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TABLE OF CONTENTS

UNITED STATES
SECURITIES 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

For the quarterly period ended September 30, 2002

Commission file number 0-20839

DUPONT PHOTOMASKS, INC.
(Exact name of registrant as specified in our charter)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        As of November 11, 2002, there were 17,993,068 shares of the registrant's common stock, $.01 par value, outstanding.

TABLE OF CONTENTS

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PART I

Item 1. Financial Statements

DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENT
(Dollars in thousands, except share data)
(unaudited)

The accompanying notes are an integral part of this statement.

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DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share data)

ASSETS

The accompanying notes are an integral part of this statement.

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DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(unaudited)

The accompanying notes are an integral part of this statement.

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DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(Dollars in thousands)

The accompanying notes are an integral part of this statement.

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DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)
(unaudited)

1.    Basis of Presentation

        The interim consolidated financial statements presented in this report include the accounts of DuPont Photomasks, Inc. and our controlled and wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. These interim consolidated financial statements have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC. All adjustments have been made to the accompanying interim consolidated financial statements which are, in the opinion of our management, necessary for a fair presentation of our operating results and include all adjustments of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the SEC. It is recommended that these interim consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended June 30, 2002. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year. Certain reclassifications have been made in the prior period financial statements to conform with the current period presentation.

2.    Property and Equipment

        Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated using the straight-line method over the shorter of the estimated useful lives of the assets or the remaining term of the lease. Accumulated depreciation was $364,005 at June 30, 2002 and $387,493 at September 30, 2002. Assets held for sale relate to the Gresham facility and certain other equipment. We are actively marketing these assets and will sell the assets after appropriate evaluation of all proposals.

3.    New Accounting Pronouncements

        In June 2002, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standard, or SFAS, No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." Under SFAS No. 146, a liability for a cost that is associated with an exit or disposal activity must be recognized at fair value in the period the liability is incurred. SFAS No. 146 nullifies the guidance of the Emerging Issues Task Force, or EITF, Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." We are currently evaluating the impact of SFAS No. 146, but do not expect that its adoption will have a material adverse impact on either our future results of operations or financial position. We will adopt SFAS No. 146 for events subsequent to December 31, 2002.

4.    Derivative Instruments and Hedging Activities

        Forward foreign exchange contracts are utilized to mitigate the risks associated with currency fluctuations on certain balance sheet exposures, and are, therefore, held primarily for purposes other

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than trading. These foreign exchange contracts do not qualify for hedge accounting under SFAS No. 133. Unrealized gains and losses resulting from the impact of currency exchange rate movements on forward foreign exchange contracts used to offset certain non-U.S. dollar denominated assets and liabilities are recognized as other income or expense in the period in which the exchange rates change. These gains and losses are intended to offset the foreign currency gains and losses on the underlying exposures being hedged. The aggregate fair value of our forward foreign exchange contracts outstanding was $17,812 as of September 30, 2002 with an unrealized loss recorded in other income (expense), net in the consolidated income statement of $50 for the three months ended September 30, 2002. These instruments may involve elements of credit and market risk in excess of the amounts recognized in the financial statements. We monitor our positions and the credit quality of counterparties, consisting of major financial institutions, and do not anticipate nonperformance by any counterparty.

5.    Earnings Per Share

        Basic earnings per share, or EPS, is computed by dividing net income (loss) by the weighted number of common shares outstanding during each period. Diluted EPS is computed by dividing net income (loss) after adjustments for the dilutive effect of the convertible notes by the weighted average number of common shares and common share equivalents outstanding (if dilutive) during each period. Common share equivalents include stock options and assume conversion of the convertible notes. The number of common share equivalents outstanding relating to stock options is computed using the treasury stock method while the number of common share equivalents relating to the convertible notes is computed using the if converted method.

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

        Stock options to acquire 3,644,011 shares for the three months ended September 30, 2001 and 4,396,749 shares for the three months ended September 30, 2002 were not included in common share equivalents because the effect of including these stock options would have been anti-dilutive. For the three months ended September 30, 2001 and 2002, 941,088 shares for the effect of the convertible notes were not included in the computations of diluted EPS because the effect of including the convertible notes would have been anti-dilutive. These options and the convertible notes may become dilutive in the future.

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6.    Comprehensive Income

        We have adopted SFAS No. 130, "Reporting Comprehensive Income." Our comprehensive income is comprised of net income (loss) and unrealized gains and losses on certain investments in debt and equity securities. We had no items of comprehensive income other than net loss as of September 30, 2001 and 2002.

7.    Segment Information

        In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," segment information is as follows:

        Products are transferred between geographic areas on a basis intended to approximate the market value of such products.

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8.    Benefit From Income Taxes

        We recorded a tax benefit during the three months ended September 30, 2002 of $411. The benefit from income taxes differs from the benefit amount computed by applying the federal statutory rate of 35 percent to loss before income taxes and minority interest as a result of our reduced tax rates in certain Asian jurisdictions and our inability to record deferred tax benefits for net operating losses generated in certain tax jurisdictions as discussed below.

        During the three months ended September 30, 2002, we recorded a valuation allowance against our net deferred tax asset (including the net operating loss carryforwards) in the U.S. The valuation allowance was recorded under the provisions of SFAS No. 109, "Accounting for Income Taxes," which requires an assessment of positive and negative evidence when determining the need for a valuation allowance. Historical evidence, such as the operating results in the U.S. during the most recent three-year period, is weighted more heavily in this assessment versus future expected results because of the uncertainty of actually achieving forecasted results. Our cumulative U.S. loss in the most recent three-year period, inclusive of the loss for the three months ended September 30, 2002, represents sufficient negative evidence to require a valuation allowance against our U.S. net deferred tax asset. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

9.    Commitments and Contingencies

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

        We guarantee a portion of certain equipment leases of the DPI Reticle Technology Center, LLC, or RTC. Our portion of the future minimum lease payments of the RTC aggregated approximately $10,900 as of September 30, 2002. Such leases are generally for four years. The RTC is scheduled to terminate in December 2002, but can be renewed or restructured at the discretion of the members. We are also committed to fund 25 percent of the operating cash requirements of the RTC through December 2002. We are currently in discussions with the existing members of the RTC concerning its structure subsequent to December 2002.

        We, along with Infineon and AMD, have established joint ventures in Dresden, Germany to conduct leading edge photomask research and pilot manufacturing. The ventures consist of the Advanced Mask Technology Center GmbH & Co. KG, or AMTC, and the Maskhouse Building Administration GmbH & Co. KG, or BAC. The AMTC will conduct photomask research and pilot manufacturing. The BAC is the owner of a state-of-the-art photomask research and manufacturing facility that is currently under construction. We will lease approximately 50 percent of the facility from the BAC for advanced photomask manufacturing and the remainder will be leased by the AMTC. Both leases will be for 10-year terms. In addition, we are committed to funding a portion of the operating cash requirements of the AMTC under the research and development reimbursement and capacity utilization obligations. We expect our portion to be approximately 33 percent during the next year and to vary between approximately 22 percent to 26 percent thereafter.

        As of September 30, 2002, we had an obligation, which was subsequently fulfilled, to make a 2.0 million Euro ($1,983) capital contribution to the BAC in October 2002. We have also guaranteed one-third of the BAC's 75.0 million Euro ($73,300) construction bridge loan, which had 35.4 million Euros ($34,600) outstanding at September 30, 2002.

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        We are subject to litigation in the normal course of business. We believe the effect, if any, of an unfavorable resolution of such litigation would not have a material adverse impact on our financial position, results of operations, cash flows or liquidity.

        Our operations and our ownership of real property are subject to various environmental laws and regulations that govern, among other things, the discharge of pollutants into the air and water and the handling, use, storage, disposal and clean-up of solid and hazardous wastes. Compliance with such laws and regulations requires that we incur capital expenditures and operating costs in connection with our ongoing operations. In addition, such laws and regulations may impose liabilities on owners and operators of businesses and real property without regard to fault and such liabilities may be joint and several with other parties. More stringent environmental laws and regulations may be enacted in the future, which may require us to expend additional amounts on environmental compliance or may require modifications to our operations. Although we are unable to predict the extent of our future liability with respect to any environmental matters, we believe, based upon current information, that environmental liabilities will not be material to our financial position or results of operations. E.I. duPont de Nemours & Company, or DuPont, has agreed to indemnify us for any environmental contamination present on our manufacturing sites at June 13, 1996, the date of our initial public offering, or present at any such site due to the generation, use, treatment, storage, release, emission, discharge or disposal of hazardous waste or hazardous materials before such date. The Environmental Protection Agency is reviewing a groundwater contamination issue at our Danbury, Connecticut site under voluntary corrective action. Any such contamination is believed to be offsite or historical, and, if that is the case, any environmental liabilities would be covered by the indemnification agreement with DuPont.

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Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion and analysis of the financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto. References to years are to fiscal years ended June 30. Results for interim periods are not necessarily indicative of results for the full year.

Overview

        Based on worldwide revenue, we are one of the largest photomask manufacturers in the world. We sell our products to over 300 customers and customer sites in over 17 different countries. Essentially all of our sales are to customers in the semiconductor manufacturing industry. We manufacture a broad range of photomasks based on customer-supplied design data. We also manufacture pellicles, primarily for internal consumption. Pellicles are one of the principal components of photomasks, and protect the photomask from particle contamination. We operate globally with established manufacturing facilities in North America, Europe and Asia.

        We believe that, over the long-term, the market for photomasks in the semiconductor manufacturing process will increase due to the following trends:

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Proliferation of semiconductor applications;

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Customization of semiconductor designs;

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Increasing semiconductor device complexity;

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Decreasing size of semiconductor designs; and

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Shorter product lifecycles.

        These trends have increased the importance of photomask technology in the semiconductor manufacturing process. As a result of these trends, coupled with our acquisitions of captive photomask operations, our annual revenue increased at an average annual compounded rate of 9 percent from 1999 to 2002.

        Photomask manufacturing operations are capital intensive. Accordingly, at a given threshold of manufacturing capacity, a high proportion of our operating costs are fixed and remain relatively constant as sales volume increases or decreases. To the extent that we have under-utilized production capacity, operating profit increases or decreases disproportionately as sales volume increases or decreases.

Results of Operations

        Revenue, net.    Revenue, net is comprised primarily of photomask sales to semiconductor manufacturers. Revenue, net increased 8.8 percent from $77.5 million in the three months ended September 30, 2001 to $84.2 million in the three months ended September 30, 2002. Revenue, net produced in North America decreased from $39.5 million in the three months ended September 30, 2001 to $39.3 million in the three months ended September 30, 2002 while revenue, net produced in Europe and Asia increased from $13.9 million and $24.1 million, respectively, in the three months ended September 30, 2001 to $14.0 million and $30.9 million, respectively, in the three months ended September 30, 2002. We experienced an increase in unit demand from the three months ended

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September 30, 2001 to the three months ended September 30, 2002. Increased customer demand for our products contributed to the increased sales produced in Asia. Overall average selling prices decreased from the three months ended September 30, 2001 to the three months ended September 30, 2002. Given the recent photomask demand pattern and our customers' forecasts, we expect revenues to be between $75.0 million and $85.0 million for the three months ending December 31, 2002.

        Cost of Goods Sold.    Cost of goods sold consists of materials, labor, depreciation and overhead. Cost of goods sold increased 5.2 percent from $67.3 million to $70.7 million for the three months ended September 30, 2001 and 2002, respectively. The increase resulted primarily as a result of increased volumes, partially offset by the results of the restructuring programs we previously implemented. Gross profit margin increased from 13.2 percent for the three months ended September 30, 2001 to 16.0 percent for the three months ended September 30, 2002. The increase in gross profit margin resulted from increased production volumes reflecting the increased demand. We continue to manage our fixed costs to mitigate the effects of the additional depreciation and maintenance expenses for tools we have added to improve our manufacturing capabilities.

        Selling, General and Administrative Expense.    Selling, general and administrative expense includes salaries of sales and administrative personnel, marketing expense, general and administrative expense and product distribution expense. Selling, general and administrative expense increased 4.9 percent from $9.5 million for the three months ended September 30, 2001 to $9.9 million for the three months ended September 30, 2002. Selling, general and administrative expense as a percentage of sales decreased from 12.2 percent for the three months ended September 30, 2001 to 11.8 percent for the three months ended September 30, 2002 as a result of increased sales.

        Research and Development Expense.    Research and development expense consists primarily of employee costs, cost of consumed materials, depreciation, engineering related costs and our share of costs of the RTC and AMTC. Research and development expense increased 17.2 percent from $6.5 million for the three months ended September 30, 2001 to $7.6 million for the three months ended September 30, 2002. As a percentage of sales it increased from 8.3 percent for the three months ended September 30, 2001 to 9.0 percent for the three months ended September 30, 2002. BindKey EDA software development expenses and pre-startup expenses of the AMTC contributed to the increase. We believe that, because of our continued focus on research and development and through collaboration with our customers on joint development projects, we will be able to help meet the future technology needs of the semiconductor industry for advanced photomasks.

        Loss on Warrants, net.    During the three months ended September 30, 2001, we recognized realized gains of $0.2 million and unrealized losses of $1.3 million on the warrants and the underlying securities of a strategic partner. There were no such holdings in the three months ended September 30, 2002.

        Other Income (Expense), net.    Other income (expense), net includes interest expense, interest income and exchange gains and losses. Other income (expense), net was $1.3 million fo