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 ~~May 1, 2022~~April 30, 2023

☐	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~~001-39063

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’s telephone number, including area code

(203) 775-9000

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

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

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,” “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~~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 ☒

The registrant had ~~61,601,263~~62,518,181 shares of common stock outstanding as of June ~~2, 2022.~~1, 2023.

PHOTRONICS, INC.

QUARTERLY REPORT ON FORM 10-Q

~~May 1, 2022~~April 30, 2023

TABLE OF CONTENTS

Glossary of Terms and Acronyms		3

Forward-Looking Statements		4

PART I.	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)	5

	Condensed Consolidated Balance Sheets	5

	Condensed Consolidated Statements of Income	6

	Condensed Consolidated Statements of Comprehensive Income	7

	Condensed Consolidated Statements of Equity	8

	Condensed Consolidated Statements of Cash Flows	10

	Notes to Condensed Consolidated Financial Statements	11

Item 2.	~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	2827

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3435

Item 4.	Controls and Procedures	3536

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	3537

Item 1A.	Risk Factors	3537

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3637

Item 6.	Exhibits	3738

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.
Application-specific IC	An integrated circuit customized for a particular use, rather than intended for general-purpose use
ASC	Accounting Standards Codification
	ASP	Average Selling Price
	ASU	Accounting Standards Update
	Chip stacking	Placement of ~~a computer chip~~an integrated circuit on top of another ~~computer chip,~~integrated circuit, resulting in the reduction of the distance between the chips in a circuit board
	COVID-19	~~Coronavirus~~Covid virus 2019, an infectious disease that was declared a pandemic by the World Health Organization in March 2020
	DNP	Dai Nippon Printing Co., Ltd.
	EUV	A wafer lithography technology using the industry standard extreme ultraviolet (EUV) wavelength. EUV photomasks function by selectively reflecting or blocking light, in contrast to conventional photomasks which function by selectively transmitting or blocking light
	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~~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
	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 display (LCD) flat panels and to drive organic light-emitting diode (OLED) 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~~imaged onto a silicon wafer, for further processing to an etched pattern.
	PDMCX	Xiamen American Japan Photronics Mask Co., Ltd., a joint venture of Photronics and DNP
	Phase-shift photomasks	Photomasks that take advantage of the interference generated by phase differences to improve image resolution in photolithography
Pure-play foundry	A company that does not produce a significant volume of IC products of its own design, but rather operates IC fabrication plants dedicated to producing ICs for other companies
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

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Forward-Looking Statements

This Form 10-Q contains forward-looking statements, as defined by the SEC. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements made by us, or on our behalf. Forward-looking statements are statements other than statements of historical fact, including, without limitation, those statements that include such words as “anticipates”, “believes”, “estimates”, “expects”, “intends”, “may”, “plans”, “predicts”, 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 Form 10-Q are cautioned that various factors may cause actual results to differ materially from those contained in any forward-looking statements found within this Form 10-Q and that they should not place undue reliance on any forward-looking statement. In addition, all forward-looking statements, whether written or oral and whether made by us or on our behalf, are expressly qualified by the risk factors provided in Part I, Item 1A “Risk Factors” of our Form 10-K, as well as any additional risk factors we may provide in Part II, Item 1A of our Quarterly Reports on Form 10-Q.

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)

	May 1, 2022			October 31, 2021		April 30, 2023			October 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	329,282		$	276,670	$	367,485		$	319,680
Accounts receivable, net of allowance of $1,107 in 2022 and $1,218 in 2021		190,259			174,447
Short-term investments							45,431			38,820
Accounts receivable, net of allowance of $1,172 in 2023 and $1,002 in 2022							214,464			198,147
Inventories		57,940			55,249		54,940			50,753
Other current assets		52,864			44,250		37,796			37,252

Total current assets		630,345			550,616		720,116			644,652

Property, plant and equipment, net		659,881			696,553		699,917			643,873
Deferred income taxes		23,731			24,353		19,302			19,816
Other assets		17,930			22,680		11,690			7,489
Total assets	$	1,331,887		$	1,294,202	$	1,451,025		$	1,315,830

LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	12,410		$	22,248	$	7,017		$	10,024
Accounts payable		78,341			81,534		92,672			79,566
Accrued liabilities		95,720			72,366		85,479			104,207

Total current liabilities		186,471			176,148		185,168			193,797

Long-term debt		70,138			89,446		21,322			32,310
Other liabilities		25,048			28,046		39,851			27,634
Total liabilities							246,341			253,741

Total liabilities		281,657			293,640
Commitments and contingencies		0			0

Equity:
Preferred stock, $0.01 par value, 2,000 shares authorized, NaN issued and outstanding		0			0
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
Preferred stock, $0.01 par value, 2,000 shares authorized, none issued and outstanding							-			-
Common stock, $0.01 par value, 150,000 shares authorized, 61,185 shares issued and outstanding at April 30, 2023, and 60,791 shares issued and outstanding at October 31, 2022							612			608
Additional paid-in capital		489,368			484,672		497,391			493,741
Retained earnings		367,344			317,849		489,549			435,634
Accumulated other comprehensive (loss) income		(22,919	)		20,571

Accumulated other comprehensive loss							(59,505	)		(98,456	)
Total Photronics, Inc. shareholders’ equity		834,399			823,692		928,047			831,527
Noncontrolling interests		215,831			176,870		276,637			230,562

Total equity		1,050,230			1,000,562		1,204,684			1,062,089

Total liabilities and equity	$	1,331,887		$	1,294,202	$	1,451,025		$	1,315,830

See accompanying notes to condensed consolidated financial statements.

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PHOTRONICS, INC.

Condensed Consolidated Statements of Income

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended					Six Months Ended
	May 1, 2022		May 2, 2021			May 1, 2022			May 2, 2021			Three Months Ended					Six Months Ended
												April 30, 2023			May 1, 2022		April 30, 2023			May 1, 2022
Revenue	$	204,509	$	159,763		$	394,336		$	311,830		$	229,306		$	204,509	$	440,397		$	394,336

Cost of goods sold		134,289		120,514			264,253			242,052			140,904			134,289		275,918			264,253

Gross profit		70,220		39,249			130,083			69,778			88,402			70,220		164,479			130,083

Operating expenses:

Selling, general and administrative		16,613		14,067			32,340			28,120

Selling, general, and administrative													17,878			16,613		34,696			32,340
Research and development		4,206		4,375			10,145			9,085			3,479			4,206		6,781			10,145

Total operating expenses		20,819		18,442			42,485			37,205			21,357			20,819		41,477			42,485

Operating income		49,401		20,807			87,598			32,573			67,045			49,401		123,002			87,598

Non-operating income (expense):
Other income (expense):
Foreign currency transactions impact, net		7,844		(2,055	)		13,112			(674	)		10,718			7,844		(6,226	)		13,112
Interest expense, net of subsidies		15		1,246			(880	)		423
Interest income and other income and expense, net		162		37			496			159

Interest income and other income, net													2,987			162		5,570			496
Interest expense													(134	)		15		(198	)		(880	)
Income before income tax provision		57,422		20,035			100,326			32,481			80,616			57,422		122,148			100,326

Income tax provision		14,393		3,714			25,571			6,651			21,343			14,393		33,925			25,571

Net income		43,029		16,321			74,755			25,830			59,273			43,029		88,223			74,755

Net income attributable to noncontrolling interests		15,597		5,795			24,259			7,268			19,344			15,597		34,308			24,259

Net income attributable to Photronics, Inc. shareholders	$	27,432	$	10,526		$	50,496		$	18,562		$	39,929		$	27,432	$	53,915		$	50,496

Earnings per share:

Basic	$	0.45	$	0.17		$	0.84		$	0.30		$	0.65		$	0.45	$	0.88		$	0.84

Diluted	$	0.45	$	0.17		$	0.83		$	0.30		$	0.65		$	0.45	$	0.88		$	0.83

Weighted-average number of common shares outstanding:

Basic		60,606		62,054			60,382			62,265			61,138			60,606		61,016			60,382

Diluted		61,145		62,568			61,041			62,786			61,507			61,145		61,489			61,041

See accompanying notes to condensed consolidated financial statements.

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PHOTRONICS, INC.

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)

	Three Months Ended					Six Months Ended
	May 1, 2022			May 2, 2021		May 1, 2022			May 2, 2021		Three Months Ended						Six Months Ended
											April 30, 2023			May 1, 2022			April 30, 2023		May 1, 2022
Net income	$	43,029		$	16,321	$	74,755		$	25,830	$	59,273		$	43,029		$	88,223	$	74,755

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

Foreign currency translation adjustments		(44,118	)		3,778		(53,949	)		22,066		(39,813	)		(44,118	)		50,707		(53,949	)

Other		129			21		166			21		66			129			11		166

Net other comprehensive (loss) income		(43,989	)		3,799		(53,783	)		22,087		(39,747	)		(43,989	)		50,718		(53,783	)

Comprehensive (loss) income		(960)			20,120		20,972			47,917
Comprehensive income (loss)												19,526			(960	)		138,941		20,972

Less: comprehensive income attributable to noncontrolling interests		5,092			6,431		13,966			12,121		14,682			5,092			46,075		13,966

Comprehensive (loss) income attributable to Photronics, Inc. shareholders	$	(6,052	)	$	13,689	$	7,006		$	35,796
Comprehensive income (loss) attributable to Photronics, Inc. shareholders											$	4,844		$	(6,052	)	$	92,866	$	7,006

See accompanying notes to condensed consolidated financial statements.

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PHOTRONICS, INC.

Condensed Consolidated Statements of Equity

(in thousands)

(unaudited)

	Three Months Ended May 1, 2022																			Three Months Ended April 30, 2023
	Photronics, Inc. Shareholders																			Photronics, Inc. Shareholders
					Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)			Non- controlling Interests			Total Equity							Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss			Non- controlling Interests			Total Equity

	Common Stock																			Common Stock
	Shares		Amount																	Shares		Amount

Balance at January 30, 2022		60,564	$	606	$	487,342	$	339,912	$	0	$	10,565		$	200,741		$	1,039,166
Balance at January 29, 2023																					61,102	$	611	$	494,954	$	449,620	$	-	$	(24,420	)	$	261,955		$	1,182,720

Net income		-		0		0		27,432		0		0			15,597			43,029			-		-		-		39,929		-		-			19,344			59,273
Other comprehensive loss		-		0		0		0		0		(33,484	)		(10,505	)		(43,989	)		-		-		-		-		-		(35,085	)		(4,662	)		(39,747	)
Shares issued under equity plans		73		0		442		0		0		0			0			442			83		1		428		-		-		-			-			429
Share-based compensation expense		-		0		1,584		0		0		0			0			1,584			-		-		2,009		-		-		-			-			2,009
Contribution from noncontrolling interest		-		0		0		0		0		0			9,998			9,998

Balance at May 1, 2022		60,637	$	606	$	489,368	$	367,344	$	0	$	(22,919	)	$	215,831		$	1,050,230
Balance at April 30, 2023																					61,185	$	612	$	497,391	$	489,549	$	-	$	(59,505	)	$	276,637		$	1,204,684

Three Months Ended May 2, 2021

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

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

Balance at January 31, 2021 63,506 $ 635 $ 508,974 $ 287,073 $ (13,209 ) $ 32,029 $ 162,994 $ 978,496

Net income - 0 0 10,526 0 0 5,795 16,321
Other comprehensive income - 0 0 0 0 3,163 636 3,799
Shares issued under equity plans 100 1 819 0 0 0 0 820
Share-based compensation expense - 0 1,422 0 0 0 0 1,422
Purchase of treasury stock 0 0 0 0 (10,041 ) 0 0 (10,041 )

Balance at May 2, 2021
63,606 $ 636 $ 511,215 $ 297,599 $ (23,250 ) $ 35,192 $ 169,425 $ 990,817

	Three Months Ended May 1, 2022
	Photronics, Inc. Shareholders
	Common Stock				Additional Paid-in		Retained		Treasury		Accumulated Other Comprehensive			Non- controlling			Total
	Shares		Amount		Capital		Earnings		Stock		Income (Loss)			Interests			Equity

Balance at January 30, 2022		60,564	$	606	$	487,342	$	339,912	$	-	$	10,565		$	200,741		$	1,039,166

Net income		-		-		-		27,432		-		-			15,597			43,029
Other comprehensive loss		-		-		-		-		-		(33,484	)		(10,505	)		(43,989	)
Shares issued under equity plans		73		-		442		-		-		-			-			442
Share-based compensation expense		-		-		1,584		-		-		-			-			1,584
Contribution from noncontrolling interest		-		-		-		-		-		-			9,998			9,998

Balance at May 1, 2022		60,637	$	606	$	489,368	$	367,344	$	-	$	(22,919	)	$	215,831		$	1,050,230

See accompanying notes to condensed consolidated financial statements.

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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

	Six Months Ended April 30, 2023
	Photronics, Inc. Shareholders
					Additional Paid-in Capital			Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss			Non- controlling Interests		Total Equity

	Common Stock
	Shares		Amount

Balance at October 31, 2022		60,791	$	608	$	493,741		$	435,634	$	-	$	(98,456	)	$	230,562	$	1,062,089

Net income		-		-		-			53,915		-		-			34,308		88,223
Other comprehensive Income		-		-		-			-		-		38,951			11,767		50,718
Shares issued under equity plans		394		4		(180	)		-		-		-			-		(176	)
Share-based compensation expense		-		-		3,830			-		-		-			-		3,830

Balance at April 30, 2023		61,185	$	612	$	497,391		$	489,549	$	-	$	(59,505	)	$	276,637	$	1,204,684

	Six Months Ended May 2, 2021																		Six Months Ended May 1, 2022
	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			Income		Interests		Equity			Shares			Amount			Capital			Earnings			Stock			Income (Loss)			Interests			Equity

Balance at October 31, 2020		63,138	$	631	$	507,336	$	279,037	$	0		$	17,958	$	157,304	$	962,266
Balance at October 31, 2021																				60,024		$	600		$	484,672		$	317,849		$	-		$	20,571		$	176,870		$	1,000,562

Net income		-		0		0		18,562		0			0		7,268		25,830			-			-			-			50,496			-			-			24,259			74,755
Other comprehensive income		-		0		0		0		0			17,234		4,853		22,087
Other comprehensive loss																				-			-			-			-			-			(43,490	)		(10,293	)		(53,783	)
Shares issued under equity plans		468		5		1,156		0		0			0		0		1,161			801			7			3,175			-			-			-			-			3,182
Share-based compensation expense		-		0		2,723		0		0			0		0		2,723			-			-			3,041			-			-			-			-			3,041
Contribution from noncontrolling interest																				-			-			-			-			-			-			24,995			24,995
Purchase of treasury stock		-		0		0		0		(23,250	)		0		0		(23,250	)		-			-			-			-			(2,522	)		-			-			(2,522	)
Retirement of treasury stock																				(188	)		(1	)		(1,520	)		(1,001	)		2,522			-			-			-

Balance at May 2, 2021		63,606	$	636	$	511,215	$	297,599	$	(23,250	)	$	35,192	$	169,425	$	990,817
Balance at May 1, 2022																				60,637		$	606		$	489,368		$	367,344		$	-		$	(22,919	)	$	215,831		$	1,050,230

See accompanying notes to condensed consolidated financial statements.

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PHOTRONICS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Six Months Ended						Six Months Ended
	May 1, 2022			May 2, 2021			April 30, 2023			May 1, 2022

Cash flows from operating activities:
Net income	$	74,755		$	25,830		$	88,223		$	74,755
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		41,405			47,121			39,085			41,405
Share-based compensation		3,041			2,723			3,830			3,041
Changes in assets and liabilities:
Accounts receivable		(25,122	)		(5,655	)		(5,952	)		(25,122	)
Inventories		(5,081	)		2,266			(1,905	)		(5,081	)
Other current assets		(10,858	)		(8,591	)		1,382			(10,858	)
Accounts payable, accrued liabilities, and other		25,149			(5,475	)		(14,986	)		25,149

Net cash provided by operating activities		103,289			58,219			109,677			103,289

Cash flows from investing activities:
Purchases of property, plant and equipment		(34,809	)		(73,516	)		(57,728	)		(34,809	)
Purchases of available-for-sale debt securities								(9,837	)		-
Proceeds from maturities of available-for-sale debt securities								4,000			-
Government incentives		1,394			5,775			1,393			1,394
Other		(199	)		(157	)		(88	)		(199	)

Net cash used in investing activities		(33,614	)		(67,898	)		(62,260	)		(33,614	)

Cash flows from financing activities:
Repayments of debt		(27,571	)		(8,636	)		(14,720	)		(27,571	)
Purchases of treasury stock		(2,522	)		(23,250	)		-			(2,522	)
Contribution from noncontrolling interest		24,995			0			-			24,995
Proceeds from share-based arrangements		4,384			1,180			730			4,384
Proceeds from long-term debt		0			12,439
Net settlements of restricted stock awards		(1,452	)		(371	)		(1,252	)		(1,452	)

Net cash used in financing activities		(2,166	)		(18,638	)		(15,242	)		(2,166	)

Effects of exchange rate changes on cash, cash equivalents, and restricted cash		(14,917	)		5,686			15,621			(14,917	)

Net increase (decrease) in cash, cash equivalents, and restricted cash		52,592			(22,631	)
Net increase in cash, cash equivalents, and restricted cash								47,796			52,592
Cash, cash equivalents, and restricted cash at beginning of period		279,680			281,602			322,409			279,680

Cash, cash equivalents, and restricted cash at end of period		332,272			258,971			370,205			332,272

Less: Ending restricted cash		2,990			3,006			2,720			2,990

Cash and cash equivalents at end of period	$	329,282		$	255,965		$	367,485		$	329,282

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

Accruals for property, plant and equipment purchased during the period	$	5,737		$	20,533		$	14,420		$	5,737

See accompanying notes to condensed consolidated financial statements.

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PHOTRONICS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION

Photronics, Inc. (“Photronics”, “the Company”, “we”, “our”, or “us”) is one of the world’s 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 ~~semiconductors~~ICs and ~~flat-panel displays (“FPDs” or “displays”),~~FPDs and are used as masters to transfer circuit patterns onto semiconductor wafers and FPD substrates during the fabrication of ~~integrated circuits (“ICs” or “semiconductors”),~~ICs, a variety of FPDs and, to a lesser extent, other types of electrical and optical components. We operate 11eleven manufacturing facilities, which are located in Taiwan (3), Korea, China (2), the United States (3), and Europe (2).

The accompanying unaudited condensed consolidated financial statements (“the financial statements”) have been prepared in accordance with U.S. GAAP for interim financial information, and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, adjustments, all of which are of a normal recurring nature, considered necessary for a fair presentation have been included. The financial statements include the accounts of Photronics, its wholly owned subsidiaries, and the majority-owned subsidiaries, which it controls. All intercompany balances and transactions have been eliminated in consolidation. These financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Form 10-K for the fiscal year ended October 31, ~~2021,~~2022, 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 U.S. GAAP requires us to make estimates and assumptions that affect amounts reported in them. Our estimates, including those on the impact of COVID-19, are based on historical experience and on various assumptions that we believe to be reasonable under the ~~circumstances. Our estimates are based on the~~ facts and circumstances ~~available~~ at the time they are made. Subsequent actual results may differ from such estimates. We review these estimates periodically and reflect any effects of revisions in the period in which they are determined.

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 this 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, ~~2022.~~2023.

NOTE 2 - SHORT-TERM INVESTMENTS

Short-term investments consist of U.S. government securities and are classified as available-for-sale. We classify available-for-sale securities on our consolidated balance sheet as follows:

-	Maturing within three months or less from the date of purchase	Cash and cash equivalents
-	Maturing, as of the date of purchase, more than three months, but with remaining maturities of less than one year, from the balance sheet date	Short-term investments
-	Maturing one year or more from the balance sheet date	Long-term marketable investments

As of April 30, 2023, all of our available-for-sale securities had, at their dates of purchase, remaining maturities of more than three months, but less than one year, and have been classified as Short-term investments.

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Available-for-sale debt investments are reported at fair value, with unrealized gains or losses (net of tax) reported in Accumulated other comprehensive income. The fair values of our available-for-sale securities are Level 1 measurements, based on quoted prices from active markets for identical assets. In the event of a sale of an available-for-sale debt investment, we would determine the cost of the investment sold at the specific individual security level, and would include any gain or loss in Interest income and other income, net, where we also report periodic interest earned and the amortization (accretion) of discounts (premiums) related to these investments. The table below provides information on our available-for-sale debt securities.

	April 30, 2023									October 31, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses			Carrying Value		Amortized Cost		Unrealized Gains		Unrealized Losses			Carrying Value
Government securities	$	45,492	$	-	$	(61	)	$	45,431	$	38,911	$	-	$	(91	)	$	38,820

NOTE 3 - INVENTORIES

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

	May 1, 2022		October 31, 2021
					April 30, 2023		October 31, 2022
Raw materials	$	54,501	$	54,019	$	53,642	$	49,326
Work in process		3,398		1,121		1,203		1,408
Finished goods		41		109		95		19
					$	54,940	$	50,753
	$	57,940	$	55,249

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NOTE 34 - PROPERTY, PLANT, AND EQUIPMENT, NET

Presented below are the components of Property, plant, and equipment, ~~consists of~~net at the ~~following:~~balance sheet dates.

	May 1, 2022			October 31, 2021
							April 30, 2023			October 31, 2022
Land	$	11,927		$	12,442		$	11,620		$	11,134
Buildings and improvements		176,559			181,922			190,134			168,024
Machinery and equipment		1,873,926			1,961,474			1,884,235			1,769,478
Leasehold improvements		20,540			21,751			19,835			18,802
Furniture, fixtures and office equipment		15,210			15,534
Furniture, fixtures, and office equipment								15,523			14,355
Construction in progress		49,714			35,009			91,204			90,846

		2,147,876			2,228,132			2,212,551			2,072,639
Accumulated depreciation and amortization		(1,487,995	)		(1,531,579	)		(1,512,634	)		(1,428,766	)
							$	699,917		$	643,873
	$	659,881		$	696,553

Information on ROU assets resulting from finance leases, ~~are included in~~at the ~~table above as follows:~~balance sheet dates, is presented below.

	May 1, 2022			October 31, 2021
							April 30, 2023			October 31, 2022
Machinery and equipment	$	42,760		$	42,760		$	42,817		$	42,760
Accumulated amortization		(3,355	)		(1,933	)		(6,206	)		(4,784	)
							$	36,611		$	37,976
	$	39,405		$	40,827

The following table presents depreciation expense (including the amortization of ROU assets) related to property, plant, and equipment ~~for~~incurred during the reporting periods.

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

	Three Months Ended						Six Months Ended
	April 30, 2023			May 1, 2022			April 30, 2023		May 1, 2022
Depreciation Expense		$	19,880		$	20,506	$	38,908	$	41,229

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NOTE 45 - 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.

In 2020, in combination with local financing obtained by PDMCX, Photronics and DNP fulfilled their investment obligations under the PDMCX operating agreement (“the Agreement”). As discussed in Note 5,6, liens were granted to the local financing entity on property, plant, and equipment ~~with a May 1, 2022,~~ and were paid off during fiscal year 2023. These liens had an October 31, ~~2021,~~2022, total carrying value of ~~$82.9~~$70.7 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~~twenty percent 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.

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The following table presents net income we recorded from the operations of PDMCX during the 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

	Three Months Ended						Six Months Ended
	April 30, 2023			May 1, 2022			April 30, 2023		May 1, 2022
Net income from PDMCX		$	6,652		$	4,895	$	12,569	$	6,772

As required by the guidance in Topic 810 - “Consolidation” of the 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~~prior year periods, we had the obligation to absorb losses, and the right to receive benefits, that could potentially be significant to PDMCX.

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

	May 1, 2022				October 31, 2021				April 30, 2023				October 31, 2022
Classification	Carrying Amount		Photronics Interest		Carrying Amount		Photronics Interest		Carrying Amount		Photronics Interest		Carrying Amount		Photronics Interest
Current assets	$	117,292	$	58,658	$	59,745	$	29,879	$	128,626	$	64,326	$	127,542	$	63,784
Noncurrent assets		134,914		67,469		137,799		68,913		145,471		72,750		119,392		59,708

Total assets		252,206		126,127		197,544		98,792		274,097		137,076		246,934		123,492

Current liabilities		37,439		18,723		26,559		13,282		50,925		25,468		51,274		25,643
Noncurrent liabilities		29,613		14,809		42,917		21,463		1,484		742		9,161		4,581

Total liabilities		67,052		33,532		69,476		34,745		52,409		26,210		60,435		30,224

Net assets	$	185,154	$	92,595	$	128,068	$	64,047	$	221,688	$	110,866	$	186,499	$	93,268

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NOTE 56 - DEBT

Due to the Q2 FY23 payoff of the Xiamen Project loans, as of April 30, 2023, the Current portion of long-term debt and the Long-term debt balances were comprised of finance leases as described below:

As of April 30, 2023	Xiamen Project Loans			Finance Leases			Total
Principal due:
Next 12 months	$	-		$	7,017		$	7,017
Months 13 – 24	$	-		$	21,290		$	21,290
Months 25 – 36		-			12			12
Months 37 – 48		-			12			12
Months 49 – 60		-			8			8
Long-term debt		-			21,322			21,322
Total debt	$	-		$	28,339		$	28,339

Interest rate at balance sheet date		N/A	%		N/A
Basis spread on interest rates		0.00			N/A
Interest rate reset	Quarterly				N/A
Maturity date	December 2025				N/A
Periodic payment amount	Varies as loans mature⁽¹⁾			Varies as leases mature
Periodic payment frequency	Semiannual, on individual loans			Monthly
Loan collateral (carrying amount)	$	N/A		$	36,611	⁽²⁾

⁽¹⁾

During the three-month period ended April 30, 2023, we repaid the entire balance of 26.4 million RMB (approximately $3.9 million) remaining on the loan, of which, 2.0 million RMB was due to be paid in June 2025 and 24.4 million RMB was due to be paid in December 2025.

⁽²⁾

Represents the carrying amount at the balance sheet date of the related ROU assets, in which the lessors have secured interests.

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The ~~tables~~table below ~~provide~~provides information on our long-term ~~debt.~~debt as of October 31, 2022.

As of October 31, 2022	Xiamen Project Loans			Xiamen Working Capital Loans			Finance Leases			Total
Principal due:
Next 12 months	$	-		$	3,512		$	6,512		$	10,024
Months 13 – 24	$	-		$	-		$	6,610		$	6,610
Months 25 – 36		1,098			-			17,961			19,059
Months 37 – 48		6,641			-			-			6,641
Long-term debt	$	7,739		$	-		$	24,571		$	32,310

Interest rate at balance sheet date		4.30% - 4.45	%		4.46	%		N/A
Basis spread on interest rates		0.00			76			N/A
Interest rate reset	Quarterly			Monthly/Annually				N/A
Maturity date	December 2025			July 2023				N/A
Periodic payment amount	Varies as loans mature ⁽¹⁾			Increases as loans mature			Varies as leases mature
Periodic payment frequency	Semiannual, on individual loans			Semiannual, on individual loans			Monthly
Loan collateral (carrying amount)	$	70,705			N/A		$	37,976	⁽²⁾

As of May 1, 2022
Xiamen
Project Loans

Xiamen
Working
Capital Loans

Hefei
Equipment
Loan

Finance
Leases
Total
Principal due:
Next 12 months $ 0 $ 969 $ 4,540 $ 6,901 $ 12,410
Months 13 – 24 $ 6,266 $ 3,390 $ 4,540 $ 6,560 $ 20,756
Months 25 – 36 9,837 0 7,567 21,279 38,683
Months 37 – 48 9,080 0 1,619 0 10,699
Long-term debt $ 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 4.60 % 4.61 % 4.20 %
⁽³⁾
Basis spread on interest rates 0.00 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) $ 82,920 N/A $ 81,024 $ 39,405
⁽⁴⁾

⁽¹⁾

During the three-month period ended October 31, 2022, we repaid 81.0 million RMB (approximately $11.5 million) that had contractual maturity dates ranging from December 2023 through June 2025.

⁽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 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.

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 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 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%.

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 ~~related ROU assets,~~forty-eighth monthly payment, we may exercise an early buyout option to purchase the tool 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 below, 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 ~~lessors have secured interests.~~indebted party.

⁽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.~~

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~~amount. In February 2023, PDMCX repaid the entire outstanding balance of ~~May 1, 2022,~~ ~~166.4~~26.4 million RMB ($~~25.2~~3.9 million) ~~remained~~. As of April 30, 2023, PDMCX had no amount outstanding. The Project Loans were used to finance certain capital expenditures at the PDMCX facility and ~~are~~were 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~~were variable (based on the RMB Loan Prime Rate of the National Interbank Funding Center), and interest incurred on the loans iswas eligible for reimbursement through incentives provided by the Xiamen Torch Hi-Tech Industrial Development Zone, which ~~provide~~provided for such reimbursements up to a prescribed limit and duration. The Project Loans ~~are~~were subject to covenants and provisions, certain of which ~~relate~~related to the assets pledged as security for the loans, all of which we were in compliance with ~~at May 1, 2022.~~as of April 30, 2023.

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 extensions, with the most recent extension set to expire in ~~October~~November 2023. In December 2022, we repaid our entire outstanding balance of 25.6 million RMB ($3.6 million). As of ~~May 1, 2022,~~April 30, 2023, PDMCX had ~~28.8 million RMB ($4.4 million)~~no amount 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 related to the amount borrowed was eligible for reimbursement through incentives provided by the Xiamen Torch Hi-Tech Industrial Development Zone, which provided 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 $30.3 million, at the balance sheet date) from the China Construction Bank Corporation. This credit facility is subject to annual reviews and extensions, with the most recent extension set to expire in ~~August 2022~~. The loan proceeds were used to fund the purchase of 2 lithography tools at the Hefei facility. As of May 1, 2022, we had borrowed 135.7 million RMB against this approval, of which 120.7 million RMB ($18.3 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 May 1, 2022.

~~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, we entered into a $35.5 million lease for a high-end lithography tool. See Note 7 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 ~~May 1, 2022)~~April 30, 2023), 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 0no outstanding borrowings against the Credit Agreement at ~~May 1, 2022.~~April 30, 2023. The interest rate on the Credit Agreement ~~(1.76%~~(6.02% at ~~May 1, 2022)~~April 30, 2023) is based on our total leverage ratio at one-month LIBOR plus a spread, as defined in the Credit Agreement.

Hefei Equipment Loan

In October 2020, our Hefei, China, facility was approved to borrow 200 million RMB from the China Construction Bank Corporation. In July 2022, we repaid our entire outstanding balance of 120.7 million RMB ($18.0 million). This credit facility was subject to annual reviews and extension; the most recent extension expired in August 2022 and we did not apply for an extension. The loan proceeds were used to fund purchases of two lithography tools at the Hefei facility. The interest rate on the loan was variable and based on the RMB Loan Prime Rate of the National Interbank Funding Center. The borrowings were secured by the Hefei facility, its related land use right, and certain manufacturing equipment. The Hefei Equipment Loan was 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 the time of repayment.

NOTE 67 - 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 are a number of uncompleted revenue contracts on which we have performed; for any such contracts under which we are entitled to be compensated for our costs incurred plus a reasonable profit, we recognize revenue and a corresponding contract asset for such performance. We account for shipping and handling activities that we perform after a customer obtains control of a good as being activities to fulfill our promise to transfer the good to the customer, rather than as promised services, or performance obligations, under the contract. We report our revenue net of any sales or similar taxes we collect on behalf of government entities.

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

Contract Assets, Contract Liabilities, and Accounts Receivable

We recognize a contract asset when our performance under a contract precedes our receipt of consideration from a customer, or before payment is due, and our receipt of consideration is conditional upon factors other than the passage of time. Contract assets reflect our transfer of control of photomasks that are in process or completed but not yet shipped to customers. A receivable is recognized when we have an unconditional right to payment for our performance, which generally occurs when we ship the photomasks. Our contract assets primarily consist of a significant amount of our in-process production orders and fully manufactured photomasks which have not yet shipped, for which we have an enforceable right to collect consideration (including a reasonable profit) in the event the in-process orders are cancelled by customers. On an individual contract basis, we net contract assets with contract liabilities (deferred revenue) for financial reporting purposes. We did 0tnot identify impairment indicators for any outstanding contract assets during the three or six-month periods ended April 30, 2023, or May 1, ~~2022, or May 2, 2021.~~2022.

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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		April 30, 2023		October 31, 2022

Contract assets
Contract Assets
Other current assets	$	13,815	$	9,859	$	21,385	$	15,752

Contract liabilities
Contract Liabilities
Accrued liabilities	$	25,613	$	14,717	$	19,224	$	18,872
Other liabilities		5,204		5,197		13,189		4,989
	$	30,817	$	19,914	$	32,413	$	23,861

The following table presents revenue recognized from contract liabilities that existed at the beginning of the reporting 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

	Three Months Ended				Six Months Ended
	April 30, 2023		May 1, 2022		April 30, 2023		May 1, 2022

Revenue recognized from beginning liability	$	11,228	$	11,460	$	7,875	$	7,278

We generally record our accounts receivable at their billed amounts. All outstanding past due customer invoices are reviewed for ~~collectibility~~collectability 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 an allowance for credit losses. In the event that an amount is determined to be uncollectible, we charge the allowance for credit losses and derecognize the related receivable. We ~~did not incur any~~incurred credit losses on our accounts receivable of $0.1 million during the three orand six-month periods ended April 30, 2023, and there were no charges for the three and six-month periods ended May 1, ~~2022, or May 2, 2021.~~2022.

Our invoice terms generally range from ~~net~~ 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~~collectability 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.

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Disaggregation of Revenue

The following tables present our revenue for the three and six-month periods ended April 30, 2023, and May 1, 2022 ~~and May 2, 2021~~, disaggregated by product type, geographic origin, and timing of recognition.

	Three Months Ended				Six Months Ended
	May 1, 2022		May 2, 2021		May 1, 2022		May 2, 2021
									Three Months Ended				Six Months Ended
Revenue by Product Type									April 30, 2023		May 1, 2022		April 30, 2023		May 1, 2022
IC
High-end	$	51,362	$	41,259	$	97,896	$	78,039	$	43,920	$	51,362	$	91,923	$	98,285
Mainstream		94,437		70,732		177,664		138,908		123,134		94,437		231,720		177,275
Total IC	$	145,799	$	111,991	$	275,560	$	216,947	$	167,054	$	145,799	$	323,643	$	275,560

FPD
High-end	$	46,610	$	39,401	$	92,886	$	74,046	$	51,888	$	46,610	$	97,579	$	92,886
Mainstream		12,100		8,371		25,890		20,837		10,364		12,100		19,175		25,890
Total FPD	$	58,710	$	47,772	$	118,776	$	94,883	$	62,252	$	58,710	$	116,754	$	118,776
	$	204,509	$	159,763	$	394,336	$	311,830	$	229,306	$	204,509	$	440,397	$	394,336

	Three Months Ended				Six Months Ended
	May 1, 2022		May 2, 2021		May 1, 2022		May 2, 2021
									Three Months Ended				Six Months Ended
Revenue by Geographic Origin*									April 30, 2023		May 1, 2022		April 30, 2023		May 1, 2022
Taiwan	$	69,852	$	59,002	$	137,693	$	115,592	$	80,448	$	69,852	$	156,017	$	137,693
China		53,691		23,730		99,645		44,727		65,215		53,691		124,148		99,645
Korea		40,769		40,239		80,283		79,022		41,372		40,769		79,204		80,283
United States		30,335		27,150		57,511		53,754		32,495		30,335		62,377		57,511
Europe		9,506		9,256		18,420		17,832		9,276		9,506		17,722		18,420
Other		356		386		784		903		500		356		929		784
	$	204,509	$	159,763	$	394,336	$	311,830	$	229,306	$	204,509	$	440,397	$	394,336

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

	Three Months Ended				Six Months Ended
	May 1, 2022		May 2, 2021		May 1, 2022		May 2, 2021
									Three Months Ended				Six Months Ended
Revenue by Timing of Recognition									April 30, 2023		May 1, 2022		April 30, 2023		May 1, 2022
Over time	$	192,770	$	144,697	$	363,034	$	285,982	$	215,376	$	192,770	$	412,541	$	363,034
At a point in time		11,739		15,066		31,302		25,848		13,930		11,739		27,856		31,302
	$	204,509	$	159,763	$	394,336	$	311,830	$	229,306	$	204,509	$	440,397	$	394,336

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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, our backlog of orders has historically been two to three weeks for FPD photomasks and one to two weeks for IC photomasks. However, the demand for some IC photomasks has expanded beyond the industry’s capacity to supply them within the traditional time ~~period,~~period; thus the backlog, in some cases, can expand to as long as two to three 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 7 - 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 an 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 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 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 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%.

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 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 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.

~~Table of Contents~~

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

Classification
May 1,
2022

October 31,
2021

ROU Assets – Operating Leases
Other assets
$ 4,191 $ 5,581

ROU Assets – Finance Leases
Property, plant and equipment, net
$ 39,405 $ 40,827

Lease Liabilities – Operating Leases
Accrued liabilities
$ 1,850 $ 2,273
Other liabilities
2,280 3,246
$ 4,130 $ 5,519

Lease Liabilities – Finance Leases
Current portion of long-term debt
$ 6,901 $ 7,289
Long-term debt
27,839 31,083
$ 34,740 $ 38,372

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

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 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

Operating lease costs $
569 $
724 $ 1,158 $ 1,389
Short-term lease costs $
142 $
39 $ 263 $ 86
Variable lease costs $
153 $
157 $ 276 $ 301
Interest on finance lease liabilities $
92 $
166 $ 230 $ 201
Amortization of ROU assets $
711 $
455 $ 1,421 $ 455

~~Table of Contents~~

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

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

Operating leases 3.3 2.4 % 3.5 2.4 %
Finance leases 2.7 1.5 % 3.3 1.5 %

~~The following table presents the effects of 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 8 - SHARE-BASED COMPENSATION

In March 2016, shareholders approved our 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~~was four million shares. On March 16, 2023, at its annual meeting of shareholders, the shareholders of Photronics, Inc., approved amendments to the Plan to increase the number of shares available for issuance by an additional one million shares, thereby increasing the shares available for issuance under the Plan from four million to five million. 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. The table below presents information on our share-based compensation expenses for the three and six-month periods ended April 30, 2023, and May 1, ~~2022, and May 2, 2021.~~2022.

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	Three Months Ended				Six Months Ended
	April 30, 2023		May 1, 2022		April 30, 2023		May 1, 2022
Expense reported in:
Cost of goods sold	$	288	$	182	$	570	$	324
Selling, general, and administrative		1,531		1,243		2,908		2,424
Research and development		190		159		352		293
Total expense incurred	$	2,009	$	1,584	$	3,830	$	3,041

Expense by award type:
Restricted stock awards	$	1,974	$	1,316	$	3,738	$	2,683
Stock options		-		221		1		259
Employee stock purchase plan		35		47		91		99
Total expense incurred	$	2,009	$	1,584	$	3,830	$	3,041

Income tax benefits of share-based compensation	$	207	$	104	$	361	$	188
Share-based compensation cost capitalized	$	-	$	-	$	-	$	-

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. The table below presents information on our restricted stock awards for the three and ~~six-months~~six-month periods ended April 30, 2023, and May 1, ~~2022, and May 2, 2021.~~2022.

	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	May 1, 2022		May 2, 2021		May 1, 2022		May 2, 2021		April 30, 2023		May 1, 2022		April 30, 2023		May 1, 2022
Number of shares granted in period		0		15,000		535,400		556,200		-		-		786,500		535,400
Weighted-average grant-date fair value of awards (in dollars per share)	$	0	$	12.65	$	19.28	$	11.17	$	-	$	-	$	16.77	$	19.28
Compensation cost not yet recognized	$	10,779	$	9,762	$	10,779	$	9,762	$	16,419	$	10,779	$	16,419	$	10,779
Weighted-average amortization period for cost not yet recognized (in years)		2.8		2.9		2.8		2.9		3.0		2.8		3.0		2.8
Shares outstanding at balance sheet date		891,429		1,022,327		891,429		1,022,327		1,328,572		891,429		1,328,572		891,429

Stock Options

Option awards generally vest in one to four years and have a ten-year contractual term. All incentive and non-qualified stock option grants must have an exercise price no less than the market value of the underlying common stock on the date of grant. The grant-date fair values of options are based on closing prices of our common stock on the dates of grant and are calculated using the Black-Scholes option pricing model. Expected volatility is based on the historical volatility of our common stock. We use historical option exercise behavior and employee termination data to estimate expected term, which represents the period of time that options are expected to remain outstanding. The risk-free rate of return for the estimated term of an option is based on the U.S. Treasury yield curve in effect at the date of grant.The table below presents information on our stock options for the three and ~~six-months~~six-month periods ended April 30, 2023, and May 1, 2022 ~~and May 2, 2021~~.

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	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	May 1, 2022		May 2, 2021		May 1, 2022		May 2, 2021		April 30, 2023		May 1, 2022		April 30, 2023		May 1, 2022
Number of options granted in period		0		0		0		0		-		-		-		-
Cash received from option exercised	$	438	$	309	$	4,149	$	967
Cash received from options exercised									$	20	$	438	$	583	$	4,149
Compensation cost not yet recognized	$	52	$	232	$	52	$	232	$	-	$	52	$	-	$	52
Weighted-average amortization period for cost not yet recognized (in years)		0.7		1.4		0.7		1.4		-		0.7		-		0.7

Information on outstanding and exercisable option awards as of ~~May 1, 2022,~~April 30, 2023, is presented below.

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

Options		Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life (in years)				Aggregate Intrinsic Value
Outstanding and exercisable at April 30, 2023			526,926			$	10.11				2.99			$	2,293

NOTE 9 - 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 table below sets forth the primary reasons that our effective income tax ~~rate of~~ ~~25.1%~~ ~~differs~~rates differed from the U.S. statutory ~~rate of~~ ~~21.0%~~tax rates in effect during the ~~three-month period~~three and six-month periods ended April 30, 2023, and May 1, 2022, 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.2022.

~~The effective tax rate of 18.5% in the three-month period end May 2, 2021, differs from the U.S. statutory rate of 21.0% primarily due to changes in forecasted jurisdictional earnings.~~

Reporting Period	U.S. Statutory Tax Rates	Photronics Effective Tax Rates	Primary Reasons for Differences

Three months ended April 30, 2023	21.0%	26.5%	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. jurisdictions.

Three months ended May 1, 2022	21.0%	25.1%	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. jurisdictions.

Six months ended April 30, 2023	21.0%	27.8%	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. jurisdictions.

Six months ended May 1, 2022	21.0%	25.5%	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. jurisdictions.

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.Uncertain Tax Positions

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.

We include unrecognized tax benefits in Other liabilities, and we include any applicable interests and penalties related to uncertain tax positions in our income tax provision. Although the timing of ~~the expirations~~reversal of ~~statutes of limitations~~uncertain tax positions may be uncertain, as they can be dependent upon the settlement of tax audits, we believe that the amount of uncertain tax positions (including interest and penalties, and net of tax benefits) that may be resolved over the next twelve months is immaterial. Resolution of these uncertain tax positions may result from either or both the lapses of statutes of limitations and tax settlements. We are no longer subject to tax authority examinations in the U.S. ~~and~~, major foreign, or state tax jurisdictions for years prior to fiscal year ~~2016~~2017. The table below presents information on our unrecognized tax benefits as of the balance sheet dates.

	May 1, 2022		October 31, 2021
					April 30, 2023		October 31, 2022
Unrecognized tax benefits related to uncertain tax positions	$	4,629	$	3,757	$	7,128	$	5,599
Unrecognized tax benefits that, if recognized, would impact the effective tax rate	$	4,629	$	3,757	$	7,128	$	5,599
Accrued interest and penalties related to uncertain tax positions	$	357	$	223	$	549	$	395

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NOTE 10 - EARNINGS PER SHARE

The calculations of basic and diluted earnings per share are presented below.

	Three Months Ended				Six Months Ended
	May 1, 2022		May 2, 2021		May 1, 2022		May 2, 2021		Three Months Ended				Six Months Ended
									April 30, 2023		May 1, 2022		April 30, 2023		May 1, 2022
Net income attributable to Photronics, Inc. shareholders	$	27,432	$	10,526	$	50,496	$	18,562	$	39,929	$	27,432	$	53,915	$	50,496

Effect of dilutive securities		0		0		0		0		-		-		-		-
Earnings used for diluted earnings per share	$	27,432	$	10,526	$	50,496	$	18,562	$	39,929	$	27,432	$	53,915	$	50,496

Weighted-average common shares computations:
Weighted-average common shares used for basic earnings per share		60,606		62,054		60,382		62,265		61,138		60,606		61,016		60,382
Effect of dilutive securities:
Share-based payment awards		539		514		659		521		369		539		473		659

Potentially dilutive common shares		539		514		659		521		369		539		473		659

Weighted-average common shares used for diluted earnings per share		61,145		62,568		61,041		62,786		61,507		61,145		61,489		61,041

Basic earnings per share	$	0.45	$	0.17	$	0.84	$	0.30	$	0.65	$	0.45	$	0.88	$	0.84
Diluted earnings per share	$	0.45	$	0.17	$	0.83	$	0.30	$	0.65	$	0.45	$	0.88	$	0.83

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 price exceeded the average market value of the common shares for the period or, under application of the treasury stock method, they were otherwise determined to be antidilutive.

	Three Months Ended				Six Months Ended
	May 1, 2022		May 2, 2021		May 1, 2022		May 2, 2021		Three Months Ended				Six Months Ended
									April 30, 2023		May 1, 2022		April 30, 2023		May 1, 2022
Share-based payment awards		427		293		626		559		267		427		535		626

Total potentially dilutive shares excluded		427		293		626		559		267		427		535		626

NOTE 11 - COMMITMENTS AND CONTINGENCIES

As of ~~May 1, 2022, the Company~~April 30, 2023, we had commitments outstanding for capital expenditures of approximately ~~$115.1~~$113.1 million, primarily for purchases of high-end equipment.

In May 2022, ~~the Company was~~we were informed of a customs audit ~~at 1~~in one of ~~its~~our China operations. ~~As of the date of this filing, the audit is ongoing. The Company~~We estimated a contingency ranging from $2.2 million to $3.7 million, which ~~includes~~included unpaid additional customs duties and related interest and penalties for the previous three years (the period under audit). WeIn the three and six-month periods ended May 1, 2022, we recorded a contingent loss of $2.2 million, as we ~~believe~~believed this iswas 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. In November 2022, upon settlement of the audit, we reversed $1.0 million of the accrual.

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

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NOTE 12 - CHANGES IN ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME BY COMPONENT

The following tables set forth the changes in our accumulated other comprehensive (loss) income by component (net of tax of $0) for the three and six-month periods ended April 30, 2023, and May 1, ~~2022, and May 2, 2021.~~2022.

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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 April 30, 2023
	Foreign Currency Translation Adjustments			Other			Total

Balance at January 29, 2023	$	(23,737	)	$	(683	)	$	(24,420	)
Other comprehensive (loss) income		(39,813	)		66			(39,747	)
Less: Other comprehensive (loss) income attributable to noncontrolling interests		(4,760	)		98			(4,662	)

Balance at April 30, 2023	$	(58,790	)	$	(715	)	$	(59,505	)

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

	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	)

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 April 30, 2023
	Foreign Currency Translation Adjustments			Other			Total

Balance at October 31, 2022	$	(97,790	)	$	(666	)	$	(98,456	)
Other comprehensive income		50,707			11			50,718
Less: Other comprehensive income attributable to noncontrolling interests		11,707			60			11,767

Balance at April 30, 2023	$	(58,790	)	$	(715	)	$	(59,505	)

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

	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	)

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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 certain 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~~Short-term investments are Level 1 measurements. (Please refer to “Investments” within Note 2 for additional fair value information on our Short-term investments.) The fair values of certain cash equivalents are Level 2 measurements that are provided by independent third-party pricing services or other independent entities, which may use matrix pricing, valuation models, or other methods which utilize observable market data. The fair values of our variable-rate debt instruments are a Level 2 ~~measurement~~measurements and approximate their carrying values due to the variable nature of ~~the~~their underlying interest rates. WeOther than our Short-term investments, we did 0tnot have any assets or liabilities measured at fair value, on a recurring or a nonrecurring basis, at ~~May 1, 2022,~~April 30, 2023, or October 31, ~~2021.~~2022.

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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. We commenced repurchasing shares under this authorization on September 16, 2020. All of the shares repurchased under this authorization prior to January 30, 2022, ~~were~~have been retired prior to that date. As of ~~May 1, 2022,~~April 30, 2023, $31.7 million was available under this authorization for the purchase of additional shares. The table below presents information on this repurchase program for the three and six-month periods ended April 30, 2023, and May 1, ~~2022, and May 2, 2021.~~2022.

Three Months Ended Six Months Ended

May 1,
2022

May 2,
2021

May 1,
2022

May 2,
2021

Number of shares repurchased
0 797 188 2,019
Cost of shares repurchased $ 0 $
10,041 $ 2,522 $ 23,250
Average price paid per share $ 0 $ 12.59 $ 13.43 $ 11.51

	Three Months Ended						Six Months Ended
	April 30, 2023			May 1, 2022			April 30, 2023		May 1, 2022

Number of shares repurchased			-			-		-		188
Cost of shares repurchased		$	-		$	-	$	-	$	2,522
Average price paid per share		$	-		$	-	$	-	$	13.43

NOTE 15 - RECENT ACCOUNTING PRONOUNCEMENTS

~~Accounting Standards Updates Adopted~~

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

Accounting Standards Updates to be Adopted

In 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 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.

~~Table of Contents~~

In November 2021, the FASB 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 government assistance, and the effect of the assistance on an entity’s financial statements. The guidance in this Update will be effective for Photronics in its fiscal year 2023 Form 10-K, with early application of the amendments allowed. The amendments are to be applied prospectively to all transactions within the scope of the amendments that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application or, retrospectively to those transactions. We are currently evaluating the effect the adoption of this ASU may have on our disclosures.

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 iswas to be applied prospectively ~~through~~from December 31, 2022. In December 2022, the FASB issued ASU 2022-06 “Deferral of the Sunset Date of Topic 848” which extended the time that the optional expedients and exceptions may be adopted to December 31, 2024. We do not expect the impact of this ASU to be material to our consolidated financial statements.

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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 and results of operations should be read in conjunction with its condensed consolidated financial statements and related notes. Various ~~segments~~sections 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)~~year 2022), that may cause actual results to materially differ from these expectations. See “Forward-Looking Statements”.

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

We are typically required to fulfill customer orders within a short period of ~~time.~~time, sometimes within twenty-four hours. 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 demand for some IC photomasks has expanded beyond the industry’s capacity to supply them within the traditional time ~~period,~~period; thus, for some products, 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 high-performance devices, including, but not limited to, mobile display devices, mobile communications, and computing solutions. While we cannot predict the timing of the industry's transition to volume production of next-generation technology nodes, or the timing of up and down-cycles with precise accuracy, we believe that such transitions and cycles will continue into the future, beneficially and adversely affecting our business, financial condition, and operating results as they occur. We believe our ability to remain successful in these environments is dependent upon the achievement of our goals of being a service and technology leader and efficient solutions supplier, which we believe should enable us to continually reinvest in our global infrastructure.

Impact of the COVID-19 Pandemic

All of our facilities have continued to operate throughout the COVID-19 pandemic. ~~The~~However, since shortly after it was first identified near the end of calendar year 2019, the pandemic ~~particularly at its height, impacted~~has had an impact on 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,~~shortages; however, ~~supply chain~~supply-chain disruptions could potentially delay or prevent us from fulfilling customer orders. ~~While~~

At certain facilities, employees not required to be on-site to maintain production have worked remotely at various times ‒ either at our ~~business~~discretion or due to government mandates. The implementation of these measures has ~~continued to grow over the course of the pandemic, we cannot predict its future impact on~~not materially affected our ~~business with a high level of certainty.~~operations.

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Results of Operations

Three ~~and Six~~ Months Ended ~~May 1, 2022~~April 30, 2023

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
	Three Months Ended									Six Months Ended						Three Months Ended									Six Months Ended
	May 1, 2022			January 30, 2022			May 2, 2021			May 1, 2022			May 2, 2021			April 30,			January 29,			May 1,			April 30,			May 1,
																2023			2023			2022			2023			2022
Revenue		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		65.7			68.5			75.4			67.0			77.6			61.4			64.0			65.7			62.7			67.0
Gross profit																	38.6			36.0			34.3			37.3			33.0

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 expenses:
Selling, general, and administrative																	7.8			8.0			8.1			7.9			8.2
Research and development																	1.5			1.6			2.1			1.5			2.6
Operating income																	29.2			26.5			24.2			27.9			22.2

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			-
Other operating expense, net																	5.9			(6.8	)		3.9			(0.2	)		3.2

Income before income tax provision		28.1			22.6			12.5			25.4			10.4			35.2			19.7			28.1			27.7			25.4

Income tax provision		7.0			5.9			2.3			6.5			2.1			9.3			6.0			7.0			7.7			6.5

Net income		21.0			16.7			10.2			19.0			8.3			25.8			13.7			21.0			20.0			19.0

Net income attributable to noncontrolling interests		7.6			4.6			3.6			6.2			2.3			8.4			7.1			7.6			7.8			6.2

Net income attributable to Photronics, Inc. shareholders		13.4	%		12.2	%		6.6	%		12.8	%		6.0	%		17.4	%		6.6	%		13.4	%		12.2	%		12.8	%

Note: All tabular comparisons included in the following discussion, unless otherwise indicated, are for the three months ended April 30, 2023 (Q2 FY23), January 29, 2023 (Q1 FY23), and May 1, 2022 (Q2 FY22)~~, January 30, 2022 (Q1 FY22), and May 2, 2021 (Q2 FY21)~~, and for the six months ended April 30, 2023 (YTD FY23) and 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.

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The following tables present changes in disaggregated revenue in Q2 ~~FY22~~FY23 and YTD ~~FY22~~FY23 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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			Q2 FY23 compared with Q1 FY23									Q2 FY23 compared with Q2 FY22					YTD FY23 compared with YTD FY22
	Revenue in		Increase			Percent			Increase			Percent			Revenue in		Increase			Percent
	Q2 FY23		(Decrease)			Change			(Decrease)			Change			YTD FY23		(Decrease)			Change
IC
High-end*	$	43.9	$	(4.1	)		(8.5	)%	$	(7.4	)		(14.5	)%	$	91.9	$	(6.3	)		(6.5	)%
Mainstream		123.1		14.5			13.4	%		28.7			30.4	%		231.7		54.4			30.7	%

Total IC	$	167.0	$	10.4			6.7	%	$	21.3			14.6	%		323.6	$	48.1			17.4	%

FPD
High-end*	$	51.9	$	6.2			13.6	%	$	5.2			11.3	%		97.6	$	4.7			5.1	%
Mainstream		10.4		1.6			17.6	%		(1.7	)		(14.3	)%		19.2		(6.7	)		(25.9	)%

Total FPD	$	62.3	$	7.8			14.2	%	$	3.5			6.0	%		116.8	$	(2.0	)		(1.7	)%

Total Revenue	$	229.3	$	18.2			8.6	%	$	24.8			12.1	%		440.4	$	46.1			11.7	%

* 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
																						Q2 FY23 compared with Q1 FY23							Q2 FY23 compared with Q2 FY22						YTD FY23 from YTD22
	Revenue in Q2 FY22		Increase (Decrease)			Percent Change			Increase (Decrease)		Percent Change			Revenue in YTD FY22		Increase (Decrease)			Percent Change			Revenue in		Increase		Percent			Increase			Percent			Revenue in		Increase			Percent
																						Q2 FY23		(Decrease)		Change			(Decrease)			Change			YTD FY23		(Decrease)			Change
Taiwan	$	69.9	$	2.0			3.0	%	$	10.8		18.4	%	$	137.7	$	22.1			19.1	%	$	80.4	$	4.9		6.5	%	$	10.6			15.2	%	$	156.0	$	18.3			13.3	%
China		53.7		7.7			16.8	%		30.0		126.3	%		99.6		54.9			122.8	%		65.2		6.3		10.7	%		11.5			21.5	%		124.1		24.5			24.6	%
Korea		40.8		1.3			3.2	%		0.5		1.3	%		80.3		1.3			1.6	%		41.4		3.5		9.4	%		0.6			1.5	%		79.2		(1.1	)		(1.3	)%
United States		30.3		3.2			11.6	%		3.2		11.7	%		57.5		3.8			7.0	%		32.5		2.6		8.7	%		2.2			7.1	%		62.4		4.9			8.5	%
Europe		9.5		0.6			6.6	%		0.2		2.7	%		18.4		0.6			3.3	%		9.3		0.8		9.8	%		(0.2	)		(2.4	)%		17.8		(0.6	)		(3.8	)%
Other		0.4		(0.1	)		(16.7	)%		0.0		(7.7	)%		0.8		(0.1	)		(13.2	)%		0.5		0.1		16.8	%		0.1			40.4	%		0.9		0.1			18.5	%
																						$	229.3	$	18.2		8.6	%	$	24.8			12.1	%	$	440.4	$	46.1			11.7	%
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~~FY23 was ~~$204.5~~$229.3 million, representing an increase of ~~7.7%~~8.6% compared with Q1 ~~FY22~~FY23 and ~~28.0%~~12.1% from Q2 ~~FY21. Revenue in YTD FY22 was $394.3 million, representing an increase of 26.5% over YTD FY21.~~FY22.

IC photomask revenue increased ~~12.4%~~6.7% and ~~30.2%~~14.6% in Q2 ~~FY22,~~FY23, compared with Q1 ~~FY22~~FY23 and Q2 ~~FY21, respectively, and increased 27.0% in YTD~~ FY22, ~~compared with YTD FY21.~~respectively. These increases were driven by continued strong demand ~~growth~~in Asia, and ~~better~~increased pricing, resulting from robust design activity for mainstream ~~photomasks~~products used for computer chips ~~needed for~~used in the production of consumer goods, products considered part of the “internet-of-things”, 5G wireless technology applications, and cryptocurrency ~~mining, and consumer products. Concurrently,~~mining.

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The increase from Q1 FY23 was driven by mainstream growth which more than offset some high-end softness. This strong demand ~~for high-end logic photomasks~~continues to strain the photomask industry’s mainstream tool capacity, despite some industry capacity expansions, thereby providing the conditions that support a favorable pricing environment. This has enabled us to maintain increased selling prices, though expediting premiums that customers pay to accelerate deliveries have decreased. The increase from Q2 FY22, is driven by continued strong growth in Asia ~~also allowed~~and the U.S. for ~~better~~mainstream products, and increased pricing.

FPD revenue ~~decreased 2.3%~~increased 14.2% and 6.0% in Q2 ~~FY22,~~FY23, compared with Q1 FY23 and Q2 FY22, ~~due~~respectively. The increase from Q1 FY23 was driven by strong high-end demand, as AMOLED panels used in advanced mobile displays continue to ~~a decline in mainstream demand, unfavorable product mix, and the weakening of the Japanese yen, as well as softened~~fuel healthy demand for ~~G10.5+ large area~~high-end masks. ~~FPD revenues increased 22.9% in Q2 FY22, compared with Q2 FY21,~~Mainstream also grew during the quarter as a result of increased write capacity and improved mainstream demand from LCD panels. The increase from Q2 FY22, is due to increased high-end demand, driven by continued growth in AMOLED panels, more than offset some weakness in mainstream. We continue to believe that strong 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%~~devices will continue, as ~~a result of improved~~expected technology advances drives increasing overall demand for ~~AMOLED photomasks and ASPs for mainstream products.~~higher-value masks.

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
%

							Percent						Percent									Percent
	Q2 FY23			Q1 FY23			Change			Q2 FY22			Change			YTD FY23			YTD FY22			Change
Gross profit	$	88.4		$	76.1			16.2	%	$	70.2			25.9	%		164.5			130.1			26.4	%
Gross margin		38.6	%		36.0	%					34.3	%					37.3	%		33.0	%

Gross margin increased by 2.82.6 percentage points in Q2 ~~FY22,~~FY23, from Q1 FY23, primarily as a result of volume leverage, favorable pricing and product mix. Material costs increased 7.0% from the prior quarter, but decreased, as a percentage of revenue, by 36 basis points. Labor cost increased 4.1% from the prior quarter, but decreased, as a percentage of revenue, by 48 basis points. Equipment and other overhead costs increased 2.2%, but decreased 167 basis points as a percentage of revenue.

Gross margin increased by 4.3 percentage points in Q2 FY23, from Q2 FY22, primarily as a result of the increase in revenue from the prior ~~quarter.~~year quarter and favorable product mix. 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~~202 basis points, as a percentage of revenue. Labor and benefits costs increased ~~15.8%~~12.8% from the prior year quarter, but ~~decreased 110 basis points~~remained flat as a percent of ~~revenue;~~revenue, as labor increased in both the ~~increase was primarily the result of increased~~U.S. and at several Asia-based facilities, reflecting labor ~~costs in Asia.~~market conditions. Equipment and other overhead costs ~~rose~~ 8~~.4%,~~increased 3.3% but decreased ~~520~~226 basis points, as a percentage of revenue. Increased ~~outsourced manufacturing~~WIP, utilities, and equipment service contract costs, ~~and importation costs into China, which were~~ partially offset by decreased ~~depreciation expense,~~importation costs 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~~4.3 percentage points in YTD ~~FY22,~~FY23, from YTD ~~FY21,~~FY22, primarily as a result of the increase in revenue from the prior ~~year.~~year and favorable product mix. Material costs increased ~~11.8%~~1.2% from ~~the prior year quarter,~~YTD FY22, but decreased ~~350~~250 basis points, as a percentage of revenue. Labor costs increased ~~12.5%~~13.5% from ~~the prior year quarter but decreased 140~~YTD FY22 and increased 18 basis points as a ~~percent~~percentage of ~~revenue; the~~revenue. The increase was primarily the result of increased labor ~~costs~~cost in Asia. Equipment and other overhead costs rose ~~5.7~~%3.9%, but decreased ~~570~~204 basis points, as a percentage of revenue. Increased ~~outsourced~~WIP, Outsourced manufacturing, ~~costs~~and ~~importation~~reduced R&D reclassification costs, ~~into China, which were~~ partially offset by decreased importation costs and 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~~$17.9 million in Q2 ~~FY22,~~FY23, compared with ~~$15.7~~$16.8 million in Q1 ~~FY22.~~FY23. The increase of ~~$0.9~~$1.1 million was primarily the result of increased compensation and related expenses of ~~$1.2~~$0.4 million ~~which were partially offset by decreased~~and professional fees of ~~$0.3~~$0.4 million. Selling, general, and administrative expenses increased ~~$2.5~~$1.3 million in Q2 ~~FY22,~~FY23, from ~~$14.1~~$16.6 million in ~~Q1 FY21,~~Q2 FY22, primarily as a result of increased ~~compensation and related expenses~~professional fees of ~~$2.4~~$0.9 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~~increased $2.4 million in YTD FY23 to $34.7 million, compared with $32.3 million in YTD ~~FY22, compared with $28.1 million in YTD FY21.~~FY22. The increase ~~of $4.2 million~~ was ~~primarily~~driven by the ~~result~~results of increased compensation and related ~~expenses~~expense of ~~$3.9~~$1.0 million and increased ~~export duties~~professional fees of ~~$0.3~~$1.0 million.

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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 $3.5 million in Q2 FY23, $3.3 million in Q1 FY23, and $4.2 million in Q2 ~~FY22,~~FY22. Research and development expenses increased compared ~~with $5.9 million in~~to Q1 ~~FY22; the decrease was primarily the~~FY23 as a result of ~~decreased~~increased 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~~decreased by ~~$1.1~~$3.4 million in YTD ~~FY22~~FY 23 to ~~$10.1~~$6.8 million, compared with ~~$9.1~~$10.1 million in YTD ~~FY21.~~FY22. The ~~increase~~decrease was driven by ~~more~~less development activities in the U.S., Taiwan, 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

															Q2 FY23			Q1 FY23			Q2 FY22		YTD FY23			YTD FY22
Foreign currency transactions impact, net	$	7.8	$	5.3		$	(2.1	)	$	13.1		$	(0.7	)	$	10.7		$	(16.9	)	$	7.8	$	(6.2	)	$	13.1
Interest expense, net		-		(0.9	)		1.2			(0.9	)		0.4			(0.1	)		(0.1	)		-		(0.2	)		(0.9	)
Interest income and other income (expense), net		0.2		0.3			-			0.5			0.2			3.0			2.6			0.2		5.6			0.5

Non-operating income (expense), net	$	8.0	$	4.7		$	(0.8	)	$	12.7		$	(0.1	)	$	13.6		$	(14.4	)	$	8.0	$	(0.8	)	$	12.7

Non-operating income (expense) increased ~~$3.3~~$28.0 million to ~~$8.0~~$13.6 million in Q2 ~~FY22,~~FY23, compared with ~~$4.7~~$(14.4) million in Q1 ~~FY22,~~FY23, primarily due to foreign currency transactions impact, net, driven by favorable movements of the South Korean won and the New Taiwan dollar against the U.S. dollar ~~offsetting~~exceeding an unfavorable ~~movements~~movement of the RMB against the U.S. dollar. ~~In addition, our~~Non-operating income (expense) increased $5.6 million from Q2 FY22, primarily due to foreign currency transaction impact, net, driven by favorable movements of the South Korean won and RMB against the USD dollar, exceeding an unfavorable movement of the New Taiwan dollar.

Interest income and other income (expense), net, increased to $3.0 million in Q2 FY23, compared with $2.6 million in Q1 FY23, and $0.2 million in Q2 FY22 driven by an increase in cash invested and higher interest ~~expense decreased by $0.9 million as a result of subsidies we received on our China-based debt.~~rates.

Non-operating income (expense) ~~increased $8.8~~decreased $13.5 million to ~~$8.0 million in Q2 FY22, compared with~~ $(0.8) million in ~~Q2 FY21, and increased $12.8 million to~~YTD FY23, compared with $12.7 million in YTD FY22, ~~compared with $(0.1) million in YTD FY21. These increases were~~ primarily due to ~~favorable~~foreign currency transactions impact, net, driven by unfavorable movements of the South Korean won and the New Taiwan dollar against the U.S. dollar ~~which were partially offset by unfavorable movements~~exceeding a favorable movement 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.USD.

31Interest income and other income (expense), net, increased to $5.6 million in YTD FY23, compared with $0.5 million in YTD FY22, primarily due to an increase in cash invested and higher interest rates.

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Income Tax Provision

	Q2 FY22			Q1 FY22			Q2 FY21			YTD FY22			YTD FY21
																Q2 FY23			Q1 FY23			Q2 FY22			YTD FY23			YTD FY22

Income tax provision	$	14.4		$	11.2		$	3.7		$	25.6		$	6.7		$	21.3		$	12.6		$	14.4		$	33.9		$	25.6
Effective income tax rate		25.1	%		26.1	%		18.5	%		25.5	%		20.5	%		26.5	%		30.3	%		25.1	%		27.8	%		25.5	%

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~~benefits of the losses isare not available.

The effective income tax rate decrease in Q2 ~~FY22,~~FY23, compared with Q1 FY23, is primarily due to changes in the jurisdictional mix of earnings and a decrease in foreign taxes in Q2 FY23.

The effective income tax rate increase in Q2 FY23, compared with Q2 FY22, is primarily due to changes in the jurisdictional mix of ~~earnings.~~earnings and an increase in foreign taxes in Q2 FY23.

~~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~~

Table of ~~valuation allowance for a loss carryforward in a non-U.S. jurisdiction in Q2 FY21.~~Contents

The effective income tax rate increase in YTD ~~FY22,~~FY23 compared with YTD ~~FY21,~~FY22, is primarily due to ~~a decrease~~changes in ~~credits~~the jurisdictional mix of earnings and an increase in ~~a non-U.S. jurisdiction and the release of valuation allowance for a loss carryforward~~foreign taxes in ~~a non-U.S. jurisdiction in YTD FY21.~~Q2 FY23.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests was $19.3 million in Q2 FY23, compared with $15.0 million in Q1 FY23, and $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.FY22. The increases from ~~all prior periods~~Q2 FY22 to Q2 FY23 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~~were $367.5 million and ~~$276.7~~$319.7 million as of ~~May 1, 2022,~~April 30, 2023, and October 31, ~~2021,~~2022, respectively. As of the most recent balance sheet date, total cash and cash equivalents included ~~$266.1~~$352.4 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~~$339.2 million and ~~$165.0~~$277.4 million as of ~~May 1, 2022~~,April 30, 2023, and October 31, ~~2021,~~2022, 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~~$25.0 million of borrowing capacity to support local operations. See Note 56 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 investing and 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, short-term investments, 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. We may also elect to use our cash to reduce our debt through early repayments. In addition, we stand ready to invest in mergers, acquisitions, or strategic partnerships, should ~~the right~~a suitable opportunity ~~be available.~~arise.

We estimate capital expenditures for ~~the remainder of FY22~~full year FY23 will be approximately ~~$65~~$130.0 million; these investments will be targeted towards high-end and mainstream ~~point tools that~~ ~~will increase our operating~~IC capacity and efficiency, and enable us to support our customers’ near-term demands. As of ~~May 1, 2022,~~April 30, 2023, we had outstanding capital commitments of approximately ~~$115~~$113.1 million and recognized liabilities related to capital equipment purchases of approximately $8$15.5 million. Although payment timing could vary, primarily as a result of the timing of tool delivery, installation, and testing, we currently estimate that we will fund ~~$96~~$94.0 million of our total ~~$123~~$128.6 million committed and recognized obligations for capital expenditures over the next twelve months. Please refer to ~~Notes 5 and 7, respectively,~~Note 6 to the condensed consolidated financial statements for information on our outstanding ~~debt and lease commitments.~~debt.

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,~~April 30, 2023, 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. On August 16, 2022, the Inflation Reduction Act (“IRA”) was enacted in the U.S. Among other provisions, the IRA included a one percent excise tax on corporate share repurchases. The one percent excise tax on share repurchases applies to shares repurchased after December 31, 2022, and excludes repurchases under $1 million. We do not anticipate that the IRA will have a material effect on our liquidity.

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As discussed in Note 45 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,~~April 30, 2023, Photronics and DNP each had net investments in this joint venture of approximately ~~$92.6 million.~~$110.9 million.

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Cash Flows

	YTD FY22			YTD FY21

							YTD FY23			YTD FY22
Net cash provided by operating activities	$	103.3		$	58.2		$	109.7		$	103.3
Net cash used in investing activities	$	(33.6	)	$	(67.9	)	$	(62.3	)	$	(33.6	)
Net cash used in financing activities	$	(2.2	)	$	(18.6	)	$	(15.2	)	$	(2.2	)

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~~impacts of cash from changes in operating assets and liabilities. Net cash provided by operating activities increased by ~~$45.1~~$6.4 million in YTD ~~FY22,~~FY23, compared with YTD ~~FY21,~~FY22, due to increased net income ~~which was~~ partially offset by ~~lower depreciation expense.~~cash used from changes in working capital.

Free Cash Flow and LTM (“Last Twelve Months”) Free Cash Flow, which are non-GAAP financial measures as discussed in the “~~Non-GAAP~~“Non-GAAP Financial ~~Measures~~”Measures” section below, decreased by $16.5 million and increased by ~~$79.4 and $95.3~~$20.7 million, respectively, compared with YTD ~~FY21,~~FY22, primarily due to the increase in Net cash provided by operating activities discussed ~~above.~~above and an increase in spending on property, plant, and equipment.

Investing Activities: Net cash flows used in investing activities primarily consisted of purchases of property, plant, and equipment of ~~$34.8~~$57.7 million, which ~~decreased $38.7~~increased $22.9 million and purchases of available-for-sale debt securities of $9.8 million, which increased $9.8 million in YTD ~~FY22, as~~FY23, 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.~~FY22.

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~~increased by ~~$16.5~~$13.0 million in YTD ~~FY22,~~FY23, compared with YTD ~~FY21,~~FY22, 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,~~in YTD FY22, which did not repeat during YTD FY23, and ~~increased~~decreased debt repayments of ~~$18.9~~$12.9 million. ~~In addition, we received debt proceeds~~

The increase in our cash balance from YTD FY22 was favorably impacted by the effects of ~~$12.4~~exchange rate changes in the amount of $15.6 million in YTD ~~FY21 and did not incur debt~~FY23, which was in contrast to the $14.9 million unfavorable impact effect of exchange rate changes had on our cash balance in YTD FY22.

Non-GAAP Financial Measures

~~We consider~~Non-GAAP Net Income attributable to Photronics, Inc. shareholders and non-GAAP earnings per share, Free Cash Flow, LTM Free Cash Flow, and Net Cash ~~which~~ are ~~“non-GAAP~~"non-GAAP financial ~~measures” (as~~measures" as such term is defined by the ~~SEC), to be useful metrics in measuring our cash-generating performance. (Note that we~~Securities and Exchange Commission and may ~~define these terms differently than other companies that use similarly-named~~differ from similarly named non-GAAP financial ~~measures.)~~measures used by other companies. The financial tables below reconcile Photronics, Inc. financial results under GAAP to non-GAAP financial information. We believe these non-GAAP financial measures that exclude certain items are useful for analysts and investors to evaluate our future on-going performance because they enable a more meaningful comparison of our projected performance with our historical results. These non-GAAP metrics are not intended to represent funds available for our discretionary use and are not intended to represent, or to be used as a substitute for, ~~Cash~~net income attributable to Photronics, Inc. shareholders, diluted earnings per share, cash and cash equivalents, or cash flows from operations, as measured under GAAP. The items excluded from these non-GAAP metrics but included in the calculation of their closest GAAP equivalent, are significant components of the condensed consolidated statements of income, condensed consolidated balance sheets and statement of cash flows and must be considered in performing a comprehensive assessment of overall financial performance.

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The following table reconciles GAAP to Non-GAAP Income or at the balance sheet dates. The columns may not foot due to rounding.

	Three Months ended									Six Months ended
	April 30,			January 29,			May 1,			April 30,			May 1,
	2023			2023			2022			2023			2022

Reconciliation of GAAP to Non-GAAP Net Income:

GAAP Net Income	$	39,929		$	13,986		$	27,432		$	53,915		$	50,496
FX (gain) loss		(10,718	)		16,944			(7,844	)		6,226			(13,112	)
Estimated tax effects of above		2,823			(4,506	)		1,947			(1,683	)		3,284
Estimated noncontrolling interest effects of above		901			(2,060	)		1,543			(1,159	)		1,639
Non-GAAP Net Income	$	32,935		$	24,364		$	23,078		$	57,299		$	42,307


Weighted-average number of common shares outstanding - Diluted		61,507			61,470			61,145			61,489			61,041

Reconciliation of GAAP to Non-GAAP EPS:

GAAP diluted earnings per share	$	0.65		$	0.23		$	0.45		$	0.88		$	0.83
Effects of the above adjustments	$	(0.11	)	$	0.17		$	(0.07	)	$	0.05		$	(0.14	)
Non-GAAP diluted earnings per share	$	0.54		$	0.40		$	0.38		$	0.93		$	0.69

The following tables reconcile Net cash provided by operating activities~~, as measured under GAAP. The following tables reconcile~~ ~~Net cash provided by operating activities~~ to Free Cash Flow for YTD FY23 and YTD FY22 and present the calculations of LTM Free Cash Flow for ~~Q2 FY22~~YTD FY23 and ~~Q2 FY21.~~YTD FY22. The columns may not foot due to rounding.Prior year amounts in the non-GAAP disclosure below have been recast to eliminate government incentives to conform to current year presentation.

	YTD FY22			YTD FY21
							YTD FY23			YTD FY22
Free Cash Flow
Net cash provided by operating activities	$	103.3		$	58.2		$	109.7		$	103.3
Purchases of property, plant and equipment		(34.8	)		(73.5	)
Government incentives		1.4			5.8
Purchases of property, plant, and equipment								(57.7	)		(34.8	)
Free cash flow	$	69.9		$	(9.5	)	$	52.0		$	68.5

	Q2 FY23			Q2 FY22
LTM Free Cash Flow
First six months of the respective fiscal year	$	52.0		$	68.5
Prior fiscal year		162.8			41.8
First six months of the prior year		(68.5	)		15.3
LTM free cash flow	$	146.3		$	125.6

3334

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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. Prior year amounts in the non-GAAP disclosure below have been recast to eliminate short-term investments to conform to current year presentation.

	As of
							As of
	May 1, 2022			October 31, 2021			April 30,			October 31,
							2023			2022
Net Cash
Cash and cash equivalents	$	329.3		$	276.7		$	367.5		$	319.7
Current portion of Long-term debt		(12.4	)		(22.2	)		(7.0	)		(10.0	)
Long-term debt		(70.1	)		(89.4	)		(21.3	)		(32.3	)
Net cash	$	246.7		$	165.0		$	339.1		$	277.3

Business Outlook

Our current business outlook and guidance was provided in the Photronics Q2 ~~FY22~~FY23 earnings release, ~~Earnings Presentation,~~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~~FY23 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~~2022 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~~2022 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.~~2022.

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.

~~Table of Contents~~

Our primary net foreign currency exposures as of ~~May 1, 2022,~~April 30, 2023, included the South Korean won, the Japanese yen, the New Taiwan dollar, the 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 ~~$34.1~~$48.0 million, which represents an increase of ~~$0.1~~$5.9 million from our exposure at January ~~30, 2022, and a decrease of $1.1 million from our exposure at October 31, 2021.~~29, 2023. Our most significant exposures at ~~May 1, 2022, related to~~April 30, 2023, were exposures of the South Korean won, the RMB, and the New Taiwan Dollar to the U.S. dollar, which were, respectively, ~~$11.5~~$12.2 million, ~~$9.1~~$11.4 million, and ~~$8.3~~$21.4 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 ~~May 1, 2022,~~April 30, 2023, condensed consolidated financial statements.

Table of Contents

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 ~~May 1, 2022,~~April 30, 2023, condensed consolidated financial statements.

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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 reports filed under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

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 the end of the period covered by this report. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the second fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~PART II.~~

~~OTHER INFORMATION~~

Table of Contents

PART II. OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

Please refer to Note 11 within Item 1 of this report for information on legal proceedings involving the Company.

Item 1A.

RISK FACTORS

~~In light of external events that~~There have ~~taken place subsequent~~been no material changes to ~~the close of the first fiscal quarter, we have decided to modify two of the~~our risk factors ~~included~~as set forth in “Item 1A. Risk Factors” in our ~~2021~~2022 Form ~~10-K, under the “General Risk Factors” heading, as follows:~~

10-K.

~~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.

~~Table of Contents~~

~~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 shares repurchased under this program ~~prior to January 30, 2022,~~ were ~~retired prior to that date.~~retired. The ~~following~~ table below presents ~~information on our common stock~~share repurchase activity ~~for~~during the second ~~fiscal~~ quarter of ~~2022.~~2023 in connection with the payment of withholding taxes related to the vesting of restricted stock awards.

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
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
0.0

0.0

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


January 30, 2023 – February 26, 2023		0	$	0.00		0	$	31.7
February 27, 2023 – March 26, 2023		2,297	$	17.39		0	$	31.7
March 27, 2023 – April 30, 2023		2,627	$	16.58		0	$	31.7
Total		4,924				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~~Note 6 of the condensed consolidated financial statements for information on these limitations.

3637

Table of Contents

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

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

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

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

~~101.SCH~~	~~Inline XBRL Taxonomy Extension Schema Document~~					X

~~101.CAL~~	~~Inline XBRL Taxonomy Extension Calculation Linkbase Document~~					X

~~101.DEF~~	~~Inline XBRL Taxonomy Extension Definition Linkbase Document~~					X

~~101.LAB~~	~~Inline XBRL Taxonomy Extension Label Linkbase Document~~					X

~~101.PRE~~	~~Inline XBRL Taxonomy Extension Presentation Linkbase Document~~					X

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

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

10.41	Photronics, Inc. 2016 Equity Incentive Compensation Plan As Amended March 16, 2023	8-K	10.1	3/21/2023

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

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

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

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

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

101.SCH	Inline XBRL Taxonomy Extension Schema Document				X

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document				X

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document				X

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document				X

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document				X

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

Table of Contents

SIGNATURES

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

	Photronics, Inc.
	(Registrant)

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

Date:June 7, 2023

Date: June ~~15, 2022~~

~~Date:~~

~~June 15, 2022~~7, 2023

3739

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

Balance at January 31, 2021		63,506	$	635	$	508,974	$	287,073	$	(13,209	)	$	32,029	$	162,994	$	978,496

Net income		-		0		0		10,526		0			0		5,795		16,321
Other comprehensive income		-		0		0		0		0			3,163		636		3,799
Shares issued under equity plans		100		1		819		0		0			0		0		820
Share-based compensation expense		-		0		1,422		0		0			0		0		1,422
Purchase of treasury stock		0		0		0		0		(10,041	)		0		0		(10,041	)

Balance at May 2, 2021		63,606	$	636	$	511,215	$	297,599	$	(23,250	)	$	35,192	$	169,425	$	990,817

As of May 1, 2022	Xiamen Project Loans			Xiamen Working Capital Loans			Hefei Equipment Loan			Finance Leases			Total
Principal due:
Next 12 months	$	0		$	969		$	4,540		$	6,901		$	12,410
Months 13 – 24	$	6,266		$	3,390		$	4,540		$	6,560		$	20,756
Months 25 – 36		9,837			0			7,567			21,279			38,683
Months 37 – 48		9,080			0			1,619			0			10,699
Long-term debt	$	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		4.60	%		4.61	%		4.20	%			⁽³⁾
Basis spread on interest rates		0.00			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)	$	82,920			N/A		$	81,024		$	39,405	⁽⁴⁾

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⁾

	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

	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
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		0.0				0.0