Company Quick10K Filing
Quick10K
Photronics
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$9.40 67 $630
10-Q 2019-04-28 Quarter: 2019-04-28
10-Q 2019-01-27 Quarter: 2019-01-27
10-K 2018-10-31 Annual: 2018-10-31
10-Q 2018-07-29 Quarter: 2018-07-29
10-Q 2018-04-29 Quarter: 2018-04-29
10-Q 2018-01-28 Quarter: 2018-01-28
10-K 2017-10-29 Annual: 2017-10-29
10-Q 2017-07-30 Quarter: 2017-07-30
10-Q 2017-04-30 Quarter: 2017-04-30
10-Q 2017-01-29 Quarter: 2017-01-29
10-K 2016-10-30 Annual: 2016-10-30
10-Q 2016-07-31 Quarter: 2016-07-31
10-Q 2016-05-01 Quarter: 2016-05-01
10-Q 2016-01-31 Quarter: 2016-01-31
10-K 2015-11-01 Annual: 2015-11-01
10-Q 2015-08-02 Quarter: 2015-08-02
10-Q 2015-05-03 Quarter: 2015-05-03
10-Q 2015-02-01 Quarter: 2015-02-01
10-K 2014-11-02 Annual: 2014-11-02
10-Q 2014-08-03 Quarter: 2014-08-03
10-Q 2014-05-04 Quarter: 2014-05-04
10-Q 2014-02-02 Quarter: 2014-02-02
10-K 2013-11-03 Annual: 2013-11-03
8-K 2019-05-22 Earnings, Exhibits
8-K 2019-04-04 Regulation FD, Exhibits
8-K 2019-02-21 Earnings, Exhibits
8-K 2019-01-16 Regulation FD, Exhibits
8-K 2018-12-12 Earnings, Regulation FD, Exhibits
8-K 2018-12-10 Enter Agreement, Off-BS Arrangement
8-K 2018-11-28 Enter Agreement
8-K 2018-10-12 Other Events, Exhibits
8-K 2018-10-03 Enter Agreement, Amend Bylaw
8-K 2018-08-23 Enter Agreement
8-K 2018-08-22 Earnings, Exhibits
8-K 2018-07-06 Other Events, Exhibits
8-K 2018-05-23 Regulation FD, Exhibits
8-K 2018-05-22 Earnings, Exhibits
8-K 2018-03-22
8-K 2018-02-14 Earnings, Exhibits
8-K 2018-01-22 Officers
8-K 2018-01-18 Officers
8-K 2018-01-17 Regulation FD, Exhibits
8-K 2018-01-05 Other Events, Exhibits
LIN Linde 94,120
SHOP Shopify 25,860
SBAC SBA Communications 23,480
CBZ CBIZ 1,070
MRCC Monroe Capital 250
OCN Ocwen Financial 247
FAT FAT Brands 54
GHSI Guardion Health Sciences 38
WSTL Westell Technologies 32
LWLG Lightwave Logic 0
PLAB 2019-04-28
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Note 1 - Basis of Financial Statement Presentation
Note 2 - Inventories
Note 3 - Property, Plant and Equipment
Note 4 - Pdmcx Joint Venture
Note 5 - Long-Term Debt
Note 6 - Revenue
Note 7 - Share-Based Compensation
Note 8 - Income Taxes
Note 9 - Earnings per Share
Note 10 - Changes in Accumulated Other Comprehensive Income By Component
Note 11 - Fair Value Measurements
Note 12 - Share Repurchase Program
Note 13 - Commitments and Contingencies
Note 14 - Recent Accounting Pronouncements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 ex31_1.htm
EX-31.2 ex31_2.htm
EX-32.1 ex32_1.htm
EX-32.2 ex32_2.htm

Photronics Earnings 2019-04-28

PLAB 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 form10q.htm 10-Q

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

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 28, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission file number 0-15451


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

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

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

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

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

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


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

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

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

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

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

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
COMMON
PLAB
NASDAQ Global Select Market

The registrant had 67,065,655 shares of common stock outstanding as of June 3, 2019.



Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements made by or on behalf of Photronics, Inc. (“Photronics”, the “Company”, “we”, “our”, or “us”). These statements are based on management’s beliefs, as well as assumptions made by, and information currently available to, management. Forward-looking statements may be identified by words like “expect,” “anticipate,” “believe,” “plan,” “project,” “could,” “estimate,” “intend,” “may,” “will” and similar expressions, or the negative of such terms, or other comparable terminology. All forward-looking statements involve risks and uncertainties that are difficult to predict. In particular, any statement contained in this quarterly report on Form 10-Q or in other documents filed with the Securities and Exchange Commission in press releases or in the Company’s communications and discussions with investors and analysts in the normal course of business through meetings, phone calls, or conference calls regarding, among other things, the consummation and benefits of transactions, joint ventures, business combinations, divestitures and acquisitions, expectations with respect to future sales, financial performance, operating efficiencies, or product expansion, are subject to known and unknown risks, uncertainties, and contingencies, many of which are beyond the control of the Company. Various factors may cause actual results, performance, or achievements to differ materially from anticipated results, performance, or achievements expressed or implied by forward-looking statements. Factors that might affect forward-looking statements include, but are not limited to, overall economic and business conditions; economic and political conditions in international markets; the demand for the Company’s products; competitive factors in the industries and geographic markets in which the Company competes; the timing of orders received from customers; the gain or loss of significant customers; competition from other manufacturers; changes in accounting standards; federal, state and international tax requirements (including tax rate changes, new tax laws and revised tax law interpretations); changes in the jurisdictional mix of our earnings and changes in tax laws and rates; interest rate and other capital market conditions, including changes in the market price of the Company’s securities; foreign currency exchange rate fluctuations; changes in technology; technology or intellectual property infringement, including cybersecurity breaches, and other innovation risks; unsuccessful or unproductive research and development or capital expenditures; the timing, impact, and other uncertainties related to transactions and acquisitions, divestitures, business combinations, and joint ventures as well as decisions the Company may make in the future regarding the Company’s business, capital and organizational structures and other matters; the seasonal and cyclical nature of the semiconductor and flat panel display industries; management changes; changes in laws and government regulation impacting our operations or our products, including laws relating to export controls and import laws, rules and tariffs; the occurrence of regulatory proceedings, claims or litigation; damage or destruction to the Company’s facilities, or the facilities of its customers or suppliers, by natural disasters, labor strikes, political unrest, or terrorist activity; construction of new facilities and assembly of new equipment; dilutive issuances of the Company’s stock; the ability of the Company to (i) place new equipment in service on a timely basis; (ii) obtain additional financing; (iii) achieve anticipated synergies and cost savings; (iv) fully utilize its tools; (v) achieve desired yields, pricing, product mix, and market acceptance of its products and (vi) obtain necessary export licenses. Any forward-looking statements should be considered in light of these factors. Accordingly, there is no assurance that the Company’s expectations will be realized. The Company does not assume responsibility for the accuracy and completeness of the forward-looking statements and does not assume an obligation to provide revisions to any forward-looking statements, except as otherwise required by securities and other applicable laws.

2

PHOTRONICS, INC.

INDEX

PART I.
FINANCIAL INFORMATION
   
       
Item 1.
 
4
       
   
4
       
   
5
       
   
6
       
   
7
       
   
9
       
   
10
       
Item 2.
 
25
       
Item 3.
 
32
       
Item 4.
 
32
       
       
PART II.
OTHER INFORMATION
   
       
Item 1A.
 
33
       
Item 2.
 
33
       
Item 6.
 
34

PART I.
FINANCIAL INFORMATION

Item 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

   
April 28,
2019
   
October 31,
2018
 
             
ASSETS
           
Current assets:
           
Cash and cash equivalents
 
$
167,066
   
$
329,277
 
Accounts receivable, net of allowance of $1,360 in 2019 and $1,526 in 2018
   
123,371
     
120,515
 
Inventories
   
34,696
     
29,180
 
Prepaid expenses
   
8,531
     
6,901
 
Other current assets
   
38,304
     
16,858
 
                 
Total current assets
   
371,968
     
502,731
 
                 
Property, plant and equipment, net
   
654,357
     
571,781
 
Intangible assets, net
   
10,182
     
12,368
 
Deferred income taxes
   
15,121
     
18,109
 
Other assets
   
33,610
     
5,020
 
                 
Total assets
 
$
1,085,238
   
$
1,110,009
 
                 
LIABILITIES AND EQUITY
               
Current liabilities:
               
Current portion of long-term debt
 
$
505
   
$
57,453
 
Accounts payable
   
80,120
     
89,149
 
Accrued liabilities
   
58,659
     
44,474
 
 
               
Total current liabilities
   
139,284
     
191,076
 
                 
Long-term debt
   
35,921
     
-
 
Deferred income taxes
   
829
     
643
 
Other liabilities
   
10,876
     
13,721
 
                 
Total liabilities
   
186,910
     
205,440
 
                 
Commitments and contingencies
               
                 
Equity:
               
Preferred stock, $0.01 par value, 2,000 shares authorized, none issued and outstanding
   
-
     
-
 
Common stock, $0.01 par value, 150,000 shares authorized, 69,984 shares issued and 66,289 outstanding at April 28, 2019 and 69,700 shares issued and 67,142 outstanding at October 31, 2018
   
700
     
697
 
Additional paid-in capital
   
558,359
     
555,606
 
Retained earnings
   
245,144
     
231,445
 
Treasury stock, 3,695 shares at April 28, 2019 and 2,558 shares at October 31, 2018
   
(33,807
)
   
(23,111
)
Accumulated other comprehensive loss
   
(6,828
)
   
(4,966
)
                 
Total Photronics, Inc. shareholders’ equity
   
763,568
     
759,671
 
Noncontrolling interests
   
134,760
     
144,898
 
                 
Total equity
   
898,328
     
904,569
 
                 
Total liabilities and equity
 
$
1,085,238
   
$
1,110,009
 

See accompanying notes to condensed consolidated financial statements.

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

   
Three Months Ended
   
Six Months Ended
 
             
   
April 28,
2019
   
April 29,
2018
   
April 28,
2019
   
April 29,
2018
 
                         
Revenue
 
$
131,580
   
$
130,779
   
$
256,291
   
$
254,225
 
                                 
Cost of goods sold
   
105,570
     
97,960
     
204,179
     
193,744
 
                                 
Gross profit
   
26,010
     
32,819
     
52,112
     
60,481
 
                                 
Operating expenses:
                               
                                 
Selling, general and administrative
   
13,269
     
13,637
     
27,061
     
25,387
 
 
                               
Research and development
   
3,542
     
3,817
     
7,805
     
7,921
 
                                 
Total operating expenses
   
16,811
     
17,454
     
34,866
     
33,308
 
                                 
Operating income
   
9,199
     
15,365
     
17,246
     
27,173
 
                                 
Other income (expense):
                               
Interest income and other income (expense), net
   
4,286
     
3,883
     
5,925
     
351
 
Interest expense
   
355
     
551
     
886
     
1,125
 
                                 
Income before income taxes
   
13,130
     
18,697
     
22,285
     
26,399
 
                                 
Income tax provision
   
3,278
     
3,508
     
4,665
     
1,729
 
                                 
Net income
   
9,852
     
15,189
     
17,620
     
24,670
 
                                 
Net income attributable to noncontrolling interests
   
1,373
     
4,524
     
3,874
     
8,107
 
                                 
Net income attributable to Photronics, Inc. shareholders
 
$
8,479
   
$
10,665
   
$
13,746
   
$
16,563
 
                                 
Earnings per share:
                               
                                 
Basic
 
$
0.13
   
$
0.15
   
$
0.21
   
$
0.24
 
                                 
Diluted
 
$
0.13
   
$
0.15
   
$
0.20
   
$
0.23
 
                                 
Weighted-average number of common shares outstanding:
                               
                                 
Basic
   
66,261
     
69,293
     
66,422
     
69,024
 
                                 
Diluted
   
70,597
     
75,190
     
71,593
     
75,052
 

See accompanying notes to condensed consolidated financial statements.

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

   
Three Months Ended
   
Six Months Ended
 
             
   
April 28,
2019
   
April 29,
2018
   
April 28,
2019
   
April 29,
2018
 
                         
Net income
 
$
9,852
   
$
15,189
   
$
17,620
   
$
24,670
 
                                 
Other comprehensive income (loss), net of tax of $0:
                               
                                 
Foreign currency translation adjustments
   
(7,054
)
   
(11,098
)
   
(482
)
   
18,989
 
                                 
Amortization of cash flow hedge
   
-
     
16
     
-
     
48
 
Other
   
25
     
54
     
44
     
22
 
                                 
Net other comprehensive (loss) income
   
(7,029
)
   
(11,028
)
   
(438
)
   
19,059
 
                                 
Comprehensive income
   
2,823
     
4,161
     
17,182
     
43,729
 
 
                               
Less: comprehensive income attributable to noncontrolling interests
   
1,515
     
1,841
     
5,298
     
10,301
 
                                 
Comprehensive income attributable to Photronics, Inc. shareholders
 
$
1,308
   
$
2,320
   
$
11,884
   
$
33,428
 

See accompanying notes to condensed consolidated financial statements.

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

   
Three Months Ended April 28, 2019
 
   
Photronics, Inc. Shareholders
                 
   
Common Stock
   
Additional
Paid-in
Capital
   
Retained
Earnings
   
Treasury
Stock
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Non-
controlling
Interests
   
Total
Equity
 
   
Shares
   
Amount
 
                                                 
Balance at January 28, 2019
   
69,917
   
$
699
   
$
557,188
   
$
236,665
   
$
(33,807
)
 
$
343
   
$
152,082
   
$
913,170
 
                                                                 
Net income
   
-
     
-
     
-
     
8,479
     
-
     
-
     
1,373
     
9,852
 
Other comprehensive (loss) income
   
-
     
-
     
-
     
-
     
-
     
(7,171
)
   
142
     
(7,029
)
Sale of common stock through employee   stock option and purchase plans
   
41
     
1
     
271
     
-
     
-
     
-
     
-
     
272
 
Restricted stock awards vesting and expense
   
26
     
-
     
650
     
-
     
-
     
-
     
-
     
650
 
Share-based compensation expense
   
-
     
-
     
250
     
-
     
-
     
-
     
-
     
250
 
Subsidiary dividend payable
   
-
     
-
     
-
     
-
     
-
     
-
     
(18,837
)
   
(18,837
)
                                                                 
Balance at April 28, 2019
   
69,984
   
$
700
   
$
558,359
   
$
245,144
   
$
(33,807
)
 
$
(6,828
)
 
$
134,760
   
$
898,328
 

   
Three Months Ended April 29, 2018
 
       
   
Photronics, Inc. Shareholders
                 
       
   
Common Stock
   
Additional
Paid-in
Capital
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income
   
Non-
controlling
Interests
   
Total
Equity
 
     
Shares
     
Amount
                      
                                           
Balance at January 29, 2018
   
68,869
   
$
689
   
$
549,328
   
$
195,288
   
$
32,128
   
$
141,014
   
$
918,447
 
                                                         
Net income
   
-
     
-
     
-
     
10,665
     
-
     
4,524
     
15,189
 
Other comprehensive loss
   
-
     
-
     
-
     
-
     
(8,372
)
   
(2,656
)
   
(11,028
)
Sale of common stock through employee stock option and purchase plans
   
548
     
5
     
2,892
     
-
     
-
     
-
     
2,897
 
Restricted stock awards vesting and expense
   
26
     
-
     
457
     
-
     
-
     
-
     
457
 
Share-based compensation expense
   
-
     
-
     
300
     
-
     
-
     
-
     
300
 
Subsidiary dividend payable
   
-
     
-
     
-
     
-
     
-
     
(8,196
)
   
(8,196
)
                                                         
Balance at April 29, 2018
   
69,443
   
$
694
   
$
552,977
   
$
205,953
   
$
23,756
   
$
134,686
   
$
918,066
 

See accompanying notes to condensed consolidated financial statements.

PHOTRONICS, INC.
Condensed Consolidated Statements of Equity (continued)
(in thousands)
(unaudited)

    Six Months Ended April 28, 2019  
       

 
Photronics, Inc. Shareholders
                 

                                               

                               
Accumulated
Other
Comprehensive
Loss
             

 
Common Stock
   
Additional
Paid-in
Capital
               
Non-
controlling
Interests
       

 
       
Retained
Earnings
   
Treasury
Stock
           
Total
Equity
 

 
Shares
   
Amount
 
                                                 
Balance at November 1, 2018
   
69,700
   
$
697
   
$
555,606
   
$
231,445
   
$
(23,111
)
 
$
(4,966
)
 
$
144,898
   
$
904,569
 
                                                                 
Adoption of ASU 2014-09
   
-
     
-
     
-
     
1,083
     
-
     
-
     
121
     
1,204
 
Adoption of ASU 2016-16
   
-
     
-
     
-
     
(1,130
)
   
-
     
-
     
(3
)
   
(1,133
)
Net income
   
-
     
-
     
-
     
13,746
     
-
     
-
     
3,874
     
17,620
 
Other comprehensive (loss) income
   
-
     
-
     
-
     
-
     
-
     
(1,862
)
   
1,424
     
(438
)
Sale of common stock through employee stock option and purchase plans
   
136
     
1
     
792
     
-
     
-
     
-
     
-
     
793
 
Restricted stock awards vesting and expense
   
148
     
2
     
1,217
     
-
     
-
     
-
     
-
     
1,219
 
Share-based compensation expense
   
-
     
-
     
744
     
-
     
-
     
-
     
-
     
744
 
Contribution from noncontrolling interest
   
-
     
-
     
-
     
-
     
-
     
-
     
29,394
     
29,394
 
Dividends to noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
     
(26,102
)
   
(26,102
)
Subsidiary dividend payable
   
-
     
-
     
-
     
-
     
-
     
-
     
(18,837
)
   
(18,837
)
Repurchase of common stock of subsidiary
   
-
     
-
     
-
     
-
     
-
     
-
     
(9
)
   
(9
)
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
(10,696
)
   
-
     
-
     
(10,696
)
                                                                 
Balance at April 28, 2019
   
69,984
   
$
700
   
$
558,359
   
$
245,144
   
$
(33,807
)
 
$
(6,828
)
 
$
134,760
   
$
898,328
 

   
Six Months Ended April 29, 2018
 
       
   
Photronics, Inc. Shareholders
                 
       
                           
Accumulated
Other
Comprehensive
Income
             
   
Common Stock
   
Additional
Paid-in
Capital
         
Non-
controlling
Interests
     
Total
Equity
 
             
Retained
Earnings
             
   
Shares
   
Amount
 
                                           
Balance at October 30, 2017
   
68,666
   
$
687
   
$
547,596
   
$
189,390
   
$
6,891
   
$
120,731
   
$
865,295
 
                                                         
Net income
   
-
     
-
     
-
     
16,563
     
-
     
8,107
     
24,670
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
16,865
     
2,194
     
19,059
 
Sale of common stock through employee stock option and purchase plans
   
664
     
7
     
3,592
     
-
     
-
     
-
     
3,599
 
Restricted stock awards vesting and expense
   
113
     
-
     
843
     
-
     
-
     
-
     
843
 
Share-based compensation expense
   
-
     
-
     
798
     
-
     
-
     
-
     
798
 
Contribution from noncontrolling interest
   
-
     
-
     
148
     
-
     
-
     
11,850
     
11,998
 
Subsidiary dividend payable
   
-
     
-
     
-
     
-
     
-
     
(8,196
)
   
(8,196
)
                                                         
Balance at April 29, 2018
   
69,443
   
$
694
   
$
552,977
   
$
205,953
   
$
23,756
   
$
134,686
   
$
918,066
 

See accompanying notes to condensed consolidated financial statements.

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

   
Six Months Ended
 
   
April 28,
2019
   
April 29,
2018
 
             
Cash flows from operating activities:
           
Net income
 
$
17,620
   
$
24,670
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
38,515
     
44,429
 
Changes in assets and liabilities:
               
Accounts receivable
   
(2,295
)
   
(16,976
)
Inventories
   
(9,447
)
   
(7,765
)
Other current assets
   
(6,114
)
   
(9,666
)
Accounts payable, accrued liabilities, and other
   
(40,566
)
   
3,216
 
                 
Net cash (used in) provided by operating activities
   
(2,287
)
   
37,908
 
                 
Cash flows from investing activities:
               
Purchases of property, plant and equipment
   
(140,436
)
   
(44,129
)
Government incentives
   
5,698
     
-
 
Other
   
(23
)
   
296
*
                 
Net cash used in investing activities
   
(134,761
)
   
(43,833
)*
                 
Cash flows from financing activities:
               
Proceeds from debt
   
39,633
     
-
 
Contribution from noncontrolling interest
   
29,394
     
11,998
 
Repayments of long-term debt
   
(61,220
)
   
(2,771
)
Dividends paid to noncontrolling interests
   
(26,102
)
   
-
 
Purchase of treasury stock
   
(10,696
)
   
-
 
Proceeds from share-based arrangements
   
1,033
     
3,776
 
Other
   
(45
)
   
(267
)
                 
Net cash (used in) provided by financing activities
   
(28,003
)
   
12,736
 
                 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
   
2,843
     
6,330
*
                 
Net (decrease) increase in cash, cash equivalents, and restricted cash
   
(162,208
)
   
13,141
*
Cash, cash equivalents, and restricted cash at beginning of period
   
331,989
*
   
310,936
*
                 
Cash, cash equivalents, and restricted cash at end of period
 
$
169,781
   
$
324,077
*
                 
Supplemental disclosure information:
               
                 
Accrual for property, plant and equipment purchased during the period
 
$
17,454
   
$
10,317
 
Accrual for property, plant and equipment purchased with funds receivable from government incentives
 
$
13,402
   
$
-
 
Subsidiary dividend payable
 
$
18,837
   
$
8,196
 

* Amount has been modified to reflect the adoption of ASU 2016-18 (see Note 14).

See accompanying notes to condensed consolidated financial statements.

PHOTRONICS, INC.
Notes to Condensed Consolidated Financial Statements
Three Months and Six Months Ended April 28, 2019 and April 29, 2018
(unaudited)
(in thousands, except share amounts and per share data)

NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America 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. Our business is typically impacted during the first, and sometimes the second, quarter of our fiscal year by the North American, European, and Asian holiday periods, as some customers reduce their development and buying activities during those periods. Operating results for the interim period are not necessarily indicative of the results that may be expected for the fiscal year ending October 31, 2019. For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended October 31, 2018.

NOTE 2 - INVENTORIES

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

   
April 28,
2019
   
October 31,
2018
 
             
Raw materials
 
$
34,276
   
$
25,110
 
Work in process
   
416
     
3,402
 
Finished goods
   
4
     
668
 
                 
   
$
34,696
   
$
29,180
 

10

NOTE 3 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

   
April 28,
2019
   
October 31,
2018
 
             
Land
 
$
11,164
   
$
11,139
 
Buildings and improvements
   
124,374
     
124,771
 
Machinery and equipment
   
1,673,574
     
1,566,163
 
Leasehold improvements
   
19,598
     
19,577
 
Furniture, fixtures and office equipment
   
13,503
     
12,415
 
Construction in progress
   
132,394
     
128,649
 
                 
     
1,974,607
     
1,862,714
 
Accumulated depreciation and amortization
   
(1,320,250
)
   
(1,290,933
)
                 
   
$
654,357
   
$
571,781
 

Depreciation and amortization expense for property, plant and equipment was $18.6 million and $36.2 million in the three- and six-month periods ended April 28, 2019, respectively, and $20.8 million and $42.0 million in the three- and six-month periods ended April 29, 2018, respectively.

In January 2017, we entered into a noncash transaction with a customer which resulted in the acquisition of equipment with fair values of approximately $6.7 million during the six-month period ended April 29, 2018.

NOTE 4 - PDMCX JOINT VENTURE

In January 2018, Photronics, through its wholly-owned Singapore subsidiary (hereinafter, within this Note “we”, or “Photronics”), and Dai Nippon Printing Co., Ltd., through its wholly-owned subsidiary “DNP Asia Pacific PTE, Ltd.” (hereinafter, within this Note, “DNP”) entered into a joint venture under which DNP obtained a 49.99% interest in our recently-established IC business in Xiamen, China, in which we anticipate production to commence in 2019. The joint venture, known as “Xiamen American Japan Photronics Mask Co., Ltd.” (hereinafter, “PDMCX”), was established to develop and manufacture photomasks for leading edge and advanced generation semiconductors. We entered into this joint venture to enable us to compete more effectively for the merchant photomask business in China and to benefit from the additional resources and investment that DNP will provide to enable us to offer advanced-process technology to our customers. No gain or loss was recorded upon the formation of this joint venture.

As of April 28, 2019, Photronics and DNP had each contributed cash of approximately $48 million to the joint venture. The total investment per the PDMCX operating agreement (the Agreement) is $160 million, of which approximately $13 million remained for Photronics as of April 28, 2019 and will be funded over the next several quarters with cash and local borrowings.

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

We recorded net losses from the operations of PDMCX of approximately $0.6 million, and $1.9 million during the three- and six-month periods ended April 28, 2019, respectively, and $0.2 million and $0.7 million in the three- and six-month periods ended April 29, 2018, respectively. General creditors of PDMCX do not have recourse to the assets of Photronics, Inc., and our maximum exposure to loss from PDMCX at April 28, 2019, was $44.7 million.

11

As required by the guidance in Topic 810 - “Consolidation” of the Accounting Standards Codification, 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, Inc. 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), 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 was 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 management), incur indebtedness, enter into agreements and commitments, and acquire and dispose of PDMCX’s assets. In addition, as a result of the 50.01% variable interest we held during the current and prior-year periods, we had the obligation to absorb losses and the right to receive benefits that could potentially be significant to PDMCX.

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

   
April 28, 2019
   
October 31, 2018
 
Classification
 
Carrying
Amount
   
Photronics
Interest
   
Carrying
Amount
   
Photronics
Interest
 

                   

 
Current assets
 
$
31,219
   
$
15,612
   
$
9,625
   
$
4,813
 
Non-current assets
   
116,677
     
58,350
     
43,415
     
21,708
 
                                 
Total assets
   
147,896
     
73,962
     
53,040
     
26,521
 
                                 
Current liabilities
   
22,668
     
11,336
     
21,205
     
10,603
 
Non-current liabilities
   
35,937
     
17,972
     
20
     
10
 
                                 
Total liabilities
   
58,605
     
29,308
     
21,225
     
10,613
 
                                 
Net assets
 
$
89,291
   
$
44,654
   
$
31,815
   
$
15,908
 

NOTE 5 – LONG-TERM DEBT

Long-term debt consists of the following:

   
April 28,
2019
   
October 31,
2018
 
             
Project Loan due December 2025
 
$
11,400
   
$
-
 
Project Loan due December 2022
   
14,932
      -  
Working Capital Loan due January 2022
   
10,094
     
-
 
3.25% convertible senior notes matured April 2019
   
-
     
57,453
 
                 
     
36,426
     
57,453
 
Current portion
   
(505
)
   
(57,453
)
                 
   
$
35,921
   
$
-
 

In April 2019, the $57.5 million convertible senior notes, discussed below, matured and were repaid.

In January 2015, we privately exchanged $57.5 million in aggregate principal amount of our 3.25% convertible senior notes with a maturity date of April 1, 2016, for new 3.25% convertible senior notes with an aggregate principal amount of $57.5 million with a maturity date of April 1, 2019. The conversion rate of the new notes was the same as that of the exchanged notes, which were issued in March 2011 with a conversion rate of approximately 96 shares of common stock per $1,000 note principal, equivalent to a conversion price of $10.37 per share of common stock. Note holders could convert each $1,000 principal amount of notes at any time prior to the close of business on the second scheduled trading day immediately preceding April 1, 2019; we were not required to redeem the notes, other than upon conversion, prior to their maturity date. Interest on the notes accrued in arrears, and was paid semiannually through the notes’ maturity date.

12

In November 2018, PDMCX was approved for credit of $50 million, subject to certain limitations related to PDMCX registered capital at the time of the borrowing, pursuant to which PDMCX will enter into separate loan agreements (“the Project Loans”) for each borrowing. The Project Loans, which are denominated in renminbi, are being used to finance certain capital expenditures in China. PDMCX has agreed to grant a lien on the land, building and certain equipment owned by PDMCX as collateral for the Project Loans. As of April 28, 2019, PDMCX had borrowed $26.3 million against this approval, which includes $11.4 million that was borrowed during the three-month period ended April 28, 2019. Subsequent to April 28, 2019, PDMCX borrowed an additional $9.7 million. Repayments on the amounts borrowed before the three-month period ended April 28, 2019, will be made semiannually, commencing in June 2020 and ending in December 2022. Repayments on the amount borrowed after the three-month period ended January 27, 2019, will be made semiannually, commencing in June 2023 and ending in December 2025. The interest rates on the Project Loans are based on the benchmark lending rate of the People’s Bank of China (4.9% at April 28, 2019). Interest incurred on these loans will be reimbursed through incentives afforded to us by the Xiamen Torch Hi-Tech Industrial Development Zone which, to a prescribed limit, provide for such reimbursements.

In November 2018, PDMCX was approved for credit of $25.0 million, pursuant to which PDMCX may enter into separate loan agreements. No guarantees were required as part of this approval. As of April 28, 2019, PDMCX had borrowed $13.8 million against this approval of which $3.7 million were 90-day loans. The remaining $10.1 million borrowed (the “Working Capital Loans”) is to be repaid semiannually from the dates of the individual borrowings; repayments commenced in May 2019 and end in January 2022. In May 2019, we borrowed an additional $1.9 million against this approval, and repaid $0.1 million. The 90-day loans were repaid in our second quarter of 2019. The Working Capital Loans, which are denominated in renminbi, are being used for general financing purposes, including payments of import and value-added taxes. The interest rates on the 90-day loans were the market rate on the date of issuance (4.9%), and interest rates on the Working Capital Loans are approximately 5%, and are based on the RMB Loan Prime Rate of the National Interbank Funding Center, plus a spread of 67.75 basis points. Interest incurred on the loans will be reimbursed through incentives provided by the Xiamen Torch Hi-Tech Industrial Development Zone, which, to a prescribed limit, provide for such reimbursements.

In September 2018, we entered into an amended and restated credit agreement (“the new agreement”) that expires in September 2023. The new agreement, which replaced our prior credit facility, has a $50 million borrowing limit, with an expansion capacity to $100 million, and is secured by substantially all of our assets located in the United States and common stock we own in certain of our foreign subsidiaries. The new agreement limits the amount we can pay in cash for dividends, distributions and redemption on Photronics, Inc. equity of up to an aggregate amount of $100 million, and contains the following financial covenants: minimum interest coverage ratio, total leverage ratio and minimum unrestricted cash balance, all of which we were in compliance with as of April 28, 2019. We had no outstanding borrowings against the new agreement as of April 28, 2019, and $50 million was available for borrowing. The interest rate on the new agreement (2.5% at April 28, 2019) is based on our total leverage ratio at LIBOR plus a spread, as defined in the credit facility.

NOTE 6 - REVENUE

We adopted Accounting Standards Update 2014-09 and all subsequent amendments which are collectively codified in Accounting Standards Codification Topic 606 - “Revenue from Contracts with Customers” (“Topic 606”) - on November 1, 2018, under the modified retrospective transition method, only with respect to contracts that were not complete as of the date of adoption. This approach required prospective application of the guidance with a cumulative effect adjustment to retained earnings to reflect the impact of the adoption on contracts that were not complete as of the date of the adoption. In accordance with the modified retrospective transition method, the results of the prior year period presented have not been adjusted for the effects of Topic 606.

Under Topic 606, 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, whereas, prior to our adoption of Topic 606, we recognized revenue when we shipped to customers or, under some arrangements, when the customers received the goods. The following tables present the impacts of our adoption of Topic 606 on our April 28, 2019, condensed consolidated balance sheet, and condensed consolidated statements of income for the three and six months ended April 28, 2019, and cash flows for the six months ended April 28, 2019.

13

Condensed Consolidated Balance Sheet
April 28, 2019

   
As Reported
   
Adjustments
   
Balance without
Adoption of Topic 606
 
Assets
                 
Accounts receivable
 
$
123,371
   
$
(794
)
 
$
122,577
 
Inventory
   
34,696
     
4,807
     
39,503
 
Other current assets
   
38,304
     
(6,237
)
   
32,067
 
Deferred income taxes
   
15,121
     
105
     
15,226
 
                         
Liabilities
                       
Accrued liabilities
 
$
58,659
   
$
686
   
$
59,345
 
Deferred income taxes
   
829
     
(367
)
   
462
 
                         
Equity
                       
Photronics, Inc. shareholders’ equity
 
$
763,568
   
$
(1,963
)
 
$
761,605
 
Noncontrolling interests
   
134,760
     
(475
)
   
134,285
 

Condensed Consolidated Statement of Income
Three Months Ended April 28, 2019

   
As Reported
   
Adjustments
   
Balance without
Adoption of Topic 606
 
                   
Revenue
 
$
131,580
   
$
(242
)
 
$
131,338
 
Cost of goods sold
    105,570       (162
)
    105,408  
Gross profit
   
26,010
     
(80
)
   
25,930
 
Provision for taxes
    3,278       (48
)
    3,230  
Net income
   
9,852
     
(128
)
   
9,724
 
Noncontrolling interests
    1,373       78       1,451  
Income attributable to Photronics, Inc. shareholders
 
$
8,479
   
$
(206
)
 
$
8,273
 

Condensed Consolidated Statement of Income
Six Months Ended April 28, 2019

   
As Reported
   
Adjustments
   
Balance without
Adoption of Topic 606
 
                   
Revenue
 
$
256,291
   
$
(2,524
)
 
$
253,767
 
Cost of goods sold
   
204,179
     
(1,041
)
   
203,138
 
Gross profit
   
52,112
     
(1,483
)
   
50,629
 
Provision for taxes
   
4,665
     
(178
)
   
4,487
 
Net income
   
17,620
     
(1,305
)
   
16,315
 
Noncontrolling interests
   
3,874
     
(353
)
   
3,521
 
Income attributable to Photronics, Inc. shareholders
 
$
13,746
   
$
(952
)
 
$
12,794
 

14

Condensed Consolidated Statement of Cash Flows
Six Months Ended April 28, 2019

   
As Reported
   
Adjustments
   
Balance without
Adoption of Topic 606
 
                   
Net Income
 
$
17,620
   
$
(1,305
)
 
$
16,315
 
Changes in operating accounts:
                       
Accounts receivable
 
$
(2,295
)
 
$
211
   
$
(2,084
)
Inventories
   
(9,447
)
   
(1,204
)
   
(10,651
)
Other current assets
   
(6,114
)
   
1,799
     
(4,315
)
Accounts payable, accrued liabilities, and other
   
(40,566
)
   
499
     
(40,067
)

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 (referred to as “mask sets”), which are comprised of multiple layers, the predominance of which we invoice as they ship to customers. As the photomasks are manufactured to customer specifications, they have no alternative use to us and, as our contracts generally provide us with the right to payment for work completed to date, we recognize revenue as we perform, or “over time” on most of our contracts. We measure our performance to date using an input method, which is based on our estimated costs to complete the various manufacturing phases of a photomask. At the end of a reporting period, there will be a number of revenue contracts on which we have performed; for any such contracts that 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.

As stated above, photomasks are manufactured in accordance with proprietary designs provided by our customers; 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 is 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 to customers of photomasks that are in-process or completed but not yet shipped. 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 account primarily consists of a significant amount of our work-in-process inventory and fully-manufactured photomasks which have not yet shipped, if 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. Our contract assets and liabilities are typically classified as current, as our production cycle and our lead times are both under one year. Contract assets of $6.2 million are included in “Other” current assets, and contract liabilities of $7.9 million are included in “Other” current liabilities in our April 28, 2019 condensed consolidated balance sheet. At November 1, 2018, our date of adoption of Topic 606, we had contract assets of $4.6 million and contract liabilities of $7.8 million. We did not impair any contract assets during the six-month period ended April 28, 2019, and, during the respective three- and six-month periods ended April 28, 2019, we recognized $0.5 million and $1.2 million of revenue from the settlement of contract liabilities that existed at the beginning of those periods.

We generally record our accounts receivable at their billed amounts. All outstanding past due customer invoices are reviewed during, and at the end of, every period for collectibility. To the extent we believe a loss on the collection of a customer invoice is probable, we record the loss and credit the allowance for doubtful accounts. In the event that an amount is determined to be uncollectible, we charge the allowance for doubtful accounts and eliminate the related receivable. We did not incur any credit losses on our accounts receivable during the six-month period ended April 28, 2019.

15

Our invoice terms generally range from net thirty to ninety days, depending on both the geographic market in which the transaction occurs and our payment agreements with specific customers. In the event that our evaluation of a customer’s business prospects and financial condition indicate that the customer presents a collectibility risk, we require payment in advance of performance. We have elected the practical expedient allowed under 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’ve received from customers have 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, 2019, disaggregated by product type, geographic location, and timing of recognition.

Revenue by Product Type
 
Three Months Ended
April 28, 2019
   
Six Months Ended
April 28, 2019
 
             
IC
           
High-end
 
$
38,429
   
$
72,995
 
Mainstream
   
60,158
     
120,471
 
Total IC
 
$
98,587
   
$
193,466