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
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For the quarterly period ended April 28, 2024
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ___ to ___
Commission file number 000-15451
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code
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(
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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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.
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).
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):
|
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Accelerated Filer
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Non-Accelerated Filer
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Smaller
Reporting Company
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Emerging
Growth company
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| ☒ |
☐
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☐
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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 63,356,950 shares of
common stock outstanding as of May 30, 2024.
PHOTRONICS, INC.
QUARTERLY REPORT ON FORM 10-Q
April 28, 2024
|
3
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||
| 4 | ||
| PART I. | FINANCIAL INFORMATION | |
|
Item 1.
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5 | |
| 5 | ||
| 6 | ||
| 7 |
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| 8 |
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| 10 |
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| 11 |
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Item 2.
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26 | |
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Item 3.
|
33 | |
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Item 4.
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34 | |
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PART II.
|
35 | |
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Item 1.
|
35 | |
| Item 1A. |
Risk Factors |
35 |
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Item 2.
|
35 | |
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Item 3.
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Defaults Upon Senior Securities |
35 |
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Item 4.
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Mine Safety Disclosures |
35 |
| Item 5. |
35 | |
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Item 6.
|
36 | |
Definitions of certain terms and acronyms that may appear in this report are
provided below.
|
AMOLED
|
Active-matrix organic light-emitting diode. A technology used in mobile devices.
|
|
ASC
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Accounting Standards Codification
|
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ASP
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Average Selling Price
|
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ASU
|
Accounting Standards Update
|
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DNP
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Dai Nippon Printing Co., Ltd.
|
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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
|
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Exchange Act
|
The Securities Exchange Act of 1934 (as amended)
|
|
FASB
|
Financial Accounting Standards Board
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Form 10-K
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Annual Report on Form 10-K
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Form 10-Q
|
Quarterly Report on Form 10-Q
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FPDs
|
Flat-panel displays, or “displays”
|
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Generation
|
In reference to flat-panel displays, refers to the size range of the underlying substrate to which a photomask is applied. Higher generation (or “G”) numbers represent larger
substrates
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High-end (photomasks)
|
For IC, photomasks that are 28nm or smaller; for FPD, AMOLED, G10.5+, and LTPS photomasks
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ICs
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Integrated circuits, or semiconductors
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LTPS
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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
|
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PDMCX
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Xiamen American Japan Photronics Mask Co., Ltd., a joint venture of Photronics and DNP
|
| Premium charges |
Price paid over and above standard mask price for special service such as priority cycle time or capacity allocation
|
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RMB
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Chinese renminbi
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ROU (assets)
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Right-of-use asset
|
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SEC
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Securities and Exchange Commission
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Securities Act
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The Securities Act of 1933 (as amended)
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U.S. GAAP
|
Accounting principles generally accepted in the United States of America
|
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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
|
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.
PHOTRONICS, INC.
(in thousands, except per share amounts)
(unaudited)
|
April 28,
2024
|
October 31,
2023
|
|||||||
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ASSETS
|
||||||||
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Current assets:
|
||||||||
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Cash and cash equivalents
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$
|
|
$
|
|
||||
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Short-term investments
|
||||||||
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Accounts receivable, net of allowance of $
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|
|||||||
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Inventories
|
|
|
||||||
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Other current assets
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||||||
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Total current assets
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||||||
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Property, plant and equipment, net
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||||||
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Deferred income taxes
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||||||
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Other assets
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||||||
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Total assets
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$
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$
|
|
||||
|
LIABILITIES AND EQUITY
|
||||||||
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Current liabilities:
|
||||||||
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Current portion of long-term debt
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$
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$
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|
||||
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Accounts payable
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||||||
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Accrued liabilities
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||||||
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Total current liabilities
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||||||
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Long-term debt
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||||||
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Other liabilities
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||||||
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Total liabilities
|
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|
||||||
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Commitments and contingencies (Note 12)
|
||||||||
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Equity:
|
||||||||
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Preferred stock, $
|
|
|
||||||
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Common stock, $
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|
||||||
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Additional paid-in capital
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||||||
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Retained earnings
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||||||
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Accumulated other comprehensive loss
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(
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)
|
(
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)
|
||||
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Total Photronics, Inc. shareholders’ equity
|
|
|
||||||
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Noncontrolling interests
|
|
|
||||||
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Total equity
|
|
|
||||||
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Total liabilities and equity
|
$
|
|
$
|
|
||||
See accompanying notes to condensed consolidated financial statements.
PHOTRONICS, INC.
(in thousands, except per share amounts)
(unaudited)
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
|
April 28,
2024
|
April 30,
2023
|
April 28,
2024
|
April 30,
2023
|
|||||||||||||
|
Revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Cost of goods sold
|
|
|
|
|
||||||||||||
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Gross profit
|
|
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|
||||||||||||
|
Operating expenses:
|
||||||||||||||||
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Selling, general, and administrative
|
|
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|
|
||||||||||||
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Research and development
|
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|
||||||||||||
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Total operating expenses
|
|
|
|
|
||||||||||||
| Other operating income, net | ||||||||||||||||
|
Operating income
|
|
|
|
|
||||||||||||
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Other income (expense):
|
||||||||||||||||
|
Foreign currency transactions impact, net
|
|
|
|
(
|
)
|
|||||||||||
|
Interest income and other income, net
|
|
|
|
|
||||||||||||
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Interest expense
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
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Income before income tax provision
|
|
|
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|
||||||||||||
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Income tax provision
|
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|
||||||||||||
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Net income
|
|
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|
||||||||||||
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Net income attributable to noncontrolling interests
|
|
|
|
|
||||||||||||
|
Net income attributable to Photronics, Inc. shareholders
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Earnings per share:
|
||||||||||||||||
|
Basic
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Diluted
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Weighted-average number of common shares outstanding:
|
||||||||||||||||
|
Basic
|
|
|
|
|
||||||||||||
|
Diluted
|
|
|
|
|
||||||||||||
See accompanying notes to condensed consolidated financial statements.
PHOTRONICS, INC.
(in thousands)
(unaudited)
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
|
April 28,
2024
|
April 30,
2023
|
April 28,
2024
|
April 30,
2023
|
|||||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Other comprehensive (loss) income, net of tax of $
|
||||||||||||||||
|
Foreign currency translation adjustments
|
(
|
)
|
(
|
)
|
(
|
)
|
|
|||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Net other comprehensive (loss) income
|
(
|
)
|
(
|
)
|
(
|
)
|
|
|||||||||
|
Comprehensive income
|
|
|
|
|
||||||||||||
|
Less: comprehensive income attributable to noncontrolling interests
|
|
|
|
|
||||||||||||
|
Comprehensive income attributable to Photronics, Inc. shareholders
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
See accompanying notes to condensed consolidated financial statements.
PHOTRONICS, INC.
(in thousands)
(unaudited)
|
Three
Months Ended April 28, 2024
|
||||||||||||||||||||||||||||
|
Photronics, Inc. Shareholders
|
||||||||||||||||||||||||||||
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Loss |
Non-
controlling
Interests
|
Total
Equity
|
||||||||||||||||||||||||
|
Common Stock
|
||||||||||||||||||||||||||||
|
Shares
|
Amount
|
|||||||||||||||||||||||||||
|
Balance as of January 28, 2024
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||||||
|
Net income
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Other comprehensive income
|
-
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||||||
|
Shares issued under equity plans
|
|
|
(
|
)
|
|
|
|
(
|
)
|
|||||||||||||||||||
|
Share-based compensation expense
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Balance as of April 28, 2024
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||||||
|
Three
Months Ended April 30, 2023
|
||||||||||||||||||||||||||||
|
Photronics, Inc. Shareholders
|
||||||||||||||||||||||||||||
|
Common Stock
|
Additional
Paid-in
|
Retained
|
Accumulated
Other
Comprehensive
|
Non-
controlling
|
Total
|
|||||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Earnings
|
Loss
|
Interests
|
Equity
|
||||||||||||||||||||||
|
Balance as of January 29, 2023
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||||||
|
Net income
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Other comprehensive Income
|
-
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||||||
|
Shares issued under equity plans
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Share-based compensation expense
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Balance as of April 30, 2023
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||||||
|
Six Months Ended April 28, 2024
|
||||||||||||||||||||||||||||
|
Photronics, Inc. Shareholders
|
||||||||||||||||||||||||||||
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Loss |
Non-
controlling
Interests
|
Total
Equity
|
||||||||||||||||||||||||
|
Common Stock
|
||||||||||||||||||||||||||||
|
Shares
|
Amount
|
|||||||||||||||||||||||||||
|
Balance as of October 31, 2023
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||||||
|
Net income
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Other comprehensive income
|
-
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||||||
|
Shares issued under equity plans
|
|
|
(
|
)
|
|
|
|
(
|
)
|
|||||||||||||||||||
|
Share-based compensation expense
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Balance as of April 28, 2024
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||||||
|
Six Months Ended April 30, 2023
|
||||||||||||||||||||||||||||
|
Photronics, Inc. Shareholders
|
||||||||||||||||||||||||||||
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Loss |
Non-
controlling
Interests
|
Total
Equity
|
||||||||||||||||||||||||
|
Common Stock
|
||||||||||||||||||||||||||||
|
Shares
|
Amount
|
|||||||||||||||||||||||||||
|
Balance as of October 31, 2022
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||||||
|
Net income
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Other comprehensive Income
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Shares issued under equity plans
|
|
|
(
|
)
|
|
|
|
(
|
)
|
|||||||||||||||||||
|
Share-based compensation expense
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Balance as of April 30, 2023
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||||||
See accompanying notes to condensed consolidated financial statements.
PHOTRONICS, INC.
(in thousands)
(unaudited)
|
Six Months Ended
|
||||||||
|
April 28,
2024
|
April 30,
2023
|
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Net income
|
$
|
|
$
|
|
||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
|
Depreciation and amortization
|
|
|
||||||
|
Share-based compensation
|
|
|
||||||
|
Changes in assets and liabilities:
|
||||||||
|
Accounts receivable
|
(
|
)
|
(
|
)
|
||||
|
Inventories
|
(
|
)
|
(
|
)
|
||||
|
Other current assets
|
(
|
)
|
|
|||||
|
Accounts payable, accrued liabilities, and other
|
(
|
)
|
(
|
)
|
||||
|
Net cash provided by operating activities
|
|
|
||||||
|
Cash flows from investing activities:
|
||||||||
|
Purchases of property, plant and equipment
|
(
|
)
|
(
|
)
|
||||
|
Purchases of short-term investments
|
( |
) | ( |
) | ||||
|
Proceeds from maturities of short-term investments
|
||||||||
|
Government incentives
|
|
|
||||||
|
Other
|
(
|
)
|
(
|
)
|
||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
|
Cash flows from financing activities:
|
||||||||
|
Repayments of debt
|
(
|
)
|
(
|
)
|
||||
|
Proceeds from share-based arrangements
|
|
|
||||||
|
Net settlements of restricted stock awards
|
(
|
)
|
(
|
)
|
||||
|
Net cash used in financing activities
|
(
|
)
|
(
|
)
|
||||
|
Effects of exchange rate changes on cash, cash equivalents, and restricted cash
|
(
|
)
|
|
|||||
|
Net increase (decrease) in cash, cash equivalents, and restricted cash
|
(
|
)
|
|
|||||
|
Cash, cash equivalents, and restricted cash at beginning of period
|
|
|
||||||
|
Cash, cash equivalents, and restricted cash at end of period
|
|
|
||||||
| Less: Ending restricted cash | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
|
Supplemental disclosure of non-cash information:
|
||||||||
|
Accruals for property, plant and equipment purchased during the period
|
$
|
|
$
|
|
||||
See accompanying notes to condensed consolidated financial
statements.
PHOTRONICS, INC.
(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 ICs and FPDs and are used as masters to transfer circuit patterns onto semiconductor
wafers and FPD substrates during the fabrication of ICs, a variety of FPDs and, to a lesser extent, other types of electrical and optical components. We operate eleven manufacturing facilities, which are located in Taiwan (3 ), Korea (1 ), 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 significant 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, 2023, 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 are based on historical experience and on various assumptions that we believe to be reasonable under the facts and circumstances 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, 2024.
NOTE 2 - ACCOUNT RECEIVABLES
The components of Accounts Receivable at
the balance sheet dates are presented below.
|
|
April 28,
|
October 31,
|
||||||
|
|
2024
|
2023
|
||||||
|
Accounts Receivable
|
$
|
|
$
|
|
||||
|
Unbilled Receivable
|
|
|
||||||
|
Allowance for Credit Losses
|
(
|
)
|
(
|
)
|
||||
|
|
$
|
|
$
|
|
||||
NOTE 3 - INVESTMENTS
The Company invests in various bank time deposits and U.S. Government Securities. Our
classification of investments is 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 28, 2024, all of our investments 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. 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 - These are investments where values are based on unadjusted quoted prices for identical assets in an active
market the Company has the ability to access.
Level 2 - These are investments where values are based on quoted market prices that are not active or model derived
valuations in which all significant inputs are observable in active markets.
Level 3 - These are investments where values are derived from techniques in which one or more significant inputs are
unobservable.
The following are the major categories of assets measured at fair value on a recurring basis using quoted prices in active
markets for identical assets (Level 1), significant other observable inputs (Level 2) and significant unobservable inputs (Level 3):
|
April 28, 2024
|
October 31, 2023
|
|||||||||||||||||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||||||||||||||
| U.S. Government Securities |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||
|
Time deposits
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
Based upon the
Company’s intent and ability to hold its time deposits to maturity (which maturities range up to twelve months at purchase), such
securities have been classified as held-to-maturity and are carried at amortized cost, which approximates market value. The Company’s U.S. Government Securities are classified as available-for-sale. Available-for-sale investments are
reported at fair value, with unrealized gains or losses (net of tax) reported in Accumulated other comprehensive income. In the event of a sale of these securities, 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 and time deposits classified as short-term investments.
|
April 28,
2024
|
October 31,
2023
|
|||||||||||||||||||||||||||||||
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Carrying
Value
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Carrying
Value
|
|||||||||||||||||||||||||
|
U.S. Government Securities
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||||
| Time deposits |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total |
$ | $ | $ | ( |
) | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||
The Company’s investments in marketable securities consist primarily of investments in various time deposits and U.S. Government
Securities. Market values were determined for each individual security in the investment portfolio. When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as length of time and extent to which fair
value has been below cost basis, the financial condition of the issuer, and the Company’s ability and intent to hold the investment for a period of time, which may be sufficient for anticipated recovery in market values.
NOTE 4 - INVENTORIES
|
April 28,
2024
|
October 31,
2023
|
|||||||
|
Raw materials
|
$
|
|
$
|
|
||||
|
Work in process
|
|
|
||||||
|
Finished goods
|
|
|
||||||
|
$
|
|
$
|
|
|||||
NOTE 5 - PROPERTY, PLANT, AND EQUIPMENT, NET
Presented below are the components of Property, plant, and equipment, net at the balance
sheet dates.
|
April 28,
2024
|
October 31,
2023
|
|||||||
|
Land
|
$
|
|
$
|
|
||||
|
Buildings and improvements
|
|
|
||||||
|
Machinery and equipment
|
|
|
||||||
|
Leasehold improvements
|
|
|
||||||
|
Furniture, fixtures, and office equipment
|
|
|
||||||
|
Construction in progress
|
|
|
||||||
|
|
|
|||||||
|
Accumulated depreciation and amortization
|
(
|
)
|
(
|
)
|
||||
|
$
|
|
$
|
|
|||||
Information on ROU assets resulting from finance leases, at the balance sheet dates, is presented below.
|
|
April 28,
2024
|
October 31,
2023
|
||||||
|
Machinery and equipment
|
$
|
|
$
|
|
||||
|
Accumulated amortization
|
(
|
)
|
(
|
)
|
||||
|
|
$
|
|
$
|
|
||||
The
following table presents depreciation expense (including the amortization of ROU assets) related to property, plant, and equipment incurred during the reporting periods.
|
Three
Months Ended
|
Six Months Ended |
|||||||||||||||
|
April 28,
2024
|
April 30,
2023
|
April 28,
2024
|
April 30,
2023
|
|||||||||||||
| Depreciation Expense | $ | $ | $ | |||||||||||||
NOTE 6 - 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 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 7, liens were granted to the local financing entity on property, plant, and equipment and were paid off during fiscal year 2023 and there was no remaining debt at October 31, 2023.
Under the Agreement, both Photronics and DNP have the option to purchase, or put, their interest from, or to, the other party,
should their ownership interest fall below 20.0 % for a period of more than consecutive months. Under 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 business days of obtaining required approvals and clearance.
The following table presents net income we recorded from the operations of PDMCX during the reporting periods.
|
Three
Months Ended
|
Six
Months Ended |
|||||||||||||||
|
|
April 28,
2024
|
April 30,
2023
|
April 28, 2024 |
April 30,
2023
|
||||||||||||
|
Net income from PDMCX
|
$
|
|
$
|
|
$ | $ | ||||||||||
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 periods, we had the
obligation to absorb losses, and the right to receive benefits, that could potentially be significant to PDMCX.
The following table presents the carrying amounts of PDMCX assets and liabilities included in our condensed consolidated balance
sheets. 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.
|
April 28,
2024
|
October 31,
2023
|
|||||||||||||||
|
Classification
|
Carrying
Amount
|
Photronics
Interest
|
Carrying
Amount
|
Photronics
Interest
|
||||||||||||
|
Current assets
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Noncurrent assets
|
|
|
|
|
||||||||||||
|
Total assets
|
|
|
|
|
||||||||||||
|
Current liabilities
|
|
|
|
|
||||||||||||
|
Noncurrent liabilities
|
|
|
|
|
||||||||||||
|
Total liabilities
|
|
|
|
|
||||||||||||
|
Net assets
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
NOTE 7 - DEBT
As of April 28, 2024, the Current portion of long-term debt and the Long-term debt balances were comprised of finance leases as described below:
|
As of April 28,
2024
|
Finance
Leases
|
|||
|
Principal due:
|
||||
|
Next 12 months
|
$
|
|
||
|
Months 13 – 24
|
$
|
|
||
|
Months 25 – 36
|
|
|||
|
Months 37 – 48
|
|
|||
| Months 49 – 60 |
||||
|
Long-term debt
|
|
|||
| Total debt |
$ | |||
|
|
||||
|
Interest rate at balance sheet date
|
N/A |
|||
|
Basis spread on interest rates
|
N/A
|
|||
|
Interest rate reset
|
N/A
|
|||
|
Maturity date
|
N/A |
|||
| Periodic payment amount | ||||
|
Periodic payment frequency
|
|
|||
|
Loan collateral (carrying amount)
|
$
|
|
(1) | |
|
(1)
|
|
The table below provides
information on our long-term debt as of October 31, 2023.
|
As of October 31,
2023
|
Finance
Leases
|
|||
|
Principal due:
|
||||
|
Next 12 months
|
$ | |||
|
Months 13 – 24
|
$ | |||
|
Months 25 – 36
|
||||
|
Months 37 – 48
|
||||
| Months 49 – 60 |
|
|||
|
Long-term debt
|
||||
| Total debt |
$ | |||
|
|
||||
|
Interest rate at balance sheet date
|
N/A | |||
|
Basis spread on interest rates
|
N/A | |||
| Interest rate reset | N/A |
|||
| Maturity date |
N/A |
|||
| Periodic payment amount | ||||
| Periodic payment frequency | ||||
|
Loan collateral (carrying amount)
|
$ | (1) |
||
|
(1)
|
Represents the carrying amount at the balance sheet date of the related ROU assets, in which the lessors have secured interests.
|
Finance Leases
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 Credit Agreement, as defined below (expired in September 2023), 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 indebted party.
Corporate Credit Agreement
In
September 2018, we entered into a five-year amended and restated credit agreement (the “Credit Agreement”), which had a $50 million borrowing limit, with an expansion capacity to $100 million. The Credit Agreement was secured by substantially all of our assets located in the United States and common stock we own in certain subsidiaries. The Credit Agreement was
subject to covenants around minimum interest coverage ratio, total leverage ratio, and minimum unrestricted cash balance (all of which we were in compliance with at the termination of the agreement in September 2023), and limited the amount of
cash dividends, distributions, and redemptions we could pay on our common stock to an aggregate annual amount of $50 million. The
Credit Agreement expired, and was not renewed as of October 31, 2023. There were no outstanding borrowings against the Credit
Agreement at its expiration.
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 . In December 2022, we repaid our entire outstanding balance of RMB 25.6 million ($3.6 million). As of April
28, 2024, PDMCX had 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.
NOTE 8 - 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 no
The following table provides information about our contract balances at the balance sheet dates.
|
Classification
|
April 28,
2024
|
October 31,
2023
|
||||||
|
Contract Assets
|
||||||||
|
Other current assets
|
$
|
|
$
|
|
||||
|
Contract Liabilities
|
||||||||
|
Accrued liabilities
|
$
|
|
$
|
|
||||
|
Other liabilities
|
|
|
||||||
|
$
|
|
$
|
|
|||||
The Company did no t recognize any revenue from performance obligations satisfied in the previous periods. The following table presents revenue recognized from contract liabilities that
existed at the beginning of the reporting periods.
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
|
April 28,
2024
|
April 30,
2023
|
April 28,
2024
|
April 30,
2023
|
|||||||||||||
|
Revenue recognized from beginning liability
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
We generally record our accounts receivable at their billed amounts.
All outstanding past due customer invoices are reviewed for 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 no
Our invoice terms generally range from net- 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 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.
Disaggregation of Revenue
The following tables present our revenue for the three and six-month
periods ended April 28, 2024, and April 30, 2023, disaggregated by product type, geographic origin, and timing of recognition.
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
|
Revenue by Product Type
|
April 28,
2024
|
April 30,
2023
|
April 28,
2024
|
April 30,
2023
|
||||||||||||
|
IC
|
||||||||||||||||
|
High-end
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Mainstream
|
|
|
|
|
||||||||||||
|
Total IC
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
FPD
|
||||||||||||||||
|
High-end
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Mainstream
|
|
|
|
|
||||||||||||
|
Total FPD
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
|
Revenue by Geographic Origin*
|
April 28,
2024
|
April 30,
2023
|
April 28,
2024
|
April 30,
2023
|
||||||||||||
|
Taiwan
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
| China |
|
|
|
|
||||||||||||
|
Korea
|
|
|
|
|
||||||||||||
|
United States
|
|
|
|
|
||||||||||||
|
Europe
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||
* This table disaggregates revenue by the location in which it was earned.
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
|
Revenue by Timing of Recognition
|
April 28,
2024
|
April 30,
2023
|
April 28,
2024
|
April 30,
2023
|
||||||||||||
|
Over time
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
At a point in time
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
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 to weeks for FPD photomasks and
to 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; thus, the backlog, in some cases, can expand to as long as 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 to twenty-four months . We warrant that our photomasks conform to customer
specifications and will typically repair, replace, or issue a refund 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 9 - 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 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 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 28,
2024 and April 30, 2023.
| Three Months Ended | Six Months Ended | |||||||||||||||
|
April 28,
2024 |
April 30,
2023 |
April 28,
2024
|
April 30,
2023
|
|||||||||||||
|
Expense reported in:
|
||||||||||||||||
|
Cost of goods sold
|
$
|
|
$
|
|
$ | $ | ||||||||||
|
Selling, general, and administrative
|
|
|
||||||||||||||
|
Research and development
|
|
|
||||||||||||||
|
Total expense incurred
|
$
|
|
$
|
|
$ | $ | ||||||||||
|
Expense by award type:
|
||||||||||||||||
|
Restricted stock awards
|
$
|
|
$
|
|
$ | $ | ||||||||||
|
Stock options
|
|
|
||||||||||||||
|
Employee stock purchase plan
|
|
|
||||||||||||||
| Total expense incurred |
$
|
|
$
|
|
$ | $ | ||||||||||
|
Income tax benefits of share-based compensation
|
$
|
|
$
|
|
$ | $ | ||||||||||
|
Share-based compensation cost capitalized
|
$
|
|
$
|
|
$ | $ | ||||||||||
Restricted Stock Awards
|
Three Months Ended
|
Six Months Ended | |||||||||||||||
|
April 28,
2024
|
April 30,
2023
|
April 28,
2024
|
April 30,
2023
|
|||||||||||||
|
Number of shares granted in period
|
|
|
||||||||||||||
|
Weighted-average grant-date fair value of awards (in dollars per share)
|
$
|
|
$
|
|
$ | $ | ||||||||||
|
Compensation cost not yet recognized
|
$
|
|
$
|
|
$ | $ | ||||||||||
|
Weighted-average amortization period for cost not yet recognized (in years)
|
|
|
||||||||||||||
|
Shares outstanding at balance sheet date
|
|
|
||||||||||||||
Stock Options
Option
awards generally vest in 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 three and six-month periods ended
April 28, 2024 and April 30, 2023 .
|
Three Months Ended
|
Six Months Ended |
|||||||||||||||
|
April 28,
2024
|
April 30,
2023
|
April 28,
2024
|
April 30,
2023
|
|||||||||||||
|
Number of options granted in period
|
|
|
||||||||||||||
|
Cash received from option exercised
|
$
|
|
$
|
|
$ | $ | ||||||||||
|
Compensation cost not yet recognized
|
$
|
|
$
|
|
$ | $ | ||||||||||
|
Weighted-average amortization period for cost not yet recognized (in years)
|
-
|
-
|
-
|
- | ||||||||||||
Information on outstanding and exercisable option awards as of April 28, 2024, is presented below.
|
Options
|
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life (in years)
|
Aggregate
Intrinsic
Value
|
||||||||||||
|
Outstanding and exercisable at April 28, 2024
|
|
$
|
|
|
$
|
|
||||||||||
NOTE 10 - 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 rates differed from the U.S. statutory tax rates in effect during the three and six-month periods
ended April 28, 2024 and April 30, 2023.
|
Reporting Period
|
U.S. Statutory
Tax Rates
|
Photronics
Effective Tax
Rates
|
Primary Reasons for Differences
|
||||||
| |
|
||||||||
|
Three months ended April 28, 2024
|
|
|
|
|
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 April 30, 2023
|
|
|
|
|
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 28, 2024 | 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 | 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. | ||||||||
Uncertain Tax
Positions
Although the timing of reversal of 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., major foreign, or state tax jurisdictions for
years prior to fiscal year . The table below presents information on our unrecognized tax benefits as of the balance sheet dates.
|
April 28,
2024
|
October 31,
2023
|
|||||||
|
Unrecognized tax benefits related to uncertain tax positions
|
$
|
|
$
|
|
||||
|
Unrecognized tax benefits that, if recognized, would impact the effective tax rate
|
$
|
|
$
|
|
||||
|
Accrued interest and penalties related to uncertain tax positions
|
$
|
|
$
|
|
||||
NOTE 11 - EARNINGS PER SHARE
The calculations of basic and diluted earnings per share are presented below.
|
Three Months Ended
|
Six
Months Ended
|
|||||||||||||||
|
April 28,
2024
|
April 30,
2023
|
April 28,
2024
|
April 30,
2023
|
|||||||||||||
|
Net income attributable to Photronics, Inc. shareholders
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Effect of dilutive securities
|
|
|
|
|
||||||||||||
|
Earnings used for diluted earnings per share
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Weighted-average common shares computations:
|
||||||||||||||||
|
Weighted-average common shares used for basic earnings per share
|
|
|
|
|
||||||||||||
|
Effect of dilutive securities:
|
||||||||||||||||
|
Share-based payment awards
|
|
|
|
|
||||||||||||
|
Potentially dilutive common shares
|
|
|
|
|
||||||||||||
|
Weighted-average common shares used for diluted earnings per share
|
|
|
|
|
||||||||||||
|
Basic earnings per share
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Diluted earnings per share
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
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
|
|||||||||||||||
|
April 28,
2024
|
April 30,
2023
|
April 28,
2024
|
April 30,
2023
|
|||||||||||||
|
Share-based payment awards
|
|
|
|
|
||||||||||||
|
Total potentially dilutive shares excluded
|
|
|
|
|
||||||||||||
NOTE 12 - COMMITMENTS AND CONTINGENCIES
As of April 28, 2024, we had commitments outstanding for
capital expenditures of approximately $133.3 million, primarily for purchases of high-end equipment.
In May
2022, we were informed of a customs audit in one of our China operations. We estimated a contingency ranging from $2.2 million to $3.7 million, which
included unpaid additional customs duties and related interest and penalties for the previous three years (the period under audit). In
the three-month period ended May 1, 2022, we recorded a contingent loss of $2.2 million, as we believed this was 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.
NOTE 13 - 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
|
Three Months Ended April 28, 2024
|
||||||||||||
|
Foreign Currency
Translation
Adjustments
|
Other
|
Total
|
||||||||||
|
Balance at January 28, 2024
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Other comprehensive (loss) income
|
(
|
)
|
|
(
|
)
|
|||||||
|
Other comprehensive (loss) income attributable to noncontrolling interests
|
|
(
|
)
|
|
||||||||
|
Balance at April 28, 2024
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Three Months Ended April 30, 2023
|
||||||||||||
|
Foreign Currency
Translation
Adjustments
|
Other
|
Total
|
||||||||||
|
Balance at January 29, 2023
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Other comprehensive (loss) income
|
(
|
)
|
|
(
|
)
|
|||||||
|
Other comprehensive (loss) income attributable to noncontrolling interests
|
|
(
|
)
|
|
||||||||
|
Balance at April 30, 2023
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Six
Months Ended April 28, 2024
|
||||||||||||
|
Foreign Currency
Translation
Adjustments
|
Other
|
Total
|
||||||||||
|
Balance at October 31, 2023
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Other comprehensive (loss) income
|
(
|
)
|
|
(
|
)
|
|||||||
|
Other comprehensive (loss) income attributable to noncontrolling interests
|
|
(
|
)
|
|
||||||||
|
Balance at April 28, 2024
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Six
Months Ended April 30, 2023
|
||||||||||||
|
Foreign Currency
Translation
Adjustments
|
Other
|
Total
|
||||||||||
|
Balance at October 31, 2022
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Other comprehensive (loss) income
|
|
|
|
|||||||||
|
Other comprehensive (loss) income attributable to noncontrolling interests
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Balance at April 30, 2023
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
NOTE 14 - SHARE REPURCHASE PROGRAMS
In September 2020, the Company’s board of directors authorized the repurchase of up to $100 million of its common stock, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Act. The most recent 10b5-1 plan expired on September 15, 2022, and has not
been renewed. Share repurchases under this authorization commenced on September 16, 2020 . The repurchase authorization by the Board of
Directors has no expiration date, does not obligate us to acquire any common stock, and is subject to market conditions. There have been no 31.7 million was
available under this authorization for the purchase of additional shares. All shares repurchased under the program have been retired.
NOTE 15 - RECENT ACCOUNTING PRONOUNCEMENTS
Accounting Standards
Updates to be Adopted
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, to enhance the transparency and decision usefulness of income tax disclosures. The amendments
in this Update related to the rate reconciliation and income taxes paid disclosures to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate
reconciliation and (2) income taxes paid disaggregated by jurisdiction. The amendments allow investors to better assess, in their capital allocation decisions, how an entity’s worldwide operations and related tax risks and tax planning and
operational opportunities affect its income tax rate and prospects for future cash flows. The guidance in this Update will be effective for Photronics in its fiscal year 2026 Form 10-K, with early application of the amendments allowed. We are
currently evaluating the effect the adoption of this ASU may have on our disclosures.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which
improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance in this Update is effective for Photronics in its fiscal year 2025 Form 10-K, with early adoption
permitted. We are currently evaluating the effect the adoption of this ASU may have on our disclosures.
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 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 year 2023), 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, sometimes within twenty-four hours. This
has historically resulted 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, due to market dynamics over the last two years, the demand for some IC
photomasks had expanded beyond the industry’s capacity to supply them within the traditional time period; thus, for some products, the backlog had expanded to as long as two to three months. More recently however, while supply and demand
balance generally still remains favorable for our products, backlogs for most high demand products have normalized to more manageable levels of less than a month.
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.
Results of Operations
Three Months Ended April 28, 2024
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
|
|||||||||||||||||||
|
April 28,
2024
|
January 28,
2024
|
April 30,
2023
|
April 28,
2024
|
April 30,
2023
|
||||||||||||||||
|
Revenue
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||||||||
|
Cost of goods sold
|
63.5
|
63.4
|
61.4
|
63.4
|
62.7
|
|||||||||||||||
|
Gross profit
|
36.5
|
36.6
|
38.6
|
36.6
|
37.3
|
|||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||
|
Selling, general, and administrative
|
8.8
|
8.5
|
7.8
|
8.6
|
7.9
|
|||||||||||||||
|
Research and development
|
2.0
|
1.6
|
1.5
|
1.8
|
1.5
|
|||||||||||||||
|
Operating income
|
25.8
|
26.6
|
29.2
|
26.2
|
27.9
|
|||||||||||||||
|
Other operating income (expense), net
|
9.5
|
(1.7
|
)
|
5.9
|
3.9
|
(0.2
|
)
|
|||||||||||||
|
Income before income tax provision
|
35.3
|
24.8
|
35.2
|
30.1
|
27.7
|
|||||||||||||||
|
Income tax provision
|
9.3
|
6.8
|
9.3
|
8.0
|
7.7
|
|||||||||||||||
|
Net income
|
26.0
|
18.1
|
25.8
|
22.0
|
20.0
|
|||||||||||||||
|
Net income attributable to noncontrolling interests
|
9.3
|
6.0
|
8.4
|
7.6
|
7.8
|
|||||||||||||||
|
Net income attributable to Photronics, Inc. shareholders
|
16.7
|
%
|
12.1
|
%
|
17.4
|
%
|
14.4
|
%
|
12.2
|
%
|
||||||||||
Note: All tabular comparisons included in the following discussion, unless otherwise indicated, are for the three months ended April 28,
2024 (Q2 FY24), January 28, 2024 (Q1 FY24), and April 30, 2023 (Q2 FY23) and for the six months ended April 28, 2024 (YTD FY24) and April 30, 2023 (YTD FY23).
Revenue
Our quarterly revenues can be affected by the seasonal purchasing practices of our customers. As a result, demand for our products is typically reduced during the first
quarter of our fiscal year by the North American, European, and Asian holiday periods, as some of our customers reduce their development and, consequently, their buying activities during those periods.
The following tables present changes in disaggregated revenue in Q2 FY24 from revenue in prior reporting periods.
Quarterly Changes in Revenue by Product Type
|
Q2 FY24 compared with Q1 FY24
|
Q2 FY24 compared with Q2 FY23
|
YTD FY24 compared with YTD FY23
|
||||||||||||||||||||||||||||||
|
Revenue in
Q2 FY24
|
Increase
(Decrease)
|
Percent
Change
|
Increase
(Decrease)
|
Percent
Change
|
Revenue in
YTD FY24
|
Increase
(Decrease)
|
Percent
Change
|
|||||||||||||||||||||||||
|
IC
|
||||||||||||||||||||||||||||||||
|
High-end*
|
$
|
58.0
|
$
|
(2.8
|
)
|
(4.7
|
)%
|
$
|
14.1
|
32.2
|
%
|
$
|
118.9
|
$
|
27.0
|
29.4
|
%
|
|||||||||||||||
|
Mainstream
|
102.9
|
6.1
|
6.4
|
%
|
(20.2
|
)
|
(16.4
|
)%
|
199.6
|
(32.1
|
)
|
(13.9
|
)%
|
|||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total IC
|
$
|
160.9
|
$
|
3.3
|
2.1
|
%
|
$
|
(6.1
|
)
|
(3.7
|
)%
|
$
|
318.5
|
$
|
(5.1
|
)
|
(1.6
|
)%
|
||||||||||||||
|
FPD
|
||||||||||||||||||||||||||||||||
|
High-end*
|
$
|
48.0
|
$
|
(2.6
|
)
|
(5.2
|
%)
|
$
|
(3.9
|
)
|
(7.5
|
)%
|
$
|
98.6
|
$
|
1.0
|
1.0
|
%
|
||||||||||||||
|
Mainstream
|
8.1
|
-
|
-
|
%
|
(2.3
|
)
|
(21.9
|
)%
|
16.2
|
(3.0
|
)
|
(15.4
|
)%
|
|||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total FPD
|
$
|
56.1
|
$
|
(2.6
|
)
|
(4.6
|
)%
|
$
|
(6.2
|
)
|
(9.9
|
)%
|
$
|
114.8
|
$
|
(2.0
|
)
|
(1.7
|
)%
|
|||||||||||||
|
Total Revenue
|
$
|
217.0
|
$
|
0.7
|
0.3
|
%
|
$
|
(12.3
|
)
|
(5.4
|
)%
|
$
|
433.3
|
$
|
(7.1
|
)
|
(1.6
|
)%
|
||||||||||||||
* High-end photomasks typically have higher average selling prices (ASPs) than mainstream products.
Quarterly Changes in Revenue by Geographic Origin**
|
Q2 FY24 compared with Q1 FY24
|
Q2 FY24 compared with Q2 FY23
|
YTD FY24 compared with YTD FY23
|
||||||||||||||||||||||||||||||
|
Revenue in
Q2 FY24
|
Increase
(Decrease)
|
Percent
Change
|
Increase
(Decrease)
|
Percent
Change
|
Revenue in
YTD FY24
|
Increase
(Decrease)
|
Percent
Change
|
|||||||||||||||||||||||||
|
Taiwan
|
$
|
75.4
|
$
|
0.4
|
0.6
|
%
|
$
|
(5.0
|
)
|
(6.3
|
)%
|
$
|
150.4
|
$
|
(5.6
|
)
|
(3.6
|
)%
|
||||||||||||||
|
China
|
58.7
|
0.6
|
1.0
|
%
|
(6.5
|
)
|
(10.0
|
)%
|
116.8
|
(7.3
|
)
|
(5.9
|
)%
|
|||||||||||||||||||
|
Korea
|
39.3
|
(1.0
|
)
|
(2.6
|
)%
|
(2.1
|
)
|
(5.0
|
)%
|
79.6
|
0.4
|
0.5
|
%
|
|||||||||||||||||||
|
United States
|
33.3
|
0.6
|
1.8
|
%
|
0.7
|
2.5
|
%
|
66.1
|
3.6
|
5.9
|
%
|
|||||||||||||||||||||
|
Europe
|
9.9
|
0.2
|
2.3
|
%
|
0.7
|
7.0
|
%
|
19.6
|
1.9
|
10.8
|
%
|
|||||||||||||||||||||
|
Other
|
0.4
|
(0.1
|
)
|
(19.2
|
)%
|
(0.1
|
)
|
(25.8
|
)%
|
0.8
|
(0.1
|
)
|
(10.7
|
)%
|
||||||||||||||||||
|
$
|
217.0
|
$
|
0.7
|
0.3
|
%
|
$
|
(12.3
|
)
|
(5.4
|
)%
|
$
|
433.3
|
$
|
(7.1
|
)
|
(1.6
|
)%
|
|||||||||||||||
** This table disaggregates revenue by the location in which it was earned.
Revenue in Q2 FY24 was $217.0 million, representing an increase of 0.3% compared with Q1 FY24 and a decrease of 5.4% from Q2 FY23. The Taiwan earthquakes in April 2024, and soft demand following the Chinese New Year
were headwinds that adversely impacted revenue growth during the quarter.
IC photomask revenue increased by 2.1% compared with Q1 FY24. The increase from Q1 FY 24 was primarily the result of
increased mainstream demand in Asia offsetting decreased high end demand primarily in the U.S. IC photomask revenue decreased by 3.7% compared to Q2 FY23 as increased high-end demand were more than offset by decreased mainstream demand.
FPD revenue decreased 4.6% compared with Q1 FY24. The decrease from Q1 FY24 was due to premium smartphone seasonality. FPD revenue decreased 9.9% from Q2 FY23 due to decreases in both high-end and mainstream products
due to softer demand. We continue to believe that strong demand for AMOLED photomasks used in mobile devices will continue, as expected technology advances drives increasing overall demand for higher-value masks.
On a YTD basis, IC revenue decreased 1.6% and FPD revenue decreased 1.7%; both were due to soft demand in mainstream.
Gross Margin
|
Q2 FY24
|
Q1 FY24
|
Percent
Change
|
Q2 FY23
|
Percent
Change
|
YTD FY24
|
YTD FY23
|
Percent
Change
|
|||||||||||||||||||||||||
|
Gross profit
|
$
|
79.3
|
$
|
79.3
|
-
|
%
|
$
|
88.4
|
(10.3
|
)%
|
158.5
|
164.5
|
(3.6
|
)%
|
||||||||||||||||||
|
Gross margin
|
36.5
|
%
|
36.6
|
%
|
38.6
|
%
|
36.6
|
%
|
37.3
|
%
|
||||||||||||||||||||||
Gross margin remained flat in Q2 FY24, from Q1 FY24. With respect to items within cost of goods sold, material costs decreased 1.3% from the prior quarter and, decreased as a percentage of revenue, by 40 basis
points. Labor cost decreased 1.0% from the prior quarter and, decreased as a percentage of revenue, by 18 basis points. Equipment and other overhead costs increased 2.7% from the prior quarter, and, increased 65 basis points as a percentage of
revenue.
Gross margin decreased 210 basis points, in Q2 FY24, from Q2 FY23, primarily as a result of the decrease in revenue from lower Premium charges. Material costs
decreased 5.8% from the prior year quarter, and, decreased as a percentage of revenue by 11 basis points. Labor costs decreased 1.2% from the prior year quarter, but, increased, as a percent of revenue, by 49 basis points as labor increased in
both the U.S. and at several Asia-based facilities, reflecting labor market conditions. Equipment and other overhead costs increased 0.5% from the prior quarter, and, increased 163 basis points as a percentage of revenue.
Gross margin decreased by 70 basis points in YTD FY24, from YTD FY23, primarily as a result of the decrease in revenue from lower Premium
charges. Material costs decreased 1.9% from YTD FY23, and, decreased 7 basis points, as a percentage of revenue. Labor costs increased 1.4% from YTD FY23, and, increased 35 basis points as a percentage of revenue. The increase was primarily the
result of increased labor cost in Asia. Equipment and other overhead costs rose 0.2%, and, increased 49 basis points, as a percentage of revenue. Increased depreciation expense, partially offset by decreased outsourced manufacturing, and
increased R&D reclassification costs 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 $19.0 million in Q2 FY24, compared with $18.3 million in Q1 FY24. The increase of $0.7 million was primarily the result of increased compensation and related
expenses of $0.1 million and increased professional fees of $0.2 million. Selling, general, and administrative expenses increased $1.1 million in Q2 FY24, from $17.9 million in Q2 FY23, primarily as a result of increased compensation and related
expenses of $1.2 million.
Selling, general, and administrative expenses increased $2.6 million in YTD FY24 to $37.3 million, compared with $34.7 million in YTD FY23. The increase was driven by the results of increased compensation and
related expense of $2.4 million.
Research and Development Expenses
Research and development expenses, which primarily consist of development and qualification efforts related to process technologies for high-end IC and FPD applications,
were $4.3 million in Q2 FY24, $3.4 million in Q1 FY24, and $3.5 million in Q2 FY23.
Research and development expenses increased by $0.9 million in YTD FY24 to $7.7 million, compared with $6.8 million in YTD FY23. The increase was driven by the expansion of development activities in the U.S.,
Taiwan, and China.
Non-operating Income (Expense)
|
Q2
FY24
|
Q1
FY24
|
Q2
FY23
|
YTD
FY24
|
YTD
FY23
|
||||||||||||||||
|
Foreign currency transactions impact, net
|
$
|
14.8
|
$
|
(8.9
|
)
|
$
|
10.7
|
$
|
5.9
|
$
|
(6.2
|
)
|
||||||||
|
Interest expense, net
|
(0.1
|
)
|
(0.1
|
)
|
(0.1
|
)
|
(0.2
|
)
|
(0.2
|
)
|
||||||||||
|
Interest income and other income (expense), net
|
5.8
|
5.3
|
3.0
|
11.1
|
5.6
|
|||||||||||||||
|
Non-operating income (expense), net
|
$
|
20.5
|
$
|
(3.7
|
)
|
$
|
13.6
|
$
|
16.8
|
$
|
(0.8
|
)
|
||||||||
Non-operating income (expense) increased $24.2 million to $20.5 million in Q2 FY24, compared with $(3.7) million in Q1 FY24, primarily due to foreign currency
transactions impact, net, driven by favorable movements of the U.S. dollar against the New Taiwan Dollar and the South Korean won. Non-operating income (expense)
increased $6.9 million compared with Q2 FY23, primarily due to foreign currency transaction impact, net, driven by favorable movements of the U.S. dollar against the New Taiwan Dollar.
Interest income and other income (expense), net, of $5.8 million in Q2 FY24 increased $0.5 million compared with $5.3 million in Q1 FY24. Interest income and other income (expense), net, increased $2.8 million
compared to $3.0 million in Q2 FY23 driven by an increase in time deposits within cash and cash equivalents, and higher interest rates.
Non-operating income (expense) increased $17.6 million to $16.8 million in YTD FY24, compared with $(0.8) million in YTD FY23, primarily due to
foreign currency transactions impact, net, driven by favorable movements of the U.S. dollar against the New Taiwan Dollar and the South Korean won.
Interest income and other income (expense), net, increased to $11.1 million in YTD FY24, compared with $5.6 million in YTD FY23, primarily due to an increase in time deposits within cash invested and higher
interest rates.
Income Tax Provision
|
Q2 FY24
|
Q1 FY24
|
Q2 FY23
|
YTD FY24
|
YTD FY23
|
||||||||||||||||
|
Income tax provision
|
$
|
20.2
|
$
|
14.7
|
$
|
21.3
|
$
|
34.9
|
$
|
33.9
|
||||||||||
|
Effective income tax rate
|
26.4
|
%
|
27.3
|
%
|
26.5
|
%
|
26.8
|
%
|
27.8
|
%
|
||||||||||
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 benefits of the
losses are not available.
The effective income tax rate decrease in Q2 FY24, compared with Q1 FY24, is primarily due to changes in the jurisdictional mix of earnings and a decrease in foreign taxes in Q2 FY24.
The effective income tax rate decrease in Q2 FY24, compared with Q2 FY23, is primarily due to changes in the jurisdictional mix of
earnings.
The effective income tax rate decrease in YTD FY24 compared with YTD FY23, is primarily due to changes in the jurisdictional mix of earnings.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests was $20.1 million in Q2 FY24, compared with $12.9 million in Q1 FY24, and $19.3 million in Q2 FY23. The increase from Q1 FY24 to Q2 FY24 resulted from increased net
income at our Taiwan-based IC joint venture. Net income attributable to noncontrolling interest was $33.0 million in YTD FY24, compared with $34.3 million in YTD FY23 as a result of decreased net income at our Taiwan-based IC joint venture.
Liquidity and Capital Resources
Cash and cash equivalents were $493.9 million and $499.3 million as of
April 28, 2024, and October 31, 2023, respectively. As of April 28, 2024, total cash and cash equivalents included $469.4 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 $472.1 million and $474.7 million as of April 28, 2024, and October 31, 2023, respectively. Our primary sources of liquidity are our cash on hand and cash we generate from operations. In addition, we
currently have approximately $25.0 million of borrowing capacity in China to support local operations. See Note 7 to the condensed consolidated financial statements for additional information on our outstanding debt and 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 arrangement, 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 a suitable opportunity arise.
We estimate capital expenditures for full year FY24 will be approximately $140.0 million; these investments will be targeted towards high-end and mainstream IC capacity and efficiency and enable us to support our
customers’ near-term demands. As of April 28, 2024, we had outstanding capital commitments of approximately $133.3 million and recognized liabilities related to capital equipment purchases of approximately $18.9 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 $98.0 million of our total $152.2 million committed and recognized obligations for capital expenditures over the
next twelve months.
In September 2020, the Company’s board of directors authorized the repurchase of up to $100 million of its common stock, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Act. This authorization does not obligate the Company to repurchase any dollar amount or number of shares of common stock. The most recent 10b5-1 plan expired on September 15, 2022, and has not been renewed. As of April 28,
2024, our current share repurchase program had approximately $31.7 million remaining under its authorization. Depending on market conditions, we may utilize some or the entire remaining approved amount to reacquire additional shares.
As discussed in Note 6 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 April 28, 2024, Photronics and DNP each had net
investments in this joint venture of approximately $130.1 million.
Cash Flows
|
YTD FY24
|
YTD FY23
|
|||||||
|
Net cash provided by operating activities
|
$
|
118.0
|
$
|
109.7
|
||||
|
Net cash used in investing activities
|
$
|
(114.7
|
)
|
$
|
(62.3
|
)
|
||
|
Net cash used in financing activities
|
$
|
(4.7
|
)
|
$
|
(15.2
|
)
|
||
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 impacts of cash from changes in operating assets and liabilities. Net cash provided by operating activities increased $8.3 million in YTD FY24, compared with YTD FY23.
Investing Activities: Net cash flows used in investing activities increased $52.4 million in YTD FY24, compared to YTD FY23, primarily driven by an increase of purchases of short-term investments of
$56.2 million, purchases of property, plant, and equipment of $5.6 million, and partially offset by proceeds from maturities of short-term investments of $9.2 million.
Financing Activities: Net cash used in financing activities decreased by $10.5 million in YTD FY24, compared to YTD FY23, primarily due to decreased debt repayments of
$11.9 million.
The increase in our cash balance from YTD FY23 was unfavorably impacted by the effects of exchange rate changes in the amount of $3.8 million in YTD FY24, which was less than the $15.6 million favorable impact of
exchange rate changes on our cash balance in YTD FY23.
Non-GAAP Financial Measures
Non-GAAP Net Income attributable to Photronics, Inc. shareholders, non-GAAP earnings per share and Net Cash are "non-GAAP financial measures" as such term is defined by the SEC and may differ
from similarly named non-GAAP financial 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 be used as a substitute for, 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.
The following table reconciles GAAP to Non-GAAP Income at the balance sheet dates. The columns may not foot due to rounding.
| Three Months ended | ||||||||||||
|
April 28,
2024
|
January 28,
2024
|
April 30,
2023
|
||||||||||
|
Reconciliation of GAAP to Non-GAAP Net Income:
|
||||||||||||
|
GAAP Net Income
|
$
|
36,251
|
$
|
26,180
|
$
|
39,929
|
||||||
|
FX (gain) loss
|
(14,766
|
)
|
8,909
|
(10,718
|
)
|
|||||||
|
Estimated tax effects of above
|
3,743
|
(2,244
|
)
|
2,823
|
||||||||
|
Estimated noncontrolling interest effects of above
|
3,489
|
(2,939
|
)
|
901
|
||||||||
|
Non-GAAP Net Income
|
$
|
28,717
|
$
|
29,906
|
$
|
32,935
|
||||||
|
Weighted-average number of common shares outstanding - Diluted
|
62,409
|
62,283
|
61,507
|
|||||||||
|
Reconciliation of GAAP to Non-GAAP EPS:
|
||||||||||||
|
GAAP diluted earnings per share
|
$
|
0.58
|
$
|
0.42
|
$
|
0.65
|
||||||
|
Effects of the above adjustments
|
$
|
(0.12
|
)
|
$
|
0.06
|
$
|
(0.11
|
)
|
||||
|
Non-GAAP diluted earnings per share
|
$
|
0.46
|
$
|
0.48
|
$
|
0.54
|
||||||
The following table reconciles Cash and cash equivalents to Net Cash at the balance sheet dates. The
decrease in Net Cash as of April 28, 2024 from October 31, 2023 was primarily driven by purchases of property, plant and equipment, and purchases of short-term investments which was offset by proceeds from maturities of short-term
investments and lease payments related to finance type leases. The increase in Net Cash as of October 31, 2023 from April 30,2023 was primarily driven by proceeds from maturities of available-for-sale debt securities, decreased debt
repayments and increase in Net cash provided by operating activities, as discussed above. The columns may not foot due to rounding.
|
As of
|
||||||||||||
|
April 28,
2024
|
October 31,
2023
|
April 30,
2023
|
||||||||||
|
Net Cash
|
||||||||||||
|
Cash and cash equivalents
|
$
|
493.9
|
$
|
499.3
|
$
|
367.5
|
||||||
|
Current portion of Long-term debt
|
(19.3
|
)
|
(6.6
|
)
|
(7.0
|
)
|
||||||
|
Long-term debt
|
(2.5
|
)
|
(18.0
|
)
|
(21.3
|
)
|
||||||
|
Net cash
|
$
|
472.1
|
$
|
474.7
|
$
|
339.1
|
||||||
Business Outlook
Our current business outlook and guidance was provided in the Photronics Q2 FY24 earnings release, earnings presentation, and financial results conference call, but is not incorporated herein. These can be
accessed in the investor section of our website - www.photronics.com.
Our future results of operations and the other forward-looking statements contained in this filing and in the Photronics Q2 FY24 earnings release, and the related financial results conference call and earnings presentation involve a
number of risks and uncertainties, some of which were discussed in Part I, Item 1A of our 2023 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 2023 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, 2023.
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. We may also enter into derivative contracts to mitigate our exposure to foreign currency fluctuations when we have a significant purchase obligation, or a significant receivable denominated in a
currency that differs from the functional currency of the transacting subsidiary. We do not enter into derivatives for speculative purposes. There can be no assurance that this approach will protect us from the need to recognize significant
foreign currency transaction gains and losses, especially in the event of a significant adverse movement in the value of any foreign currency in which we conduct business against any of our functional currencies, including the U.S. dollar.
Our primary net foreign currency exposures as of April 28, 2024, 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 $56.4 million, which represents an
increase of $1.6 million from our exposure at January 28, 2024. Our most significant exposures at April 28, 2024, were exposures of the South Korean won, the RMB, and the New Taiwan Dollar to the U.S. dollar, which were, respectively, $14.9
million, $9.0 million, and $29.7 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
April 28, 2024, condensed consolidated financial statements.
Interest Rate Risk
A 10% adverse movement in the interest rates on our variable rate borrowings would not have had a material effect on our April 28, 2024, condensed consolidated financial statements.
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 were no changes in our internal control over financial reporting during the second fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Please refer to Note 12 within Item 1 of this report for information on legal proceedings involving the Company.
There have been no material changes to our risk factors as set forth in “Item 1A. Risk Factors” in our 2023 Form 10-K.
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 16, 2020, and all shares repurchased under this program were retired. The following table provides information relating to the Company’s repurchase of common stock for the second fiscal quarter of 2024. This table excludes shares
repurchased to settle employee tax withholding related to the vesting of stock awards.
|
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 29, 2024 – February 25, 2024
|
-
|
-
|
-
|
$
|
31.7
|
|||||||||||
|
February 26, 2024 – March 24, 2024
|
-
|
-
|
-
|
$
|
31.7
|
|||||||||||
|
March 25, 2024 – April 28, 2024
|
-
|
-
|
-
|
$
|
31.7
|
|||||||||||
|
Total
|
-
|
-
|
||||||||||||||
Certain lease arrangements include limitations on the amounts of dividends we may pay. Please refer to Note 7 of the condensed consolidated financial statements for information on these limitations.
Not applicable
Not applicable
Securities Trading Plans of Directors and Executive Officers
The following officer, as defined in Rule 16a-1(f) of the Exchange Act, adopted a “Rule 10b5-1 trading arrangement,” as defined in Item 408 of Regulation S-K, as follows:
On January 11, 2024 , Lucien Bouchard , our Vice President of Global Sales and Global Sales
Engineering, adopted a Rule 10b5-1 9,000 shares of our common stock granted to Mr.
Bouchard under our compensation program. The Plan is intended to satisfy the affirmative defense in Rule 10b5-1(c). The first date that sales of any shares are permitted to be sold under the Plan was . All shares under the Plan have been traded.
No other officers or directors, as defined in Rule 16a-1(f), adopted and/or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as defined in Item 408 of Regulation S-K,
during the last fiscal quarter.
|
Incorporated by Reference
|
|
Exhibit
Number
|
Description
|
Form
|
Exhibit
|
Filing Date
|
Filed or
Furnished
Herewith
|
|
|
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
|
|||
|
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
|
||||
|
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
|
||||
|
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
|
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/ ERIC RIVERA
|
|
|
|
ERIC RIVERA
|
|
|
|
Chief Financial Officer
|
|
|
|
Corporate Controller
|
|
|
(Principal Financial Officer
/Principal Accounting Officer)
|
||
|
Date: June 6, 2024
|
||
37