Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements made by or on behalf of Photronics, Inc. ("Photronics" or the "Company"). These statements are based on management's beliefs, as well as assumptions made by, and information currently available to, management. Forward-looking statements may be identified by words like "expect", "anticipate", "believe", "plan", "projects", and similar expressions, or the negative of such terms, or other comparable terminology. All forward-looking statements involve risks and uncertainties that are difficult to predict. In particular, any statement contained in this quarterly report on Form 10-Q or in other documents filed with the Securities and Exchange Commission, in press releases or in the Company's communications and discussions with investors and analysts in the normal course of business through meetings, phone calls, or conference calls regarding, among other things, the consummation and benefits of future transactions and acquisitions, expectations with respect to future sales, financial performance, operating efficiencies, or product expansion, are subject to known and unknown risks, uncertainties, and contingencies, many of which are beyond the control of the Company. Various factors may cause actual results, performance, or achievements to differ materially from anticipated results, performance, or achievements expressed or implied by forward-looking statements. Factors that might affect forward-looking statements include, but are not limited to, overall economic and business conditions; economic and political conditions in international markets; the demand for the Company's products; competitive factors in the industries and geographic markets in which the Company competes; federal, state and international tax requirements (including tax rate changes, new tax laws and revised tax law interpretations); interest rate and other capital market conditions, including changes in the market price of the Company's securities; foreign currency exchange rate fluctuations; changes in technology; the timing, impact, and other uncertainties of future transactions and acquisitions, divestitures and joint ventures as well as decisions the Company may make in the future regarding the Company’s business, capital and organizational structure and other matters; the seasonal and cyclical nature of the semiconductor and flat panel display industries; management changes; damage or destruction to the Company's facilities, or the facilities of its customers or suppliers, by natural disasters, labor strikes, political unrest, or terrorist activity; the ability of the Company to (i) place new equipment in service on a timely basis; (ii) obtain additional financing; (iii) achieve anticipated synergies and cost savings; (iv) fully utilize its tools; (v) achieve desired yields, pricing, product mix, and market acceptance of its products and (vi) obtain necessary export licenses. Any forward-looking statements should be considered in light of these factors. Accordingly, there is no assurance that the Company's expectations will be realized. The Company does not assume responsibility for the accuracy and completeness of the forward-looking statements and does not assume an obligation to provide revisions to any forward-looking statements, except as otherwise required by securities laws.
PHOTRONICS, INC.
AND SUBSIDIARIES
PART I.
|
FINANCIAL INFORMATION
|
Page
|
|
|
|
Item 1.
|
Condensed Consolidated Financial Statements
|
|
|
|
|
|
|
4
|
|
|
|
|
|
5
|
|
|
|
|
|
6
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|
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7
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8
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Item 2.
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20
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Item 3.
|
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25
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Item 4.
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26
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PART II.
|
OTHER INFORMATION
|
|
|
|
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Item 1A.
|
|
27
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Item 6.
|
|
27
|
PART I.
|
FINANCIAL INFORMATION
|
Item 1. |
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated
Balance Sheets
(in thousands, except per share amounts)
(unaudited)
|
|
July 28,
2013
|
|
|
October 28,
2012
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
197,271
|
|
|
$
|
218,043
|
|
Accounts receivable, net of allowance of $3,449 in 2013 and $3,902 in 2012
|
|
|
82,573
|
|
|
|
75,685
|
|
Inventories
|
|
|
17,947
|
|
|
|
17,702
|
|
Other current assets
|
|
|
14,476
|
|
|
|
8,364
|
|
Total current assets
|
|
|
312,267
|
|
|
|
319,794
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
420,535
|
|
|
|
380,808
|
|
Investment in joint venture
|
|
|
93,030
|
|
|
|
93,252
|
|
Intangible assets, net
|
|
|
35,453
|
|
|
|
37,384
|
|
Deferred income taxes
|
|
|
11,158
|
|
|
|
11,395
|
|
Other assets
|
|
|
6,935
|
|
|
|
6,601
|
|
Total assets
|
|
$
|
879,378
|
|
|
$
|
849,234
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term borrowings
|
|
$
|
10,696
|
|
|
$
|
7,781
|
|
Accounts payable
|
|
|
84,790
|
|
|
|
53,031
|
|
Accrued liabilities
|
|
|
24,864
|
|
|
|
24,701
|
|
Total current liabilities
|
|
|
120,350
|
|
|
|
85,513
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings
|
|
|
183,220
|
|
|
|
168,956
|
|
Other liabilities
|
|
|
9,993
|
|
|
|
8,764
|
|
Total liabilities
|
|
|
313,563
|
|
|
|
263,233
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 2,000 shares authorized, none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.01 par value, 150,000 shares authorized, 60,971 shares issued and outstanding at July 28, 2013 and 60,213 at October 28, 2012
|
|
|
610
|
|
|
|
602
|
|
Additional paid-in capital
|
|
|
497,605
|
|
|
|
493,411
|
|
Retained earnings
|
|
|
54,599
|
|
|
|
41,473
|
|
Accumulated other comprehensive income
|
|
|
10,009
|
|
|
|
15,900
|
|
Total Photronics, Inc. shareholders' equity
|
|
|
562,823
|
|
|
|
551,386
|
|
Noncontrolling interests
|
|
|
2,992
|
|
|
|
34,615
|
|
Total equity
|
|
|
565,815
|
|
|
|
586,001
|
|
Total liabilities and equity
|
|
$
|
879,378
|
|
|
$
|
849,234
|
|
See accompanying notes to condensed consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated
Statements of Income
(in thousands, except per share amounts)
(unaudited)
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
July 28,
2013
|
|
|
July 29,
2012
|
|
|
July 28,
2013
|
|
|
July 29,
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
109,652
|
|
|
$
|
116,616
|
|
|
$
|
316,171
|
|
|
$
|
346,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
(82,574
|
)
|
|
|
(84,312
|
)
|
|
|
(243,206
|
)
|
|
|
(258,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
(12,068
|
)
|
|
|
(11,784
|
)
|
|
|
(35,286
|
)
|
|
|
(35,311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
(4,985
|
)
|
|
|
(5,221
|
)
|
|
|
(14,380
|
)
|
|
|
(14,106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation, restructuring and related charges
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
(1,182
|
)
|
Operating income
|
|
|
10,025
|
|
|
|
15,292
|
|
|
|
23,299
|
|
|
|
37,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,909
|
)
|
|
|
(2,012
|
)
|
|
|
(5,705
|
)
|
|
|
(5,587
|
)
|
Interest and other income (expense), net
|
|
|
937
|
|
|
|
1,245
|
|
|
|
3,226
|
|
|
|
3,444
|
|
Income before income tax provision
|
|
|
9,053
|
|
|
|
14,525
|
|
|
|
20,820
|
|
|
|
34,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
(2,689
|
)
|
|
|
(3,258
|
)
|
|
|
(6,155
|
)
|
|
|
(9,242
|
)
|
Net income
|
|
|
6,364
|
|
|
|
11,267
|
|
|
|
14,665
|
|
|
|
25,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interests
|
|
|
(424
|
)
|
|
|
(317
|
)
|
|
|
(1,539
|
)
|
|
|
(1,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Photronics, Inc. shareholders
|
|
$
|
5,940
|
|
|
$
|
10,950
|
|
|
$
|
13,126
|
|
|
$
|
24,035
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.10
|
|
|
$
|
0.18
|
|
|
$
|
0.22
|
|
|
$
|
0.40
|
|
Diluted
|
|
$
|
0.10
|
|
|
$
|
0.16
|
|
|
$
|
0.21
|
|
|
$
|
0.37
|
|
Weighted-average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
60,746
|
|
|
|
60,121
|
|
|
|
60,505
|
|
|
|
60,008
|
|
Diluted
|
|
|
66,177
|
|
|
|
76,436
|
|
|
|
61,478
|
|
|
|
76,460
|
|
See accompanying notes to condensed consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of
Comprehensive Income
(in thousands)
(unaudited)
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
July 28,
2013
|
|
|
July 29,
2012
|
|
|
July 28,
2013
|
|
|
July 29,
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,364
|
|
|
$
|
11,267
|
|
|
$
|
14,665
|
|
|
$
|
25,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax of $0:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(1,640
|
)
|
|
|
(7,035
|
)
|
|
|
(6,602
|
)
|
|
|
(7,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of cash flow hedge
|
|
|
32
|
|
|
|
32
|
|
|
|
96
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
5
|
|
|
|
-
|
|
|
|
15
|
|
|
|
-
|
|
Other comprehensive loss
|
|
|
(1,603
|
)
|
|
|
(7,003
|
)
|
|
|
(6,491
|
)
|
|
|
(7,349
|
)
|
Comprehensive income
|
|
|
4,761
|
|
|
|
4,264
|
|
|
|
8,174
|
|
|
|
18,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: comprehensive income (loss) attributable to noncontrolling interests
|
|
|
27
|
|
|
|
(681
|
)
|
|
|
709
|
|
|
|
1,962
|
|
Comprehensive income attributable to Photronics, Inc. shareholders
|
|
$
|
4,734
|
|
|
$
|
4,945
|
|
|
$
|
7,465
|
|
|
$
|
16,327
|
|
See accompanying notes to condensed consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of
Cash Flows
(in thousands)
(unaudited)
|
|
Nine Months Ended
|
|
|
|
July 28,
2013
|
|
|
July 29,
2012
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income
|
|
$
|
14,665
|
|
|
$
|
25,638
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
55,081
|
|
|
|
65,010
|
|
Consolidation, restructuring and related charges
|
|
|
-
|
|
|
|
262
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(8,494
|
)
|
|
|
2,324
|
|
Inventories
|
|
|
(515
|
)
|
|
|
(961
|
)
|
Other current assets
|
|
|
(6,540
|
)
|
|
|
(675
|
)
|
Accounts payable, accrued liabilities and other
|
|
|
13,357
|
|
|
|
15,926
|
|
Net cash provided by operating activities
|
|
|
67,554
|
|
|
|
107,524
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(47,281
|
)
|
|
|
(92,009
|
)
|
Investment in joint venture
|
|
|
-
|
|
|
|
(13,397
|
)
|
Other
|
|
|
(2,630
|
)
|
|
|
(1,618
|
)
|
Net cash used in investing activities
|
|
|
(49,911
|
)
|
|
|
(107,024
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from long-term borrowings
|
|
|
-
|
|
|
|
25,000
|
|
Repayments of long-term borrowings
|
|
|
(4,990
|
)
|
|
|
(3,646
|
)
|
Purchase of common stock of subsidiary
|
|
|
(31,627
|
)
|
|
|
(11,653
|
)
|
Payments of deferred financing fees
|
|
|
(40
|
)
|
|
|
(198
|
)
|
Proceeds from share-based arrangements
|
|
|
715
|
|
|
|
517
|
|
Net cash provided by (used in) financing activities
|
|
|
(35,942
|
)
|
|
|
10,020
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(2,473
|
)
|
|
|
(3,153
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(20,772
|
)
|
|
|
7,367
|
|
Cash and cash equivalents at beginning of period
|
|
|
218,043
|
|
|
|
189,928
|
|
Cash and cash equivalents at end of period
|
|
$
|
197,271
|
|
|
$
|
197,295
|
|
Supplemental disclosure of non-cash information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual for property, plant and equipment purchased during the period
|
|
$
|
27,572
|
|
|
$
|
3,008
|
|
Capital lease obligation for purchase of equipment
|
|
|
22,927
|
|
|
|
-
|
|
Deposit related to facility purchase
|
|
|
-
|
|
|
|
2,000
|
|
See accompanying notes to condensed consolidated financial statements.
PHOTRONICS, INC. AND SUBS
IDIARIES
Notes to Condensed Consolidated Financial Statements
Three Months and Nine Months Ended July 28, 2013 and July 29, 2012
(unaudited)
(in thousands, except share amounts)
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
Photronics, Inc. and its subsidiaries ("Photronics" or the "Company") is one of the world's leading manufacturers of photomasks, which are high precision photographic quartz plates containing microscopic images of electronic circuits. Photomasks are a key element in the manufacture of semiconductors and flat panel displays ("FPDs"), and are used as masters to transfer circuit patterns onto semiconductor wafers and flat panel substrates during the fabrication of integrated circuits ("ICs") and a variety of FPDs and, to a lesser extent, other types of electrical and optical components. The Company currently operates principally from eight manufacturing facilities, two of which are located in Europe, two in Taiwan, one in Korea, and three in the United States.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 of America for annual financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the fiscal year ending November 3, 2013. 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 28, 2012.
NOTE 2 - CHANGES IN EQUITY
The following tables set forth the Company's consolidated changes in equity for the three and nine month periods ended July 28, 2013 and July 29, 2012:
|
|
Three Months Ended July 28, 2013
|
|
|
|
Photronics, Inc. Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
controlling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Interests
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 29, 2013
|
|
|
60,598
|
|
|
$
|
606
|
|
|
$
|
496,204
|
|
|
$
|
48,659
|
|
|
$
|
11,416
|
|
|
$
|
30,562
|
|
|
$
|
587,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,940
|
|
|
|
-
|
|
|
|
424
|
|
|
|
6,364
|
|
Other comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,205
|
)
|
|
|
(398
|
)
|
|
|
(1,603
|
)
|
Sale of common stock through employee stock option and purchase plans
|
|
|
21
|
|
|
|
-
|
|
|
|
51
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
51
|
|
Restricted stock awards vesting and expense
|
|
|
37
|
|
|
|
1
|
|
|
|
327
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
328
|
|
Share-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
666
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
666
|
|
Purchase of common stock of subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
360
|
|
|
|
-
|
|
|
|
(202
|
)
|
|
|
(27,596
|
)
|
|
|
(27,438
|
)
|
Common stock warrant exercise
|
|
|
315
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance at July 28, 2013
|
|
|
60,971
|
|
|
$
|
610
|
|
|
$
|
497,605
|
|
|
$
|
54,599
|
|
|
$
|
10,009
|
|
|
$
|
2,992
|
|
|
$
|
565,815
|
|
|
|
Three Months Ended July 29, 2012
|
|
|
|
|
|
|
Photronics, Inc. Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
controlling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Interests
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2012
|
|
|
60,106
|
|
|
$
|
601
|
|
|
$
|
490,350
|
|
|
$
|
26,690
|
|
|
$
|
8,431
|
|
|
$
|
42,805
|
|
|
$
|
568,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,950
|
|
|
|
-
|
|
|
|
317
|
|
|
|
11,267
|
|
Other comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,004
|
)
|
|
|
(999
|
)
|
|
|
(7,003
|
)
|
Sale of common stock through employee stock option and purchase plans
|
|
|
8
|
|
|
|
-
|
|
|
|
18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18
|
|
Restricted stock awards vesting and expense
|
|
|
23
|
|
|
|
-
|
|
|
|
221
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
221
|
|
Share-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
657
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
657
|
|
Purchase of common stock of subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
485
|
|
|
|
-
|
|
|
|
(19
|
)
|
|
|
(4,536
|
)
|
|
|
(4,070
|
)
|
Balance at July 29, 2012
|
|
|
60,137
|
|
|
$
|
601
|
|
|
$
|
491,731
|
|
|
$
|
37,640
|
|
|
$
|
2,408
|
|
|
$
|
37,587
|
|
|
$
|
569,967
|
|
|
|
Nine Months Ended July 28, 2013
|
|
|
|
Photronics, Inc. Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
controlling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Interests
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 29, 2012
|
|
|
60,213
|
|
|
$
|
602
|
|
|
$
|
493,411
|
|
|
$
|
41,473
|
|
|
$
|
15,900
|
|
|
$
|
34,615
|
|
|
$
|
586,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,126
|
|
|
|
-
|
|
|
|
1,539
|
|
|
|
14,665
|
|
Other comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,662
|
)
|
|
|
(829
|
)
|
|
|
(6,491
|
)
|
Sale of common stock through employee stock option and purchase plans
|
|
|
310
|
|
|
|
4
|
|
|
|
441
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
445
|
|
Restricted stock awards vesting and expense
|
|
|
133
|
|
|
|
1
|
|
|
|
937
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
938
|
|
Share-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
1,880
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,880
|
|
Common stock warrants exercised
|
|
|
315
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchase of common stock of subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
939
|
|
|
|
-
|
|
|
|
(229
|
)
|
|
|
(32,333
|
)
|
|
|
(31,623
|
)
|
Balance at July 28, 2013
|
|
|
60,971
|
|
|
$
|
610
|
|
|
$
|
497,605
|
|
|
$
|
54,599
|
|
|
$
|
10,009
|
|
|
$
|
2,992
|
|
|
$
|
565,815
|
|
|
|
Nine Months Ended July 29, 2012
|
|
|
|
Photronics, Inc. Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
controlling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Interests
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2011
|
|
|
59,651
|
|
|
$
|
597
|
|
|
$
|
486,674
|
|
|
$
|
13,605
|
|
|
$
|
10,171
|
|
|
$
|
48,709
|
|
|
$
|
559,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,035
|
|
|
|
-
|
|
|
|
1,603
|
|
|
|
25,638
|
|
Other comprehensive income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,708
|
)
|
|
|
359
|
|
|
|
(7,349
|
)
|
Sale of common stock through employee
stock option and purchase plans
|
|
|
211
|
|
|
|
2
|
|
|
|
255
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
257
|
|
Restricted stock awards vesting and expense
|
|
|
98
|
|
|
|
-
|
|
|
|
673
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
673
|
|
Share-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
1,576
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,576
|
|
Common stock warrants exercised
|
|
|
177
|
|
|
|
2
|
|
|
|
1,051
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,053
|
|
Purchase of common stock of subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
1,502
|
|
|
|
-
|
|
|
|
(55
|
)
|
|
|
(13,084
|
)
|
|
|
(11,637
|
)
|
Balance at July 29, 2012
|
|
|
60,137
|
|
|
$
|
601
|
|
|
$
|
491,731
|
|
|
$
|
37,640
|
|
|
$
|
2,408
|
|
|
$
|
37,587
|
|
|
$
|
569,967
|
|
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
|
|
July 28,
2013
|
|
|
October 28,
2012
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
8,481
|
|
|
$
|
8,538
|
|
Buildings and improvements
|
|
|
101,908
|
|
|
|
101,409
|
|
Machinery and equipment
|
|
|
1,198,309
|
|
|
|
1,197,854
|
|
Leasehold improvements
|
|
|
4,101
|
|
|
|
5,854
|
|
Furniture, fixtures and office equipment
|
|
|
12,778
|
|
|
|
13,484
|
|
Construction in progress
|
|
|
86,397
|
|
|
|
26,642
|
|
|
|
|
1,411,974
|
|
|
|
1,353,781
|
|
Less accumulated depreciation and amortization
|
|
|
991,439
|
|
|
|
972,973
|
|
|
|
$
|
420,535
|
|
|
$
|
380,808
|
|
Equipment under capital leases are included in above property, plant and equipment as follows:
|
|
July 28,
2013
|
|
|
October 28,
2012
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
$
|
21,327
|
|
|
$
|
21,327
|
|
Construction in progress
|
|
|
22,927
|
|
|
|
-
|
|
|
|
|
44,254
|
|
|
|
21,327
|
|
Less accumulated amortization
|
|
|
4,357
|
|
|
|
2,758
|
|
|
|
$
|
39,897
|
|
|
$
|
18,569
|
|
Depreciation expense for property, plant and equipment (excluding equipment under capital leases) was $15.3 million and $48.4 million for the three and nine month periods ended July 28, 2013, respectively, and $18.6 million and $55.7 million for the three and nine month periods ended July 29, 2012, respectively. Amortization expense for equipment under capital leases was $0.5 million and $1.6 million for the three and nine month periods ended July 28, 2013, respectively and $0.6 million and $4.3 million for the three and nine month periods ended July 29, 2012, respectively.
NOTE 4 - JOINT VENTURE, TECHNOLOGY LICENSE AND OTHER AGREEMENTS WITH MICRON TECHNOLOGY, INC.
In May 2006, Photronics and Micron Technology, Inc. ("Micron") entered into the MP Mask joint venture (“MP Mask”), which develops and produces photomasks for leading-edge and advanced next generation semiconductors. At the time of the formation of the joint venture, the Company also entered into both an agreement to license photomask technology developed by Micron and certain supply agreements.
This joint venture is a variable interest entity ("VIE") (as that term is defined in the Accounting Standards Codification ("ASC")) because all costs of the joint venture are passed on to the Company and Micron through purchase agreements they have entered into with the joint venture, and it is dependent upon the Company and Micron for any additional cash requirements. On a quarterly basis the Company reassesses whether its interest in MP Mask gives it a controlling financial interest in this VIE. The purpose of this quarterly reassessment is to identify the primary beneficiary (which is defined in the ASC as the entity that consolidates a VIE) of the VIE. As a result of the reassessment in the current quarter, the Company determined that Micron is still the primary beneficiary of the VIE, by virtue of its tie-breaking voting rights within MP Mask’s Board of Managers, thereby giving it the power to direct the activities of MP Mask that most significantly impact its economic performance, including its decision making authority in the ordinary course of business and its purchasing the majority of products produced by the VIE.
The Company has utilized MP Mask for both high-end IC photomask production and research and development purposes. MP Mask charges its variable interest holders based on their actual usage of its facility. MP Mask separately charges for any research and development activities it engages in at the requests of its owners. The Company recorded cost of sales of $2.2 million and $7.6 million and research and development expenses of $0.2 million and $0.7 million during the three and nine month periods ended July 28, 2013. Cost of sales of $1.6 million and $5.7 million and research and development expenses of $0.2 million and $0.7 million were recorded during the three and nine month periods ended July 29, 2012. As of July 28, 2013 and October 28, 2012, the Company owed MP Mask $7.2 million and $6.4 million, respectively, and had a receivable from Micron of $5.8 million and $9.0 million, respectively, both primarily related to the aforementioned supply agreements.
MP Mask is governed by a Board of Managers, appointed by Micron and the Company. Since MP Mask's inception, Micron, as a result of its majority ownership, has held majority voting power on the Board of Managers. The voting power held by each party is subject to change as ownership interests change. Under the MP Mask joint venture operating agreement, the Company may be required to make additional capital contributions to MP Mask up to the maximum amount defined in the operating agreement. However, should the Board of Managers determine that further additional funding is required, MP Mask shall pursue its own financing. If MP Mask is unable to obtain its own financing, it may request additional capital contributions from the Company. Should the Company choose not to make a requested contribution to MP Mask, its ownership percentage may be reduced. During the three and nine month periods ended July 29, 2012, the Company increased its investment in MP Mask by $7.4 million and $13.3 million, respectively. The increased investments were primarily related to capital calls made by the joint venture.
The Company's investment in the VIE, which represents its maximum exposure to loss, was $93.0 million at July 28, 2013, and $93.3 million at October 28, 2012. These amounts are reported in the Company's condensed consolidated balance sheets as "Investment in joint venture". The Company recorded a loss from its investment in the VIE of $0.2 million in the nine month period ended July 28, 2013, and recorded no income from its investment in the three month period ended July 28, 2013 or in the three or nine month periods ended July 29, 2012. Income from the VIE is included in "Interest and other income (expense), net" in the condensed consolidated statements of income.
In the second quarter of fiscal 2012 the Company paid $35 million to Micron in connection with its purchase of the U.S. nanoFab facility, which it had been leasing from Micron under a lease which ran through December 31, 2014.
NOTE 5 - LONG-TERM BORROWINGS
Long-term borrowings consist of the following:
|
|
July 28,
2013
|
|
|
October 28,
2012
|
|
|
|
|
|
|
|
|
3.25% convertible senior notes due on April 1, 2016
|
|
$
|
115,000
|
|
|
$
|
115,000
|
|
Capital lease obligation payable through 2018
|
|
|
22,927
|
|
|
|
-
|
|
5.5% convertible senior notes due on October 1, 2014
|
|
|
22,054
|
|
|
|
22,054
|
|
Variable rate term loan, maturing March 1, 2017
|
|
|
21,875
|
|
|
|
23,750
|
|
3.09% capital lease obligation payable through March 2016
|
|
|
12,060
|
|
|
|
15,175
|
|
4.75% financing loan with customer
|
|
|
-
|
|
|
|
758
|
|
|
|
|
193,916
|
|
|
|
176,737
|
|
Less current portion
|
|
|
10,696
|
|
|
|
7,781
|
|
|
|
$
|
183,220
|
|
|
$
|
168,956
|
|
In February 2013 the Company entered into a five year capital lease, which commenced in August 2013 for $26.4 million principal amount, to fund the purchase of a high-end lithography tool. Payments under the capital lease, which bears interest at 2.77%, are $ 0.5 million per month through July 2018. Progress payments totaling $22.9 million have been made by the lessor through July 28, 2013, and are included in the Company’s long-term borrowings as a non-cash capital lease obligation as of that date. Accordingly, this amount was excluded from both operating and financing cash activities.
In March 2012 the Company, in connection with its purchase of the U.S. nanoFab facility (see Note 4 for further discussion), amended its credit facility ("the credit facility") to include the addition of a $25 million variable rate (2.5% at July 28, 2013) term loan maturing in March 2017 with minimum quarterly principal payments of $0.6 million (quarterly payments commenced in June 2012 and are based on a ten year repayment period). The amendment also included a twenty-five basis point reduction in the interest rate charged on any borrowings under the credit facility.
The credit facility bears interest (2.5% at July 28, 2013) based on the Company's total leverage ratio, at LIBOR plus a spread, as defined in the credit facility. The credit facility is secured by substantially all of the Company's assets located in the United States, as well as common stock the Company owns in certain of its foreign subsidiaries, and is subject to the following financial covenants: minimum fixed charge ratio, total leverage ratio and minimum unrestricted cash balance. As of July 28, 2013, the Company had no outstanding borrowings under the credit facility and $30 million was available for borrowing.
In March 2011 the Company issued through a private offering, pursuant to Rule 144A under the Securities Act of 1933, as amended, $115 million aggregate principal amount of 3.25% convertible senior notes. The notes mature on April 1, 2016, and note holders may convert each $1,000 principal amount of notes to 96.3879 shares of common stock (equivalent to an initial conversion price of $10.37 per share of common stock) at any time prior to the close of business on the second scheduled trading day immediately preceding April 1, 2016. The conversion rate is subject to adjustment upon the occurrence of certain events, which are described in the indenture dated March 28, 2011. The Company is not required to redeem the notes prior to their maturity date. Interest on the notes accrues in arrears, and is paid semiannually through the notes’ maturity date. Interest payments on the notes commenced on October 1, 2011. The net proceeds of the notes were approximately $110.7 million, which were used, in part, to acquire $35.4 million of the Company’s 5.5% convertible senior notes which were to mature on October 1, 2014, and to repay, in full, its then outstanding obligations under capital leases of $19.8 million.
In September 2009 the Company issued, through a public offering, $57.5 million aggregate principal amount of 5.5% convertible senior notes, which were to mature on October 1, 2014. Under the terms of the offering, the note holders could convert each $1,000 principal amount of notes to 196.7052 shares of common stock (equivalent to an initial conversion price of $5.08 per share of common stock) on, or before, September 30, 2014. The conversion rate is subject to adjustment upon the occurrence of certain events which are described in the indenture dated September 16, 2009. The Company is not required to redeem the notes prior to their maturity. The net proceeds of this offering were approximately $54.9 million, which were used to reduce amounts outstanding under the Company’s credit facility. A portion of the notes from this issuance having an aggregate principal amount of $35.4 million were acquired by the Company during fiscal year 2011.
In April 2011 the Company entered into a five year, $21.2 million capital lease for manufacturing equipment. Payments under the lease, which bears interest at 3.09%, are $0.4 million per month through March 2016. The lease agreement provides that the Company must maintain the equipment in good working order, and includes a cross default with cross acceleration provision related to certain non-financial covenants incorporated in the Company's credit facility agreement. As of July 28, 2013, the total amount payable through the end of the lease term was $12.6 million, of which $12.1 million represented principal and $0.5 million represented interest.
In January 2010 the Company borrowed $3.7 million from a customer to purchase manufacturing equipment. This loan, which bore interest at 4.75% and was fully repaid during the three month period ended July 28, 2013, was repaid with product supplied to the customer. Product valued at $0.2 million and $0.8 million was shipped to the customer and applied against the loan during the three and nine month periods ended July 28, 2013, respectively, and product valued at $0.4 million and $0.9 million was applied against the loan in the respective prior year periods.
NOTE 6 - COMMON STOCK WARRANTS
In September 2009 the Company entered into two warrant agreements with Intel Capital Corporation to purchase a total of 750,000 shares of the Company's common stock. Under one warrant agreement 500,000 shares of the Company's common stock could be purchased at an exercise price of $4.15 per share and under the second warrant agreement 250,000 shares of the Company's common stock could be purchased at an exercise price of $5.08 per share. Also in September 2009, the Company and Intel Corporation entered into an agreement to share technical and operations information regarding the development of the Company's products, the capabilities of the Company's photomask manufacturing lines and the alignment of photomask toolsets. Intel Capital Corporation also invested in the Company's convertible debt offering of September 2009. The warrants were recorded at their fair value on their date of grant, which was determined using the Black-Scholes option pricing model. The warrant agreements were to expire in September 2014, however, in June 2013 Intel Capital Corporation exercised all of the warrants under both warrant agreements on a net share basis and received 0.3 million shares of the Company’s common stock.
NOTE 7 - SHARE-BASED COMPENSATION
In March 2007 shareholders approved a new share-based compensation plan ("Plan"), under which options, restricted stock, restricted stock units, stock appreciation rights, performance stock, performance units, and other awards based on, or related to, shares of the Company's common stock may be granted from shares authorized but unissued or shares previously issued and reacquired by the Company. A maximum of six million shares of common stock may be issued under the Plan. Awards may be granted to officers, employees, directors, consultants, advisors, and independent contractors of the Company or its subsidiaries. In the event of a change in control (as defined in the Plan), the vesting of awards may be accelerated. The Plan, aspects of which are more fully described below, prohibits further awards from being issued under prior plans. The Company incurred total share-based compensation costs for the three and nine month periods ended July 28, 2013, of $1.0 million and $2.8 million, respectively, and $0.9 million and $2.3 million for the three and nine month periods ended July 29, 2012, respectively. The Company received cash from option exercises of $0.1 million and $0.4 million for the three and nine month periods ended July 28, 2013, respectively, and $0.1 million and $0.3 million for the three and nine month periods ended July 29, 2012, respectively. No share-based compensation cost was capitalized as part of an asset and no related income tax benefits were recorded during the periods presented.
Stock Options
Option awards generally vest in one to four years, and have a ten-year contractual term. All incentive and non-qualified stock option grants have an exercise price equal to the market value of the underlying common stock on the date of grant. The grant date fair value of options are based on closing prices of the Company’s common stock on the dates of grant using the Black-Scholes option pricing model. Expected volatility is based on the historical volatility of the Company's stock. The Company uses historical option exercise behavior and employee termination data to estimate expected term, which represents the period of time that the options granted are expected to remain outstanding. The risk-free rate of return for the estimated term of the option is based on the U.S. Treasury yield curve in effect at the date of grant.
The weighted-average inputs and risk-free rate of return ranges used to calculate the grant date fair value of options issued during the three and nine month periods ended July 28, 2013 and July 29, 2012, are presented in the following table.
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
July 28,
2013
|
|
July 29,
2012
|
|
July 28,
2013
|
|
July 29,
2012
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
73.1%
|
|
102.2%
|
|
98.8%
|
|
102.1%
|
|
|
|
|
|
|
|
|
|
Risk free rate of return
|
|
0.8%
|
|
0.6%
|
|
0.5% - 0.8%
|
|
0.6% - 0.9%
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
Expected term
|
|
4.3 years
|
|
4.3 years
|
|
4.3 years
|
|
4.3 years
|
Information on outstanding and exercisable option awards as of July 28, 2013, is presented below.
Options
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 28, 2013
|
|
|
4,180,227
|
|
|
$
|
8.41
|
|
5.9 years
|
|
$
|
8,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at July 28, 2013
|
|
|
2,703,657
|
|
|
$
|
9.81
|
|
4.5 years
|
|
$
|
6,045
|
|
There were 17,500 share options granted during the three month period ended July 28, 2013, with a weighted-average grant date fair value of $4.35 per share, and there were 30,000 share options granted during the three month period ended July 29, 2012, with a grant date fair value of $4.37 per share. There were 601,500 share options granted during the nine month period ended July 28, 2013, with a weighted-average grant date fair value of $4.00 per share and 554,500 share options granted during the nine month period ended July 29, 2012, with a weighted-average grant date fair value of $4.47 per share. As of July 28, 2013, the total unrecognized compensation cost related to unvested option awards was approximately $4.4 million. That cost is expected to be recognized over a weighted-average amortization period of 2.5 years.
Restricted Stock
The Company periodically grants restricted stock awards. The restrictions on these awards lapse over a service period that has ranged from less-than-one to eight years. There were no restricted stock awards granted during the three month period ended July 28, 2013, and 209,500 restricted stock awards were issued during the nine month period ended July 28, 2013, with a weighted-average grant date fair value of $5.48 per share. No restricted stock awards were granted during the three month period ended July 29, 2012, and 168,750 restricted stock awards were issued during the nine month period ended July 29, 2012, with a weighted-average grant date fair value of $6.28 per share. As of July 28, 2013, there were 328,252 shares of restricted stock outstanding and the total compensation cost not yet recognized related to these awards was approximately $1.5 million. That cost is expected to be recognized over a weighted-average amortization period of 2.0 years.
NOTE 8 - CONSOLIDATION, RESTRUCTURING AND RELATED CHARGES
In the first quarter of fiscal 2012 the Company ceased the manufacture of photomasks at its Singapore facility and, in connection therewith, recorded charges of $1.2 million during the nine month period ended July 29, 2012. This restructuring, which was comprised primarily of employee termination costs, was substantially completed in fiscal 2012 at a cost of $1.4 million.
The following table sets forth the Company’s restructuring reserve, primarily related to its Singapore facility, as of July 28, 2013 and July 29, 2012, and reflects the activity affecting the reserve for the three month period and nine month periods then ended.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
July 28, 2013
|
|
|
July 28, 2013
|
|
|
|
April 29,
2013
|
|
|
Charges
|
|
|
Utilized
|
|
|
July 28,
2013
|
|
|
October 29,
2012
|
|
|
Charges
|
|
|
Utilized
|
|
|
July 28,
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee terminations
|
|
$
|
40
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
40
|
|
|
$
|
295
|
|
|
$
|
-
|
|
|
$
|
(255
|
)
|
|
$
|
40
|
|
|
|
$
|
40
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
40
|
|
|
$
|
295
|
|
|
$
|
-
|
|
|
$
|
(255
|
)
|
|
$
|
40
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
July 29, 2012
|
|
|
July 29, 2012
|
|
|
|
April 30,
2012
|
|
|
Charges
|
|
|
Utilized
|
|
|
July 29,
2012
|
|
|
October 31,
2011
|
|
|
Charges
|
|
|
Utilized
|
|
|
July 29,
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee terminations and other
|
|
$
|
199
|
|
|
$
|
7
|
|
|
$
|
(69
|
)
|
|
$
|
137
|
|
|
$
|
-
|
|
|
$
|
920
|
|
|
$
|
(783
|
)
|
|
$
|
137
|
|
Asset write-downs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
262
|
|
|
|
(262
|
)
|
|
|
-
|
|
|
|
$
|
199
|
|
|
$
|
7
|
|
|
$
|
(69
|
)
|
|
$
|
137
|
|
|
$
|
-
|
|
|
$
|
1,182
|
|
|
$
|
(1,045
|
)
|
|
$
|
137
|
|
NOTE 9 - INCOME TAXES
The effective income tax rates for the three and nine month periods ended July 28, 2013 and July 29, 2012, differ from the U.S. statutory rate of 35% primarily due to foreign tax rate differences, as well as the existence of valuation allowances in jurisdictions with historical and continuing tax losses.
Unrecognized tax benefits related to uncertain tax positions were $3.9 million at July 28, 2013 and October 28, 2012, of which $1.9 million would favorably impact the Company's effective tax rate if recognized. Accrued interest and penalties related to unrecognized tax benefits were $0.1 million at July 28, 2013 and October 28, 2012. As of July 28, 2013, the total amount of unrecognized tax benefits is not expected to significantly increase or decrease in the next twelve months.
PKLT, the Company's FPD manufacturing facility in Taiwan, is accorded a tax holiday which commenced in 2012 and expires in 2017. The tax holiday had no dollar or per share effect in the three and nine month periods ended July 28, 2013 or the three and nine month periods ended July 29, 2012.
NOTE 10 - EARNINGS PER SHARE
The calculation of basic and diluted earnings per share is presented below.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
July 28,
2013
|
|
|
July 29,
2012
|
|
|
July 28,
2013
|
|
|
July 29,
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Photronics, Inc. shareholders
|
|
$
|
5,940
|
|
|
$
|
10,950
|
|
|
$
|
13,126
|
|
|
$
|
24,035
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on convertible notes, net of related tax effects
|
|
|
392
|
|
|
|
1,542
|
|
|
|
-
|
|
|
|
4,626
|
|
Gain related to common stock warrants fair value adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(94
|
)
|
Earnings for diluted earnings per share
|
|
$
|
6,332
|
|
|
$
|
12,492
|
|
|
$
|
13,126
|
|
|
$
|
28,567
|
|
Weighted-average common shares computations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares used for basic earnings per share
|
|
|
60,746
|
|
|
|
60,121
|
|
|
|
60,505
|
|
|
|
60,008
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
4,338
|
|
|
|
15,423
|
|
|
|
-
|
|
|
|
15,423
|
|
Share-based payment awards
|
|
|
898
|
|
|
|
707
|
|
|
|
783
|
|
|
|
789
|
|
Common stock warrants
|
|
|
195
|
|
|
|
185
|
|
|
|
190
|
|
|
|
240
|
|
Potentially dilutive common shares
|
|
|
5,431
|
|
|
|
16,315
|
|
|
|
973
|
|
|
|
16,452
|
|
Weighted-average common shares used for diluted earnings per share
|
|
|
66,177
|
|
|
|
76,436
|
|
|
|
61,478
|
|
|
|
76,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.10
|
|
|
$
|
0.18
|
|
|
$
|
0.22
|
|
|
$
|
0.40
|
|
Diluted earnings per share
|
|
$
|
0.10
|
|
|
$
|
0.16
|
|
|
$
|
0.21
|
|
|
$
|
0.37
|
|
The table below shows the outstanding weighted-average convertible notes and share-based payment awards that were excluded from the calculation of diluted earnings per share because their exercise price exceeded the average market value of the common shares for the period or, under application of the treasury stock method, they were otherwise determined to be anti-dilutive.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
July 28,
2013
|
|
|
July 29,
2012
|
|
|
July 28,
2013
|
|
|
July 29,
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
11,085
|
|
|
|
-
|
|
|
|
15,423
|
|
|
|
-
|
|
Share-based payment awards
|
|
|
2,856
|
|
|
|
2,616
|
|
|
|
2,900
|
|
|
|
2,546
|
|
Total potentially dilutive shares excluded
|
|
|
13,941
|
|
|
|
2,616
|
|
|
|
18,323
|
|
|
|
2,546
|
|
NOTE 11 - CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME BY COMPONENT
The following tables set forth the changes in the Company's accumulated other comprehensive income by component (net of tax of $0) for the three and nine month periods ended July 28, 2013:
|
|
Three Months Ended July 28, 2013
|
|
|
|
Foreign Currency
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
of Cash
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
Flow Hedge
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 29, 2013
|
|
$
|
12,710
|
|
|
$
|
(626
|
)
|
|
$
|
(668
|
)
|
|
$
|
11,416
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
(1,640
|
)
|
|
|
-
|
|
|
|
5
|
|
|
|
(1,635
|
)
|
Amounts reclassified from other comprehensive income
|
|
|
-
|
|
|
|
32
|
|
|
|
-
|
|
|
|
32
|
|
Net current period other comprehensive income (loss)
|
|
|
(1,640
|
)
|
|
|
32
|
|
|
|
5
|
|
|
|
(1,603
|
)
|
Less: other comprehensive loss attributable to noncontrolling interests
|
|
|
398
|
|
|
|
-
|
|
|
|
-
|
|
|
|
398
|
|
Purchase of common stock of subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
(202
|
)
|
|
|
(202
|
)
|
Balance at July 28, 2013
|
|
$
|
11,468
|
|
|
$
|
(594
|
)
|
|
$
|
(865
|
)
|
|
$
|
10,009
|
|
|
|
Nine Months Ended July 28, 2013
|
|
|
|
Foreign Currency
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
of Cash
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
Flow Hedge
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 29, 2012
|
|
$
|
17,241
|
|
|
$
|
(690
|
)
|
|
$
|
(651
|
)
|
|
$
|
15,900
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
(6,602
|
)
|
|
|
-
|
|
|
|
15
|
|
|
|
(6,587
|
)
|
Amounts reclassified from other comprehensive income
|
|
|
-
|
|
|
|
96
|
|
|
|
-
|
|
|
|
96
|
|
Net current period other comprehensive income (loss)
|
|
|
(6,602
|
)
|
|
|
96
|
|
|
|
15
|
|
|
|
(6,491
|
)
|
Less: other comprehensive loss attributable to noncontrolling interests
|
|
|
829
|
|
|
|
-
|
|
|
|
-
|
|
|
|
829
|
|
Purchase of common stock of subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
(229
|
)
|
|
|
(229
|
)
|
Balance at July 28, 2013
|
|
$
|
11,468
|
|
|
$
|
(594
|
)
|
|
$
|
(865
|
)
|
|
$
|
10,009
|
|
The amortization of the cash flow hedge is included in Cost of sales in the condensed consolidated statements of income for all periods presented.
NOTE 12 – GEOGRAPHIC INFORMATION
The Company operates as a single operating segment as a manufacturer of photomasks, which are high precision quartz plates containing microscopic images of electronic circuits for use in the fabrication of ICs and FPDs. Geographic net sales are based primarily on where the Company's manufacturing facility is located.
The Company's net sales by geographic area and for ICs and FPDs for the three and nine month periods ended July 28, 2013 and July 29, 2012, and its long-lived assets by geographic area as of July 28, 2013 and October 28, 2012, are presented below.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
July 28,
2013
|
|
|
July 29,
2012
|
|
|
July 28,
2013
|
|
|
July 29,
2012
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Korea
|
|
$
|
33,834
|
|
|
$
|
42,986
|
|
|
$
|
100,138
|
|
|
$
|
126,413
|
|
United States
|
|
|
33,715
|
|
|
|
34,270
|
|
|
|
98,980
|
|
|
|
102,968
|
|
Taiwan
|
|
|
30,559
|
|
|
|
27,863
|
|
|
|
86,378
|
|
|
|
82,021
|
|
Europe
|
|
|
10,982
|
|
|
|
10,639
|
|
|
|
28,970
|
|
|
|
31,372
|
|
All other
|
|
|
562
|
|
|
|
858
|
|
|
|
1,705
|
|
|
|
3,446
|
|
|
|
$
|
109,652
|
|
|
$
|
116,616
|
|
|
$
|
316,171
|
|
|
$
|
346,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IC
|
|
$
|
84,144
|
|
|
$
|
90,269
|
|
|
$
|
240,733
|
|
|
$
|
266,185
|
|
FPD
|
|
|
25,508
|
|
|
|
26,347
|
|
|
|
75,438
|
|
|
|
80,035
|
|
|
|
$
|
109,652
|
|
|
$
|
116,616
|
|
|
$
|
316,171
|
|
|
$
|
346,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
|
|
|
|
|
July 28,
2013
|
|
|
October 28,
2012
|
|
|
|
|
|
|
|
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
191,267
|
|
|
$
|
177,614
|
|
|
|
|
|
|
|
|
|
Korea
|
|
|
150,015
|
|
|
|
120,628
|
|
|
|
|
|
|
|
|
|
Taiwan
|
|
|
68,745
|
|
|
|
72,185
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
10,465
|
|
|
|
10,262
|
|
|
|
|
|
|
|
|
|
All other
|
|
|
43
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
$
|
420,535
|
|
|
$
|
380,808
|
|
|
|
|
|
|
|
|
|
The Company is typically impacted during its first fiscal quarter by the North American and European holiday periods, as some customers reduce their effective workdays and orders during these periods. Additionally, the Company can be impacted during its first or second quarter by the Asian New Year holiday period, which may also reduce customer orders.
NOTE 13 - FAIR VALUE MEASUREMENTS
The accounting framework for determining fair value includes a hierarchy for ranking the quality and reliability of the information used to measure fair value, which enables the reader of the financial statements to assess the inputs used to develop those measurements. The fair value hierarchy consists of three tiers as follows: Level 1, defined as quoted market prices in active markets for identical securities; Level 2, defined as inputs other than Level 1 that are observable, either directly or indirectly; and Level 3, defined as unobservable inputs that are not corroborated by market data.
The Company did not have any assets or liabilities measured at fair value, on a recurring or a nonrecurring basis, at July 28, 2013 or October 28, 2012.
Fair Value of Other Financial Instruments
The fair values of the Company's cash and cash equivalents (Level 1 measurements), accounts receivable, accounts payable, and certain other current assets and current liabilities (Level 2 measurements) approximate their carrying value due to their short-term maturities. The fair value of the Company's financing loan with a customer is a Level 2 measurement that approximates its carrying value due to its short-term maturity. The fair value of the Company's variable rate term loan is a Level 2 measurement and approximates its carrying value due to the variable nature of the underlying interest rates. The fair value of the Company's convertible senior notes is a Level 2 measurement that is determined using recent bid prices.
The table below presents the fair and carrying values of the Company's convertible senior notes at July 28, 2013 and October 28, 2012.
|
|
July 28, 2013
|
|
|
October 28, 2012
|
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.25% convertible senior notes
|
|
$
|
126,903
|
|
|
$
|
115,000
|
|
|
$
|
110,239
|
|
|
$
|
115,000
|
|
5.5% convertible senior notes
|
|
$
|
36,749
|
|
|
$
|
22,054
|
|
|
$
|
27,755
|
|
|
$
|
22,054
|
|
NOTE 14 - SUBSIDIARY SHARE REPURCHASE AND TENDER OFFER
Since the second quarter of fiscal 2011, the board of directors of PSMC, a subsidiary of the Company based in Taiwan, has authorized several share repurchase programs for PSMC to purchase for retirement shares of its outstanding common stock. The last of these repurchase programs concluded in the first quarter of fiscal 2013. During the nine month period ended July 28, 2013, PSMC purchased 9.2 million shares at a cost of $4.2 million. PSMC did not purchase any shares during the three month period ended July 28, 2013. PSMC purchased 9.1 million shares at a cost of $4.1 million and 27.1 million shares at a cost of $11.7 million during the three and nine month periods ended July 29, 2012, respectively. These repurchase programs increased the Company's ownership in PSMC to 69.40% at July 29, 2012, 72.09% at October 28, 2012, and 75.11% at January 27, 2013.
In June 2013 the Company completed a tender offer, that had commenced in April 2013, for the outstanding shares of PSMC. A total of 50.3 million shares were purchased at the offering price of 16.30 NTD, equivalent to a total of $27.4 million, which increased the Company’s ownership interest in PSMC to 98.13%.
The table below presents the effect of the change in the Company’s ownership interest in PSMC on the Company's equity for the three and nine month periods ended July 28, 2013 (50.3 million and 59.4 million shares of common stock of PSMC purchased, respectively) and July 29, 2012 (9.1 million and 27.1 million shares of common stock of PSMC purchased, respectively).
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
July 28,
2013
|
|
|
July 29,
2012
|
|
|
July 28,
2013
|
|
|
July 29,
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Photronics, Inc. shareholders
|
|
$
|
5,940
|
|
|
$
|
10,950
|
|
|
$
|
13,126
|
|
|
$
|
24,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in Photronics, Inc.'s additional paid-in capital
|
|
|
360
|
|
|
|
485
|
|
|
|
939
|
|
|
|
1,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in accumulated other comprehensive income
|
|
|
(202
|
)
|
|
|
(19
|
)
|
|
|
(229
|
)
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from net income attributable to Photronics, Inc. shareholders and transfer from noncontrolling interest
|
|
$
|
6,098
|
|
|
$
|
11,416
|
|
|
$
|
13,836
|
|
|
$
|
25,482
|
|
NOTE 15 - COMMITMENTS AND CONTINGENCIES
As of July 28, 2013, the Company had commitments outstanding for capital expenditures of approximately $35 million.
The Company is subject to various claims that arise in the ordinary course of business. The Company believes such claims, individually or in the aggregate, will not have a material effect on its condensed consolidated financial statements.
NOTE 16 - RECENT ACCOUNTING PRONOUNCEMENTS
There have been no recent accounting pronouncements whose adoption would affect the Company’s financial statements or related disclosures.
Item 2. |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Overview
Management's discussion and analysis ("MD&A") of the Company's financial condition, results of operations and outlook should be read in conjunction with its condensed consolidated financial statements and related notes. Various segments of this MD&A contain forward-looking statements, all of which are presented based on current expectations and may be adversely affected by uncertainties and risk factors (presented throughout this filing and in the Company's Annual Report on Form 10-K for the fiscal 2012 year), that may cause actual results to materially differ from these expectations.
The Company sells substantially all of its photomasks to semiconductor designers and manufacturers, and manufacturers of FPDs. Photomask technology is also being applied to the fabrication of other higher performance electronic products such as photonics, micro-electronic mechanical systems and certain nanotechnology applications. Thus, the Company's selling cycle is tightly interwoven with the development and release of new semiconductor designs and flat panel applications, particularly as it relates to the semiconductor industry's migration to more advanced design methodologies and fabrication processes. The Company believes that the demand for photomasks primarily depends on design activity rather than sales volumes from products produced using photomask technologies. Consequently, an increase in semiconductor or FPD sales does not necessarily result in a corresponding increase in photomask sales. However, the reduced use of customized ICs, reductions in design complexity, other changes in the technology or methods of manufacturing or designing semiconductors, or a slowdown in the introduction of new semiconductor or FPD designs could reduce demand for photomasks even if demand for semiconductors and FPDs increases. Advances in semiconductor, FPD and photomask design and semiconductor production methods could also reduce the demand for photomasks. Historically, the semiconductor industry has been volatile, with sharp periodic downturns and slowdowns. These downturns have been characterized by, among other things, diminished product demand, excess production capacity and accelerated erosion of selling prices.
The global semiconductor industry is driven by end markets which have been closely tied to consumer driven applications of high performance semiconductor devices including, but not limited to, mobile communications and computing solutions. The Company is typically required to fulfill its customer orders within a short period of time, sometimes within 24 hours. This results in the Company having a minimal level of backlog orders, typically one to two weeks for IC photomasks and two to three weeks for FPD photomasks. The Company cannot predict the timing of the industry's transition to volume production of next generation technology nodes or the timing of up and down cycles with precise accuracy, but believes that such transitions and cycles will continue into the future, beneficially and adversely affecting its business, financial condition and operating results in the near term. The Company believes its ability to remain successful in these environments is dependent upon achieving its goals of being a service and technology leader and efficient solutions supplier, which it believes should enable it to continually reinvest in its global infrastructure.
Material Changes in Results of Operations
Three and Nine Months ended July 28, 2013 and July 29, 2012
The following table represents selected operating information expressed as a percentage of net sales.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
July 28,
2013
|
|
|
July 29,
2012
|
|
|
July 28,
2013
|
|
|
July 29,
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
(75.3
|
)
|
|
|
(72.3
|
)
|
|
|
(76.9
|
)
|
|
|
(74.7
|
)
|
Gross margin
|
|
|
24.7
|
|
|
|
27.7
|
|
|
|
23.1
|
|
|
|
25.3
|
|
Selling, general and administrative expenses
|
|
|
(11.0
|
)
|
|
|
(10.1
|
)
|
|
|
(11.2
|
)
|
|
|
(10.2
|
)
|
Research and development expenses
|
|
|
(4.5
|
)
|
|
|
(4.5
|
)
|
|
|
(4.5
|
)
|
|
|
(4.1
|
)
|
Consolidation, restructuring and related charges
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.3
|
)
|
Operating income
|
|
|
9.2
|
|
|
|
13.1
|
|
|
|
7.4
|
|
|
|
10.7
|
|
Other expense, net
|
|
|
(0.9
|
)
|
|
|
(0.6
|
)
|
|
|
(0.8
|
)
|
|
|
(0.6
|
)
|
Income before income tax provision
|
|
|
8.3
|
|
|
|
12.5
|
|
|
|
6.6
|
|
|
|
10.1
|
|
Income tax provision
|
|
|
(2.5
|
)
|
|
|
(2.8
|
)
|
|
|
(1.9
|
)
|
|
|
(2.7
|
)
|
Net income
|
|
|
5.8
|
|
|
|
9.7
|
|
|
|
4.7
|
|
|
|
7.4
|
|
Net income attributable to noncontrolling interests
|
|
|
(0.4
|
)
|
|
|
(0.3
|
)
|
|
|
(0.5
|
)
|
|
|
(0.5
|
)
|
Net income attributable to Photronics, Inc. shareholders
|
|
|
5.4
|
%
|
|
|
9.4
|
%
|
|
|
4.2
|
%
|
|
|
6.9
|
%
|
Note: All of the following tabular comparisons, unless otherwise indicated, are for the three months ended July 28, 2013 (Q3-13) and July 29, 2012 (Q3-12) and for the nine months ended July 28, 2013 (YTD-13) and July 29, 2012 (YTD-12), in millions of dollars.
Net Sales
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
Q3-13
|
|
|
|
Q3-12
|
|
|
Percent
Change
|
|
|
YTD-13
|
|
|
YTD-12
|
|
|
Percent
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IC
|
|
$
|
84.2
|
|
|
$
|
90.3
|
|
|
|
( 6.8
|
)%
|
|
$
|
240.7
|
|
|
$
|
266.2
|
|
|
|
(9.6
|
)%
|
FPD
|
|
|
25.5
|
|
|
|
26.3
|
|
|
|
(3.2
|
)%
|
|
|
75.5
|
|
|
|
80.0
|
|
|
|
(5.7
|
)%
|
Total net sales
|
|
$
|
109.7
|
|
|
$
|
116.6
|
|
|
|
(6.0
|
)%
|
|
$
|
316.2
|
|
|
$
|
346.2
|
|
|
|
(8.7
|
)%
|
Net sales for Q3-13 decreased 6.0% to $109.7 million as compared to $116.6 million for Q3-12. The decrease was primarily a result of general softness within the semiconductor industry compared to Q3-12. Revenues attributable to high-end products decreased by $5.1 million to $39.6 million in Q3-13 as compared to $44.7 million in Q3-12. High-end photomask applications include mask sets for 45 nanometer and below for IC products, and G8 and above and active matrix organic light-emitting diode (AMOLED) display screen technologies for FPD products. By geographic area, net sales in Q3-13 as compared to Q3-12 decreased by $9.1 million or 21.3% in Korea and $0.6 million or 1.6% in the United States, increased by $2.7 million or 9.7% in Taiwan and $0.3 million or 3.2% in Europe and decreased by $0.3 million at other international locations.
For YTD-13 as compared to YTD-12, net sales decreased 8.7% to $316.2 million from $346.2 million, and revenues attributable to high-end products decreased by $23.3 million to $114.8 million from $138.1 million, primarily due to a general softness in the semiconductor industry for high-end IC products.
The Company’s quarterly revenues can be affected by the seasonal purchasing of its customers.
Gross Margin
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
Q3-13
|
|
|
|
Q3-12
|
|
|
Percent
Change
|
|
|
YTD-13
|
|
|
YTD-12
|
|
|
Percent
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
27.1
|
|
|
$
|
32.3
|
|
|
|
(16.2
|
)%
|
|
$
|
73.0
|
|
|
$
|
87.6
|
|
|
|
(16.7
|
)%
|
Percentage of net sales
|
|
|
24.7
|
%
|
|
|
27.7
|
%
|
|
|
|
|
|
|
23.1
|
%
|
|
|
25.3
|
%
|
|
|
|
|
Gross margin percentage decreased to 24.7% in Q3-13 from 27.7% in Q3-12 and decreased to 23.1% in YTD-13 from 25.3% in YTD-12. These decreases were a result of decreased sales in Q3-13 as compared to Q3-12 and for the first nine months of 2013 as compared to the same period in FY2012. The Company operates in a high fixed cost environment and, to the extent that the Company's revenues and utilization increase or decrease, gross margin will generally be positively or negatively impacted.
Selling, General and Administrative Expenses
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
Q3-13
|
|
|
|
Q3-12
|
|
|
Percent
Change
|
|
|
YTD-13
|
|
|
YTD-12
|
|
|
Percent
Change
|
|
Selling, general and administrative expenses
|
|
$
|
12.1
|
|
|
$
|
11.8
|
|
|
|
2.4
|
%
|
|
$
|
35.3
|
|
|
$
|
35.3
|
|
|
|
-
|
|
Percentage of net sales
|
|
|
11.0
|
%
|
|
|
10.1
|
%
|
|
|
|
|
|
|
11.2
|
%
|
|
|
10.2
|
%
|
|
|
|
|
Selling, general and administrative expenses increased to $12.1 million in Q3-13 from $11.8 in Q3-12 primarily due to increased selling-related expenses, and were $35.3 million in both YTD-13 and YTD-12.
Research and Development
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
Q3-13
|
|
|
|
Q3-12
|
|
|
Percent
Change
|
|
|
YTD-13
|
|
|
YTD-12
|
|
|
Percent
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
5.0
|
|
|
$
|
5.2
|
|
|
|
(4.5
|
)%
|
|
$
|
14.4
|
|
|
$
|
14.1
|
|
|
|
1.9
|
%
|
Percentage of net sales
|
|
|
4.5
|
%
|
|
|
4.5
|
%
|
|
|
|
|
|
|
4.5
|
%
|
|
|
4.1
|
%
|
|
|
|
|
Research and development expenses consist primarily of global development efforts related to high-end process technologies for advanced sub-wavelength reticle solutions for IC technologies. Research and development expenses decreased by $0.2 million to $5.0 million in Q3-13, as compared to $5.2 million in Q3-12, and increased by $0.3 million to $14.4 million in YTD-13, as compared to $14.1 million in YTD-12. Activities at advanced technology nodes for IC photomasks decreased in Q3-13 as compared to Q3-12, however increased in YTD-13 as compared to YTD-12.
Consolidation, Restructuring and Related Charges
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
Q3-13
|
|
|
|
Q3-12
|
|
|
YTD-13
|
|
|
YTD-12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee terminations and other
|
|
$
|
-
|
|
|
$
|
7
|
|
|
$
|
-
|
|
|
$
|
920
|
|
Asset write-downs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
262
|
|
Total consolidation, restructuring and related charges
|
|
$
|
-
|
|
|
$
|
7
|
|
|
$
|
-
|
|
|
$
|
1,182
|
|
In the first quarter of fiscal 2012 the Company ceased the manufacture of photomasks at its Singapore facility and, in connection therewith, recorded charges of $1.2 million during the nine month period ended July 29, 2012. This restructuring, which was comprised primarily of employee termination costs, was substantially completed in fiscal 2012 at a total cost of $1.4 million.
Other Income (Expense), net
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
Q3-13
|
|
|
|
Q3-12
|
|
|
YTD-13
|
|
|
YTD-12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
(1.9
|
)
|
|
$
|
(2.0
|
)
|
|
$
|
(5.7
|
)
|
|
$
|
(5.6
|
)
|
Interest and other income (expense), net
|
|
|
0.9
|
|
|
|
1.2
|
|
|
|
3.2
|
|
|
|
3.4
|
|
Other income (expense), net
|
|
$
|
(1.0
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
(2.5
|
)
|
|
$
|
(2.2
|
)
|
Interest expense decreased slightly in Q3-13 as compared to Q3-12 due to lower deferred financing fees expense. Interest expense increased slightly in YTD-13 as compared to YTD-12, primarily as a result of increased outstanding debt during the nine months ended July 28, 2013, as compared to the same period in the prior year.
Interest and other income (expense), net decreased in Q3-13 as compared to Q3-12 by $0.3 million, and in YTD-13 as compared to YTD-12 by $0.2 million as a result of reduced foreign currency exchange gains.
Income Tax Provision
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
Q3-13
|
|
|
|
Q3-12
|
|
|
YTD-13
|
|
|
YTD-12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
2.7
|
|
|
$
|
3.3
|
|
|
$
|
6.2
|
|
|
$
|
9.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
29.7
|
%
|
|
|
22.4
|
%
|
|
|
29.6
|
%
|
|
|
26.5
|
%
|
The effective income tax rate increased in Q3-13 as compared to Q3-12, and in YTD-13 as compared to YTD-12, primarily due to higher income tax provisions recorded in jurisdictions in which the Company generated income before income taxes which, due to valuation allowances, were not significantly offset by income tax benefits recorded in jurisdictions in which the Company incurred losses before income taxes.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests increased $0.1 million to $0.4 million in Q3-13, as compared to $0.3 million in Q3-12 primarily as a result of increased net income at PSMC, offset in part by the effect of shares of PSMC purchased under the tender offer and share repurchase programs discussed in Note 14 to the condensed consolidated financial statements. Net income attributable to noncontrolling interests decreased $0.1 million to $1.5 million in YTD-13, as compared to $1.6 million in YTD-12, primarily as a result of share repurchase programs at PSMC, offset in part by increased net income at PSMC. As a result of these repurchase programs and shares purchased under the tender offer, the Company’s ownership percentage in PSMC increased from 69.40% at the end of Q3-12 to 98.13% as of July 28, 2013. The Company’s ownership percentage in its subsidiary in Korea was 99.7% in Q3-13 and Q3-12.
Liquidity and Capital Resources
The Company's working capital was $191.9 million at July 28, 2013 and $234.3 million at October 28, 2012. The decrease in working capital was primarily the result of payments to acquire additional shares of PSMC under the aforementioned tender offer and share repurchase programs, and increased accounts payable related to the purchase of equipment. Cash and cash equivalents were $197.3 million at July 28, 2013 and $218.0 million at October 28, 2012. The decrease in cash and cash equivalents was primarily the result of the payments to acquire additional shares of PSMC. Net cash provided by operating activities was $67.6 million for the nine month period ended July 28, 2013, a decrease from $107.5 million for the nine month period ended July 29, 2012, which was primarily due to reduced net income and increased accounts receivable, offset by lower depreciation and amortization in the nine month period ended July 28, 2013, as compared to the same period in the prior year. Net cash used in investing activities for the nine month period ended July 28, 2013, was $49.9 million, which was comprised primarily of capital expenditure payments. Net cash used in financing activities of $35.9 million for the nine month period ended July 28, 2013, was primarily comprised of payments to acquire additional shares of PSMC and repayments of long-term borrowings. The Company may use its cash available on hand for operations, capital expenditures, debt repayments, strategic opportunities, stock repurchases, or other corporate uses, any of which may be material.
The Company's credit facility bears interest (2.5% at July 28, 2013), based on the Company's total leverage ratio, at LIBOR plus a spread, as defined in the credit facility. The credit facility is secured by substantially all of the Company's assets located in the United States, as well as common stock the Company owns in certain of its foreign subsidiaries, and is subject to the following financial covenants: minimum fixed charge ratio, total leverage ratio and minimum unrestricted cash balance. As of July 28, 2013, the Company was in compliance with the covenants of its credit facility, had no outstanding borrowings under the credit facility and $30 million was available for borrowing.
In February 2013 the Company entered into a five year capital lease, which commenced in August 2013 for $26.4 million principal amount, to fund the purchase of a high-end lithography tool. Payments under the capital lease, which bears interest at 2.77%, are $ 0.5 million per month through July 2018. Progress payments totaling $22.9 million have been made by the lessor through July 28, 2013, and are included in the Company’s long-term borrowings amount as of that date.
Since the second quarter of fiscal 2011, the board of directors of PSMC, a subsidiary of the Company based in Taiwan, has authorized several share repurchase programs for PSMC to purchase for retirement shares of its outstanding common stock. The last of these repurchase programs concluded in the first quarter of fiscal 2013. During the nine month period ended July 28, 2013, PSMC purchased 9.2 million shares at a cost of $4.2 million. PSMC did not purchase any shares during the three month period ended July 28, 2013. PSMC purchased 9.1 million shares at a cost of $4.1 million and 27.1 million shares at a cost of $11.7 million during the three and nine month periods ended July 29, 2012, respectively. These repurchase programs increased the Company's ownership in PSMC to 69.40% at July 29, 2012, 72.09% at October 28, 2012, and 75.11% at January 27, 2013. In June 2013 the Company completed a tender offer, that had commenced in April 2013, for the outstanding shares of PSMC. A total of 50.3 million shares were purchased at the offering price of 16.30 NTD , equivalent to a total of $27.4 million, which increased the Company’s ownership interest in PSMC to 98.13%.
At July 28, 2013, the Company had capital commitments outstanding of approximately $35 million. The Company believes that its currently available resources, together with its capacity for growth, and its access to equity and other financing sources, will be sufficient to satisfy its currently planned capital expenditures, as well as its anticipated working capital requirements for the next twelve months. However, the Company cannot assure that additional sources of financing would be available to the Company on commercially favorable terms, should the Company's capital requirements exceed cash available from operations, existing cash, and cash available under its credit facility.
The Company's liquidity is highly dependent on its sales volume, cash conversion cycle, and the timing of its capital expenditures (which can vary significantly from period to period), as it operates in a high fixed cost environment. Depending on conditions in the semiconductor and FPD markets, the Company's cash flows from operations and current holdings of cash may not be adequate to meet its current and long-term needs for capital expenditures, operations and debt repayments. Historically, in certain years, the Company has used external financing to fund these needs. Due to conditions in the credit markets, some financing instruments used by the Company in the past may not be currently available to it. The Company continues to evaluate further cost reduction initiatives. However, the Company cannot assure that additional sources of financing would be available to it on commercially favorable terms, should its cash requirements exceed cash available from operations, existing cash, and cash available under its credit facility.
Off-Balance Sheet Arrangements
Under the MP Mask joint venture operating agreement, in order to maintain its 49.99% ownership interest, the Company may be required to make additional capital contributions to the joint venture up to the maximum amount specified in the operating agreement. Cumulatively through July 28, 2013, the Company has made additional contributions of $32.5 million to the joint venture, and has received distributions from the joint venture totaling $10.0 million.
The Company leases certain office facilities and equipment under operating leases that may require it to pay taxes, insurance and maintenance expenses related to the properties. Certain of these leases contain renewal or purchase options exercisable at the end of the lease terms.
Business Outlook
A majority of the Company's revenue growth is expected to continue to come from the Asian region, as customers increase their use of manufacturing foundries located outside of North America and Europe. Additional revenue growth is also anticipated in North America, as the Company benefits from advanced technology it may utilize under its technology license with Micron. The Company's Korean and Taiwanese operations are non-wholly owned subsidiaries and, therefore, a portion of earnings generated at each of these locations is allocated to noncontrolling interests.
Ongoing Business Assessments
The Company continues to assess its global manufacturing strategy and monitor its market capitalization, sales volume and cash flows from operations. This ongoing assessment could result in future facility closures, asset redeployments, impairments of intangible or long-lived assets, workforce reductions, or the addition of increased manufacturing facilities as well as acquisitions, divestitures and joint ventures, any of which could be material. The undertaking of such transactions would be based on business and capital market conditions, financial impact, customer requirements, and business opportunities and needs, regulatory conditions and other relevant factors.
Effect of Recent Accounting Pronouncements
There have been no recent accounting pronouncements whose adoption would affect the Company’s condensed consolidated financial statements or related disclosures.
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Foreign Currency Exchange Rate Risk
The Company conducts business in several major international currencies through its worldwide operations and its financial position, financial performance and cash flows may be affected by fluctuations in the exchange rates of these currencies. Changes in exchange rates can positively or negatively affect the Company's sales, operating margins, assets, liabilities, and equity. The functional currencies of the Company's Asian subsidiaries are the Korean won, the New Taiwan dollar, and the Singapore dollar. The functional currencies of the Company's European subsidiaries are the British pound and the euro.
The Company attempts to minimize its risk of foreign currency transaction losses by producing its products in the same country in which the products are sold (thereby generating revenues and incurring expenses in the same currency), and by managing its working capital. In some instances, the Company may sell or purchase products in a currency other than the functional currency of the country where it was produced. There can be no assurance that this approach will continue to be successful, especially in the event of a significant adverse movement in the value of any foreign currencies against the U.S. dollar.
The Company's primary net foreign currency exposures as of July 28, 2013, included the Korean won, the Japanese yen, the New Taiwan dollar, the Singapore dollar, the British pound, and the euro. As of July 28, 2013, a 10% adverse movement in the value of these currencies against the U.S. dollar would have resulted in a net unrealized pre-tax loss of $2.4 million. The Company does not believe that a 10% change in the exchange rates of other non-U.S. dollar currencies would have a material effect on its consolidated financial position, results of operations, or cash flows.
Interest Rate Risk
At July 28, 2013, the Company had $21.9 million in variable rate borrowings. A 10% change in interest rates would not have had a material effect on the Company's consolidated financial position, results of operations, or cash flows in the three and nine month periods ended July 28, 2013.
Item 4. |
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
The Company has established and currently maintains disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), designed to ensure that information required to be disclosed in its reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to management, including the Company's chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
The Company's management, under the supervision and with the participation of the Company’s chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There was no change in the Company's internal control over financial reporting during the Company's third quarter of fiscal 2013 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
There have been no material changes to risks relating to the Company's business as disclosed in Part 1, Item 1A of the Company's Form 10-K for the year ended October 28, 2012.
|
(a)
|
Exhibits
|
|
|
|
|
|
|
|
Exhibit
Number
|
|
Description
|
|
|
|
|
|
|
|
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
|
|
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
|
|
|
|