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 <TABLE> PHOTRONICS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheet (dollars in thousands) ASSETS <CAPTION> July 31, October 31, 1995 1994 ----------- ----------- (Unaudited) <S> <C> <C> 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 ======== ======= </TABLE> See accompanying notes to consolidated financial statements.
<TABLE> PHOTRONICS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheet (dollars in thousands, except per share amounts) LIABILITIES AND SHAREHOLDERS' EQUITY <CAPTION> July 31, October 31, 1995 1994 ----------- ----------- (Unaudited) <S> <C> <C> 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 ======== ======= </TABLE> See accompanying notes to consolidated financial statements.
<TABLE> 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 --------- ------- -------- ------- <S> <C> <C> <C> <C> 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 ====== ====== ====== ====== </TABLE> See accompanying notes to consolidated financial statements.
<TABLE> PHOTRONICS, INC. AND SUBSIDIARIES Condensed Consolidated Statement of Cash Flows (in thousands) (Unaudited) <CAPTION> Nine Months Ended July 31, -------------------- 1995 1994 ------- ------- <S> <C> <C> 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 </TABLE> 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