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 4, 1997.........
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 4, 1997
Common Stock, $.01 par value 11,874,640 Shares
PHOTRONICS, INC.
AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
at May 4, 1997 (unaudited) and
October 31, 1996 3-4
Condensed Consolidated Statement of
Earnings for the Three and Six Months
Ended May 4, 1997 and April 30,
1996 (unaudited) 5
Condensed Consolidated Statement of
Cash Flows for the Six Months Ended
May 4, 1997 and April 30, 1996
(unaudited) 6
Notes to Condensed Consolidated
Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 8-11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote 12
of Security Holders
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
May 4, October 31,
1997 1996
----------- -----------
(Unaudited)
Current assets:
Cash, cash equivalents and
short-term investments $ 11,115 $ 26,684
Accounts receivable (less allowance
for doubtful accounts of $235 in
1997 and 1996) 30,403 24,750
Inventories 9,292 7,992
Other current assets 7,164 6,154
-------- --------
Total current assets 57,974 65,580
Property, plant and equipment
(less accumulated depreciation of
$61,307 in 1997 and $52,740 in 1996) 146,494 123,666
Intangible assets (less accumulated
amortization of $3,507 in 1997
and $3,256 in 1996) 8,754 9,305
Investments and other assets 10,599 13,352
-------- --------
$223,821 $211,903
======== ========
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
May 4, October 31,
1997 1996
----------- -----------
(Unaudited)
Current liabilities:
Current portion of long-term debt $ 39 $ 38
Accounts payable 19,693 34,168
Accrued salaries and wages 5,058 5,561
Other accrued liabilities 6,080 4,200
-------- --------
Total current liabilities 30,870 43,967
Long-term debt 17,023 1,987
Deferred income taxes and other liabilities 8,813 9,532
-------- --------
Total liabilities 56,706 55,486
-------- --------
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,
20,000,000 shares authorized,
11,874,640 shares issued in 1997
and 11,973,290 shares in 1996 119 120
Additional paid-in capital 78,423 77,833
Retained earnings 85,482 73,973
Unrealized gains on investments 3,220 4,678
Treasury stock, 136,500 shares
at cost - (245)
Cumulative foreign currency
translation adjustment (129) 58
-------- --------
Total shareholders' equity 167,115 156,417
-------- --------
$223,821 $211,903
======== ========
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Earnings
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
------------------ ------------------
May 4, April 30, May 4, April 30,
1997 1996 1997 1996
------- --------- ------- ---------
Net sales $49,034 $40,514 $89,063 $75,182
Costs and expenses:
Cost of sales 30,283 24,811 55,630 46,063
Selling, general and
administrative 6,244 5,447 11,279 10,032
Research and development 2,622 2,123 4,924 3,948
------- ------- ------- -------
Operating income 9,885 8,133 17,230 15,139
Interest and other income, net 99 334 1,379 879
------- ------- ------- -------
Income before income taxes 9,984 8,467 18,609 16,018
Provision for income taxes 3,800 3,200 7,100 6,100
------- ------- ------- -------
Net income $ 6,184 $ 5,267 $11,509 $ 9,918
======= ======= ======= =======
Net income per common share $0.50 $0.44 $0.93 $0.82
===== ===== ===== =====
Weighted average number of
common shares outstanding 12,432 12,048 12,331 12,053
====== ====== ====== ======
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(in thousands)
(Unaudited)
Six Months Ended
---------------------
May 4, April 30,
1997 1996
------- ---------
Cash flows from operating activities:
Net income $11,509 $ 9,918
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 9,496 5,981
Gain on disposition of investments (1,060) -
Other 426 999
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable (5,653) (5,586)
Inventories (1,300) (977)
Other current assets (1,010) (2,439)
Accounts payable and other liabilities (13,109) (2,154)
------- -------
Net cash provided by (used in)
operating activities (701) 5,742
------- -------
Cash flows from investing activities:
Acquisition of photomask operations - (8,482)
Deposits on and purchases of property,
plant and equipment (32,540) (18,621)
Net change in short-term investments 7,918 12,196
Proceeds from sale of investments 1,369 -
Other 488 1,143
------- -------
Net cash used in investing activities (22,765) (13,764)
------- -------
Cash flows from financing activities:
Repayment of long-term debt (19) (19)
Borrowings under revolving credit facility 15,000 -
Net proceeds from issuance of common stock 834 1,257
------- -------
Net cash provided by financing activities 15,815 1,238
------- -------
Net decrease in cash and cash
equivalents (7,651) (6,784)
Cash and cash equivalents at beginning of period 18,766 35,644
------- -------
Cash and cash equivalents at end of period $11,115 $28,860
======= =======
Cash paid during the period for:
Interest $ 14 $ 16
Income taxes $3,026 $6,299
See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Three and Six Months Ended May 4, 1997
(Unaudited)
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements of the Company included herein have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission and, in the opinion of management,
reflect all adjustments which are necessary to present fairly the results
for the three and six-month periods ended May 4, 1997 and April 30, 1996.
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, 1996, which give a complete discussion of
these matters.
The Company adopted a fifty-two (52) week fiscal year beginning in the
first quarter of 1997.
NOTE 2 - 6% CONVERTIBLE SUBORDINATED NOTES DUE JUNE 1, 2004
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 1.85 million shares of the Company's common stock, at a conversion
price of $55.94 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 commencing December 1, 1997.
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition
Three and Six Months ended May 4, 1997 versus April 30, 1996
OVERVIEW
Photronics established its first operations outside of the United
States beginning in fiscal 1996, by acquiring two European operations,
opening a new manufacturing facility in Singapore and acquiring a
minority interest in an independent photomask manufacturer in Korea.
These facilities, together with the Company's five U.S. manufacturing
facilities, comprise a global manufacturing network of nine manufacturing
facilities supporting semiconductor manufacturers in the Asian, European
and North American markets. As a result, revenues from foreign markets
increased in the first half of 1997, compared with the first half of
1996, and that trend is expected to continue.
Revenues and costs also have been affected by the increased demand
for higher technology photomasks which have higher average selling
prices. To meet this demand and position the Company for future growth,
the Company continues to make substantial investments in high-end
manufacturing technology and capacity both at existing and new
facilities. In addition to the Singapore facility, the Company completed
construction of its new state-of-the-art facility in Allen, Texas, to
which it relocated its Dallas, Texas, operation in the fourth quarter of
fiscal 1996. The Company currently has two new manufacturing facilities
under construction, one in Manchester, U.K., to which the existing
Oldham, U.K. operation will be relocated during fiscal 1997, and a new
manufacturing facility near Austin, Texas, which the Company expects will
be operational in late 1997.
RESULTS OF OPERATIONS
Net Sales:
Net sales for the three and six months ended May 4, 1997 increased
21.0% to $49.0 million and 18.5% to $89.1 million, respectively, compared
with $40.5 million and $75.2 million for the corresponding prior year
periods. Sales from Photronics' new international manufacturing
operations accounted for approximately 40% of the 1997 year-to-date
increase. The remaining portion of the growth resulted from increased
shipments to customers from existing facilities due to stronger high-end
product demand and the availability of greater advanced manufacturing
capability, reflecting the implementation of the Company's capacity
expansion program.
Cost of Sales:
Gross profit for the three and six months ended May 4, 1997,
increased 19.4% to $18.8 million and 14.8% to $33.4 million,
respectively, compared with $15.7 million and $29.1 million for the same
periods in the prior fiscal year. Gross margins decreased to 38.2% for
the three months and to 37.5% for the six months ended May 4, 1997, as
compared with 38.8% and 38.7%, respectively, in the corresponding periods
in the prior fiscal year. The increase in gross profit resulted
principally from increases in sales volume, both from existing operations
in the United States and from new international operations. To allow for
increased manufacturing capability, the Company has continued to increase
its staffing levels and added to its manufacturing systems, resulting in
higher labor and equipment-related costs, including depreciation expense.
The lower margin rates were due primarily to the Company's expanded
manufacturing base, which is still in the process of ramping-up to higher
levels of utilization, and the inclusion of international operations
which generated margins below those generally experienced in the
Company's domestic operations. In addition, margins were lower at the
Company's Beta Squared subsidiary. Partially offsetting increased costs
were better margins resulting from a favorable product mix of complex
photomasks during the current fiscal year. The Company anticipates that
its fixed operating costs will increase in connection with its continuing
capacity expansion which it expects to offset with increases in net
sales.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses increased 14.6% to $6.2
million and 12.4% to $11.3 million, respectively, for the three and six
months ended May 4, 1997, compared with $5.4 million and $10.0 million
for the same periods in the prior fiscal year. However, as a percentage
of net sales, selling, general and administrative expenses decreased to
12.7% for the three and six months ended May 4, 1997, compared with 13.4%
and 13.3% for the same periods in the prior fiscal year. The increases
in costs resulted from the addition of the new international operations,
as well as expansion domestically, especially in Allen, Texas.
Research and Development:
Research and development expenses for the three and six months ended
May 4, 1997, increased 23.5% to $2.6 million and 24.7% to $4.9 million,
respectively, compared with $2.1 million and $3.9 million for the same
periods in the prior fiscal year. These increases reflect expansion of
the Company's research and development organization and an increase in
its development efforts which have focused on new high-end, more complex
photomasks, including phase shift, optical proximity correction and deep
ultra-violet technologies, as well as large area photomasks. As a
percentage of net sales, research and development expenses increased to
5.3% and 5.5% for the three and six months ended May 4, 1997,
respectively, compared with 5.2% and 5.3% in the corresponding prior
fiscal periods.
Other Income:
Interest and other income, net, for the six months ended May 4,
1997, increased to $1.4 million compared with $0.9 million for the same
period in the prior fiscal year due principally to a $1.1 million gain
from the sale of investment securities, offset in part by a decrease in
interest income resulting from lower levels of funds available for
investment.
Net Income:
Net income for the three and six months ended May 4, 1997, increased
17.4% to $6.2 million, or $0.50 per share, and 16.0% to $11.5 million, or
$0.93 per share, respectively, compared with $5.3 million, or $0.44 per
share and $9.9 million, or $0.82 per share, for the same periods in the
prior fiscal year. Net income in the first six months of 1997 included
$0.7 million, or $0.05 per share, from the gain on the sale of investment
securities. The weighted average number of common shares outstanding
increased to 12.4 million and 12.3 million for the three and six months
ended May 4, 1997, from 12.0 million and 12.1 million for the same
periods in the prior fiscal year principally as a result of the issuance
of shares in connection with employee stock option exercises.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments
decreased $15.6 million during the first half of fiscal 1997, largely as
a result of $32.5 million of capital expenditures for building
construction and equipment purchases in connection with the Company's
expansion of manufacturing capacity. Offsetting these decreases during
the first half of 1997 were proceeds from the sale of investments of $1.4
million and $0.8 million from sales of stock under the employee stock
option and purchase plans. In addition, the Company borrowed $15.0
million under its revolving credit facility in the second quarter of
1997.
Accounts receivable increased to $30.4 million at May 4, 1997 from
$24.8 million at October 31, 1996, primarily as a result of higher order
activity over the course of the second quarter of 1997, and sales by the
new foreign operations. Inventories increased $1.3 million, or 16.3%
from October 1996 to $9.3 million at May 4, 1997, as a result of the
purchase during the first half of 1997, of several machines for
refurbishment and resale by Beta Squared.
Property, plant and equipment increased to $146.5 million at May 4,
1997, from $123.7 million at October 31, 1996. Deposits on and purchases
of equipment and construction in progress on the new Manchester and
Austin facilities totaled $32.5 million during the six months ended May
4, 1997. These increases were offset by depreciation expense totaling
$9.0 million in the first half of fiscal 1997. The decrease in
intangible assets from $9.3 million at October 31, 1996 to $8.8 million
at May 4, 1997, was due primarily to amortization expense during the
period.
Investments decreased from $13.2 million at October 31, 1996 to
$10.4 million at May 4, 1997, due to the sale of certain investment
securities, as well as the net decrease in the fair value of investment
securities during the period.
Accounts payable decreased $14.5 million from October 31, 1996 to
$19.7 million at May 4, 1997, due to payments made of unusually high
payables at October 31, 1996 which had resulted from the acceptance of
significant equipment purchases at the end of fiscal 1996. Accrued
salaries and wages and other accrued liabilities increased to $11.1
million at May 4, 1997 from $9.8 million at October 31, 1996, largely as
a result of fiscal 1997 accruals, including incentive compensation, and
timing of other expenses.
The Company has amended its revolving credit facility to permit
borrowings of up to $30.0 million at any time through October 31, 1998.
All amounts outstanding at October 31, 1998 will be due and payable on
such date. The Company incurred $15.0 million of long-term debt during
the first half of 1997. Other changes in long-term debt are due to the
imputation of interest on the obligation incurred in connection with the
Micro Mask acquisition. Deferred income taxes decreased from $7.5
million at October 31, 1996, to $6.8 million at May 4, 1997, largely due
to a reduction in unrealized gains on investments.
The Company's commitments represent on-going investments in
additional manufacturing capacity, as well as advanced equipment for
research and development of the next generation of higher technology and
more complex photomasks. At May 4, 1997, the Company had commitments
outstanding for capital expenditures of approximately $70 million.
Additional commitments are expected to be incurred during 1997.
Subsequent to the end of the first half of fiscal 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 into 1.85 million shares of the Company's common stock. The
Company received the proceeds, net of the underwriting discounts and
costs, of $100 million on May 29, 1997, and repaid the $15 million
outstanding under its revolving credit facility. The Company believes
that its currently available resources, together with its capacity for
substantial growth and its accessibility to other debt and equity
financing sources, are sufficient to satisfy its cash requirements for
the foreseeable future.
EFFECT OF NEW ACCOUNTING STANDARD
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings per Share", which establishes new standards for the computation
and disclosure of earnings per share ("EPS"). The new statement requires
dual presentation of "basic" EPS and "diluted" EPS. Basic EPS is based
on the weighted average number of common shares outstanding for the
period, excluding any dilutive common share equivalents. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted. The Company
cannot adopt SFAS 128 until the first quarter of fiscal year 1998. The
effect of SFAS 128, had it been adopted beginning in fiscal year 1996,
would have been to present basic EPS that would have been greater than
EPS actually reported by $0.01 for the second quarter of 1996 and $0.02
for the second quarter of 1997, and by $0.03 for the first six months of
1996 and $0.04 for the first six months of 1997. The presentation of
diluted EPS would have been the same as EPS actually reported for the
respective periods.
"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 20, 1997.
(b) The following directors, constituting the entire Board
of Directors were elected at the Annual Meeting of
Shareholders held on March 20, 1997. Also indicated
are the affirmative, negative and authority withheld
votes for each director.
Authority
For Against Withheld
Walter M. Fiederowicz 10,552,775 0 78,482
Joseph A. Fiorita, Jr. 10,553,610 0 77,647
Constantine S. Macricostas 10,553,225 0 78,032
Yukio Tagawa 10,552,925 0 78,332
Michael J. Yomazzo 10,552,925 0 78,332
(c) The following additional matters, and the affirmative and
negative votes and abstentions and broker non-votes with
respect thereto, were approved at the Annual Meeting of
Shareholders held on March 20, 1997:
The ratification of the appointment of Deloitte and Touche
LLP as the independent certified public accountants of the
Company for the fiscal year ending October 31, 1997:
Affirmative Votes..................... 10,619,521
Negative Votes........................ 5,465
Abstentions/Broker Non-Votes.......... 6,271
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits
10.1 Third Amendment dated as of May 14,1997 to the
Revolving Credit and Term Loan Agreement dated as of
March 1, 1995 between the Company and The Chase
Manhattan Bank.
27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter for which this report is filed, the Company
filed a report on Form 8-K on May 13, 1997. Such report filed
the Company's Condensed Consolidated Balance Sheet at May 4,
1997 (unaudited) and October 31, 1996, and Condensed
Consolidated Statement of Earnings for the Three and Six
Months Ended May 4, 1997 and April 30, 1996 (unaudited).
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 13, 1997
FORMS\10Q597/p