SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended ...November 1, 1998... 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, Florida... ..33477.. (Address of principal executive offices) (Zip Code) ...(561) 745-1222... (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class Name of each exchange on which registered ______None______ ___________________ SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: .....Common Stock, $0.01 par value per share..... (Title of Class) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of December 31, 1998, 23,944,075 shares of the registrant's Common Stock were outstanding. The aggregate market value of registrant's voting stock held by non-affiliates of the registrant as of December 31, 1998 was approximately $497,417,000. ________________________ DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for the 1999 Incorporated into Part Annual Meeting of Shareholders III of this Form 10-K. to be held on March 23, 1999.
PART I ITEM 1. BUSINESS General Photronics, Inc. (the "Company") is a leading manufacturer 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 are used as masters to transfer circuit patterns onto semiconductor wafers during the fabrication of integrated circuits and, to a lesser extent, other types of electrical components. During fiscal 1998, the Company continued to invest in its global manufacturing network and enhance its technological and manufacturing capabilities. In the United States, the Company's new Austin, Texas facility became operational in early 1998. In addition, on December 31, 1997 the Company acquired the internal photomask manufacturing operations of Motorola, Inc. ("Motorola") in Mesa, Arizona. The assets acquired include modern manufacturing systems capable of supporting a wide range of photomask technologies. Additionally, the Company entered into a supply agreement whereby it will supply the photomask requirements previously provided by the acquired operation. The Company continues to operate the facility in place. During the year, the Company also re-organized its Silicon Valley operations and consolidated its Colorado Springs operations (other than its large area mask operations) into its other North American facilities. The large area mask operations were not significant to the Company and are being continued in place pending divestiture. Further, due to market conditions, the Company delayed the commencement of construction of its proposed Hillsboro, Oregon facility. In addition to its other efforts during fiscal 1998, the Company increased its research and development activities and continued to invest in advanced manufacturing equipment to allow it to meet future technological and volume demands. The Company believes that its efforts have established it as a leading independent photomask manufacturer on a global basis and provides it with the facilities and expertise to continue to expand its sales base. The Company, through its wholly-owned subsidiary Beta Squared, Inc. ("Beta Squared"), sells and services wafer plasma etching systems and engages in the sale of refurbished semiconductor manufacturing equipment, engineering services and replacement parts, and field service for such equipment on a third-party basis. The Company is a Connecticut corporation, organized in 1969. Its principal executive offices are located at 1061 East Indiantown Road, Jupiter, Florida, telephone (561) 745-1222.
Manufacturing Technology The Company manufactures photomasks, which are primarily used as masters to transfer circuit patterns onto semiconductor wafers. The Company's photomasks are manufactured in accordance with circuit designs provided on a confidential basis by its customers. The typical manufacturing process for one of the Company's photomasks involves receipt and conversion of circuit design data to manufacturing pattern data. This manufacturing data is then used to control the lithography system that exposes the circuit pattern onto the photomask blank. The exposed areas are dissolved and etched to produce that pattern on the photomask. The photomask is inspected for defects and conformity to the customer design data, any defects are repaired, any required pellicles (or protective membranes) are applied and, after final cleaning, the photomask is shipped to the customer. The Company currently supports customers across the full spectrum of integrated circuit production technologies by manufacturing photomasks using electron beam or laser-based technologies and, to a significantly lesser degree, optical-based technologies. Laser-based or electron beam systems are the predominant technologies used for photomask manufacturing. Such technologies are capable of producing the finer line resolution, lighter overlay and larger die size for the larger and more complex circuits currently being designed. Laser and electron beam generated photomasks can be used with the most advanced processing techniques to produce VLSI (very large scale integrated circuit) devices. The Company currently owns a number of laser writing systems and electron beam systems and has committed to purchase additional advanced systems in order to maintain technological leadership. Compared to laser or electron beam generated photomasks, the production of photomasks by the optical method is less expensive, but also less precise. The optical method traditionally is used on less complex and lower priced photomasks. The first several levels of photomasks sometimes are required to be delivered by the Company within 24 hours from the time it receives a customer's design. The ability to manufacture high quality photomasks within short time periods is dependent upon efficient manufacturing methods, high yields and high equipment reliability. The Company believes that it meets these requirements and has made significant investments in manufacturing and data processing systems and statistical process control methods to optimize the manufacturing process and reduce cycle times. Quality control is an integral part of the photomask manufacturing process. Photomasks are manufactured in temperature, humidity and particulate controlled clean rooms because of the high level of precision, quality and yields required. Each photomask is inspected several times during the manufacturing process to ensure compliance with customer specifications. The Company has made a substantial investment in equipment to inspect and repair photomasks and to ensure that customer specifications are met. After inspection and any necessary repair, the Company utilizes technological processes to clean the photomasks prior to shipment.
Sales and Marketing The market for photomasks primarily consists of semiconductor manufacturers and designers, both domestic and international, including manufacturers that have the capability to manufacture photomasks. Generally, the Company and each of its customers engage in a qualification and correlation process before the Company becomes an approved supplier. Thereafter, the Company typically negotiates pricing parameters for a customer's orders based on the customer's specifications in order to expedite the placement of individual purchase orders. Some of these prices may remain in effect for an extended period. The Company also negotiates prices, and occasionally enters into purchase arrangements, based on the understanding that, so long as the Company's performance is competitive, the Company will receive a specified percentage of that customer's photomask requirements. The Company conducts its sales and marketing activities through a staff of full-time sales personnel and customer service representatives who work closely with the Company's general management and technical personnel. In addition to the sales personnel at the Company's manufacturing facilities in Brookfield, Connecticut; Milpitas and Sunnyvale, California; Allen and Austin, Texas; Dresden, Germany; Manchester, United Kingdom; Neuchatel, Switzerland; and Singapore, the Company has sales offices in Carlsbad and Pasadena, California; Colorado Springs, Colorado; Raleigh, North Carolina; Hillsboro, Oregon; Lancaster, United Kingdom; and Taiwan. The Company supports international customers through both its domestic and foreign facilities. The Company also has sub-contract manufacturing arrangements in Taiwan and Korea. The Company considers its presence in international markets important to attracting new customers, providing global solutions to its existing customers and serving customers that utilize manufacturing foundries outside of the United States, principally in Asia. For a statement of the amount of net sales, operating income or loss, and identifiable assets attributable to each of the Company's geographic areas of operations, see Note 12 of Notes to the Consolidated Financial Statements. Equipment Sales and Services In addition to the manufacture of photomasks, the Company, through its wholly-owned subsidiary, Beta Squared, manufactures, sells and services a wafer plasma etching system used in the processing of semiconductor wafers. The original system was developed by Texas Instruments which licensed to Beta Squared the right to manufacture and sell the system. Beta Squared also sells refurbished semiconductor manufacturing equipment, engineering services and replacement parts and field service for such equipment on a third-party basis. Such activities represented approximately 2% of the Company's net sales during fiscal 1998.
Customers The Company primarily sells its products to leading semiconductor manufacturers. The Company's largest customers during fiscal 1998 included the following: Analog Devices, Inc. National Semiconductor Atmel Corporation Corporation Chartered Semiconductor Orbit Semiconductor Inc. Manufacturing, Ltd. Philips Electronics NV Cirrus Logic, Inc. Mitel Corporation Cypress Semiconductor Corporation Raytheon Co. Intel Corporation Rockwell International Corporation Integrated Device Technology, Inc. ST Microelectronics LSI Logic Corp. Symbios Logic, Inc. Lucent Technologies, Inc. Texas Instruments Incorporated Motorola, Inc. VLSI Technology, Inc. The Company has continually expanded its customer base and, during fiscal 1998, sold its products and services to approximately 400 customers. During fiscal 1998, no single customer other than Texas Instruments accounted for more than 10% of the Company's net sales. The Company's five largest customers, in the aggregate, accounted for approximately 43% of net sales in fiscal 1998. A significant decrease in the amount of sales to any of these customers could have a material adverse effect on the Company. Research and Development The Company conducts ongoing research and development programs intended to maintain the Company's leadership in technology and manufacturing efficiency. Since fiscal 1994, the Company has increased its investment in research and development activities and current efforts include deep ultraviolet, phase-shift and optical proximity correction photomasks for advanced semiconductor manufacturing as well as photomasks for next generation "post-optical" manufacturing technologies. Phase- shift and optical proximity correction photomasks use advanced lithography techniques for enhanced resolutions of images on a semiconductor wafer. Next generation "Post-optical" manufacturing technologies use an exposure source other than light (such as an x-ray or electron beam source) for wafer patterning and are designed for the manufacture of integrated circuits with critical dimensions below that believed possible with currently utilized optical exposure methods. Post-optical manufacturing technologies are still under development and have not yet been adopted as standard production methods. The Company incurred expenses of $8.5 million, $10.6 million and $12.9 million for research and development in fiscal 1996, 1997 and 1998, respectively. While the Company believes that it possesses valuable proprietary information and has received licenses under certain patents, the Company does not believe that patents are a material factor in the photomask manufacturing business and it holds only one patent. Materials and Supplies Raw materials utilized by the Company generally include high precision quartz plates, which are used as photomask blanks, primarily obtained from Japanese suppliers (including Toppan Printing Co., Ltd. ["Toppan"] and Hoya Corporation ["Hoya"]), pellicles (which are protective
transparent cellulose membranes) and electronic grade chemicals used in the manufacturing process. Such materials are generally available from a number of suppliers and the Company is not dependent on any one supplier for its raw materials. The Company believes that its utilization of a broad range of suppliers enables it to access the most advanced material technology available. The Company has established purchasing arrangements with each of Toppan and Hoya and it is expected that the Company will purchase substantially all of its photomask blanks from Toppan and Hoya so long as their price, quality, delivery and service are competitive. The Company relies on a limited number of equipment suppliers to develop and supply the equipment used in the photomask manufacturing process. Although the Company has been able to obtain equipment on a timely basis, the inability to obtain equipment when required could adversely affect the Company's business and results of operations. The Company also relies on these suppliers to develop future generations of manufacturing systems to support the Company's requirements. Backlog The first several levels of photomasks for a circuit sometimes are required to be shipped within 24 hours of receiving a customer's design. Because of the short period between order and shipment dates (typically from one day to two weeks) for the principal portion of the Company's sales, the dollar amount of current backlog is not considered to be a reliable indication of future sales volume. Competition The photomask industry is highly competitive and most of the Company's customers utilize more than one photomask supplier. The Company's ability to compete depends primarily upon the consistency of product quality and timeliness of delivery, as well as pricing, technical capability and service. The Company also believes that proximity to customers is an important factor in certain markets. Certain competitors have considerably greater financial and other resources than the Company. The Company believes that it is able to compete effectively because of its dedication to customer service, its investment in state-of-the-art photomask equipment and facilities and its experienced technical employees. Since the mid-1980s there has been a decrease in the number of independent manufacturers as a result of independents being acquired or discontinuing operations. The Company believes that entry into the market by a new independent manufacturer would require a major investment of capital, a significant period of time to establish a commercially viable operation and additional time to attain meaningful market share and achieve profitability. In the past, competition and relatively flat demand led to pressure to reduce prices which the Company believes contributed to the decrease in the number of independent manufacturers. Although independent photomask manufacturers experienced increased demand since late 1993, recently photomask demand has softened and pricing pressures have re-emerged. Based upon available market information, the Company believes that it has a larger share of the United States market than any other photomask manufacturer and that it is one of the largest photomask manufacturers in the world. Competitors in the United States include DuPont Photomasks and
Align-Rite International; and in international markets, Dai Nippon Printing, Toppan, Hoya, DuPont, Taiwan Mask Corp., Innova, Precision Semiconductor Mask Corp., Align-Rite and Compugraphics. In addition, some of the Company's customers possess their own captive facilities for manufacturing photomasks and certain semiconductor manufacturers market their photomask manufacturing services to outside customers as well as to their internal organization. Employees As of November 1, 1998, the Company employed approximately 1,180 persons on a full-time basis. The Company believes that it offers competitive compensation and other benefits and that its employee relations are good. Except for employees in the United Kingdom, none of the Company's employees is represented by a union. ITEM 1A. EXECUTIVE OFFICERS OF REGISTRANT The names of the executive officers of the Company are set forth below, together with the positions held by each person in the Company. All executive officers are elected annually by the Board of Directors and serve until their successors are duly elected and qualified. SERVED AS AN NAME AND AGE POSITION OFFICER SINCE Constantine S. Macricostas, 63 Chairman of the 1974 Board, Member of the Office of the Chief Executive and Director Michael J. Yomazzo, 56 Vice Chairman, Member 1977 of the Office of the Chief Executive and Director James R. Northup, 38 President and Member of 1994 the Office of the Chief Executive Jeffrey P. Moonan, 42 Executive Vice President - 1988 Finance and Administration, Member of the Office of the Chief Executive, General Counsel and Secretary Brian J. Hambidge, 54 Executive Vice President - 1997 Worldwide Operations Robert J. Bollo, 54 Vice President/Finance 1994 and Chief Financial Officer For the past five years each of the executive officers of the Company held the office shown, except as follows:
Mr. Macricostas served as Chief Executive Officer until August 1997. Mr. Macricostas also serves as a Director of Nutmeg Federal Savings and Loan Association and the DII Group, Inc., a supplier of integrated electronic manufacturing products and services. Michael J. Yomazzo has been Vice Chairman since January 1, 1999. From August 1997 until January 1999, he served as President and Chief Executive Officer, from January 1994 until August 1997 he served as President and Chief Operating Officer and from November 1990 until January 1994, he served as Executive Vice President and Chief Financial Officer. James R. Northup has been President since January 1, 1999. From November 1996 until January, 1999, he served as Senior Vice President - North American Operations, from January 1996 to November 1996, he served as Vice President - Operations, and from January 1994 to January 1996, he served as Director of Connecticut Operations. Jeffrey P. Moonan has been Executive Vice President since January 1, 1999. From January 1994 until January 1999, he served as Senior Vice President. He has also served as General Counsel and Secretary since July 1988. From July 1989 until January 1994, he also served as Vice President/Administration. Brian J. Hambidge has served as Executive Vice President - Worldwide Operations since April 1998. From April 1997 until April 1998, he served as Vice President - European Operations. For more than three years prior thereto, he served in various executive manufacturing positions with GEC Plessey Semiconductors. Robert J. Bollo has been Vice President/Finance and Chief Financial Officer since November 1994. From August 1994 to November 1994, he served as Director of Finance. From April 1992 to July 1994, he was a Principal of CFO Associates, Inc., a financial management firm. ITEM 2. DESCRIPTION OF PROPERTY The Company's properties include buildings in which the Company currently conducts manufacturing operations or land for future construction of facilities. The following table presents certain information about the Company's manufacturing facilities. Facility Size Type of Location (sq.ft.) Interest Brookfield, CT (Building #1) 19,600 Owned Brookfield, CT (Building #2) 20,000 Leased Milpitas, CA (2 buildings) 49,000 Leased Sunnyvale, CA (3 buildings) 40,000 Owned Colorado Springs, CO 27,000 Leased Allen, TX 60,000 Owned Austin, TX 50,000 Owned Manchester, UK 42,000 Owned Neuchatel, Switzerland 7,000 Leased Singapore 20,000 Leased Dresden, Germany 10,000 Leased Lease terms range from five years with options to renew to up to twenty years for other facilities. In addition, the Company leases office space in Jupiter, Florida; Carlsbad and Pasadena, California; Hillsboro,
Oregon and certain adjacent property in Brookfield, Connecticut. The Company has also obtained property in Brookfield, Connecticut and Hillsboro, Oregon for the construction of additional facilities. The Company believes it has made adequate arrangements for the lease or ownership of its current manufacturing facilities and continually evaluates opportunities for further expansion, both domestically and internationally. The leased properties in Brookfield, Connecticut, are leased from entities controlled by Constantine S. Macricostas under fixed lease rates which were determined by reference to fair market value rates at the beginning of the respective lease term. Mr. Macricostas is Chairman of the Board and a Director of the Company. For the year ended November 1, 1998, the Company leased real property and equipment at an aggregate annual rental of approximately $4.4 million. Other than new manufacturing facilities or equipment which have not yet been placed into service and property held for the possible construction of facilities, the Company believes it substantially utilized its facilities during the 1998 fiscal year. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any material pending legal proceedings, nor is the property of the Company subject to any such proceedings. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS' MATTERS The Common Stock of the Company is traded on the NASDAQ National Market System (NMS) under the symbol PLAB. The table below shows the range of high and low sale prices per share for each quarter for fiscal year 1998 and 1997, as reported on the NASDAQ NMS. All per share prices have been adjusted for a two-for-one stock split for shareholders of record on November 17, 1997. High Low ------ ------ Fiscal Year Ended November 1, 1998: Quarter Ended February 1, 1998 $25.75 $18.00 Quarter Ended May 3, 1998 37.88 23.00 Quarter Ended August 2, 1998 37.13 16.38 Quarter Ended November 1, 1998 22.94 9.50 Fiscal Year Ended November 2, 1997: Quarter Ended February 2, 1997 $20.13 $11.75 Quarter Ended May 4, 1997 19.25 13.13 Quarter Ended August 3, 1997 28.50 17.31 Quarter Ended November 2, 1997 32.06 16.75 On December 31, 1998, the closing sale price for the Common Stock as reported by NASDAQ was $23.97. Based on information available to the
Company, the Company believes it has approximately 5,000 beneficial shareholders. The Company has not paid any cash dividend to date and, for the foreseeable future, anticipates that earnings will continue to be retained for use in its business. ITEM 6. SELECTED FINANCIAL DATA The following selected financial data is derived from the Company's consolidated financial statements. The data should be read in conjunction with the consolidated financial statements and notes thereto and other financial information included elsewhere in this Form 10-K. All share and per share amounts have been adjusted for a two-for-one stock split for shareholders of record on November 17, 1997. <TABLE> <CAPTION> Years Ended -------------------------------------------------------------------------- November 1, November 2, October 31, October 31, October 31, 1998 1997 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- (in thousands, except per share amounts) <S> <C> <C> <C> <C> <C> OPERATING DATA: Net sales $222,572 $197,451 $160,071 $125,299 $ 80,696 Costs and expenses: Cost of sales 141,628 121,502 98,267 76,683 51,204 Selling, general and administrative 28,793 24,940 21,079 17,127 10,517 Research and development 12,893 10,605 8,460 7,899 4,738 Non-recurring restructuring charge 3,800 - - - - -------- -------- -------- -------- -------- Operating income 35,458 40,404 32,265 23,590 14,237 Other income and expense: Interest income 2,721 2,424 1,601 1,627 568 Interest expense (6,143) (2,466) (160) (141) (75) Other income, net 1,046 1,074 197 4,766 571 -------- -------- -------- ------- ------- Income before income taxes 33,082 41,436 33,903 29,842 15,301 Provision for income taxes 12,600 15,800 12,900 11,210 4,965* ------- ------- ------- ------- ------- Net income $20,482 $25,636 $21,003 $18,632 $10,336* ======= ======= ======= ======= ======= Earnings per share: Basic $0.84 $1.07 $0.89 $0.87 $0.53 ===== ===== ===== ===== ===== Diluted $0.84 $1.03 $0.87 $0.83 $0.51* ===== ===== ===== ===== ===== Weighted average number of common shares outstanding: Basic 24,350 23,910 23,496 21,504 19,448 ====== ====== ====== ====== ====== Diluted 28,958 26,628 24,202 22,414 20,124 ====== ====== ====== ====== ====== </TABLE> * Includes cumulative effect of change in accounting for income taxes of $237, or $0.01 per share. <TABLE> <CAPTION> -------------------------------------------------------------------------- November 1, November 2, October 31, October 31, October 31, 1998 1997 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- (in thousands, except per share amounts) <S> <C> <C> <C> <C> <C> BALANCE SHEET DATA: Working capital $ 36,871 $ 81,398 $ 21,613 $ 49,653 $ 32,329 Property, plant and equipment 253,781 203,813 123,666 72,063 39,205 Total assets 371,549 365,212 211,903 174,218 98,346 Long-term debt 104,261 106,194 1,987 1,809 495 Shareholders' equity 200,430 185,975 156,417 134,045 80,402 Cash dividends declared per share - - - - - </TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations for the Years Ended November 1, 1998, November 2, 1997 and October 31, 1996 OVERVIEW A significant portion of the changes in Photronics, Inc. ("Photronics") results of operations over the course of the three years ended November 1, 1998 are attributable to expansion of the Company's international operations in Europe and Asia. In addition, on December 31, 1997, the Company acquired the internal photomask manufacturing operations of Motorola, Inc. in Mesa, Arizona, and in February 1998, commenced operations in its newly constructed Austin, Texas facility. The Company's growth has also been affected by the rapid technological changes taking place in the semiconductor industry resulting in a greater mix of high-end photomask requirements for more complex integrated circuit designs. In fiscal 1996, Photronics established its first operations outside of the United States by acquiring operations in Oldham, U.K., and in Neuchatel, Switzerland, opening a new manufacturing facility in Singapore and acquiring a minority interest in an independent photomask manufacturer in Korea. In addition, during fiscal 1997 the Company acquired an independent photomask manufacturer in Dresden, Germany. These facilities, together with the Company's U.S. facilities, comprise a global manufacturing network supporting semiconductor fabricators in the Asian, European and North American markets. As a result of the Company's globalization, revenues from foreign operations have grown to 16.5% in 1998, compared to 11.9% in 1997 and 4.3% in 1996. Management believes that this trend will continue. Individually, none of these acquisitions had a material effect on the result of operations (see Note 6 of Notes to the Consolidated Financial Statements). Substantially all of the Company's consolidated Asian sales have been denominated in U.S. Dollars resulting in minimal foreign currency exchange risk on transactions in that region. Revenues and costs also have been affected by the increased demand for higher technology photomasks which require more advanced manufacturing capabilities and generally command higher average selling prices. To meet the technological demands of its customers and position the Company for future growth, the Company continues to make substantial investments in high-end manufacturing capability both at existing and new facilities. Since 1996, the Company has constructed four (4) new manufacturing facilities. In addition to the Singapore facility, the Company relocated its Dallas, Texas operation to a new state-of-the-art facility in the fourth quarter of 1996 and relocated its Oldham U.K. operation to a new state-of-the-art facility in the fourth quarter of 1997. During 1997, the Company also completed construction of a new manufacturing facility near Austin, Texas. A cyclical slow-down currently being experienced by the semiconductor industry began impacting the release of new integrated circuit designs to photomask manufacturers in 1998. As a result, the Company experienced
weakness in photomask demand and accentuated competitive pressures, especially for more mature technologies, during the second half of fiscal 1998. The Company cannot predict the duration of such industry conditions or the impact on its future operating results. RESULTS OF OPERATIONS Net Sales: Net sales for the fiscal year ended November 1, 1998 increased 13% to $222.6 million, compared with $197.5 million in the prior year. Sales from Photronics' international manufacturing operations accounted for approximately 55% of the increase. The remaining portion of the growth resulted from the new Mesa and Austin operations and increased volume from the Company's other U.S. operations during the first six months of 1998. These increases were partially offset by pricing pressures and lower volumes in the second half of the year precipitated generally by the cyclical slow-down in the semiconductor industry. Net sales in fiscal 1997 increased 23% to $197.5 million, compared to $160.1 million in the prior year. Sales from Photronics new international manufacturing operations accounted for approximately 40% of the 1997 increase. The remaining portion of the growth resulted from increased shipments to customers from existing facilities due to stronger high-end product demand and the availability of greater advanced manufacturing capability, reflecting the implementation of the Company's capacity expansion program. Cost of Sales: Cost of sales for the year ended November 1, 1998 increased 16.6% to $141.6 million compared with $121.5 million in fiscal 1997. Gross margins decreased to 36.4% of sales compared to 38.5% in 1997 because of the lower sales in the second half of 1998 and higher fixed costs resulting from the strategic investments in new facilities and capital equipment. Depreciation and amortization increased 60% in 1998 to $33.4 million from $20.9 million in 1997. In addition, the Company experienced lower margins in the formerly captive Mesa, Arizona operation that was acquired earlier in the year. Cost of sales for the year ended November 2, 1997, increased 23.6% to $121.5 million, compared with $98.3 million in the prior fiscal year. Gross margins decreased slightly to 38.5% of sales in 1997, compared with 38.6% in 1996. Favorable margins resulting from a higher capacity utilization and a more favorable mix of higher-end products were offset by the cost of the Company's expanded manufacturing base, which was still in the process of ramping-up to higher levels of utilization earlier in the year, and the inclusion of international operations which generated margins below those generally experienced in the Company's domestic operations. In addition, margins were lower at the Company's Beta Squared subsidiary. To allow for increased manufacturing capability, the Company continued to increase its staffing levels and add to its manufacturing systems, resulting in higher labor and equipment-related costs, including depreciation expense. Selling, General and Administrative Expenses: Selling, general and administrative expenses increased 15.4% during 1998 to $28.8 million or 12.9% of sales from $24.9 million or 12.6% of
sales in 1997 due to higher staffing costs associated with the Company's growth, including the expansion into Austin, Texas and Mesa, Arizona, as well as the full year impact of additions made in 1997, especially in Europe and Asia. Such increases were partially offset by lower incentive compensation expenses in fiscal 1998, and reduction in discretionary spending, especially in the second half of the year in response to the semiconductor industry slow-down. Selling, general and administrative expenses increased 18.3% to $24.9 million for the year ended November 2, 1997, compared with $21.1 million in the prior fiscal year. However, as a percentage of net sales, selling, general and administrative expenses decreased to 12.6% in 1997, compared with 13.2% in 1996. The increases in costs resulted from the addition of the new international operations, as well as increased staffing and other costs associated with the Company's domestic expansion. Research and Development: Research and development expense for 1998 increased by 21.6% to $12.9 million, or 5.8% of sales from $10.6 million in 1997, or 5.4% of sales in 1997. The increase is the result of the continued work on advanced photomask engineering projects including phase shift, optical proximity correction and deep ultra-violet applications. Research and development expenses for the year ended November 2, 1997, increased 25.4% to $10.6 million, compared with $8.5 million in the prior fiscal year. This increase reflected continued engineering on more complex photomasks, including phase shift, optical proximity correction and deep ultra-violet technologies, as well as on next generation "post optical" technologies. In addition, 1997 R&D expense included Beta Squared's development of PLASMAX, a proprietary "in-situ" dry cleaning process that removes contamination from a silicon wafer during plasma etching. As a percentage of net sales, research and development expenses increased to 5.4% for the year ended November 2, 1997, compared with 5.3% in the prior fiscal year. Non-Recurring Restructuring Charge: The Company recorded a non-recurring restructuring charge of $3.8 million in the second quarter of fiscal 1998 in connection with the optimization of its North American operations. The Company reorganized its two California operations, dedicating its Milpitas facility to the production of high-end technology photomasks and its Sunnyvale facility to the production of mature technology photomasks. In addition, it consolidated its Colorado Springs, Colorado photomask manufacturing operations into its other North American manufacturing facilities. The Company also determined that its Large Area Mask (LAM) Division, which is also located in Colorado Springs, does not represent a long-term strategic fit with its core photomask business, and, accordingly, plans to sell the LAM Division. The major component of the non-recurring charge related to a reduction in the value of equipment. After tax, the charge amounted to $2.4 million, or $.08 per share on a diluted basis.
Other Income and Expense: Interest income in 1998 increased as a result of higher average short-term investment balances. Interest expense increased to $6.1 million in 1998 from $2.5 million in 1997, primarily due to the effect of a full year of interest expense on the convertible notes in 1998 compared to only five months of interest expense on the convertible notes, which were issued in fiscal 1997. Other income and expense decreased $0.6 million in fiscal 1997, principally as a result of interest expense on borrowings, including interest on the newly issued convertible notes. In addition, 1997 included a $1.6 million gain from the sale of investment securities. Minority interest expense and foreign currency transaction gains or losses were not significant in fiscal 1998, 1997 or 1996. Income Taxes: The Company provided federal, state and foreign income taxes at a combined effective annual tax rate of 38.1% in 1998 and 1997 as compared to 38.0% in 1996. Net Income: Net income for the year ended November 1, 1998 decreased 20.1% to $20.5 million, or $0.84 per diluted share, compared with $25.6 million or $1.03 per diluted share in the prior year. Fiscal 1998 included a non- recurring after tax charge of $2.4 million, or $0.08 per diluted share. Net income for the year ended November 2, 1997 increased 22.1% to $25.6 million, or $1.03 per diluted share, compared with $21.0 million, or $0.87 per diluted share, in the prior fiscal year. Net income in 1997 included $1.0 million, or $0.04 per share, from the after tax gain on the sale of investment securities. All share and earnings per share amounts reflect a two-for-one stock split effected in November 1997 (see Note 5 of Notes to the Consolidated Financial Statements). LIQUIDITY AND CAPITAL RESOURCES The Company's cash, cash equivalents and short-term investments decreased $54.7 million during fiscal 1998 to $31.4 million. The decrease is attributable to the acquisition of Motorola's photomask operations, which was a $29 million cash transaction, and capital expenditures for facilities and equipment of approximately $66.5 million. In addition, $6.8 million of cash was utilized to repurchase 500,000 shares of the Company's common stock in the fourth quarter. The decrease was partially offset by positive cash flows generated by operations of more than $45.0 million and proceeds from stock option and purchase plans of $4.0 million. Accounts receivable decreased 8.8% to $31.5 million because of generally lower sales in the fourth quarter of 1998 compared to the fourth quarter of 1997. Inventory increased 24.4% to $14.1 million primarily as a result of the addition of the Austin, Texas and Mesa, Arizona operations, as well as maintaining inventory for anticipated higher sales levels.
Property, plant and equipment increased to $253.8 million at November 1, 1998, from $203.8 million at November 2, 1997. Deposits on and purchases of equipment together with equipment and facilities of acquired operations aggregated $84.3 million during the year ended November 1, 1998. These increases were reduced by depreciation expense totalling $31.5 million in fiscal 1998. The increase in intangible assets to $20.1 million at November 1, 1998 from $8.2 million at November 2, 1997, was primarily due to the Motorola acquisition. Investments and other assets decreased to $10.3 million at November 1, 1998 from $14.2 million at November 2, 1997 due to the sale of certain investments as well as a reduction in the market value of investments available for sale. Accounts payable and other accrued liabilities decreased at November 1, 1998 to $41.6 million compared to $43.6 million as of November 2, 1997. Accrued salaries and wages decreased to $4.2 million as of November 1, 1998 from $7.4 million as of November 2, 1997, largely as a result of lower incentive compensation accruals in 1998. Total amounts due on borrowings of $106.3 million as of November 1, 1998 and $106.5 million as of November 2, 1997 consist principally of $103.5 million of convertible notes. Deferred income taxes and other liabilities increased to $16.4 million at November 1, 1998 compared to $15.5 million at November 2, 1997, largely due to increases in deferred income taxes resulting from the differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes. The Company's commitments represent on-going investments in additional manufacturing capacity, as well as advanced equipment for research and development of the next generation of higher technology and more complex photomasks. At November 1, 1998 the Company had commitments outstanding for capital expenditures of approximately $42 million. Additional commitments are expected to be incurred during 1999. In November 1998, the Company replaced its prior credit line with a five year unsecured revolving credit facility providing for borrowings of up to $125 million at any time through November, 2003. The Company did not borrow under any of its revolving credit facilities during 1998. The Company believes that its currently available resources, together with its capacity for substantial growth and its accessibility to other debt and equity financing sources, are sufficient to satisfy its cash requirements for the foreseeable future. EFFECT OF NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board (FASB) issued the Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." In April, 1998, the American Institute of Certified Public Accountants issued Statement of Position 98- 5, "Reporting on the Costs of Start-Up Activities." In June 1998 the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." Each of these statements establish new standards for financial statement reporting and disclosure of certain information effective for the Company in future fiscal years. The Company does not expect these new standards to have a material impact on its financial position, results of operations or cash flows.
YEAR 2000 The Company has recognized that much of its operating software for its manufacturing and financial systems may not have had the ability to recognize date information when the year changes to 2000, and initiated a program in 1997 to replace such software to ensure, among other things, proper date recognition. To date, the Company has successfully installed the new financial and manufacturing software in certain of its U.S. locations, and is in the process of implementing such systems at the remainder of its sites worldwide. It is expected that both these installations will be completed by the middle of calendar year 1999. In addition, the Company began its review of year 2000 compliance with respect to equipment used in the manufacturing process, and the systems used by its customers and suppliers. The Company estimates that the total cost for all of its current software replacement efforts, including becoming Year 2000 compliant, will be approximately $7 million, of which approximately half was incurred during fiscal 1998. The Company believes that, based on its review performed to date, there will not be any significant interruption in its normal operations; however should any of its suppliers or customers not be successful in their efforts, there could be an adverse impact on the Company. The Company is currently in the process of evaluating alternatives in the event that its suppliers and customers are not able to demonstrate within an appropriate timeline that they will be able to successfully address their Year 2000 issues. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Except for historical information, the matters discussed above may be considered forward-looking statements and may be subject to certain risks and uncertainties that could cause the actual results to differ materially from those projected, including uncertainties in the market, pricing, competition, procurement and manufacturing efficiencies, and other risks.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENT Page Independent Auditors' Report...................................................18 Consolidated Balance Sheet at November 1, 1998 and November 2, 1997............19 - 20 Consolidated Statement of Earnings for the years ended November 1, 1998, November 2, 1997 and October 31, 1996....................21 Consolidated Statement of Shareholders' Equity for the years ended November 1, 1998, November 2, 1997 and October 31, 1996.....................................22 Consolidated Statement of Cash Flows for the years ended November 1, 1998, November 2, 1997 and October 31, 1996....................23 Notes to Consolidated Financial Statements................................24 - 35
Independent Auditors' Report Board of Directors and Shareholders Photronics, Inc. Jupiter, Florida We have audited the accompanying consolidated balance sheets of Photronics, Inc. and its subsidiaries as of November 1, 1998 and November 2, 1997, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended November 1, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Photronics, Inc. and its subsidiaries as of November 1, 1998 and November 2, 1997, and the results of their operations and their cash flows for each of the three years in the period ended November 1, 1998 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Hartford, Connecticut December 9, 1998
<TABLE> PHOTRONICS, INC. AND SUBSIDIARIES Consolidated Balance Sheet November 1, 1998 and November 2, 1997 (dollars in thousands) <CAPTION> Assets 1998 1997 - ------ -------- -------- <S> <C> <C> Current assets: Cash and cash equivalents $ 23,841 $ 57,845 Short-term investments 7,532 28,189 Accounts receivable (less allowance for doubtful accounts of $235 in 1998 and 1997) 31,515 34,563 Inventories 14,057 11,302 Deferred income taxes 5,923 4,764 Other current assets 4,507 2,274 -------- -------- Total current assets 87,375 138,937 Property, plant and equipment 253,781 203,813 Intangible assets (less accumulated amortization of $6,009 in 1998 and $4,048 in 1997) 20,058 8,218 Investments 6,705 10,421 Other assets 3,630 3,823 -------- -------- $371,549 $365,212 ======== ======== </TABLE> See accompanying notes to consolidated financial statements.
<TABLE> PHOTRONICS, INC. AND SUBSIDIARIES Consolidated Balance Sheet November 1, 1998 and November 2, 1997 (dollars in thousands, except per share amounts) <CAPTION> Liabilities and Shareholders' Equity 1998 1997 - ------------------------------------ -------- -------- <S> <C> <C> Current liabilities: Current portion of long-term debt $ 2,076 $ 272 Accounts payable 31,431 34,173 Accrued salaries and wages 4,170 7,423 Accrued interest payable 2,674 2,743 Other accrued liabilities 10,153 9,474 Income taxes payable - 3,454 -------- -------- Total current liabilities 50,504 57,539 Long-term debt 104,261 106,194 Deferred income taxes 11,222 10,508 Other liabilities 5,132 4,996 -------- -------- Total liabilities 171,119 179,237 -------- -------- Commitments and contingencies Shareholders' equity: Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued and outstanding - - Common stock, $.01 par value, 75,000,000 shares authorized, 24,164,106 shares issued and outstanding in 1998; 24,300,970 shares issued and outstanding in 1997 242 243 Additional paid-in capital 82,377 85,129 Retained earnings 120,091 99,609 Unrealized gains on investments 1,167 3,251 Foreign currency translation adjustment (3,308) (2,008) Deferred compensation on restricted stock (139) (249) -------- -------- Total shareholders' equity 200,430 185,975 -------- -------- $371,549 $365,212 ======== ======== </TABLE> See accompanying notes to consolidated financial statements.
<TABLE> PHOTRONICS, INC. AND SUBSIDIARIES Consolidated Statement of Earnings <CAPTION> Years Ended ------------------------------------------- November 1, November 2, October 31, 1998 1997 1996 ----------- ----------- ----------- (in thousands, except per share amounts) <S> <C> <C> <C> Net sales $222,572 $197,451 $160,071 Costs and expenses: Cost of sales 141,628 121,502 98,267 Selling, general and administrative 28,793 24,940 21,079 Research and development 12,893 10,605 8,460 Non-recurring restructuring charge 3,800 - - ------ ------ ------ Operating income 35,458 40,404 32,265 Other income and expense: Interest income 2,721 2,424 1,601 Interest expense (6,143) (2,466) (160) Other income, net 1,046 1,074 197 -------- -------- -------- Income before income taxes 33,082 41,436 33,903 Provision for income taxes 12,600 15,800 12,900 -------- -------- -------- Net income $ 20,482 $ 25,636 $ 21,003 ======== ======== ======== Earnings per share: Basic $0.84 $1.07 $0.89 ===== ===== ===== Diluted $0.84 $1.03 $0.87 ===== ===== ===== Weighted average number of common shares outstanding: Basic 24,350 23,910 23,496 ====== ====== ====== Diluted 28,958 26,628 24,202 ====== ====== ====== </TABLE> See accompanying notes to consolidated financial statements.
<TABLE> PHOTRONICS, INC. AND SUBSIDIARIES Consolidated Statement of Shareholders' Equity Years Ended November 1, 1998, November 2, 1997 and October 31, 1996 (in thousands) <CAPTION> Unreal- Foreign ized Currency Deferred Addi- Gains Trans- Compensa- Common Stock tional on lation tion on Total -------------- Paid-In Retained Invest- Treasury Adjust- Restricted Shareholders' Shares Amount Capital Earnings ments Stock ment Stock Equity ------ ------ ------- -------- ------ -------- -------- ---------- ------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Balance at November 1, 1995 11,758 $118 $75,083 $52,970 $6,471 $ (245) $ - $ (352) $ 134,045 Net income - - - 21,003 - - - - 21,003 Sale of common stock through employee stock option and purchase plans 215 2 2,750 - - - - - 2,752 Foreign currency translation adjustment - - - - - - 58 - 58 Amortization of restricted stock to compensation expense - - - - - - - 352 352 Change in unrealized gains on investments - - - - (1,793) - - - (1,793) ------ --- ------ ------ ----- --- -- --- ------- Balance at October 31, 1996 11,973 120 77,833 73,973 4,678 (245) 58 - 156,417 Net income - - - 25,636 - - - - 25,636 Issuance of common stock related to acquisition 50 - 1,337 - - - - - 1,337 Sale of common stock through employee stock option and purchase plans 258 3 6,060 - - - - - 6,063 Foreign currency translation adjustment - - - - - - (2,066) - (2,066) Restricted stock awards, net 6 - 264 - - - - (249) 15 Retirement of treasury stock (136) (1) (244) - - 245 - - - Change in unrealized gains on investments - - - - (1,427) - - - (1,427) Two-for-one stock split 12,150 121 (121) - - - - - - ------ --- ------ ------ ----- ---- ----- --- ------- Balance at November 2, 1997 24,301 243 85,129 99,609 3,251 - (2,008) (249) 185,975 Net income - - - 20,482 - - - - 20,482 Sale of common stock through warrants and employee stock option and purchase plans 363 4 3,993 - - - - - 3,997 Foreign currency translation adjustment - - - - - - (1,300) - (1,300) Amortization of restricted stock to compensation expense - - - - - - - 110 110 Change in unrealized gains on investments - - - - (2,084) - - - (2,084) Common stock repurchases (500) (5) (6,745) - - - - - (6,750) ------ ---- ------- -------- ------ ----- ------- ----- -------- Balance at November 1, 1998 24,164 $242 $82,377 $120,091 $1,167 $ - $(3,308) $(139) $200,430 ====== ==== ======= ======== ====== ===== ======= ===== ======== </TABLE> See accompanying notes to consolidated financial statements.
<TABLE> PHOTRONICS, INC. AND SUBSIDIARIES Consolidated Statement of Cash Flows <CAPTION> Years Ended ------------------------------------------------- November 1, November 2, October 31, 1998 1997 1996 ----------- ----------- ----------- (in thousands) <S> <C> <C> <C> Cash flows from operating activities: Net income $20,482 $25,636 $21,003 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property, plant and equipment 31,461 19,817 12,120 Amortization of intangible assets 2,529 1,322 1,100 Gain on sale of investments (838) (1,562) - Deferred income taxes 264 989 1,000 Non-recurring restructuring charges 3,800 - - Other 224 98 626 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable 2,954 (9,405) (6,893) Inventories (2,374) (3,157) (1,228) Other current assets (3,318) (870) (3,260) Accounts payable and accrued liabilities (10,115) 13,677 14,159 ------- ------- ------- Net cash provided by operating activities 45,069 46,545 38,627 ------- ------- ------- Cash flows from investing activities: Acquisitions of and investments in photomask operations (32,455) (1,065) (12,397) Deposits on and purchases of property, plant and equipment (66,448) (96,319) (55,762) Net change in short-term investments 20,657 (20,271) 8,303 Proceeds from sale of investments 932 1,939 - Other 2,218 2,151 1,635 ------- -------- ------- Net cash used in investing activities (75,096) (113,565) (58,221) ------- -------- ------- Cash flows from financing activities: Issuance of subordinated convertible notes, net of deferred issuance costs - 99,697 - Repayment of long-term debt (266) (151) (36) Proceeds from issuance of common stock 3,997 6,063 2,752 Purchase and retirement of common stock (6,750) - - ------- ------- ------- Net cash provided (used) by financing activities (3,019) 105,609 2,716 ------- ------- ------- Effect of exchange rate changes on cash (958) 490 - ------- ------- ------- Net increase (decrease) in cash and cash equivalents (34,004) 39,079 (16,878) Cash and cash equivalents at beginning of year 57,845 18,766 35,644 ------- ------- ------- Cash and cash equivalents at end of year $23,841 $57,845 $18,766 ======= ======= ======= </TABLE> See accompanying notes to consolidated financial statements.
PHOTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended November 1, 1998, November 2, 1997 and October 31, 1996 (dollars in thousands, except per share amounts) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation The accompanying consolidated financial statements include the accounts of Photronics, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated. The Company adopted a 52 week fiscal year beginning in the first quarter of fiscal 1997. Foreign Currency Translation The Company's subsidiaries in Europe and Singapore maintain their accounts in their respective local currencies. Assets and liabilities of such subsidiaries are translated to U.S. dollars at year-end exchange rates. Income and expenses are translated at average rates of exchange prevailing during the year. Foreign currency translation adjustments are accumulated in a separate component of shareholders' equity. The effects of changes in exchange rates on foreign currency transactions are included in income. Cash and Cash Equivalents Cash and cash equivalents include cash and highly liquid investments purchased with an original maturity of three months or less. The carrying values approximate fair value based on the short maturity of the instruments. Investments The Company's debt and equity investments available for sale are carried at fair value. Short-term investments include a diversified portfolio of high quality marketable securities which will be liquidated as needed to meet the Company's current cash requirements. All other investments are classified as non-current assets. Unrealized gains and losses, net of tax, are reported as a separate component of shareholders' equity. Gains and losses are included in income when realized, determined based on the disposition of specifically identified investments. Inventories Inventories, principally raw materials, are stated at the lower of cost, determined under the first-in, first-out (FIFO) method, or market.
Long-Lived Assets Property, plant and equipment are recorded at cost less accumulated depreciation. Repairs and maintenance as well as renewals and replacements of a routine nature are charged to operations as incurred, while those which improve or extend the lives of existing assets are capitalized. Upon sale or other disposition, the cost of the asset and accumulated depreciation are eliminated from the accounts, and any resulting gain or loss is reflected in income. For financial reporting purposes, depreciation and amortization are computed on the straight-line method over the estimated useful lives of the related assets. For income tax purposes, depreciation is computed using various accelerated methods and, in some cases, different useful lives than those used for financial reporting. Goodwill and other intangibles are amortized on a straight-line basis over periods estimated to be benefited, generally 5 to 20 years. The future economic benefit of the carrying value of intangible assets is reviewed periodically and any diminution in useful life or impairment in value based on future anticipated cash flows would be recorded in the period so determined. Income Taxes The provision for income taxes is computed on the basis of consolidated financial statement income. Deferred income taxes reflect the tax effects of differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes. Net Income Per Common Share The Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings Per Share", in the first quarter of 1998. Earnings per share amounts have been restated for all periods presented to conform to the presentation requirements of SFAS 128. Stock Based Compensation The Company records stock option awards in accordance with the provisions of Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees". The Company estimates the fair value of stock option awards in accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," and discloses the resulting estimated compensation effect on net income on a pro forma basis. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation.
NOTE 2 - INVESTMENTS Short-term investments consist of: November 1, November 2, 1998 1997 ----------- ----------- Government agency securities $ 2,268 $ 4,205 Corporate bonds 3,010 18,178 Certificates of deposit 2,254 5,806 ------- ------- $ 7,532 $28,189 ======= ======= The estimated fair value of short-term investments, based upon current yields of like securities, approximates cost, resulting in no significant unrealized gains or losses. Short-term investments at November 1, 1998, mature by their terms, as follows: Due within one year $ 4,878 Due after one year, but within three years 1,654 Due after three years 1,000 ------- $ 7,532 ======= Other investments consist of available-for-sale equity securities of publicly traded technology companies and a minority interest in a photomask manufacturer in Korea. The fair values of available-for-sale investments are based upon quoted market prices. In the absence of quoted market prices, the estimated fair value is based upon the financial condition and the operating results and projections of the investee and is considered to approximate cost. Unrealized gains on investments were determined as follows: November 1, November 2, 1998 1997 ----------- ----------- Fair value $ 6,705 $10,421 Cost 4,700 4,767 ------- ------- 2,005 5,654 Less deferred income taxes 838 2,403 ------- ------- Net unrealized gains $ 1,167 $ 3,251 ======= =======
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following: November 1, November 2, 1998 1997 ----------- ----------- Land $ 3,772 $ 2,735 Buildings and improvements 45,120 39,115 Machinery and equipment 294,826 220,199 Leasehold improvements 7,378 9,910 Furniture, fixtures and office equipment 6,642 3,754 -------- -------- 357,738 275,713 Less accumulated depreciation and amortization 103,957 71,900 -------- -------- Property, plant and equipment $253,781 $203,813 ======== ======== NOTE 4 - LONG-TERM DEBT Long-term debt consists of the following: November 1, November 2, 1998 1997 ----------- ----------- 6% Convertible Subordinated Notes due June 1, 2004 $103,500 $103,500 Acquisition indebtedness payable December 1, 1998, net of interest of $9 in 1998 and $122 in 1997, imputed at 7.45% 1,791 1,678 Installment note payable by foreign subsidiary with interest at 4.75% through June, 2001 665 867 Industrial development mortgage note, secured by building, with interest at 6.58%, payable through November 2005 381 421 -------- -------- 106,337 106,466 Less current portion 2,076 272 -------- -------- Long-term debt $104,261 $106,194 ======== ======== Long-term debt matures as follows: 2000 - $288; 2001 - $231; 2002 - $53; 2003 - $57; years after 2003 - $103,632. The fair value of long- term debt not yet substantively extinguished is estimated based on the current rates offered to the Company and is not significantly different from carrying value, except that the fair value of the convertible subordinated notes, based upon the most recently reported trade as of November 1, 1998, amounted to $116.0 million. On May 29, 1997, the Company sold $103.5 million of convertible subordinated notes, due in 2004, in a public offering. The notes bear
interest at 6% per annum and are convertible at any time by the holders into 3.7 million shares of the Company's common stock, at a conversion price of $27.97 per share. The notes are redeemable at the Company's option, in whole or in part, at any time after June 1, 2000 at certain premiums decreasing through the maturity date. Interest is payable semi- annually. In November, 1998, the Company replaced its prior credit commitments with an unsecured revolving credit facility to provide for borrowings of up to $125 million at any time through November, 2003. The Company is charged a commitment fee on the average unused amount of the available credit and is subject to compliance with and maintenance of certain financial covenants and ratios. The Company did not have outstanding borrowings under any of its credit facilities during 1998. Cash paid for interest amounted to $6,311, $164 and $48 in 1998, 1997 and 1996 respectively. NOTE 5 - EARNINGS PER SHARE In the first quarter of fiscal 1998, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share", which establishes new standards for the computation and disclosure of earnings per share ("EPS"). The new statement requires dual presentation of "basic" EPS and "diluted" EPS. Basic EPS is based on the weighted average number of common shares outstanding for the period, excluding any dilutive common share equivalents. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. A reconciliation of basic and diluted EPS follows (in thousands, except per share amounts): Average Earnings Net Shares Per Income Outstanding Share -------- ----------- -------- 1998: Basic $ 20,482 24,350 $ 0.84 Effect of potential dilution ====== from exercise of stock options and conversion of notes 3,809 4,608 -------- ------ Diluted $ 24,291 28,958 $ 0.84 ======== ====== ====== 1997: Basic $ 25,636 23,910 $ 1.07 Effect of potential dilution ====== from exercise of stock options and conversion of notes 1,841 2,718 -------- ------ Diluted 27,477 26,628 $ 1.03 ======== ====== ====== 1996: Basic $ 21,003 23,496 $ 0.89 Effect of potential dilution ====== from exercise of stock options - 706 -------- ------ Diluted $ 21,003 24,202 $ 0.87 ======== ====== ======
In September, 1997, the Company's Board of Directors authorized a two-for-one stock split effected in the form of a stock dividend, which was paid to shareholders of record on November 17, 1997. The stock split resulted in the issuance of 12.2 million additional shares of common stock. All applicable share and per share amounts reflect the stock split. NOTE 6 - ACQUISITIONS On December 31, 1997, the Company acquired the internal photomask manufacturing operations of Motorola, Inc. ("Motorola") in Mesa, Arizona for $29 million in cash. The assets acquired include modern manufacturing systems, capable of supporting a wide range of photomask technologies. Additionally, the Company entered into a multi-year supply agreement whereby it will supply the photomask requirements previously provided by Motorola's internal operations. 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. The excess of purchase price over the fair value of assets acquired is being amortized over fifteen (15) years. The Consolidated Statement of Earnings includes the results of the former Motorola photomask operations from December 31, 1997, the effective date of the acquisition. On June 26, 1997, the Company acquired all of the outstanding shares of MZD Maskenzentrum fur Mikrostruktrierung Dresden GmbH (MZD), an independent photomask manufacturer located in Dresden, Germany, for $3.1 million in cash and common shares of the Company. The acquisition was accounted for as a purchase and, accordingly, the acquisition price was allocated to assets and liabilities based on relative fair value. In January, 1996, the Company acquired the photomask manufacturing operations and assets of Plessey Semiconductors Limited (Plessey) located in Oldham, United Kingdom, for $4.9 million in cash. The acquisition was accounted for as a purchase and, accordingly, the acquisition price was allocated to property and equipment based on relative fair value. In April, 1996, the Company, through a majority-owned subsidiary, acquired the photomask manufacturing operations and assets of the Litomask Division ("Litomask") of Centre Suisse d'Electronique et de Microtechnique S.A. ("CSEM") located in Neuchatel, Switzerland for $3.4 million in cash. CSEM initially retained the remaining interest in this subsidiary, and in 1998 the Company acquired such interest for additional consideration of $3.3 million. In connection with the transaction, the Company leased the facilities and retained certain services from CSEM previously utilized by Litomask. The acquisition was accounted for as a purchase and, accordingly, the acquisition price was allocated to property and equipment based on relative fair value. The excess of purchase price over the fair value of assets acquired is being amortized over 15 years. The results of the acquisitions were not material to the Company for the periods presented.
NOTE 7 - INCOME TAXES The provision for income taxes consists of the following: 1998 1997 1996 ------- ------- ------- Current: Federal $10,417 $11,993 $ 9,905 State 1,610 2,617 1,908 Foreign 309 201 87 ------- ------- ------- 12,336 14,811 11,900 ------- ------- ------- Deferred: Federal 417 995 918 State (192) (6) 82 Foreign 39 - - ------- ------- ------- 264 989 1,000 ------- ------- ------- $12,600 $15,800 $12,900 ======= ======= ======= The provision for income taxes differs from the amount computed by applying the statutory U.S. Federal income tax rate to income before taxes as a result of the following: 1998 1997 1996 ------- ------- ------- U.S. Federal income tax at statutory rate $11,579 $14,503 $11,866 State income taxes, net of Federal benefit 921 1,697 1,294 Tax benefits of tax exempt income (42) (35) (302) Foreign tax rate differential (853) (681) (291) Other, net 995 316 333 ------- ------- ------- $12,600 $15,800 $12,900 ======= ======= ======= The Company's net deferred tax liability consists of the following: November 1, November 2, 1998 1997 ----------- ----------- Deferred income tax liabilities: Property, plant and equipment $8,840 $7,915 Investments 838 2,403 Other 1,544 190 ------ ------ Total deferred tax liability 11,222 10,508 ------ ------ Deferred income tax assets: Reserves not currently deductible 3,712 2,667 Other 2,211 2,097 ------ ------ Total deferred tax asset 5,923 4,764 ------ ------ Net deferred tax liability $5,299 $5,744 ====== ======
Cash paid for income taxes amounted to $15.0 million, $7.2 million and $13.0 million in 1998, 1997 and 1996 respectively. NOTE 8 - EMPLOYEE STOCK PURCHASE AND OPTION PLANS In March 1998, the shareholders approved the adoption of the 1998 Stock Option Plan which includes provisions allowing for the award of qualified and non-qualified stock options and the granting of restricted stock awards. A total of 1.0 million shares of common stock may be issued pursuant to options or restricted stock awards granted under the Plan. Restricted stock awards do not require the payment of any cash consideration by the recipient, but shares subject to an award may be forfeited unless conditions specified in the grant are satisfied. The Company has adopted a series of other stock option plans under which incentive and non-qualified stock options and restricted stock awards may be granted. All plans provide that the exercise price may not be less than the fair market value of the common stock at the date the options are granted and limit the maximum term of options granted to a maximum of ten years. The following table summarizes stock option activity under the plans: Stock Options Exercise Prices ------------- --------------- Balance at November 1, 1995 1,959,880 $ 0.92-13.69 Granted 964,100 10.75-12.50 Exercised (368,862) 0.92-13.69 Cancelled (171,592) 3.09-13.69 --------- Balance at October 31, 1996 2,383,526 1.59-13.69 Granted 275,300 14.88-21.97 Exercised (454,042) 1.59-13.69 Cancelled (65,006) 3.75-16.38 --------- Balance at November 2, 1997 2,139,778 1.75-21.97 Granted 826,100 11.00-31.44 Exercised (295,710) 1.75-16.38 Cancelled (94,877) 6.71-31.44 --------- Balance at November 1, 1998 2,575,291 $ 1.75-31.44 =========
The following table summarizes information concerning currently outstanding and exercisable options: Range of Exercise Prices ------------------------------------------------ $1.75-$10.00 $10.00-$20.00 $20.00-$31.44 ------------ ------------- ------------- Outstanding: Number of options 593,987 1,566,554 414,750 Weighted average remaining years 4.6 8.3 9.1 Weighted average exercise price $5.08 $12.47 $23.14 Exercisable: Number of options 565,532 506,289 52,875 Weighted average exercise price $4.87 $12.80 $21.61 At November 1, 1998, 586,700 shares were available for grant and 1,124,696 shares were exercisable at a weighted average exercise price of $9.23. The Company has not recognized compensation expense in connection with stock option grants under the plans. However, had compensation expense been determined based on the fair value of the options on the grant dates, the Company's pro forma net income and earnings per share for 1998 would have been reduced by approximately $1.9 million, or $0.07 per diluted share, for 1997 would have been reduced by approximately $1.5 million, or $0.06 per diluted share, and for 1996 would have been reduced by approximately $0.3 million, or $0.01 per diluted share. The weighted average fair value of options granted was $6.55 per share in 1998, $7.39 per share in 1997 and $5.05 per share in 1996. Fair value is estimated based on the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yield of 0%; expected volatility of 54.4% in 1998, 51.6% in 1997 and 50.8% in 1996; and risk-free interest rates of 4.4% in 1998 and 6.4% in 1997 and 1996. The Company maintains an Employee Stock Purchase Plan ("Purchase Plan"), under which 600,000 shares of common stock are reserved for issuance. The Purchase Plan enables eligible employees to subscribe, through payroll deductions, to purchase shares of the Company's common stock at a purchase price equal to 85% of the lower of the fair market value on the commencement date of the offering and the last day of the payroll payment period. At November 1, 1998, 315,376 shares had been issued and 51,019 shares were subject to outstanding subscriptions under the Purchase Plan. NOTE 9 - EMPLOYEE BENEFIT PLANS The Company maintains a 401(k) Savings and Profit-Sharing Plan (the "Plan") which covers all domestic employees who have completed six months of service and are eighteen years of age or older. Under the terms of the Plan, an employee may contribute up to 15% of their compensation which will be matched by the Company at 50% of the employee's contributions which are not in excess of 4% of the employee's compensation. Employee and employer contributions vest fully upon contribution. Employer contributions amounted to $0.3 million in 1998
and $0.5 million in both 1997 and 1996. The Company maintains a cafeteria plan to provide eligible domestic employees with the option to receive non-taxable medical, dental, disability and life insurance benefits. The cafeteria plan is offered to all active full-time domestic employees and their qualifying dependents. The Company's contribution amounted to $3.3 million in 1998, $3.0 million in 1997 and $1.8 million in 1996. The Company's foreign subsidiaries maintain benefit plans for their employees which vary by country. The obligations and cost of these plans are not significant to the Company. NOTE 10 - LEASES The Company leases various real estate and equipment under non- cancelable operating leases. Rental expense under such leases amounted to $4.4 million in 1998, $4.5 million in 1997 and $5.6 million in 1996. Included in such amounts were $0.1 million in each year to affiliated entities, which are owned, in part, by a significant shareholder of the Company. Future minimum lease payments under non-cancelable operating leases with initial or remaining terms in excess of one year amounted to $5.4 million at November 1, 1998, as follows: 1999.....$2,934 2002...........$202 2000......1,543 2003.............72 2001........485 Thereafter......144 Included in such future lease payments are amounts to affiliated entities of $0.1 million in each year from 1999 to 2003, and $0.1 million thereafter. NOTE 11 - COMMITMENTS AND CONTINGENCIES The Company and a significant shareholder have jointly guaranteed a loan totaling approximately $0.5 million as of November 1, 1998, on certain real estate which is being leased by the Company. The Company is subject to certain financial covenants in connection with the guarantee. As of November 1, 1998, the Company had capital expenditure purchase commitments outstanding of approximately $42 million. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions, including collectability of accounts receivable, and depreciable lives and recoverability of property, plant, equipment and intangible assets. Actual results may differ from such estimates. Financial instruments that potentially subject the Company to credit risk consist principally of trade receivables and temporary cash investments. The Company sells its products primarily to manufacturers in the semiconductor and computer industries in North America, Europe and Asia. The Company believes that the concentration of credit risk in its trade receivables is substantially mitigated by the Company's ongoing
credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. Historically, the Company has not incurred any significant credit related losses. NOTE 12 - SEGMENT INFORMATION The Company operates in a single industry segment as a manufacturer of photomasks, which are high precision quartz plates containing microscopic images of electronic circuits for use in the fabrication of semiconductors. In addition to its manufacturing facilities in the United States, the Company has operations in the United Kingdom, Switzerland, Germany and Singapore. The Company's 1998, 1997 and 1996 net sales, operating profit and identifiable assets by geographic area were as follows: Net Operating Identifiable Sales Income (Loss) Assets -------- ------------- ------------ 1998: United States $185,772 $32,443 $285,115 Europe 20,008 (416) 51,326 Asia 16,792 3,431 35,108 -------- ------- -------- $222,572 $35,458 $371,549 ======== ======= ======== 1997: United States $174,043 $37,989 $288,970 Europe 12,938 180 46,586 Asia 10,470 2,235 29,656 -------- ------- -------- $197,451 $40,404 $365,212 ======== ======= ======== 1996: United States $153,227 $32,660 $181,255 Europe and Asia 6,844 (395) 30,648 -------- ------- -------- $160,071 $32,265 $211,903 ======== ======= ======== Approximately 4% of net domestic sales in 1998 were for delivery outside of the United States (7% in 1997 and 14% in 1996). The Company's largest single customer represented approximately 16% of total net sales in 1998, 23% in 1997 and 26% in 1996. NOTE 13 - NON-RECURRING RESTRUCTURING CHARGE In March, 1998, the Company initiated a plan to optimize its North American manufacturing network. It re-organized its two California operations, dedicating its Milpitas facility to the production of high- end technology photomasks and its Sunnyvale facility to the production of mature technology photomasks, and it consolidated its Colorado Springs, Colorado photomask manufacturing operations into its other North American manufacturing facilities. The Company determined that its Large Area Mask (LAM) Division, which is also located in Colorado Springs, does not
represent a long-term strategic fit with its core photomask business, and accordingly, intends to sell the LAM Division. The Company recorded a $3.8 million charge in the second quarter of 1998 for the restructuring, the major portion of which reduced property, plant and equipment to its net realizable values. NOTE 14 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following table sets forth certain unaudited quarterly financial data: First Second Third Fourth Year ------- ------- ------- ------- ------- 1998: Net sales $50,932 $61,307 $57,681 $52,652 $222,572 Gross profit 19,666 23,747 21,092 16,439 80,944 Net income 6,280 5,309 5,844 3,049 20,482 Earnings per share: Basic $ 0.26 $ 0.22 $ 0.24 $ 0.13 $ 0.84 Diluted $ 0.25 $ 0.22 $ 0.24 $ 0.13 $ 0.84 1997: Net sales $40,029 $49,034 $53,081 $55,307 $197,451 Gross profit 14,682 18,751 20,661 21,855 75,949 Net income $ 5,325 $ 6,184 $ 6,839 $ 7,288 $ 25,636 Earnings per share: Basic $ 0.22 $ 0.26 $ 0.29 $ 0.30 $ 1.07 Diluted $ 0.22 $ 0.25 $ 0.27 $ 0.29 $ 1.03 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements on any accounting and financial disclosure matters between the Company and its independent certified public accountants for which a Form 8-K was required to be filed during the 24 months ended November 1, 1998 or for the period from November 1, 1998 to the date hereof. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information as to Directors required by Item 401 and 405 of Regulation S-K is incorporated by reference to the Company's definitive proxy statement (the "Definitive Proxy Statement") which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K. The information as to Executive Officers is included in Part I, Item 1a of this report, "Executive Officers." ITEM 11. EXECUTIVE COMPENSATION The information required by Item 402 of Regulation S-K is incorporated by reference to the Definitive Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 403 of Regulation S-K is incorporated by reference to the Definitive Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 404 of Regulation S-K is incorporated by reference to the Definitive Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) The following documents are filed as part of this report: 1) Financial Statements Independent Auditors' Report Consolidated Balance Sheet at November 1, 1998 and November 2, 1997 Consolidated Statement of Earnings for the years ended November 1, 1998, November 2, 1997 and October 31, 1996 Consolidated Statement of Shareholders' Equity for the years ended November 1, 1998, November 2, 1997 and October 31, 1996 Consolidated Statement of Cash Flows for the years ended November 1, 1998, November 2, 1997 and October 31, 1996 Notes to Consolidated Financial Statements 2) Financial Statement Schedules Schedules for which provision is made in Regulation S-X of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. 3) Exhibits: See Table of Exhibits, page 39. (B) Reports on Form 8-K No report on Form 8-K was filed by the Company during the fourth quarter of the Company's fiscal year ended November 1, 1998.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 CONSTANTINE S. MACRICOSTAS January 14, 1999 -------------------------- ---------------- Constantine S. Macricostas Chairman of the Board and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By CONSTANTINE S. MACRICOSTAS January 14, 1999 -------------------------- ---------------- Constantine S. Macricostas Chairman of the Board and Director By MICHAEL J. YOMAZZO January 14, 1999 ------------------------- ---------------- Michael J. Yomazzo Vice Chairman & Director By ROBERT J. BOLLO January 14, 1999 ------------------------- ---------------- Robert J. Bollo Vice President/Finance Chief Financial Officer
By WALTER M. FIEDEROWICZ January 14, 1999 ------------------------- ---------------- Walter M. Fiederowicz Director By JOSEPH A. FIORITA, JR. January 14, 1999 ------------------------- ---------------- Joseph A. Fiorita, Jr. Director By YUKIO TAGAWA January 11, 1999 ------------------------- ---------------- Yukio Tagawa Director 98\10-K/p
TABLE OF EXHIBITS 3.1 Certificate of Incorporation. (1) 3.2 By-Laws, as amended. (1) 3.3 Amendment to Certificate of Incorporation, dated March 16, 1990. (3) 3.4 Amendment to Certificate of Incorporation, dated March 16, 1995. (10) 3.5 Amendment to Certificate of Incorporation, dated November 13, 1997. (13) 4.1 Form of Stock Certificate. (1) 10.1 Loan Agreement, dated August 10, 1984, among the Company, Fairfield Associates, and the Connecticut Development Authority. (1) 10.2 Indenture of Trust, dated August 10, 1984, between the Connecticut Development Authority and Citytrust. (1) 10.3 Security Agreement, dated August 10, 1984, between the Company and the Connecticut Development Authority, with assignment to Citytrust, as Trustee. (1) 10.4 Lease Agreement, dated August 10, 1984, between the Company and Fairfield Associates. (1) 10.5 Guaranty Agreement, dated August 10, 1984, by the Company and Constantine Macricostas to Citytrust, as Trustee. (1) 10.6 Assumption Agreement between the Company, MC2 and the Connecticut Development Authority, dated October 15, 1992, and related Note, Mortgage and Collateral Assignment of Leases and amendments thereto. (6) 10.7 Assumption Agreement, Third Amendment to Loan Agreement and Amendment to Guaranty Photronic Labs Incorporated Project - 1984 Series, dated August 28, 1992, by and among Photronics California, Inc., Photronics Financial Services, Inc., Photronics Investment Services, Inc., Photronics Texas, Inc., the Company, Constantine Macricostas, the Connecticut Development Authority, The Chase Manhattan Bank of Connecticut, N.A. and Fairfield Associates. (6) 10.8 The Company's 1986 Non-Qualified Stock Option Plan, as amended. (2) +
10.9 The Company's 1988 Non-Qualified Stock Option Plan. (8) + 10.10 Amendment #1 to the Company's 1988 Non-Qualified Stock Option Plan. (3) + 10.11 Amendment to Security Agreements, dated October 31, 1988, by and among the Company, Citytrust, Constantine S. Macricostas and Mayo Associates. (8) 10.12 Amendment to Loan Agreements between the Company and the Connecticut Development Authority, dated as of June 8, 1990. (3) 10.13 Second Amendment to Loan Agreement dated as of December 20, 1991 by and among the Company, the Connecticut Development Authority and The Chase Manhattan Bank of Connecticut, N.A. (4) 10.14 Form of severance agreement between the Company and each of Messrs. Macricostas, Northup and Moonan. (8) + 10.15 Lease dated as of November 1, 1989 between the Company, MC3, Inc. and Alpha-Omega Associates. (8) 10.16 Consulting Agreement, dated June 1, 1992, between Joseph Fiorita and the Company. (6) + 10.17 The Company's 1992 Stock Option Plan. (5) + 10.18 The Company's 1992 Employee Stock Purchase Plan. (5) 10.19 The Company's 1994 Employee Stock Option Plan. (7) + 10.20 Form of Agreement regarding Life Insurance between the Company and each of Messrs Macricostas, Yomazzo, Northup and Moonan. (9) + 10.21 Credit Agreement between the Company and various lenders, dated November 19, 1998. * 10.22 The Company's 1996 Stock Option Plan. (11) + 10.23 Letter Agreement between the Company and Michael J. Yomazzo, dated October 10, 1997. (13) + 10.24 Consulting Agreement between the Company and Michael J. Yomazzo, dated October 10, 1997. (13) + 10.25 Consulting Agreement between the Company and Constantine S. Macricostas, dated October 10, 1997. (13) + 10.26 Form of Indenture between The Chase Manhattan Bank, as Trustee, and the Company relating to the 6% Convertible Subordinated Notes due June 1, 2004. (12) 10.27 Agreement dated September 21, 1998 by and between the Company and Toppan Printing Co., Ltd. *
10.28 The Company's 1998 Stock Option Plan. (18) + 21 List of Subsidiaries. * 23 Consent of Deloitte & Touche LLP. * 27 Financial Data Schedule * - -------------------- * Filed herewith. + Represents a management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to item 14(c) of this report. - -------------------- (1) Filed as an exhibit to the Company's Registration Statement on Form S-1, File Number 33-11694, which was declared effective by the Commission on March 10, 1987, and incorporated herein by reference. (2) Filed as an exhibit to the Company's Registration Statement on Form S-8, File Number 33-17530, which was declared effective on October 19, 1987, and incorporated herein by reference. (3) Filed as an exhibit to the Company's Registration Statement on Form S-2, File Number 33-34772 which was declared effective by the Commission on June 22, 1990, and incorporated herein by reference. (4) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1991 and incorporated herein by reference. (5) Filed as an exhibit to the Company's Registration Statement on Form S-8, File Number 33-47446, which was filed on April 24, 1992, and incorporated herein by reference. (6) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1992, and incorporated herein by reference. (7) Filed as an exhibit to the Company's Registration Statement on Form S-8, File Number 33-78102, which was filed on April 22, 1994, and incorporated herein by reference. (8) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1993, and incorporated herein by reference. (9) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended July 31, 1995, and incorporated herein by reference. (10) Filed as an exhibit to the Company's Current Report on Form 8-K, dated March 24, 1995, and incorporated herein by reference.
(11) Filed as an exhibit to the Company's Registration Statement on Form S-8, File Number 333-02245, which was filed on April 4, 1996, and incorporated herein by reference. (12) Filed as an exhibit to the Company's Registration Statement on Form S-3, File Number 333-26009, which was declared effective by the Commission on May 22, 1997, and incorporated herein by reference. (13) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 2, 1997, and incorporated herein by reference. (14) Filed as an exhibit to the Company's Registration Statement on Form S-8, File Number 333-50809, which was filed on April 23, 1998, and incorporated herein by reference.
INDEX TO EXHIBITS PAGE 10.21 Credit Agreement between the Company and various lenders, dated November 19, 1998................. 10.27 Agreement dated September 21, 1998 by and between the Company and Toppan Printing Co., Ltd......... 21 List of Subsidiaries............................. 23 Consent of Deloitte & Touche LLP................. 27 Financial Data Schedule..........................