SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Commission file number 0-15451

PHOTRONICS, INC.

QUARTERLY REPORT ON FORM 10-Q

~~AUGUST 1, 2021~~January 30, 2022

TABLE OF CONTENTS

Glossary of Terms and Acronyms		3
Forward-Looking Statements		4

PART I.	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)	5

	Condensed Consolidated Balance Sheets	5

	Condensed Consolidated Statements of Income	6

	Condensed Consolidated Statements of Comprehensive Income	7

	Condensed Consolidated Statements of Equity	8

	Condensed Consolidated Statements of Cash Flows	10 9

	Notes to Condensed Consolidated Financial Statements	11 10

Item 2.	~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	26 25

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33 31

Item 4.	Controls and Procedures	33 32

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	3432


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3432

Item 6.	Exhibits	3533

Table of Contents

Glossary of Terms and Acronyms

Definitions of certain terms and acronyms that may appear in this report are provided below.

	AMOLED		Active-matrix organic light-emitting diode. A technology used in mobile devices.
	ASC		Accounting Standards Codification
ASP	Average Selling Price
ASU		Accounting Standards Update
Chip stacking	Placement of a computer chip on top of another computer chip, resulting in the reduction of the distance between the chips in a circuit board
COVID-19	Covid virus 2019, an infectious disease that was declared a pandemic by the World Health Organization in March 2020
DNP		Dai Nippon Printing Co., Ltd.
	EUV		A wafer lithography technology using the industry standard extreme ultraviolet (EUV) wavelength. EUV photomasks function by selectively reflecting or blocking light, in contrast to conventional photomasks which function by selectively transmitting or blocking ~~light.~~light
	Exchange Act		The Securities Exchange Act of 1934 (as amended)
	FASB		Financial Accounting Standards Board
	Form 10-K		Annual Report on Form 10-K
	Form 10-Q		Quarterly Report on Form 10-Q
	FPDs		Flat-panel displays, or “displays”
Generation	In reference to flat panel displays, refers to the size range of the underlying substrate to which a photomask is applied. Higher generation (or “G”) numbers represent larger substrates
High-end (photomasks)		For IC, photomasks that are 28nm or smaller; for FPD, AMOLED, G10.5+, and LTPS ~~photomasks.~~photomasks
	ICs		Integrated circuits, or semiconductors
	LIBOR		London Inter-Bank Offered Rate
LTM (free cash flow)	Last Twelve Months Free Cash Flow
LTPS		Low-Temperature Poly Silicon, a polycrystalline silicon synthesized at relatively low temperatures; polycrystalline silicon in thin-film transistors (TFTs) are used in liquid-crystal ~~displays~~display (LCD) flat panels and to drive organic light-emitting diode (OLED) ~~displays.~~displays
	MLA		Master Lease Agreement
Optical proximity correction	A photolithography enhancement technique applied to compensate for the limitations of light to maintain the edge placement integrity of an original design, after processing, into the etched image on a silicon wafer
PDMCX		Xiamen American Japan Photronics Mask Co., Ltd., a joint venture of Photronics and ~~DNP.~~DNP
Phase-shift photomasks	Photomasks that take advantage of the interference generated by phase differences to improve image resolution in photolithography
RMB		Chinese renminbi
	ROU (assets)		Right-of-use asset
	SEC		Securities and Exchange Commission
	Securities Act		The Securities Act of 1933 (as amended)
U.S. GAAP	Accounting principles generally accepted in the United States of America
Wafer		A wafer, or silicon wafer, is a thin slice of semiconductor material that, in the fabrication of microelectronics, serves as the substrate for microelectronic devices built in and upon the ~~wafer.~~wafer

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Forward-Looking Statements

This Form 10-Q contains forward-looking statements, as defined by the SEC. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements made by us, or on our behalf. Forward-looking statements are statements other than statements of historical fact, including, without limitation, those statements that include such words as “anticipates”, “believes”, “estimates”, “expects”, “intends”, “may”, “plans”, “predicts”, ~~“would”,~~ and similar expressions, and, without limitation, may address our future plans, objectives, goals, strategies, events, or performance, as well as underlying assumptions and other statements that are other than statements of historical facts. On occasion, in other documents filed with the SEC, press releases, conferences, or by other means, we may discuss, publish, disseminate, or otherwise make available, forward-looking statements, including statements contained within Part I, Item 2 – “Management’s Discussion & Analysis of Financial Condition and Results of Operations” of this Form 10-Q.

Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. Our expectations, beliefs and projections are expressed in good faith and are believed by us to have a reasonable basis, including, without limitation, management’s examination of historical operating trends, information contained in our records, and information we’ve obtained from other parties. However, we can offer no assurance that our expectations, beliefs, or projections will be realized, accomplished or achieved.

Forward-looking statements within this Form 10-Q speak only as of the date of its filing, and we undertake no obligation to update any such statements to reflect changes in events or circumstances that may subsequently occur. Users of this ~~Report~~Form 10-Q are cautioned that various factors may cause actual results to differ materially from those contained in any forward-looking statements found within this Form 10-Q and that they should not place undue reliance on any forward-looking statement. In addition, all forward-looking statements, whether written or oral and whether made by us or on our behalf, are expressly qualified by the risk factors provided in Item 1A “Risk Factors” of our Form 10-K, as well as any additional risk factors we may provide in our Quarterly Reports on Form 10-Q.

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PHOTRONICS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)

(unaudited)

	August 1, 2021		October 31, 2020		January 30, 2022		October 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	283,249	$	278,665	$	314,195	$	276,670
Accounts receivable, net of allowance for credit losses of $1,331 in 2021 and $1,324 in 2020		151,190		134,470
Accounts receivable, net of allowance of $1,157 in 2022 and $1,218 in 2021						170,673		174,447
Inventories		53,165		57,269		61,971		55,249
Other current assets		42,860		29,735		50,940		44,250

Total current assets		530,464		500,139		597,779		550,616

Property, plant and equipment, net		699,609		631,475		692,289		696,553
Intangible assets, net		904		3,437
Deferred income taxes		23,691		22,070		24,447		24,353
Other assets		27,089		31,061		20,733		22,680
Total assets	$	1,281,757	$	1,188,182	$	1,335,248	$	1,294,202


LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	0	$	4,708
Current portion of long-term debt		25,163		8,970	$	18,307	$	22,248
Accounts payable		75,640		75,378		94,914		81,534
Accrued liabilities		66,814		53,883		77,873		72,366

Total current liabilities		167,617		142,939		191,094		176,148

Long-term debt		92,740		54,980		78,540		89,446
Other liabilities		26,939		27,997		26,448		28,046

Total liabilities		287,296		225,916		296,082		293,640
Commitments and contingencies		0		0		0		0
Equity:
Preferred stock, $0.01 par value, 2,000 shares authorized, NaN issued and outstanding		0		0		0		0
Common stock, $0.01 par value, 150,000 shares authorized, 60,758 shares issued and outstanding at August 1, 2021, and 63,138 shares issued and outstanding at October 31, 2020		608		631
Common stock, $0.01 par value, 150,000 shares authorized, 60,564 shares issued and outstanding at January 30, 2022, and 60,024 shares issued and outstanding at October 31, 2021						606		600
Additional paid-in capital		489,431		507,336		487,342		484,672
Retained earnings		302,971		279,037		339,912		317,849
Accumulated other comprehensive income		24,882		17,958		10,565		20,571

Total Photronics, Inc. shareholders' equity		817,892		804,962
Total Photronics, Inc. shareholders’ equity						838,425		823,692
Noncontrolling interests		176,569		157,304		200,741		176,870

Total equity		994,461		962,266		1,039,166		1,000,562

Total liabilities and equity	$	1,281,757	$	1,188,182	$	1,335,248	$	1,294,202

See accompanying notes to condensed consolidated financial statements.

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PHOTRONICS, INC.

Condensed Consolidated Statements of Income

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended						Nine Months Ended						Three Months Ended
	August 1, 2021			August 2, 2020			August 1, 2021			August 2, 2020			January 30, 2022			January 31, 2021

Revenue	$	170,643		$	157,895		$	482,473		$	460,405		$	189,827		$	152,067

Cost of goods sold		125,318			120,161			367,370			357,636			129,964			121,538

Gross profit		45,325			37,734			115,103			102,769			59,863			30,529

Operating expenses:

Selling, general and administrative		15,083			13,306			43,203			40,792			15,727			14,053

Research and development		5,305			4,492			14,390			13,034			5,939			4,710

Total operating expenses		20,388			17,798			57,593			53,826			21,666			18,763

Other operating income, net		3,525			0			3,525			0

Operating income		28,462			19,936			61,035			48,943			38,197			11,766

Other non-operating income (expense):
Other income (expense):
Foreign currency transactions impact, net		4,301			(1,565	)		3,627			1,739			5,268			1,382
Interest expense, net		(1,060	)		(586	)		(637	)		(1,609	)
Interest income and other income (expense), net		494			16			653			480
Interest income and other income, net														334			121
Interest expense														(895	)		(823	)

Income before income tax provision		32,197			17,801			64,678			49,553			42,904			12,446

Income tax provision		7,842			4,937			14,493			17,789			11,178			2,937

Net income		24,355			12,864			50,185			31,764			31,726			9,509

Net income attributable to noncontrolling interests		7,279			2,088			14,547			4,404			8,662			1,473

Net income attributable to Photronics, Inc. shareholders	$	17,076		$	10,776		$	35,638		$	27,360		$	23,064		$	8,036

Earnings per share:

Basic	$	0.28		$	0.17		$	0.58		$	0.42		$	0.38		$	0.13

Diluted	$	0.28		$	0.17		$	0.57		$	0.42		$	0.38		$	0.13

Weighted-average number of common shares outstanding:

Basic		60,884			64,780			61,804			65,090			60,158			62,475

Diluted		61,515			65,247			62,362			65,704			60,936			63,005

See accompanying notes to condensed consolidated financial statements.

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PHOTRONICS, INC.

Condensed Consolidated ~~State~~Statements of ~~ments of~~ Comprehensive Income

(in thousands)

(unaudited)

	Three Months Ended					Nine Months Ended				Three Months Ended
	August 1, 2021			August 2, 2020		August 1, 2021		August 2, 2020		January 30, 2022			January 31, 2021

Net income	$	24,355		$	12,864	$	50,185	$	31,764	$	31,726		$	9,509

Other comprehensive (loss) income, net of tax of $0:

Foreign currency translation adjustments		(10,482	)		10,659		11,584		6,689		(9,831	)		18,289

Other		37			4		58		23		37			(1	)

Net other comprehensive (loss) income		(10,445	)		10,663		11,642		6,712		(9,794	)		18,288

Comprehensive income		13,910			23,527		61,827		38,476		21,932			27,797

Less: comprehensive income attributable to noncontrolling interests		7,144			3,979		19,265		8,539		8,874			5,690

Comprehensive income attributable to Photronics, Inc. shareholders	$	6,766		$	19,548	$	42,562	$	29,937	$	13,058		$	22,107

See accompanying notes to condensed consolidated financial statements.

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PHOTRONICS, INC.

Condensed Consolidated ~~Statements~~Statements of Equity

(in thousands)

(unaudited)

	Three Months Ended August 1, 2021																								Three Months Ended January 30, 2022
	Photronics, Inc. Shareholders																								Photronics, Inc. Shareholders
							Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income			Non- controlling Interests			Total Equity									Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income			Non- controlling Interests		Total Equity

	Common Stock																								Common Stock
	Shares			Amount																					Shares			Amount

Balance at May 2, 2021		63,606		$	636		$	511,215		$	297,599		$	(23,250	)	$	35,192		$	169,425		$	990,817
Balance at October 31, 2021																										60,024		$	600		$	484,672		$	317,849		$	0		$	20,571		$	176,870	$	1,000,562

Net income		-			0			0			17,076			0			0			7,279			24,355			-			0			0			23,064			0			0			8,662		31,726
Other comprehensive loss		-			0			0			0			0			(10,310	)		(135	)		(10,445	)
Other comprehensive (loss) income																										-			0			0			0			0			(10,006	)		212		(9,794	)
Shares issued under equity plans		135			2			921			0			0			0			0			923			728			7			2,733			0			0			0			0		2,740
Share-based compensation expense		-			0			1,311			0			0			0			0			1,311			-			0			1,457			0			0			0			0		1,457
Contribution from noncontrolling interest																										-			0			0			0			0			0			14,997		14,997
Purchase of treasury stock		0			0			0			0			(12,500	)		0			0			(12,500	)		0			0			0			0			(2,522	)		0			0		(2,522	)
Retirement of treasury stock		(2,983	)		(30	)		(24,016	)		(11,704	)		35,750			0			0			0			(188	)		(1	)		(1,520	)		(1,001	)		2,522			0			0		0

Balance at August 1, 2021		60,758		$	608		$	489,431		$	302,971		$	0		$	24,882		$	176,569		$	994,461
Balance at January 30, 2022																										60,564		$	606		$	487,342		$	339,912		$	0		$	10,565		$	200,741	$	1,039,166

	Three Months Ended August 2, 2020																		Three Months Ended January 31, 2021
	Photronics, Inc. Shareholders																		Photronics, Inc. Shareholders
	Common Stock				Additional Paid-in		Retained		Treasury			Accumulated Other Comprehensive			Non- controlling		Total		Common Stock				Additional Paid-in		Retained		Treasury			Accumulated Other Comprehensive		Non- controlling		Total
	Shares		Amount		Capital		Earnings		Stock			Loss			Interests		Equity		Shares		Amount		Capital		Earnings		Stock			Income		Interests		Equity

Balance at May 3, 2020		66,215	$	662	$	530,117	$	270,506	$	(16,894	)	$	(15,200	)	$	152,467	$	921,658
Balance at October 31, 2020																				63,138	$	631	$	507,336	$	279,037	$	0		$	17,958	$	157,304	$	962,266

Net income		-		0		0		10,776		0			0			2,088		12,864		-		0		0		8,036		0			0		1,473		9,509
Other comprehensive income		-		0		0		0		0			8,772			1,891		10,663		-		0		0		0		0			14,071		4,217		18,288
Shares issued under equity plans		61		1		306		0		0			0			0		307		368		4		337		0		0			0		0		341
Share-based compensation expense		-		0		1,196		0		0			0			0		1,196		-		0		1,301		0		0			0		0		1,301
Contribution from noncontrolling interest		-		0		0		0		0			0			9,997		9,997
Purchase of treasury stock																				0		0		0		0		(13,209	)		0		0		(13,209	)

Balance at August 2, 2020		66,276	$	663	$	531,619	$	281,282	$	(16,894	)	$	(6,428	)	$	166,443	$	956,685
Balance at January 31, 2021																				63,506	$	635	$	508,974	$	287,073	$	(13,209	)	$	32,029	$	162,994	$	978,496

See accompanying notes to condensed consolidated financial statements.

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Nine Months Ended August 1, 2021

Photronics, Inc. Shareholders

Additional
Paid-in
Capital

Retained
Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
Income

Non-
controlling
Interests

Total
Equity

Common Stock
Shares Amount

Balance at October 31, 2020 63,138 $ 631 $ 507,336 $ 279,037 $ 0 $ 17,958 $ 157,304 $ 962,266

Net income - 0 0 35,638 0 0 14,547 50,185
Other comprehensive income - 0 0 0 0 6,924 4,718 11,642
Shares issued under equity plans 603 7 2,077 0 0 0 0 2,084
Share-based compensation expense - 0 4,034 0 0 0 0 4,034
Purchase of treasury stock 0 0 0 0 (35,750 ) 0 0 (35,750 )
Retirement of treasury stock (2,983 ) (30 ) (24,016 ) (11,704 ) 35,750 0 0 0

Balance at August 1, 2021
60,758 $ 608 $ 489,431 $ 302,971 $ 0 $ 24,882 $ 176,569 $ 994,461

Nine Months Ended August 2, 2020

Photronics, Inc. Shareholders
Common Stock
Additional
Paid-in
Retained Treasury
Accumulated
Other
Comprehensive

Non-
controlling
Total
Shares Amount Capital Earnings Stock Loss Interests Equity

Balance at October 31, 2019 65,595 $ 656 $ 524,319 $ 253,922 $ 0 $ (9,005 ) $ 141,200 $ 911,092

Net income - 0 0 27,360 0 0 4,404 31,764
Other comprehensive income - 0 0 0 0 2,577 4,135 6,712
Shares issued under equity plans 681 7 3,272 0 0 0 0 3,279
Share-based compensation expense - 0 3,773 0 0 0 0 3,773
Purchase of treasury stock - 0 0 0 (16,894 ) 0 0 (16,894 )
Contribution from noncontrolling interest - 0 0 0 0 0 17,596 17,596
Repurchase of common stock of subsidiary - 0 255 0 0 0 (892 ) (637 )

Balance at August 2, 2020
66,276 $ 663 $ 531,619 $ 281,282 $ (16,894 ) $ (6,428 ) $ 166,443 $ 956,685

~~See accompanying notes to condensed consolidated financial statements.~~

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PHOTRONICS, INC.

Condensed Consolidated ~~State~~Statements of ~~ments of~~ Cash Flows

(in thousands)

(unaudited)

	Nine Months Ended						Three Months Ended
	August 1, 2021			August 2, 2020			January 30, 2022			January 31, 2021

Cash flows from operating activities:
Net income	$	50,185		$	31,764		$	31,726		$	9,509
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		69,305			71,120			20,810			23,724
Share-based compensation		4,034			3,773			1,457			1,301
Changes in assets and liabilities:
Accounts receivable		(13,854	)		(9,476	)		3,269			(2,011	)
Inventories		5,073			(6,155	)		(7,020	)		2,095
Other current assets		(12,280	)		(12,381	)		(6,730	)		(824	)
Accounts payable, accrued liabilities, and other		10,633			(381	)		15,618			(7,507	)

Net cash provided by operating activities		113,096			78,264			59,130			26,287

Cash flows from investing activities:
Purchases of property, plant and equipment		(92,301	)		(36,693	)		(19,175	)		(17,532	)
Government incentives		5,775			5,263			0			397
Purchases of intangible assets		(170	)		(139	)
Other								(43	)		(61	)

Net cash used in investing activities		(86,696	)		(31,569	)		(19,218	)		(17,196	)

Cash flows from financing activities:
Repayments of debt								(15,192	)		(7,796	)
Purchases of treasury stock								(2,522	)		(13,209	)
Contribution from noncontrolling interest								14,997			0
Proceeds from debt		20,858			5,699			0			6,205
Purchases of treasury stock		(35,750	)		(16,894	)
Repayments of debt		(13,311	)		(5,929	)
Contribution from noncontrolling interest		0			17,596
Proceeds from share-based arrangements		2,251			3,869			3,840			765
Net settlements of restricted stock awards		(403	)		(248	)		(1,458	)		(315	)

Net cash (used in) provided by financing activities		(26,355	)		4,093
Net cash used in financing activities								(335	)		(14,350	)

Effects of exchange rate changes on cash, cash equivalents, and restricted cash		4,602			3,486			(2,057	)		5,195

Net increase in cash, cash equivalents, and restricted cash		4,647			54,274
Net increase (decrease) in cash, cash equivalents, and restricted cash								37,520			(64	)
Cash, cash equivalents, and restricted cash at beginning of period		281,602			209,291			279,680			281,602

Cash, cash equivalents, and restricted cash at end of period	$	286,249		$	263,565			317,200			281,538

Less: Ending restricted cash								3,005			2,999
Cash and cash equivalents at end of period							$	314,195		$	278,539

Supplemental disclosures of non-cash information:
Supplemental disclosure of non-cash information:

Accruals for property, plant and equipment purchased during the period	$	7,367		$	34,356		$	7,092		$	4,938

See accompanying notes to condensed consolidated financial statements.

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PHOTRONICS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

(in thousands, except share amounts and per share data)

NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION

Photronics, Inc. (“Photronics”, “the Company”, “we”, “our”, or “us”) is one of the ~~world's~~world’s leading manufacturers of photomasks, which are high-precision photographic quartz or glass plates containing microscopic images of electronic circuits. Photomasks are a key element in the manufacture of ~~ICs~~semiconductors and ~~FPDs,~~flat-panel displays (“FPDs” or “displays”), and are used as masters to transfer circuit patterns onto semiconductor wafers and FPD substrates during the fabrication of integrated circuits (“ICs” or “semiconductors”), a variety of FPDs and, to a lesser extent, other types of electrical and optical components. We currently have 11 manufacturing facilities, which are located in Taiwan (3), Korea, China (2), the United States (3), and Europe (2)~~, and China (2)~~. ~~Our FPD facility in Hefei, China, commenced production in the second quarter of fiscal 2019, and our IC facility in Xiamen, China, commenced production in the third quarter of fiscal 2019.~~

The accompanying unaudited condensed consolidated financial statements (“the financial statements”) have been prepared in accordance with ~~accounting principles generally accepted in the United States of America~~U.S. GAAP for interim financial information, and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by ~~accounting principles generally accepted in the United States of America~~U.S. GAAP for annual financial statements. In the opinion of management, adjustments, all of which are of a normal recurring nature, considered necessary for a fair presentation have been included. The financial statements include the accounts of Photronics, its wholly owned subsidiaries, and the majority-owned subsidiaries ~~that~~which it controls. All intercompany balances and transactions have been eliminated in consolidation. These financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Form 10-K for the fiscal year ended October 31, 2021, where we discuss and provide additional information about our accounting policies and the methods and assumptions used in our estimates.

The preparation of financial statements in conformity with ~~accounting principles generally accepted in the United States of America~~U.S. GAAP requires us to make estimates and assumptions that affect amounts reported in them. ~~Estimates~~Our estimates, including those on the impact of COVID-19, are based on historical experience and on various assumptions that ~~are believed~~we believe to be reasonable under the circumstances. Our estimates are based on the facts and circumstances available at the time they are made. Subsequent actual results may differ from such estimates. We review these estimates periodically and reflect any effects of revisions in the period in which they are determined.

~~In fiscal year 2021, we segregated share-based compensation activity into the two categories of~~ ~~Shares issued under equity plans~~ ~~and~~ ~~Share-based compensation expense~~ in the condensed consolidated statements of equity; in previous reports, we segregated this activity into three categories. Reclassified prior period amounts have been conformed to the current period presentation.

Our business is typically impacted during the first quarter of our fiscal year by the North American, European, and Asian holiday periods, as some customers reduce their development and buying activities during ~~those periods; consequently, operating~~this period. Operating results for the interim ~~periods~~period are not necessarily indicative of the results that may be expected for the fiscal year ending October 31, ~~2021.~~2022. For further information, refer to the consolidated financial statements, and notes thereto, included in our Annual Report on Form 10-K for the year ended October 31, ~~2020.~~

~~NOTE 2~~ - ~~CASH, CASH EQUIVALENTS AND RESTRICTED CASH~~

Cash and cash equivalents include cash and highly liquid investments with an original maturity of three months or less, readily convertible to known amounts of cash, and so near to their maturity that they present insignificant risk of changes in value because of changes in interest rates. The carrying values of cash equivalents approximate their fair values, due to the short-term maturities of these instruments.

~~Restricted cash is included in~~ ~~Other assets~~ ~~in our~~ ~~August 1, 2021 and October 31, 2020, condensed consolidated balance sheets, respectively. The restrictions on these amounts are primarily related to land lease agreements and customs requirements.~~

The following table presents cash and cash equivalents as reported in our condensed consolidated balance sheets, as well as the sum of cash, cash equivalents and restricted cash, as reported in our condensed consolidated statements of cash flows.2021.

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August 1,
2021

October 31,
2020

Cash and cash equivalents $ 283,249 $ 278,665
Restricted Cash 3,000 2,937

$ 286,249 $ 281,602

NOTE 32 - INVENTORIES

Inventories are stated at the lower of cost, determined under the first-in, first-out (“FIFO”) method, or net realizable value. ~~The~~Presented below are the components of inventory at the balance sheet ~~dates are presented below.~~dates:

August 1,
2021

October 31,
2020

Raw materials $ 51,713 $ 56,389
Work in process 1,223 767
Finished goods 229 113

$ 53,165 $ 57,269

	January 30, 2022		October 31, 2021

Raw materials	$	60,243	$	54,019
Work in process		1,544		1,121
Finished goods		184		109

	$	61,971	$	55,249

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NOTE 43 - PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment ~~net~~ consists of the following:

							January 30, 2022			October 31, 2021
	August 1, 2021			October 31, 2020
Land	$	12,518		$	12,422		$	12,279		$	12,442
Buildings and improvements		181,842			179,162			181,174			181,922
Machinery and equipment		1,966,038			1,812,791			1,950,583			1,961,474
Leasehold improvements		21,672			21,157			21,709			21,751
Furniture, fixtures and office equipment		15,811			15,665			15,770			15,534
Construction in progress		31,839			70,915			47,008			35,009

		2,229,720			2,112,112			2,228,523			2,228,132
Accumulated depreciation and amortization		(1,530,111	)		(1,480,637	)		(1,536,234	)		(1,531,579	)

	$	699,609		$	631,475		$	692,289		$	696,553

ROU assets resulting from finance leases are included in the table above as follows:

						January 30, 2022			October 31, 2021
	August 1, 2021			October 31, 2020
Machinery and equipment	$	42,760		$	0	$	42,760		$	42,760
Accumulated amortization		(1,223	)		0		(2,644	)		(1,933	)

	$	41,537		$	0	$	40,116		$	40,827

Depreciation and amortization expense for property, plant and equipment (including amortization expense for ROU assets) was ~~$21.7~~$20.7 million and ~~$66.6~~$22.6 million for the ~~three and nine-month~~three-month periods ended ~~August 1, 2021, respectively,~~January 30, 2022, and ~~$22.1 million and $67.6 million for the three and nine-month periods ended August 2, 2020, respectively.~~January 31, 2021.

~~In the third quarter of fiscal 2021, we recorded a $3.5~~ ~~million gain on the trade-in of a lithography tool with a tool vendor as partial compensation for a more advanced tool.~~

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NOTE 54 - PDMCX JOINT VENTURE

In January 2018, Photronics, Inc. through its wholly owned Singapore subsidiary (hereinafter, within this Note “we”, “Photronics”, “us”, or “our”), and DNP, through its wholly owned subsidiary “DNP Asia Pacific PTE, Ltd.” entered into a joint venture under which DNP obtained a 49.99% interest in our IC business in Xiamen, China. The joint venture, which we refer to as “PDMCX”, was established to develop and manufacture photomasks for leading-edge and advanced-generation semiconductors. We entered into this joint venture to enable us to compete more effectively for the merchant photomask business in China, and to benefit from the additional resources and investment that DNP provides to enable us to offer advanced-process technology to our customers. ~~NaN gain or loss was recorded upon the formation of this joint venture.~~

~~The minimum combined~~ In 2020, in combination with local financing obtained by PDMCX, Photronics and DNP fulfilled their investment ~~per~~obligations under the PDMCX operating agreement ~~(the “Agreement”~~(“the Agreement”)~~, was $160~~ ~~million. As of August 1, 2021, Photronics and DNP had each contributed cash of approximately $~~65 ~~million, and~~ ~~PDMCX had obtained local financing~~ ~~of approximately $~~50 ~~million~~. As discussed in Note 6,5, liens were granted to the local financing entity on ~~assets~~property, plant and equipment with ~~an August 1, 2021,~~a January 30, 2022, total carrying value of ~~$91.3~~$88.4 million, as collateral for the loans.

Under the Agreement, DNP is afforded, under certain circumstances, the right to put its interest in PDMCX to Photronics. These circumstances include disputes regarding the strategic direction of PDMCX that may arise after the initial two-year term of the Agreement and cannot be resolved between the two parties. As of the date of issuance of these financial statements, DNP had not indicated its intention to exercise this right. In addition, both Photronics and DNP have the option to purchase, or put, their interest from, or to, the other party, should their ownership interest fall below 20percent for a period of more than six consecutive months. Under all such circumstances, the sales of ownership interests would be at the exiting party’s ownership percentage of the joint venture’s net book value, with closing to take place within three business days of obtaining required approvals and clearance.

We recorded net income from the operations of PDMCX of ~~$1.8 million, and $4.0~~$1.9 million during the ~~three~~three-month period ended January 30, 2022, and ~~nine-month periods ended August 1, 2021, respectively, and losses~~a loss of ~~$0.8 million and $4.8~~$0.1 million during the ~~three and nine-month periods~~three-month period ended ~~August 2, 2020,~~January 31, 2021, respectively. General creditors of PDMCX do not have recourse to the assets of Photronics (other than the net assets of PDMCX), and our maximum exposure to loss from PDMCX at ~~August 1, 2021,~~January 30, 2022, was ~~$60.9~~$81.3 million.

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As required by the guidance in Topic 810 - “Consolidation” of the ~~ASC,~~Accounting Standards Codification (“ASC”), we evaluated our involvement in PDMCX for the purpose of determining whether we should consolidate its results in our financial statements. The initial step of our evaluation was to determine whether PDMCX was a variable interest entity (“VIE”). Due to its lack of sufficient equity at risk to finance its activities without additional subordinated financial support, we determined that it was a VIE. Having made this determination, we then assessed whether we were the primary beneficiary of the VIE, and concluded that we were the primary beneficiary during the current and prior year reporting periods; thus, as required, the PDMCX financial results have been consolidated with Photronics. Our conclusion was based on the facts that we held a controlling financial interest in PDMCX (which resulted from our having the power to direct the activities that most significantly impacted its economic performance) and had the obligation to absorb losses and the right to receive benefits that could potentially be significant to PDMCX. Our conclusions that we had the power to direct the activities that most significantly affected the economic performance of PDMCX during the current and prior year reporting periods were based on our right to appoint the majority of its board of directors, which has, among others, the powers to manage the business (through its rights to appoint and evaluate PDMCX’s management), incur indebtedness, enter into agreements and commitments, and acquire and dispose of PDMCX’s assets. In addition, as a result of the 50.01% variable interest we held during the current and prior-year periods, we had the obligation to absorb losses, and the right to receive benefits, that could potentially be significant to PDMCX.

The carrying amounts of PDMCX assets and liabilities included in our condensed consolidated balance sheets are presented in the following table, together with our exposure to loss related to these assets and liabilities.

August 1,
2021

October 31,
2020

Classification
Carrying
Amount

Photronics
Interest

Carrying
Amount

Photronics
Interest

Current assets $ 56,060 $ 28,036 $ 56,095 $ 28,053
Non-current assets 138,072 69,050 141,097 70,562

Total assets 194,132 97,086 197,192 98,615

Current liabilities 30,233 15,119 31,922 15,964
Non-current liabilities 42,080 21,044 55,676 27,844

Total liabilities 72,313 36,163 87,598 43,808

Net assets $ 121,819 $ 60,923 $ 109,594 $ 54,807

	January 30, 2022				October 31, 2021
Classification	Carrying Amount		Photronics Interest		Carrying Amount		Photronics Interest
Current assets	$	80,953	$	40,485	$	59,745	$	29,879
Noncurrent assets		143,353		71,690		137,799		68,913

Total assets		224,306		112,175		197,544		98,792

Current liabilities		28,209		14,107		26,559		13,282
Noncurrent liabilities		33,542		16,774		42,917		21,463

Total liabilities		61,751		30,881		69,476		34,745

Net assets	$	162,555	$	81,294	$	128,068	$	64,047

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NOTE 65 - DEBT

Short-term debt was $0.0 million, and $4.7 million as of August 1, 2021 and October 31, 2020, respectively. The 2020 amount represents an advance payment under an MLA to fund equipment purchased or leased in the U.S., and short duration borrowings in Xiamen, China, to fund operations. See below for further information. The weighted-average interest rate on our short-term debt as of October 31, 2020 was 2.02%.

The tables below provide information on our long-term debt.

As of August 1, 2021	Xiamen Project Loans			Xiamen Working Capital Loans			Hefei Equipment Loan			Finance Leases			Total
As of January 30, 2022															Xiamen Project Loans			Xiamen Working Capital Loans			Hefei Equipment Loan			Finance Leases			Total
Principal due:
Next 12 months	$	7,615		$	8,108		$	2,321		$	7,119		$	25,163	$	5,708		$	1,006		$	4,717		$	6,876		$	18,307
Months 13 – 24	$	9,961		$	3,961		$	4,642		$	6,487		$	25,051	$	9,277		$	3,523		$	4,717		$	6,537		$	24,054
Months 25 – 36		10,165			0			4,642			6,585			21,392		10,221			0			6,290			20,308			36,819
Months 37 – 48		9,794			0			7,736			19,623			37,153		9,434			0			5,613			2,620			17,667
Months 49 – 60		7,489			0			1,655			0			9,144
Long-term debt	$	37,409		$	3,961		$	18,675		$	32,695		$	92,740	$	28,932		$	3,523		$	16,620		$	29,465		$	78,540
Total															$	34,640		$	4,529		$	21,337		$	36,341		$	96,847

Interest rate at balance sheet date		4.65	%		4.53% - 4.61	%		4.20	%		0	⁽³⁾				4.65	%		4.61	%		4.20	%		0	⁽³⁾
Basis spread on interest rates		0.00			67.75 - 76.00			(45.00	)		N/A					0.00			76.00			(45.00	)		N/A
Interest rate reset	Quarterly			Monthly/Annually			Annually				N/A				Quarterly			Monthly/Annually			Annually				N/A
Maturity date	December 2025			July 2023			September 2026				0	⁽³⁾			December 2025			July 2023			September 2025				0	⁽³⁾
Periodic payment amount	Increases as loans mature			Increases as loans mature			Varies ⁽¹⁾				0	⁽³⁾			Varies as loans mature			Increases as loans mature			Varies ⁽¹⁾				0	⁽³⁾
Periodic payment frequency	Semiannual, on individual loans			Semiannual, on individual loans			Semiannual⁽²⁾			Monthly					Semiannual, on individual loans			Semiannual, on individual loans			Semiannual⁽²⁾			Monthly
Loan collateral (carrying amount)	$	91,277			N/A		$	86,892		$	41,537	⁽⁴⁾			$	88,356			N/A		$	85,558		$	40,116	⁽⁴⁾

⁽¹⁾First five loan repayments will each be for 7.5 percent of the approved 200 million RMB loan principal; last five installments will each be for 12.5 percent of the ~~original~~ approved loan principal~~amount.~~.

⁽²⁾Semiannual repayments commence in March 2022.

⁽³⁾See Note 87 for periodic payment amounts.

⁽⁴⁾Amount represents the carrying amount of the related right-of-use asset, in which the lessors have a secured interest.

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As of October 31, 2021	Xiamen Project Loans			Xiamen Working Capital Loans			Hefei Equipment Loan			Finance Leases			Total
Principal due:
Next 12 months	$	2,068		$	8,197		$	4,694		$	7,289		$	22,248
Months 13 – 24	$	10,071		$	4,005		$	4,693		$	6,512		$	25,281
Months 25 – 36		10,278			0			6,257			6,610			23,145
Months 37 – 48		9,902			0			5,585			17,961			33,448
Months 49 – 60		7,572			0			0			0			7,572
Long-term debt	$	37,823		$	4,005		$	16,535		$	31,083		$	89,446
Total	$	39,891		$	12,202		$	21,229		$	38,372		$	111,694

Interest rate at balance sheet date		4.65	%		4.53% - 4.61	%		4.20	%		0	⁽³⁾
Basis spread on interest rates		0.00			67.75 - 76.00			(45.00	)		N/A
Interest rate reset		Quarterly			Monthly/Annually			Annually			N/A
Maturity date	December 2025			July 2023			September 2025				0	⁽³⁾
Periodic payment amount	Varies as loans mature			Increases as loans mature			Varies⁽¹⁾				0	⁽³⁾
Periodic payment frequency	Semiannual, on individual loans			Semiannual, on individual loans			Semiannual⁽²⁾			Monthly
Loan collateral (carrying amount)	$	90,096			N/A		$	86,487		$	40,826	⁽⁴⁾

⁽¹⁾First five loan repayments will each be for 7.5 percent of the approved 200 million RMB loan principal; last five installments will each be for 12.5 percent of the approved loan principal.

⁽²⁾ Semiannual repayments commence in March 2022.⁽³⁾See Note 7 for interest rates on lease liabilities, maturity dates, and periodic payment amounts.

⁽⁴⁾Represents the carrying amount at the balance sheet date of the related ~~right-of-use~~ROU assets, in which the lessors have secured interests.

As of October 31, 2020
Xiamen
Project Loans

Xiamen Working
Capital Loans
Total
Principal due:
Next 12 months $ 6,705 $ 2,265 $ 8,970
Months 13 – 24 $ 7,334 $ 7,808 $ 15,142
Months 25 – 36 9,592 3,814 13,406
Months 37 – 48 9,789 0 9,789
Months 49 – 60 9,432 0 9,432
Thereafter 7,211 0 7,211
Long-term debt $ 43,358 $ 11,622 $ 54,980

Interest rate at balance sheet date 4.90 % 4.53% - 4.61 %
Basis spread on interest rates 25.00 40.00 - 76.00
Loan collateral (carrying amount) $ 94,459 N/A

Xiamen Project Loans

In November 2018, PDMCX obtained approval to borrow 345.0 million RMB from the Industrial and Commercial Bank of China. From November 2018 through July 2020, PDMCX entered into separate loan agreements (the “Project Loans”) for the entire approved amount and, as of ~~August 1, 2021,~~January 30, 2022, ~~291.0~~220.3 million RMB ($~~45.0~~34.6 million) remained outstanding. The Project Loans were used to finance certain capital expenditures at the PDMCX facility and are collateralized by liens granted on the land use right, building, and certain equipment located at the facility. The interest rates on the Project Loans are variable (based on the RMB Loan Prime Rate of the National Interbank Funding Center), and interest incurred on the loans is eligible for reimbursement through incentives provided by the Xiamen Torch Hi-Tech Industrial Development Zone, which provide for such reimbursements up to a prescribed limit and duration. The Project Loans are subject to covenants and provisions, certain of which relate to the assets pledged as security for the loans, all of which we were in compliance with at ~~August 1, 2021.~~January 30, 2022.

Xiamen Working Capital Loans

In November 2018, PDMCX obtained approval for revolving, unsecured credit of the equivalent of $25.0 million, pursuant to which PDMCX may enter into separate loan agreements with varying terms to maturity. This facility is subject to annual reviews and extension. Unless extended, this facility will expire in October ~~2021~~2022. As of ~~August 1, 2021,~~January 30, 2022, PDMCX had ~~78.0~~28.8 million RMB ($~~12.1~~4.5 million) outstanding against the approval. The interest rates are variable, based on the RMB Loan Prime Rate of the National Interbank Funding Center. Interest incurred on the loans ~~are~~is eligible for reimbursement through incentives provided by the Xiamen Torch Hi-Tech Industrial Development Zone, which provide for such reimbursements up to a prescribed limit and duration.

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Hefei Equipment Loan

In October 2020, our Hefei, China, facility was approved to borrow 200 million RMB (approximately $~~30.9~~31.4 million, at the balance sheet date) from the China Construction Bank Corporation. This credit facility is subject to annual reviews and extension, with the most recent extension set to expire in August 2022. The loan proceeds were used to fund ~~purchases~~the purchase of 2 lithography tools at the Hefei facility. As of ~~August 1, 2021~~January 30, 2022, we had borrowed 135.7 million RMB ($~~21.0~~21.3 million) against this approval (all of which was then outstanding), and ~~62.5~~64.3 million RMB ($~~9.9~~10.1 million) remained available to borrow. The interest rate on the loan is variable and based on the RMB Loan Prime Rate of the National Interbank Funding Center. The borrowings are secured by the Hefei facility, its related land use right, and certain manufacturing equipment. The Hefei Equipment Loan is subject to covenants and provisions, certain of which relate to the assets pledged as security for the loan, including covenants for the ratio of total liabilities to total assets and the ratio of current assets to current liabilities, all of which we were in compliance with at ~~August 1, 2021.~~January 30, 2022.

Finance Leases

In February 2021, we entered into a five-year $7.2 million finance lease for a high-end inspection tool and, in December 2020, ~~under~~ ~~an MLA~~ ~~which we entered into effective July 2019,~~ we entered into a $35.5 million lease for a high-end lithography tool. ~~Upon entering~~ ~~into the latter lease, our prior $3.5~~ ~~million short-term obligation to the lessor became a portion of the lease liability.~~ See Note 87 for additional information on these leases.

Corporate Credit Agreement

In September 2018, we entered into a five-year amended and restated credit agreement (the “Credit Agreement”), which has a $50 million borrowing limit, with an expansion capacity to $100 million. The Credit Agreement is secured by substantially all of our assets located in the United States and common stock we own in certain subsidiaries. The Credit Agreement includes covenants around minimum interest coverage ratio, total leverage ratio, and minimum unrestricted cash balance (all of which we were in compliance with at ~~August 1, 2021)~~January 30, 2022), and limits the amount of cash dividends, distributions, and redemptions we can pay on our common stock to an aggregate annual amount of $50 million. We had 0 outstanding borrowings against the Credit Agreement at ~~August 1, 2021.~~January 30, 2022. The interest rate on the Credit Agreement ~~(1.09%~~(1.11% at ~~August 1, 2021)~~January 30, 2022) is based on our total leverage ratio at 1-month LIBOR plus a spread, as defined in the Credit Agreement.

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NOTE 76 - REVENUE

We recognize revenue when, or as, control of a good or service transfers to a customer, in an amount that reflects the consideration to which we expect to be entitled in exchange for transferring those goods or services. We account for an arrangement as a revenue contract when each party has approved and is committed to perform under the contract, the rights of the contracting parties regarding the goods or services to be transferred and the payment terms are identifiable, the arrangement has commercial substance, and collection of consideration is probable. Substantially all of our revenue comes from the sales of photomasks. We typically contract with our customers to sell sets of photomasks, which are comprised of multiple layers, the predominance of which we invoice as they ship to customers. As the photomasks are manufactured to customer specifications, they have no alternative use to us and, as our contracts generally provide us with the right to payment for work completed to date, we recognize revenue as we perform, or “over time”, on most of our contracts. We measure our performance to date using an input method, which is based on our estimated costs to complete the various manufacturing phases of a photomask. At the end of a reporting period, there ~~will be~~are a number of uncompleted revenue contracts on which we have performed; for any such contracts under which we are entitled to be compensated for our costs incurred plus a reasonable profit, we recognize revenue and a corresponding contract asset for such performance. We account for shipping and handling activities that we perform after a customer obtains control of a good as being activities to fulfill our promise to transfer the good to the customer, rather than as promised services, or performance obligations, under the contract. We report our revenue net of any sales or similar taxes we collect on behalf of government entities.

As stated above, photomasks are manufactured to customer specifications in accordance with their proprietary designs; thus, they are individually unique. Due to their uniqueness and other factors, their transaction prices are individually established through negotiations with customers; consequently, our photomasks do not have standard or “list” prices. The transaction prices of the vast majority of our revenue contracts include only fixed amounts of consideration. In certain instances, such as when we offer a customer an early payment discount, an estimate of variable consideration would be included in the transaction price, but only to the extent that a significant reversal of revenue would not occur when the uncertainty related to the variability was resolved.

Contract Assets, Contract Liabilities, and Accounts Receivable

We recognize a contract asset when our performance under a contract precedes our receipt of consideration from a customer, or before payment is due, and our receipt of consideration is conditional upon factors other than the passage of time. Contract assets reflect our transfer of control of photomasks that are in process or completed but not yet shipped to customers. A receivable is recognized when we have an unconditional right to payment for our performance, which generally occurs when we ship the photomasks. Our contract assets primarily consist of a significant amount of our in-process production orders and fully manufactured photomasks which have not yet shipped, for which we have an enforceable right to collect consideration (including a reasonable profit) in the event the in-process orders are cancelled by customers. On an individual contract basis, we net contract assets with contract liabilities (deferred revenue) for financial reporting purposes. Contract assets of ~~$8.9~~$11.8 million are included in Other current assets, and contract liabilities of ~~$15.4~~$19.5 million and ~~$5.2~~$5.2 million are included in Accrued liabilities and Other liabilities, respectively, in our ~~August 1, 2021,~~January 30, 2022, condensed consolidated balance sheet. Our October 31, ~~2020~~2021, condensed consolidated balance sheet includes contract assets of ~~$6.3~~$9.9 million, included in Other current assets, and contract liabilities of ~~$8.0~~$14.7 million and ~~$5.2~~$5.2 million are included in Accrued liabilities and Other liabilities, respectively. We did 0t0t impair any contract assets during the three ~~or nine-month~~-month periods ended ~~August 1,~~January 30, 2022, or January 31, 2021 ~~or August 2, 2020.~~. We recognized ~~$1.7 million and $5.0~~$4.2 million of revenue from the settlement of contract liabilities that existed at the beginning of the ~~three and nine-month periods~~three-month period ended ~~August 1, 2021,~~January 30, 2022, and recognized ~~$1.9 million and $2.3~~$2.5 million of revenue in the respective prior year ~~periods,~~period, that related to the settlement of contract liabilities that existed at the beginning of ~~those periods.~~that period.

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We generally record our accounts receivable at their billed amounts. All outstanding past due customer invoices are reviewed for collectibility during, and at the end of, every reporting period. To the extent we believe a loss on the collection of a customer invoice is probable, we record the loss and credit ~~the~~an allowance for credit losses. In the event that an amount is determined to be uncollectible, we charge the allowance for credit losses and derecognize the related receivable. We did not incur any credit losses on our accounts receivable during the ~~nine-month period ended~~ ~~August 1, 2021, and credit losses on our accounts receivable were immaterial during~~ ~~the three and nine-month~~three-month periods ended ~~August 2, 2020.~~January 30, 2022, or January 31, 2021.

Our invoice terms generally range from net thirty to ninety days, depending on both the geographic market in which the transaction occurs and our payment agreements with specific customers. In the event that our evaluation of a customer’s business prospects and financial condition indicate that the customer presents a collectibility risk, we modify terms of sale, which may require payment in advance of performance. At the time of adoption, we elected the practical expedient allowed under ASC Topic 606 “Revenue from Contracts with Customers” (“Topic ~~606”~~606”) that permits us not to adjust a contract’s promised amount of consideration to reflect a financing component when the period between when we transfer control of goods or services to customers and when we are paid is one year or less.

In instances when we are paid in advance of our performance, we record a contract liability and, as allowed under the practical expedient in Topic 606, recognize interest expense only if the period between when we receive payment from the customer and the date when we expect to be entitled to the payment is greater than one year. Historically, advance payments we have received from customers have generally not preceded the completion of our performance obligations by more than one year.

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Disaggregation of Revenue

The following tables present our revenue for the three ~~and nine-month~~-month periods ended ~~August 1,~~January 30, 2022, and January 31, 2021 ~~and August 2, 2020~~, disaggregated by product type, geographic origin, and timing of recognition.

	Three Months Ended				Nine Months Ended
	August 1, 2021		August 2, 2020		August 1, 2021		August 2, 2020		Three Months Ended
									January 30, 2022		January 31, 2021
Revenue by Product Type
IC
High-end	$	42,351	$	38,665	$	120,390	$	117,974	$	46,534	$	36,780
Mainstream		75,423		70,001		214,332		194,517		83,227		68,176

Total IC	$	117,774	$	108,666	$	334,722	$	312,491	$	129,761	$	104,956


FPD
High-end	$	40,640	$	36,670	$	114,685	$	108,248	$	46,276	$	34,645
Mainstream		12,229		12,559		33,066		39,666		13,790		12,466

Total FPD	$	52,869	$	49,229	$	147,751	$	147,914	$	60,066	$	47,111
	$	170,643	$	157,895	$	482,473	$	460,405
									$	189,827	$	152,067

Three Months Ended Nine Months Ended

August 1,
2021

August 2,
2020

August 1,
2021

August 2,
2020

Revenue by Geography *
Taiwan $ 63,849 $ 60,836 $ 179,441 $ 182,463
Korea 39,575 39,488 118,597 116,485
United States 24,693 28,351 78,447 78,276
China 32,664 20,988 77,391 58,374
Europe 9,437 7,688 27,269 23,562
Other 425 544 1,328 1,245
$ 170,643 $ 157,895 $ 482,473 $ 460,405

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	Three Months Ended
	January 30, 2022		January 31, 2021
Revenue by Geographic Origin*
Taiwan	$	67,841	$	56,590
China		45,953		20,997
Korea		39,515		38,783
United States		27,176		26,604
Europe		8,914		8,575
Other		428		518

	$	189,827	$	152,067

* This table disaggregates revenue by the location in which it was earned.

	Three Months Ended				Nine Months Ended
	August 1, 2021		August 2, 2020		August 1, 2021		August 2, 2020		Three Months Ended
									January 30, 2022		January 31, 2021
Revenue by Timing of Recognition
Over time	$	157,941	$	137,442	$	443,923	$	401,347	$	170,264	$	141,284
At a point in time		12,702		20,453		38,550		59,058		19,563		10,783
	$	170,643	$	157,895	$	482,473	$	460,405	$	189,827	$	152,067

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Contract Costs

We pay commissions to third-party sales agents for certain sales they procure on our behalf. However, the bases of the commissions are the transaction prices of the sales, which are completed in less than one year; thus, no relationship is established with a customer that will result in future business. Therefore, we do not recognize any portion of these sales commissions as costs of obtaining a contract, nor do we currently foresee other circumstances under which we would recognize contract obtainment costs as assets.

Remaining Performance Obligations

As we are typically required to fulfill customer orders within a short period of time, ~~period,~~ our backlog of orders ~~is generally not in excess of~~has historically been two to three weeks for FPD photomasks and one to two weeks ~~weeks~~of backlog for IC photomasks. However, the demand for some IC photomasks ~~and~~ has expanded beyond the industry~~two~~’s capacity to ~~three~~ ~~weeks for FPD photomasks.~~supply them within the traditional time period, thus the backlog in some cases can expand to as long as 2 to 3 months. As allowed under Topic 606, we have elected not to disclose our remaining performance obligations, which represent the costs associated with the completion of the manufacturing process of in-process photomasks related to contracts that have an original duration of one year or less.

Product Warranties

Our photomasks are sold under warranties that generally range from one to twenty-four ~~months.~~months. We warrant that our photomasks conform to customer specifications and will typically repair, replace, or issue a refund for (at our option) any photomasks that fail to do so. The warranties do not represent separate performance obligations in our revenue contracts. Historically, customer claims under warranties have been immaterial.

NOTE 87 - LEASES

Our involvement in lease arrangements has typically been as a lessee. We determine if an agreement is or contains a lease on the earlier of the date of the agreement or the date on which we commit to entering the agreement. Our evaluation considers whether the agreement includes an identified asset and whether it affords us the right to control the asset. Our having the right to control the identified asset is determined by whether we are entitled to substantially all of its economic benefits and can direct its use.

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We recognize leases on our consolidated balance sheet when a lessor makes an asset underlying a lease having a term in excess of twelve months available for our use. As allowed under ASC Topic 842 – “Leases” (“Topic 842”), we have elected not to apply the recognition requirements to leases that, at their commencement dates, have lease terms of twelve months or less and do not include options to purchase their underlying assets that we are reasonably certain to exercise. The present value of lease payments over the term of the lease provides the basis for the initial measurement of ROU assets and their related lease liabilities. We measure finance lease liabilities using the rates implicit in the leases; operating lease liabilities are measured using our incremental borrowing ~~rate,~~rates, for collateralized loans, at the commencement date. Variable lease payments, other than those that are dependent on an index or on a rate, are not included in the measurement of ROU assets and their related lease liabilities. Lease terms include extension periods if the lease agreement includes an option to extend the lease that we are reasonably certain to exercise. As allowed under Topic 842, we have elected, for all classes of assets, the practical expedient to not separate lease components of a contract from nonlease components of a contract.

In February 2021, we entered into a five-year $7.2 million finance lease for a high-end inspection tool. Monthly payments on the lease, which commenced in February 2021, are $0.1 million per month. Upon the payment of the fiftieth monthly payment and prior to payment of the fifty-first monthly payment, we may exercise an early buyout option to purchase the tool ~~at 33.684638% of its original cost.~~for $2.4 million. If we do not exercise the early buyout option, then at the end of the five-year lease term, the lease shall continue to renew on a month-to-month basis at the same ~~rental;~~rental terms; at our option, after the original term or any renewal periods, we may return the tool, elect to extend the lease, or purchase the tool at its fair market value. Since we are reasonably certain that we will exercise the early buyout option, our lease liability reflects such exercise and we have classified the lease as a finance lease. The interest rate implicit in the lease is1.08%.

In December 2020, we entered into a five-year $35.5 million finance lease for a high-end lithography tool. Monthly payments on the lease, which commenced in January 2021, increased from $0.04 million during the first three months to $0.6 million for the following nine months, to be followed by forty-eight monthly payments of $0.5 million. As of the due date of the forty-eighth monthly payment, we may exercise an early buyout option to purchase the tool ~~at 39.84% of the initial lease liability.~~for $14.1 million. If we do not exercise the early buyout option, then at the end of the five-year lease term, at our option, we may return the tool, elect to extend the lease term for a period and a lease payment to be agreed with lessor at the time, or purchase the tool for its then-fair market value as determined by the lessor. Since we are reasonably certain that we will exercise the early buyout option, our lease liability reflects such exercise and we have classified the lease as a finance lease. The interest rate implicit in the lease is 1.58%. The lease agreement incorporates the covenants included in our Corporate Credit Agreement, which are detailed in Note 6,5, and includes a cross-default provision for any agreement or instrument with an outstanding, committed balance greater than $5.0 million in which we are the indebted party.

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The following table provides information on operating and finance leases included in our consolidated balance sheets.

Classification	August 1, 2021		October 31, 2020		January 30, 2022		October 31, 2021

ROU Assets – Operating Leases
Other assets	$	6,238	$	7,706	$	4,977	$	5,581

ROU Assets – Finance Leases
Property, plant and equipment, net	$	41,537	$	0	$	40,116	$	40,827

Lease Liabilities – Operating Leases
Accrued liabilities	$	2,258	$	2,175	$	2,233	$	2,273
Other liabilities		3,786		5,008		2,690		3,246
	$	6,044	$	7,183	$	4,923	$	5,519

Lease Liabilities – Finance Leases
Current portion of long-term debt	$	7,119	$	0	$	6,876	$	7,289
Long-term debt		32,695		0		29,465		31,083
	$	39,814	$	0	$	36,341	$	38,372

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The following table presents future lease payments under noncancelable operating and finance leases as of ~~August 1~~January 30, ~~2021~~2022. Imputed interest represents the difference between undiscounted cash flows and discounted cash flows.

Operating Leases Finance Leases
Remainder of fiscal year 2021 $ 585 $ 2,174
2022 2,338 7,231
2023 1,363 6,938
2024 810 6,938
2025 647 18,013
Thereafter 559 0
Total lease payments 6,302 41,294
Imputed interest 258 1,480
Lease liabilities $ 6,044 $ 39,814

	Operating Leases			Finance Lease
Remainder of fiscal year 2022	$	1,741		$	7,117
2023		1,367			6,938
2024		817			20,592
2025		643			2,924
2026		394			0
Thereafter		154			0
Total lease payments		5,116			37,571
Imputed interest		(193	)		(1,230	)
Lease liabilities	$	4,923		$	36,341

The following table presents lease costs for the three ~~and nine-month~~month periods ended ~~August 1~~January 30, ~~2021~~2022, and ~~August 2~~January 31, ~~2020.~~2021.

	Three Months Ended				Nine Months Ended				Three Months Ended
	August 1, 2021		August 2, 2020		August 1, 2021		August 2, 2020		January 30, 2022		January 31, 2021
Operating lease costs	$	802	$	663	$	2,190	$	2,459	$	589	$	664
Short-term lease costs	$	80	$	43	$	166	$	255	$	120	$	46
Variable lease costs	$	54	$	131	$	355	$	259	$	123	$	144
Interest on lease liabilities	$	160	$	0	$	361	$	0	$	97	$	35
Amortization of ROU assets	$	711	$	0	$	1,156	$	0	$	711	$	0

The following table presents statistical information related to our operating and finance leases. The information presented is as of the balance sheet dates.

	August 1, 2021					October 31, 2020					January 30, 2022					October 31, 2021
Classification	Weighted-average remaining lease term (in years)		Weighted-average discount rate			Weighted-average remaining lease term (in years)		Weighted-average discount rate			Weighted-average remaining lease term (in years)		Weighted-average discount rate			Weighted-average remaining lease term (in years)		Weighted-average discount rate

Operating leases		3.6		2.35	%		4.1		2.37	%		3.4		2.4	%		3.5		2.4	%
Finance leases		3.7		1.50	%		-		0			3.8		1.5	%		3.3		1.5	%

~~Supplemental cash flows information~~

Three Months Ended Nine Months Ended

August 1,
2021

August 2,
2020

August 1,
2021

August 2,
2020

Operating cash flows used for operating leases $ 615 $ 621 $ 1,844 $ 3,008
Operating cash flows used for finance leases $ 168 $ 0 $ 344 $ 0
Financing cash flows used for finance leases $ 2,018 $ 0 $ 2,882 $ 0
ROU assets obtained in exchange for operating lease obligations $ 50 $ 2,098 $ 417 $ 2,438
ROU assets obtained in exchange for finance lease obligations $ 0 $ 0 $ 42,672 $ 0

The following table presents the effects on our condensed consolidated statements of cash flows, and provides leases-related non-cash information for the periods presented.

	Three Months Ended
	January 30, 2022		January 31, 2021
Operating cash flows used for operating leases	$	561	$	603
Operating cash flows used for finance leases	$	143	$	35
Financing cash flows used for finance leases	$	2,031	$	0
ROU assets obtained in exchange for operating lease obligations	$	31	$	267
ROU assets obtained in exchange for finance lease obligations	$	0	$	35,560

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NOTE 98 - SHARE-BASED COMPENSATION

In March 2016, shareholders approved anour current equity incentive compensation plan (the “Plan”), under which incentive stock options, non-qualified stock options, stock grants, stock-based awards, restricted stock, restricted stock units, stock appreciation rights, performance units, performance stock, and other stock or cash awards may be granted. Shares to be issued under the Plan may be authorized and unissued shares, issued shares that have been reacquired by us (in the open market or in private transactions), or a combination thereof. The maximum number of shares of common stock approved that may be issued under the Plan is 4 million shares. Awards may be granted to officers, employees, directors, consultants, advisors, and independent contractors of Photronics or its subsidiaries. In the event of a change in control (as defined in the Plan), the vesting of awards may be accelerated. The Plan, aspects of which are more fully described below, prohibits further awards from being issued under prior plans. ~~Total~~The table below presents information on our share-based compensation ~~costs~~expenses for the ~~three and nine-month~~three-month periods ended ~~August 1, 2021, were $1.3~~ ~~million~~January 30, 2022, and $January 31, 2021.~~4.0~~ ~~million, respectively, and $1.2~~ ~~million and $3.8~~ ~~million for the three and nine-month periods ended August 2, 2020, respectively.~~ ~~NaN~~ ~~share-based compensation cost was capitalized as part of an asset during the periods presented, and related income tax benefits were $0.1~~ ~~million and $0.2~~ ~~million, respectively, in the three and nine-month periods ended August 1, 2021, and immaterial in the prior year periods.~~

	Three Months Ended
	January 30, 2022		January 31, 2021

Expense reported in:
Cost of goods sold	$	143	$	112
Selling, general and administrative		1,180		1,097
Research and development		134		92

Total expense incurred	$	1,457	$	1,301


Expense by award type:
Restricted stock awards	$	1,367	$	1,171
Stock options		38		84
ESPP		52		46

Total expense incurred	$	1,457	$	1,301


Income tax benefits of share-based compensation (in millions)	$	0.1	$	0
Share-based compensation cost capitalized	$	0	$	0

Restricted Stock

We periodically grant restricted stock awards, the restrictions on which typically lapse over a service period of one to four years. The fair value of the awards is determined on the date of grant, based on the closing price of our common stock. ~~There were 556,200~~The table below presents information on our restricted stock awards ~~granted during~~for the ~~nine-month period~~three-months ended ~~August 1, 2021, with a weighted-average grant-date fair value~~January 30, 2022, and January 31, 2021.

	Three Months Ended
	January 30, 2022		January 31, 2021
Number of shares granted in period		535,400		541,200
Weighted-average grant-date fair value of awards (in dollars per share)	$	19.28	$	11.13
Compensation cost not yet recognized	$	15,106	$	10,564
Weighted-average amortization period for cost not yet recognized (in years)		3.0		3.0
Shares outstanding at balance sheet date		1,128,179		1,059,001

Table of $11.17 per share, and there were 0 restricted stock awards granted during the three-month period ended August 1, 2021. There were 527,000 restricted stock awards granted during the nine-month period ended August 2, 2020, with a grant-date fair value of $15.21 per share; 0 restricted stock awards were granted during the three-month period ended August 2, 2020. As of August 1, 2021, the total compensation cost not yet recognized related to unvested restricted stock awards was approximately $8.5 million. That cost is expected to be recognized over a weighted-average amortization period of 2.7 years. As of August 1, 2021, there were 973,309 shares of restricted stock outstanding.Contents

Stock Options

Option awards generally vest in one to four years, and have a ten-year contractual term. All incentive and non-qualified stock option grants must have an exercise price no less than the market value of the underlying common stock on the date of grant. The grant-date fair values of options are based on closing prices of our common stock on the dates of grant and are calculated using the Black-Scholes option pricing model. Expected volatility is based on the historical volatility of our common stock. We use historical option exercise behavior and employee termination data to estimate expected term, which represents the period of time that options are expected to remain outstanding. The risk-free rate of return for the estimated term of an option is based on the U.S. Treasury yield curve in effect at the date of grant.The table below presents information on our stock options for the three-months ended January 30, 2022, and January 31, 2021.

	Three Months Ended
	January 30, 2022		January 31, 2021
Number of options granted in period		0		0
Cash received from option exercised	$	3,714	$	658
Compensation cost not yet recognized	$	71	$	282
Weighted-average amortization period for cost not yet recognized (in years)		1.0		1.6

There were 0 share options granted during the nine-month periods ended August 1, 2021 or August 2, 2020. The Company received cash from option exercises of $1.0 million and $1.9 million for the three and nine-month periods ended August 1, 2021, respectively, and $0.3 million and $3.5 million for the three and nine-month periods ended August 2, 2020, respectively. As of August 1, 2021, the total unrecognized compensation cost related to unvested option awards was approximately $0.2 million. That cost is expected to be recognized over a weighted-average amortization period of 1.2 years.

Information on outstanding and exercisable option awards as of ~~August 1, 2021,~~January 30, 2022, is presented below.

Options Shares
Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Life (in years)

Aggregate
Intrinsic
Value

Outstanding at August 1, 2021
1,345,495 $ 9.42 4.1 $ 5,309
Exercisable at August 1, 2021
1,246,806 $ 9.44 3.9 $ 4,899

Outstanding at January 30, 2022

Exercisable at January 30, 2022

NOTE 109 - INCOME TAXES

We calculate our provision for income taxes at the end of each interim reporting period on the basis of an estimated annual effective tax rate adjusted for tax items that are discrete to each period.

The effective tax rate of ~~24.4%~~26.1% ~~in the three-month period end August 1, 2021,~~ differs from the U.S. statutory rate of 21.0% ~~primarily due~~ ~~to changes in forecasted jurisdictional earnings~~.

~~The effective tax rate of 22.4%~~ in the ~~nine-month~~three-month period ended ~~August 1, 2021, differs from the U.S. statutory rate of 21.0%~~January 30, 2022, primarily due to ~~changes in forecasted jurisdictional earnings, the benefits of investment credits in certain foreign jurisdictions, which were partially offset by~~ the non-recognition of ~~taxes or benefits~~the tax benefit of losses that, in certain jurisdictions, have been offset by valuation ~~allowances.~~allowances, non-U.S. pre-tax income being taxed at higher statutory rates in the non-U.S. jurisdictions, and the establishment of uncertain tax positions in non-U.S. jurisdiction.

The effective tax rate of ~~27.7%~~23.6% in the three-month period ended ~~August 2, 2020, exceeds~~January 31, 2021, differs from the U.S. statutory rate of 21.0% primarily due to the non-recognition of the tax benefit of losses that, in certain jurisdictions, have been offset by valuation allowances ~~which were partially offset by the benefit of tax holidays~~ and ~~investment credits in certain foreign jurisdictions.~~

~~The~~ ~~effective tax rate of~~ ~~35.9%~~non-U.S. pre-tax income being taxed at higher statutory rates in the ~~nine-month period ended August 2, 2020,~~ ~~exceeds the U.S. statutory~~ ~~rate of~~ ~~21.0%~~ ~~primarily due to the non-recognition of the~~ ~~tax benefit of losses~~non-U.S. jurisdictions that ~~in certain jurisdictions, have been offset by valuation allowances, and the establishment of a valuation allowance for a loss carryforward in a non-U.S. jurisdiction, which~~ were partially offset by the benefits of ~~tax holidays and~~ investment credits in ~~certain~~a foreign ~~jurisdictions.~~jurisdiction.

Valuation allowances, in jurisdictions with historic losses, eliminate the current tax benefit of losses in these jurisdictions where, based on the weight of information available to us, we determined that it is not more likely than not that the tax benefits will be realized. In the nine-month period ended August 2, 2020, as a result of the reassessment of the aforementioned available information, we established a valuation allowance of ~~$2.1 million~~ ~~against a non-U.S. based loss-carryforward deferred tax asset that is not more likely than not to be realized.~~

~~Unrecognized tax benefits related to uncertain tax positions were $3.3~~ ~~million at August 1, 2021, of which $2.6~~ ~~million, if recognized, would have a favorable impact on our effective tax rate. Unrecognized tax benefits related to uncertain tax positions were $2.7~~ ~~million at October 31, 2020, of which $2.0~~ ~~million, if recognized, would have a favorable impact on the Company’s effective tax rate. Accrued interest and penalties related to unrecognized tax benefits was $0.2~~ ~~million and $0.1~~ ~~million at August 1, 2021 and October 31, 2020, respectively.~~ Although the timing of the expirations of statutes of limitations may be uncertain, as they can be dependent upon the settlement of tax audits, ~~the Company believes~~we believe that the amount of uncertain tax positions (including interest and penalties, and net of tax benefits) that may be resolved over the next twelve months is immaterial. Resolution of these uncertain tax positions may result from either or both the lapses of statutes of limitations and tax settlements. ~~The Company is~~We are no longer subject to tax authority examinations in the U.S. and major foreign or state jurisdictions for years prior to fiscal year ~~2015~~2016.The table below presents information on our unrecognized tax benefits as of the balance sheet dates.

	January 30, 2022		October 31, 2021

Unrecognized tax benefits related to uncertain tax positions	$	3,854	$	3,758
Unrecognized tax benefits that, if recognized, would impact the effective tax rate	$	3,854	$	3,758
Accrued interest and penalties related to uncertain tax positions	$	271	$	223

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NOTE 1110 - EARNINGS PER SHARE

The calculation of basic and diluted earnings per share is presented below.

	Three Months Ended				Nine Months Ended				Three Months Ended
	August 1, 2021		August 2, 2020		August 1, 2021		August 2, 2020		January 30, 2022		January 31, 2021

Net income attributable to Photronics, Inc. shareholders	$	17,076	$	10,776	$	35,638	$	27,360	$	23,064	$	8,036
Effect of dilutive securities										0		0

Effect of dilutive securities		0		0		0		0
Earnings used for diluted earnings per share	$	17,076	$	10,776	$	35,638	$	27,360	$	23,064	$	8,036

Weighted-average common shares computations:
Weighted-average common shares used for basic earnings per share		60,884		64,780		61,804		65,090		60,158		62,475
Effect of dilutive securities:
Share-based payment awards		631		467		558		614		778		530

Potentially dilutive common shares		631		467		558		614		778		530

Weighted-average common shares used for diluted earnings per share		61,515		65,247		62,362		65,704		60,936		63,005

Basic earnings per share	$	0.28	$	0.17	$	0.58	$	0.42	$	0.38	$	0.13
Diluted earnings per share	$	0.28	$	0.17	$	0.57	$	0.42	$	0.38	$	0.13

The table below illustrates the outstanding weighted-average share-based payment awards that were excluded from the calculation of diluted earnings per share because their exercise ~~prices~~price exceeded the average market value of the common shares for the period or, under application of the treasury stock method, they were otherwise determined to be ~~antidilutive.~~antidilutive.

	Three Months Ended				Nine Months Ended
	August 1, 2021		August 2, 2020		August 1, 2021		August 2, 2020		Three Months Ended
									January 30, 2022		January 31, 2021
Share-based payment awards		206		985		442		723		165		826

Total potentially dilutive shares excluded		206		985		442		723		165		826

~~Subsequent to August 1, 2021, our outstanding common stock was reduced by a net~~ ~~0.6~~ ~~million shares, primarily as a result of share repurchases. Please refer to Note 14 for information on our share repurchase programs.~~

NOTE 11 - COMMITMENTS AND CONTINGENCIES

As of January 30, 2022, the Company had commitments outstanding for capital expenditures of approximately $108.2 million, primarily for purchases of high-end equipment.

We are subject to various other claims that arise in the ordinary course of business. We believe that our potential liability under such claims, individually or in the aggregate, will not have a material effect on our consolidated financial statements.

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NOTE 12 - CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME BY COMPONENT

The following tables set forth the changes in our accumulated other comprehensive income by component (net of tax of $0) for the ~~three and nine-month~~three-month periods ended ~~August 1, 2021~~January 30, 2022 and ~~August 2, 2020.~~January 31, 2021.

Three Months Ended August 1, 2021

Foreign Currency
Translation
Adjustments
Other Total

Balance at May 2, 2021 $ 36,052 $ (860 ) $ 35,192
Other comprehensive income (10,482 ) 37 (10,445 )
Less: other comprehensive income attributable to noncontrolling interests (153 ) 18 (135 )

Balance at August 1, 2021
$ 25,723 $ (841 ) $ 24,882

	Three Months Ended January 30, 2022
	Foreign Currency Translation Adjustments			Other			Total

Balance at October 31, 2021	$	21,476		$	(905	)	$	20,571
Other comprehensive (loss) income, net of tax of $0		(9,831	)		37			(9,794	)
Less: other comprehensive income attributable to noncontrolling interests		194			18			212

Balance at January 30, 2022	$	11,451		$	(886	)	$	10,565

Three Months Ended August 2, 2020

Foreign Currency
Translation
Adjustments
Other Total

Balance at May 3, 2020 $ (14,535 ) $ (665 ) $ (15,200 )
Other comprehensive income 10,659 4 10,663
Less: other comprehensive income attributable to noncontrolling interests 1,889 2 1,891

Balance at August 2, 2020
$ (5,765 ) $ (663 ) $ (6,428 )

	Three Months Ended January 31, 2021
	Foreign Currency Translation Adjustments		Other			Total

Balance at October 31, 2020	$	18,828	$	(870	)	$	17,958
Other comprehensive (loss) income, net of tax of $0		18,289		(1	)		18,288
Less: other comprehensive income attributable to noncontrolling interests		4,217		0			4,217

Balance at January 31, 2021	$	32,900	$	(871	)	$	32,029

Nine Months Ended August 1, 2021

Foreign Currency
Translation
Adjustments
Other Total

Balance at October 31, 2020 $ 18,828 $ (870 ) $ 17,958
Other comprehensive income 11,584 58 11,642
Less: other comprehensive income attributable to noncontrolling interests 4,689 29 4,718

Balance at August 1, 2021
$ 25,723 $ (841 ) $ 24,882

Nine Months Ended August 2, 2020

Foreign Currency
Translation
Adjustments
Other Total

Balance at October 31, 2019 $ (8,331 ) $ (674 ) $ (9,005 )
Other comprehensive income 6,689 23 6,712
Less: other comprehensive income attributable to noncontrolling interests 4,123 12 4,135

Balance at August 2, 2020
$ (5,765 ) $ (663 ) $ (6,428 )

NOTE 13 - FAIR VALUE MEASUREMENTS

The accounting framework for determining fair value includes a hierarchy for ranking the quality and reliability of the information used to measure fair value, which enables the reader of the financial statements to assess the inputs used to develop those measurements. The fair value hierarchy consists of three tiers as follows: Level 1, defined as quoted market prices (unadjusted) in active markets for identical securities; Level 2, defined as inputs other than Level 1 that are observable, either directly or indirectly; and Level 3, defined as unobservable inputs that are not corroborated by market data.

The fair values of our cash and cash equivalents (Level 1 measurements), accounts receivable, accounts payable, and certain other current assets and current liabilities (Level 2 measurements) approximate their carrying values due to their short-term maturities. The fair values of our variable rate debt instruments are a Level 2 measurement and approximate their carrying values due to the variable nature of the underlying interest rates. We did 0t have any assets or liabilities measured at fair value, on a recurring or a nonrecurring basis, at ~~August 1, 2021~~January 30, 2022, or October 31, ~~2020.~~

2021.

NOTE 14 - SHARE REPURCHASE PROGRAMS

In September 2020, the Company’s board of directors authorized the repurchase of up to $100 million of its common stock, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Act. ~~The company~~We commenced repurchasing shares under this authorization on September 16, 2020. All of the shares repurchased under this authorization asprior to January 30, 2022, were retired prior to that date. As of ~~August 1, 2021, have been retired.~~January 30, 2022, $31.7 million was available under this authorization for the purchase of additional shares. The table below presents information on this repurchase program.

	Three Months Ended August 1, 2021		Nine Months Ended August 1, 2021		From Inception Date of September 16, 2020		Three Months Ended January 30, 2022		Three Months Ended January 31, 2021
Number of shares repurchased		964		2,983		4,713

Number of shares repurchased (in thousands)								188		1,222
Cost of shares repurchased	$	12,500	$	35,750	$	53,250	$	2,522	$	13,209

Average price paid per share	$	12.97	$	11.98	$	11.30	$	13.43	$	10.81

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NOTE 15 - RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Updates Adopted

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. The FASB’s amendments primarily impact ASC 740, Income Taxes, and may impact both interim and annual reporting periods. We adopted ASU 2019-12 on November 1, 2021; the effect of the adoption was immaterial.

Accounting Standards Updates to be Adopted

In ~~August 2019,~~November 2021, the ~~Company’s board~~FASB issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance”, to increase the transparency of ~~directors authorized~~government assistance including the ~~repurchase of up to $100 million of its common stock, pursuant to a repurchase plan under Rule 10b5-1~~disclosure of the ~~Securities Act. This repurchase program was terminated in March~~types of ~~2020. All~~assistance an entity receives, an entity’s method of accounting for government assistance, and the effect of the ~~shares repurchased under~~assistance on an entity’s financial statements. The guidance in this ~~authorization~~Update will be effective for Photronics in its fiscal year 2023 Form 10-K, with early application of the amendments allowed. The amendments are to be applied prospectively to all transactions within the scope of the amendments that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application or, retrospectively to those transactions. We are currently evaluating the effect the adoption of this ASU may have ~~been retired. The table below presents information~~ on ~~this repurchase program.~~

Nine Months Ended
August 2, 2020

From Inception Date of
September 25, 2019

Number of shares repurchased 1,464 2,460

Cost of shares repurchased $ 16,894 $ 27,894

Average price paid per share $ 11.54 $ 11.34
our disclosures.

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~~NOTE 15 - COMMITMENTS AND CONTINGENCIES~~

~~As of August 1, 2021,~~In March 2020, the ~~Company had commitments outstanding for capital expenditures of approximately $56.9 million, primarily for purchases of high-end equipment.~~ ~~See Note 8 for our outstanding lease commitments~~.

The Company’s wholly owned subsidiary in South Korea has been involved in litigation regarding a 2016 informational tax filing for its wholly owned subsidiary’s non-South Korean bank accounts that was not timely made under a then recentlyFASB issued presidential decree. A fine (based solely on the amount in such accounts) in the amount of $2.2 million was assessed against our subsidiary. Our subsidiary appealed the fine on the grounds that it was not required to make the tax filing, and such appeal was pursued up to the Supreme Court in South Korea. Under South Korean law, the tax authorities were entitled to pursue the matter in both civil and criminal courts simultaneously, with the proviso that any criminal fine imposed would act to dismiss any civil fine. The prosecutor recommended a fine of $0.03 million, and the civil matter was dismissed. Photronics was notified on March 12, 2020, that the Supreme Court rendered a decision against our subsidiary on the issue of whether our subsidiary was required to make the tax filing and remanded the case to the appellate court for determinationASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the ~~fine. On August 26, 2021,~~Effects of Reference Rate Reform on Financial Reporting”, which provides optional expedients and exceptions to applying the ~~appellate court rendered~~guidance on contract modifications, hedge accounting, and other transactions, to simplify the ~~decision not~~accounting for transitioning from LIBOR, and other interbank offered rates expected to ~~impose the $0.03 million fine.~~

be discontinued, to alternative reference rates. The guidance in this Update was effective upon its issuance; if elected, it is to be applied prospectively through December 31, 2022. We are ~~subject to various claims that arise in~~currently evaluating the ~~ordinary course~~effect the potential adoption of ~~business. We believe that our potential liability under such claims, individually and in the aggregate, will not~~this ASU may have ~~a material effect~~ on our consolidated financial statements.

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Item 2.

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

~~NOTE 16 - RECENT ACCOUNTING PRONOUNCEMENTS~~

Overview

Management’s discussion and analysis (“MD&A”) of the Company’s financial condition and results of operations should be read in conjunction with its condensed consolidated financial statements and related notes. Various segments of this MD&A contain forward-looking statements, all of which are presented based on current expectations, which may be adversely affected by uncertainties and risk factors (presented throughout this filing and in the Company’s Form 10-K for fiscal 2021), that may cause actual results to materially differ from these expectations.

We sell substantially all of our photomasks to semiconductor designers and manufacturers, and manufacturers of FPDs. Photomask technology is also being applied to the fabrication of other higher-performance electronic products such as photonics, microelectronic mechanical systems and certain nanotechnology applications. Our selling cycle is tightly interwoven with the development and release of new semiconductor and display designs and applications, particularly as they relate to the semiconductor industry’s migration to more advanced product innovation, design methodologies, and fabrication processes. The demand for photomasks primarily depends on design activity rather than sales volumes from products manufactured using photomask technologies. Consequently, an increase in semiconductor or display sales does not necessarily result in a corresponding increase in photomask sales. However, the reduced use of customized ICs, reductions in design complexity, other changes in the technology or methods of manufacturing or designing semiconductors, or a slowdown in the introduction of new semiconductor or display designs could reduce demand for photomasks ‒ even if the demand for semiconductors and displays increases. Advances in semiconductor, display, and photomask design and production methods that shift the burden of achieving device performance away from lithography could also reduce the demand for photomasks. Historically, the microelectronics industry has been volatile, experiencing periodic downturns and slowdowns in design activity. These negative trends have been characterized by, among other things, diminished product demand, excess production capacity, and accelerated erosion of selling prices, with a concomitant effect on revenue and profitability.

We are typically required to fulfill customer orders within a short period of time. This results in a minimal level of backlog, typically two to three weeks of backlog for FPD photomasks and one to two weeks of backlog for IC photomasks. However, the demand for some IC photomasks has expanded beyond the industry’s capacity to supply them within the traditional time period, thus the backlog in some cases can expand to as long as 2-3 months.

The global semiconductor and FPD industries are driven by end markets which have been closely tied to consumer-driven applications of high-performance devices, including, but not limited to, mobile display devices, mobile communications, and computing solutions. While we cannot predict the timing of the industry’s transition to volume production of next-generation technology nodes, or the timing of up and down-cycles with precise accuracy, we believe that such transitions and cycles will continue into the future, beneficially and adversely affecting our business, financial condition, and operating results as they occur. We believe our ability to remain successful in these environments is dependent upon the achievement of our goals of being a service and technology leader and efficient solutions supplier, which we believe should enable us to continually reinvest in our global infrastructure.

Impact of the COVID-19 Pandemic

All of our facilities have continued to operate throughout the COVID-19 pandemic. The pandemic, particularly at its height, impacted our business in a number of ways including customer shut downs, which led to delays in new photomask design releases, and travel restrictions, which delayed tool installations and servicing. To date we have not experienced significant raw material shortages, however, supply chain disruptions could potentially delay or prevent us from fulfilling customer orders. While our business has continued to grow over the course of the pandemic, we cannot predict its future impact on our business with a high level of certainty.

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Results of Operations

Three-Months ended January 30, 2022

The following table presents selected operating information expressed as a percentage of revenue. The columns may not foot due to rounding.

	Three Months Ended
	January 30, 2022			October 31, 2021			January 31, 2021

Revenue		100.0	%		100.0	%		100.0	%
Cost of goods sold		68.5			71.3			79.9

Gross margin		31.5			28.7			20.1
Selling, general and administrative expenses		8.3			7.9			9.2
Research and development expenses		3.1			2.3			3.1

Operating income		20.1			18.5			7.7
Other income, net		2.5			2.1			0.4

Income before income tax provision		22.6			20.6			8.2
Income tax provision		5.9			4.8			1.9

Net income		16.7			15.8			6.3
Net income attributable to noncontrolling interests		4.6			4.9			1.0

Net income attributable to Photronics, Inc. shareholders		12.2	%		10.9	%		5.3	%

Note:All the following tabular comparisons, unless otherwise indicated, are for the three-months ended January 30, 2022 (Q1 FY22), October 31, 2021 (Q4 FY21), and January 31, 2021 (Q1 FY21). The columns may not foot due to rounding.

Revenue

Our quarterly revenues can be affected by the seasonal purchasing practices of our customers. As a result, demand for our products is typically reduced during the first quarter of our fiscal year by the North American, European, and Asian holiday periods, as some of our customers reduce their development and, consequently, their buying activities during those periods.

The following tables present changes in disaggregated revenue in Q1 FY22 from revenue in prior reporting periods.

Quarterly Changes in Revenue by Product Type

	Q1 FY22 from Q4 FY21								Q1 FY22 from Q1 FY21
	Revenue in Q1 FY22		Increase (Decrease)			Percent Change			Increase (Decrease)		Percent Change

IC
High-end *	$	46.5	$	4.0			9.3	%	$	9.8		26.5	%
Mainstream		83.2		0.4			0.4	%		15.1		22.1	%

Total IC	$	129.8	$	4.3			3.4	%	$	24.8		23.6	%

FPD
High-end *	$	46.3	$	5.3			12.9	%	$	11.6		33.6	%
Mainstream		13.8		(1.1	)		(7.2	)%		1.3		10.6	%

Total FPD	$	60.1	$	4.2			7.6	%	$	13.0		27.5	%

Total Revenue	$	189.8	$	8.5			4.7	%	$	37.8		24.8	%

* High-end photomasks typically have higher average selling prices (ASPs) than mainstream products.

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Quarterly Changes in Revenue by Geographic Origin**

	Q1 FY22 from Q4 FY21								Q1 FY22 from Q1 FY21
	Revenue in Q1 FY22		Increase (Decrease)			Percent Change			Increase (Decrease)			Percent Change
Taiwan	$	67.8	$	(1.3	)		(1.9	)%	$	11.3			19.9	%
China		46.0		7.6			19.9	%		25.0			118.9	%
Korea		39.5		1.7			4.6	%		0.7			1.9	%
United States		27.2		0.6			2.3	%		0.6			2.1	%
Europe		8.9		(0.1	)		(0.7	)%		0.3			3.9	%
Other		0.4		0.0			(4.5	)%		(0.1	)		(17.4	)%

	$	189.8	$	8.5			4.7	%	$	37.8			24.8	%

** This table disaggregates revenue by the location in which it was earned.

Revenue in Q1 FY22 of $189.8 million increased 4.7% compared with Q4 FY21 and 24.8% from Q1 FY21.

IC revenue increased 3.4% and 23.6%, compared with Q4 FY21 and Q1 FY21, respectively. These increases were driven by strong demand for high-end logic photomasks in Asia and improved demand for mainstream photomasks used for computer chips needed for the production of internet-of-things products, 5G wireless technology applications, cryptocurrency mining, and consumer products. The strengthened demand for mainstream photomasks also allowed for better pricing.

FPD revenue increased 7.6% in Q1 FY22, compared with Q4 FY21, and 27.5% compared with Q1 FY21. Improved demand for photomasks used in high-end mobile AMOLED and G10.5+ applications gave rise to these increases. Revenues from mainstream FPD products were up 10.6% from the prior year quarter but declined 7.2% consecutively due to capacity being dedicated to high-end production.

Gross Margin

	Three Months Ended
	Q1 FY22			Q4 FY21			Percent Change			Q1 FY21			Percent Change

Gross profit	$	59.9		$	51.9			15.3	%	$	30.5			96.1	%
Gross margin		31.5	%		28.7	%					20.1	%

Gross margin increased by 2.8 percentage points in Q1 FY22, from Q4 FY21, primarily as a result of the increase in revenue from the prior quarter. Material costs increased 2.4% from the prior quarter, but decreased, as a percentage of revenue, by 60 basis points. Labor costs increased 6.8% (20 basis points, as a percentage of revenue), primarily driven by higher labor costs in Asia. Equipment and other overhead costs decreased 3.3%, or 250 basis points as a percentage of revenue, primarily driven by increased tool utilization for customer qualifications, which also drove the increase in our research and development costs in the current quarter.

Gross margin increased by 11.4 percentage points in Q1 FY22, from Q1 FY21, primarily as a result of the increase in revenue from the prior year quarter. Material costs increased 10.4% from the prior year quarter, but decreased 360 basis points, as a percentage of revenue. Labor costs increased 9.3% from the prior year quarter, but fell 160 basis points as a percent of revenue; the increase was primarily the result of increased labor costs in Asia. Equipment and other overhead costs rose 3.1%, but fell 630 basis points, as a percentage of revenue. Increased outsourced manufacturing costs, which were partially offset by decreased depreciation expense, were the most significant contributors to the net increase in equipment and other overhead costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $15.7 million in Q1 FY22, compared with $14.3 million in Q4 FY21, and $14.1 million in Q1 FY21. The increase from Q4 FY21 was primarily the result of increased professional fees of $0.7 million and compensation and related expenses of $0.4 million, and the increase from the prior-year quarter was primarily the result of increased compensation and related expenses of $1.5 million.

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Research and Development Expenses

Research and development expenses, which primarily consist of development and qualification efforts related to high-end process technologies for high-end IC and FPD applications, were $5.9 million in Q1 FY22, compared with $4.1 million in Q4 FY21; the increase was primarily caused by increased development activities in the U.S. Research and development expenses increased by $1.2 million in Q1 FY22, compared with $4.7 million in Q1 FY21, with increased development activities in the U.S. exceeding a decrease of activities at our Asia-based facilities.

Other Income (Expense)

	Three Months Ended
	Q1 FY22			Q4 FY21			Q1 FY21

Foreign currency transactions impact, net	$	5.3		$	4.3		$	1.4
Interest expense		(0.9	)		(1.0	)		(0.8	)
Interest income and other income, net		0.3			0.5			0.1

Other income (expense)	$	4.7		$	3.8		$	0.7

Other income (expense) increased $0.9 million in Q1 QY22, compared with Q4 FY21, primarily due to favorable movements of the South Korean won against the U.S. dollar offsetting unfavorable movements of the RMB against the U.S. dollar. Other income (expense) increased $4.0 million in Q1 FY22, compared with Q1 FY21, primarily due to favorable movements of the South Korean won and the New Taiwan dollar against the U.S. dollar, which were partially offset by unfavorable movements of the RMB against the U.S. dollar.

Income Tax Provision

	Three Months Ended
	Q1 FY22			Q4 FY21			Q1 FY21

Income tax provision	$	11.2		$	8.7		$	2.9
Effective income tax rate		26.1	%		23.3	%		23.6	%

The effective income tax rate is sensitive to the jurisdictional mix of earnings, due, in part, to the non-recognition of tax benefits on losses in jurisdictions with valuation allowances where the tax benefit of the losses is not available.

The effective income tax rate increase in Q1 FY22, compared with Q4 FY21, is primarily due to a decrease in credits in a non-US jurisdiction and an increase of uncertain tax positions in non-U.S. jurisdictions in Q1 FY22.

The effective income tax rate increase in Q1 FY22, compared with Q1 FY21, is primarily due to a decrease in credits in a non-US jurisdiction and an increase of uncertain tax positions in non-U.S. jurisdictions in Q1 FY22.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests was $8.7 million in Q1 FY22, compared with $8.8 million in Q4 FY21, and $1.5 million in Q1 FY21. The decrease from the prior quarter was due to lower net income at our China-based IC facility, which was partially offset by increased net income at our Taiwan-based IC facility. The increase from the prior-year quarter resulted from increased net income at both of these majority-owned facilities in the current-year quarter.

Liquidity and Capital Resources

Cash and cash equivalents totaled $314.2 million and $276.7 million as of January 30, 2022, and October 31, 2021, respectively. As of the most recent balance sheet date, total cash and cash equivalents included $255.1 million held by foreign subsidiaries. Net Cash, a non-GAAP financial measure as defined and discussed in the “Non-GAAP financial measures” section below, was $217.3 million and $165.0 million as of January 30, 2022 and October 31, 2021. Our primary sources of liquidity are our cash on hand, cash we generate from operations, and borrowing capacity we have available from financial institutions. Our corporate credit agreement has a $50 million borrowing limit, with an expansion capacity to $100 million. Although we have not accessed funds under our corporate credit facilities since 2011, it continues to afford us financial flexibility. In addition, in China, we currently have approximately $30.6 million of borrowing capacity to support local operations. See Note 5 to the condensed consolidated financial statements for additional information.

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We continually evaluate alternatives for efficiently funding our capital expenditures and ongoing operations. These reviews may result in our engagement in a variety of financing transactions, in the transfer of cash among subsidiaries, and/or the repatriation of cash to the U.S. The transfer of funds among subsidiaries could be subject to foreign withholding taxes; in certain jurisdictions, repatriation of these funds to the U.S. may subject them to U.S. state income taxes and/or local country withholding taxes. We believe that our liquidity, including available financing, is sufficient to meet our requirements through the next twelve months and thereafter for the foreseeable future. Through the utilization of our existing liquidity, cash we generate from operations, and (potentially) our borrowing capacity under our financing arrangements, we plan to continue to invest in our business, with our investments targeted to align with our customers’ technology road maps. In addition, we stand ready to invest in mergers, acquisitions, or strategic partnerships, should the right opportunity be available.

We estimate capital expenditures for the remainder of FY22 will be approximately $81 million; these investments will be targeted towards high-end and mainstream point tools that will increase our operating capacity and efficiency, and enable us to support our customers’ near-term demands. As of January 30, 2022, we had outstanding capital commitments of approximately $108 million and recognized liabilities related to capital equipment purchases of approximately $10 million. Although payment timing could vary, primarily as a result of the timing of tool installation and testing, we currently estimate that we will fund $100 million of our total $118 million committed and recognized obligations for capital expenditures over the next twelve months. Please refer to Notes 5 and 7, respectively, to the condensed consolidated financial statements for information on our outstanding debt and lease commitments.

In September 2020, the Company’s board of directors authorized the repurchase of up to $100 million of its common stock, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Act. This authorization does not obligate the Company to repurchase any dollar amount or number of shares of common stock. As of January 30, 2022, our current share repurchase program had approximately $31.7 million remaining under its authorization. Depending on market conditions, we may utilize some or the entire remaining approved amount to reacquire additional shares.

As discussed in Note 4 to the condensed consolidated financial statements, DNP, the noncontrolling interest in our China-based joint venture has, under certain circumstances, the right to put its interest in the joint venture to Photronics, or to purchase our interest in the joint venture. Under all such circumstances, the sale of DNP’s interest would be at its ownership percentage of the joint venture’s net book value, with closing to take place within three business days of obtaining required approvals and clearance. As of the date of issuance of this report, DNP had not indicated its intention to exercise this right. As of January 30, 2022, Photronics and DNP each had net investments in this joint venture of approximately $81.3 million.

Cash Flows

	Three Months Ended
	January 30, 2022			January 31, 2021

Net cash provided by operating activities	$	59.1		$	26.3
Net cash used in investing activities	$	(19.2	)	$	(17.2	)
Net cash used in financing activities	$	(0.3	)	$	(14.4	)

Operating Activities: Net cash provided by operating activities reflects net income adjusted for certain non-cash items, including depreciation and amortization, share-based compensation, and the effects of changes in operating assets and liabilities. Net cash provided by operating activities increased by $32.8 million in Q1 FY22, compared with Q1 FY21, due to increased net income and net changes in working capital, predominantly in Asia.

Free Cash Flow and LTM Free Cash Flow both of which are non-GAAP financial measures as discussed in the “Non-GAAP financial measures” section below, increased by $30.8 and $11.1 million, respectively, compared with Q1 FY21, primarily due to the increase in Net cash provided by operating activities discussed above.

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Investing Activities: Net cash flows used in investing activities primarily consisted of purchases of property, plant and equipment, which increased $1.6 million in Q1 FY22, as compared with Q1 FY21. The remainder of the $2.0 million increase was primarily due to our receiving $0.4 million of investment related government incentives in China in Q1 FY21; we did not receive any investment related government incentives in Q1 FY22.

Financing Activities: Net cash flows used in financing activities primarily consist of share repurchases, proceeds from and repayments of debt, and contributions from and distributions to noncontrolling interests. Net cash used in financing activities decreased by $14.0 million in Q1 FY22, compared with Q1 FY21, primarily due to a contribution from noncontrolling interests in our majority owned subsidiaries in Taiwan and China of $15.0 million, decreased share repurchases of $10.7 million, and increased debt repayments of $7.4 million. In addition, we received debt proceeds of $6.2 million in Q1 FY21, and did not incur debt in Q1 FY22.

Non-GAAP Financial Measures

~~Accounting Standards Updates Adopted~~

~~In June 2016,~~We consider Free Cash Flow, LTM Free Cash Flow, and Net Cash, which are “non-GAAP financial measures” (as such term is defined by the ~~FASB issued ASU 2016-13, “Measurement of Credit Losses”~~SEC), the main objective of which is to provide more useful information about expected credit losses on financial instruments and other commitments of an entity to extend credit. In support of this objective, the ASU replaced the incurred loss impairment methodology, found in previous guidance, with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU requires a cumulative-effect adjustment as of the beginning of the first reporting period in which the guidance is adopted. ASU 2016-13 was effective for Photronics in its first quarter of fiscal year 2021. We adopted ASU 2016-13 on November 1, 2020; the effect of the adoption was immaterial.

~~Accounting Standards Updates to Be Adopted~~

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides optional expedients and exceptions to applying the guidance on contract modifications, hedge accounting, and other transactions, to simplify the accounting for transitioning from LIBOR, and other interbank offered rates expected to be ~~discontinued,~~useful metrics in measuring our cash-generating performance. (Note that we may define these terms differently than other companies that use similarly named non-GAAP financial measures.) These non-GAAP metrics are not intended to ~~alternative reference rates. The guidance in this Update was effective upon its issuance; if elected, it is~~represent funds available for our discretionary use or to be ~~applied prospectively through December 31, 2022. We are currently evaluating~~used as a substitute for Cash and cash equivalents or Net cash provided by operating activities, as measured under GAAP. The following tables reconcile Free Cash Flow to Net cash provided by operating activities and present the ~~effect the potential adoption~~calculations of ~~this ASU~~LTM Free Cash Flow for Q1 FY22 and Q1 FY21. The columns may ~~have on our consolidated financial statements.~~not foot due to rounding.

	Three Months Ended
	January 30, 2022			January 31, 2021
Free Cash Flow
Net cash provided by operating activities	$	59.1		$	26.3
Purchases of property, plant and equipment		(19.2	)		(17.5	)
Government incentives		-			0.4
Free Cash Flow	$	40.0		$	9.2

	Q1 FY22			Q1 FY21
LTM Free Cash Flow
First three months of the respective fiscal year	$	40.0		$	9.2
October fiscal year end		47.4			77.4
First three months of the prior year		(9.2	)		(19.4	)
LTM	$	78.3		$	67.2

The following table reconciles Cash and cash equivalents to Net Cash at the balance sheet dates. The increase in Net Cash was primarily driven by an increase in Net cash provided by operating activities, as discussed above. The columns may not foot due to rounding.

	As of
	January 30, 2022			October 31, 2021
Net Cash
Cash and cash equivalents	$	314.2		$	276.7
Current portion of Long-term debt		(18.3	)		(22.2	)
Long-term debt		(78.5	)		(89.4	)
Net Cash	$	217.3		$	165.0

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Business Outlook

Our current business outlook and guidance was provided in the Photronics Q1-FY22 Earnings Release, Earnings Presentation, and Investor conference call, but is not incorporated herein. These can be accessed in the investor section of our website - www.photronics.com.

Our future results of operations and the other forward-looking statements contained in this filing and in the Photronics Q1-FY22 Earnings Presentation and the related earnings call and slide deck involve a number of risks and uncertainties, some of which are discussed in Part I, Item 1A of our 2021 Form 10-K. A number of other unforeseeable factors could cause actual results to differ materially from our expectations.

Critical Accounting Estimates

Please refer to Part II, Item 7 of our 2021 Form 10-K for discussion of our critical accounting estimates. There have been no changes to our critical accounting estimates since the filing of our Annual Report on Form 10-K for the year ended October 31, 2021.

~~Item 2.~~

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

~~Overview~~

Management's discussion and analysis (“MD&A”) of the Company's financial condition, results of operations and outlook should be read in conjunction with its condensed consolidated financial statements and related notes. Various segments of this MD&A contain forward-looking statements, all of which are presented based on current expectations, which may be adversely affected by uncertainties and risk factors (presented throughout this filing and in the Company's Form 10-K for fiscal 2020), that may cause actual results to materially differ from these expectations.

We sell substantially all of our photomasks to semiconductor designers and manufacturers, and manufacturers of FPDs. Photomask technology is also being applied to the fabrication of other higher-performance electronic products such as photonics, microelectronic mechanical systems and certain nanotechnology applications. Our selling cycle is tightly interwoven with the development and release of new semiconductor and display designs and applications, particularly as they relate to the semiconductor industry's migration to more advanced product innovation, design methodologies, and fabrication processes. The demand for photomasks primarily depends on design activity rather than sales volumes from products manufactured using photomask technologies. Consequently, an increase in semiconductor or display sales does not necessarily result in a corresponding increase in photomask sales. However, the reduced use of customized ICs, reductions in design complexity, other changes in the technology or methods of manufacturing or designing semiconductors, or a slowdown in the introduction of new semiconductor or display designs could reduce demand for photomasks ‒ even if the demand for semiconductors and displays increases. Advances in semiconductor, display, and photomask design and production methods that shift the burden of achieving device performance away from lithography could also reduce the demand for photomasks. Historically, the microelectronic industry has been volatile, experiencing periodic downturns and slowdowns in design activity. These negative trends have been characterized by, among other things, diminished product demand, excess production capacity, and accelerated erosion of selling prices, with a concomitant effect on revenue and profitability.

We are typically required to fulfill customer orders within a short period of time after receipt of an order, sometimes within twenty-four hours. This results in a minimal level of backlog orders, typically one to two weeks of backlog for IC photomasks and two to three weeks of backlog for FPD photomasks.

The global semiconductor and FPD industries are driven by end markets which have been closely tied to consumer-driven applications of high-performance devices, including, but not limited to, mobile display devices, mobile communications, and computing solutions. While we cannot predict the timing of the industry's transition to volume production of next-generation technology nodes, or the timing of up and down-cycles with precise accuracy, we believe that such transitions and cycles will continue into the future, beneficially and adversely affecting our business, financial condition, and operating results as they occur. We believe our ability to remain successful in these environments is dependent upon the achievement of our goals of being a service and technology leader and efficient solutions supplier, which we believe should enable us to continually reinvest in our global infrastructure.

~~Recent Developments~~

In the second quarter of fiscal 2021, we entered into a five-year $7.2 million finance lease for a high-end inspection tool. Monthly payments on the lease, which commenced in February 2021, are $0.1 million per month. Upon the payment of the fiftieth monthly payment and prior to payment of the fifty-first monthly payment, we may exercise an early buyout option to purchase the tool at 33.684638% of its original cost. If we do not exercise the early buyout option, then at the end of the five-year lease term, the lease shall continue to renew on a month-to-month basis at the same rental terms; at our option, after the original term or any renewal periods, we may return the tool, elect to extend the lease, or purchase the tool at its fair market value. Since we are reasonably certain that we will exercise the early buyout option, our lease liability reflects such exercise and we have classified the lease as a finance lease. The interest rate implicit in the lease is 1.08%.

~~Table of Contents~~

In the first quarter of fiscal 2021, we entered into a five-year $35.5 million finance lease for a high-end lithography tool. Monthly payments on the lease, which commenced in January 2021, increased from $0.04 million after the first three months to $0.6 million for the following nine months, followed by forty-eight monthly payments of $0.5 million. As of the due date of the forty-eighth monthly payment, we may exercise an early buyout option to purchase the tool at 39.84% of the initial lease liability. If we do not exercise the early buyout option, then at the end of the five-year lease term, at our option, we may return the tool, elect to extend the lease term for a period and a lease payment to be agreed with lessor at the time, or purchase the tool for its then-fair market value as determined by the lessor. Since we are reasonably certain that we will exercise the early buyout option, our lease liability reflects such exercise and we have classified the lease as a finance lease. The interest rate implicit in the lease is 1.58%. The lease agreement incorporates the covenants included in our Corporate Credit Agreement, which are detailed in Note 6, and includes a cross-default provision for any agreement or instrument with an outstanding, committed balance greater than $5.0 million in which we are the indebted party.

~~For further information, refer to Item 7 in our Form 10-K for the year ended October 31, 2020.~~

~~Results of Operations~~

~~Three and Nine Months Ended August 1, 2021~~

~~The following table presents selected operating information expressed as a percentage of revenue. The columns may not foot due to rounding.~~

Three Months Ended Nine Months Ended

August 1,
2021

May 2,
2021

August 2,
2020

August 1,
2021

August 2,
2020

Revenue 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 73.4 75.4 76.1 76.1 77.7

Gross profit 26.6 24.6 23.9 23.9 22.3
Selling, general and administrative expenses 8.8 8.8 8.4 9.0 8.9
Research and development expenses 3.1 2.7 2.9 3.0 2.8
Other operating income, net 2.1 - - 0.7 -

Operating income 16.7 13.0 12.6 12.7 10.6
Other non-operating income (expense), net 2.2 (0.5 ) (1.3 ) 0.8 0.2

Income before income tax provision 18.9 12.5 11.3 13.4 10.8
Income tax provision 4.6 2.3 3.2 3.0 3.9

Net income 14.3 10.2 8.1 10.4 6.9
Net income attributable to noncontrolling interests 4.3 3.6 1.3 1.1 3.0 1.0

Net income attributable to Photronics, Inc. shareholders 10.0 % 6.6 % 6.8 % 7.4 % 5.9 %

~~Note:~~All tabular comparisons included in the following discussions, unless otherwise indicated, are for the three months ended August 1, 2021 (Q3 FY21), May 2, 2021 (Q2 FY21) and August 2, 2020 (Q3 FY20), and for the nine months ended August 1, 2021 (YTD FY21) and August 2, 2020 (YTD FY20), in millions of dollars. The columns may not foot due to rounding.

~~Revenue~~

Our quarterly revenues can be affected by the seasonal purchasing practices of our customers. As a result, demand for our products is typically reduced during the first quarter of our fiscal year, by the North American, European, and Asian holiday periods, as some of our customers reduce their development and, consequently, their buying activities during those periods.

~~Table of Contents~~

~~The following tables present changes in disaggregated revenue in Q3 FY21 and YTD FY21 from revenue in prior reporting periods.~~

~~Changes in Revenue by Product Type~~

Q3 FY21 from Q2 FY21 Q3 FY21 from Q3 FY20 YTD FY21 from YTD FY20

Revenue in
Q3 FY21

Increase
(Decrease)

Percent
Change

Increase
(Decrease)

Percent
Change

Revenue in
YTD FY21

Increase
(Decrease)

Percent
Change

IC
High-end * $ 42.4 $ 1.1 2.6 % $ 3.7 9.5 % $ 120.4 $ 2.4 2.0 %
Mainstream 75.4 4.7 6.6 % 5.4 7.7 % 214.3 19.8 10.2 %

Total IC $ 117.8 $ 5.8 5.2 % $ 9.1 8.4 % $ 334.7 $ 22.2 7.1 %

FPD
High-end * $ 40.6 $ 1.2 3.1 % $ 4.0 10.8 % $ 114.7 $ 6.4 5.9 %
Mainstream 12.2 3.9 46.1 % (0.3 ) (2.6 )% 33.1 (6.6 ) (16.6 )%

Total FPD $ 52.9 $ 5.1 10.7 % $ 3.6 7.4 % $ 147.8 $ (0.2 ) (0.1 )%

Total Revenue $ 170.6 $ 10.9 6.8 % $ 12.7 8.1 % $ 482.5 $ 22.1 4.8 %

* High-end photomasks typically have higher average selling prices (ASPs) than mainstream products.

Changes in Revenue by Geography **

Q3 FY21 from Q2 FY21 Q3 FY21 from Q3 FY20 YTD FY21 from YTD FY20

Revenue in
Q3 FY21

Increase
(Decrease)

Percent
Change

Increase
(Decrease)

Percent
Change

Revenue in
YTD FY21

Increase
(Decrease)

Percent
Change

Taiwan $ 63.8 $ 4.8 8.2 % $ 3.0 5.0 % $ 179.4 $ (3.0 ) (1.7 )%
Korea 39.6 (0.7 ) (1.7 )% 0.1 0.2 % 118.6 2.1 1.8 %
United States 24.7 (2.5 ) (9.0 )% (3.7 ) (12.9 )% 78.4 0.2 0.2 %
China 32.7 8.9 37.6 % 11.7 55.6 % 77.4 19.0 32.6 %
Europe 9.4 0.2 2.0 % 1.7 22.8 % 27.3 3.7 15.7 %
Other 0.4 0.0 10.1 % (0.1 ) (21.9 )% 1.3 0.1 6.7 %

Total Revenue $ 170.6 $ 10.9 6.8 % $ 12.7 8.1 % $ 482.5 $ 22.1 4.8 %

** This table disaggregates revenue by the location in which it was earned.

~~Changes in Revenue for Products Shipped to Customers in China~~

Q3 FY21 from Q2 FY21 Q3 FY21 from Q3 FY20 YTD FY21 from YTD FY20

Revenue in
Q3 FY21

Increase
(Decrease)

Percent
Change

Increase
(Decrease)

Percent
Change

Revenue in
YTD FY21

Increase
(Decrease)

Percent
Change

IC $ 34.5 $ 3.0 9.5 % $ 10.9 46.3 % $ 91.6 $ 21.4 30.5 %
FPD 28.1 2.3 8.8 % 0.6 2.0 % 77.9 (8.4 ) (9.8 )%

Total $ 62.6 $ 5.3 9.2 % $ 11.5 22.5 % $ 169.4 $ 13.0 8.3 %

~~Table of Contents~~

Revenue in Q3 FY21 of $170.6 million represents an increase of 6.8% compared to Q2 FY21 and 8.1% from Q3 FY20; on a year-to-date basis, revenue increased 4.8% to $482.5 million, due to increased demand in both IC and FPD, as a robust design environment led to growing photomask demand across our markets.

IC revenue increased 5.2% in Q3 FY21, compared with Q2 FY21, 8.4% compared with Q3 FY20, and 7.1% on a year-to-date basis, mainly attributable to continued growth in mainstream on strong demand driven by node migrations, as our customers have looked to take advantage of lower device-lifetime cost and better performance. This positive demand factor has enabled us to realize pricing benefits in Asia on some nodes. High-end revenue growth was driven by strong logic demand, especially in Taiwan and China. In addition, captive photomask operations continue to dedicate more of their capacity to EUV production, resulting in the increased outsourcing of their non-EUV production to merchant photomask suppliers.

FPD revenue increased 10.7% in Q3 FY21, compared with Q2 FY21, driven by increased demand for high-end AMOLED displays used in mobile applications, new designs for G10.5+ panel manufacturing, and mainstream growth as a result of recent capacity expansions. FPD revenue increased 7.4% in Q3 FY21, compared with Q3 FY20, due to increased high-end, driven by growth in AMOLED displays for mobile applications. On a year-to-date basis, FPD revenues were essentially flat when compared to the same period last year, as increased high-end was offset by a decline in mainstream, driven by an increase in AMOLED demand for mobile displays being offset by a weak LCD market.

~~Gross Margin~~

Q3 FY21 Q2 FY21
Percent
Change
Q3 FY20
Percent
Change
YTD FY21 YTD FY20
Percent
Change

Gross profit $ 45.3 $ 39.2 15.5 % $ 37.7 20.1 % $ 115.1 $ 102.8 12.0 %
Gross margin 26.6 % 24.6 % 23.9 % 23.9 % 22.3 %

Gross margin increased by 2.0 percentage points in Q3 FY21, from Q2 FY21, as a result of the increase in revenue from the prior quarter and higher pricing for certain mainstream IC nodes. Material costs increased 4.3% from the prior quarter, but decreased as a percentage of revenue by 70 basis points. Labor costs increased 3.2% but, as a percentage of revenue, fell 40 basis points. Equipment and other overhead costs increased 4.0%, but decreased 90 basis points as a percentage of revenue, with higher outsourced manufacturing costs most significantly contributing to the cost increase.

Gross margin increased by 2.7 percentage points in Q3 FY21, from Q3 FY20, as a result of the increase in revenue from the prior year quarter and higher pricing for certain mainstream IC nodes. Material costs increased 4.2% from the prior year quarter, with the largest increase occurring at our China-based FPD facility, where the increase was in line with that facility’s increased revenue. Globally, material costs, as a percentage of revenue, decreased 110 basis points. Labor costs increased 9.1% from the prior year quarter, but only represented a 10 basis point increase as a percent of revenue, while equipment and other overhead costs rose moderately at 2.8%, but fell 170 basis points as a percentage of revenue. Increased equipment service contract and equipment maintenance costs were the most significant contributor to the rise in equipment and other overhead costs.

Gross margin increased by 1.6 percentage points in YTD FY21, from YTD FY20, primarily as a result of the increase in revenue from the prior year period and higher pricing for certain mainstream IC nodes. Material costs increased 3.5% from the prior year period, with a notable increase occurring at our China-based IC facility, where the increase was in line with that facility’s increased revenue. Globally, material costs decreased 40 basis points as a percentage of revenue. Labor costs increased 10.7% from the prior year, but only 70 basis points when compared to revenue. Equipment and other overhead costs decreased by 0.4%, or 180 basis points as a percentage of revenue, with reduced outsourced manufacturing costs most significantly contributing to the decline.

~~Table of Contents~~

~~As we operate in a high fixed cost environment, increases or decreases in our revenues and capacity utilization will generally positively or negatively impact our gross margin.~~

~~Selling, General and Administrative Expenses~~

Selling, general and administrative expenses were $15.1 million in Q3 FY21, an increase of $1.0 million from Q2 FY21, and an increase of $1.8 million from Q3 FY20. The increases are primarily the result of increased compensation costs. Selling, general and administrative expenses were $43.2 million in YTD FY21, as compared with $40.8 million in YTD FY20, with the increase primarily being the result of increased compensation costs.

~~Research and Development Expenses~~

Research and development expenses, which primarily consist of development and qualification efforts related to high-end process technologies for high-end IC and FPD applications, were $5.3 million in Q3 FY21, compared with $4.4 million in Q2 FY21 and $4.5 million in Q3 FY20. Increased development activities in the U.S. was the primary driver of the increases from both comparative periods, with decreased expenses at our China-based FPD facility partially offsetting the increase from the prior year period. On a year-to-date basis, research and development expenses increased $1.4 million, primarily due to an increase in development activities in the U.S. exceeding a decline in such activities at our China-based FPD facility.

~~Other Operating Income, Net~~

~~In the third quarter of fiscal 2021, we recorded a $3.5 million gain on the trade-in of a lithography tool with a tool vendor as partial compensation for a more advanced tool.~~

~~Other Non-Operating Income (Expense)~~

Q3 FY21 Q2 FY21 Q3 FY20 YTD FY21 YTD FY20

Foreign currency transactions impact, net $ 4.3 $ (2.1 ) $ (1.6 ) $ 3.6 $ 1.7
Interest expense, net (1.1 ) 1.2 (0.6 ) (0.6 ) (1.6 )
Interest income and other income (expense), net 0.5 - - 0.7 0.5

Other income (expense), net $ 3.7 $ (0.8 ) $ (2.1 ) $ 3.6 $ 0.6

Other income and expense changed favorably from a loss of $0.8 million in Q2 FY21 to income of $3.7 million in Q3 FY21, primarily as a result of favorable foreign currency exchange movements in Korea and Taiwan against the U.S. dollar. An unfavorable change in interest expense of $2.3 million was primarily the result of subsidies (which we recognize at the time of their receipt) we received in China in Q2 FY21, the occurrence which was not repeated in Q3 FY21, which partially offset the $6.4 million net favorable impact of foreign currency movements. The increase of $0.5 million in ~~Interest income and other income (expense), net~~ ~~is primarily due to the receipt of a $0.4 million subsidy in China.~~

Other income and expense, net changed favorably from a loss of $2.1 million in Q3 FY20 to income of $3.7 million in Q3 FY21. The $5.9 million positive impact of foreign currency movements was primarily due to favorable movements against the U.S. dollar in Korea and Taiwan. Increased interest expense of $0.5 million from the prior year quarter reflects our increased average debt level in Q3 FY21. The increase of $0.5 million in ~~Interest income and other income (expense), net~~ ~~is primarily due to the receipt of a $0.4 million subsidy in China.~~

~~Table of Contents~~

Other income and expense, net changed favorably from net other income of $0.6 million in YTD FY20 to net other income of $3.6 million in YTD FY21. The $1.9 million positive impact of foreign currency movements was primarily caused by favorable movements against the U.S. dollar and the Japanese yen in China, which were partially offset by unfavorable movements against the U.S. dollar in Korea and Taiwan. Interest expense decreased, on a year-to-date basis by $1.0 million, as result of subsidies we received on our debt in China, which we recognize at the time of their receipt.

~~Income Tax Provision~~

Q3 FY21 Q2 FY21 Q3 FY20 YTD FY21 YTD FY20

Income tax provision $ 7.8 $ 3.7 $ 4.9 $ 14.5 $ 17.8
Effective income tax rate 24.4 % 18.5 % 27.7 % 22.4 % 35.9 %

~~The effective income tax rate is sensitive to the jurisdictional mix of earnings, due, in part, to the non-recognition of tax benefits on losses in jurisdictions with valuation allowances.~~

~~The effective income tax rate~~ ~~increase~~ ~~in Q3 FY21, compared with Q2 FY21, is primarily due to changes in the period-to-period mix of jurisdictional earnings.~~

~~The effective income tax rate decrease~~ ~~in Q3 FY21, compared with Q3 FY20, is primarily due to the benefits of investment credits in certain non-U.S. jurisdictions in Q3 FY21, as well as changes in the jurisdictional mix of earnings.~~

The effective income tax rate decreased in YTD FY21, compared with YTD FY20, primarily due to the establishment of a valuation allowance for a loss carryforward in a non-U.S. jurisdiction in YTD-FY20, as well as changes in the jurisdictional mix of earnings.

~~Net Income Attributable to Noncontrolling Interests~~

Net income attributable to noncontrolling interests was $7.3 million in Q3 FY21, compared with $5.8 million in Q2 FY21, and was primarily the result of increased net income at our Taiwan-based IC facility, which partially offset decreased net income at our China-based IC facility. Net income attributable to noncontrolling interests increased $5.2 million in Q3 FY21 from Q3 FY20, and $10.1 million, on a year-to-date basis, as a result of increased net income at both our Taiwan-based and China-based IC facilities.

~~Liquidity and Capital Resources~~

Cash and cash equivalents totaled $283.2 million and $278.7 million as of August 1, 2021 and October 31, 2020 respectively. As of the most recent balance sheet date, total cash and cash equivalents included $217.2 million held by foreign subsidiaries. ~~Our primary sources of liquidity are our cash on hand, cash we generate from operations, and borrowing capacity we have available from financial institutions.~~ Our corporate credit agreement has a $50 million borrowing limit, with an expansion capacity to $100 million. Although we have not accessed funds under our corporate credit facilities since 2011, it continues to afford us financial flexibility. In addition, in China, we currently have approximately $22.9 million of borrowing capacity to support local operations. See Item 1. Condensed Consolidated Financial Statements - Notes to Condensed Consolidated Financial statements - Note 6 for additional information.

~~We continually evaluate alternatives for efficiently funding our capital expenditures and ongoing operations.~~ These reviews may result in our engagement in a variety of financing transactions, in the transfer of cash among subsidiaries, and/or the repatriation of cash to the U.S. The transfer of funds among subsidiaries could be subject to foreign withholding taxes; in certain jurisdictions, repatriation of these funds to the U.S. may subject them to U.S. state income taxes and/or local country withholding taxes. We believe that our liquidity, including available financing, is sufficient to meet our requirements through the next twelve months and thereafter for the foreseeable future. Through the utilization of cash we generate from operations, our existing liquidity, and (potentially) our borrowing capacity, we will continue to invest in organic growth for our business, with our investments targeted to align with our customers’ technology road maps, and stand ready to invest in mergers, acquisitions, or strategic partnerships should the right opportunity present itself.

~~Table of Contents~~

We estimate capital expenditures for Q4 FY21 will be approximately $28 million; these investments will be targeted towards high-end and mainstream point tools that will increase our operating capacity and efficiency, and enable us to support our customers’ near-term demands. As of August 1, 2021, we had outstanding capital commitments of approximately $56.9 million and recognized liabilities related to capital equipment purchases of approximately $9.2 million. Although payment timing could vary, primarily as a result of the timing of tool installation and testing, we currently estimate that we will fund $54 million of our total $66 million committed and recognized obligations for capital expenditures over the next twelve months.

~~In September 2020, the Company’s board of directors authorized the repurchase of up to $100 million of its common stock, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Act.~~ ~~This authorization does not obligate the Company to repurchase any dollar amount or number of shares of common stock.~~ As of August 1, 2021, our current share repurchase program had approximately $46.8 million remaining under its authorization. Depending on market conditions, we may utilize some or the entire remaining approved amount to reacquire additional shares.

~~Cash Flows~~

Nine Months Ended

August 1,
2021

August 2,
2020

Net cash provided by operating activities $ 113.1 $ 78.3
Net cash used in investing activities $ (86.7 ) $ (31.6 )
Net cash (used in) provided by financing activities $ (26.4 ) $ 4.1

~~Operating Activities~~: Net cash provided by operating activities reflects net income adjusted for certain non-cash items, including depreciation and amortization, share-based compensation, and the effects of changes in operating assets and liabilities. The increase in net cash provided by operating activities for the nine months ended August 1, 2021, compared with the nine months ended August 2, 2020, was primarily due to increased net income and net cash-positive changes in working capital in Asia.

~~Investing Activities~~: Net cash flows used for investing activities primarily consists of purchases of property, plant and equipment. For the nine months ended August 1, 2021, purchases of property, plant and equipment were $92.3 million, compared with $36.7 million for the nine months ended August 2, 2020, as we increased our tool purchases in the current year, primarily in response to market demands in Asia.

~~Financing Activities~~: Net cash flows used in financing activities primarily consist of share repurchases, proceeds from and repayments of debt, and contributions from noncontrolling interests. The increase in net cash used in financing activities during the nine months ended August 2, 2021, compared with the same period ended August 2, 2020, was primarily driven by an $18.9 million increase in share repurchases, a $17.6 million decrease in contributions from noncontrolling interests, and a $7.4 million increase in debt repayments. Increased borrowings of $15.2 million partially offset the aforementioned cash-negative impacts.

In January 2018, Photronics, through its wholly owned Singapore subsidiary, and DNP, through its wholly owned subsidiary “DNP Asia Pacific PTE, Ltd.” entered into a joint venture under which DNP obtained a 49.99% interest in our IC business in Xiamen, China. The joint venture, which we refer to as PDMCX, was established to develop and manufacture photomasks for leading edge and advanced generation semiconductors. Under the joint venture’s operating agreement, DNP is afforded, under certain circumstances, the right to put its interest in PDMCX to Photronics. These circumstances include disputes regarding the strategic direction of PDMCX that may arise after the initial two-year term of the operating agreement that cannot be resolved between the two parties. As of the date of issuance of this report, DNP had not indicated its intention to exercise this right. In addition, both Photronics and DNP have the option to purchase, or put, their interest from, or to, the other party, should their ownership interest fall below 20% for a period of more than six consecutive months. Under all such circumstances, the sales of ownership interests would be at the exiting party’s ownership percentage of the joint venture’s net book value, with closing to take place within three business days of obtaining required approvals and clearance. Should DNP exercise an option to put their, or purchase our, interest in PDMCX we may, depending on the relationship of the fair and book value of PDMCX’s net assets, incur a loss. As of August 1, 2021, Photronics and DNP each had net investments in PDMCX of $60.9 million.

~~Table of Contents~~

~~Business Outlook~~

When evaluating our views on our outlook, please consider them in the context of our short backlog (which typically does not exceed three weeks), and the significant effect that a variance in high-end orders can have on our results. In addition, government actions to address health concerns, change trade policies, or repatriate manufacturing may also affect our results. Overall, we are encouraged by increased capital spending by both semiconductor and panel makers, as their current investments are a leading indicator of increased demand for photomasks. We believe that the recent favorable trends in IC driving an increase in design activity, including the recovery in high-end logic demand, and continued strength in mainstream demand will continue through the fourth quarter and possibly beyond. In FPD, we expect to see growth from recent capacity expansions, which benefitted us for only a portion of Q3 FY21. We believe this increased capacity will support increased mobile demand, as more smartphones, tablets, and laptops adopt high-value AMOLED technology. We are also encouraged by the emergence of next-generation premium TV technologies (such as Samsung Display Co. LTD’s QD-OLED, and LG Display Co. LTD’s WOLED) which may provide growth in the future.

~~Effect of Recent Accounting Pronouncements~~

See “Item 1. Condensed Consolidated Financial Statements– Notes to Condensed Consolidated Financial Statements – Note 16 – Recent Accounting Pronouncements” for recent accounting pronouncements that may impact our financial reporting.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Rate Risk

We conduct business in several major international currencies throughout our worldwide operations, and our financial performance may be affected by fluctuations in the exchange rates of these currencies. Changes in exchange rates can positively or negatively affect our reported revenue, operating income, assets, liabilities, and equity. The functional currencies of our Asian subsidiaries are the South Korean won, the New Taiwan dollar, the RMB, and the Singapore dollar. The functional currencies of our European subsidiaries are the British pound and the euro. In addition, we engage in transactions in, and have exposures to, the Japanese yen.

We attempt to minimize our risk of foreign currency transaction losses by producing products in the same country in which the products are sold (thereby generating revenues and incurring expenses in the same currency), and by managing our working capital. However, in some instances, we sell products in a currency other than the functional currency of the country where it was produced, or purchase products in a currency that differs from the functional currency of the purchasing entity. In addition, to the extent practicable, we attempt to reduce our exposure to foreign currency exchange fluctuations by converting cash and cash equivalents into the functional currency of the subsidiary which holds the cash. We may also enter into derivative contracts to mitigate our exposure to foreign currency fluctuations when we have a significant purchase obligation, or a significant receivable denominated in a currency that differs from the functional currency of the transacting subsidiary. We do not enter into derivatives for speculative purposes. There can be no assurance that this approach will protect us from the need to recognize significant foreign currency transaction gains and losses, especially in the event of a significant adverse movement in the value of any foreign currency in which we conduct business against any of our functional currencies, including the U.S. dollar.

Our primary net foreign currency exposures as of ~~August 1, 2021,~~January 30, 2022, included the South Korean won, the Japanese yen, the New Taiwan dollar, the ~~Chinese renminbi,~~RMB, the Singapore dollar, the British pound sterling, and the euro. As of that date, a 10% adverse movement in the value of currencies different from the functional currencies of our subsidiaries would have resulted in a net unrealized pre-tax loss of ~~$36.0~~$34.0 million, which represents ~~an increase~~a decrease of ~~$1.5 million and $4.1~~$1.1 million from our ~~exposures~~exposure at ~~May 2, 2021 and~~ October 31, ~~2020, respectively.~~2021. Our most significant exposures at ~~August 1, 2021,~~January 30, 2022, related to the ~~Chinese renminbi, the~~ South Korean won, the RMB, and the New Taiwan Dollar to the U.S. dollar, which were, respectively, ~~$12.9~~$12.0 million, ~~$12.3~~$10.3 million, and ~~$7.5~~$5.8 million at that date. We do not believe that a 10% change in the exchange rates of non-US dollar currencies, other than the aforementioned currencies and the Japanese yen, would have had a material effect on our ~~August 1, 2021,~~January 30, 2022, condensed consolidated financial statements.

Interest Rate Risk

A 10% adverse movement in the interest rates on our variable rate borrowings would not have had a material effect on our ~~August 1, 2021~~January 30, 2022, condensed consolidated financial statements.

Table of Contents

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

~~Table of Contents~~

~~Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of August 1, 2021.~~ We have established and currently maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, designed to provide reasonable assurance that information required to be disclosed in ~~our~~ reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the ~~SEC's~~SEC rules and forms, and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. ~~Based on an evaluation~~

Our management, under the supervision and with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of ~~August 1, 2021,~~the end of the period covered by this report. Based upon that evaluation, our chief executive officer and chief financial officer concluded that ~~as of such date,~~ our disclosure controls and procedures were ~~not~~ effective ~~due to~~at a ~~material weakness in our internal control over financial reporting as discussed below.~~

~~Based on our prior assessment~~reasonable assurance level as of ~~October 31, 2020, management concluded that our internal control over financial reporting was not effective due to a material weakness relating to~~ the ~~accuracy and completeness~~end of ~~information used in monitoring compliance with covenants stipulated~~the period covered by ~~the Company’s debt agreements. This material weakness has not been remediated as of August 1, 2021.~~

~~Notwithstanding~~ this material weakness, our management, including our chief executive officer and chief financial officer, has concluded that our financial statements included in this Form 10-Q present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America.

~~Remediation of Material Weakness~~

Our management is committed to maintaining a strong internal control environment and implementing measures designed to help ensure that the material weakness is remediated as soon as possible. Management is in the process of designing and implementing a remediation plan to address the material weakness referred to above.report.

Changes in Internal Control over Financial Reporting

~~Except for changes made in connection with our implementation of the remediation efforts mentioned above, there have been~~There was no ~~other changes~~change in our internal control over financial reporting during the first fiscal quarter ~~ended August 1, 2021,~~ that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting.

~~PART II.~~

~~OTHER INFORMATION~~

PART II. OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

Please refer to Note 1511 within ~~Part I,~~ Item 1 of this report for information on legal proceedings involving the Company.

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

In September 2020, the Company’s board of directors authorized the repurchase of up to $100 million of its common stock, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Act. The share repurchase program commenced on September 14, 2020, and all ~~1.7 million~~ shares repurchased under this program ~~during fiscal 2020,~~prior to January 30, 2022, were retired ~~in October 2020.~~prior to that date. The following table presents information on our common stock repurchase activity for the ~~third~~first fiscal quarter of ~~2021.~~2022.

	Total Number of Shares Purchased (in millions)		Average Price Paid Per share		Total Number of Shares Purchased as Part of Publicly Announced Program (in millions)		Dollar Value of Shares That May Yet Be Purchased (in millions)
									Total Number of Shares Purchased (in millions)		Average Price Paid Per share		Total Number of Shares Purchased as Part of Publicly Announced Program (in millions)		Dollar Value of Shares That May Yet Be Purchased (in millions)

Period
May 3, 2021 – May 30, 2021		0.8	$	12.86		0.8	$	49.3
May 31, 2021 – June 27, 2021		0.2	$	13.43		0.2	$	46.8
November 1, 2021 – November 28, 2021										0.1	$	13.45		0.1	$	32.9
November 29, 2021 – December 26, 2021										0.1	$	13.41		0.1	$	31.7
Total		1.0	$	12.97		1.0				0.2				0.2

Certain of our debt agreements and lease arrangements include limitations on the amounts of dividends we may pay. Please refer to Notes 5 and 7 of the condensed consolidated financial statements for information on these limitations.

Table of Contents

~~Item 6.EXHIBITS~~

Item 6.

EXHIBITS

			Incorporated by Reference
Exhibit Number		Description	Form	File Number	Exhibit	Filing Date	Filed or Furnished Herewith

10.41	Amendment No. 2 to the Investment Agreement between Xiamen Torch Hi-Tech Industrial Development Zone, People’s Government of Xiang’an Xiamen, Photronics Singapore Pte. Ltd., DNP Asia Pacific Pte and Xiamen American Japan Photronics Mask Co., Ltd.					X

10.42	Amendment No. 3 to the Investment Agreement between Xiamen Torch Hi-Tech Industrial Development Zone, People’s Government of Xiang’an Xiamen, Photronics Singapore Pte. Ltd., DNP Asia Pacific Pte and Xiamen American Japan Photronics Mask Co., Ltd.					X

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X

101.INS		Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)					X

101.SCH		Inline XBRL Taxonomy Extension Schema Document					X

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document					X

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document					X

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document					X

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document					X

104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)					X

Table of Contents

SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Photronics, Inc.
	(Registrant)

By:	/s/ JOHN P. JORDAN	By:	~~/s/~~/s/ ERIC RIVERA
	JOHN P. JORDAN		ERIC RIVERA
	Executive Vice President,		Vice President,
	Chief Financial Officer		Corporate Controller
	(Principal Financial Officer)		(Principal Accounting Officer)

Date:

~~September 10, 2021~~March 9, 2022

Date:

~~September 10, 2021~~March 9, 2022

Connecticut		06-0854886
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

15 Secor Road, Brookfield, Connecticut		06804
(Address of principal executive offices)		(Zip Code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
COMMON	PLAB	NASDAQ Global Select Market
PREFERRED STOCK PURCHASE RIGHTS	N/A	N/A

Large Accelerated Filer	☒	Accelerated Filer	☐	Non-Accelerated Filer	☐
Smaller Reporting Company	☐	Emerging growth company	☐

	Nine Months Ended August 1, 2021
	Photronics, Inc. Shareholders
							Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income		Non- controlling Interests		Total Equity

	Common Stock
	Shares			Amount

Balance at October 31, 2020		63,138		$	631		$	507,336		$	279,037		$	0		$	17,958	$	157,304	$	962,266

Net income		-			0			0			35,638			0			0		14,547		50,185
Other comprehensive income		-			0			0			0			0			6,924		4,718		11,642
Shares issued under equity plans		603			7			2,077			0			0			0		0		2,084
Share-based compensation expense		-			0			4,034			0			0			0		0		4,034
Purchase of treasury stock		0			0			0			0			(35,750	)		0		0		(35,750	)
Retirement of treasury stock		(2,983	)		(30	)		(24,016	)		(11,704	)		35,750			0		0		0

Balance at August 1, 2021		60,758		$	608		$	489,431		$	302,971		$	0		$	24,882	$	176,569	$	994,461

	Nine Months Ended August 2, 2020
	Photronics, Inc. Shareholders
	Common Stock				Additional Paid-in		Retained		Treasury			Accumulated Other Comprehensive			Non- controlling			Total
	Shares		Amount		Capital		Earnings		Stock			Loss			Interests			Equity

Balance at October 31, 2019		65,595	$	656	$	524,319	$	253,922	$	0		$	(9,005	)	$	141,200		$	911,092

Net income		-		0		0		27,360		0			0			4,404			31,764
Other comprehensive income		-		0		0		0		0			2,577			4,135			6,712
Shares issued under equity plans		681		7		3,272		0		0			0			0			3,279
Share-based compensation expense		-		0		3,773		0		0			0			0			3,773
Purchase of treasury stock		-		0		0		0		(16,894	)		0			0			(16,894	)
Contribution from noncontrolling interest		-		0		0		0		0			0			17,596			17,596
Repurchase of common stock of subsidiary		-		0		255		0		0			0			(892	)		(637	)

Balance at August 2, 2020		66,276	$	663	$	531,619	$	281,282	$	(16,894	)	$	(6,428	)	$	166,443		$	956,685

As of October 31, 2020	Xiamen Project Loans			Xiamen Working Capital Loans			Total
Principal due:
Next 12 months	$	6,705		$	2,265		$	8,970
Months 13 – 24	$	7,334		$	7,808		$	15,142
Months 25 – 36		9,592			3,814			13,406
Months 37 – 48		9,789			0			9,789
Months 49 – 60		9,432			0			9,432
Thereafter		7,211			0			7,211
Long-term debt	$	43,358		$	11,622		$	54,980

Interest rate at balance sheet date		4.90	%		4.53% - 4.61	%
Basis spread on interest rates		25.00			40.00 - 76.00
Loan collateral (carrying amount)	$	94,459			N/A

	Operating Leases		Finance Leases
Remainder of fiscal year 2021	$	585	$	2,174
2022		2,338		7,231
2023		1,363		6,938
2024		810		6,938
2025		647		18,013
Thereafter		559		0
Total lease payments		6,302		41,294
Imputed interest		258		1,480
Lease liabilities	$	6,044	$	39,814

Options	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value

Outstanding at August 1, 2021	1,345,495	$	9.42	4.1	$	5,309
Exercisable at August 1, 2021	1,246,806	$	9.44	3.9	$	4,899

Options	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value

Outstanding at January 30, 2022		769,513	$	9.81	4.0	$	5,797
Exercisable at January 30, 2022		745,287	$	9.81	3.9	$	5,613

	Nine Months Ended August 2, 2020		From Inception Date of September 25, 2019
Number of shares repurchased		1,464		2,460

Cost of shares repurchased	$	16,894	$	27,894

Average price paid per share	$	11.54	$	11.34

	Q3 FY21 from Q2 FY21							Q3 FY21 from Q3 FY20						YTD FY21 from YTD FY20
	Revenue in Q3 FY21		Increase (Decrease)		Percent Change			Increase (Decrease)			Percent Change			Revenue in YTD FY21		Increase (Decrease)			Percent Change

IC
High-end *	$	42.4	$	1.1		2.6	%	$	3.7			9.5	%	$	120.4	$	2.4			2.0	%
Mainstream		75.4		4.7		6.6	%		5.4			7.7	%		214.3		19.8			10.2	%

Total IC	$	117.8	$	5.8		5.2	%	$	9.1			8.4	%	$	334.7	$	22.2			7.1	%

FPD
High-end *	$	40.6	$	1.2		3.1	%	$	4.0			10.8	%	$	114.7	$	6.4			5.9	%
Mainstream		12.2		3.9		46.1	%		(0.3	)		(2.6	)%		33.1		(6.6	)		(16.6	)%

Total FPD	$	52.9	$	5.1		10.7	%	$	3.6			7.4	%	$	147.8	$	(0.2	)		(0.1	)%

Total Revenue	$	170.6	$	10.9		6.8	%	$	12.7			8.1	%	$	482.5	$	22.1			4.8	%

	Q3 FY21			Q2 FY21			Percent Change			Q3 FY20			Percent Change			YTD FY21			YTD FY20			Percent Change


Gross profit	$	45.3		$	39.2			15.5	%	$	37.7			20.1	%	$	115.1		$	102.8			12.0	%
Gross margin		26.6	%		24.6	%					23.9	%					23.9	%		22.3	%