**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Forthe quarterly period ended March 31, 2004**

**Commissionfile number 0-20839**

 

**DUPONT PHOTOMASKS, INC.**

(Exact name of registrant as specified in ourcharter)

 

| **Delaware**                                                    |   | **74-2238819**                       |
|-----------------------------------------------------------------|--------|--------------------------------------|
| (State or Other Jurisdiction of  Incorporation or Organization) |   | (I.R.S. Employer Identification No.) |

 

**131Old Settlers BoulevardRound Rock, Texas 78664**

(Address of Principal Executive Offices)

 

Registrant’s telephone number, including areacode: **(512) 310-6500**

 

Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ýNo o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).Yes ý No o

 

As of May 10, 2004, 18,378,069 shares of common stock, $.01 par value,were outstanding.

 

 

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**TABLEOF CONTENTS**

 
| **Part I**  |                                                                                                                                                  |   |
|-------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|        |                                                                                                                                                  |   |
| Item 1.     | Financial  Statements                                                                                                                                 |   |
|        | Consolidated Income Statements (unaudited) for the Three Months Ended  March 31, 2003 and  2004 and for the Nine months ended March 31, 2003 and 2004 |   |
|        | Consolidated Balance Sheets as of June 30, 2003 and March 31, 2004  (unaudited)                                                                       |   |
|        | Consolidated Statements of Cash Flows  (unaudited) for the Nine Months Ended March 31, 2003  and 2004                                                 |   |
|        | Consolidated Statements of Stockholders’  Equity for the Twelve Months Ended June 30, 2003 and  the Nine Months Ended March 31, 2004 (unaudited) |   |
|        | Notes to Consolidated Financial Statements  (unaudited)                                                                                               |   |
|        |                                                                                                                                                  |   |
| Item 2.     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                           |   |
|        |                                                                                                                                                  |   |
| Item 3.     | Quantitative  and Qualitative Disclosures About Market Risk                                                                                           |   |
|        |                                                                                                                                                  |   |
| Item 4.     | Controls  and Procedures                                                                                                                              |   |
|        |                                                                                                                                                  |   |
| **Part II** |                                                                                                                                                  |   |
| Item 1.     | Legal Proceedings                                                                                                                                     |   |
|        |                                                                                                                                                  |   |
| Item 2.     | Changes in Securities, Use of Proceeds, and  Issuer Purchases of Equity Securities                                                                    |   |
|        |                                                                                                                                                  |   |
| Item 6.     | Exhibits  and Reports on Form 8-K                                                                                                                     |   |
|        | Signatures                                                                                                                                            |   |

 

2

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**PART I**

 

**Item 1****. Financial Statements**

 

**DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES**

** **

**CONSOLIDATEDINCOME STATEMENTS**

**(Dollars in thousands, except share data)**

**(unaudited)**

** **
|                                                  |   | **Three  Months Ended  March 31,** |    | **Nine  Months Ended  March 31,** |   |
|-------------------------------------------------------|--------|------------------------------------|---------|-----------------------------------|--------|
|                                                  |   | **2003**                           |    | **2004**                          |   | **2003** |   | **2004** |   |
|                                                  |   |                               |    |                              |   |   |   |   |   |
| Revenue, net                                          |   | $                                  | 76,141  |                              | $      | 88,019 |   | $ | 241,350 |   | $ | 256,360 |   |
| Cost of goods sold                                    |   | 74,491                             |    | 75,791                            |   | 216,225 |   | 228,593 |   |
| Selling, general and administrative expense           |   | 11,163                             |    | 11,953                            |   | 31,498 |   | 37,652 |   |
| Research and development expense                      |   | 6,569                              |    | 8,792                             |   | 21,735 |   | 23,409 |   |
| Special charges, net                                  |   | 9,247                              |    | 506                               |   | 21,754 |   | 2,097 |   |
| Operating loss                                        |   | (25,329                            | )       | (9,023                            | )      | (49,862 | ) | (35,391 | ) |
| Other income (expense), net                           |   | (1,079                             | )       | 64                                |   | (969 | ) | (1,056 | ) |
| Loss before income taxes and minority  interest       |   | (26,408                            | )       | (8,959                            | )      | (50,831 | ) | (36,447 | ) |
| Provision for (benefit from) income taxes             |   | (3                                 | )       | 1,300                             |   | 1,355 |   | 2,750 |   |
| Loss before minority interest                         |   | (26,405                            | )       | (10,259                           | )      | (52,186 | ) | (39,197 | ) |
| Minority interest in (income) loss of joint  ventures |   | 551                                |    | (305                              | )      | (2,180 | ) | 302 |   |
| Net loss                                              |   | $                                  | (25,854 | )                                 | $      | (10,564 | ) | $ | (54,366 | ) | $ | (38,895 | ) |
|                                                  |   |                               |    |                              |   |   |   |   |   |
| Basic loss per share                                  |   | $                                  | (1.43   | )                                 | $      | (0.58 | ) | $ | (3.02 | ) | $ | (2.14 | ) |
|                                                  |   |                               |    |                              |   |   |   |   |   |
| Weighted average shares outstanding                   |   | 18,037,432                         |    | 18,176,334                        |   | 18,000,257 |   | 18,138,289 |   |
|                                                  |   |                               |    |                              |   |   |   |   |   |
| Diluted loss per share                                |   | $                                  | (1.43   | )                                 | $      | (0.58 | ) | $ | (3.02 | ) | $ | (2.14 | ) |
|                                                  |   |                               |    |                              |   |   |   |   |   |
| Weighted average shares outstanding                   |   | 18,037,432                         |    | 18,176,334                        |   | 18,000,257 |   | 18,138,289 |   |

 

The accompanying notes are an integral partof these consolidated statements

 

3

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**DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES**

** **

**CONSOLIDATEDBALANCE SHEETS**

**(Dollars in thousands, except share data)**

** **
|                                                                                                                          |   | **June 30,  2003** |    | **March 31,  2004** |    |
|-------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|---------------------|---------|
|                                                                                                                          |   |               |    | **(unaudited)**     |    |
| **ASSETS**                                                                                                                    |   |               |    |                |    |
| Current assets:                                                                                                               |   |               |    |                |    |
| Cash and cash equivalents                                                                                                     |   | $                  | 250,355 |                | $       | 228,820 |   |
| Accounts receivable, trade, net                                                                                               |   | 54,312             |    | 63,616              |    |
| Accounts receivable, related parties                                                                                          |   | 996                |    | 2,265               |    |
| Other receivables                                                                                                             |   | —             |    | 17,461              |    |
| Inventories                                                                                                                   |   | 13,434             |    | 11,505              |    |
| Deferred income taxes                                                                                                         |   | 4,454              |    | 351                 |    |
| Prepaid expenses and other current assets                                                                                     |   | 12,705             |    | 14,272              |    |
| Total current assets                                                                                                          |   | 336,256            |    | 338,290             |    |
| Assets held for sale                                                                                                          |   | 5,087              |    | 8,926               |    |
| Property and equipment, net                                                                                                   |   | 379,582            |    | 425,496             |    |
| Accounts receivable, related parties                                                                                          |   | 1,048              |    | 933                 |    |
| Deferred income taxes                                                                                                         |   | 1,603              |    | 991                 |    |
| Other assets, net                                                                                                             |   | 46,006             |    | 33,054              |    |
| Total assets                                                                                                                  |   | $                  | 769,582 |                | $       | 807,690 |   |
|                                                                                                                          |   |               |    |                |    |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                 |   |               |    |                |    |
| Current liabilities:                                                                                                          |   |               |    |                |    |
| Accounts payable, trade                                                                                                       |   | $                  | 45,935  |                | $       | 36,866 |   |
| Accounts payable, related parties                                                                                             |   | 4,553              |    | 4,700               |    |
| Income taxes payable                                                                                                          |   | 884                |    | 3,128               |    |
| Other accrued liabilities                                                                                                     |   | 59,559             |    | 58,325              |    |
| Short-term borrowings                                                                                                         |   | 11,903             |    | 22,705              |    |
| Convertible notes                                                                                                             |   | —             |    | 100,000             |    |
| Total current liabilities                                                                                                     |   | 122,834            |    | 225,724             |    |
| Long-term borrowings                                                                                                          |   | 1,973              |    | 59,811              |    |
| Long-term convertible notes                                                                                                   |   | 225,000            |    | 125,000             |    |
| Deferred income taxes                                                                                                         |   | 4,872              |    | 781                 |    |
| Other liabilities                                                                                                             |   | 10,522             |    | 9,773               |    |
| Minority interest in net assets of joint  ventures                                                                            |   | 45,436             |    | 57,801              |    |
| Total liabilities                                                                                                             |   | 410,637            |    | 478,890             |    |
|                                                                                                                          |   |               |    |                |    |
| Commitments and contingencies                                                                                                 |   |               |    |                |    |
| Stockholders’ equity:                                                                                                    |   |               |    |                |    |
| Preferred stock, $.01 par value; 5,000,000  shares authorized; none issued and outstanding                                    |   | —             |    | —              |    |
| Common stock, $.01 par value; 100,000,000  shares authorized; 18,064,964 and 18,377,161 issued and outstanding,  respectively |   | 181                |    | 184                 |    |
| Additional paid-in capital                                                                                                    |   | 317,220            |    | 323,529             |    |
| Retained earnings                                                                                                             |   | 41,544             |    | 2,649               |    |
| Accumulated other comprehensive income                                                                                        |   | —             |    | 2,438               |    |
| Total stockholders’ equity                                                                                               |   |               | 358,945 |                | 328,800 |   |
| Total liabilities and stockholders’ equity                                                                               |   |               | $       | 769,582             |    | $ | 807,690 |   |

 

The accompanying notes are an integral partof these consolidated statements.

 

4

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**DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES**

** **

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Dollars in thousands)**

**(unaudited)**

 
|                                                                             |   | **Nine  Months Ended  March 31,** |    |
|----------------------------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                                             |   | **2003**                          |    | **2004** |   |
|                                                                             |   |                              |    |   |   |
| Cash flows from operating activities:                                            |   |                              |    |   |   |
| Net loss                                                                         |   | $                                 | (54,366 | ) | $ | (38,895 | ) |
| Adjustments to reconcile net loss to net  cash provided by operating activities: |   |                              |    |   |   |
| Depreciation and amortization                                                    |   | 74,450                            |    | 69,229 |   |
| Minority interest in income (loss) of joint  ventures                            |   | 2,180                             |    | (302 | ) |
| Deferred income taxes                                                            |   | 1,065                             |    | 624 |   |
| Special charges, net                                                             |   | 21,754                            |    | 2,097 |   |
| Other                                                                            |   | 180                               |    | 340 |   |
| Changes in assets and liabilities:                                               |   |                              |    |   |   |
| Accounts receivable, trade, net                                                  |   | (696                              | )       | (13,649 | ) |
| Accounts receivable, related parties                                             |   | 3,376                             |    | (371 | ) |
| Inventories                                                                      |   | (1,338                            | )       | 1,431 |   |
| Other assets, net                                                                |   | 23,103                            |    | 4,583 |   |
| Accounts payable, trade                                                          |   | (5,181                            | )       | (5,175 | ) |
| Accounts payable, related parties                                                |   | (4,634                            | )       | 2,375 |   |
| Other liabilities                                                                |   | (13,135                           | )       | (16,116 | ) |
|                                                                             |   |                              |    |   |   |
| Net cash provided by operating activities                                        |   | 46,758                            |    | 6,171 |   |
|                                                                             |   |                              |    |   |   |
| Cash flows from investing activities:                                            |   |                              |    |   |   |
| Purchases of property and equipment                                              |   | (50,045                           | )       | (33,528 | ) |
| Cash assumed in consolidation of BAC                                             |   | —                            |    | 5,821 |   |
| Proceeds from sale of assets                                                     |   | —                            |    | 2,000 |   |
| Proceeds from sale of warrants and  investments                                  |   | 105                               |    | — |   |
| Purchases of investments                                                         |   | (1,983                            | )       | — |   |
|                                                                             |   |                              |    |   |   |
| Net cash used in investing activities                                            |   | (51,923                           | )       | (25,707 | ) |
|                                                                             |   |                              |    |   |   |
| Cash flows from financing activities:                                            |   |                              |    |   |   |
| Proceeds from borrowings                                                         |   | 2,368                             |    | 723 |   |
| Payments on borrowings                                                           |   | (3,369                            | )       | (5,453 | ) |
| Proceeds from issuance of common stock  under employee plans                     |   | 2,727                             |    | 2,312 |   |
|                                                                             |   |                              |    |   |   |
| Net cash provided by (used in) financing  activities                             |   | 1,726                             |    | (2,418 | ) |
|                                                                             |   |                              |    |   |   |
| Effect of exchange rate changes on cash                                          |   | 595                               |    | 419 |   |
|                                                                             |   |                              |    |   |   |
| Net decrease in cash and cash equivalents                                        |   | (2,844                            | )       | (21,535 | ) |
| Cash and cash equivalents at beginning of  period                                |   | 138,918                           |    | 250,355 |   |
|                                                                             |   |                              |    |   |   |
| Cash and cash equivalents at end of period                                       |   | $                                 | 136,074 |   | $ | 228,820 |   |
|                                                                             |   |                              |    |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW  INFORMATION:                               |   |                              |    |   |   |
| Cash paid (received) for:                                                        |   |                              |    |   |   |
| Interest                                                                         |   | $                                 | 362     |   | $ | 1,202 |   |
|                                                                             |   |                              |    |   |   |
| Taxes, net                                                                       |   | $                                 | (21,825 | ) | $ | 403 |   |

 

The accompanying notes are an integral partof these consolidated statements.

 

5

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**DUPONTPHOTOMASKS, INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY**

**(Dollarsin thousands)**

** **
|                                           |   |              |   |       |   | **Additional  Paid-In  Capital** |   | **Retained  Earnings** |   | **Accumulated  Other  Comprehensive  Income** |    | **Total  Stockholders’ Equity** |   |
|------------------------------------------------|--------|-------------------|--------|------------|--------|----------------------------------|--------|------------------------|--------|-----------------------------------------------|---------|--------------------------------------|--------|
|                                           |   | **Common  Stock** |   |       |   |                             |   |
|                                           |   | **Shares**        |   | **Amount** |   |                             |   |                   |   |
|                                           |   |              |   |       |   |                             |   |                   |   |                                          |    |                                 |   |
| Balance as of June 30, 2002                    |   | 17,927,294        |   | $          | 179    |                             | $      | 314,430                |   | $                                             | 155,054 |                                 | $      | — |   | $ | 469,663 |   |
|                                           |   |              |   |       |   |                             |   |                   |   |                                          |    |                                 |   |
| Issuance of common stock under employee  plans |   | 137,670           |   | 2          |   | 2,790                            |   | —                 |   | —                                        |    | 2,792                                |   |
| Net loss                                       |   | —            |   | —     |   | —                           |   | (113,510               | )      | —                                        |    | (113,510                             | )      |
|                                           |   |              |   |       |   |                             |   |                   |   |                                          |    |                                 |   |
| Balance as of June 30, 2003                    |   | 18,064,964        |   | 181        |   | 317,220                          |   | 41,544                 |   | —                                        |    | 358,945                              |   |
|                                           |   |              |   |       |   |                             |   |                   |   |                                          |    |                                 |   |
| Issuance of common stock under employee  plans |   | 131,500           |   | 1          |   | 2,311                            |   | —                 |   | —                                        |    | 2,312                                |   |
| Issuance of common stock (Note 12)             |   | 180,697           |   | 2          |   | 3,998                            |   | —                 |   | —                                        |    | 4,000                                |   |
| Foreign currency translation adjustments       |   | —            |   | —     |   | —                           |   | —                 |   | 2,438                                         |    | 2,438                                |   |
| Net loss                                       |   | —            |   | —     |   | —                           |   | (38,895                | )      | —                                        |    | (38,895                              | )      |
|                                           |   |              |   |       |   |                             |   |                   |   |                                          |    |                                 |   |
| Balance as of March 31, 2004 (unaudited)       |   | 18,377,161        |   | $          | 184    |                             | $      | 323,529                |   | $                                             | 2,649   |                                 | $      | 2,438 |   | $ | 328,800 |   |

 

The accompanying notes are an integral part of these consolidatedstatements.

 

6

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**DUPONTPHOTOMASKS, INC. AND SUBSIDIARIES**

## **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Dollarsin thousands, except share data)**

**(unaudited)**

 

**1.****                                      Basisof Presentation**

 

The interim consolidated financial statements presented in this reportinclude the accounts of DuPont Photomasks, Inc., our controlled andwholly-owned subsidiaries, and variable interest entities of which we are theprimary beneficiary. All significant inter-company transactions and accountshave been eliminated in consolidation. These interim consolidated financialstatements have been prepared by us, without audit, pursuant to the rules andregulations of the Securities and Exchange Commission, or SEC. All adjustmentshave been made to the accompanying interim consolidated financial statementswhich are, in the opinion of management, necessary for a fair presentation ofour operating results and include all adjustments of a normal recurring nature.Certain information and footnote disclosures normally included in financialstatements prepared in accordance with accounting principles generally acceptedin the United States of America have been condensed or omitted pursuant to therules and regulations of the SEC.

 

It is recommended that these interim consolidated financial statementsbe read in conjunction with the consolidated financial statements and the notesthereto included in our Annual Report on Form 10-K for the year endedJune 30, 2003. The preparation of financial statements in conformity withaccounting principles generally accepted in the United States of Americarequires the use of estimates and assumptions by management in determining thereported amounts of assets and liabilities, disclosures of contingentliabilities as of the date of the financial statements and the reported amountsof revenue and expenses during the period. Actual results could differ fromthose estimates. The results of operations for any interim period are notnecessarily indicative of the results of operations for the entire fiscal year.Certain reclassifications have been made in the prior period consolidatedfinancial statements to conform with the current period presentation.  As of March 31, 2004, we began consolidatingthe financial results of the Maskhouse Building Administration GmbH & Co.KG (“BAC”), a joint venture equally owned by AMD, Infineon and DuPontPhotomasks, Inc., in accordance with the provisions of Financial AccountingStandards Board (“FASB”) Interpretation No. 46R (“FIN No. 46R”), *Consolidationof Variable Interest Entities* (“VIE”).  See Notes 2 and 8.

 

**2.****                                      NewAccounting Pronouncements**

 

In December 2003, the FASB issued FIN No. 46R, a revision to FIN No.46.  FIN No. 46R clarifies some of theprovisions of FIN No. 46 and exempts certain entities from itsrequirements.  FIN No. 46R requires thatif a company is the primary beneficiary of a VIE, the assets, liabilities andresults of the VIE’s operations should be consolidated in the company’sfinancial statements.  Based on theguidance in FIN No. 46R, we concluded that we are the primary beneficiary ofthe BAC. Accordingly, we began consolidating the financial results of the BACas of March 31, 2004.  The consolidationof the BAC had no impact on our consolidated income statements during the threeand nine months ended March 31, 2004. However, the consolidation of the BAC didincrease our consolidated assets and liabilities as of March 31, 2004 byapproximately $89,000. AMD and Infineon’s equity ownership in the net assets ofthe BAC as of March 31, 2004 was approximately $13,000 and is recorded asminority interest in net assets of joint ventures on our consolidated balancesheet. Subsequent to March 31, 2004, we expect the consolidation of the BACwill have no impact on our consolidated net income or loss as we would haveotherwise continued to record our equity interest in the BAC under the equitymethod.  The receipt of the investmentsubsidies from the German government by the BAC and the payments on the BACterm loan by the BAC will have material impacts on our consolidated cash flowsfrom investing and financing activities, respectively.  Prior to our consolidation of the BAC, wehave recorded our rent payments to the BAC in our cash flows from operatingactivities.  The consolidation has notaltered the operational agreements, guarantees and other commitments betweenthe BAC, its partners and lenders.

 

In January 2003, the Securities and Exchange Commission (“SEC”) issueda final rule requiring enhanced disclosure of material off-balance sheettransactions, arrangements, and other relationships with unconsolidatedentities. The rule also requires a tabular disclosure of future payments dueunder contractual commitments. The disclosure requirements will become effectivefor our fiscal 2004 Annual Report on Form 10-K. We do not expect this rule willhave a material impact on our consolidated financial condition or results ofoperations.

 

7

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In December 2003, the SEC issued Staff Accounting Bulletin (“SAB”) No.104, *RevenueRecognition,* which supersedes SAB No. 101, *Revenue Recognition in FinancialStatements.* The adoption of SAB No. 104 did not have a materialimpact on our consolidated results of operations or financial position.Accounting guidance contained in SAB No. 101 related to multiple-elementrevenue arrangements was superseded as a result of the issuance of EmergingIssues Task Force (“EITF”) EITF 00-21, *Accounting for Revenue Arrangements with MultipleDeliverables.* SAB No. 104 restates the affected portion of SAB No.101 to reflect the issuance of EITF 00-21 while the revenue recognitionprinciples of SAB No. 101 remain largely unchanged. SAB No. 104 was effectiveupon issuance.

 

**3.****                                      DerivativeInstruments and Hedging Activities**

 

Forward foreign exchange contracts are utilized to mitigate the risksassociated with currency fluctuations on certain foreign currency balance sheetexposures, and are, therefore, held primarily for purposes other than trading.These foreign exchange contracts do not qualify for hedge accounting under SFASNo. 133 *Accounting for Derivative Instruments and Hedging Activities*,as amended. Unrealized gains and losses resulting from the impact of currencyexchange rate movements on forward foreign exchange contracts designated tooffset certain non-U.S. dollar denominated assets and liabilities arerecognized as other income or expense on the accompanying consolidated incomestatements in the period in which the exchange rates change. These gains andlosses offset the foreign currency exchange gains and losses on the underlyingexposures being hedged. An unrealized gain of $154 for the three and ninemonths ended March 31, 2004 is recorded in other income (expense), net on theaccompanying consolidated income statement in relation to our forward exchangecontracts outstanding as of March 31, 2004. These instruments may involveelements of credit and market risk in excess of the amounts recognized on theconsolidated financial statements. We monitor our positions and the creditquality of counterparties, consisting primarily of major financialinstitutions, and do not anticipate nonperformance by any counterparty,although nonperformance could occur.

 

**4.****                                      ComprehensiveIncome**

 

We had no itemsof comprehensive income other than net loss for the three and nine months endedMarch 31, 2003. Our comprehensive income for the three and nine months endedMarch 31, 2004 is comprised of net loss and foreign currency translationadjustments.

 

**5.****                                      Earnings(Loss) Per Share**

 

Basic earnings (loss) per share, or basic EPS, is computed by dividingnet income (loss) by the weighted number of common shares outstanding duringeach period. Diluted earnings (loss) per share, or diluted EPS, is computed bydividing net income (loss) after adjustments for the dilutive effect of ourconvertible notes (if dilutive), by the weighted average number of commonshares and potentially dilutive shares outstanding (if dilutive) during eachperiod. Potentially dilutive shares include stock options and assumedconversion of the convertible notes. The number of potentially dilutive sharesoutstanding relating to stock options is computed using the treasury stockmethod and the number of potentially dilutive shares outstanding relating tothe convertible notes is computed using the if-converted method.

 

8

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The reconciliation of the amounts used to calculate the basic EPS anddiluted EPS is as follows:

 
|                                              |   | **Three  Months Ended  March 31,** |    | **Nine  Months Ended  March 31,** |   |
|---------------------------------------------------|--------|------------------------------------|---------|-----------------------------------|--------|
|                                              |   | **2003**                           |    | **2004**                          |   | **2003** |   | **2004** |   |
|                                              |   |                               |    |                              |   |   |   |   |   |
| Net loss for the period—basic                |   | $                                  | (25,854 | )                                 | $      | (10,564 | ) | $ | (54,366 | ) | $ | (38,895 | ) |
| Dilutive effect of convertible notes              |   | —                             |    | —                            |   | — |   | — |   |
|                                              |   |                               |    |                              |   |   |   |   |   |
| Net loss for the period—diluted              |   | $                                  | (25,854 | )                                 | $      | (10,564 | ) | $ | (54,366 | ) | $ | (38,895 | ) |
|                                              |   |                               |    |                              |   |   |   |   |   |
| Weighted average shares outstanding—basic    |   | 18,037,432                         |    | 18,176,334                        |   | 18,000,257 |   | 18,138,289 |   |
| Plus: Potentially dilutive shares                 |   | —                             |    | —                            |   | — |   | — |   |
|                                              |   |                               |    |                              |   |   |   |   |   |
| Weighted average shares outstanding—dilutive |   | 18,037,432                         |    | 18,176,334                        |   | 18,000,257 |   | 18,138,289 |   |
|                                              |   |                               |    |                              |   |   |   |   |   |
| Basic loss per share                              |   | $                                  | (1.43   | )                                 | $      | (0.58 | ) | $ | (3.02 | ) | $ | (2.14 | ) |
|                                              |   |                               |    |                              |   |   |   |   |   |
| Diluted loss per share                            |   | $                                  | (1.43   | )                                 | $      | (0.58 | ) | $ | (3.02 | ) | $ | (2.14 | ) |

 

Stock options to acquire 4,341,430 and 4,837,688 shares for the threeand nine months ended March 31, 2003 and 2004, respectively, were not includedin potentially dilutive shares because the effect of including these stockoptions would have been anti-dilutive. For the three and nine months endedMarch 31, 2003, 941,088 shares were not included in the computations of dilutedEPS because the effect of including the shares to be issued upon the conversionof convertible notes would have been anti-dilutive. For the three and ninemonths ended March 31, 2004, 5,824,850 shares were not included in thecomputations of diluted EPS because the effect of including the shares to beissued upon the conversion of convertible notes would have been anti-dilutive.These options and the convertible notes may become dilutive in the future.

 

**6.**                                      **Income Taxes**

 

The provision for income taxes differs from amounts computed byapplying the federal statutory rate of 35% to loss before income taxes andminority interest because of our inability to record deferred tax benefits fornet operating losses generated in certain tax jurisdictions, our reduced taxrates in certain Asian jurisdictions, and other adjustments described below.

 

During the nine months ended March 31, 2003, we recorded valuationallowances against our net deferred tax assets in the U.S. and in Europe(primarily related to net operating loss carryforwards). The restructuring inGermany (Note 10) also resulted in a charge for a valuation allowance of $1,812during the nine months ended March 31, 2003. Additionally, during the nine months ended March 31, 2003, we receivedincome tax refunds of approximately $23,300 by carrying U.S. net operatinglosses back to prior years.

 

During the three months and nine months endedMarch 31, 2004, our net tax provision included a provision of $400 and $1,650,respectively, for withholding taxes related to a previously announced dividenddistribution from one subsidiary within our group of foreign subsidiaries. Whenconsummated, this dividend distribution will utilize the majority of our U.S.net operating loss carryforward.  Forthe nine months ended March 31, 2004, our net tax provision also included a$950 benefit from the positive resolution of tax audits in multiple jurisdictions.

 

**7.****                                      Propertyand Equipment**

 

Property and equipment are stated at cost. Property and equipment undercapital leases are stated at the present value of future minimum leasepayments. Property and equipment are depreciated using the straight-line methodover the estimated useful lives of the assets ranging from three to seven yearsfor equipment and 10 to 20 years for buildings. Property and equipment heldunder capital leases and leasehold improvements are amortized using thestraight-line method over the shorter of the estimated useful lives of theassets or the estimated remaining terms of the leases. Accumulated depreciationand amortization was $443,410 as of June 30, 2003 and $481,346 as of March31, 2004. Assets held for sale relate to our Gresham, Danbury, and Roussetfacilities and certain other equipment. We are actively marketing these assetsand will sell the assets after appropriate evaluation of all proposals.

 

9

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**8.****                                      Transactionswith Consolidated Variable Interest Entity**

 

We, along with Infineon and AMD, have established the BAC which is ajoint venture that owns a state-of-the-art photomask research and manufacturingfacility in Dresden, Germany.  We leaseapproximately 50 percent of the facility from the BAC for advanced photomaskmanufacturing and the remainder is leased by the Advanced Mask TechnologyCenter GmbH & Co. KG (“AMTC”).  Bothoperating leases are for 10-year terms and commenced July 2003.  Future minimum lease payments to be receivedby the BAC during the remaining term of the non-cancelable lease with the AMTCare estimated to be approximately $63,000.

 

The BAC executed a term loan agreement for its research andmanufacturing facility in December 2002. The BAC term loan had $74,946 outstanding as of March 31, 2004.  Of this amount, $15,199 is due within oneyear and is included in short-term borrowings on our accompanying consolidatedbalance sheet as of March 31, 2004.  TheBAC term loan matures in June 2012. Principal payments and interest are due quarterly. The BAC term loan issecured by the property, other financial assets of the BAC, the assignment ofrights from BAC insurance contracts, the tenant rent payment guarantees andGerman government guarantees. Prior to the initial occupancy of the buildingand initiation of the lease rental payments, we had guaranteed one-third of theBAC’s indebtedness.  Effective July2003, we were released from the guarantee except if the lenders become liableto return monies received in payment of the indebtedness as a result of anybankruptcy, composition or similar proceedings affecting the BAC.  As of March 31, 2004, the carrying value ofthe BAC property and equipment was $71,012 and is included in property andequipment, net, in our accompanying consolidated balance sheet.  In addition, investment in the BAC facilityis subsidized by the German government. As of March 31, 2004, amounts receivable by the BAC in relation to theseinvestment subsidies were $17,461 and are included in other receivables on theaccompanying consolidated balance sheet.

 

**9.****                                         EmployeePlans**

 

We apply the intrinsic-value-based method of accounting prescribed byAccounting Principles Board (“APB”) Opinion No. 25, *Accounting for Stock Issued toEmployees*, and related interpretations including FASB InterpretationNo. 44, *Accountingfor Certain Transactions involving Stock Compensation, an interpretation of APBOpinion No. 25*, to account for our stock performance plans. Underthis method, compensation expense is recorded on the date of grant only if thecurrent market price of the underlying stock exceeded the exercise price. Wealso have an Employee Stock Purchase Plan. SFAS No. 123, *Accounting for Stock Based Compensation*,established accounting and disclosure requirement alternatives which involveusing a different accounting method for expensing the calculated value ofoption awards. As allowed by SFAS No. 123, we have elected to continue to applythe intrinsic-value-based method of accounting described above, and haveadopted only the disclosure requirements of SFAS No. 123. We use theBlack-Scholes model to calculate pro forma expense for disclosure purposes. TheBlack Scholes option valuation model requires the input of highly subjectiveassumptions including the expected stock price volatility. We use projectedvolatility rates which are based upon historical volatility rates. Because ouremployee stock options and Employee Stock Purchase Plan shares havecharacteristics significantly different from those of traded options, andbecause changes in the subjective input assumptions can materially affect thefair value estimate, in management’s opinion, the existing models do notnecessarily provide a reliable single measure of the fair value of our employeestock options and Employee Stock Purchase Plan shares.

 

10

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SFAS No. 148, *Accounting for Stock-Based Compensation—Transitionand Disclosure, an amendment of FASB Statement No. 123*, amends thedisclosure requirements of SFAS No. 123. The following table illustrates theeffect on net loss if the fair-value-based method had been applied to ourstock-based employee compensation plans in each period.

 
|                                                                                                                                    |   | **Three  Months Ended  March 31,** |          | **Nine  Months Ended  March 31,** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|---------------|-----------------------------------|--------|
|                                                                                                                                    |   | **2003**                           |          | **2004**                          |   | **2003** |   | **2004** |   |
| Net loss:                                                                                                                               |   |                               |          |                              |   |   |   |   |   |
| As reported                                                                                                                             |   | $                                  | (25,854       | )                                 | $      | (10,564 | ) | $ | (54,366 | ) | $ | (38,895 | ) |
| Deduct total stock-based employee  compensation expense determined under the Black-Scholes valuation method for  all awards, net of tax |   | (4,176                             | )             | (3,950                            | )      | (12,130 | ) | (11,037 | ) |
|                                                                                                                                    |   |                               |          |                              |   |   |   |   |   |
| Pro forma net loss                                                                                                                      |   | $                                  |  (30,030 | )                                 | $      |  (14,514 | ) | $ |  (66,496 | ) | $ |  (49,932 | ) |
|                                                                                                                                    |   |                               |          |                              |   |   |   |   |   |
| Basic loss per share:                                                                                                                   |   |                               |          |                              |   |   |   |   |   |
| As reported                                                                                                                             |   | $                                  |  (1.43   | )                                 | $      |  (0.58 | ) | $ |  (3.02 | ) | $ |  (2.14 | ) |
| Pro forma                                                                                                                               |   | $                                  |  (1.66   | )                                 | $      |  (0.80 | ) | $ |  (3.69 | ) | $ |  (2.75 | ) |
|                                                                                                                                    |   |                               |          |                              |   |   |   |   |   |
| Diluted loss per share:                                                                                                                 |   |                               |          |                              |   |   |   |   |   |
| As reported                                                                                                                             |   | $                                  |  (1.43   | )                                 | $      |  (0.58 | ) | $ |  (3.02 | ) | $ |  (2.14 | ) |
| Pro forma                                                                                                                               |   | $                                  |  (1.66   | )                                 | $      |  (0.80 | ) | $ |  (3.69 | ) | $ |  (2.75 | ) |

 

**10.****                               SpecialCharges, net**

 

During fiscal 2003, we implemented programs to reduce costs associatedwith our North America, Europe and Asia segments. The integration andconsolidation initiatives in North America and Asia were completed duringfiscal 2003, and the related liabilities were settled as of September 30, 2003.We expect to complete the consolidation initiatives in Europe and extinguishthe majority of the related liabilities during the three months ending June 30,2004.  During the three months endedMarch 31, 2004, we recorded special charges of $707 primarily related to assetdispositions and we recorded a $224 benefit related to the revision ofpreviously recorded estimates for the closure of the Rousset facility.  During the nine months ended March 31, 2004we also reduced accrued liabilities for lease termination and asset disposalrelated costs by $367 as a result of our renegotiation of our lease terminationagreement for our Hamburg facility; recorded special charges of $757 which werenot previously estimable and related to employee severance for our formeremployees at our Rousset facility; and recorded a $553 benefit as a result ofterminating a capital lease liability on December 31, 2003 for our Hamburgfacility. The charges, benefit and adjustments to the liability have beenrecorded as Special Charges, net on the accompanying consolidated incomestatements.

 

In July 2003, as part of our efforts to reduce costs, we signed amulti-year pellicle supply agreement with Micro Lithography, Inc. (“MLI”),while concurrently deciding to close our pellicle production facility inDanbury. The closure of the facility was completed as of September 30, 2003. Weexpect to complete the closure initiatives in Danbury and extinguish therelated liabilities during the three months ending June 30, 2004. During thenine months ended March 31, 2004, we recorded special charges of $3,054 foremployee severance and asset disposal costs; reduced the employee severanceliability by $77; and received proceeds of $1,275 from the sale of certainpellicle technology and equipment.  Thecharges and adjustments to the liability, net of sale proceeds, have beenrecorded as Special Charges, net on the accompanying consolidated incomestatements.

 

11

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A summary of the related accrued liabilitiesis shown below:

 
|                                                                      |   | **Employee  Severance** |   | **Asset  Disposals and  Related  Costs** |   | **Lease  Termination  and Other  Costs** |   | **Total** |   |
|---------------------------------------------------------------------------|--------|-------------------------|--------|------------------------------------------|--------|------------------------------------------|--------|-----------|--------|
|                                                                      |   |                    |   |                                     |   |                                     |   |      |   |
| Remaining liability as of June 30, 2003                                   |   | $                       | 11,404 |                                     | $      | 1,307                                    |   | $         | 1,949  |   | $ | 14,660 |   |
| Charges during the nine months ended March  31, 2004                      |   | 3,107                   |   | 1,486                                    |   | —                                   |   | 4,593     |   |
| Adjustments to the liability during the  nine months ended March 31, 2004 |   | (77                     | )      | (353                                     | )      | (238                                     | )      | (668      | )      |
| Utilized during the nine months ended March  31, 2004                     |   | (10,523                 | )      | (1,556                                   | )      | (1,711                                   | )      | (13,790   | )      |
|                                                                      |   |                    |   |                                     |   |                                     |   |      |   |
| Remaining liability as of March 31, 2004                                  |   | $                       | 3,911  |                                     | $      | 884                                      |   | $         | — |   | $ | 4,795 |   |

 

12

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**11.****                               SegmentInformation**

 

We conduct operations worldwide and are managed on a geographic basis,with those geographic segments being North America, Europe and Asia. The NorthAmerica segment consists only of the U.S., the Europe segment includes Franceand Germany and the Asia segment includes China, Japan, Korea, Taiwan andSingapore.

 
|                                  |   | **North  America** |    | **Europe** |   | **Asia** |   | **Eliminations** |    | **Total** |   |
|---------------------------------------|--------|--------------------|---------|------------|--------|----------|--------|------------------|---------|-----------|--------|
|                                  |   |               |    |       |   |     |   |             |    |      |   |
| **Three Months Ended March 31, 2003** |   |               |    |       |   |     |   |             |    |      |   |
| Revenue, net                          |   | $                  | 38,304  |       | $      | 13,913   |   | $                | 23,924  |      | $      | — |   | $ | 76,141 |   |
| Transfers between geographic segments |   | 2,312              |    | —     |   | 3,979    |   | (6,291           | )       | —    |   |
|                                  |   | $                  | 40,616  |       | $      | 13,913   |   | $                | 27,903  |      | $      | (6,291 | ) | $ | 76,141 |   |
|                                  |   |               |    |       |   |     |   |             |    |      |   |
| Net loss                              |   | $                  | (8,286  | )          | $      | (17,498  | )      | $                | (70     | )         | $      | — |   | $ | (25,854 | ) |
|                                  |   |               |    |       |   |     |   |             |    |      |   |
| **Nine Months Ended March 31, 2003**  |   |               |    |       |   |     |   |             |    |      |   |
| Revenue, net                          |   | $                  | 116,252 |       | $      | 43,786   |   | $                | 81,312  |      | $      | — |   | $ | 241,350 |   |
| Transfers between geographic segments |   | 5,643              |    | 270        |   | 14,281   |   | (20,194          | )       | —    |   |
|                                  |   | $                  | 121,895 |       | $      | 44,056   |   | $                | 95,593  |      | $      | (20,194 | ) | $ | 241,350 |   |
|                                  |   |               |    |       |   |     |   |             |    |      |   |
| Net income (loss)                     |   | $                  | (36,727 | )          | $      | (32,542  | )      | $                | 14,903  |      | $      | — |   | $ | (54,366 | ) |
|                                  |   |               |    |       |   |     |   |             |    |      |   |
| **June 30, 2003**                     |   |               |    |       |   |     |   |             |    |      |   |
| Identifiable assets                   |   | $                  | 308,821 |       | $      | 113,787  |   | $                | 346,974 |      | $      | — |   | $ | 769,582 |   |
|                                  |   |               |    |       |   |     |   |             |    |      |   |
| **Three Months Ended March 31, 2004** |   |               |    |       |   |     |   |             |    |      |   |
| Revenue, net                          |   | $                  | 34,275  |       | $      | 25,210   |   | $                | 28,534  |      | $      | — |   | $ | 88,019 |   |
| Transfers between geographic segments |   | 10,049             |    | —     |   | 6,472    |   | (16,521          | )       | —    |   |
|                                  |   | $                  | 44,324  |       | $      | 25,210   |   | $                | 35,006  |      | $      | (16,521 | ) | $ | 88,019 |   |
|                                  |   |               |    |       |   |     |   |             |    |      |   |
| Net income (loss)                     |   | $                  | (7,089  | )          | $      | (11,413  | )      | $                | 7,938   |      | $      | — |   | $ | (10,564 | ) |
|                                  |   |               |    |       |   |     |   |             |    |      |   |
| **Nine Months Ended March 31, 2004**  |   |               |    |       |   |     |   |             |    |      |   |
| Revenue, net                          |   | $                  | 105,785 |       | $      | 67,146   |   | $                | 83,429  |      | $      | — |   | $ | 256,360 |   |
| Transfers between geographic segments |   | 12,702             |    | 53         |   | 12,202   |   | (24,957          | )       | —    |   |
|                                  |   | $                  | 118,487 |       | $      | 67,199   |   | $                | 95,631  |      | $      | (24,957 | ) | $ | 256,360 |   |
|                                  |   |               |    |       |   |     |   |             |    |      |   |
| Net income (loss)                     |   | $                  | (17,817 | )          | $      | (37,942  | )      | $                | 16,864  |      | $      | — |   | $ | (38,895 | ) |
|                                  |   |               |    |       |   |     |   |             |    |      |   |
| **March 31, 2004**                    |   |               |    |       |   |     |   |             |    |      |   |
| Identifiable assets                   |   | $                  | 216,656 |       | $      | 229,025  |   | $                | 362,009 |      | $      | — |   | $ | 807,690 |   |

 

Products aretransferred between geographic areas on a basis intended to approximate themarket value of such products.

 

13

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**12.****                               Commitmentsand Contingencies**

 

#### *RTC*

 

We guarantee a portion of certain equipment leases of the DPI ReticleTechnology Center, LLC (“RTC”). Our portion of this guarantee was $2,644 as ofMarch 31, 2004.

 

#### *AMTC*

 

We, along with Infineon and AMD, have established the AMTC, a jointventure in Dresden, Germany which conducts leading edge photomask research andpilot manufacturing.  The AMTC leasesapproximately 50% of the BAC’s facility. We are committed to funding a portion of the operating cash requirementsof the AMTC under research and development reimbursement and capacityutilization obligations through June 30, 2007. We expect our portion of theseoperating cash requirements to vary between approximately 22% to 26% throughJune 30, 2007.

 

The AMTC has executed a 120,000 Euro revolving credit facility to beused for equipment purchases. The revolving credit facility had 59,000 Euro($71,724 as of March 31, 2004) outstanding as of March 31, 2004. Each of thepartners of the joint venture has executed one-third guarantees for up to32,000 Euro and certain additional costs as defined in the revolving creditfacility agreement for as long as any obligation remains outstanding under therevolving credit facility. We will be required to honor our guarantee if theAMTC fails to make timely payments under the revolving credit facility;breaches certain financial covenants; becomes insolvent; or in any other waydefaults under the revolving credit facility. We will also be required to honorour guarantee if any of the owners of the AMTC breach certain terms of thejoint venture agreement, become insolvent or cease doing business, experience amaterial adverse change affecting their obligations under the guarantee, failto pay their respective indebtedness in excess of 50,000 Euro or otherwiseexperience an event constituting a default under the revolving credit facility.

 

#### *Infineon*

 

In May 2002, we entered into an agreement to acquire photomaskproduction equipment from Infineon’s internal photomask manufacturingoperations in Munich, Germany and become Infineon’s strategic photomasksupplier. In consideration for the acquisition of certain photomask productionassets and the agreement to supply Infineon with photomasks over a 10 yearterm, we agreed to pay Infineon $53,500 over a seven-year period ending inMarch 2009. As part of the same agreement, we also agreed to purchase fromInfineon additional photomask production equipment for approximately $28,100payable over a five-year period ending in December 2006. We have made aggregatepurchases of approximately $26,200 pursuant to this agreement as of March 31,2004. Included in that amount is a $10,000 payment we made to Infineon in March2004; $4,000 of which was satisfied through the issuance of 180,697 shares ofour common stock and the remaining $6,000 was settled using cash.  Per the terms of the agreement, we may electto satisfy a portion of certain additional future amounts payable by issuingshares of our common stock.  Ourdecision as to the form of each such payment (cash only, or cash and shares ofour common stock) will be made at least thirty days prior to the due date foreach payment.  Each payment isconsidered independently and the payment in shares of our common stock may notexceed forty percent of the total of any single payment.  The maximum value of our common stock thatwe could issue to Infineon, if we choose to fully exercise our rights forfuture payments, approximated $20,500 as of March 31, 2004.

 

#### *BindKey*

 

We have established a profit sharing plan with the BindKey employees.Through March 2006, BindKey employees may earn amounts annually based on theannual after-tax earnings of BindKey. Upon the termination of the final yearsubject to the profit sharing plan, the employees may earn an additionallump-sum amount based on the after-tax earnings of BindKey in the final year.Any amounts earned in relation to the profit sharing plan will be expensed inthe period earned.

 

#### *Schott*

 

In March 2002, we sold all of our photoblank manufacturing assets toSchott Lithotec AG (“Schott”). We also entered into a supply agreement withSchott for a significant portion of our future purchases of photoblanks.

 

14

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#### *MLI*

 

In July 2003, we signed a multi-year pellicle supply agreement with MLIfor a significant portion of our future purchases of pellicles.

 

#### *General*

 

As of March 31, 2004, minimum lease payments for non-cancelableoperating lease obligations are estimated to be $3,741, $2,432, $1,970, $1,934,and $1,182 for annual periods ending March 31, 2005 through 2009, respectively,and $2,894 in the aggregate thereafter.

 

We have various purchase commitments incidental to the normal course ofbusiness, including non-refundable deposits to purchase equipment. In theaggregate, such commitments are not at prices in excess of current market.

 

We are subject to litigation in the normal course of business. Webelieve the effect, if any, of an unfavorable settlement of such litigationwould not have a material adverse impact on our financial position, results ofoperations or cash flows.

 

Our operations and our ownership of realproperty are subject to various environmental laws and regulations that govern,among other things, the discharge of pollutants into the air and water and thehandling, use, storage, disposal and clean-up of solid and hazardous wastes.Compliance with such laws and regulations requires that we incur capitalexpenditures and operating costs in connection with our ongoing operations. Inaddition, such laws and regulations may impose liabilities on owners andoperators of businesses and real property without regard to fault and suchliabilities may be joint and several with other parties. More stringentenvironmental laws and regulations may be enacted in the future, which mayrequire us to expend additional amounts on environmental compliance or mayrequire modifications to our operations. Although we are unable to predict theextent of our future liability with respect to any environmental matters, webelieve, based upon current information, that environmental liabilities willnot be material to our financial position, results of operations or cash flows.E.I. du Pont de Nemours and Company has agreed to indemnify us for any environmentalcontamination present on our manufacturing sites at June 13, 1996, thedate of our initial public offering, or present at any such site due to thegeneration, use, treatment, storage, release, emission, discharge or disposalof hazardous waste or hazardous materials before such date. The EnvironmentalProtection Agency is reviewing a groundwater contamination issue at our Danburysite under voluntary corrective action. Any such contamination is believed tobe offsite or historical, and, if that is the case, any environmentalliabilities would be covered by the indemnification agreement with E.I. du Pontde Nemours and Company.

 

**Item 2****.  Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

 

The following discussion and analysis of thefinancial condition and results of operations should be read in conjunctionwith our consolidated financial statements and related notes included elsewherein this document. All references to years are to our fiscal years, which end onJune 30, unless otherwise noted. Results for interim periods are notnecessarily indicative of results for the full year. Due to rounding, somecolumns may not total and some percentage calculations may not recalculatewithin the financial tables.  Statementsin this report that relate to future results and events are based on ourcurrent expectations. Actual results in future periods may differ materiallyfrom those currently expected or desired because of a number of risks anduncertainties. For a discussion of factors affecting our business, see “Item1-Business” in our Annual Report on Form 10-K for the fiscal year ended June30, 2003.

 

# **Overview**

 

We are a leading global provider ofmicroimaging solutions. We develop and produce photomasks, a key enabling technologyused in the manufacture of semiconductor and other microelectronic devices. Wealso develop and market electronic design automation (“EDA”) software. Ourcurrent EDA software product enables chip designers to ensure manufacturabilityearlier in the design cycle and is targeted at the market segment referred toin the industry as “Design for Manufacturing” (“DFM”).

 

Virtually all of our revenue is derived fromthe semiconductor industry. Our customers include integrated devicemanufacturers (companies that design, build and market semiconductor chips)(“IDMs”), semiconductor foundries (companies that provide sub-contractmanufacturing of semiconductor chips) and fabless semiconductor companies(companies that design and market semiconductor chips and sub-contractmanufacturing to foundries or IDMs).

 

15

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The semiconductor industry is cyclical innature. Based on data published by industry analysts, annual worldwidesemiconductor revenue increased by 30% in calendar 2000, decreased by 31% incalendar 2001, increased by 2% in calendar 2002 and increased by 14% incalendar 2003.  Most industry observerspredict semiconductor revenue in calendar 2004 will increase at least 20%.

 

Ourrevenue derived from leading edge designs during our third quarter of fiscal2004 grew for the third consecutive quarter and represented approximately 30%of our total revenue.  Leading edgedesigns are those with design rules at and below 130-nanometers.  We believe that this trend is important asit reflects the improving conditions across the semiconductor industry and itis an indication that our customers have improved their abilities to bettermanage complex design issues and have improved wafer fab yields at the leadingedge.  Additionally, we believe thistrend reflects the recognition by our customers of our strong and improvingtechnology position as evidenced by the fact that the 2004 third fiscal quartermarked another record for our revenue from phase shift masks, the most complexand difficult mask technology required in the industry. With phase shiftproduction processes now in place at four of our sites globally, and withsteadily improving yields, we believe we have recently gained market share atmajor customers.  In addition, wecontinue to benefit from increasing revenue from one of our strategic partners,Infineon Technologies.  We are ahead ofour original revenue projections from Infineon, as they phase out theirinternal photomask operations in Munich, Germany.

 

Overthe longer term, we expect the photomask industry’s revenue growth will bedriven by leading edge products supporting design rules of 130-nanometers andbelow. In order to improve our competitive position in those products, we haveco-invested in the AMTC, a joint venture research and development initiativewith AMD and Infineon. The AMTC operates in a new, state-of-the-art facility inDresden, Germany and is focused on developing next generation photomaskproducts and processes supporting 90-nanometer and below design rules. The AMTCoperates in the same cleanroom alongside our new advanced manufacturingoperations. The co-location of a research and development center and commercialoperations is designed to streamline the transfer of new photomask technologiesinto production volumes. We believe that our investments in the AMTC and ouroperations in Dresden will accelerate development and commercialization ofleading edge photomask technologies and thereby provide us with futureopportunities to gain market share.

 

We continue to execute on plans that includevarious revenue growth initiatives and plans that take actions necessary tomore closely match our capacity with our revenue projections.  Our plans are designed to increase revenueand reduce our break-even level, thereby returning us to profitability.  In our fiscal quarter ended March 31, 2004,we increased revenue sequentially and improved product mix and operationalefficiencies.  Since December 2002, wehave ceased manufacturing operations in three manufacturing facilities andreduced headcount by over 200 employees, while at the same time staffing ournew manufacturing facility in Dresden. We also expect that in the future ourinvestments in Dresden will increase our share of leading edge masks and thatour investments in DFM and microimaging capabilities will expand our targetmarkets.  Our primary photomaskcompetitors include Compugraphics, Dai Nippon Printing, Photronics, TMC andToppan Printing. In addition, several IDMs, including IBM, Intel, Micron andSamsung, and some semiconductor foundries such as SMIC and TSMC, maintain theirown captive photomask manufacturing operations. The capacity, technicalcapabilities and resultant volumes processed through these captives affect thesize of the photomask market in which we compete.

 

Inthe future, the size of the photomask market may also be affected by a varietyof other factors such as pricing pressures and unit volumes, including anincreasing number of layers per device as design rules decrease, the reluctanceto initiate production of new semiconductor designs should our customers’factories be running at high utilization rates, and increased usage ofmulti-project wafers and multi-layer reticles.

 

16

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**Results of Operations**

 

**Financial Summary**

**(Dollars in millions)**

 
|                                        |   | **Three  Months Ended  March 31,** |   | **Nine  Months Ended  March 31,** |   |
|---------------------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|
|                                        |   | **2003**                           |   | **2004**                          |   | **2003** |   | **2004** |   |
|                                        |   |                               |   |                              |   |   |   |   |   |
| Revenue, net                                |   | $                                  | 76.1   |                              | $      | 88.0 |   | $ | 241.4 |   | $ | 256.4 |   |
|                                        |   |                               |   |                              |   |   |   |   |   |
| Cost of goods sold                          |   | 74.5                               |   | 75.8                              |   | 216.2 |   | 228.6 |   |
|                                        |   |                               |   |                              |   |   |   |   |   |
| Gross profit                                |   | $                                  | 1.7    |                              | $      | 12.2 |   | $ | 25.1 |   | $ | 27.8 |   |
| Gross margin                                |   | 2.2                                | %      | 13.9                              | %      | 10.4 | % | 10.8 | % |
|                                        |   |                               |   |                              |   |   |   |   |   |
| Selling, general and administrative expense |   | $                                  | 11.2   |                              | $      | 12.0 |   | $ | 31.5 |   | $ | 37.7 |   |
|                                        |   |                               |   |                              |   |   |   |   |   |
| Research and development expense            |   | 6.6                                |   | 8.8                               |   | 21.7 |   | 23.4 |   |
|                                        |   |                               |   |                              |   |   |   |   |   |
| Special charges, net                        |   | 9.2                                |   | 0.5                               |   | 21.8 |   | 2.1 |   |
|                                        |   |                               |   |                              |   |   |   |   |   |
| Operating loss                              |   | $                                  | (25.3  | )                                 | $      | (9.0 | ) | $ | (49.9 | ) | $ | (35.4 | ) |
| Operating margin                            |   | (33.3                              | )%     | (10.3                             | )%     | (20.7 | )% | (13.8 | )% |

 

***(Dollars in Millions)***
|                               |   | **Three  Months Ended** |   |     |   | **Nine  Months Ended** |   |     |   |
|------------------------------------|--------|-------------------------|--------|----------|--------|------------------------|--------|----------|--------|
| **For the Period Ended March 31:** |   | **2003**                |   | **2004** |   | **Delta**              |   | **2003** |   | **2004** |   | **Delta** |   |
|                               |   |                    |   |     |   |                   |   |     |   |   |   |   |   |
| Revenue, net                       |   | $                       | 76.1   |     | $      | 88.0                   |   | 15.6     | %      | $ | 241.4 |   | $ | 256.4 |   | 6.2 | % |
|                                    |        |                         |        |          |        |                        |        |          |        |  |  |  |  |  |  |  |  |

 

Revenue, net is comprised primarily of photomask sales to semiconductormanufacturers.  Revenue, net increased15.6% for the three months ended March 31, 2004 compared with the same periodin the prior year.  The increase wasprimarily attributable to an improvement in mix driven by leading edge revenue,defined as 130-nanometers and below design rules.

 

Leading edge revenue grew for the thirdconsecutive quarter and represented approximately 30% of our totalrevenue.  During the 2004 three-monthperiod, we set another record for our revenue from phase shift masks.  Compared to the same three-month period in2003, leading edge revenue increased approximately 60%.  In the leading edge market, we experienced strongdemand from customers participating in the dynamic random access memory, andflash memory and logic markets, including digital signal processors.

 

Revenue, net increased 6.2% during the 2004 nine-month period compared with the prior year. The overallincrease was primarily attributable to an improvement in mix driven by revenuefrom leading edge technology. Revenue from 130-nanometers and below designrules represented approximately 24% of revenue for the 2004 nine-month period as compared withapproximately 16% of revenue for the same time period during the prior year.

 

17

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*(Dollars inMillions)*
|                               |   | **Three  Months Ended** |   |     |   | **Nine  Months Ended** |   |     |   |
|------------------------------------|--------|-------------------------|--------|----------|--------|------------------------|--------|----------|--------|
| **For the Period Ended March 31:** |   | **2003**                |   | **2004** |   | **Delta**              |   | **2003** |   | **2004** |   | **Delta** |   |
|                               |   |                    |   |     |   |                   |   |     |   |   |   |   |   |
| Cost of goods sold                 |   | $                       | 74.5   |     | $      | 75.8                   |   | 1.7      | %      | $ | 216.2 |   | $ | 228.6 |   | 5.7 | % |
|                                    |        |                         |        |          |        |                        |        |          |        |  |  |  |  |  |  |  |  |

 

 

Cost of goods sold consists of materials, labor, depreciation, andoverhead. Cost of goods sold increased 1.7% for the 2004 three-month periodcompared with the prior year.  Theincrease was due to the ramp-up of our advanced production facility in Dresdenand personnel-related costs in North America. These increases in cost of goodssold were mostly offset by decreased depreciation expense resulting from theimpairment of certain long-lived assets in June 2003, operational cost savingsand cost savings from the closure of our pellicle production facility inDanbury in September 2003.

 

Cost of goods sold increased 5.7% for the 2004 nine-month period compared with the prior year. The increase wasprimarily attributable to the ramp-up of our advanced production facility inDresden, costs previously included in our RTC joint venture, expenses relatedto the consolidation of trailing edge production in Europe andpersonnel-related costs in North America. These increases in cost of goods soldwere partially offset by decreased depreciation expense resulting from theimpairment of certain long-lived assets in June 2003.

 

Gross margin increased from 2.2% for the three months ended March 31,2003 to 13.9% for the three months ended March 31, 2004.

 

During the short term, we expect that cost savings from theconsolidation of Europe manufacturing, closure of our Danbury pelliclefacility, improved operational efficiencies and reductions of other employeerelated costs will offset expenses associated with the ramp-up of our Dresdenfacility. During the three months ending June 30, 2004, we expect gross marginto be between 14% and 18%.

 

*(Dollars in Millions)*
|                                        |   | **Three  Months Ended** |   |     |   | **Nine  Months Ended** |   |     |   |
|---------------------------------------------|--------|-------------------------|--------|----------|--------|------------------------|--------|----------|--------|
| **For the Period Ended March 31:**          |   | **2003**                |   | **2004** |   | **Delta**              |   | **2003** |   | **2004** |   | **Delta** |   |
|                                        |   |                    |   |     |   |                   |   |     |   |   |   |   |   |
| Selling, general and administrative expense |   | $                       | 11.2   |     | $      | 12.0                   |   | 7.1      | %      | $ | 31.5 |   | $ | 37.7 |   | 19.5 | % |
|                                        |   |                    |   |     |   |                   |   |     |   |   |   |   |   |
| As a percent of revenue, net                |   | 14.7                    | %      | 13.6     | %      |                   |   | 13.1     | %      | 14.7 | % |   |   |
|                                             |        |                         |        |          |        |                        |        |          |        |  |  |  |  |  |  |  |  |

 

Selling, general and administrative expense includes salaries of salesand administrative personnel, marketing expense, general and administrativeexpense and product distribution expense. Selling, general and administrativeexpense increased 7.1% for the 2004 three-month period compared with the prioryear. Selling, general and administrative expense as a percentage of revenuedecreased from 14.7% for the three months ended March 31, 2003 to 13.6% for thethree months ended March 31, 2004.  The increasein expense during the 2004 three-month period was primarily attributable topersonnel-related expense, professional fees related to the Sarbanes-Oxley Actof 2002 and BindKey costs.

 

Selling, general and administrative expense increased 19.5% for the2004 nine-month period compared withthe prior year.  Selling, general andadministrative expense as a percentage of revenue increased from 13.1% for thenine months ended March 31, 2003 to 14.7% for the nine months ended March 31,2004. The increase during the 2004 nine-month period was primarily attributableto personnel-related expense, BindKey costs, the ramp up of our Dresdenfacility and professional fees related to the Sarbanes-Oxley Act of 2002.

 

During the three months ending June 30, 2004, we expect selling,general and administrative expense as a percentage of revenue to be between 13%and 14%.

 

18

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*(Dollars inMillions)*
|                               |   | **Three  Months Ended** |   |     |   | **Nine  Months Ended** |   |     |   |
|------------------------------------|--------|-------------------------|--------|----------|--------|------------------------|--------|----------|--------|
| **For the Period Ended March 31:** |   | **2003**                |   | **2004** |   | **Delta**              |   | **2003** |   | **2004** |   | **Delta** |   |
|                               |   |                    |   |     |   |                   |   |     |   |   |   |   |   |
| Research & development expense |   | $                       | 6.6    |     | $      | 8.8                    |   | 33.8     | %      | $ | 21.7 |   | $ | 23.4 |   | 7.7 | % |
|                               |   |                    |   |     |   |                   |   |     |   |   |   |   |   |
| As a percent of revenue, net       |   | 8.6                     | %      | 10.0     | %      |                   |   | 9.0      | %      | 9.1 | % |   |   |
|                                    |        |                         |        |          |        |                        |        |          |        |  |  |  |  |  |  |  |  |

 

 

Research and development expense consists primarily of employee costs,cost of consumed materials, depreciation, engineering related costs and ourshare of costs of the RTC and AMTC joint ventures. Research and developmentexpense increased 33.8% for the 2004 three-month period compared with the prioryear.  As a percentage of revenue itincreased from 8.6% for the three months ended March 31, 2003 to 10.0% for thethree months ended March 31, 2004.  Theincrease was primarily due to the ramp-up expense of the AMTC and BindKeysoftware development expense.

 

Research and development expense increased 7.7% for the 2004 nine-month period compared with the prioryear. The increase was primarily due to the ramp-up expense of the AMTC andBindKey software development expense. The increase was partially offset by reduced costs of the RTC due to amodification of the agreement with the RTC partners during December 2002.

 

We believe the costs of the AMTC will continue to increase with itsramp-up. During the three months ending June 30, 2004, we expect research anddevelopment expense as a percentage of revenue to be between 9% and 10%.

 

 

*(Dollars in Millions)*
|                               |   | **Three  Months Ended** |   |     |   | **Nine  Months Ended** |   |     |   |
|------------------------------------|--------|-------------------------|--------|----------|--------|------------------------|--------|----------|--------|
| **For the Period Ended March 31:** |   | **2003**                |   | **2004** |   | **Delta**              |   | **2003** |   | **2004** |   | **Delta** |   |
|                               |   |                    |   |     |   |                   |   |     |   |   |   |   |   |
| Special charges, net               |   | $                       | 9.2    |     | $      | 0.5                    |   | (94.5    | )%     | $ | 21.8 |   | $ | 2.1 |   | (90.4 | )% |
|                                    |        |                         |        |          |        |                        |        |          |        |  |  |  |  |  |  |  |  |

 

During 2003, we implemented programs to reduce costs associated withour European trailing edge operations which resulted in special charges relatedto employee severance, asset disposal, lease termination and related costs.During the three months ended March 31, 2004, we recorded special charges of$0.7 million primarily related to asset dispositions and we recorded a $0.2million benefit related to the revision of previously recorded estimates forthe closure of the Rousset facility. During the nine months ended March 31, 2004, we also reduced accruedliabilities for lease termination and asset disposal related costs by $0.4million as a result of our renegotiation of our lease termination agreement forour Hamburg facility; recorded special charges of $0.8 million which were notpreviously estimable and related to employee severance for our former employeesat our Rousset facility; and recorded a $0.6 million benefit as a result ofterminating a capital lease liability on December 31, 2003 for our Hamburgfacility.

 

In July 2003, as part of our efforts to reduce costs, we signed amulti-year pellicle supply agreement with MLI, while concurrently deciding toclose our pellicle production facility in Danbury. During the nine months endedMarch 31, 2004, we recorded special charges of $3.1 million for employeeseverance and asset disposal costs; reduced the employee severance liability by$0.1 million; and received proceeds of $1.3 million from the sale of certainpellicle technology and equipment.

 

*(Dollars inMillions)*
|                               |   | **Three  Months Ended** |   |     |   | **Nine  Months Ended** |   |     |   |
|------------------------------------|--------|-------------------------|--------|----------|--------|------------------------|--------|----------|--------|
| **For the Period Ended March 31:** |   | **2003**                |   | **2004** |   | **Delta**              |   | **2003** |   | **2004** |   | **Delta** |   |
|                               |   |                    |   |     |   |                   |   |     |   |   |   |   |   |
| Other income (expense), net        |   | $                       | (1.1   | )        | $      | 0.1                    |   | (105.9   | )%     | $ | (1.0 | ) | $ | (1.1 | ) | 9.0 | % |
|                                    |        |                         |        |          |        |                        |        |          |        |  |  |  |  |  |  |  |  |

 

Other income (expense), net includes interestincome, interest expense, our equity in earnings of our equity methodinvestees, and foreign currency exchange gains and losses.  For the 2004 three-month period, expensedecreased primarily due to a lower net foreign currency exchange loss comparedwith the prior year.

 

For the 2004 nine-month period, expenseincreased due to interest expense on our $125.0 million convertiblesubordinated notes issued and sold during May 2003 partially offset by a smallernet foreign currency exchange loss and an increase in interest income.

 

19

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*(Dollars inMillions)*
|                                      |   | **Three  Months Ended** |   |     |   | **Nine  Months Ended** |   |     |   |
|-------------------------------------------|--------|-------------------------|--------|----------|--------|------------------------|--------|----------|--------|
| **For the Period Ended March 31:**        |   | **2003**                |   | **2004** |   | **Delta**              |   | **2003** |   | **2004** |   | **Delta** |   |
|                                      |   |                    |   |     |   |                   |   |     |   |   |   |   |   |
| Provision for (benefit from) income taxes |   | $                       | (0.0   | )        | $      | 1.3                    |   | NM       |   | $ | 1.4 |   | $ | 2.8 |   | 103.0 | % |
|                                           |        |                         |        |          |        |                        |        |          |        |  |  |  |  |  |  |  |  |

 

----

NM— *not meaningful*

 

The provision for income taxes differs from amounts computed byapplying the federal statutory rate of 35% to loss before income taxes andminority interest because of our inability to record deferred tax benefits fornet operating losses generated in certain tax jurisdictions, our reduced taxrates in certain Asian jurisdictions, and for other adjustments describedbelow.

 

During the three months and nine months endedMarch 31, 2004, our net tax provision included a provision of $0.4 million and$1.7 million, respectively, for withholding taxes related to a previouslyannounced planned dividend distribution from one subsidiary within our group offoreign subsidiaries. When consummated, this dividend distribution will utilizethe majority of our U.S. net operating loss carryforward.  For the nine months ended March 31, 2004,our net tax provision also included a $1.0 million benefit from the positiveresolution of tax audits in multiple jurisdictions.

 

During the nine months ended March 31, 2003, we recorded valuationallowances against our net deferred tax assets in the U.S. and in Europe(primarily related to net operating loss carryforwards). The restructuring inGermany also resulted in a charge for a valuation allowance of $1.8 millionduring the nine months ended March 31, 2003. Additionally, during the nine months ended March 31, 2003, we receivedincome tax refunds of approximately $23.3 million by carrying U.S. netoperating losses back to prior years.

 

*(Dollars in Millions)*
|                                                  |   | **Three  Months Ended** |   |     |   | **Nine  Months Ended** |   |     |   |
|-------------------------------------------------------|--------|-------------------------|--------|----------|--------|------------------------|--------|----------|--------|
| **For the Period Ended March 31:**                    |   | **2003**                |   | **2004** |   | **Delta**              |   | **2003** |   | **2004** |   | **Delta** |   |
|                                                  |   |                    |   |     |   |                   |   |     |   |   |   |   |   |
| Minority interest in (income) loss of joint  ventures |   | $                       | 0.6    |     | $      | (0.3                   | )      | (155.4   | )%     | $ | (2.2 | ) | $ | 0.3 |   | (113.9 | )% |
|                                                       |        |                         |        |          |        |                        |        |          |        |  |  |  |  |  |  |  |  |

 

Minority interest reflects our partners’ share of the earnings orlosses of our consolidated joint venture operations, which included our Shanghai,China and Hsinchu, Taiwan operations as of March 31, 2004. The minorityinterest impact of our joint ventures was a decrease of $0.6 million to our netloss for the three months ended March 31, 2003 and an increase of$0.3 million to our net loss for the three months ended March 31, 2004.The change was a result of higher revenue produced in our Taiwan facility*.*

 

The minority interest impact of our joint ventures was an increase of$2.2 million to our net loss for the nine months ended March 31, 2003 and adecrease of $0.3 million to our net loss for the nine months ended March 31,2004. The change resulted from lower revenue and higher production costs drivenlargely by depreciation expense from added equipment in our Taiwan facility.

 

**Liquidity and CapitalResources**

 

Our working capital was $213.4 million as of June 30, 2003and $112.6 million as of March 31, 2004. The decrease in working capitalwas primarily due to the reclassification of our $100.0 million of convertiblesubordinated notes from a non-current liability to a current liability combinedwith cash used for capital expenditures. The $100.0 million notes mature inJuly 2004.

 

20

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Cash used in investing activities was $51.9 million and $25.7 millionfor the nine months ended March 31, 2003 and 2004, respectively. Cash used forcapital expenditures was $50.0 million and $33.5 million for the ninemonths ended March 31, 2003 and 2004, respectively. We expect capitalexpenditures for 2004 to be approximately $45.0 million. Capitalexpenditures have been and will be used primarily to advance our technicalcapability at the 65 and 90-nanometer nodes. Additionally, in the future we maypursue acquisitions of businesses, products and technologies, or enter intojoint venture arrangements, that could complement or expand our business. Anymaterial acquisition or joint venture could result in a decrease to our workingcapital depending on the amount, timing and nature of the consideration to bepaid. We expect the BAC will receive a $17.5 million payment related toinvestment subsidies granted by the German government during calendar 2004. Dueto the consolidation of the BAC, these amounts will be included in our cashflows from investing activities.

 

Cash provided by financing activities was$1.7 million for the nine months ended March 31, 2003 and cash used infinancing activities was $2.4 million for the nine months ended March 31, 2004.The cash used in financing activities during the nine months ended March 31,2004 was primarily the result of payments on borrowings in China. We expect theBAC’s term loan will be repaid by the BAC using proceeds from the BAC’sinvestment subsidies and lease payments received from the lessees of the BAC’sfacility. Due to the consolidation of the BAC, the payments on the BAC’s termloan will be included in our cash flows from financing activities.

 

Our ongoing cash requirements will be for working capital, capitalexpenditures, acquisitions, research and development and the repayment ofconvertible notes and other indebtedness. We expect to repay our $100.0 millionconvertible notes due in July 2004 from our existing cash balances. Managementbelieves that cash on hand and any cash provided by operations will be sufficientto meet our cash requirements for at least the next 12 months. However,based on our current operating plans, we may seek external financing from timeto time to fund our capital expenditures, working capital requirements andother growth initiatives. Sources of external financing could include issuancesof equity, convertible debt and short-term or long-term borrowings. There canbe no assurance that external sources of financing will be available if ourcapital requirements exceed cash flows from operations or that we will be ableto obtain any additional financing required to fund our capital needs onreasonable terms, or at all.

 

Our consolidated cash and cash equivalents balances as of March31, 2004, were $228.8 million, of which $12.9 million was attributable tominority shareholders based on their ownership interests in our consolidatedjoint ventures. As of March 31, 2004, we have pledged $7.5 million of our cashand cash equivalents balances as collateral security for a portion of our shortterm borrowings. We expect our consolidated cash and cash equivalentsbalances will be between $225.0 to $230.0 million as of June 30, 2004.

 

The following summarizes our contractual cash obligations as of March31, 2004 (in millions):

 
|                                                  |   | **Payments  Due for the Periods ending March 31,** |   |
|-------------------------------------------------------|--------|----------------------------------------------------|--------|
|                                                  |   | **Total**                                          |   | **Year  2005** |   | **Two Years  2006-2007** |   | **Two Years  2008-2009** |   | **Beyond** |   |
|                                                  |   |                                               |   |   |   |   |   |   |   |   |   |
| Short-term and long-term borrowings                   |   | $                                                  | 82.3   |   | $ | 22.5 |   | $ | 18.2 |   | $ | 18.2 |   | $ | 23.4 |   |
| Convertible notes                                     |   | 225.0                                              |   | 100.0 |   | — |   | 125.0 |   | — |   |
| Capital lease obligations                             |   | 0.2                                                |   | 0.2 |   | — |   | — |   | — |   |
| Operating leases                                      |   | 14.1                                               |   | 3.7 |   | 4.4 |   | 3.1 |   | 2.9 |   |
| Other long-term obligations (AMTC amounts  estimated) |   | 46.9                                               |   | 11.7 |   | 28.4 |   | 3.6 |   | 3.2 |   |
|                                                  |   |                                               |   |   |   |   |   |   |   |   |   |
| Total contractual cash obligations                    |   | $                                                  | 368.5  |   | $ | 138.1 |   | $ | 51.0 |   | $ | 149.9 |   | $ | 29.5 |   |

 

 

We are committed to funding a portion of theoperating cash requirements of the AMTC under research and developmentreimbursement and capacity utilization obligations through June 30, 2007. Weexpect our portion of these operating cash requirements to vary betweenapproximately 22% to 26% through June 30, 2007.

 

21

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The following summarizes our commercial commitments as of March 31,2004 (in millions):

 
|                         |   | **Amounts of  Commitment Expiration by Periods Ending March 31,** |   |
|------------------------------|--------|-------------------------------------------------------------------|--------|
|                         |   | **Total**                                                         |   | **Year  2005** |   | **Two Years  2006-2007** |   | **Two Years  2008-2009** |   | **Beyond** |   |
|                         |   |                                                              |   |   |   |   |   |   |   |   |   |
| Guarantees                   |   | $                                                                 | 26.5   |   | $ | 26.5 |   | $ | — |   | $ | — |   | $ | — |   |
| Other commercial commitments |   | 55.4                                                              |   | 27.6 |   | 24.3 |   | 3.5 |   | — |   |
|                         |   |                                                              |   |   |   |   |   |   |   |   |   |
| Total commercial commitments |   | $                                                                 | 81.9   |   | $ | 54.1 |   | $ | 24.3 |   | $ | 3.5 |   | $ | — |   |

 

We have also executed a one-third guarantee for up to 32.0 million Euroof the AMTC’s 120.0 million Euro revolving credit facility. The revolvingcredit facility had 59.0 million Euro ($71.7 million as of March 31, 2004)outstanding as of March 31, 2004. Guarantees also include our portion ofcertain equipment leases of the RTC. Our portion of this guarantee wasapproximately $2.6 million as of March 31, 2004.

 

In May 2002, we entered into an agreement to acquire photomaskproduction equipment from Infineon’s internal photomask manufacturingoperations in Munich, Germany and become Infineon’s strategic photomasksupplier. In consideration for the acquisition of certain photomask productionassets and the agreement to supply Infineon with photomasks over a 10 yearterm, we agreed to pay Infineon $53.5 million over a seven-year period endingin March 2009. As part of the same agreement, we also agreed to purchase fromInfineon additional photomask production equipment for approximately $28.1million payable over a five-year period ending in December 2006. We have madeaggregate purchases of approximately $26.2 million pursuant to this agreementas of March 31, 2004. Included in that amount is a $10.0 million payment wemade to Infineon in March 2004; $4.0 million of which was satisfied through theissuance of 180,697 shares of our common stock and the remaining $6.0 millionwas settled using cash.  Per the termsof the agreement, we may elect to satisfy a portion of certain additionalfuture amounts payable by issuing shares of our common stock.  Our decision as to the form of each suchpayment (cash only, or cash and shares of our common stock) will be made atleast thirty days prior to the due date for each payment.  Each payment is considered independently andthe payment in shares of our common stock may not exceed forty percent of thetotal of any single payment.  Themaximum value of our common stock that we could issue to Infineon, if we chooseto fully exercise our rights for future payments, approximated $20.5 million asof March 31, 2004.

 

In addition to the commitments in the tables above, the followingcommitments and contingencies exist:

 

•                  We haveestablished a profit sharing plan with the BindKey employees. Through March2006, BindKey employees may earn amounts annually based on the annual after-taxearnings of BindKey. Upon the termination of the final year subject to theprofit sharing plan, the employees may earn an additional lump-sum amount basedon the after-tax earnings of BindKey in the final year. Any amounts earned inrelation to the profit sharing plan will be expensed in the period earned.

 

•                  InMarch 2002, we sold all of our photoblank manufacturing assets to Schott.We also entered into a supply agreement with Schott for a significant portionof our future purchases of photoblanks.

 

•                  In July 2003, wesigned a multi-year pellicle supply agreement with MLI for a significantportion of our future purchases of pellicles.

 

•                  We also havevarious purchase commitments incidental to the normal course of business,including non-refundable deposits to purchase equipment. In the aggregate, suchcommitments are not at prices in excess of current market.

 

22

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**Critical AccountingPolicies**

 

Our critical accounting policies are as follows:

 

•                  Revenuerecognition

 

Product revenue is recognized when both title and risk of loss havetransferred to the customer, provided that no significant obligations remain.Discounts and rebates are recorded as a reduction of revenue during the periodthey are earned by the customer. Provision is made for an estimate of productreturns based on historical experience and is recorded as a reduction in revenue.Customarily, our shipping terms are FOB or FCA shipping point; however, ourfinal terms depend upon the negotiations with our customers.

 

•                  Estimates,specifically sales return allowances, the allowance for doubtful accountsreceivable, allowance for excess and obsolete inventory and depreciationexpense

 

The preparation of consolidated financialstatements requires us to make estimates and assumptions that affect thereported amount of assets and disclosure of contingent assets and liabilitiesat the date of the consolidated financial statements and the reported amountsof revenue and expenses during the reported period.

 

•                  We must make estimates of potential futureproduct returns related to current period product revenue. We analyzehistorical returns, current economic trends, and changes in customer demand andacceptance of our products when evaluating the adequacy of the sales returnsand other allowances. Significant management judgments and estimates must bemade and used in connection with establishing the sales returns and otherallowances in any accounting period. Material differences may result in theamount and timing of our revenue for any period if management made differentjudgments or utilized different estimates.

 

•                  Similarly, we must make estimates of thecollectibility of our accounts receivable. We consider trends of historical baddebts, customer concentrations, customer credit-worthiness, current economictrends and changes in our customer payment terms when evaluating the adequacy ofthe allowance for doubtful accounts. If circumstances change or if our originalestimates are otherwise incorrect, we may have to reduce our estimates of therecoverability of amounts due us by a material amount.

 

•                  We maintain inventory reserves for estimatedobsolescence or unmarketable inventory equal to the difference between the costof inventory and estimated market value based on assumptions of future demandsand market conditions. If actual market conditions are materially lessfavorable than those projected by management, or if our estimates of marketvalue are later determined to have been materially incorrect, additionalinventory write-downs may be required.

 

•                  Property and equipment are depreciated usingthe straight-line method over the estimated useful lives of the assets rangingfrom three to seven years for equipment and 10 to 20 years for buildings.Property and equipment held under capital leases and leasehold improvements areamortized using the straight-line method over the shorter of the estimateduseful lives of the assets or the estimated remaining terms of the leases.

 

•                  Valuation ofidentifiable intangibles and other long-lived assets

 

We assess the impairment of identifiableintangibles subject to amortization and other long-lived assets whenever eventsor changes in circumstances indicate that the carrying value may not berecoverable. Factors considered important which could trigger an impairmentreview include the following:

 

•                  Significant underperformance relative toexpected historical or projected future operating results;

 

•                  Significant changes in the manner of our useof the acquired assets or the strategy for our overall business;

 

•                  Significant negative industry or economictrends; and

 

•                  Our market capitalization relative to netbook value.

 

23

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When it is determined that the carrying valueof intangibles subject to amortization and other long-lived assets may not berecoverable based upon the existence of one or more of the above indicators ofimpairment, the measurement of any impairment is determined and the carryingvalue is reduced as appropriate.

 

•                  Accounting forincome taxes

 

We are required toconsider our income taxes in each of the tax jurisdictions in which we operatein computing our effective income tax rate. This process involves estimatingour current tax exposure together with assessing temporary differencesresulting from differing treatment of items for tax and financial reportingpurposes. These differences result in deferred tax assets and liabilities,which are included on our consolidated balance sheets. Further, the actualannual amount of taxable income in each tax jurisdiction may differ from theestimates we use to compute the effective tax rate during our first, second andthird quarters. Additionally, we evaluate the recoverability of the deferredtax assets from future taxable income and establish valuation allowances ifrecovery is not more likely than not. Our income tax provision on the consolidatedincome statements are impacted by changes in the valuation allowance. Thisprocess is complex and involves significant management judgment in determiningour provision for income taxes, deferred tax assets and liabilities and anyvaluation allowance recorded against our net deferred tax assets.

 

•                  Consolidation

 

The consolidated financial statementspresented herein include the accounts of DuPont Photomasks, Inc., ourcontrolled and wholly-owned subsidiaries, and variable interest entities ofwhich we are the primary beneficiary. All significant inter-companytransactions and accounts are eliminated in consolidation. Entities that arenot controlled but on which we can exercise significant influence are recordedunder the equity method of accounting. As of March 31, 2004, we beganconsolidating the financial results of the BAC in accordance with theprovisions of FIN No. 46R.

 

**Other Matters**

 

In December 2003, the FASB issued FIN No. 46R, a revision to FIN No.46.  FIN No. 46R clarifies some of theprovisions of FIN No. 46 and exempts certain entities from itsrequirements.  FIN No. 46R requires thatif a company is the primary beneficiary of a VIE, the assets, liabilities andresults of the VIE’s operations should be consolidated in the company’sfinancial statements.  Based on theguidance in FIN No. 46R, we concluded that we are the primary beneficiary ofthe BAC. Accordingly, we began consolidating the financial results of the BACas of March 31, 2004.  The consolidationhas not altered the operational agreements, guarantees and other commitmentsbetween the BAC, its partners and lenders.

 

In January 2003, the SEC issued a final rule requiring enhanceddisclosure of material off-balance sheet transactions, arrangements, and otherrelationships with unconsolidated entities. The rule also requires a tabulardisclosure of future payments due under contractual commitments. The disclosurerequirements will become effective for our fiscal 2004 Annual Report on Form10-K. We do not expect this rule will have a material impact on ourconsolidated financial condition or results of operations.

 

In December 2003, the SEC issued SAB No. 104, *Revenue Recognition,* whichsupersedes SAB No. 101, *Revenue Recognition in Financial Statements.*The adoption of SAB No. 104 did not have a material impact on our consolidatedresults of operations or financial position. Accounting guidance contained inSAB No. 101 related to multiple-element revenue arrangements was superseded asa result of the issuance of EITF 00-21, *Accounting for Revenue Arrangements with MultipleDeliverables.* SAB No. 104 restates the affected portion of SAB No.101 to reflect the issuance of EITF 00-21 while the revenue recognitionprinciples of SAB No. 101 remain largely unchanged. SAB No. 104 was effectiveupon issuance.

 

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**ForwardLooking Statements**

 

This report contains forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933and Section 21E of the Securities Exchange Act of 1934, that involve anumber of risks and uncertainties. Although we believe that the expectationsreflected in such forward-looking statements are reasonable, suchforward-looking statements are subject to risks and uncertainties that couldcause actual results to differ materially from those indicated by the forwardlooking statements. Such risks and uncertainties include, without limitation,the following:

 

•                  A reneweddownturn in the semiconductor industry could lead to a decrease in the demandfor our photomask products;

 

•                  The semiconductor industry is highly cyclicaland has been subject to significant economic downturns at various times;

 

•                  Our financial results may vary significantlyfrom quarter to quarter or we may fail to meet investors’ expectations, whichcould negatively impact the price of our stock;

 

•                  Lack of visibility and short turn around timeof orders may impact our ability to respond to a changing business environment;

 

•                  We may not obtain sufficient capital to fundour needs;

 

•                  Our operating results could be adverselyaffected by under-utilized production capacity;

 

•                  A significant portion of our revenue isderived from Asia and Europe, and therefore, our business, financial conditionand results of operations are to a significant degree subject to economic,political and social events in these regions;

 

•                  Macroeconomic conditions may have effects onthe semiconductor industry;

 

•                  We may be unable to enhance our existingproducts and develop and manufacture new products and upgrades with improvedcapabilities to satisfy anticipated demand for more technologically advancedphotomasks;

 

•                  Rapid technological change could render ourproducts obsolete or our manufacturing processes ineffective;

 

•                  We may not remain competitive and increasedcompetition could seriously harm our business;

 

•                  We may be unable to successfully develop ormarket our EDA software;

 

•                  E.I. du Pont de Nemours and Company hasinfluence on all stockholder votes;

 

•                  Our success depends, in part, upon keymanagerial, engineering and technical personnel as well as our ability tocontinue to attract and retain additional personnel and integrate new personnelinto key positions; and

 

•                  Other risks indicated in our other filingswith the SEC, including but not limited to those factors which are fullydiscussed under the caption “Risk Factors” in our Annual Report onForm 10-K filed with the SEC on September 10, 2003.

 

These risks and uncertainties are beyond our control and, in manycases, we cannot predict the risks and uncertainties that could cause ouractual results to differ materially from those indicated by the forward-lookingstatements.

 

The forward-looking statements are made as of the release date hereof,and we disclaim any intention or obligation to update or revise anyforward-looking statements or to update the reasons why the actual resultscould differ materially from those projected in the forward-looking statements,whether as a result of new information, future events or otherwise.

 

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**Item 3****.   Quantitative and Qualitative DisclosuresAbout Market Risk**

 

**Market Risk**

 

Market risks relating to our operations result primarily from changesin interest rates and changes in foreign currency exchange rates. As of March31, 2004, we had outstanding $100.0 million in non-interest bearingconvertible subordinated notes due in July 2004 and $125.0 million in 1.25%convertible subordinated notes due in May 2008.  We have $82.4 million in other interest bearing borrowings. Ofthis amount, $75.0 million is related to the BAC term loan which matures inJune 2012.  As a result, changes in theinterest rate market would change the estimated fair value of our convertiblenotes and other interest bearing borrowings. We believe that a 10% change ininterest rates would not have a material effect on our business, financialcondition, results of operations or cash flows.

 

Foreign currency exposures are primarily due to non-North Americaoperations which are subject to certain risks inherent in conducting businessabroad, including price and currency exchange controls, fluctuation in therelative value of currencies and restrictive governmental actions. Changes inthe relative value of currencies occur from time to time and may, in certaininstances, have a material effect on our consolidated financial condition andresults of operations. Any exchange rate fluctuations can affect our marginssince we may have imbalances between some foreign currency denominated revenueand expenses. Our consolidated financial statements reflect remeasurement andtranslation of items denominated in non-U.S. currencies to U.S. dollars, ourreporting currency. Exchange gains or losses are included in comprehensiveincome in the period in which they occur. We monitor our exchange rate exposureand attempt to reduce such exposure by hedging. We have entered into forwardcontracts in currencies of the countries in which we conduct business in orderto reduce such exposure. The net unrealized gain related to our forwardexchange contracts outstanding as of March 31, 2004 was not significant. Inrelation to foreign currency translation adjustments, an unrealized gain of$2.4 million is recorded in accumulated other comprehensive income on theaccompanying interim unaudited consolidated balance sheet and statement ofstockholders’ equity as of March 31, 2004. Forward exchange contracts may involve elements of credit and marketrisk in excess of the amounts recognized on the interim unaudited consolidatedfinancial statements. We believe that a 10% change in exchange rates would nothave a material effect on our business, financial condition, results ofoperations or cash flows.  We monitorour positions and the credit quality of counterparties, consisting primarily ofmajor financial institutions, and do not anticipate nonperformance by anycounterparty, although nonperformance could occur. There can be no assurancethat such forward contracts or any other hedging activity will be available oradequate to eliminate, or even mitigate, the impact of our exchange rateexposure. There can be no assurance that such risks will not have a materialadverse impact on our liquidity, financial condition and results of operationsin the future.

 

**Financial RiskManagement**

 

Our international revenue is subject to inherent risks, includingfluctuations in local economies; difficulties in staffing and managing foreignoperations; greater difficulty in accounts receivable collection; costs andrisks of localizing products for foreign countries; unexpected changes inregulatory requirements, tariffs and other trade barriers; difficulties in therepatriation of earnings; and burdens of complying with a wide variety offoreign laws. Some of our sales outside of North America are denominated inlocal currencies, and accordingly, we are subject to the risks associated withfluctuations in currency rates. In general, increases in the value of thedollar against foreign currencies decrease the U.S. dollar value of foreignsales requiring us either to increase our price in the local currency, whichcould render our product prices noncompetitive, or to suffer reduced revenueand gross margins as measured in U.S. dollars. Our foreign currency hedgingprogram is not designed to hedge the margin risks associated with foreignexchange rate changes. Our hedging is comprised of foreign currency forwardexchange contracts utilized to mitigate the risks associated with foreigncurrency fluctuations on certain balance sheet exposures. However, the hedgingprogram will not eliminate all of our foreign exchange risks.

 

The marketplace for our products dictates that we maintain inventoriesof raw materials. Therefore, inventory obsolescence is a risk for us due tofrequent engineering changes, shifting customer demand, the emergence of newindustry standards and rapid technological advances including the introductionby our competitors or us of products embodying new technology. While wemaintain valuation allowances for excess and obsolete inventory and we continueto monitor the adequacy of such valuation allowances, there can be no assurancethat such valuation allowances will be sufficient.

 

As of March 31, 2004, we had outstanding foreign currency denominatedshort-term borrowings totaling $22.6 million Of this amount, $15.2 million isrelated to the BAC term loan.  As ofMarch 31, 2004, we did not have any relationships with any unconsolidatedentities or financial partnerships, such as entities often referred to as structuredfinance or special purpose entities, which would have been established for thepurpose of facilitating off-balance sheet arrangements or other contractuallynarrow or limited purposes. Accordingly, we are not exposed to any financing,liquidity, market or credit risk that could arise if we were engaged in suchrelationships.

 

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As of March 31, 2004 we had $100.0 million of convertiblesubordinated notes outstanding due in July 2004. The notes have no statedinterest, are convertible at any time into shares of our common stock at aconversion price of $106.26 per share, are unconditionally guaranteed by E.I.du Pont de Nemours and Company and are not callable by us. In the event of afundamental change in our company, each holder of notes will have the right torequire us to redeem, in cash, any or all of such holder’s notes at a priceequal to 100% of the principal amount to be redeemed. If a fundamental changewere to occur, we cannot assure you that we will have sufficient funds to pay theredemption price for all the notes tendered by the holders, although E.I. duPont de Nemours and Company would be required to pay the redemption price underits guarantee. In that case, our failure to redeem tendered notes wouldconstitute an event of default under the indenture for the notes, and mayconstitute a default under the terms of other indebtedness that we may enterinto from time to time.

 

In addition, we had $125.0 million of convertible subordinatednotes outstanding as of March 31, 2004 that are due in May 2008. The notesaccrue interest at an annual rate of 1.25% and are convertible at any time intoshares of our common stock at a conversion price of $25.595 per share. Intereston the notes is payable semi-annually on May 15 and November 15 ofeach year. If a change of control occurs, each holder of notes will have theright to require us to redeem, in cash, any or all of such holder’s notes at aprice equal to 100% of the principal amount to be redeemed. If a change ofcontrol were to occur, we cannot assure you that we will have sufficient fundsto pay the redemption price for all the notes tendered by the holders. In thatcase, our failure to redeem tendered notes would constitute an event of defaultunder the indenture for the notes, and may constitute a default under the termsof other indebtedness that we may enter into from time to time. In connectionwith the issuance of the notes, we entered into a Registration Rights Agreementand filed a shelf registration statement covering resales of the notes and thecommon stock issuable upon conversion of the notes. If we fail to comply withcertain of our obligations under the Registration Rights Agreement, additionalinterest will accrue on the affected notes at an annual rate of 0.5%.

 

**Item 4****.  Controls andProcedures**

 

Our chief executive officer and our chief financial officer, based ontheir evaluation of the effectiveness of our disclosure controls and procedures(as defined in Rules 13a-15(e) and 15d -15(e) under the Securities and ExchangeAct of 1934) as of the end of the period covered by this report on Form 10-Q ofDuPont Photomasks, Inc., have concluded that our disclosure controls andprocedures were effective. There were no changes in internal control overfinancial reporting or in other factors during our most recent fiscal quarterthat have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting.

 

**PART II**

 

**Item1. Legal Proceedings**

 

We are not currently involved in any material legal proceedings.

 

**Item 2. Changes in Securities, Use of Proceeds, and IssuerPurchases of Equity Securities**

 

In May 2002, we entered into an agreement to acquire photomaskproduction equipment from Infineon’s internal photomask manufacturingoperations in Munich, Germany and become Infineon’s strategic photomasksupplier. In consideration for the acquisition of certain photomask productionassets and the agreement to supply Infineon with photomasks over a 10 yearterm, we agreed to pay Infineon $53.5 million over a seven-year period endingin March 2009. As part of the same agreement, we also agreed to purchase fromInfineon, additional photomask production equipment for approximately$28.1million payable over a five-year period ending in December 2006. We havemade aggregate purchases of approximately $26.2 million pursuant to thisagreement as of March 31, 2004. Included in that amount is a $10.0 millionpayment we made to Infineon in March 2004; $4.0 million of which was satisfiedthrough the issuance of 180,697 shares of our common stock and the remaining$6.0 million was settled using cash.

 

The issuanceof 180,697 shares of our common stock to Infineon on March 31, 2004 did notinvolve a public offering and we relied on the exemption from registration ofthe issuance of these shares to Infineon provided by Section 4(2) of theSecurities Act of 1933.  Pursuant to theterms of our agreement with Infineon, we will file a Form S-3 shelfregistration statement registering the resale of these shares by Infineon.

 

We made norepurchases of our equity securities during the three months ended March 31,2004.

 

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**Item 6****. Exhibitsand Reports on Form 8-K**

 
| (A)    |   | Exhibits |
|--------|--------|----------|
|   |   |     |
|   |   | 3.1.1    | Certificate of Incorporation of the  Company, as amended and restated on April 3, 1996. (A) |
|   |   | 3.1.2    | Amendment to the Certificate of  Incorporation of the Company. (B) |
|   |   | 3.2      | Bylaws, as amended on October 26, 1999. (B) |
|   |   | 3.2.1    | Amendments to the Bylaws Of DuPont  Photomasks, Inc. as approved by the Board Of Directors on June 23, 2003. (E) |
|   |   | 4.1      | Specimen Certificate for Common Stock. (A) |
|   |   | 4.2      | Form of Indenture, between DuPont  Photomasks, Inc. and Chase Bank of Texas, N.A., as trustee, including the  form of Convertible Subordinated Notes due July 24, 2004 attached as Exhibit  A thereto. (F) |
|   |   | 4.3      | Indenture, between DuPont Photomasks, Inc.  and JPMorgan Chase Bank, as trustee, including Form of 1.25% Convertible  Subordinated Notes due 2008 (144A Global Note and Reg S. Global Note). (C) |
|   |   | 4.4      | Rights Agreement, dated as of January 30,  2001, between DuPont Photomasks, Inc. and EquiServe Trust Company, N.A., as  Rights Agent, together with the following exhibits thereto: Exhibit A-Form of  Certificate of Designation of Series A Junior Participating Preferred Stock  of DuPont Photomasks, Inc.; Exhibit B-Form of Right Certificate; Exhibit  C-Summary of Rights to Purchase Shares of Preferred Stock of DuPont  Photomasks, Inc. (D) |
|   |   | 4.5      | Amendment No. 1 to Rights Agreement,  between DuPont Photomasks, Inc. and EquiServe Trust Company, N.A., as Rights  Agent, dated as of April 29, 2003. (C) |
|   |   | 4.6      | Registration Rights Agreement among DuPont  Photomasks, Inc., Credit Suisse First Boston LLC and Lehman Brothers Inc.  dated as of May 5, 2003. (C) |
|   |   | 31.1     | Certification of Chief Executive Officer  pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|   |   | 31.2     | Certification of Chief Financial Officer  pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|   |   | 32       | Certifications of Chief Executive Officer  and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|   |   | 99.1     | DuPont Photomasks, Inc. Code of Business  Conduct and Ethics |

 
|   |   | **Letter** |   | **Definition**                                                                |
|--------|--------|------------|--------|-------------------------------------------------------------------------------|
|   |   | (A)        |   | Registration Statement on Form S-1,  Registration No. 333-33869.              |
|   |   | (B)        |   | Form 8-A12 G/A on June 23, 2000.                                              |
|   |   | (C)        |   | Quarterly Report on Form 10-Q for the  quarterly period ended March 31, 2003. |
|   |   | (D)        |   | Form 8-A12B on January 30, 2001.                                              |
|   |   | (E)        |   | Annual Report on Form 10-K for the fiscal  year ended June 30, 2003.          |
|   |   | (F)        |   | Amendment No. 2 to Form S-3 filed on July  19, 2000.                          |

 
| (B)    |   | Reports on Form 8-K                                                                                                                                                  |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                      |
|   |   | Our report on Form 8-K, dated January 21,  2004, reporting our announcement on January 21, 2004 of our financial results  for the fiscal quarter ended December 31, 2003. |

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities and Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned thereunto duly authorized.

 
|               | DUPONT PHOTOMASKS, INC. (Registrant) |
|--------------------|--------------------------------------|
|               |                                 |   |
|               | By:                                  | /s/ SATISH RISHI |   |
|               |                                 | Satish Rishi |
| Date: May 12, 2004 |                                 | *Executive Vice  President—Finance and Chief Financial Officer  (Principal Financial and Accounting Officer)* |

 

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