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 August 1, 2021
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

graphic

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

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

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

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

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

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

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

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

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





PHOTRONICS, INC.
QUARTERLY REPORT ON FORM 10-Q
AUGUST 1, 2021

TABLE OF CONTENTS

3
4
   
PART I.
FINANCIAL INFORMATION
 
     
Item 1.
5
     
 
5
     
 
6
     
 
7
     
 
8
     
 
10
     
 
11
     
Item 2.
26
     
Item 3.
33
     
Item 4.
33
     
PART II.
OTHER INFORMATION
 
     
Item 1.
34
     
Item 2.
34
     
Item 6.
35

2


Glossary of Terms and Acronyms

Definitions of certain terms and acronyms that appear in this report are provided below.

AMOLED
 
Active-matrix organic light-emitting diode. A technology used in mobile devices.
 
ASC
 
Accounting Standards Codification
 
ASU
 
Accounting Standards Update
 
DNP
 
Dai Nippon Printing Co., Ltd.
 
EUV
 
A wafer lithography technology using the industry standard extreme ultraviolet (EUV) wavelength. EUV photomasks function by selectively reflecting or blocking light, in contrast to conventional photomasks which function by selectively transmitting or blocking light.
 
Exchange Act
 
The Securities Exchange Act of 1934 (as amended)
 
FASB
 
Financial Accounting Standards Board
 
Form 10-K
 
Annual Report on Form 10-K
 
Form 10-Q
 
Quarterly Report on Form 10-Q
 
FPDs
 
Flat-panel displays, or “displays”
 
High-end (photomasks)
 
For IC, photomasks that are 28nm or smaller; for FPD, AMOLED, G10.5+, and LTPS photomasks.
 
ICs
 
Integrated circuits, or semiconductors
 
LIBOR
 
London Inter-Bank Offered Rate
 
LTPS
 
Low-Temperature Poly Silicon, a polycrystalline silicon synthesized at relatively low temperatures; polycrystalline silicon in thin-film transistors (TFTs) are used in liquid-crystal displays (LCD) flat panels and to drive organic light-emitting diode (OLED) displays.
 
MLA
 
Master Lease Agreement
 
PDMCX
 
Xiamen American Japan Photronics Mask Co., Ltd., a joint venture of Photronics and DNP.
 
RMB
 
Chinese renminbi
 
ROU (assets)
 
Right-of-use asset
 
SEC
 
Securities and Exchange Commission
 
Securities Act
 
The Securities Act of 1933 (as amended)
 
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.

3

Forward-Looking Statements

This Form 10-Q contains forward-looking statements, as defined by the SEC. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements made by us, or on our behalf. Forward-looking statements are statements other than statements of historical fact, including, without limitation, those statements that include such words as “anticipates”, “believes”, “estimates”, “expects”, “intends”, “may”, “plans”, “predicts”, “would”, and similar expressions, and, without limitation, may address our future plans, objectives, goals, strategies, events, or performance, as well as underlying assumptions and other statements that are other than statements of historical facts. On occasion, in other documents filed with the SEC, press releases, conferences, or by other means, we may discuss, publish, disseminate, or otherwise make available, forward-looking statements, including statements contained within 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 Report are cautioned that various factors may cause actual results to differ materially from those contained in any forward-looking statements found within this Form 10-Q and that they should not place undue reliance on any forward-looking statement. In addition, all forward-looking statements, whether written or oral and whether made by us or on our behalf, are expressly qualified by the risk factors provided in Item 1A “Risk Factors” of our Form 10-K, as well as any additional risk factors we may provide in our Quarterly Reports on Form 10-Q.

4


PART I.
FINANCIAL INFORMATION

Item 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 
August 1,
2021
   
October 31,
2020
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
 
$
283,249
   
$
278,665
 
Accounts receivable, net of allowance for credit losses of $1,331 in 2021 and $1,324 in 2020
   
151,190
     
134,470
 
Inventories
   
53,165
     
57,269
 
Other current assets
   
42,860
     
29,735
 
                 
Total current assets
   
530,464
     
500,139
 
                 
Property, plant and equipment, net
   
699,609
     
631,475
 
Intangible assets, net
   
904
     
3,437
 
Deferred income taxes
   
23,691
     
22,070
 
Other assets
   
27,089
     
31,061
 
Total assets
 
$
1,281,757
   
$
1,188,182
 
                 
                 
LIABILITIES AND EQUITY
               
Current liabilities:
               
Short-term debt
 
$
-
   
$
4,708
 
Current portion of long-term debt
   
25,163
     
8,970
 
Accounts payable
   
75,640
     
75,378
 
Accrued liabilities
   
66,814
     
53,883
 
                 
Total current liabilities
   
167,617
     
142,939
 
                 
Long-term debt
   
92,740
     
54,980
 
Other liabilities
   
26,939
     
27,997
 
                 
Total liabilities
   
287,296
     
225,916
 
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, 60,758 shares issued and outstanding at August 1, 2021, and 63,138 shares issued and outstanding at October 31, 2020
   
608
     
631
 
Additional paid-in capital
   
489,431
     
507,336
 
Retained earnings
   
302,971
     
279,037
 
Accumulated other comprehensive income
   
24,882
     
17,958
 
                 
Total Photronics, Inc. shareholders' equity
   
817,892
     
804,962
 
Noncontrolling interests
   
176,569
     
157,304
 
                 
Total equity
   
994,461
     
962,266
 
                 
Total liabilities and equity
 
$
1,281,757
   
$
1,188,182
 

See accompanying notes to condensed consolidated financial statements.

5


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

 
Three Months Ended
   
Nine Months Ended
 
   
August 1,
2021
   
August 2,
2020
   
August 1,
2021
   
August 2,
2020
 
                         
Revenue
 
$
170,643
   
$
157,895
   
$
482,473
   
$
460,405
 
                                 
Cost of goods sold
   
125,318
     
120,161
     
367,370
     
357,636
 
                                 
Gross profit
   
45,325
     
37,734
     
115,103
     
102,769
 
                                 
Operating expenses:
                               
                                 
Selling, general and administrative
   
15,083
     
13,306
     
43,203
     
40,792
 
                                 
Research and development
   
5,305
     
4,492
     
14,390
     
13,034
 
                                 
Total operating expenses
   
20,388
     
17,798
     
57,593
     
53,826
 
                                 
Other operating income, net
   
3,525
     
-
     
3,525
     
-
 
                                 
Operating income
   
28,462
     
19,936
     
61,035
     
48,943
 
                                 
Other non-operating income (expense):
                               
Foreign currency transactions impact, net
   
4,301
     
(1,565
)
   
3,627
     
1,739
 
Interest expense, net
   
(1,060
)
   
(586
)
   
(637
)
   
(1,609
)
Interest income and other income (expense), net
   
494
     
16
     
653
     
480
 
                                 
Income before income tax provision
   
32,197
     
17,801
     
64,678
     
49,553
 
                                 
Income tax provision
   
7,842
     
4,937
     
14,493
     
17,789
 
                                 
Net income
   
24,355
     
12,864
     
50,185
     
31,764
 
                                 
Net income attributable to noncontrolling interests
   
7,279
     
2,088
     
14,547
     
4,404
 
                                 
Net income attributable to Photronics, Inc. shareholders
 
$
17,076
   
$
10,776
   
$
35,638
   
$
27,360
 
                                 
Earnings per share:
                               
                                 
Basic
 
$
0.28
   
$
0.17
   
$
0.58
   
$
0.42
 
                                 
Diluted
 
$
0.28
   
$
0.17
   
$
0.57
   
$
0.42
 
                                 
Weighted-average number of common shares outstanding:
                               
                                 
Basic
   
60,884
     
64,780
     
61,804
     
65,090
 
                                 
Diluted
   
61,515
     
65,247
     
62,362
     
65,704
 

See accompanying notes to condensed consolidated financial statements.

6


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

 
Three Months Ended
   
Nine Months Ended
 
   
August 1,
2021
   
August 2,
2020
   
August 1,
2021
   
August 2,
2020
 
                         
Net income
 
$
24,355
   
$
12,864
   
$
50,185
   
$
31,764
 
                                 
Other comprehensive (loss) income, net of tax of $0:
                               
                                 
Foreign currency translation adjustments
   
(10,482
)
   
10,659
     
11,584
     
6,689
 
                                 
Other
   
37
     
4
     
58
     
23
 
                                 
Net other comprehensive (loss) income
   
(10,445
)
   
10,663
     
11,642
     
6,712
 
                                 
Comprehensive income
   
13,910
     
23,527
     
61,827
     
38,476
 
                                 
Less: comprehensive income attributable to noncontrolling interests
   
7,144
     
3,979
     
19,265
     
8,539
 
                                 
Comprehensive income attributable to Photronics, Inc. shareholders
 
$
6,766
   
$
19,548
   
$
42,562
   
$
29,937
 

See accompanying notes to condensed consolidated financial statements.

7


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

 
Three Months Ended August 1, 2021
 
   
Photronics, Inc. Shareholders
             
         
Additional
Paid-in
Capital
   
Retained
Earnings
   
Treasury
Stock
   
Accumulated
Other
Comprehensive
Income
   
Non-
controlling
Interests
   
Total
Equity
 
     
 
Common Stock
 
   
Shares
   
Amount
 
                                                 
Balance at May 2, 2021
   
63,606
   
$
636
   
$
511,215
   
$
297,599
   
$
(23,250
)
 
$
35,192
   
$
169,425
   
$
990,817
 
                                                                 
Net income
   
-
     
-
     
-
     
17,076
     
-
     
-
     
7,279
     
24,355
 
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
(10,310
)
   
(135
)
   
(10,445
)
Shares issued under equity plans
   
135
     
2
     
921
     
-
     
-
     
-
     
-
     
923
 
Share-based compensation expense
   
-
     
-
     
1,311
     
-
     
-
     
-
     
-
     
1,311
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
(12,500
)
   
-
     
-
     
(12,500
)
Retirement of treasury stock
   
(2,983
)
   
(30
)
   
(24,016
)
   
(11,704
)
   
35,750
     
-
     
-
     
-
 
                                                                 
Balance at August 1, 2021
   
60,758
   
$
608
   
$
489,431
   
$
302,971
   
$
-
   
$
24,882
   
$
176,569
   
$
994,461
 

 
Three Months Ended August 2, 2020
 
   
Photronics, Inc. Shareholders
             
   
Common Stock
   
Additional
Paid-in
   
Retained
   
Treasury
   
Accumulated
Other
Comprehensive
   
Non-
controlling
   
Total
 
   
Shares
   
Amount
   
Capital
   
Earnings
   
Stock
   
Loss
   
Interests
   
Equity
 
                                                 
Balance at May 3, 2020
   
66,215
   
$
662
   
$
530,117
   
$
270,506
   
$
(16,894
)
 
$
(15,200
)
 
$
152,467
   
$
921,658
 
                                                                 
Net income
   
-
     
-
     
-
     
10,776
     
-
     
-
     
2,088
     
12,864
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
8,772
     
1,891
     
10,663
 
Shares issued under equity plans
   
61
     
1
     
306
     
-
     
-
     
-
     
-
     
307
 
Share-based compensation expense
   
-
     
-
     
1,196
     
-
     
-
     
-
     
-
     
1,196
 
Contribution from noncontrolling interest
   
-
     
-
     
-
     
-
     
-
     
-
     
9,997
     
9,997
 
                                                                 
Balance at August 2, 2020
   
66,276
   
$
663
   
$
531,619
   
$
281,282
   
$
(16,894
)
 
$
(6,428
)
 
$
166,443
   
$
956,685
 

See accompanying notes to condensed consolidated financial statements.

8


 
Nine Months Ended August 1, 2021
 
   
Photronics, Inc. Shareholders
             
         
Additional
Paid-in
Capital
   
Retained
Earnings
   
Treasury
Stock
   
Accumulated
Other
Comprehensive
Income
   
Non-
controlling
Interests
   
Total
Equity
 
     
 
Common Stock
 
   
Shares
   
Amount
 
                                                 
Balance at October 31, 2020
   
63,138
   
$
631
   
$
507,336
   
$
279,037
   
$
-
   
$
17,958
   
$
157,304
   
$
962,266
 
                                                                 
Net income
   
-
     
-
     
-
     
35,638
     
-
     
-
     
14,547
     
50,185
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
6,924
     
4,718
     
11,642
 
Shares issued under equity plans
   
603
     
7
     
2,077
     
-
     
-
     
-
     
-
     
2,084
 
Share-based compensation expense
   
-
     
-
     
4,034
     
-
     
-
     
-
     
-
     
4,034
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
(35,750
)
   
-
     
-
     
(35,750
)
Retirement of treasury stock
   
(2,983
)
   
(30
)
   
(24,016
)
   
(11,704
)
   
35,750
     
-
     
-
     
-
 
                                                                 
Balance at August 1, 2021
   
60,758
   
$
608
   
$
489,431
   
$
302,971
   
$
-
   
$
24,882
   
$
176,569
   
$
994,461
 

 
Nine Months Ended August 2, 2020
 
   
Photronics, Inc. Shareholders
             
   
Common Stock
   
Additional
Paid-in
   
Retained
   
Treasury
   
Accumulated
Other
Comprehensive
   
Non-
controlling
   
Total
 
   
Shares
   
Amount
   
Capital
   
Earnings
   
Stock
   
Loss
   
Interests
   
Equity
 
                                                 
Balance at October 31, 2019
   
65,595
   
$
656
   
$
524,319
   
$
253,922
   
$
-
   
$
(9,005
)
 
$
141,200
   
$
911,092
 
                                                                 
Net income
   
-
     
-
     
-
     
27,360
     
-
     
-
     
4,404
     
31,764
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
2,577
     
4,135
     
6,712
 
Shares issued under equity plans
   
681
     
7
     
3,272
     
-
     
-
     
-
     
-
     
3,279
 
Share-based compensation expense
   
-
     
-
     
3,773
     
-
     
-
     
-
     
-
     
3,773
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
(16,894
)
   
-
     
-
     
(16,894
)
Contribution from noncontrolling interest
   
-
     
-
     
-
     
-
     
-
     
-
     
17,596
     
17,596
 
Repurchase of common stock of subsidiary
   
-
     
-
     
255
     
-
     
-
     
-
     
(892
)
   
(637
)
                                                                 
Balance at August 2, 2020
   
66,276
   
$
663
   
$
531,619
   
$
281,282
   
$
(16,894
)
 
$
(6,428
)
 
$
166,443
   
$
956,685
 

See accompanying notes to condensed consolidated financial statements.

9


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

 
Nine Months Ended
 
   
August 1,
2021
   
August 2,
2020
 
             
Cash flows from operating activities:
           
Net income
 
$
50,185
   
$
31,764
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
69,305
     
71,120
 
Share-based compensation
   
4,034
     
3,773
 
Changes in assets and liabilities:
               
Accounts receivable
   
(13,854
)
   
(9,476
)
Inventories
   
5,073
     
(6,155
)
Other current assets
   
(12,280
)
   
(12,381
)
Accounts payable, accrued liabilities, and other
   
10,633
     
(381
)
                 
Net cash provided by operating activities
   
113,096
     
78,264
 
                 
Cash flows from investing activities:
               
Purchases of property, plant and equipment
   
(92,301
)
   
(36,693
)
Government incentives
   
5,775
     
5,263
 
Purchases of intangible assets
   
(170
)
   
(139
)
                 
Net cash used in investing activities
   
(86,696
)
   
(31,569
)
                 
Cash flows from financing activities:
               
Proceeds from debt
   
20,858
     
5,699
 
Purchases of treasury stock
   
(35,750
)
   
(16,894
)
Repayments of debt
   
(13,311
)
   
(5,929
)
Contribution from noncontrolling interest
   
-
     
17,596
 
Proceeds from share-based arrangements
   
2,251
     
3,869
 
Net settlements of restricted stock awards
   
(403
)
   
(248
)
                 
Net cash (used in) provided by financing activities
   
(26,355
)
   
4,093
 
                 
Effects of exchange rate changes on cash, cash equivalents, and restricted cash
   
4,602
     
3,486
 
                 
Net increase in cash, cash equivalents, and restricted cash
   
4,647
     
54,274
 
Cash, cash equivalents, and restricted cash at beginning of period
   
281,602
     
209,291
 
                 
Cash, cash equivalents, and restricted cash at end of period
 
$
286,249
   
$
263,565
 
                 
                 
Supplemental disclosures of non-cash information:
               
                 
Accruals for property, plant and equipment purchased during the period
 
$
7,367
   
$
34,356
 

See accompanying notes to condensed consolidated financial statements.

10


PHOTRONICS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(in thousands, except share amounts and per share data)

NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION


Photronics, Inc. (“Photronics”, “the Company”, “we”, “our”, or “us”) is one of the world's leading manufacturers of photomasks, which are high-precision photographic quartz or glass plates containing microscopic images of electronic circuits. Photomasks are a key element in the manufacture of ICs and FPDs, and are used as masters to transfer circuit patterns onto semiconductor wafers and FPD substrates during the fabrication of integrated circuits, 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 China (2). Our FPD facility in Hefei, China, commenced production in the second quarter of fiscal 2019, and our IC facility in Xiamen, China, commenced production in the third quarter of fiscal 2019.


The accompanying unaudited condensed consolidated financial statements (“the financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of 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. The financial statements include the accounts of Photronics, its wholly owned subsidiaries, and the majority-owned subsidiaries that it controls. All intercompany balances and transactions have been eliminated in consolidation.


The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect amounts reported in them. Estimates are based on historical experience and on various assumptions that are believed to be reasonable under the circumstances. Our estimates are based on the facts and circumstances available at the time they are made. Subsequent actual results may differ from such estimates. We review these estimates periodically and reflect any effects of revisions in the period in which they are determined.


In fiscal year 2021, we segregated share-based compensation activity into the two categories of Shares issued under equity plans and Share-based compensation expense in the condensed consolidated statements of equity; in previous reports, we segregated this activity into three categories. Reclassified prior period amounts have been conformed to the current period presentation.


Our business is typically impacted during the first quarter of our fiscal year by the North American, European, and Asian holiday periods, as some customers reduce their development and buying activities during those periods; consequently, operating results for interim periods are not necessarily indicative of the results that may be expected for the fiscal year ending October 31, 2021. For further information, refer to the consolidated financial statements, and notes thereto, included in our Form 10-K for the year ended October 31, 2020.

NOTE 2 - CASH, CASH EQUIVALENTS AND RESTRICTED CASH


Cash and cash equivalents include cash and highly liquid investments with an original maturity of three months or less, readily convertible to known amounts of cash, and so near to their maturity that they present insignificant risk of changes in value because of changes in interest rates. The carrying values of cash equivalents approximate their fair values, due to the short-term maturities of these instruments.


Restricted cash is included in Other assets in our August 1, 2021 and October 31, 2020, condensed consolidated balance sheets, respectively. The restrictions on these amounts are primarily related to land lease agreements and customs requirements.


The following table presents cash and cash equivalents as reported in our condensed consolidated balance sheets, as well as the sum of cash, cash equivalents and restricted cash, as reported in our condensed consolidated statements of cash flows.

11


 
 
August 1,
2021
   
October 31,
2020
 
 
           
Cash and cash equivalents
 
$
283,249
   
$
278,665
 
Restricted Cash
   
3,000
     
2,937
 
 
               
 
 
$
286,249
   
$
281,602
 

NOTE 3 - INVENTORIES


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

 
August 1,
2021
   
October 31,
2020
 
             
Raw materials
 
$
51,713
   
$
56,389
 
Work in process
   
1,223
     
767
 
Finished goods
   
229
     
113
 
                 
   
$
53,165
   
$
57,269
 

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT, NET


Property, plant and equipment, net consists of the following:

 
August 1,
2021
   
October 31,
2020
 
Land
 
$
12,518
   
$
12,422
 
Buildings and improvements
   
181,842
     
179,162
 
Machinery and equipment
   
1,966,038
     
1,812,791
 
Leasehold improvements
   
21,672
     
21,157
 
Furniture, fixtures and office equipment
   
15,811
     
15,665
 
Construction in progress
   
31,839
     
70,915
 
                 
     
2,229,720
     
2,112,112
 
Accumulated depreciation and amortization
   
(1,530,111
)
   
(1,480,637
)
                 
   
$
699,609
   
$
631,475
 


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

 
 
August 1,
2021
   
October 31,
2020
 
Machinery and equipment
 
$
42,760
   
$
-
 
Accumulated amortization
   
(1,223
)
   
-
 
                 
 
 
$
41,537
   
$
-
 


Depreciation and amortization expense for property, plant and equipment (including amortization expense for ROU assets) was $21.7 million and $66.6 million for the three and nine-month periods ended August 1, 2021, respectively, and $22.1 million and $67.6 million for the three and nine-month periods ended August 2, 2020, respectively.


In the third quarter of fiscal 2021, we recorded a $3.5 million gain on the trade-in of a lithography tool with a tool vendor as partial compensation for a more advanced tool.


12

NOTE 5 - PDMCX JOINT VENTURE


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


The minimum combined investment per the PDMCX operating agreement (the “Agreement”), was $160 million. As of August 1, 2021, Photronics and DNP had each contributed cash of approximately $65 million, and PDMCX had obtained local financing of approximately $50 million. As discussed in Note 6, liens were granted to the local financing entity on assets with an August 1, 2021, total carrying value of $91.3 million, as collateral for the loans.


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


We recorded net income from the operations of PDMCX of $1.8 million, and $4.0 million during the three and nine-month periods ended August 1, 2021, respectively, and losses of $0.8 million and $4.8 million during the three and nine-month periods ended August 2, 2020, respectively. General creditors of PDMCX do not have recourse to the assets of Photronics (other than the net assets of PDMCX), and our maximum exposure to loss from PDMCX at August 1, 2021, was $60.9 million.


As required by the guidance in Topic 810 - “Consolidation” of the 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 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.

 
August 1,
2021
   
October 31,
2020
 
Classification
 
Carrying
Amount
   
Photronics
Interest
   
Carrying
Amount
   
Photronics
Interest
 
Current assets
 
$
56,060
   
$
28,036
   
$
56,095
   
$
28,053
 
Non-current assets
   
138,072
     
69,050
     
141,097
     
70,562
 
                                 
Total assets
   
194,132
     
97,086
     
197,192
     
98,615
 
                                 
Current liabilities
   
30,233
     
15,119
     
31,922
     
15,964
 
Non-current liabilities
   
42,080
     
21,044
     
55,676
     
27,844
 
                                 
Total liabilities
   
72,313
     
36,163
     
87,598
     
43,808
 
                                 
Net assets
 
$
121,819
   
$
60,923
   
$
109,594
   
$
54,807
 



13

NOTE 6 - DEBT


Short-term debt was $0.0 million, and $4.7 million as of August 1, 2021 and October 31, 2020, respectively. The 2020 amount represents an advance payment under an MLA to fund equipment purchased or leased in the U.S., and short duration borrowings in Xiamen, China, to fund operations. See below for further information. The weighted-average interest rate on our short-term debt as of October 31, 2020 was 2.02%.


The tables below provide information on our long-term debt.

As of August 1, 2021
 
Xiamen
Project Loans
   
Xiamen
Working
Capital Loans
   
Hefei
Equipment
Loan
   
Finance Leases
   
Total
 
Principal due:
                             
Next 12 months
 
$
7,615
   
$
8,108
   
$
2,321
   
$
7,119
   
$
25,163
 
Months 13 – 24
 
$
9,961
   
$
3,961
   
$
4,642
   
$
6,487
   
$
25,051
 
Months 25 – 36
   
10,165
     
-
     
4,642
     
6,585
     
21,392
 
Months 37 – 48
   
9,794
     
-
     
7,736
     
19,623
     
37,153
 
Months 49 – 60
   
7,489
     
-
     
1,655
     
-
     
9,144
 
Long-term debt
 
$
37,409
   
$
3,961
   
$
18,675
   
$
32,695
   
$
92,740
 
 
                                       
Interest rate at balance sheet date
   
4.65
%
   
4.53% - 4.61
%
   
4.20
%
   
(3)