UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended AugustMay 1, 20212022
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission file number 0-15451

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PHOTRONICS, INC.
(Exact name of registrant as specified in its charter)

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)

Registrant'sRegistrant’s telephone number, including area code (203) 775-9000

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
COMMONPLABNASDAQ Global Select Market
PREFERRED STOCK PURCHASE RIGHTSN/AN/A

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐  No ☒

Indicate the number ofThe registrant had 61,601,263 shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Common stock: $0.01 par value – 61,151,194 shares outstanding as of September 1, 2021.June 2, 2022.


Table of Contents

PHOTRONICS, INC.
QUARTERLY REPORT ON FORM 10-Q
AUGUSTMay 1, 20212022

TABLE OF CONTENTS

Glossary of Terms and Acronyms
3
Forward-Looking Statements
4
  
PART I.FINANCIAL INFORMATION 
   
Item 1.
5
   
 5
   
 6
   
 7
   
 8
   
 10
   
 11
   
Item 2.
26 28
   
Item 3.
33 34
   
Item 4.
33 35
   
PART II.OTHER INFORMATION 
   
Item 1.
34 35
   
Item 1A.
 35
Item 2.
3436
   
Item 6.
3537

2
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
Coronavirus 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
 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 displaysdisplay (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)
Sputtering
The bombardment of a material with energetic particles, to cause microscopic particles of the material to eject from its surface.
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

3
Table of Contents
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 ReportForm 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.

4
Table of Contents

PART I.FINANCIAL INFORMATION

Item 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PHOTRONICS, INC.
Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)
(unaudited)

 
August 1,
2021
  
October 31,
2020
  
May 1,
2022
  
October 31,
2021
 
ASSETS            
Current assets:            
Cash and cash equivalents $283,249  $278,665  $329,282  $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 $1,107 in 2022 and $1,218 in 2021
  190,259   174,447
 
Inventories  53,165   57,269   57,940   55,249 
Other current assets  42,860   29,735   52,864   44,250 
                
Total current assets  530,464   500,139   630,345   550,616 
                
Property, plant and equipment, net  699,609   631,475   659,881   696,553 
Intangible assets, net  904   3,437 
Deferred income taxes  23,691   22,070   23,731   24,353 
Other assets  27,089   31,061   17,930   22,680 
Total assets $1,281,757  $1,188,182  $1,331,887  $1,294,202 
                
        
LIABILITIES AND EQUITY                
Current liabilities:                
Short-term debt $0  $4,708 
Current portion of long-term debt  25,163   8,970  $12,410  $22,248 
Accounts payable  75,640   75,378   78,341   81,534 
Accrued liabilities  66,814   53,883   95,720   72,366 
                
Total current liabilities  167,617   142,939   186,471   176,148 
                
Long-term debt  92,740   54,980   70,138   89,446 
Other liabilities  26,939   27,997   25,048   28,046 
                
Total liabilities  287,296   225,916   281,657   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, 60,637 shares issued and outstanding at May 1, 2022, and 60,024 shares issued and outstanding at October 31, 2021
  606   600 
Additional paid-in capital  489,431   507,336   489,368   484,672 
Retained earnings  302,971   279,037   367,344   317,849 
Accumulated other comprehensive income  24,882   17,958 
Accumulated other comprehensive (loss) income
  (22,919)  20,571 
                
Total Photronics, Inc. shareholders' equity  817,892   804,962 
Total Photronics, Inc. shareholders’ equity  834,399   823,692 
Noncontrolling interests  176,569   157,304   215,831   176,870 
                
Total equity  994,461   962,266   1,050,230   1,000,562 
                
Total liabilities and equity $1,281,757  $1,188,182  $1,331,887  $1,294,202 

See accompanying notes to condensed consolidated financial statements.

5
Table of Contents

PHOTRONICS, INC.
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
(unaudited)

 Three Months Ended  Nine Months Ended  Three Months Ended  Six Months Ended 
 
August 1,
2021
  
August 2,
2020
  
August 1,
2021
  
August 2,
2020
  
May 1,
2022
  
May 2,
2021
  
May 1,
2022
  
May 2,
2021
 
                        
Revenue $170,643  $157,895  $482,473  $460,405  $204,509  $159,763  $394,336  $311,830 
                                
Cost of goods sold  125,318   120,161   367,370   357,636   134,289   120,514   264,253   242,052 
                                
Gross profit  45,325   37,734   115,103   102,769   70,220   39,249   130,083   69,778 
                                
Operating expenses:                                
                                
Selling, general and administrative  15,083   13,306   43,203   40,792   16,613   14,067   32,340   28,120 
                                
Research and development  5,305   4,492   14,390   13,034   4,206   4,375   10,145   9,085 
                                
Total operating expenses  20,388   17,798   57,593   53,826   20,819   18,442   42,485   37,205 
                                
Other operating income, net  3,525   0   3,525   0 
                
Operating income  28,462   19,936   61,035   48,943   49,401   20,807   87,598   32,573 
                                
Other non-operating income (expense):                
Non-operating income (expense):
                
Foreign currency transactions impact, net  4,301   (1,565)  3,627   1,739   7,844   (2,055)  13,112   (674)
Interest expense, net  (1,060)  (586)  (637)  (1,609)
Interest income and other income (expense), net  494   16   653   480 
Interest expense, net of subsidies
  15   1,246   (880)  423 
Interest income and other income and expense, net  162   37   496   159 
                                
Income before income tax provision  32,197   17,801   64,678   49,553   57,422   20,035   100,326   32,481 
                                
Income tax provision  7,842   4,937   14,493   17,789   14,393   3,714   25,571   6,651 
                                
Net income  24,355   12,864   50,185   31,764   43,029   16,321   74,755   25,830 
                                
Net income attributable to noncontrolling interests  7,279   2,088   14,547   4,404   15,597   5,795   24,259   7,268 
                                
Net income attributable to Photronics, Inc. shareholders $17,076  $10,776  $35,638  $27,360  $27,432  $10,526  $50,496  $18,562 
                                
Earnings per share:                                
                                
Basic $0.28  $0.17  $0.58  $0.42  $0.45  $0.17  $0.84  $0.30 
                                
Diluted $0.28  $0.17  $0.57  $0.42  $0.45  $0.17  $0.83  $0.30 
                                
Weighted-average number of common shares outstanding:                                
                                
Basic  60,884   64,780   61,804   65,090   60,606   62,054   60,382   62,265 
                                
Diluted  61,515   65,247   62,362   65,704   61,145   62,568   61,041   62,786 

See accompanying notes to condensed consolidated financial statements.

6
Table of Contents

PHOTRONICS, INC.
Condensed Consolidated StateStatements of ments of Comprehensive Income
(in thousands)
(unaudited)

 Three Months Ended  Nine Months Ended  Three Months Ended  Six Months Ended 
 
August 1,
2021
  
August 2,
2020
  
August 1,
2021
  
August 2,
2020
  
May 1,
2022
  
May 2,
2021
  
May 1,
2022
  
May 2,
2021
 
                        
Net income $24,355  $12,864  $50,185  $31,764  $43,029  $16,321  $74,755  $25,830 
                                
Other comprehensive (loss) income, net of tax of $0:
                                
                                
Foreign currency translation adjustments  (10,482)  10,659   11,584   6,689   (44,118)  3,778   (53,949)  22,066 
                                
Other  37   4   58   23   129   21   166   21 
                                
Net other comprehensive (loss) income  (10,445)  10,663   11,642   6,712   (43,989)  3,799   (53,783)  22,087 
                                
Comprehensive income  13,910   23,527   61,827   38,476 
Comprehensive (loss) income  (960)   20,120   20,972   47,917 
                                
Less: comprehensive income attributable to noncontrolling interests  7,144   3,979   19,265   8,539   5,092   6,431   13,966   12,121 
                                
Comprehensive income attributable to Photronics, Inc. shareholders $6,766  $19,548  $42,562  $29,937 
Comprehensive (loss) income attributable to Photronics, Inc. shareholders $(6,052) $13,689  $7,006  $35,796 

See accompanying notes to condensed consolidated financial statements.

7
Table of Contents

PHOTRONICS, INC.
Condensed Consolidated StatemeStatements of nts of Equity
(in thousands)
(unaudited)

 
Three Months Ended August 1, 2021
  
Three Months Ended May 1, 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 (Loss)
  
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 January 30, 2022  60,564  $606  $487,342  $339,912  $0  $10,565  $200,741  $1,039,166 
                                                                
Net income  -   0   0   17,076   0   0   7,279   24,355   -   0   0   27,432   0   0   15,597   43,029 
Other comprehensive loss  -   0   0   0   0   (10,310)  (135)  (10,445)  -   0   0   0   0   (33,484)  (10,505)  (43,989)
Shares issued under equity plans  135   2   921   0   0   0   0   923   73   0   442   0   0   0   0   442 
Share-based compensation expense  -   0   1,311   0   0   0   0   1,311   -   0   1,584   0   0   0   0   1,584 
Purchase of treasury stock  0   0   0   0   (12,500)  0   0   (12,500)
Retirement of treasury stock  (2,983)  (30)  (24,016)  (11,704)  35,750   0   0   0 
Contribution from noncontrolling interest  -   0   0   0   0   0   9,998   9,998 
                                                                
Balance at August 1, 2021
  60,758  $608  $489,431  $302,971  $0  $24,882  $176,569  $994,461 
Balance at May 1, 2022
  60,637  $606  $489,368  $367,344  $0  $(22,919) $215,831  $1,050,230 

 
Three Months Ended August 2, 2020
  
Three Months Ended May 2, 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 January 31, 2021  63,506  $635  $508,974  $287,073  $(13,209) $32,029  $162,994  $978,496 
                                                                
Net income  -   0   0   10,776   0   0   2,088   12,864   -   0   0   10,526   0   0   5,795   16,321 
Other comprehensive income  -   0   0   0   0   8,772   1,891   10,663   -   0   0   0   0   3,163   636   3,799 
Shares issued under equity plans  61   1   306   0   0   0   0   307   100   1   819   0   0   0   0   820 
Share-based compensation expense  -   0   1,196   0   0   0   0   1,196   -   0   1,422   0   0   0   0   1,422 
Contribution from noncontrolling interest
  -   0   0   0   0   0   9,997   9,997 
Purchase of treasury stock  0   0   0   0   (10,041)  0   0   (10,041)
                                                                
Balance at August 2, 2020
  66,276  $663  $531,619  $281,282  $(16,894) $(6,428) $166,443  $956,685 
Balance at May 2, 2021
  63,606  $636  $511,215  $297,599  $(23,250) $35,192  $169,425  $990,817 

See accompanying notes to condensed consolidated financial statements.

8
Table of Contents
 
Six Months Ended May 1, 2022
 
  Photronics, Inc. Shareholders       
     
Additional
Paid-in
Capital
  
Retained
Earnings
  
Treasury
Stock
  
Accumulated
Other
Comprehensive
Income (Loss)
  
Non-
controlling
Interests
  
Total
Equity
 
   
 Common Stock 
  Shares  Amount 
                         
Balance at October 31, 2021  60,024  $600  $484,672  $317,849  $0  $20,571  $176,870  $1,000,562 
                                 
Net income  -   0   0   50,496   0   0   24,259   74,755 
Other comprehensive loss  -   0   0   0   0   (43,490)  (10,293)  (53,783)
Shares issued under equity plans  801   7   3,175   0   0   0   0   3,182 
Share-based compensation expense  -   0   3,041   0   0   0   0   3,041 
Contribution from noncontrolling interest  -   0   0   0   0   0   24,995   24,995 
Purchase of treasury stock  0   0   0   0   (2,522)  0   0   (2,522)
Retirement of treasury stock  (188)  (1)  (1,520)  (1,001)  2,522   0   0   0 
                                 
Balance at May 1, 2022
  60,637  $606  $489,368  $367,344  $0  $(22,919) $215,831  $1,050,230 

 
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
  
Six Months Ended May 2, 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 October 31, 2019  65,595  $656  $524,319  $253,922  $0  $(9,005) $141,200  $911,092 
Balance at October 31, 2020  63,138  $631  $507,336  $279,037  $0  $17,958 $157,304  $962,266 
                                                                
Net income  -   0   0   27,360   0   0   4,404   31,764   -   0   0   18,562   0   0   7,268   25,830 
Other comprehensive income  -   0   0   0   0   2,577   4,135   6,712   -   0   0   0   0   17,234   4,853   22,087 
Shares issued under equity plans  681   7   3,272   0   0   0   0   3,279   468   5   1,156   0   0   0   0   1,161 
Share-based compensation expense  -   0   3,773   0   0   0   0   3,773   -   0   2,723   0   0   0   0   2,723 
Purchase of treasury stock  -   0   0   0   (16,894)  0   0   (16,894)  -   0   0   0   (23,250)  0   0   (23,250)
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 
Balance at May 2, 2021
  63,606  $636  $511,215  $297,599  $(23,250) $35,192 $169,425  $990,817 

See accompanying notes to condensed consolidated financial statements.

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PHOTRONICS, INC.
Condensed Consolidated StateStatements of ments of Cash Flows
(in thousands)
(unaudited)

 Nine Months Ended  Six Months Ended 
 
August 1,
2021
  
August 2,
2020
  
May 1,
2022
  
May 2,
2021
 
            
Cash flows from operating activities:            
Net income $50,185  $31,764  $74,755  $25,830 
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization  69,305   71,120   41,405   47,121 
Share-based compensation  4,034   3,773   3,041   2,723 
Changes in assets and liabilities:                
Accounts receivable  (13,854)  (9,476)  (25,122)  (5,655)
Inventories  5,073   (6,155)  (5,081)  2,266 
Other current assets  (12,280)  (12,381)  (10,858)  (8,591)
Accounts payable, accrued liabilities, and other  10,633   (381)  25,149   (5,475)
                
Net cash provided by operating activities  113,096   78,264   103,289   58,219 
                
Cash flows from investing activities:                
Purchases of property, plant and equipment  (92,301)  (36,693)  (34,809)  (73,516)
Government incentives  5,775   5,263   1,394   5,775 
Purchases of intangible assets  (170)  (139)
Other
  (199)  (157)
                
Net cash used in investing activities  (86,696)  (31,569)  (33,614)  (67,898)
                
Cash flows from financing activities:                
Proceeds from debt  20,858   5,699 
Repayments of debt  (27,571)  (8,636)
Purchases of treasury stock  (35,750)  (16,894)  (2,522)  (23,250)
Repayments of debt  (13,311)  (5,929)
Contribution from noncontrolling interest  0   17,596   24,995   0 
Proceeds from share-based arrangements  2,251   3,869   4,384   1,180 
Proceeds from long-term debt  0   12,439 
Net settlements of restricted stock awards  (403)  (248)  (1,452)  (371)
                
Net cash (used in) provided by financing activities  (26,355)  4,093 
Net cash used in financing activities  (2,166)  (18,638)
                
Effects of exchange rate changes on cash, cash equivalents, and restricted cash  4,602   3,486   (14,917)  5,686 
                
Net increase in cash, cash equivalents, and restricted cash  4,647   54,274 
Net increase (decrease) in cash, cash equivalents, and restricted cash  52,592   (22,631)
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   332,272   258,971 
                
Less: Ending restricted cash  2,990   3,006 
Cash and cash equivalents at end of period $329,282  $255,965 
                
Supplemental disclosures of non-cash information:                
                
Accruals for property, plant and equipment purchased during the period $7,367  $34,356  $5,737  $20,533 

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'sworld’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 ICssemiconductors 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 haveoperate 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 AmericaU.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 AmericaU.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 thatwhich 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 AmericaU.S. GAAP requires us to make estimates and assumptions that affect amounts reported in them. EstimatesOur estimates, including those on the impact of COVID-19, are based on historical experience and on various assumptions that are believedwe 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, operatingthis period. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the fiscal year ending October 31, 2021. For further information, refer to the consolidated financial statements, and notes thereto, included in our Form 10-K for the year ended2022. 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.

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Table of Contents

  
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. ThePresented 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 
 
May 1,
2022
  
October 31,
2021
 
       
Raw materials $54,501  $54,019 
Work in process  3,398   1,121 
Finished goods  41   109 
         
  $57,940  $55,249 

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NOTE 43 - PROPERTY, PLANT AND EQUIPMENT, NET


Property, plant and equipment net consists of the following:

 
May 1,
2022
  
October 31,
2021
 
 
August 1,
2021
  
October 31,
2020
         
Land $12,518  $12,422  $11,927  $12,442 
Buildings and improvements  181,842   179,162   176,559   181,922 
Machinery and equipment  1,966,038   1,812,791   1,873,926   1,961,474 
Leasehold improvements  21,672   21,157   20,540   21,751 
Furniture, fixtures and office equipment  15,811   15,665   15,210   15,534 
Construction in progress  31,839   70,915   49,714   35,009 
                
  2,229,720   2,112,112   2,147,876   2,228,132 
Accumulated depreciation and amortization  (1,530,111)  (1,480,637)  (1,487,995)  (1,531,579)
                
 $699,609  $631,475  $659,881  $696,553 


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

 
May 1,
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   (3,355)  (1,933)
                
 $41,537  $0  $39,405  $40,827 


Depreciation andThe following table presents depreciation expense (including the amortization expense forof ROU assets) related to property, plant and equipment (including amortization expense for ROU assets) was $21.7 million and $66.6 million for the three and nine-monthreporting periods ended August 1, 2021, respectively, and $22.1 million and $67.6 million for the three and nine-month periods ended August 2, 2020, respectively..

  Three Months Ended  Six Months Ended 
  
May 1,
2022
  
May 2,
2021
  
May 1,
2022
  
May 2,
2021
 
             
Depreciation and amortization expense
$
20,506

$
22,271

$
41,229

$
44,857

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 perobligations 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 assetsproperty, plant and equipment with an Augusta May 1, 2022, and October 31, 2021, total carrying value of $91.3$82.9 million and $90.1 million, respectively, 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
12

The following table presents net income we recorded from the operations of PDMCX of $1.8 million, and $4.0 million during the three and nine-month periods ended August 1, 2021, respectively, and losses of $0.8 million and $4.8 million during the three and nine-month periods ended August 2, 2020, 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, was $60.9 million.reporting periods.

  Three Months Ended  Six Months Ended 

 
May 1,
2022
  
May 2,
2021
  
May 1,
2022
  
May 2,
2021
 
                 
Net income from PDMCX $4,895  $2,256  $6,772  $2,194 


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 following table presents the carrying amounts of PDMCX assets and liabilities included in our condensed consolidated balance sheets are presented insheets. General creditors of PDMCX do not have recourse to the following table, together withassets of Photronics (other than the net assets of PDMCX); therefore, our maximum exposure to loss related to thesefrom PDMCX is our interest in the carrying amount of the net assets and liabilities.of the joint venture.

 
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 


 
May 1,
2022
  
October 31,
2021
 
Classification 
Carrying
Amount
  
Photronics
Interest
  
Carrying
Amount
  
Photronics
Interest
 
Current assets $117,292  $58,658  $59,745  $29,879 
Noncurrent assets  134,914   67,469   137,799   68,913 
                 
Total assets  252,206   126,127   197,544   98,792 
                 
Current liabilities  37,439   18,723   26,559   13,282 
Noncurrent liabilities  29,613   14,809   42,917   21,463 
                 
Total liabilities  67,052   33,532   69,476   34,745 
                 
Net assets $185,154  $92,595  $128,068  $64,047 

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Table of Contents
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 May 1, 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  $0  $969  $4,540  $6,901  $12,410 
Months 13 – 24 $9,961  $3,961  $4,642  $6,487  $25,051  $6,266  $3,390  $4,540  $6,560  $20,756 
Months 25 – 36  10,165   0   4,642   6,585   21,392   9,837   0   7,567   21,279   38,683 
Months 37 – 48  9,794   0   7,736   19,623   37,153   9,080   0   1,619   0   10,699 
Months 49 – 60  7,489   0   1,655   0   9,144 
Long-term debt $37,409  $3,961  $18,675  $32,695  $92,740  $25,183  $3,390  $13,726  $27,839  $70,138 
Total debt
 $25,183  $4,359  $18,266  $34,740  $82,548 
                                        
Interest rate at balance sheet date  4.65%  4.53% - 4.61%  4.20%  0
(3) 
      4.60%  4.61%  4.20%  
(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   
(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)
   
(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) 
     $82,920   N/A  $81,024  $39,405
(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 principalamount..
(2) Semiannual repayments commencecommenced in March 2022.
(3) See Note 87 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-useROU 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     

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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%  
(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   
(3)     
Periodic payment amount
 Varies as loans mature  Increases as loans mature  Varies(1)   
(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 commenced 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 ROU assets, in which the lessors have secured interests.

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 AugustMay 1, 2021,2022, 291.0166.4 million RMB ($45.025.2 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 AugustMay 1, 2021.2022.

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 willextensions, with the most recent extension set to expire in October 20212022. As of AugustMay 1, 2021,2022, PDMCX had 78.028.8 million RMB ($12.14.4 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 arewas eligible for reimbursement through incentives provided by the Xiamen Torch Hi-Tech Industrial Development Zone, which provideprovided for such reimbursements up to a prescribed limit and duration.

Hefei Equipment Loan


In October 2020, our Hefei, China, facility was approved to borrow 200 million RMB (approximately $30.9$30.3 million, at the balance sheet date) from the China Construction Bank Corporation. This credit facility is subject to annual reviews and extension,extensions, with the most recent extension set to expire in August 2022. The loan proceeds were used to fund purchasesthe purchase of 2 lithography tools at the Hefei facility. As of AugustMay 1, 2021,2022, we had borrowed 135.7 million RMB ($21.0 million) against this approval, (all of which was then outstanding), and 62.5120.7 million RMB ($9.918.3 million) was then outstanding, and 64.3 million RMB ($9.7 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 AugustMay 1, 2021.2022.

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Table of Contents
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$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 AugustMay 1, 2021)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 AugustMay 1, 2021.2022. The interest rate on the Credit Agreement (1.09%(1.76% at AugustMay 1, 2021)2022) is based on our total leverage ratio at one-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 beare 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 million are included in Other current assets, and contract liabilities of $15.4 million and $5.2 million are included in Accrued liabilities and Other liabilities, respectively, in our August 1, 2021, condensed consolidated balance sheet. Our October 31, 2020 condensed consolidated balance sheet includes contract assets of $6.3 million, included in Other current assets, and contract liabilities of $8.0 million and $5.2 million are included in Accrued liabilities and Other liabilities, respectively. We did 0t impairidentify impairment indicators for any outstanding contract assets during the three or nine-monthsix-month periods ended AugustMay 1, 20212022, or AugustMay 2, 2020. We2021.
 
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The following table provides information about our contract balances at the balance sheet dates.

Classification 
May 1,
2022
  
October 31,
2021
 
       
Contract assets      
Other current assets $13,815
  $9,859
 
         
Contract liabilities        
Accrued liabilities $25,613  $14,717 
Other liabilities  5,204   5,197 
  $30,817  $19,914 


The following table presents revenue recognized $1.7 million and $5.0 million of revenue from the settlement of contract liabilities that existed at the beginning of the three and nine-month periods ended August 1, 2021, and recognized $1.9 million and $2.3 million of revenue in the respective prior year periods, that related to the settlement of contract liabilities that existed at the beginning of thosereporting periods.

  Three Months Ended  Six Months Ended 
  
May 1,
2022
  
May 2,
2021
  
May 1,
2022
  
May 2,
2021
 
             
Revenue recognized from beginning liability $11,460  $1,333  $7,278  $3,829 


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 thean 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-monthor six-month periods ended AugustMay 1, 2022, or May 2, 2020.2021.


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”) 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.

16
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Disaggregation of Revenue


The following tables present our revenue for the three and nine-monthsix-month periods ended MayAugust 1, 20212022 and AugustMay 2, 20202021, disaggregated by product type, geographic origin, and timing of recognition.

 Three Months Ended  Nine Months Ended  Three Months Ended  Six Months Ended 
 
August 1,
2021
  
August 2,
2020
  
August 1,
2021
  
August 2,
2020
  
May 1,
2022
  
May 2,
2021
  
May 1,
2022
  
May 2,
2021
 
                        
Revenue by Product Type                        
IC                        
High-end $42,351  $38,665  $120,390  $117,974  $51,362  $41,259  $97,896  $78,039 
Mainstream  75,423   70,001   214,332   194,517   94,437   70,732   177,664   138,908 
Total IC $117,774  $108,666  $334,722  $312,491  $145,799  $111,991  $275,560  $216,947 
                                
FPD                                
High-end $40,640  $36,670  $114,685  $108,248  $46,610  $39,401  $92,886  $74,046 
Mainstream  12,229   12,559   33,066   39,666   12,100   8,371   25,890   20,837 
Total FPD $52,869  $49,229  $147,751  $147,914  $58,710  $47,772  $118,776  $94,883 
 $170,643  $157,895  $482,473  $460,405  $204,509  $159,763  $394,336  $311,830 

 Three Months Ended  Nine Months Ended  Three Months Ended  Six Months Ended 
 
August 1,
2021
  
August 2,
2020
  
August 1,
2021
  
August 2,
2020
  
May 1,
2022
  
May 2,
2021
  
May 1,
2022
  
May 2,
2021
 
                        
Revenue by Geography *            
Revenue by Geographic Origin*
            
Taiwan $63,849  $60,836  $179,441  $182,463  $69,852  $59,002  $137,693  $115,592 
China  53,691   23,730   99,645   44,727 
Korea  39,575   39,488   118,597   116,485   40,769   40,239   80,283   79,022 
United States  24,693   28,351   78,447   78,276   30,335   27,150   57,511   53,754 
China  32,664   20,988   77,391   58,374 
Europe  9,437   7,688   27,269   23,562   9,506   9,256   18,420   17,832 
Other  425   544   1,328   1,245   356   386   784   903 
 $170,643  $157,895  $482,473  $460,405  $204,509  $159,763  $394,336  $311,830 

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

 Three Months Ended  Nine Months Ended  Three Months Ended  Six Months Ended 
 
August 1,
2021
  
August 2,
2020
  
August 1,
2021
  
August 2,
2020
  
May 1,
2022
  
May 2,
2021
  
May 1,
2022
  
May 2,
2021
 
                        
Revenue by Timing of Recognition                        
Over time $157,941  $137,442  $443,923  $401,347  $192,770  $144,697  $363,034  $285,982 
At a point in time  12,702   20,453   38,550   59,058   11,739   15,066   31,302   25,848 
 $170,643  $157,895  $482,473  $460,405  $204,509  $159,763  $394,336  $311,830 

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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 ofhas historically been two to three weeks for FPD photomasks and one to two weeks for IC photomasks. However, the demand for some IC photomasks andhas 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 two to three weeks for FPD photomasks. 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. We warrant that our photomasks conform to customer specifications and will typically repair, replace, or issue a refund (at our option) for 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 thean identified asset is determined by whether we are entitled to substantially all of its economic benefits and can direct its use.


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 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
  
May 1,
2022
  
October 31,
2021
 
      
ROU Assets – Operating Leases            
Other assets
 $6,238  $7,706  $4,191  $5,581 
                
ROU Assets – Finance Leases                
Property, plant and equipment, net
 $41,537  $0  $39,405  $40,827 
                
Lease Liabilities – Operating Leases                
Accrued liabilities
 $2,258  $2,175  $1,850  $2,273 
Other liabilities
  3,786   5,008   2,280   3,246 
 $6,044  $7,183  $4,130  $5,519 
                
Lease Liabilities – Finance Leases                
Current portion of long-term debt
 $7,119  $0  $6,901  $7,289 
Long-term debt
  32,695   0   27,839   31,083 
 $39,814  $0  $34,740  $38,372 


The following table presents future lease payments under noncancelable operating and finance leases as of AugustMay 1, 20212022. 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 Leases 
Remainder of fiscal year 2022 $1,092  $3,947 
2023  1,297   6,938 
2024  773   6,938 
2025  608   18,013 
2026  373   0 
Thereafter  144   0 
Total lease payments  4,287   35,836 
Imputed interest  (157)  (1,096)
Lease liabilities $4,130  $34,740 


The following table presents lease costs for the three and ninesix--monthmonth periods ended AugustMay 1, 20212022, and AugustMay 2, 2020.2021.

 Three Months Ended  Nine Months Ended      Three Months Ended
  Six Months Ended 
 
August 1,
2021
  
August 2,
2020
  
August 1,
2021
  
August 2,
2020
  
May 1,
2022
  
May 2,
2021
  
May 1,
2022
  
May 2,
2021
 
Operating lease costs $802  $663  $2,190  $2,459  $
569  $
724  $1,158  $1,389 
Short-term lease costs $80  $43  $166  $255  $
142  $
39  $263  $86 
Variable lease costs $54  $131  $355  $259  $
153  $
157  $276  $301 
Interest on lease liabilities $160  $0  $361  $0 
Interest on finance lease liabilities $
92  $
166  $230  $201 
Amortization of ROU assets $711  $0  $1,156  $0  $
711  $
455  $1,421  $455 

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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
  
May 1,
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%  3.3   2.4%  3.5   2.4%
Finance leases  3.7   1.50%  -   0   2.7   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 

19
TableThe following table presents the effects of Contents
leases on our condensed consolidated statements of cash flows, and provides leases-related non-cash information for the periods presented.

 Three Months Ended
  Six Months Ended 
  
May 1,
2022
  
May 2,
2021
  
May 1,
2022
  
May 2,
2021
 
Operating cash flows used for operating leases $589  $627  $1,150  $1,229 
Operating cash flows used for finance leases $134  $166  $277  $201 
Financing cash flows used for finance leases $1,601  $864  $3,632  $864 
ROU assets obtained in exchange for operating lease obligations $1  $99  $32  $367 
ROU assets obtained in exchange for finance lease obligations $0  $7,200  $0  $42,672 

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. TotalThe table below presents information on our share-based compensation costsexpenses for the three and nine-monthsix-month periods ended AugustMay 1, 2021, were $1.3 million2022, and $4.0 million, respectively, and $1.2 million and $3.8 million for the three and nine-month periods ended AugustMay 2, 2020, respectively. 2021.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.

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  Three Months Ended  Six Months Ended 
  
May 1,
2022
  
May 2,
2021
  
May 1,
2022
  
May 2,
2021
 
             
Expense reported in:
            
     Cost of goods sold
 
$
182
  
$
97
  $324  $208 
     Selling, general and administrative
  
1,243
   
1,207
   2,424   2,304 
     Research and development
  
159
   
118
   293   211 
                 
Total expense incurred
 
$
1,584
  
$
1,422
  $3,041  $2,723 
                 
                 
Expense by award type:
                
     Restricted stock awards
 
$
1,316
  
$
1,313
  $2,683  $2,484 
     Stock options
  
221
   
54
   259   138 
     ESPP
  
47
   
55
   99   101 
                 
Total expense incurred
 
$
1,584
  
$
1,422
  $3,041  $2,723 
                 
                 
Income tax benefits of share-based compensation
 
$
104
  
$
62
  $188  $108 
Share-based compensation cost capitalized
 
$
0
  
$
0
  $0  $0 

Restricted Stock
Awards


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 556,200The table below presents information on our restricted stock awards granted duringfor the nine-month periodthree and six-months ended AugustMay 1, 2021, with a weighted-average grant-date fair value of $11.17 per share,2022, and there were 0 restricted stock awards granted during the three-month period ended August 1,May 2, 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.


  Three Months Ended  Six Months Ended 
  
May 1,
2022
  
May 2,
2021
  
May 1,
2022
  
May 2,
2021
 
Number of shares granted in period  0   15,000   535,400   556,200 
Weighted-average grant-date fair value of awards (in dollars per share) $0  $12.65  $19.28  $11.17 
Compensation cost not yet recognized $10,779  $9,762  $10,779  $9,762 
Weighted-average amortization period for cost not yet recognized (in years)  2.8   2.9   2.8   2.9 
Shares outstanding at balance sheet date  891,429   1,022,327   891,429   1,022,327 

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.


There were 0 shareThe table below presents information on our stock 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 periodssix-months ended AugustMay 1, 2021, respectively,2022, and $0.3 million and $3.5 million for the three and nine-month periods ended AugustMay 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..


20
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  Three Months Ended  Six Months Ended
 
  
May 1,
2022
  
May 2,
2021
  
May 1,
2022
  
May 2,
2021
 
Number of options granted in period  0   0   0   0 
Cash received from option exercised $438  $309  $4,149  $967 
Compensation cost not yet recognized $52  $232  $52  $232 
Weighted-average amortization period for cost not yet recognized (in years)  0.7   1.4   0.7   1.4 


Information on outstanding and exercisable option awards as of AugustMay 1, 2021,2022, 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 
Options Shares 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life (in years)
 
Aggregate
Intrinsic
Value
 
            
Outstanding at May 1, 2022
 718,213 $9.90 3.5 $3,657 
Exercisable at May 1, 2022
 693,987 $9.90 3.4 $3,531 

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%25.1% in the three-month period end August 1, 2021, differs from the U.S. statutory rate of 21.0% in the three-month period ended May 1, 2022, primarily due to changesthe non-recognition of the tax benefit of losses that, in forecasted jurisdictional earnings.certain jurisdictions, have been offset by valuation 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 22.4%18.5% in the nine-monththree-month period ended August 1,end May 2, 2021, differs from the U.S. statutory rate of 21.0% primarily due to changes in forecasted jurisdictional earnings.



The effective tax rate of 25.5% in the six-month period ended May 1, 2022, 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, 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 20.5% differs from the U.S. statutory rate of 21.0% in the six-month period ended May 2, 2021, 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 that, in certain jurisdictions, have been offset by valuation allowances.


The effective tax rate of 27.7% in the three-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 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% 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 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 foreign jurisdictions.


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 believeswe 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 isWe are no longer subject to tax authority examinations in the U.S. and major foreign or state jurisdictions for years prior to fiscal year 20152016.The table below presents information on our unrecognized tax benefits as of the balance sheet dates.

  
May 1,
2022
  
October 31,
2021
 
       
Unrecognized tax benefits related to uncertain tax positions $4,629  $3,757 
Unrecognized tax benefits that, if recognized, would impact the effective tax rate $4,629  $3,757 
Accrued interest and penalties related to uncertain tax positions $357  $223 

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NOTE 1110 - EARNINGS PER SHARE


The calculationcalculations of basic and diluted earnings per share isare presented below.

 Three Months Ended  Nine Months Ended  Three Months Ended  Six Months Ended 
 
August 1,
2021
  
August 2,
2020
  
August 1,
2021
  
August 2,
2020
  
May 1,
2022
  
May 2,
2021
  
May 1,
2022
  
May 2,
2021
 
                        
Net income attributable to Photronics, Inc. shareholders $17,076  $10,776  $35,638  $27,360  $27,432  $10,526  $50,496  $18,562 
                                
Effect of dilutive securities  0   0   0   0   0   0   0   0 
Earnings used for diluted earnings per share $17,076  $10,776  $35,638  $27,360  $27,432  $10,526  $50,496  $18,562 
                                
Weighted-average common shares computations:                                
Weighted-average common shares used for basic earnings per share  60,884   64,780   61,804   65,090   60,606   62,054   60,382   62,265 
Effect of dilutive securities:                                
Share-based payment awards  631   467   558   614   539   514   659   521 
                                
Potentially dilutive common shares  631   467   558   614   539   514   659   521 
                                
Weighted-average common shares used for diluted earnings per share  61,515   65,247   62,362   65,704   61,145   62,568   61,041   62,786 
                                
Basic earnings per share $0.28  $0.17  $0.58  $0.42  $0.45  $0.17  $0.84  $0.30 
Diluted earnings per share $0.28  $0.17  $0.57  $0.42  $0.45  $0.17  $0.83  $0.30 


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 pricesprice 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.

 Three Months Ended  Nine Months Ended  Three Months Ended  Six Months Ended 
 
August 1,
2021
  
August 2,
2020
  
August 1,
2021
  
August 2,
2020
  
May 1,
2022
  
May 2,
2021
  
May 1,
2022
  
May 2,
2021
 
                        
Share-based payment awards  206   985   442   723   427   293   626   559 
                                
Total potentially dilutive shares excluded  206   985   442   723   427   293   626   559 


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.

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NOTE 11 - COMMITMENTS AND CONTINGENCIES


As of May 1, 2022, the Company had commitments outstanding for capital expenditures of approximately $115.1 million, primarily for purchases of high-end equipment.



In May 2022, the Company was informed of a customs audit at 1 of its China operations. As of the date of this filing, the audit is ongoing. The Company estimated a contingency ranging from $2.2 million to $3.7 million which includes unpaid additional customs duties and related interest and penalties for the previous three years (the period under audit). We recorded a contingent loss of $2.2 million, as we believe this is the most likely outcome. The $2.2 million amount was recorded with a charge to Cost of goods sold in the condensed consolidated statements of income and Accrued liabilities in the condensed consolidated balance sheets.


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.

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-monthsix-month periods ended AugustMay 1, 20212022, and AugustMay 2, 2020.

 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 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)

 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)


2021.

23
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 Three Months Ended May 1, 2022 
  
Foreign Currency
Translation
Adjustments
  Other  Total 
          
Balance at January 30, 2022 $11,451  $(886) $10,565 
Other comprehensive (loss) income
  (44,118)  129   (43,989)
Less: other comprehensive (loss) income attributable to noncontrolling interests  (10,570)  65   (10,505)
             
Balance at May 1, 2022
 $(22,097) $(822) $(22,919)

 Three Months Ended May 2, 2021 
  
Foreign Currency
Translation
Adjustments
  Other  Total 
          
Balance at January 31, 2021 $32,900 $(871) $32,029
Other comprehensive income  3,778   21   3,799 
Less: other comprehensive income attributable to noncontrolling interests  626   10   636 
             
Balance at May 2, 2021
 $36,052 $(860) $35,192

 Six Months Ended May 1, 2022 
  
Foreign Currency
Translation
Adjustments
  Other  Total 
          
Balance at October 31, 2021 $21,476  $(905) $20,571 
Other comprehensive (loss) income  (53,949)  166   (53,783)
Less: other comprehensive (loss) income attributable to noncontrolling interests  (10,376)  83   (10,293)
             
Balance at May 1, 2022
 $(22,097) $(822) $(22,919)

 Six Months Ended May 2, 2021 
  
Foreign Currency
Translation
Adjustments
  Other  Total 
          
Balance at October 31, 2020 $18,828 $(870) $17,958
Other comprehensive income  22,066   21   22,087 
Less: other comprehensive income attributable to noncontrolling interests  4,842   11   4,853 
             
Balance at May 2, 2021
 $36,052 $(860) $35,192

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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 AugustMay 1, 20212022, 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 companyWe 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 AugustMay 1, 2021, have been retired. 2022, $31.7 million was available under this authorization for the purchase of additional shares. The table below presents information on this repurchase program.program for the three and six-month periods ended May 1, 2022, and May 2, 2021.

 Three Months Ended  Six Months Ended 
 
May 1,
2022
  
May 2,
2021
  
May 1,
2022
  
May 2,
2021
 
 
Three Months Ended
August 1, 2021
  
Nine Months Ended
August 1, 2021
  
From Inception Date of
September 16, 2020
             
Number of shares repurchased  964   2,983   4,713   0   797   188   2,019 
            
Cost of shares repurchased $12,500  $35,750  $53,250  $0  $
10,041  $2,522  $23,250 
            
Average price paid per share $12.97  $11.98  $11.30  $0  $12.59  $13.43  $11.51 


NOTE 15 - RECENT ACCOUNTING PRONOUNCEMENTS


Accounting Standards Updates Adopted


In AugustDecember 2019, the Company’s board of directors authorizedFASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the repurchase of up to $100 millionAccounting for Income Taxes”, as part of its common stock, pursuantoverall simplification initiative to a repurchase plan under Rule 10b5-1reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the Securities Act. This repurchase program was terminated in Marchinformation provided to users of 2020. Allfinancial 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 shares repurchased under this authorization 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 
adoption was immaterial.



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NOTE 15 - COMMITMENTS AND CONTINGENCIESAccounting Standards Updates to be Adopted


AsIn April 2022, the FASB issued ASU 2022-2, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”, which requires: 1) an entity to measure and record the lifetime expected credit losses of August 1,an asset that is within the scope of the Update upon origination or acquisition; as a result, credit losses from loans modified as troubled debt restructurings are to be incorporated into the allowance for credit losses and, 2) public business entities to disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, “Financial Instruments—Credit Losses—Measured at Amortized Cost”. The guidance in this Update will be effective for Photronics in its first quarter of fiscal 2024. The amendments are to be applied prospectively, with the exception of the transition method related to the recognition and measurement of troubled debt restructurings for which an entity has the option to apply a modified retrospective transition method. We are currently evaluating the effect the adoption of this ASU may have on our disclosures.

26

In November 2021, the Company had commitments outstandingFASB issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance”, to increase the transparency of government assistance including the disclosure of the types of assistance an entity receives, an entity’s method of accounting for capital expendituresgovernment assistance, and the effect of approximately $56.9 million, primarilythe assistance on an entity’s financial statements. The guidance in this Update will be effective for purchasesPhotronics in its fiscal year 2023 Form 10-K, with early application of high-end equipment. See Note 8 forthe 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 on our outstanding lease commitments.disclosures.


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 recentlyIn March 2020, the FASB 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 renderedguidance on contract modifications, hedge accounting, and other transactions, to simplify the decisionaccounting for transitioning from LIBOR, and other interbank offered rates expected to 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 do not expect the impact of this ASU to impose the $0.03 million fine.


We are subjectbe material to various claims that arise in the ordinary course of business. We believe that our potential liability under such claims, individually and in the aggregate, will not 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

Accounting Standards Updates AdoptedManagement'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.

In June 2016,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 for IC photomasks. However, the FASB issued ASU 2016-13, “Measurementdemand 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 two to three months.

The global semiconductor and FPD industries are driven by end markets which have been closely tied to consumer-driven applications of Credit Losses”,high-performance devices, including, but not limited to, mobile display devices, mobile communications, and computing solutions. While we cannot predict 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 astiming of the beginningindustry'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 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, 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 currently evaluating the effect the potential adoption of this ASU may have on our consolidated financial statements.
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 shutdowns, 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 and Six Months Ended May 1, 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    Six Months Ended  
 
 
May 1,
2022
  
January 30,
2022
  
May 2,
2021
  
May 1,
2022
  
May 2,
2021
 
                
Revenue  
100.0
%
  
100.0
%
  
100.0
%
  
100.0
%
  
100.0
%
Cost of goods sold  
65.7
   
68.5
   
75.4
   
67.0
   
77.6
 
                     
Gross profit
  34.3   
31.5
   
24.6
   
33.0
   
22.4
 
Selling, general and administrative expenses
  
8.1
   
8.3
   
8.8
   
8.2
   
9.0
 
Research and development expenses
  
2.1
   
3.1
   
2.7
   
2.6
   
2.9
 
 
                    
Operating income
  24.2   
20.1
   
13.0
   
22.2
   
10.4
 
Non-operating income (expense), net
  
3.9
   
2.5
   
(0.5
)
  
3.2
   
-
 
 
                    
Income before income tax provision
  
28.1
   
22.6
   
12.5
   
25.4
   
10.4
 
Income tax provision
  
7.0
   
5.9
   
2.3
   
6.5
   
2.1
 
 
                    
Net income
  
21.0
   
16.7
   
10.2
   
19.0
   
8.3
 
Net income attributable to noncontrolling interests
  
7.6
   
4.6
   
3.6
   
6.2
   
2.3
 
 
                    
Net income attributable to Photronics, Inc. shareholders  
13.4
%
  
12.2
%
  
6.6
%
  
12.8
%
  
6.0
%
                     

Note:All tabular comparisons included in the following discussion, unless otherwise indicated, are for the three months ended May 1, 2022 (Q2 FY22), January 30, 2022 (Q1 FY22), and May 2, 2021 (Q2 FY21), and for the six months ended May 1, 2022 (YTD FY22) and May 2, 2021 (YTD FY21), 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 or second 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 Q2 FY22 and YTD FY22 from revenue in prior reporting periods.

Quarterly Changes in Revenue by Product Type

  Q2 FY22 from Q1 FY22  Q2 FY22 from Q2 FY21  YTD FY22 from YTD FY21 
  Revenue in Q2 FY22  Increase (Decrease)  
Percent
Change
  Increase (Decrease)  
Percent
Change
  Revenue in YTD FY22  Increase (Decrease)  
Percent
Change
 
                         
IC                        
High-end * $51.4  $4.8   10.4% $10.1   24.5% $97.9  $19.9   25.4%
Mainstream  94.4   11.2   13.5%  23.7   33.5%  177.7   38.8   27.9%
                                 
Total IC $145.8  $16.0   12.4% $33.8   30.2% $275.6  $58.6   27.0%
                                 
FPD                                
High-end * $46.6  $0.3   0.7% $7.2   18.3% $92.9  $18.8   25.4%
Mainstream  12.1   (1.7)  (12.3)%  3.7   44.6%  25.9   5.1   24.2%
                                 
Total FPD $58.7  $(1.4)  (2.3)% $10.9   22.9% $118.8  $23.9   25.2%
                                 
Total Revenue $204.5  $14.7   7.7% $44.7   28.0% $394.3  $82.5   26.5%
          
                     

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

Quarterly Changes in Revenue by Geographic Origin**

  Q2 FY22 from Q1 FY22  Q2 FY22 from Q2 FY21  YTD FY22 from YTD FY21 
         
 
  
Revenue in
Q2 FY22
  
Increase
(Decrease)
  
Percent
Change
  
Increase
(Decrease)
  
Percent
Change
  
Revenue in
YTD FY22
  
Increase
(Decrease)
  
Percent
Change
 
                         
Taiwan $69.9  $2.0   3.0% $10.8   18.4% $137.7  $22.1   19.1%
China  53.7   7.7   16.8%  30.0   126.3%  99.6   54.9   122.8%
Korea  40.8   1.3   3.2%  0.5   1.3%  80.3   1.3   1.6%
United States  30.3   3.2   11.6%  3.2   11.7%  57.5   3.8   7.0%
Europe  9.5   0.6   6.6%  0.2   2.7%  18.4   0.6   3.3%
Other  0.4   (0.1)  (16.7)%  0.0   (7.7)%  0.8   (0.1)  (13.2)%
                                 
Total Revenue $204.5  $14.7   7.7% $44.7   28.0% $394.3  $82.5   26.5%
                                 

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

Revenue in Q2 FY22 was $204.5 million, representing an increase of 7.7% compared with Q1 FY22 and 28.0% from Q2 FY21. Revenue in YTD FY22 was $394.3 million, representing an increase of 26.5% over YTD FY21.

IC photomask revenue increased 12.4% and 30.2% in Q2 FY22, compared with Q1 FY22 and Q2 FY21, respectively, and increased 27.0% in YTD FY22, compared with YTD FY21. These increases were driven by continued demand growth and better pricing for mainstream photomasks used for computer chips needed for the production of products considered part of the “internet-of-things”, 5G wireless technology applications, cryptocurrency mining, and consumer products. Concurrently, strong demand for high-end logic photomasks in Asia also allowed for better pricing.

FPD revenue decreased 2.3% in Q2 FY22, compared with Q1 FY22, due to a decline in mainstream demand, unfavorable product mix, and the weakening of the Japanese yen, as well as softened demand for G10.5+ large area masks. FPD revenues increased 22.9% in Q2 FY22, compared with Q2 FY21, as a result of improved demand for both AMOLED photomasks used in mobile applications and G10.5+ large area masks. Demand and ASPs also improved from the prior year quarter for mainstream photomasks. On a year-to-date basis, FPD revenue increased 25.2% as a result of improved demand for AMOLED photomasks and ASPs for mainstream products.

Gross Margin
  Q2 FY22  Q1 FY22  
Percent
Change
  Q2 FY21  
Percent
Change
  YTD FY22  YTD FY21  
Percent
Change
 
                         
                         
Gross profit 
$
70.2
  
$
59.9
   
17.3
%
 
$
39.2
   
78.9
%
 
$
130.1
  
$
69.8
   
86.4
%
Gross margin  
34.3
%
  
31.5
%
      
24.6
%
      
33.0
%
  
22.4
%
    

Gross margin increased by 2.8 percentage points in Q2 FY22, from Q1 FY22, 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 140 basis points. Labor costs increased 5.4%, but decreased 20 basis points, as a percentage of revenue. Equipment and other overhead costs increased 3.4% but decreased 120 basis points as a percentage of revenue, primarily driven by increased importation costs into China, partially offset by decreased outside processing costs, including sputtering and coating.

Gross margin increased by 9.7 percentage points in Q2 FY22, from Q2 FY21, primarily as a result of the increase in revenue from the prior year quarter. Material costs increased 13.1% from the prior year quarter, but decreased 340 basis points, as a percentage of revenue. Labor costs increased 15.8% from the prior year quarter but decreased 110 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 8.4%, but decreased 520 basis points, as a percentage of revenue. Increased outsourced manufacturing costs and importation costs into China, which were partially offset by decreased depreciation expense, were the most significant contributors to the net increase in equipment and other overhead costs.

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Gross margin increased by 10.6 percentage points in YTD FY22, from YTD FY21, primarily as a result of the increase in revenue from the prior year. Material costs increased 11.8% from the prior year quarter, but decreased 350 basis points, as a percentage of revenue. Labor costs increased 12.5% from the prior year quarter but decreased 140 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 5.7%, but decreased 570 basis points, as a percentage of revenue. Increased outsourced manufacturing costs and importation costs into China, 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 $16.6 million in Q2 FY22, compared with $15.7 million in Q1 FY22. The increase of $0.9 million was primarily the result of increased compensation and related expenses of $1.2 million, which were partially offset by decreased professional fees of $0.3 million. Selling, general and administrative expenses increased $2.5 million in Q2 FY22, from $14.1 million in Q1 FY21, primarily as a result of increased compensation and related expenses of $2.4 million. The increases in compensation and related expenses from both prior periods included increased severance costs of $0.7 million, primarily related to the retirement of our former chief executive officer.

Selling, general and administrative expenses were $32.3 million in YTD FY22, compared with $28.1 million in YTD FY21. The increase of $4.2 million was primarily the result of increased compensation and related expenses of $3.9 million, and increased export duties of $0.3 million.

Research and Development Expenses

Research and development expenses, which primarily consist of development and qualification efforts related to process technologies for high-end IC and FPD applications, were $4.2 million in Q2 FY22, compared with $5.9 million in Q1 FY22; the decrease was primarily the result of decreased development activities in the U.S.  Research and development expenses decreased by $0.2 million in Q2 FY22, from $4.4 million incurred in Q2 FY21, with decreased development activities in the U.S. and China exceeding increases at our Taiwan-based facilities.

Research and development expenses increased by $1.1 million in YTD FY22 to $10.1 million, compared with $9.1 million in YTD FY21. The increase was driven by more development activities in the U.S. and Taiwan, which were partially offset by a decrease in such activities in China.

Non-operating Income (Expense)

  Q2 FY22  Q1 FY22  Q2 FY21  YTD FY22  YTD FY21 
                
                
Foreign currency transactions impact, net 
$
7.8
  
$
5.3
  
$
(2.1
)
 
$
13.1
  
$
(0.7
)
Interest expense, net  
-
   
(0.9
)
  
1.2
   
(0.9
)
  
0.4
 
Interest income and other income (expense), net  
0.2
   
0.3
   
-
   
0.5
   
0.2
 
                     
Non-operating income (expense), net 
$
8.0
  
$
4.7
  
$
(0.8
)
 
$
12.7
  
$
(0.1
)
                     

Non-operating income (expense) increased $3.3 million to $8.0 million in Q2 FY22, compared with $4.7 million in Q1 FY22, primarily due to favorable movements of the South Korean won and the New Taiwan dollar against the U.S. dollar offsetting unfavorable movements of the RMB against the U.S. dollar. In addition, our interest expense decreased by $0.9 million as a result of subsidies we received on our China-based debt.

Non-operating income (expense) increased $8.8 million to $8.0 million in Q2 FY22, compared with $(0.8) million in Q2 FY21, and increased $12.8 million to $12.7 million in YTD FY22, compared with $(0.1) million in YTD FY21. These increases were 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. These net favorable foreign currency results were partially offset by increased interest expense in the current year periods, which resulted from our receiving lower subsidies on our China-based debt.

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Income Tax Provision

  Q2 FY22  Q1 FY22  Q2 FY21  YTD FY22  YTD FY21 
                
                
Income tax provision 
$
14.4
  
$
11.2
  
$
3.7
  
$
25.6
  
$
6.7
 
Effective income tax rate  
25.1
%
  
26.1
%
  
18.5
%
  
25.5
%
  
20.5
%

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 decrease in Q2 FY22, compared with Q1 FY22, is primarily due to changes in the jurisdictional mix of earnings.

The effective income tax rate increase in Q2 FY22, compared with Q2 FY21, is primarily due to a decrease in credits in a non-U.S. jurisdiction and the release of valuation allowance for a loss carryforward in a non-U.S. jurisdiction in Q2 FY21.

The effective income tax rate increase in YTD FY22, compared with YTD FY21, is primarily due to a decrease in credits in a non-U.S. jurisdiction and the release of valuation allowance for a loss carryforward in a non-U.S. jurisdiction in YTD FY21.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests was $15.6 million in Q2 FY22, compared with $8.7 million in Q1 FY22, and $5.8 million in Q2 FY21. On a year-to-date basis, net income attributable to noncontrolling interests increased to $24.3 million in YTD FY22 from $7.3 million in YTD FY21. The increases from all prior periods resulted from increased net income at our Taiwan-based and China-based IC joint ventures.
Liquidity and Capital Resources

Cash and cash equivalents was $329.3 million and $276.7 million as of May 1, 2022, and October 31, 2021, respectively. As of the most recent balance sheet date, total cash and cash equivalents included $266.1 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 $246.7 million and $165.0 million as of May 1, 2022, and October 31, 2021, respectively. 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 $30.4 million of borrowing capacity to support local operations. See Note 5 to the condensed consolidated financial statements for additional information on our currently available financing.

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 $65 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 May 1, 2022, we had outstanding capital commitments of approximately $115 million and recognized liabilities related to capital equipment purchases of approximately $8 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 $96 million of our total $123 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 May 1, 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.

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 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 May 1, 2022, Photronics and DNP each had net investments in this joint venture of approximately $92.6 million.

Cash Flows

  YTD FY22  YTD FY21 
       
       
Net cash provided by operating activities 
$
103.3
  
$
58.2
 
Net cash used in investing activities 
$
(33.6
)
 
$
(67.9
)
Net cash used in financing activities 
$
(2.2
)
 
$
(18.6
)

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 $45.1 million in YTD FY22, compared with YTD FY21, due to increased net income, which was partially offset by lower depreciation expense.

Free Cash Flow and LTM (“Last Twelve Months”) Free Cash Flow, which are non-GAAP financial measures as discussed in the “Non-GAAP Financial Measures” section below, increased by $79.4 and $95.3 million, respectively, compared with YTD FY21, primarily due to the increase in Net cash provided by operating activities discussed above.

Investing Activities:Net cash flows used in investing activities primarily consisted of purchases of property, plant and equipment of $34.8 million, which decreased $38.7 million in YTD FY22, as compared with YTD FY21. The reduced spending on property, plant and equipment was partially offset by a $4.4 million decrease in investment related government incentives received in China.

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. Net cash used in financing activities decreased by $16.5 million in YTD FY22, compared with YTD FY21, primarily due to contributions from noncontrolling interests in our majority owned subsidiaries in Taiwan and China of $25.0 million, decreased share repurchases of $20.7 million, and increased debt repayments of $18.9 million. In addition, we received debt proceeds of $12.4 million in YTD FY21 and did not incur debt in YTD FY22.

Non-GAAP Financial Measures

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 SEC), to be 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 represent funds available for our discretionary use or to be used as a substitute for Cash and cash equivalents or Net cash provided by operating activities, as measured under GAAP. The following tables reconcile Net cash provided by operating activities to Free Cash Flow and present the calculations of LTM Free Cash Flow for Q2 FY22 and Q2 FY21. The columns may not foot due to rounding.
  YTD FY22  YTD FY21 
       
Free Cash Flow      
Net cash provided by operating activities 
$
103.3
  
$
58.2
 
Purchases of property, plant and equipment  
(34.8
)
  
(73.5
)
Government incentives  
1.4
   
5.8
 
Free cash flow 
$
69.9
  
$
(9.5
)

33
  Q2 FY22  Q2 FY21 
       
LTM Free Cash Flow      
First six months of the respective fiscal year 
$
69.9
  
$
(9.5
)
October fiscal year end  
47.4
   
77.5
 
First six months of the prior year  
9.5
   
(36.5
)
LTM free cash flow 
$
126.8
  
$
31.5
 

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 and decreased spending on property, plant and equipment, as discussed above. The columns may not foot due to rounding.

  As of 
    
  
May 1,
2022
  
October 31,
2021
 
       
Net Cash      
Cash and cash equivalents 
$
329.3
  
$
276.7
 
Current portion of Long-term debt  
(12.4
)
  
(22.2
)
Long-term debt  
(70.1
)
  
(89.4
)
Net cash 
$
246.7
  
$
165.0
 

Business Outlook

Our current business outlook and guidance was provided in the Photronics Q2 FY22 earnings release, Earnings Presentation, and financial results 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 Q2 FY22 Earnings Presentation and the related financial results conference 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 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%.

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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.

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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%

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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.

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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.

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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.

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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.

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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.

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Our primary net foreign currency exposures as of AugustMay 1, 2021,2022, 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$34.1 million, which represents an increase of $1.5 million and $4.1$0.1 million from our exposuresexposure at May 2, 2021January 30, 2022, and a decrease of $1.1 million from our exposure at October 31, 2020, respectively.2021. Our most significant exposures at AugustMay 1, 2021,2022, 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$11.5 million, $12.3$9.1 million, and $7.5$8.3 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 AugustMay 1, 2021,2022, 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 AugustMay 1, 20212022, condensed consolidated financial statements.

Item 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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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'sSEC 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 toat a material weakness in our internal control over financial reporting as discussed below.

Based on our prior assessmentreasonable 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 completenessend of information used in monitoring compliance with covenants stipulatedthe 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 beenThere was no other changeschange in our internal control over financial reporting during the second fiscal quarter ended August 1, 2021, that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.

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 1A.RISK FACTORS

In light of external events that have taken place subsequent to the close of the first fiscal quarter, we have decided to modify two of the risk factors included in our 2021 Form 10-K, under the “General Risk Factors” heading, as follows:

Our business could be adversely impacted by global or regional catastrophic events.

Our business could be materially, adversely affected by terrorist acts, widespread outbreaks of infectious diseases (such as COVID-19), government responses emplaced to limit the impact of infectious diseases (such as shelter-in-place directives), or the outbreak or escalation of wars including, but not limited to, the invasion of Ukraine by the Russian Federation. Such events in the geographic regions in which we do business, including escalations of political tensions and military conflicts in the U.S., Europe, the Republic of South Korea, the People’s Republic of China, or the Republic of China (Taiwan), and any governmental sanctions enacted in reaction thereto, could result in a global energy crisis, economic inflation, supply-chain disruptions, or the confiscation or destruction of our facilities; all and any of these outcomes could have material, adverse impacts on our results of operations, financial condition, and cash flows.

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Our products and technology could be subject to and negatively impacted by the recent expansion of the foreign-produced direct product rule, as well as other contemplated regulatory actions.

In May 2019, the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”) amended export administration regulations by adding Huawei Technologies Co., Ltd. (“Huawei”) and certain affiliates to the “Entity List” for actions contrary to the national security and foreign policy interests of the United States, imposing significant new restrictions on export, re-export and transfer of U.S. regulated technologies and products to Huawei. On August 17, 2020, BIS issued a final rule adding additional Huawei non-U.S. affiliates to the Entity List, confirming the expiration of a temporary general license applicable to Huawei, and amended the foreign-produced direct product rule in a manner that represents a significant expansion of its application to Huawei.
Expansion of the foreign-produced direct product rule and additional companies being added to the entity list may adversely affect our business in various ways, including by: increasing the cost of regulatory compliance for the export of our products, equipment, services, and technology from the United States and abroad; increasing the time necessary to obtain required authorizations; increasing the risk of monetary fines and other penalties for non-compliance, and negatively impacting our customers who may no longer be able to supply their customers and thereby reducing demand for their or our products. Any of these effects could result in lost revenue, additional product costs, increased lead times and deployment delays that could harm our business and customer relationships.
In addition, it has been reported that BIS is considering a ban on American companies selling advanced chipmaking equipment to Chinese firms. Such a rule would expand on an existing ban on U.S. companies selling equipment to China's leading chipmaker, which remains a customer of PDMCX through an exception to the rule. There can be no assurance that an expanded ban would not make it difficult for us to continue supplying to this customer, or allow us to pursue new relationships with Chinese companies, which could result in diminished sales for us.  
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 thirdsecond 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 
January 31, 2022 – February 27, 2022 
0.0
  
$
0.00
  
0.0
  
$
31.7
 
February 28, 2022 – March 27, 2022 
0.0
  
$
0.00
  
0.0
  
$
31.7
 
March 28, 2022 – May 1, 2022  
0.0
  
$
0.00
   
0.0
  
$
31.7
 
Total  1.0  $12.97   1.0       
0.0
      
0.0
    
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.

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Item 6.EXHIBITS
Item 6.EXHIBITS

   Incorporated by Reference 
Exhibit
Number
Description
 Form
File
Number
Exhibit
Filing
Date
Filed or
Furnished
Herewith
        
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
        
31.232.1
Certification of Chief FinancialExecutive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act,18 U.S.C. Section 1350, as
adopted pursuant to Section 302906 of the Sarbanes-Oxley Act of 2002.
     X
        
32.132.2
Certification of Chief ExecutiveFinancial 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.INSInline 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.SCHInline XBRL Taxonomy Extension Schema Document     X
        
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document     X
        
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document     X
        
101.LABInline XBRL Taxonomy Extension Label Linkbase Document     X
        
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document     X
        
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)     X

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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/ ERIC RIVERA
 JOHN P. JORDANERIC RIVERA
 Executive Vice President,Vice President,
 Chief Financial OfficerCorporate Controller
 (Principal Financial Officer)(Principal Accounting Officer)
   

Date:September 10, 2021June 15, 2022Date: September 10, 2021June 15, 2022


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