurred in connection with the Micro Mask
acquisition, long-term debt, less the current portion, increased $1.4 million
(net of imputed interest) during the nine months ended July 31, 1995.
Current portion of long-term debt decreased $432,000 during the same period
as a result of a balloon payment and normal monthly payments which became
due. Deferred income taxes at July 31, 1995, increased $4.2 million from
October 31, 1994, to $11.3 million largely due to amounts provided on the
unrealized gains on investments.
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. As
of July 31, 1995, the Company had commitments for the purchase or lease of
additional property, plant and equipment with an acquisition cost of $49.0
million, of which $15.7 million had been paid or accrued at that date.
Included in commitments are $11.3 million, of which $1.7 million had been
paid or accrued, related to the construction of the Company's new facility in
the Dallas area. Additional commitments for relocation of the Company's
current Texas operations and the proposed Singapore operations will be
incurred later in fiscal 1995.
The Company will use its working capital, bank credit lines, leasing
arrangements and the net proceeds from its recently completed stock offering
to finance its capital expenditures. In March 1995, the Company entered into
a new unsecured revolving credit facility that provides for borrowings of up
to $10 million per year in each of the next three years, subject to a
carryover in the second and third year of up to $3 million. Such borrowings
are convertible into term loans, payable in equal quarterly installments over
five years. The new facility provides for essentially the same terms and
conditions as the Company's previous revolving credit agreement, including
compliance with and maintenance of certain financial covenants and ratios.
The Company believes that its currently available resources, together with
its capacity for substantial growth, are sufficient to satisfy its cash
requirements for the foreseeable future.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits
10 Form of Agreement between the Company and each of Messrs
Macricostas, Yomazzo and Moonan.+
27 Financial Data Schedule
__________
+ Represents a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this form.
----------
(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: September 12, 1995