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 July 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 001-39063
(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 63,353,762 shares of
common stock outstanding as of August 29, 2024.
PHOTRONICS, INC.
QUARTERLY REPORT ON FORM 10-Q
July 28, 2024
|
3
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||
| 4 | ||
| PART I. | FINANCIAL INFORMATION | |
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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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25 | |
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Item 3.
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32 | |
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Item 4.
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32 | |
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PART II.
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||
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Item 1.
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34 | |
| Item 1A. |
Risk Factors |
34 |
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Item 2.
|
34 | |
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Item 3.
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Defaults Upon Senior Securities |
34 |
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Item 4.
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Mine Safety Disclosures |
34 |
| Item 5. |
34 | |
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Item 6.
|
35 | |
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
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Accounting Standards Update
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DNP
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Dai Nippon Printing Co., Ltd.
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Exchange Act
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The Securities Exchange Act of 1934 (as amended)
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FASB
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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”
|
|
Generation or “G” numbers
|
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, photomasks that are AMOLED, G10.5+, and LTPS
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ICs
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Integrated circuits, or semiconductors
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LTPS
|
Low-Temperature Poly Silicon, a polycrystalline silicon synthesized at relatively low temperatures; polycrystalline silicon in thin-film transistors (TFTs) are
used in liquid-crystal display (LCD) flat panels and to drive organic light-emitting diode (OLED) displays
|
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Non-GAAP financial measure
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A financial measure that differs from the most directly comparable measure
calculated and presented in accordance with U.S. GAAP, such as non-GAAP net income and non-GAAP earnings per share
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PDMCX
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Xiamen American Japan Photronics Mask Co., Ltd., a joint venture between Photronics and DNP
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RMB
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Chinese renminbi
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ROU (assets)
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Right-of-use assets
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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 or GAAP
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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”, “will”, “would”, “should”, “continue”, “potential”, “possible”, “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 except as may be required by law, we undertake no obligation to update or revise any such statements, whether as a result of new information, to reflect changes in events or circumstances that may subsequently
occur or otherwise. 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 for the fiscal year ended October 31, 2023, 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)
|
July 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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$
|
|
||||
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Short-term investments
|
||||||||
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Accounts receivable, net of allowance of $
|
|
|||||||
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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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$
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|
||||
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LIABILITIES AND EQUITY
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||||||||
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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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||||||
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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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)
|
||||
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Total Photronics, Inc. shareholders’ equity
|
|
|
||||||
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Noncontrolling interests
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||||||
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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
|
Nine
Months Ended
|
|||||||||||||||
|
July 28,
2024
|
July 30,
2023
|
July 28,
2024
|
July 30,
2023
|
|||||||||||||
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Revenue
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$
|
|
$
|
|
$
|
|
$
|
|
||||||||
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Cost of goods sold
|
|
|
|
|
||||||||||||
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Gross profit
|
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|
||||||||||||
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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
|
|
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|
|
||||||||||||
| Other operating income, net | ||||||||||||||||
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Operating income
|
|
|
|
|
||||||||||||
|
Other income (expense):
|
||||||||||||||||
|
Foreign currency transactions impact, net
|
|
(
|
)
|
|
(
|
)
|
||||||||||
|
Interest income and other income, net
|
|
|
|
|
||||||||||||
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Interest expense
|
(
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)
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(
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)
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(
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)
|
(
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)
|
||||||||
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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
|
Nine
Months Ended
|
|||||||||||||||
|
July 28,
2024
|
July 30,
2023
|
July 28,
2024
|
July 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 July 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 April 28, 2024
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||||||
|
Net income
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Other comprehensive loss
|
-
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||||||
|
Shares issued under equity plans
|
|
|
(
|
)
|
|
|
|
(
|
)
|
|||||||||||||||||||
|
Share-based compensation expense
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Balance as of July 28, 2024
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||||||
|
Three
Months Ended July 30, 2023
|
||||||||||||||||||||||||||||
|
Photronics, Inc. Shareholders
|
||||||||||||||||||||||||||||
|
Common Stock
|
Additional
Paid-in
|
Retained
|
Accumulated
Other
Comprehensive
|
Non-
controlling
|
Total
|
|||||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Earnings
|
(Loss) Income
|
Interests
|
Equity
|
||||||||||||||||||||||
|
Balance as of April 30, 2023
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||||||
|
Net income
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Other comprehensive income (loss)
|
-
|
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Shares issued under equity plans
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Share-based compensation expense
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Balance as of July 30, 2023
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||||||
|
Nine Months Ended July 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 loss
|
-
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||||||
|
Shares issued under equity plans
|
|
|
(
|
)
|
|
|
|
(
|
)
|
|||||||||||||||||||
|
Share-based compensation expense
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Balance as of July 28, 2024
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||||||
|
Nine Months Ended July 30, 2023
|
||||||||||||||||||||||||||||
|
Photronics, Inc. Shareholders
|
||||||||||||||||||||||||||||
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
(Loss) Income |
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 July 30, 2023
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||||||
See accompanying notes to condensed consolidated financial statements.
PHOTRONICS, INC.
(in thousands)
(unaudited)
|
Nine Months Ended
|
||||||||
|
July 28
2024
|
July 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 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.
|
|
July 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 July 28, 2024, all of our investments from their dates of purchase, had 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):
|
July 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
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
|
Total
|
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
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.
|
July 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 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
|
July 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.
|
July 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.
|
|
July 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
|
Nine Months Ended |
|||||||||||||||
|
July 28,
2024
|
July 30,
2023
|
July 28,
2024
|
July 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 help further 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, should either Photronics’ or DNP’s ownership interest fall below 20.0 % for a period of more than consecutive months, such party
(an “exiting party”) has the option to sell to the other party, and the other party has the option to purchase from such exiting party, the exiting party’s remaining ownership interest. In either case, 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
|
Nine
Months Ended |
|||||||||||||||
|
|
July 28,
2024
|
July 30,
2023
|
July 28, 2024 |
July 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.
|
July 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 July 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 July 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 |
$ | |||