SECURITES 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, 2001
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
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PHOTRONICS, INC.
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(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0854886
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1061 EAST INDIANTOWN ROAD, JUPITER, FL 33477
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(Address of principal executive offices) (Zip Code)
(561) 745-1222
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(Registrant's telephone number, including area code)
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(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 periods 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, 2001
COMMON STOCK, $.01 PAR VALUE 29,806,189 SHARES
PHOTRONICS, INC.
AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet
at January 31, 2001 (unaudited) and
October 31, 2000 3 - 4
Condensed Consolidated Statement of
Earnings for the Three Months Ended
January 31, 2001 (unaudited) and
January 30, 2000 (unaudited) 5
Condensed Consolidated Statement of
Cash Flows for the Three Months Ended
January 31, 2001 (unaudited) and
January 30, 2000 (unaudited) 6
Notes to Condensed Consolidated
Financial Statements (unaudited) 7 - 9
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 10 - 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
2
PART I. FINANCIAL INFORMATION
ITEM I. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PHOTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
ASSETS
JANUARY 31, OCTOBER 31,
2001 2000
----------- -----------
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 34,671 $ 38,182
Accounts receivable (less allowance
for doubtful accounts of $812 in
2001 and $881 in 2000) 72,752 64,019
Inventories 19,085 18,486
Other current assets 16,859 17,906
-------- --------
Total current assets 143,367 138,593
Property, plant and equipment
(less accumulated depreciation of $246,945
in 2001 and $231,426 in 2000) 389,242 395,281
Intangible assets (less accumulated
amortization of $10,491 in 2001 and
$9,373 in 2000) 58,671 59,277
Investments and other assets 15,911 16,410
-------- --------
$607,191 $609,561
======== ========
See accompanying notes to condensed consolidated financial statements.
3
PHOTRONICS, INC. AND SUBISIDARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND SHAREHOLDERS' EQUITY
JANUARY 31, OCTOBER 31,
2001 2000
----------- -----------
(UNAUDITED)
Current liabilities:
Current portion of long-term debt $ 430 $ 849
Accounts payable 44,170 37,917
Accrued salaries and wages 5,424 5,264
Other accrued liabilities 11,943 7,539
------ -----
Total current liabilities 61,967 51,569
Long-term debt 178,242 202,797
Deferred income taxes and other liabilities 34,686 34,089
------ ------
Total liabilities 274,895 288,455
------- -------
Minority interest 28,937 27,126
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value,
2,000 shares authorized,
none issued and outstanding -- --
Common stock, $0.01 par value,
75,000 shares authorized,
29,806 shares issued and
outstanding in 2001 and 29,688
issued and outstanding in 2000 298 297
Additional paid-in capital 137,647 136,445
Retained earnings 175,648 167,246
Accumulated other comprehensive loss (10,169) (9,877)
Deferred compensation on restricted stock (65) (131)
--------- ---------
Total shareholders' equity 303,359 293,980
--------- ---------
$ 607,191 $ 609,561
========= =========
See accompanying notes to condensed consolidated financial statements.
4
PHOTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
-------------------------
JANUARY 31, JANUARY 30,
2001 2000
----------- -----------
Net sales $ 98,557 $ 72,585
Costs and expenses:
Cost of sales 63,229 50,335
Selling, general and administrative 13,474 10,740
Research and development 5,856 4,813
----- -----
Operating income 15,998 6,697
Other expense, net (2,776) (1,179)
------ ------
Income before provision for income taxes
and minority interest 13,222 5,518
Provision for income taxes 3,700 1,987
----- -----
Income before minority interest 9,522 3,531
Minority interest in income of
consolidated subsidiary (1,120) --
----- -----
Net income $ 8,402 $ 3,531
======== ========
Earnings per share:
Basic $ 0.28 $ 0.13
======== ========
Diluted $ 0.28 $ 0.13
======== ========
Weighted average number of common
shares outstanding:
Basic 29,714 27,875
====== ======
Diluted 34,147 28,115
====== ======
See accompanying notes to condensed consolidated financial statements.
5
PHOTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
-------------------------
JANUARY 31, JANUARY 30,
2001 2000
----------- -----------
Cash flows from operating activities:
Net income $ 8,402 $ 3,531
Adjustment to reconcile net income to net
cash provided by (used in)
operating activities:
Depreciation and amortization 17,653 12,614
Other 704 (1,667)
Changes in assets and liabilities:
Accounts receivable (7,415) (426)
Inventories (437) (1,384)
Other current assets 1,110 (856)
Accounts payable and accrued liabilities 10,760 (13,925)
-------- ---------
Net cash provided by (used in) operating activities 30,777 (2,113)
-------- ---------
Cash flows from investing activities:
Deposits on and purchases of property,
plant and equipment (13,782) (15,825)
Other 4,347 445
-------- ---------
Net cash used in investing activities (9,435) (15,380)
-------- ---------
Cash flows from financing activities:
Repayment of long-term debt, net of proceeds (24,987) 6,449
Proceeds from issuance of common stock 584 2,761
-------- ---------
Net cash provided by (used in) financing activities (24,403) 9,210
-------- ---------
Effect of exchange rate changes on cash flows (450) (1,249)
-------- ---------
Net decrease in cash and cash equivalents (3,511) (9,532)
Cash and cash equivalents at beginning of period 38,182 23,115
Adjustment related to Align-Rite's net cash flows
from differences in fiscal reporting periods -- (1,091)
-------- ---------
Cash and cash equivalents at end of period $ 34,671 $ 12,492
======== =========
Cash paid during the period for:
Interest $ 4,581 $ 3,354
Income taxes $ 155 $ 421
See accompanying notes to condensed consolidated financial statements.
6
PHOTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JANUARY 31, 2001 AND JANUARY 30, 2000
(UNAUDITED)
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended January 31, 2001 are not necessarily
indicative of the results that may be expected for the year ending October 31,
2001. Certain amounts in the Condensed Consolidated Financial Statements for
prior periods have been reclassified to conform to the current presentation. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended October 31, 2000.
NOTE 2 - BUSINESS COMBINATIONS
ALIGN-RITE MERGER
On June 7, 2000, Photronics completed its merger with Align-Rite
International, Inc. ("Align-Rite"), herein after collectively referred to as the
Company. The merger constituted a tax-free reorganization and has been accounted
for as a pooling-of-interests. The Condensed Consolidated Financial Statements
for the three months ended January 31, 2001 and January 30, 2000 and the
accompanying notes thereto reflect the Company's financial position, results of
operations and cash flows as if Align-Rite had been a wholly-owned subsidiary of
Photronics for all periods presented. The financial statement balances of
Align-Rite have been reclassified to conform to Photronics' presentation.
ACQUISITION OF PSMC
During fiscal year 2000, the Company acquired a majority share of
Precision Semiconductor Mask Corporation (PSMC), a photomask manufacturer based
in Taiwan, for approximately $63.4 million. The acquisition was accounted for as
a purchase. The operating results of PSMC have been included in the Condensed
Consolidated Statement of Earnings since June 20, 2000. Had the acquisition of
PSMC occurred at the beginning of fiscal 2000, the unaudited pro forma condensed
consolidated net sales for the three months ended January 30, 2000 would have
been $76.6 million and the pro forma net income and earnings per share for the
three months ended January 30, 2000 would have been $1.8 million and $0.06,
respectively. In management's opinion, these unaudited pro forma amounts are not
necessarily indicative of what the actual combined results of operations might
have been if the acquisition of PSMC had been effective at the beginning of the
periods presented.
NOTE 3 - COMPREHENSIVE INCOME
The following table summarizes comprehensive income for the three months
ended January 31, 2001 and January 30, 2000:
JANUARY 31, JANUARY 30,
2001 2000
------- -------
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Net income $ 8,402 $ 3,531
Other comprehensive income (loss):
Unrealized gains on investments 142 3,041
Foreign currency translation adjustments (434) (2,807)
------- -------
(292) 234
------- -------
Comprehensive income $ 8,110 $ 3,765
======= =======
NOTE 4 - EARNINGS PER SHARE
Earnings per share ("EPS") amounts are calculated in accordance with the
provisions of SFAS No. 128. Basic EPS is based on the weighted average number of
common shares outstanding for the period, excluding any dilutive common share
equivalents. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted.
A reconciliation of basic and diluted EPS for the three months ended
January 31, 2001 and January 30, 2000, respectively, is as follows (in
thousands, except per share amounts):
AVERAGE
NET SHARES EARNINGS
INCOME OUTSTANDING PER SHARE
------ ----------- ---------
2001:
Basic $8,402 29,714 $ 0.28
Effect of potential dilution ========
from exercise of stock options
and conversion of notes 1,077 4,433
------ ------
Diluted $9,479 34,147 $ 0.28
====== ====== ========
2000:
Basic $3,531 27,875 $ 0.13
Effect of potential dilution ========
from exercise of stock options (a) -- 240
------ ------
Diluted $3,531 28,115 $ 0.13
====== ====== ========
(a) The effect of the conversion of notes for the three months ended
January 30, 2000 is anti-dilutive.
NOTE 5 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives will be reported in the statement of earnings or as other
comprehensive income (loss) as a separate component of shareholders' equity,
depending on the use of the derivatives and whether they qualify for hedge
accounting. The key criterion for hedge accounting is that the derivative must
be highly effective in achieving offsetting changes in fair value or cash flows
8
of the hedged items during the term of the hedge. The Company adopted SFAS No.
133, as amended by SFAS No. 138, in the first quarter of fiscal year 2001. This
adoption did not have a material impact on the Company's financial statements.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
On June 7, 2000, Photronics, Inc. ("Photronics" or the "Company"),
completed its merger with Align-Rite International, Inc. ("Align-Rite), an
independent publicly traded manufacturer of photomasks in the United States and
Europe. The transaction was accounted for as a pooling-of-interests. The
Condensed Consolidated Financial Statements, the accompanying notes and this
management discussion and analysis have been restated to reflect the Company's
financial position, results of operations and cash flows as if Align-Rite was a
consolidated wholly-owned subsidiary of the Company for all periods presented.
During fiscal year 2000, the Company acquired a majority share of
Precision Semiconductor Mask Corporation (PSMC), a photomask manufacturer based
in Taiwan, for approximately $63.4 million. The acquisition was accounted for as
a purchase. The operating results of PSMC have been included in the Condensed
Consolidated Statement of Earnings since June 20, 2000.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 2001 VERSUS JANUARY 30, 2000
The following table represents selected operating information expressed as
a percentage of net sales:
Three Months Ended
-------------------------
January 31, January 30,
2001 2000
----------- -----------
Net sales 100.0% 100.0%
Cost of sales 64.2 69.4
------ ------
Gross margin 35.8 30.6
Selling, general and
administrative expenses 13.7 14.8
Research and development
expenses 5.9 6.6
------ ------
Operating income 16.2% 9.2%
====== ======
Net sales for the three months ended January 31, 2001 increased 35.8% to
$98.6 million compared with $72.6 million for the corresponding prior year
period. In addition to the Company's new Taiwan operation, the increase resulted
from an improved mix of high-end, higher priced products across all geographic
10
regions, increased unit volume, and continued international expansion.
International operations accounted for 32.7% of sales for the three months ended
January 31, 2001 compared to 23.6% in the corresponding prior year period.
Gross margins for the three months ended January 31, 2001 increased to
35.8% compared to 30.6% for the corresponding prior year period. The increase in
gross margins is attributable to a greater mix of high-end technology products
and increased capacity utilization. The increase was partially offset by lower
margins currently being experienced at the new Taiwan operation.
Selling, general and administrative expenses increased 25.5% to $13.5
million for the three months ended January 31, 2001, compared with $10.7 million
for the same period in the prior fiscal year. As a percentage of net sales,
selling, general and administrative expenses decreased to 13.7% compared to
14.8% for the same period in the prior fiscal year. The higher expenses in 2001
were due principally to costs associated with the Company's expansion, both
domestically and internationally, including costs incurred in Taiwan, and growth
of the Company's information technology infrastructure.
Research and development expenses for the three months ended January 31,
2001, increased 21.7% to $5.9 million compared with $4.8 million for the same
period in the prior fiscal year. This increase reflects the continuing
development efforts on high-end, more complex photomasks such as phase shift,
optical proximity correction and next generation lithography applications.
Research and development was 5.9% of net sales for the three months ended
January 31, 2001, compared to 6.6% in the corresponding prior year period.
Net other expense of $2.8 million for the three months ended January 31,
2001 increased $1.6 million compared to the three months ended January 30, 2000.
The increase is primarily attributable to increased interest costs associated
with increased borrowings, principally for the PSMC acquisition, and higher
effective borrowing rates.
Minority interest of $1.1 million for the three months ended January 31,
2001 reflects the minority interest in earnings of the Company's subsidiary in
Taiwan.
Net income for the three months ended January 31, 2001, increased to $8.4
million or $0.28 per basic and diluted share. These amounts compare to $3.5
million, or $0.13 per basic and diluted share, for the corresponding prior year
period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at January 31, 2001 was $81.4 million
compared to $87.0 million at October 31, 2000. The decrease in working capital
is due primarily to lower cash balances resulting from repayments of borrowings
under the Company's unsecured revolving credit line, together with higher
accounts payable balances. Cash and cash equivalents at January 31, 2001 were
$34.7 million compared to $38.2 million at October 31, 2000. Cash provided by
operating activities for the three months ended January 31, 2001 amounted to
$30.8 million compared to cash used in operating activities of $2.1 million for
the three months ended January 30, 2000. This increase is primarily attributable
to higher income before depreciation and amortization charges and the net change
11
in assets and liabilities principally due to the timing of progress payments for
capital equipment coming due during the respective periods.
Cash used in investing activities of $9.4 million consisted principally of
capital equipment purchases.
Cash flows used in financing activities of $24.4 million included net
repayments of borrowings of $25.0 million partially offset by $0.6 million in
proceeds from the exercise of employee stock options.
The Company is subject to compliance with and maintenance of certain
financial covenants and ratios set forth in its unsecured revolving credit
facility, as amended. The Company had $46.6 million of outstanding borrowings
and $78.4 million available under the revolving credit facility at January 31,
2001.
Photronics' commitments represent investments in additional manufacturing
capacity as well as advanced equipment for the production of high-end, more
complex photomasks. As of March 1, 2001, Photronics had commitments outstanding
for capital expenditures of approximately $70.0 million. Additional commitments
for capital expenditures are expected to be incurred during fiscal 2001.
Photronics will continue to use its working capital and bank lines of credit to
finance its capital expenditures. Photronics believes that its currently
available resources, together with its capacity for substantial growth and its
access to other debt and equity financing sources, are sufficient to satisfy its
currently planned capital expenditures, as well as its anticipated working
capital requirements for the foreseeable future.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives will be reported in the statement of earnings or as other
comprehensive income (loss) as a separate component of shareholders' equity,
depending on the use of the derivatives and whether they qualify for hedge
accounting. The key criterion for hedge accounting is that the derivative must
be highly effective in achieving offsetting changes in fair value or cash
flows of the hedged items during the term of the hedge. The Company adopted
SFAS No. 133, as amended by SFAS No. 138, in the first quarter of fiscal year
2001. This adoption did not have a material impact on its financial
statements.
In December 1999, the Securities and Exchange Commission (the "SEC")
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101, as amended, is required to be adopted by the
Company no later than the fourth fiscal quarter of fiscal 2001. The Company's
adoption of SAB No. 101 is not expected to have a material impact on the
Company's consolidated financial position or results of operations.
12
FORWARD LOOKING INFORMATION
Certain statements in this report are considered "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. All forward looking statements involve risks and uncertainties. For a
description of the factors that could cause the actual results of the Company to
be materially different from those projected, please review the Company's SEC
reports that detail these risks and uncertainties and the section captioned
"Forward Looking Information" contained in the Company's Annual Report on Form
10-K for the year ended October 31, 2000. Any forward looking statements should
be considered in light of these factors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibits Index.
(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: /s/ ROBERT J. BOLLO
-------------------
Robert J. Bollo
Senior Vice President
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
DATE: MARCH 15, 2001
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