10q10k10q10k.net

What changed in PHOTRONICS INC's 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of PHOTRONICS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+185 added−215 removedSource: 10-K (2023-12-26) vs 10-K (2022-12-23)

Top changes in PHOTRONICS INC's 2023 10-K

185 paragraphs added · 215 removed · 150 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

41 edited+7 added−8 removed18 unchanged
Biggest changeThe typical manufacturing process for a photomask involves the receipt and conversion of circuit design data to manufacturing pattern data. A lithography system then exposes the circuit pattern onto a photomask blank. The exposed areas are developed and etched to imprint the pattern on the photomask. The photomask is then inspected for defects and conformity to the customer’s design data.
Biggest changeThe resulting series of photomasks is then used to image the circuit patterns onto each successive layer of a semiconductor wafer or FPD substrate. The typical manufacturing process for a photomask involves the receipt and conversion of circuit design data to manufacturing pattern data. A lithography system then exposes the circuit pattern onto a photomask blank.
Operations outside of the United States are subject to inherent risks, including fluctuations in exchange rates, political and economic conditions in various countries, legal compliance and regulatory requirements, tariffs and other trade barriers, difficulties in staffing and managing international operations, longer accounts receivable collection cycles, potential restrictions on transfers of funds, and potentially adverse tax consequences.
Operations outside of the United States are subject to inherent risks, including fluctuations in currency exchange rates, political and economic conditions in various countries, legal compliance and regulatory requirements, tariffs and other trade barriers, difficulties in staffing and managing international operations, longer accounts receivable collection cycles, potential restrictions on transfers of funds, and potentially adverse tax consequences.
Research and Development We primarily conduct research and development activities for IC photomasks at our Boise, Idaho, facility and, to a lesser degree, Photronics DNP Mask Corporation (“PDMC”), our joint-venture subsidiary in Taiwan. Research and development for FPD photomasks is primarily conducted at Photronics Cheonan, Ltd., our subsidiary in South Korea.
Research and Development We primarily conduct research and development activities for IC photomasks at our Boise, Idaho, facility and, to a lesser degree, Photronics DNP Mask Corporation (“PDMC”), our joint-venture subsidiary in Taiwan. Research and development for FPD photomasks is primarily conducted at Photronics Korea, Ltd., our subsidiary in South Korea.
Currently, research and development for IC photomasks are primarily focused on photomasks enabling wafer geometries of 14 nanometer node and smaller and, for FPDs, on Generations 8 and 10 substrate size photomasks for new TV technologies, emerging opportunities for micro- and mini-LED displays, and photomask technology for the complex FPD photomasks required in the manufacture of advanced mobile displays, such as AMOLED.
Currently, research and development for IC photomasks are primarily focused on photomasks enabling wafer geometries of 14 nanometer node and smaller, including EUV and, for FPDs, on Generations 8 and 10 substrate size photomasks for new TV technologies, emerging opportunities for micro- and mini-LED displays, and photomask technology for the complex FPD photomasks required in the manufacture of advanced mobile displays, such as AMOLED.
These factors may have a material adverse effect on our ability to generate revenue outside of the United States and to deploy resources where they could otherwise be used to their greatest advantage and, consequently, may adversely affect our financial condition and results of operations.
These factors may have a material adverse effect on our ability to generate revenue outside of the United States and may require us to deploy resources where they could otherwise be used to their greatest advantage and, consequently, may adversely affect our financial condition and results of operations.
In addition to salaries, these programs, which vary by country/region, can include annual bonuses, stock-based compensation awards, a 401(k) plan with employee matching opportunities, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, employee assistance programs, and tuition assistance. 9 Table of Contents
In addition to salaries, these programs, which vary by country/region, can include annual bonuses, stock-based compensation awards, a 401(k) plan with employee matching opportunities, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, employee assistance programs, and tuition assistance.
The following is a list of major subjects of the regulations that pertain to our business: • Regulations, such as those under the Foreign Corrupt practices Act that prohibit providing remuneration to government officials for the purpose of obtaining or securing business in the jurisdictions in which they serve; • Regulations that require the minimization and proper disposal of the by-products of our manufacturing processes; • Regulations that require us to provide a safe working environment for our employees; 8 Table of Contents • Regulations that restrict our ability to transfer assets between operations not within the same legal jurisdiction; • Regulations that require us to provide information through the submission of government surveys; • Regulations that require us to maintain an effective system of internal accounting controls; • Regulations that prohibit us from engaging in business in specified countries, or with specified customers; • Regulations that require us to protect the personal information of our customers and employees; • Regulations that require us to accurately determine our liabilities to taxing authorities, and to settle such liabilities within their statutorily prescribed time periods; • Regulations that require us to withhold and timely remit taxes on our employees’ compensation to government authorities; • Regulations that require us to contribute to government-sponsored social insurance plans; • Regulations that require us to contribute to employee severance plans; • Regulations that prohibit us from disseminating material nonpublic information prior to the public announcement of such information; • Regulations pertaining to financial reporting, insider transactions, executive compensation, and other areas overseen by the SEC and governing bodies in other countries in which our operations are located; Human Capital As of October 31, 2022, we had approximately 1,828 full-time and part-time employees worldwide.
The following is a list of major subjects of the regulations that pertain to our business: • Regulations, such as those under the Foreign Corrupt practices Act that prohibit providing remuneration to government officials for the purpose of obtaining or securing business in the jurisdictions in which they serve; • Regulations that require the minimization and proper disposal of the by-products of our manufacturing processes; • Regulations that require us to provide a safe working environment for our employees; • Regulations that restrict our ability to transfer assets between operations not within the same legal jurisdiction; • Regulations that require us to provide information through the submission of government surveys; • Regulations that require us to maintain an effective system of internal accounting controls; • Regulations that prohibit us from engaging in business in specified countries, or with specified customers; • Regulations that require us to protect the personal information of our customers and employees; • Regulations that require us to accurately determine our liabilities to taxing authorities, and to settle such liabilities within their statutorily prescribed time periods; • Regulations that require us to withhold and timely remit taxes on our employees’ compensation to government authorities; • Regulations that require us to contribute to government-sponsored social insurance plans; • Regulations that require us to contribute to employee severance plans; • Regulations that prohibit us from disseminating material nonpublic information prior to the public announcement of such information; • Regulations pertaining to financial reporting, insider transactions, executive compensation, and other areas overseen by the SEC and governing bodies in other countries in which our operations are located.
See Notes 7 and 15 to our consolidated financial statements in Part II, Item 8 of this report for the amount of revenue and long-lived assets attributable to each of our geographic areas of operations.
See Notes 9 and 17 to our consolidated financial statements in Part II, Item 8 of this report for the amount of revenue and long-lived assets attributable to each of our geographic areas of operations.
We believe these core competencies will continue to be a critical part of semiconductor and FPD manufacturing, as wafer and FPD substrate optical lithography continues to enable new high-end ICs and displays. We incurred research and development expenses of $18.3 million, $18.5 million, and $17.1 million in 2022, 2021 and 2020, respectively.
We believe these core competencies will continue to be a critical part of semiconductor and FPD manufacturing, as wafer and FPD substrate optical lithography continues to enable new high-end ICs and displays. We incurred research and development expenses of $13.7 million, $18.3 million, and $18.5 million in 2023, 2022 and 2021, respectively.
Co., Ltd. accounted for approximately 15%, 17% and 16% of our total revenues in 2022, 2021 and 2020, respectively, and revenue from Samsung Electronics Co., Ltd. accounted for approximately 11%, 12% and 14% of our total revenues in those respective years.
Co., Ltd. accounted for approximately 14%, 15% and 17% of our total revenues in 2023, 2022 and 2021, respectively, and revenue from Samsung Electronics Co., Ltd. accounted for approximately 10%, 11% and 12% of our total revenues in those respective years.
We provide our employees with access to a variety of innovative, flexible and convenient health and wellness programs. Such programs are designed to support employees’ physical and mental health by providing tools and resources to help them improve or maintain their health status and encourage engagement in healthy behaviors. Additionally, we provide robust compensation and benefits.
Such programs are designed to support employees' physical and mental health by providing tools and resources to help them improve or maintain their health status and encourage engagement in healthy behaviors. Additionally, we provide robust compensation and benefits.
These include integrated device manufacturers, fabless semiconductor companies, and “pure play” foundries. During 2022, we sold our products to approximately 550 customers. Revenue from United Microelectronics Corp.
We sell our products primarily to leading semiconductor and FPD designers and manufacturers. These include integrated device manufacturers, fabless semiconductor companies, and “pure-play” foundries. During 2023, we sold our products to approximately 696 customers. Revenue from United Microelectronics Corp.
We provide mandatory safety trainings in our production facilities, which are designed to focus on empowering our employees with the knowledge and tools they need to make safe choices and to minimize risks. Supervisors complete safety management courses as well. The health and wellness of our employees are critical to our success.
The safety of our employees is a paramount value for us. 10 Table of Contents We provide mandatory safety trainings in our production facilities, which are designed to focus on empowering our employees with the knowledge and tools they need to make safe choices and to minimize risks. Supervisors complete safety management courses as well.
While some of our competitors may have greater financial, sales, marketing, or other resources than Photronics, we believe that we are able to compete effectively because of our dedication to customer service, ongoing investments in state-of-the-art photomask equipment and facilities, and experienced technical employees.
While some of our competitors may have greater financial, sales, marketing, or other resources than Photronics, we believe that we are able to compete effectively because of our dedication to customer service, ongoing investments in state-of-the-art photomask equipment and facilities, and experienced technical employees. 7 Table of Contents We estimate that, for the types of photomasks we manufacture (IC and FPD), the size of the total market (captive and merchant) is approximately $7.5 billion.
International Operations Revenues from our non-U.S. operations were approximately 85%, 84% and 83% of our total revenues in 2022, 2021 and 2020, respectively. We believe that our ability to serve non-U.S. markets is enhanced by our having, among other things, a local presence in the markets we serve. This requires significant investments in financial, managerial, operational, and other resources.
We believe that our ability to serve non-U.S. markets is enhanced by our having, among other things, a local presence in the markets we serve. This requires significant investments in financial, managerial, operational, and other resources.
We expect advanced-generation designs to continue to be developed throughout fiscal 2023, and we believe we are well positioned to service an increasing volume of this business as a result of our ongoing investments in manufacturing processes and technology in the regions where our customers are located. 5 Table of Contents Generally, Photronics and each of its customers engage in a qualification and correlation process before we become an approved supplier.
We expect advanced-generation designs to continue to be developed, and we believe we are well positioned to service an increasing volume of this business as a result of our ongoing investments in manufacturing processes and technology in the regions where our customers are located.
Revenues earned from these contracts do not comprise a significant portion of our total revenue. Government Regulation We are subject to government regulations within the U.S. and in other countries in which we produce or market our products. The effects of compliance with these regulations are currently not material to our results of operations, capital expenditures, or competitive position.
Government Contracts We are party to a limited number of fixed-price contracts with the U.S. government. Revenues earned from these contracts do not comprise a significant portion of our total revenue. 9 Table of Contents Government Regulation We are subject to government regulations within the U.S. and in other countries in which we produce or market our products.
End markets served with IC photomasks include devices used for microprocessors, memory, telecommunications, the Internet of Things, crypto mining, and other applications. We own a number of both high-end and mature electron beam and laser-based lithography systems. We sell our products primarily to leading semiconductor and FPD designers and manufacturers.
These systems are capable of producing the most advanced semiconductor and display photomasks for use in an array of products. End markets served with IC photomasks include devices used for microprocessors, memory, telecommunications, the Internet of Things, crypto mining, and other applications. We own a number of both high-end and mature electron beam and laser-based lithography systems.
Notes 7 and 15 of our consolidated financial statements, in Part II, Item 8 of this report, respectively, present our revenue and long-lived assets by geographic area. 7 Table of Contents Resources Raw materials used by Photronics generally include: high precision quartz plates (including large area plates), which are used as photomask blanks and are primarily obtained from Japanese and Korean suppliers; pellicles and electronic grade chemicals, which are used in the manufacturing process; and compacts, which are durable plastic containers in which photomasks are shipped.
Resources Raw materials used by Photronics generally include: high precision quartz plates (including large area plates), which are used as photomask blanks and are primarily obtained from Japanese and Korean suppliers; pellicles and electronic grade chemicals, which are used in the manufacturing process; and compacts, which are durable plastic containers in which photomasks are shipped.
However, 32 nanometer and above geometries for semiconductors and Generation 8 and below (excluding AMOLED and LTPS) process technologies for displays, which we refer to as “mainstream” photomasks, constitute the majority of designs currently being fabricated in volume. At these geometries and at various high-end nodes, we can produce full lines of photomasks.
“High-end” photomasks support 28 nanometer and smaller design nodes for ICs and Generation 10.5+, AMOLED, and LTPS display-based process technologies for FPDs. However, 32 nanometer and above geometries for semiconductors and Generation 8 and below (excluding AMOLED and LTPS) process technologies for displays, which we refer to as “mainstream” photomasks, constitute the majority of designs currently being fabricated in volume.
Competition The photomask industry is highly competitive, and most of our customers utilize multiple photomask suppliers. Our ability to compete depends primarily upon the consistency of our product quality, timeliness of delivery, competitive pricing, technical capability, and service, which we believe are the principal factors considered by customers in selecting their photomask suppliers.
Our ability to compete depends primarily upon the consistency of our product quality, timeliness of delivery, competitive pricing, technical capability, and service, which we believe are the principal factors considered by customers in selecting their photomask suppliers. An inability to meet these requirements could adversely affect our financial condition, results of operations, and cash flows.
While we believe that our IP rights are, and will continue to be, important to our technical leadership in the field of photomasks, our operations are not dependent on any one individual IP right. In addition to patenting, when practicable, we further protect our IP rights, and our other proprietary processes, by utilizing non-disclosure agreements with employees, customers, and vendors.
While we believe that our IP rights are, and will continue to be, important to our technical leadership in the field of photomasks, our operations are not dependent on any one individual IP right.
However, compliance with changes to existing or new regulations may have a material adverse effect on our future results of operations, capital expenditures, or competitive position. We discuss the potential impact of our not adhering to a number of these regulations in Item 1A. “Risk Factors”, of this Form 10-K.
The effects of compliance with these regulations are currently not material to our results of operations, capital expenditures, or competitive position. However, compliance with changes to existing or new regulations may have a material adverse effect on our future results of operations, capital expenditures, or competitive position.
It is our belief that we own, control, or license the proprietary information (including trade secrets and patents) that we need to continue to meet our customers’ requirements. We also believe that our intellectual property and trade secret know-how will continue to be important to our maintaining technical leadership in the field of photomasks.
It is our belief that we own, control, or license the proprietary information (including trade secrets and patents) that we need to continue to meet our customers’ requirements.
An inability to meet these requirements could adversely affect our financial condition, results of operations, and cash flows. We also believe that geographic proximity to customers is an important factor in certain markets where cycle time from order to delivery is critical.
We also believe that geographic proximity to customers is an important factor in certain markets where cycle time from order to delivery is critical.
The implementation of these measures has not materially affected our operations. Sales We manufacture photomasks, which are used as masters to transfer circuit patterns onto semiconductor wafers and FPD substrates. The photomasks we manufacture incorporate circuit designs provided to us on a confidential basis by our customers.
Sales We manufacture photomasks, which are used as masters to transfer circuit patterns onto semiconductor wafers and FPD substrates. The photomasks we manufacture incorporate circuit designs provided to us on a confidential basis by our customers. Photomasks are typically sold in sets comprised of layers, with each layer having a distinct pattern that is etched onto a different photomask.
Previously, there was a trend towards the divesture or closing of captive photomask operations by semiconductor manufacturers, and an increase in the share of the market served by independent merchant manufacturers.
In rare instances, captive manufacturers also sell to other semiconductor or FPD manufacturers. The value of masks produced by merchant suppliers has transitioned from a period when there was a trend toward the divesture or closing of captive photomask operations by semiconductor manufacturers, and an increase in the share of the market served by independent merchant manufacturers.
We provide all employees with the opportunity to share their opinions in open dialogues with our human resources department and senior management. We provide all employees a wide range of career development opportunities, both formal and informal. Our formal offerings include tuition reimbursement, leadership development experiences and vocational training. The safety of our employees is a paramount value for us.
We provide all employees a wide range of career development opportunities, both formal and informal. Our formal offerings include tuition reimbursement, leadership development experiences and vocational training.
Our five largest customers, in the aggregate, accounted for approximately 45%, 43% and 45% of our revenue in 2022, 2021 and 2020, respectively. A significant decrease in the amount of revenue from any of these customers could have a material adverse effect on our financial performance and business prospects.
A significant decrease in the amount of revenue from any of these customers could have a material adverse effect on our financial performance and business prospects. Competition The photomask industry is highly competitive, and most of our customers utilize multiple photomask suppliers.
The ability to manufacture high-quality photomasks within short time periods is dependent upon robust processes, efficient manufacturing methods, high production yield, available manufacturing capacity, and high equipment reliability.
However, the demand for some IC photomasks can extend over the traditional time period; thus, for some products, our backlog can expand to as long as two to three months. 5 Table of Contents The ability to manufacture high-quality photomasks within short time periods is dependent upon robust processes, efficient manufacturing methods, high production yield, available manufacturing capacity, and high equipment reliability.
Nevertheless, most captive manufacturers maintain business and technology relationships with independent photomask manufacturers for ongoing support. 6 Table of Contents We support customers across the full spectrum of IC production and FPD technologies by manufacturing photomasks using electron beam or optical (laser-based) lithography systems.
We support customers across the full spectrum of IC production and FPD technologies by manufacturing photomasks using electron beam or optical (laser-based) lithography systems. For IC photomasks, the predominant writing technology used for advanced photomasks with fine-scale resolution requirements is electron beam writing systems, while FPD mask fabrication utilizes optical writing systems.
Moreover, there is no significant technology employed by our competitors that is not available to us.
At these geometries and at various high-end nodes, we can produce full lines of photomasks. Moreover, there is no significant technology employed by our competitors that is not available to us.
The first several layers of photomasks are sometimes required to be delivered to customers within twenty-four hours from the time we receive customer design data.
In many instances, we enter into sales arrangements with an understanding that, as long as our performance is competitive, we will receive a specified percentage of that customer's photomask orders. The first several layers of photomasks are sometimes required to be delivered to customers within twenty-four hours from the time we receive customer design data.
Seasonality 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. Government Contracts We are party to a limited number of fixed-price contracts with the U.S. government.
In addition to patenting, when practicable, we further protect our IP rights, and our other proprietary processes and trade secrets, by utilizing non-disclosure agreements with employees, customers, and vendors. 8 Table of Contents Seasonality 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.
Markets The market for photomasks primarily consists of semiconductor and FPD manufacturers and designers worldwide. Photomasks are manufactured by independent merchant manufacturers like Photronics and by semiconductor and FPD manufacturers that produce photomasks for their own use (captive manufacturers). In rare instances, captive manufacturers also sell to other semiconductor or FPD manufacturers.
The size of the photomask market is driven by the number of designs released to support IC and FPD product introductions and manufacturing expansions. The photomasks required for those designs are manufactured by independent merchant manufacturers like Photronics and by semiconductor and FPD manufacturers that produce photomasks for their own use (captive manufacturers).
We believe the pressure to reduce prices, together with the significant investment required in capital equipment to manufacture high-end photomasks, has contributed to the decrease in the number of independent manufacturers, and we expect such pressure to continue in the future.
We believe the pressure to reduce prices, together with the significant investment required in capital equipment to manufacture high-end photomasks will continue in the future. International Operations Revenues from our non-U.S. operations were approximately 86%, 85% and 84% of our total revenues in 2023, 2022 and 2021, respectively.
After the repair of any defects, the photomask is cleaned, any required pellicles (protective translucent cellulose membranes) are applied and, after final inspection, the photomask is shipped to the customer. “High-end” photomasks support 28 nanometer and smaller design nodes for ICs and Generation 10.5+, AMOLED, and LTPS display-based process technologies for FPDs.
The exposed areas are developed and etched to imprint the pattern on the photomask. The photomask is then inspected for defects and conformity to the customer's design data. After the repair of any defects, the photomask is cleaned, any required pellicles (protective translucent cellulose membranes) are applied and, after final inspection, the photomask is shipped to the customer.
Our business results depend in part on our ability to successfully manage our human capital resources, including attracting, identifying, and retaining key talent. Factors that may affect our ability to attract and retain qualified employees include employee morale, our reputation, competition from other employers, and availability of qualified individuals.
Human Capital As of October 31, 2023, we had approximately 1,885 full-time and part-time employees worldwide. Our business results depend in part on our ability to successfully manage our human capital resources, including attracting, identifying, and retaining key talent.
Thereafter, based on the customer’s specifications, we typically negotiate pricing parameters for the customer’s order. Some prices may remain in effect for an extended period of time. In many instances, we enter into sales arrangements with an understanding that, as long as our performance is competitive, we will receive a specified percentage of that customer’s photomask orders.
Generally, Photronics and each of its customers engage in a qualification and correlation process before we become an approved supplier. Thereafter, based on the customer’s specifications, we typically negotiate pricing parameters for the customer's order. Some prices may remain in effect for an extended period of time.
As of October 31, 2022, none of our employees at any of our worldwide facilities was represented by a union. We consider our employee relations to be good. We believe our commitment to our diverse human capital resources is an important component of our mission to deliver superior photomasks and customer care.
Factors that may affect our ability to attract and retain qualified employees include employee morale, our reputation, competition from other employers, and availability of qualified individuals. As of October 31, 2023, none of our employees at any of our worldwide facilities was represented by a union. We consider our employee relations to be good.
However, more recently, to reach certain roadmap milestones, some captive mask facilities have been investing at faster rates than independent manufacturers, particularly in the foundry logic and memory spaces.
That period was followed by a period during which, in order to reach certain roadmap milestones, some captive mask facilities invested at faster rates than independent manufacturers, and the revenue share of market transitioned to masks being majority captive-supplied.
Removed
Impact of the COVID-19 Pandemic All of our facilities have continued to operate throughout the COVID-19 pandemic.
Added
We also believe that our intellectual property and trade secret know-how will continue to be important to maintaining technical leadership in the field of photomasks. 6 Table of Contents Markets The customers for photomasks are primarily semiconductor and FPD manufacturers and to a lesser degree fabless design and equipment companies serving those industries.
Removed
However, since shortly after it was first identified near the end of calendar year 2019, the pandemic has had an impact on our business in a number of ways including customer shutdowns, which led to delays in new photomask design releases, and travel restrictions, which delayed tool installations and servicing.
Added
More recently, there has been a tendency of more production being directed to the independent merchant manufacturers, and market share has begun moving toward the independents. Nevertheless, most captive manufacturers maintain business and technology relationships with independent photomask manufacturers for ongoing support.
Removed
To date, we have not experienced significant raw material shortages; however, supply-chain disruptions could potentially delay or prevent us from fulfilling customer orders. At certain facilities, employees not required to be on-site to maintain production have worked remotely at various times ‒ either at our discretion or due to government mandates.
Added
In addition, revenue from Semiconductor Manufacturing International Corporation accounted for approximately 13%, 5% and 3% of our total revenues in 2023, 2022 and 2021, respectively. Our five largest customers, in the aggregate, accounted for approximately 51%, 45% and 43% of our revenue in 2023, 2022 and 2021, respectively.
Removed
Photomasks are typically sold in sets comprised of layers, with each layer having a distinct pattern that is etched onto a different photomask. The resulting series of photomasks is then used to image the circuit patterns onto each successive layer of a semiconductor wafer or FPD substrate.
Added
Notes 9 and 17 of our consolidated financial statements, in Part II, Item 8 of this report, respectively, present our revenue and long-lived assets by geographic area.
Removed
However, the demand for some IC photomasks has recently expanded beyond the industry’s capacity to supply them within the traditional time period; thus, for some products, our backlog can expand to as long as two to three months.
Added
We discuss the potential impact of our not adhering to a number of these regulations in Item 1A. “Risk Factors”, of this Form 10-K.
Removed
For IC photomasks, the predominant writing technology used for advanced photomasks with fine-scale resolution requirements is electron beam writing systems, while FPD mask fabrication utilizes optical writing systems. These systems are capable of producing the most advanced semiconductor and display photomasks for use in an array of products.
Added
We believe our commitment to our diverse human capital resources is an important component of our mission to deliver superior photomasks and customer care. We provide all employees with the opportunity to share their opinions in open dialogues with our human resources department and senior management.
Removed
We estimate that, for the types of photomasks we manufacture (IC and FPD), the size of the total market (captive and merchant) is approximately $7.5 billion.
Added
The health and wellness of our employees are critical to our success. We provide our employees with access to a variety of innovative, flexible and convenient health and wellness programs.
Removed
In response to COVID-19, we implemented significant changes that we determined were in the best interest of our employees and which comply with government orders in all the states and countries where we operate. For US employees, we require vaccinations against COVID-19. However, we may amend this policy at any time.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

35 edited+7 added−20 removed86 unchanged
Biggest changeThe fluctuation of foreign currency exchange rates, with respect to prices of equipment and raw materials used in manufacturing, could also have a material adverse effect on our business and results of operations.
Biggest changeThe fluctuation of foreign currency exchange rates, with respect to prices of equipment and raw materials used in manufacturing, could also have a material adverse effect on our business and results of operations. 11 Table of Contents We have been dependent on sales to a limited number of large customers; the loss of any of these customers or a significant reduction in orders from these customers could have a material adverse effect on our revenues and results of operations.
The failure of our suppliers to develop or deliver such equipment on a timely basis due to internal issues, supply chain constraints or government imposed restrictions could have a material adverse effect on our business and results of operations. In addition, the manufacturing equipment necessary to produce advanced photomasks could become prohibitively expensive, which could similarly affect us.
The failure of our suppliers to develop, deliver or service such equipment on a timely basis due to internal issues, supply chain constraints or government imposed restrictions could have a material adverse effect on our business and results of operations. In addition, the manufacturing equipment necessary to produce advanced photomasks could become prohibitively expensive, which could similarly affect us.
Factors that may influence the price of our common stock include, but are not limited to, the following: • loss of any of our key customers or suppliers; • additions or departures of key personnel; • third party sales of common stock; • short interest in our common stock; • our ability to execute our business plan, including but not limited to, our expansion into China; 18 Table of Contents • announcements and consummations of business acquisitions; • operating results that fall below or exceed expectations; • announcements of forecasted earnings or material transactions; • issuances or repurchases of our common stock; • intellectual property disputes; • reputational damage suffered with or without merit; • industry developments; • news about or disclosures made by our competitors or customers; • business combinations, divestitures, or bankruptcies by customers, suppliers, or competitors; • economic and other external factors including (but not limited to) inflation, recessions, natural disasters, military actions, political instability, or social unrest; and • period to period fluctuations in our financial results.
Factors that may influence the price of our common stock include, but are not limited to, the following: • loss of any of our key customers or suppliers; • additions or departures of key personnel; • third party sales of common stock; • short interest in our common stock; • our ability to execute our business plan, including but not limited to, our expansion into China; • announcements and consummations of business acquisitions; • operating results that fall below or exceed expectations; • announcements of forecasted earnings or material transactions; • issuances or repurchases of our common stock; • intellectual property disputes; • reputational damage suffered with or without merit; • industry developments; • news about or disclosures made by our competitors or customers; • business combinations, divestitures, or bankruptcies by customers, suppliers, or competitors; • economic and other external factors including (but not limited to) inflation, recessions, natural disasters, military actions, political instability, or social unrest; and • period to period fluctuations in our financial results.
We cannot provide assurance that there will not be facility closures, restructurings, or forfeitures in the near or long term, nor can we assure that we will not incur significant charges should there be any future facility closures, restructurings or forfeitures. 13 Table of Contents We may not be able to consummate future acquisitions or joint ventures or integrate acquisitions into our business, which could result in unanticipated expenses and losses.
We cannot provide assurance that there will not be facility closures, restructurings, or forfeitures in the near or long term, nor can we assure that we will not incur significant charges should there be any future facility closures, restructurings, or forfeitures. 14 Table of Contents We may not be able to consummate future acquisitions or joint ventures or integrate acquisitions into our business, which could result in unanticipated expenses and losses.
Any of the foregoing could have a material adverse effect on our business, results of operations, and financial position. 12 Table of Contents We operate in a highly competitive environment, and, should we be unable to meet our customers’ requirements for product quality, timeliness of delivery or technical capabilities, our revenue could be adversely affected.
Any of the foregoing could have a material adverse effect on our business, results of operations, and financial position. 13 Table of Contents We operate in a highly competitive environment, and, should we be unable to meet our customers’ requirements for product quality, timeliness of delivery or technical capabilities, our revenue could be adversely affected.
The consolidation of semiconductor manufacturers, or an economic downturn in the semiconductor industry, may increase the likelihood of losing a significant customer and could also have an adverse effect on our financial performance and business prospects. 10 Table of Contents Financing Related Risk Factors Our cash flows from operations and current holdings of cash may not be adequate for our current and long-term needs.
The consolidation of semiconductor manufacturers, or an economic downturn in the semiconductor industry, may increase the likelihood of losing a significant customer and could also have an adverse effect on our financial performance and business prospects. Financing Related Risk Factors Our cash flows from operations and current holdings of cash may not be adequate for our current and long-term needs.
As of the end of 2022, one alternative method, direct-write lithography, has not been proven to be a commercially viable alternative to photomasks, as it is considered to be too slow for high-volume semiconductor wafer production.
As of the end of 2023, one alternative method, direct-write lithography, has not been proven to be a commercially viable alternative to photomasks, as it is considered to be too slow for high-volume semiconductor wafer production.
In addition, in future quarters, our operating results could be below guidance we may provide or the expectations of public market analysts and investors, which could have a material adverse effect on the market price of our common stock. Our substantial non-U.S. operations are subject to additional risks.
In addition, in future quarters, our operating results could be below guidance we may provide or the expectations of public market analysts and investors, which could have a material adverse effect on the market price of our common stock. 15 Table of Contents Our substantial non-U.S. operations are subject to additional risks.
Revenues from our non-U.S. operations were approximately 85%, 84% and 83% of our total revenues in 2022, 2021 and 2020, respectively. We believe that maintaining significant international operations requires us to have, among other things, a local presence in the geographic markets that we supply. This requires significant investments in financial, managerial, operational, and other resources.
Revenues from our non-U.S. operations were approximately 86%, 85% and 84% of our total revenues in 2023, 2022 and 2021, respectively. We believe that maintaining significant international operations requires us to have, among other things, a local presence in the geographic markets that we supply. This requires significant investments in financial, managerial, operational, and other resources.
We cannot offer assurance that we can retain our key managerial and technical employees, or that we can attract similar additional employees in the future. The photomask industry is dependent on the semiconductor and display industries, which are subject to rapid technological change and fluctuations in capacity needs.
We cannot offer assurance that we can retain our key managerial and technical employees, or that we can attract similar additional employees in the future. 12 Table of Contents The photomask industry is dependent on the semiconductor and display industries, which are subject to rapid technological change and fluctuations in capacity needs.
Fluctuations in operating results may result in volatility in the prices of our common stock and financial instruments linked to its value.
Fluctuations in operating results may result in volatility in the prices of our common stock and financial instruments that could be linked to its value.
Our internal controls over financial reporting may not prevent or detect misstatements because of their inherent limitations in detecting human errors, the circumvention or overriding of controls, or fraud; even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.
Ineffective internal controls could impact our business and operating results. Our internal controls over financial reporting may not prevent or detect misstatements because of their inherent limitations in detecting human errors, the circumvention or overriding of controls, or fraud; even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.
In addition, as tensions have, from time to time, escalated between the U.S. and China, we believe there is an enhanced risk that our substantial investments in China may be subject to unforeseen restrictions, which may include expropriation of the investments by the Chinese government.
In addition, as tensions have, from time to time, escalated between the U.S. and China, we believe there is an enhanced risk that our substantial investments in China may be subject to unforeseen restrictions, which may include expropriation of the investments by the Chinese government or restrictions imposed on our operations by the U.S. or other countries.
These assessments could result in the opening of additional facilities or closing of our current facilities. 14 Table of Contents Operations outside of the United States are subject to inherent risks, including: fluctuations in currency exchange rates; unstable political and economic conditions in various countries; changes in economic alliances; unexpected changes in regulatory requirements including import and export regulations; compliance with a variety of burdensome foreign laws and regulations; compliance with anti-bribery and anti-corruption laws (such as the Foreign Corrupt Practices Act); tariffs and other trade barriers; difficulties in staffing and managing international operations; and longer accounts receivable collection cycles.
Operations outside of the United States are subject to inherent risks, including: fluctuations in currency exchange rates; unstable political and economic conditions in various countries; changes in economic alliances; unexpected changes in regulatory requirements including import and export regulations; compliance with a variety of burdensome foreign laws and regulations; compliance with anti-bribery and anti-corruption laws (such as the Foreign Corrupt Practices Act); tariffs and other trade barriers; difficulties in staffing and managing international operations; and longer accounts receivable collection cycles.
The imposition of additional regulations or controls including export controls, duties, tariffs, or changes to bilateral and regional trade agreements, could negatively impact our results of operations. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
The imposition of additional regulations or controls including export controls, duties, tariffs, or changes to bilateral and regional trade agreements, could negatively impact our results of operations.
In the past, competition has led to pressure to reduce prices and the need to invest in advanced manufacturing technology, which we believe contributed to the decrease in the number of independent photomask suppliers. These pressures may continue in the future.
In the past, competition has led to pressure to reduce prices and the need to invest in advanced manufacturing technology, which we believe contributed to the decrease in the number of independent photomask suppliers, several years ago. These pressures may worsen in the future, causing further consolidation.
Our capital expenditure payments for fiscal 2023 are expected to be approximately $130 million, of which approximately $5.3 million was included in Accounts payable and Accrued liabilities on our October 31, 2022, consolidated balance sheet.
Our capital expenditure payments for fiscal 2024 are expected to be approximately $140 million, of which approximately $18.7 million was included in Accounts payable and Accrued liabilities on our October 31, 2023, consolidated balance sheet.
In 2022, we recorded a net gain from changes in foreign currency exchange rates of $27.3 million in our consolidated statement of income, while our net assets decreased by $151.2 million as a result of the translation of foreign currency financial statements to U.S. dollars.
In 2023, we recorded a net gain from changes in foreign currency exchange rates of $2.5 million in our consolidated statement of income, while our net assets increased by $5.6 million as a result of the translation of foreign currency financial statements to U.S. dollars.
The manufacture of leading-edge photomasks requires us to make substantial investments in additional manufacturing capability. We expect that we will be required to continue to make substantial capital expenditures to meet customer requirements and to position us for future growth.
Our operations will continue to require substantial capital expenditures, for which we may be unable to provide or obtain funding. The manufacture of leading-edge photomasks requires us to make substantial investments in additional manufacturing capability. We expect that we will be required to continue to make substantial capital expenditures to meet customer requirements and to position us for future growth.
I n order to enable us to optimize our investments and other resources, we closely monitor the semiconductor and FPD manufacturing markets for indications of geographic movement and, in conjunction with these efforts, continue to assess the locations of our manufacturing facilities.
In order to enable us to optimize our investments and other resources, we closely monitor the semiconductor and FPD manufacturing markets for indications of geographic movement and, in conjunction with these efforts, continue to assess the locations of our manufacturing facilities. These assessments could result in the opening of additional facilities or closing of our current facilities.
These audits may result in assessments of additional taxes that are subsequently resolved with the taxing authorities or through the courts. Currently, we believe there are no outstanding assessments whose resolution would result in a material adverse financial result.
Our tax filings are subject to audits by tax authorities in the various jurisdictions in which we do business. These audits may result in assessments of additional taxes that are subsequently resolved with the taxing authorities or through the courts. Currently, we believe there are no outstanding assessments whose resolution would result in a material adverse financial result.
Accordingly, should our sales volumes decline as a result of a decrease in design releases from our customers or for any other reason, we may have excess or underutilized production capacity which could significantly impact our operating margins or result in write-offs from asset impairments.
Accordingly, should our sales volumes decline as a result of a decrease in design releases from our customers or for any other reason, we may have excess or underutilized production capacity which could significantly impact our operating margins or result in write-offs from asset impairments. 16 Table of Contents Regulatory Related Risk Factors Additional taxes could adversely affect our financial results.
Economic downturns may lead to a decrease in demand for end products whose manufacturing processes involve the use of photomasks, which may result in a reduction in new product design and development by semiconductor or FPD manufacturers and adversely affect our results of operations and cash flows.
Economic downturns may lead to a decrease in demand for end products whose manufacturing processes involve the use of photomasks, which may result in a reduction in new product design and development by semiconductor or FPD manufacturers and adversely affect our results of operations and cash flows. 18 Table of Contents Technology failures or cyber security breaches could have a material adverse effect on our operations.
If we do not accurately forecast our results of operations, execute contracts that do not effectively mitigate our economic exposures to interest rates and currency rates, elect to not apply hedge accounting (when doing so would have mitigated our losses), or fail to comply with the complex accounting requirements for hedging transactions, our results of operations and cash flows could be volatile, as well as negatively impacted.
If we do not accurately forecast our results of operations, execute contracts that do not effectively mitigate our economic exposures to interest rates and currency rates, elect to not apply hedge accounting (when doing so would have mitigated our losses), or fail to comply with the complex accounting requirements for hedging transactions, our results of operations and cash flows could be volatile, as well as negatively impacted. 19 Table of Contents The market price of our common stock is subject to volatility and could fluctuate widely in response to various factors, many of which are beyond our control.
Technology failures or cyber security breaches could have a material adverse effect on our operations. We rely on information technology systems to process, transmit, store, and protect electronic information. For example, a significant portion of the communications between our personnel, customers, and suppliers depends on information technology.
We rely on information technology systems to process, transmit, store, and protect electronic information. For example, a significant portion of the communications between our personnel, customers, and suppliers depends on information technology.
Investment Related Risk Factors Joint ventures may not operate according to their business plans if our partners fail to fulfill their obligations, which may adversely affect our results of operations and compel us to dedicate additional resources to these joint ventures. The nature of a joint venture requires us to share control in certain areas with unaffiliated third parties.
Investment Related Risk Factors Joint ventures may not operate according to their business plans if our partners fail to fulfill their obligations, which may adversely affect our results of operations and compel us to dedicate additional resources to these joint ventures.
Therefore, we cannot provide assurance that additional sources of financing would be available to us on commercially favorable terms, if at all, should our cash requirements exceed our existing cash, operating cash flows, and cash available under our credit agreements.
Due to conditions in the credit market, some financing instruments used by us in the past may not be available. Therefore, we cannot provide assurance that additional sources of financing would be available to us on commercially favorable terms, if at all, should our cash requirements exceed our existing cash, and operating cash flows.
During 2022, 2021 and 2020, our two largest customers accounted for 25%, 29% and 29%, respectively, of our revenue. Our five largest customers accounted for 45%, 43% and 45% of our revenue in 2022, 2021 and 2020, respectively .
Our five largest customers accounted for an aggregate of 51%, 45% and 43% of our revenue in 2023, 2022 and 2021, respectively.
If we violate environmental, health or safety laws or regulations, in addition to being required to correct such violations, we can be held liable in administrative, civil, or criminal proceedings, and substantial fines and other sanctions could be imposed that could disrupt or limit our operations.
Changes in these laws and regulations may have a material adverse effect on our financial position and results of operations, and inadequate compliance with their requirements could give rise to significant liabilities. 17 Table of Contents If we violate environmental, health or safety laws or regulations, in addition to being required to correct such violations, we can be held liable in administrative, civil, or criminal proceedings, and substantial fines and other sanctions could be imposed that could disrupt or limit our operations.
We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. 11 Table of Contents Industry and Competitive Related Risk Factors Our business depends on managerial and technical personnel, who are in great demand, and our inability to attract and retain qualified employees could adversely affect our business and results of operations.
Industry and Competitive Related Risk Factors Our business depends on managerial and technical personnel, who are in great demand, and our inability to attract and retain qualified employees could adversely affect our business and results of operations.
Additional information may arise in the future concerning the nature or extent of our liability with respect to identified sites and additional sites that may be identified, for which we are alleged to be liable. 16 Table of Contents General Risk Factors Ineffective internal controls could impact our business and operating results.
Additional information may arise in the future concerning the nature or extent of our liability with respect to identified sites and additional sites that may be identified, for which we are alleged to be liable. General Risk Factors We could be negatively impacted by Environmental, Social and Governance (ESG), climate change and other sustainability-related matters .
If our joint venture partner does not fulfill its obligations, the affected joint venture may not be able to operate in accordance with its business plan. Under such a scenario, our results of operations may be adversely affected, and we may be compelled to increase the level of our resources devoted to the joint venture.
Under such a scenario, among other possible consequences, our results of operations may be adversely affected, we may be compelled to increase the level of our resources devoted to the joint venture or our company-wide business plan may need to be adjusted.
Although we have technology and information security processes and disaster recovery plans in place to mitigate our risks to these vulnerabilities, these measures may not be adequate to ensure that our operations will not be disrupted, should such an event occur. 17 Table of Contents The General Data Protection Regulation (“GDPR”), which went into effect in the European Union (EU) on May 25, 2018, applies to the collection, use, retention, security, processing, and transfer of personally identifiable information of residents of E.U. countries.
Although we have technology and information security processes and disaster recovery plans in place to mitigate our risks to these vulnerabilities, these measures may not be adequate to ensure that our operations will not be disrupted, should such an event occur.
However, we cannot offer assurances that unasserted or potential future assessments would not have a material adverse effect on our financial condition or results of operations. 15 Table of Contents On August 16, 2022, the Inflation Reduction Act (“IRA”) was enacted in the U.S.
However, we cannot offer assurances that unasserted or potential future assessments would not have a material adverse effect on our financial condition or results of operations. Our products and technology could be subject to U.S. export control laws and the export control laws of the foreign jurisdictions where we operate.
Also, differing views among joint venture participants may result in delayed decisions, or failures to agree on major issues. If such differences caused a joint venture to deviate from its business plan, our results of operations could be adversely affected. Our operations in China expose us to substantial risks.
If such differences caused a joint venture to deviate from its business plan, or put , change of control or other exit or termination provisions triggered, our results of operations could be materially adversely affected. Our operations in China expose us to substantial risks. In 2019, we commenced operations at our two manufacturing facilities in China.
Removed
We have been dependent on sales to a limited number of large customers; the loss of any of these customers or a significant reduction in orders from these customers could have a material adverse effect on our revenues and results of operations. Historically, we have sold a significant proportion of photomasks to a limited number of IC and FPD manufacturers.
Added
Historically, we have sold a significant proportion of photomasks to a limited number of IC and FPD manufacturers. During 2023, 2022 and 2021, our two largest customers accounted for an aggregate of 27%, 25% and 29%, respectively, of our revenue.
Removed
Due to conditions in the credit markets and covenant restrictions on our existing debt, some financing instruments used by us in the past may not be available.
Added
The nature of a joint venture requires us to share control in certain areas with unaffiliated third parties and it is always possible that the alignment that brought us and our joint venture partner together may change over time, whether due to change in business strategy, change in control, change in market conditions or applicable laws, or other events.
Removed
Our credit facility restricts our business activities, limits our ability to obtain additional financing or pay cash dividends, and may obligate us to repay debt before its maturity. Financial covenants related to our credit facility, which expires in September 2023, include a total leverage ratio, a minimum interest coverage ratio, and minimum unrestricted cash balances.
Added
Differing views among joint venture participants may result in delayed decisions or failures to agree on major issues.
Removed
Our credit facility may also limit our flexibility in planning for, or reacting to, changes in our business and industry, which may place us at a disadvantage with our competitors. We are also subject to covenants that limit our financing flexibility, such as a limit on the amount we can spend to repurchase shares of our common stock.
Added
If our joint venture partner does not fulfill its obligations or that alignment changes , the affected joint venture may not be able to operate in accordance with its business plan or the parties may seek to exit the joint venture under the terms of the joint venture agreement or otherwise.
Removed
Existing covenant restrictions, and noncompliance with covenants or cross-default provisions could limit our ability to draw down on current facilities or our ability to obtain additional debt financing, and limit the amounts of dividends, distributions, and redemptions we can pay on our common stock to an annual amount of $50 million.
Added
In recent years, there has been an increased focus from stakeholders on environmental, social, and governance matters, including greenhouse gas emissions and climate-related risks, sustainability, renewable energy, water stewardship, waste management, diversity, equality and inclusion, responsible sourcing and supply chain, human rights, and social responsibility.
Removed
Should we be unable to meet one or more of these covenants, our lenders may require us to repay any outstanding balance prior to the expiration date of our agreements. Our ability to comply with the financial and other covenants in our credit agreements may be affected by deteriorating economic or business conditions, or other events.
Added
Evolving stakeholder expectations and our efforts to manage these issues, report on them, and accomplish our goals present numerous operational, regulatory, reputational, financial, legal, and other risks, any of which could have a material adverse impact, including on our reputation and stock price, reputational harm, including damage to our relationships with customers, suppliers, investors, governments, or other stakeholders, adverse impacts on our ability to manufacture and sell products and maintain our market share, the success of our collaborations with third parties, increased risk of litigation, investigations, or regulatory enforcement action, unfavorable environmental, social, and governance ratings or investor sentiment, diversion of resources and increased costs to control, assess, and report on environmental, social, and governance metrics.
Removed
We cannot assure that, under such circumstances, additional sources of financing would be available to fund operating requirements or repay any long-term borrowings, to avoid default. Our operations will continue to require substantial capital expenditures, for which we may be unable to provide or obtain funding.
Added
The General Data Protection Regulation (“GDPR”), which went into effect in the European Union (EU) on May 25, 2018, applies to the collection, use, retention, security, processing, and transfer of personally identifiable information of residents of E.U. countries. The GDPR created a range of new compliance obligations and imposes significant fines and sanctions for violations.
Removed
Servicing our debt requires a significant amount of cash, and we may not generate sufficient cash flows from our operations to pay our indebtedness. Our ability to make scheduled payments of debt principal and interest, or to refinance our indebtedness, depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control.
Removed
Our business may not continue to generate sufficient cash flows from operations to fund operations, service our debt and make necessary capital expenditures.
Removed
If we are unable to generate such cash flows, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt, or obtaining additional equity capital on terms that may be onerous or highly dilutive.
Removed
Our ability to refinance our indebtedness would depend upon the conditions in the capital markets and our financial condition at such time.
Removed
In 2019, we commenced operations at our two manufacturing facilities in China.
Removed
Regulatory Related Risk Factors COVID-19 vaccination mandates could adversely affect our ability to attract and maintain employees. In response to COVID-19, we implemented significant changes that we determined were in the best interest of our employees and which complied with government orders in all the states and countries where we operate.
Removed
For U.S. employees we require vaccination but may change this policy at any time. Additional taxes could adversely affect our financial results. Our tax filings are subject to audits by tax authorities in the various jurisdictions in which we do business.
Removed
Among other provisions, the IRA included a new fifteen percent Corporate Alternative Minimum Tax (“CAMT”) and a one percent excise tax on corporate share repurchases. The CAMT, which we are not currently subject to, is effective for tax years beginning on or after January 1, 2023.
Removed
The one percent excise tax on share repurchases applies to shares repurchased after December 31, 2022, and excludes repurchases under $1 million. We do not anticipate that the IRA will have a material effect on our financial performance.
Removed
Our products and technology could be subject to U.S. export control laws and the export control laws of the foreign jurisdictions where we operate.
Removed
Changes in these laws and regulations may have a material adverse effect on our financial position and results of operations, and inadequate compliance with their requirements could give rise to significant liabilities.
Removed
The GDPR created a range of new compliance obligations and imposes significant fines and sanctions for violations.
Removed
The market price of our common stock is subject to volatility and could fluctuate widely in response to various factors, many of which are beyond our control.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed1 unchanged
Biggest changeHowever, we lease the related land at these sites. We believe our facilities, with planned expansions, are adequate to support our current and near-term requirements. 19 Table of Contents
Biggest changeHowever, we lease the related land at these sites. We believe our facilities, with planned expansions, are adequate to support our current and near-term requirements.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+2 added−1 removed0 unchanged
Biggest changeTotal Number of Shares Purchased Average Price Paid Per share Total Number of Shares Purchased as Part of Publicly Announced Program Dollar Value of Shares That May Yet Be Purchased (in millions) August 1, 2022 – August 28, 2022 0 $ 0.00 0 $ 31.7 August 29, 2022 – September 25, 2022 0 $ 0.00 0 $ 31.7 September 26, 2022 – October 31, 2022 508 $ 16.16 0 $ 31.7 Total 508 0 Securities authorized for issuance under equity compensation plans The information regarding our equity compensation required to be disclosed by Item 201(d) of Regulation S-K is incorporated by reference from the Photronics, Inc. 2023 Definitive Proxy Statement in Item 12 of Part III of this report.
Biggest changeAll shares repurchased under the program have been retired. Securities authorized for issuance under equity compensation plans The information regarding our equity compensation required to be disclosed by Item 201(d) of Regulation S-K is incorporated by reference from the Photronics, Inc. 2024 Definitive Proxy Statement in Item 12 of Part III of this report.
The 2023 Definitive Proxy Statement will be filed within 120 days after our fiscal year ended October 31, 2022.
The 2024 Definitive Proxy Statement will be filed within 120 days after our fiscal year ended October 31, 2023.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the NASDAQ Global Select Market (“NASDAQ”) under the symbol PLAB. On December 15, 2022, the closing sale price of our common stock, per the NASDAQ Global Select Market, was $17.35.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the NASDAQ Global Select Market ("NASDAQ") under the symbol PLAB. On December 14, 2023, the closing sale price of our common stock, per the NASDAQ Global Select Market, was $29.09.
Based on available information, we have 238 registered shareholders. To date, we have not paid any cash dividends on Photronics shares, and, for the foreseeable future, we anticipate that earnings will continue to be retained for use in our business. Further, our credit agreement limits the amount that can be paid as cash dividends on Photronics stock.
Based on available information, we have 229 registered shareholders. To date, we have not paid any cash dividends on Photronics shares, and, for the foreseeable future, we anticipate that earnings will continue to be retained for use in our business.
In September 2020, the Company’s board of directors authorized the repurchase of up to $100 million of its common stock, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Act. Share repurchases under this authorization commenced on September 16, 2020.
In September 2020, the Company’s Board of Directors authorized the repurchase of up to $100 million of its common stock, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Act. The most recent 10b5-1 plan expired on September 15, 2022, and has not been renewed. Share repurchases under this authorization commenced on September 16, 2020.
In 2022, we repurchased 0.2 million shares at a cost of $2.5 million (an average of $13.43 per share) and, since the program’s inception, we repurchased 5.8 million shares at a cost of $68.3 million (an average of $11.70 per share). All shares repurchased under the program have been retired.
In 2022, we repurchased 0.2 million shares at a cost of $2.5 million (an average of $13.43 per share) and, since the program’s inception, we have repurchased 5.8 million shares at a cost of $68.3 million (an average of $11.70 per share). There is $31.7 million remaining under the Board of Director authorization.
Removed
The table below presents share repurchase activity during the fourth quarter of 2022 as part of the repurchase program described above as well as shares repurchased in connection with the payment of withholding taxes related to the vesting of restricted stock awards.
Added
The repurchase authorization by the Board of Directors has no expiration date, does not obligate us to acquire any common stock, and is subject to market conditions. In 2023, we did not repurchase any further shares as part of this program.
Added
The 2024 Definitive Proxy Statement will be filed within 120 days after our fiscal year ended October 31, 2023. Stock Price Performance The information regarding our stock price performance required to be disclosed by Item 201(e) of Regulation S-K is incorporated by reference from the Photronics, Inc. 2024 Definitive Proxy Statement in Item 12 of Part III of this report.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

63 edited+18 added−35 removed27 unchanged
Biggest changeFY22 FY21 Foreign currency transactions impact, net $ 27.3 $ 8.0 Interest expense, net (1.9 ) (1.7 ) Interest income and other income, net 1.7 1.2 Total other income (expense) $ 27.2 $ 7.5 Non-operating income (expense) increased $19.7 million in full year FY22, compared with full year FY21, primarily due to foreign currency transactions, driven by favorable movements of the South Korean won, the New Taiwan dollar, and the Singapore dollar offsetting unfavorable movements of the RMB against the U.S. dollar.
Biggest changeYTD FY23 YTD FY22 Foreign currency transactions impact, net $ 2.5 $ 27.3 Interest expense, net (0.4 ) (1.9 ) Interest income and other income, net 14.8 1.7 Non-operating income (expense), net $ 16.9 $ 27.2 Non-operating income (expense) decreased $10.3 million in full year FY23, compared with full year FY22, due to foreign currency transactions, driven by unfavorable movements of the South Korean won, the New Taiwan dollar, and the Singapore dollar offsetting favorable movements of the RMB against the U.S. dollar, partially offset by increased interest income in the current year resulting from higher average cash, cash equivalents and short-term investments balances in FY23, compared with FY22 and lower interest expense, net of subsidies, due to receiving a lower amount of interest subsidies on our China-based debt in FY23, the effect of which was partially mitigated by lower average interest-bearing debt balance in FY23 than in the prior year.
In order to remain competitive, we will be required to continually anticipate, respond to, and utilize changing technologies. In particular, we believe that, as semiconductor geometries continue to become smaller, and display designs become larger or otherwise more advanced, we will be required to manufacture even more complex optically-enhanced reticles, including optical proximity correction and phase-shift photomasks.
In order to remain competitive, we will be required to continually anticipate, respond to, and utilize changing technologies. In particular, we believe that, as semiconductor geometries continue to become smaller, and display designs become larger or otherwise more advanced, we will be required to manufacture even more complex optically-enhanced reticles, including optical proximity correction, phase-shift and EUV photomasks.
Significant judgement would also be employed when events or changes in circumstances indicate that the carrying amount of a group of assets may not be recoverable, as the recoverability assessment requires us to forecast future cash flows related to these assets; this evaluation can significantly impact our gross margin and operating expense. • Leases : Significant judgement is applied in the determination of whether an arrangement is, or contains, a lease and, in certain instances, whether the lease should be classified as an operating lease or a finance lease, which can impact the timing and classification of lease costs. • Contingencies : We are subject to the possibility of losses from various contingencies.
Significant judgment would also be employed when events or changes in circumstances indicate that the carrying amount of a group of assets may not be recoverable, as the recoverability assessment requires us to forecast future cash flows related to these assets; this evaluation can significantly impact our gross margin and operating expense. • Leases : Significant judgment is applied in the determination of whether an arrangement is, or contains, a lease and, in certain instances, whether the lease should be classified as an operating lease or a finance lease, which can impact the timing and classification of lease costs. • Contingencies : We are subject to the possibility of losses from various contingencies.
Other significant judgments include the estimation of the point in the manufacturing process at which we are entitled to recognize revenue, as well as the measurement of our progress towards satisfying our performance obligations, which determine the amount of revenue we are entitled to recognize. 32 Table of Contents • Property, Plant and Equipment : Significant judgment and assumptions are employed when we establish the estimated useful lives of asset classes, and determine when depreciation should commence for individual assets, as these determinations can significantly impact our gross margin and research and development expenses.
Other significant judgments include the estimation of the point in the manufacturing process at which we are entitled to recognize revenue, as well as the measurement of our progress towards satisfying our performance obligations, which determine the amount of revenue we are entitled to recognize. 33 Table of Contents • Property, Plant and Equipment : Significant judgment and assumptions are employed when we establish the estimated useful lives of asset classes, and determine when depreciation should commence for individual assets, as these determinations can significantly impact our gross margin and research and development expenses.
Our selling cycle is tightly interwoven with the development and release of new semiconductor and display designs and applications, particularly as they relate to the semiconductor industry’s migration to more advanced product innovation, design methodologies, and fabrication processes. The demand for photomasks primarily depends on design activity rather than sales volumes from products manufactured using photomask technologies.
Our selling cycle is tightly interwoven with the development and release of new semiconductor and display designs and applications, particularly as they relate to the semiconductor industry's migration to more advanced product innovation, design methodologies, and fabrication processes. The demand for photomasks primarily depends on design activity rather than sales volumes from products manufactured using semiconductor manufacturing technologies.
As of the end of 2022, one alternative method, direct-write lithography, has not been proven to be a commercially viable alternative to photomasks, as it is considered to be too slow for high-volume semiconductor wafer production, and we have not experienced a significant loss of revenue as a result of this or other alternative semiconductor design methodologies.
As of the end of 2023, one alternative method, direct-write lithography, has not been proven to be a commercially viable alternative to photomasks, as it is considered to be too slow for high-volume semiconductor wafer production, and we have not experienced a significant loss of revenue as a result of this or other alternative semiconductor design methodologies.
We expect advanced-generation designs to continue to move to production throughout fiscal 2023, and we believe we are well positioned to service an increasing volume of this business as a result of our investments in manufacturing processes and technology in the regions where our customers are located. 22 Table of Contents The photomask industry has been, and is expected to continue to be characterized by technological change and evolving industry standards.
We expect advanced-generation designs to continue to move to production throughout fiscal 2024, and we believe we are well positioned to service an increasing volume of this business as a result of our investments in manufacturing processes and technology in the regions where our customers are located. 23 Table of Contents The photomask industry has been, and is expected to continue to be characterized by technological change and evolving industry standards.
Our future results of operations and the other forward-looking statements contained in this filing and in our Full Year and Fourth Quarter Fiscal 2022 Results earnings call and presentation involve a number of risks and uncertainties, some of which are discussed in Part I, Item 1A of this report.
Our future results of operations and the other forward-looking statements contained in this filing and in our “ Full Year and Fourth Quarter Fiscal 2023 Results ” earnings call and presentation involve a number of risks and uncertainties, some of which are discussed in Part I, Item 1A of this report.
We believe the following to be the more critical areas that require judgment when applying our accounting policies: • Revenue Recognition : The a pplication of GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates, including t he determination of whether we should recognize revenues as we perform or upon the completion of our performance, as these determinations impact the timing and amount of our reported revenues and net income.
We believe the following to be the more critical areas that require judgment when applying our accounting policies: • Revenue Recognition : The application of GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates, including the determination of whether we should recognize revenues as we perform or upon the completion of our performance, as these determinations impact the timing and amount of our reported revenues and net income.
Please refer to Part II, Item 7 of our 2021 Form 10-K for comparative discussion of our fiscal years ended October 31, 2021, and October 31, 2020. The tables in this item may not foot due to rounding. 25 Table of Contents Revenue Our quarterly revenues can be affected by the seasonal purchasing practices of our customers.
Please refer to Part II, Item 7 of our 2022 Form 10-K for comparative discussion of our fiscal years ended October 31, 2022, and October 31, 2021. The tables in this item may not foot due to rounding. Revenue Our quarterly revenues can be affected by the seasonal purchasing practices of our customers.
Included in the balance of unrecognized tax benefits as of October 31, 2022 and October 31, 2021, are $5.6 million and $3.8 million respectively, recorded in Other liabilities in the consolidated balance sheets that, if recognized, would impact the effective tax rates.
Included in the balance of unrecognized tax benefits as of October 31, 2023 and October 31, 2022, are $8.9 million and $5.6 million respectively, recorded in Other liabilities in the consolidated balance sheets that, if recognized, would impact the effective tax rates.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview We sell substantially all of our photomasks to semiconductor designers and manufacturers, and manufacturers of FPDs. Photomask technology is also being applied to the fabrication of other higher-performance electronic products such as photonics, micro-electronic mechanical systems, and certain nanotechnology applications.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview We sell substantially all of our photomasks to semiconductor designers and manufacturers, and manufacturers of FPDs. Photomask technology is also being applied to the fabrication of other higher-performance electronic products such as virtual reality/augmented reality advanced IC packages, photonics, micro-electronic mechanical systems, and certain nanotechnology applications.
The effective income tax rate decreased in Q4 FY22, compared with Q3 FY22, primarily due to changes in the period-to-period mix of jurisdictional earnings.
The effective income tax rate decreased slightly in Q4 FY23, compared with Q3 FY23, primarily due to changes in the period-to-period mix of jurisdictional earnings.
The following tables present changes in revenue disaggregated by product type and geographic origin, in Q4 FY22 and FY22 from revenue in prior reporting periods.
The following tables present changes in revenue disaggregated by product type and geographic origin, in Q4 FY23 and YTD FY23 from revenue in prior reporting periods.
At these geometries, we can produce full lines of photomasks, and there is no significant technology employed by our competitors that is not available to us.
At these geometries and various high-end nodes, we can produce full lines of photomasks, and there is no significant technology employed by our competitors that is not available to us.
Cash Flows Year Ended October 31, 2022 October 31, 2021 October 31, 2020 Net cash provided by operating activities $ 275.2 $ 150.8 $ 143.0 Net cash used in investing activities $ (147.8 ) $ (103.5 ) $ (65.7 ) Net cash used in financing activities $ (38.7 ) $ (53.9 ) $ (16.0 ) Operating Activities : Net cash provided by operating activities reflects net income adjusted for certain non-cash items, including depreciation and amortization, share-based compensation, and the effects of changes in operating assets and liabilities.
Cash Flows Year Ended October 31, 2023 October 31, 2022 October 31, 2021 Net cash provided by operating activities $ 302.2 $ 275.2 $ 150.8 Net cash used in investing activities $ (101.5 ) $ (147.8 ) $ (103.5 ) Net cash used in financing activities $ (18.5 ) $ (38.7 ) $ (53.9 ) Operating Activities : Net cash provided by operating activities reflects net income adjusted for certain non-cash items, including depreciation and amortization, share-based compensation, and the effects of changes in operating assets and liabilities.
Decreased depreciation expense and outsourced manufacturing costs, which were partially offset by increased equipment maintenance costs, were the primary contributors to the overall decrease.
Increased depreciation expense, utilities expenses, and outsourced manufacturing costs, which were partially offset by decreased equipment maintenance costs, were the primary contributors to the overall increase.
Labor costs increased 5.2%, or 100 basis points as a percentage of revenue, due to increased costs in some locations. Equipment and other overhead costs decreased 5.3%, or 30 basis points as a percentage of revenue, with lower outsourced manufacturing costs, partially offset by increased equipment maintenance costs, most significantly contributing to the net cost decrease.
Labor costs increased 4.5%, or 30 basis points as a percentage of revenue, due to increased costs in some locations. Equipment and other overhead costs increased 3.0%, or 41 basis points as a percentage of revenue, with increased equipment maintenance costs, partially offset by lower outsourced manufacturing costs, most significantly contributing to the net cost increase.
Three Months Ended October 31, 2022 July 31, 2022 October 31, 2021 Revenue 100.0 % 100.0 % 100.0 % Cost of goods sold 61.8 61.9 71.3 Gross profit 38.2 38.1 28.7 Selling, general and administrative expenses 7.5 7.3 7.9 Research and development expenses 1.9 1.9 2.3 Operating income 28.8 29.0 18.5 Non-operating income (expense), net 5.1 1.7 2.1 Income before income tax provision 33.9 30.6 20.6 Income tax provision 7.6 8.3 4.8 Net income 26.3 22.4 15.8 Net income attributable to noncontrolling interests 8.7 8.2 4.9 Net income attributable to Photronics, Inc. shareholders 17.6 % 14.2 % 10.9 % Year Ended October 31, 2022 October 31, 2021 October 31, 2020 Revenue 100.0 % 100.0 % 100.0 % Cost of goods sold 64.3 74.8 77.9 Gross profit 35.7 25.2 22.1 Selling, general and administrative expenses 7.8 8.7 8.8 Research and development expenses 2.2 2.8 2.8 Other operating income, net 0.0 0.5 - Operating income 25.7 14.2 10.5 Non-operating income (expense), net 3.3 1.1 (0.4 ) Income before income tax provision 29.0 15.4 10.1 Income tax provision 7.3 3.5 3.5 Net income 21.7 11.9 6.6 Net income attributable to noncontrolling interests 7.3 3.5 1.1 Net income attributable to Photronics, Inc. shareholders 14.4 % 8.4 % 5.5 % Note: All the following tabular comparisons, unless otherwise indicated, are for the three months ended October 31, 2022 (Q4 FY22), July 31, 2022 (Q3 FY22) and October 31, 2021 (Q4 FY21), and for the fiscal years ended October 31, 2022 (FY22) and October 31, 2021 (FY21).
Three Months Ended October 31, 2023 July 30, 2023 October 31, 2022 Revenue 100.0 % 100.0 % 100.0 % Cost of goods sold 62.7 61.3 61.8 Gross profit 37.3 38.7 38.2 Selling, general and administrative expenses 7.4 8.0 7.5 Research and development expenses 1.5 1.6 1.9 Operating income 28.5 % 29.1 % 28.8 % Non-operating income (expense), net 8.2 -0.4 5.1 Income before income tax provision 36.7 28.7 33.9 Income tax provision 8.9 7.2 7.6 Net income 27.8 21.5 26.3 Net income attributable to noncontrolling interests 8.2 9.5 8.7 Net income attributable to Photronics, Inc. shareholders 19.6 % 12.0 % 17.6 % Year Ended October 31, 2023 October 31, 2022 October 31, 2021 Revenue 100.0 % 100.0 % 100.0 % Cost of goods sold 62.3 64.3 74.8 Gross profit 37.7 35.7 25.2 Selling, general and administrative expenses 7.8 7.8 8.7 Research and development expenses 1.5 2.2 2.8 Other operating income, net 0.0 0.0 0.5 Operating income 28.4 % 25.7 % 14.2 % Non-operating income (expense), net 1.9 3.3 1.1 Income before income tax provision 30.3 29.0 15.4 Income tax provision 7.9 7.3 3.5 Net income 22.4 21.7 11.9 Net income attributable to noncontrolling interests 8.3 7.3 3.5 Net income attributable to Photronics, Inc. shareholders 14.1 % 14.4 % 8.4 % 25 Table of Contents Note: All the following tabular comparisons, unless otherwise indicated, are for the three months ended October 31, 2023 (Q4 FY23), July 30, 2023 (Q3 FY23) and October 31, 2022 (Q4 FY22), and for the fiscal years ended October 31, 2023 (YTD FY23) and October 31, 2022 (YTD FY22).
Although payment timing could vary, primarily as a result of the timing of tool delivery, installation and testing, we currently estimate that we will fund $90.0 million of our total $153.1 million committed and recognized obligations for capital expenditures over the next twelve months.
Although payment timing could vary, primarily as a result of the timing of tool delivery, installation and testing, we currently estimate that we will fund $88.6 million of our total $125.5 million committed and recognized obligations for capital expenditures over the next twelve months.
Please refer to Notes 8 and 13 to our consolidated financial statements in Part II, Item 8 for additional information on our lease liabilities and unrecognized commitments, respectively. 30 Table of Contents In September 2020, the Company’s board of directors authorized the repurchase of up to $100 million of its common stock, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Act.
Please refer to Notes 10 and 15 to our consolidated financial statements for additional information on our lease liabilities and unrecognized commitments, respectively. In September 2020, the Company’s board of directors authorized the repurchase of up to $100 million of its common stock, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Act.
Research and Development Expenses Research and development expenses, which primarily consist of development and qualification efforts related to process technologies for high-end IC and FPD applications, decreased $0.1 million to $4.0 million in Q4 FY22, from Q3 FY22; the decrease was primarily caused by a decline in development activities in the U.S., which were partially offset by increased activities in Asia.
Research and Development Expenses Research and development expenses, which primarily consist of development and qualification efforts related to process technologies for high-end IC and FPD applications, decreased $0.1 million to $3.4 million in Q4 FY23, from Q3 FY23; the decrease was primarily caused by a decline in development activities in Asia.
Net cash provided by operating activities increased by $124.4 million in FY22, compared with FY21, primarily due to increased net income and net cash-favorable changes in working capital, predominantly in Asia.
Net cash provided by operating activities increased by $27.0 million in FY23, compared with FY22, primarily due to increased net income and net cash-favorable changes in working capital, predominantly in Asia.
Liquidity and Capital Resources Cash and cash equivalents was $319.7 million and $276.7 million as of October 31, 2022, and October 31, 2021, respectively. As of the most recent balance sheet date, total cash and cash equivalents included $299.7 million held by foreign subsidiaries.
Liquidity and Capital Resources Cash and cash equivalents was $499.3 million and $319.7 million as of October 31, 2023, and October 31, 2022, respectively. As of the most recent balance sheet date, total cash and cash equivalents included $473.2 million held by foreign subsidiaries.
Selling, General and Administrative Expenses Selling, general and administrative expenses were $15.7 million in Q4 FY22, compared with $16.0 million in Q3 FY22, and $14.3 million in Q4 FY21 .
Selling, General and Administrative Expenses Selling, general and administrative expenses were $16.7 million in Q4 FY23, compared with $18.0 million in Q3 FY23, and $15.7 million in Q4 FY22.
Income Tax Provision Q4 FY22 Q3 FY22 Q4 FY21 Income tax provision $ 16.1 $ 18.1 $ 8.7 Effective income tax rate 22.5 % 26.9 % 23.3 % The effective income tax rates are sensitive to the jurisdictional mix of our earnings, due, in part, to the non-recognition of tax benefits on losses in jurisdictions with valuation allowances where the tax benefits of losses are not available.
Q4 FY23 Q3 FY23 Q4 FY22 Income tax provision $ 20.3 $ 16.1 $ 16.1 Effective income tax rate 24.3 % 25.0 % 22.5 % The effective income tax rates are sensitive to the jurisdictional mix of our earnings, due, in part, to the non-recognition of tax benefits on losses in jurisdictions with valuation allowances where the tax benefits of losses are not available.
Research and development expenses in Q4 FY22 decreased by $0.1 million in Q4 FY22 from Q4 FY21 as a result of decreased development activities in Asia moderately exceeding increased development activities in the U.S.
Research and development expenses in Q4 FY23 decreased by $0.7 million from Q4 FY22 as a result of decreased development activities in the U.S. and Asia.
As of October 31, 2022, Photronics and DNP each had net investments in this joint venture of approximately $93.3 million.
As of October 31, 2023, Photronics and DNP each had net investments in this joint venture of approximately $117.1 million.
Non-Operating Income (Expense) Q4 FY22 Q3 FY22 Q4 FY21 Foreign currency transactions impact, net $ 10.4 $ 3.9 $ 4.3 Interest expense, net (0.4 ) (0.6 ) (1.0 ) Interest income and other income, net 0.8 0.4 0.5 Total other income (expense) $ 10.8 $ 3.6 $ 3.8 Non-operating income (expense) increased in Q4 FY22 from Q3 FY22 by $7.2 million, and from Q4 FY21 by $7.0 million, primarily due to foreign currency impacts, driven by favorable movements of the South Korean won, the New Taiwan dollar, and the Singapore dollar against the U.S. dollar offsetting unfavorable movements of the RMB against the U.S. dollar.
On a year-to-date basis, research and development expenses decreased $4.7 million, to $13.7 million, primarily due to decreased development activities in the U.S. 28 Table of Contents Non-Operating Income (Expense) Q4 FY23 Q3 FY23 Q4 FY22 Foreign currency transactions impact, net $ 13.2 $ (4.5 ) $ 10.4 Interest expense, net (0.1 ) (0.1 ) (0.4 ) Interest income and other income, net 5.6 3.7 0.8 Non-operating income (expense), net $ 18.7 $ (0.9 ) $ 10.8 Non-operating income (expense) increased in Q4 FY23 from Q3 FY23 by $19.6 million, primarily due to foreign currency impacts, driven by favorable movements of the South Korean won, the New Taiwan dollar, RMB dollar against the U.S. dollar offsetting unfavorable movements of the Singapore dollar against the U.S. dollar.
Nonetheless, we intend to continue to make the required investments to support the technological demands of our customers that we believe will position us for future growth. In support of this effort, we expect capital expenditure payments to be approximately $130 million in fiscal year 2023.
Nonetheless, we intend to continue to make the required investments to support the technological requirements of our customers that we believe will continue to enable our growth. In support of this effort, we expect capital expenditure payments to be approximately $140 million in fiscal year 2024.
Net Income Attributable to Noncontrolling Interests Net income attributable to noncontrolling interests was $18.2 million in Q4 FY22, compared with $18.0 million in Q3 FY22; the increase was the result of a net increase in the net incomes of our joint venture operations.
Net Income Attributable to Noncontrolling Interests Net income attributable to noncontrolling interests was $18.5 million in Q4 FY23, compared with $21.3 million in Q3 FY23; the decrease was the result of a net decrease in the net incomes of our joint venture operations.
Should our revenue decrease as a result of a decrease in design releases from our customers, we may have excess or underutilized production capacity, which could significantly impact our operating margins, or result in write-offs from asset impairments.
Should our revenue decrease as a result of a decrease in design releases from our customers, we may have excess or underutilized production capacity, which could significantly impact our operating margins, or result in write-offs from asset impairments. 24 Table of Contents Results of Operations The following tables present selected operating information expressed as a percentage of revenue.
Please refer to Notes 1, 11, and 13 to our consolidated financial statements in Part II, Item 8 for additional information related to these critical accounting estimates. Effect of Recent Accounting Pronouncements See Note 20 to our consolidated financial statements in Part II, Item 8 of this report for recent accounting pronouncements that may affect our financial reporting.
Please refer to Notes 1, 10, 13, and 15 to our consolidated financial statements for additional information related to these critical accounting estimates. Effect of Recent Accounting Pronouncements See Note 22 to our consolidated financial statements of this report for recent accounting pronouncements that may affect our financial reporting. 34 Table of Contents
As of October 31, 2022, we had outstanding capital commitments of approximately $147.8 million and recognized liabilities related to capital equipment purchases of approximately $5.3 million.
As of October 31, 2023, we had outstanding capital commitments of approximately $106.8 million and recognized liabilities related to capital equipment purchases of approximately $18.7 million.
Net income attributable to noncontrolling interests increased by $9.4 million in Q4 FY22 from Q4 FY21, and by $37.1 million in FY22 from FY21, as a result of increased net income at both our Taiwan-based and China-based IC facilities.
Net income attributable to noncontrolling interests increased by $0.3 million in Q4 FY23 from Q4 FY22, and by $13.7 million in YTD FY23 from YTD FY22, as a result of increased net income at both our Taiwan-based and China-based IC facilities.
Selling, general and administrative expenses increased $6.5 million to $64.0 million in FY22, from $57.5 million in FY21, primarily due to an increase in compensation and related expenses, professional fees, and travel expenses in the respective amounts of $4.6 million, $0.7 million, and $0.6 million.
Selling, general and administrative expenses increased $5.5 million to $69.5 million in YTD FY23, from $64.0 million in YTD FY22, primarily due to an increase in compensation and related expenses, professional fees, travel and entertainment and insurance expenses in the respective amounts of $4.1 million, $1.2 million, $0.4 million and $0.3 million.
FY22 FY21 Percent Change FY22 from FY21 Gross profit $ 294.2 $ 167.0 76.1 % Gross margin 35.7 % 25.2 % Gross margin increased by 10.5 percentage points in FY22, from FY21, primarily as a result of the increase in revenue from the prior year period, offset somewhat by the following net cost increases: Material costs increased 7.9% from the prior year period, but decreased 380 basis points as a percentage of revenue.
Percent YTD FY23 YTD FY22 Change Gross profit $ 336.2 $ 294.2 14.3 % Gross margin 37.7 % 35.7 % Gross margin increased by 2.0 percentage points in YTD FY23, from YTD FY22, primarily as a result of the increase in revenue from the prior year period, offset somewhat by the following net cost increases: Material costs increased 2.8% from the prior year period, but decreased 129 basis points as a percentage of revenue.
As of October 31, 2022 October 31, 2021 Net Cash Cash, cash equivalents $ 319.7 $ 276.7 Short-term investments 38.9 - Current portion of Long-term debt (10.0 ) (22.2 ) Long-term debt (32.3 ) (89.4 ) Net cash $ 316.2 $ 165.0 Business Outlook Our current business outlook and guidance was provided in our Full Year and Fourth Quarter Fiscal 2022 Results earnings call, and related slide deck.
As of October 31, 2023 October 31, 2022 Net Cash Cash, cash equivalents $ 499.3 $ 319.7 Current portion of Long-term debt (6.6 ) (10.0 ) Long-term debt (18.0 ) (32.3 ) Net cash $ 474.7 $ 277.4 Business Outlook Our current business outlook and guidance was provided in our Full Year and Fourth Quarter Fiscal 2023 Results earnings call, and related slide deck.
These reviews may result in our engagement in a variety of investing and financing transactions, in the transfer of cash among subsidiaries, and/or the repatriation of cash to the U.S.
We continually evaluate alternatives for efficiently funding our capital expenditures and ongoing operations. These reviews may result in our engagement in a variety of investing and financing transactions, in the transfer of cash among subsidiaries, and/or the repatriation of cash to the U.S.
Both our revenues and costs have been affected by the increased demand for high-end-technology photomasks that require more advanced manufacturing capabilities, but generally command higher ASPs. Our capital expenditure payments were $112.3 million, $109.1 million and $70.8 million in 2022, 2021 and 2020, respectively, and the depreciation on these investments has significantly contributed to our cost of goods sold.
Our revenues have benefitted, and our costs, including depreciation, have been affected by the increased demand for high-end-technology photomasks that require more advanced manufacturing capabilities, but generally command higher ASPs. Our capital expenditure payments were $131.3 million, $112.3 million and $109.1 million in 2023, 2022 and 2021, respectively.
Free Cash Flow, which is a non-GAAP financial measure as discussed in the “Non-GAAP Financial Measures” section below, increased by $119.0 million in FY22, compared with FY21, primarily due to increased net cash provided by operating activities, and decreased by $30.0 million in FY21, compared with FY20, primarily due to an increase in spending on property, plant and equipment.
Free Cash Flow, which is a non-GAAP financial measure as discussed in the “Non-GAAP Financial Measures” section below, increased by $8.0 million in FY23, compared with FY22, and $121.2 million in FY22, compared with FY21, primarily due to increases in net cash provided by operating activities.
This authorization does not obligate the Company to repurchase any dollar amount or number of shares of common stock. As of October 31, 2022, there was approximately $31.7 million remaining under that authorization. Depending on market conditions, we may utilize some or the entire remaining approved amount to reacquire additional shares.
This authorization does not obligate the Company to repurchase any dollar amount or number of shares of common stock. As of October 31, 2023, there was approximately $31.7 million remaining under that authorization.
Net Cash, a non-GAAP financial measure as defined and discussed in the Non-GAAP Financial Measures section below, was $316.2 million and $165.0 million as of October 31, 2022, and October 31, 2021, respectively. Our primary sources of liquidity are our cash on hand, cash we generate from operations, short-term investments, and borrowing capacity we have available from financial institutions.
Net Cash, a non-GAAP financial measure as defined and discussed in the Non-GAAP Financial Measures section below, was $474.7 million and $277.3 million as of October 31, 2023, and October 31, 2022, respectively. Our primary sources of liquidity are our cash on hand and cash we generate from operations.
Quarterly Changes in Revenue by Geographic Origin** Q4 FY22 compared to Q3 FY22 Q4 FY22 compared to Q4 FY21 Revenue in Q4 FY22 Increase (Decrease) Percent Change Increase (Decrease) Percent Change Taiwan $ 76.3 $ (1.1 ) (1.4 )% $ 7.1 10.3 % China 52.4 (8.1 ) (13.4 )% 14.1 36.7 % Korea 38.0 0.1 0.2 % 0.2 0.4 % United States 34.0 (0.7 ) (1.9 )% 7.4 28.0 % Europe 9.0 0.1 1.3 % 0.1 0.9 % Other 0.5 0.0 2.3 % 0.1 21.9 % Total revenue $ 210.3 $ (9.7 ) (4.4 )% $ 29.0 16.0 % ** This table disaggregates revenue by the location in which it was earned.
Quarterly Changes in Revenue by Geographic Origin** Q4 FY23 compared with Q3 FY23 Q4 FY23 compared with Q4 FY22 Revenue in Increase Percent Increase Percent Q4 FY23 (Decrease) Change (Decrease) Change Taiwan $ 79.3 $ (2.3 ) (2.8 )% $ 3.0 3.9 % China 59.2 (2.9 ) (4.6 )% 6.8 12.9 % Korea 42.2 1.4 3.3 % 4.2 11.2 % United States 36.8 7.1 23.9 % 2.8 8.2 % Europe 9.3 (0.2 ) (2.2 )% 0.3 3.0 % Other 0.7 0.2 34.4 % 0.1 24.7 % Total revenue $ 227.5 $ 3.3 1.5 % $ 17.2 8.2 % ** This table disaggregates revenue by the location in which it was earned.
FY22 FY21 FY20 Free Cash Flow Net cash provided by operating activities $ 275.2 $ 150.8 $ 143.0 Purchases of property, plant and equipment (112.3 ) (109.1 ) (70.8 ) Government incentives 3.6 5.8 5.3 Free cash flow $ 166.5 $ 47.4 $ 77.5 The following table reconciles Cash and cash equivalents to Net Cash at the balance sheet dates.
FY23 FY22 FY21 Free Cash Flow Net cash provided by operating activities $ 302.2 $ 275.2 $ 150.8 Purchases of property, plant and equipment (131.3 ) (112.3 ) (109.1 ) Free cash flow $ 170.9 $ 162.9 $ 41.7 The following table reconciles Cash and cash equivalents to Net Cash at the balance sheet dates.
In addition, we stand ready to invest in mergers, acquisitions, or strategic partnerships, should a suitable opportunity arise. We estimate capital expenditures for our fiscal year 2023 will be approximately $130 million; these investments will be targeted towards high-end and mainstream point tools that will increase our operating capacity and efficiency, and enable us to support our customers’ near-term demands.
We estimate capital expenditures for our fiscal year 2024 will be approximately $140 million; these investments will be targeted towards high-end and mainstream “point” tools that will increase our operating capacity and efficiency, and enable us to support our customers’ near-term demands.
Through the utilization of our existing liquidity, cash we generate from operations, short-term investments, and (potentially) our borrowing capacity under our financing arrangements, we plan to continue to invest in our business, with our investments targeted to align with our customers’ technology road maps.
Through the utilization of our existing liquidity, cash we generate from operations and short-term investments, we plan to continue to invest in our business, with our investments targeted to align with our customers’ technology road maps. In addition, we stand ready to invest in mergers, acquisitions, or strategic partnerships, should a suitable opportunity arise.
The effective income tax rate decrease in Q4 FY22, compared with Q4 FY21, is primarily due to the benefits of investment credits in certain non-U.S. jurisdictions in Q4 FY22, as well as changes in the jurisdictional mix of earnings. 29 Table of Contents FY22 FY21 Income tax provision $ 59.8 $ 23.2 Effective income tax rate 25.0 % 22.7 % The increase in the effective income tax rate on a full-year basis in FY22, compared with FY21, is primarily due to an increase of unremitted earnings tax and a decrease in credits in non-U.S. jurisdictions and the release of a valuation allowance for a loss carryforward in a non-U.S. jurisdiction in FY21.
FY23 FY22 Income tax provision $ 70.3 $ 59.8 Effective income tax rate 26.0 % 25.0 % 29 Table of Contents The increase in the effective income tax rate on a full-year basis in FY23, compared with FY22, is primarily due to an increase of unremitted earnings tax in a non-US jurisdiction, as well as changes in the jurisdictional mix of earnings.
Year-over-Year Changes in Revenue by Geographic Origin** FY22 compared to FY21 Revenue in FY22 Increase (Decrease) Percent Change Taiwan $ 291.3 $ 42.7 17.2 % China 212.6 96.9 83.7 % Korea 156.1 (0.3 ) (0.2 )% United States 126.2 21.2 20.2 % Europe 36.4 0.2 0.4 % Other 1.9 0.1 4.9 % Total Revenue $ 824.5 $ 160.8 24.2 % ** This table disaggregates revenue by the location in which it was earned.
Year-over-Year Changes in Revenue by Geographic Origin** YTD FY23 compared with YTD FY22 Revenue in Increase Percent YTD FY23 (Decrease) Change Taiwan $ 316.9 $ 25.5 8.8 % China 245.4 32.8 15.4 % Korea 162.2 6.1 3.9 % United States 128.9 2.7 2.1 % Europe 36.6 0.2 0.5 % Other 2.1 0.3 13.5 % $ 892.1 $ 67.5 8.2 % ** This table disaggregates revenue by the location in which it was earned.
Quarterly Changes in Revenue by Product Type Q4 FY22 compared to Q3 FY22 Q4 FY22 compared to Q4 FY21 Revenue in Q4 FY22 Increase (Decrease) Percent Change Increase (Decrease) Percent Change IC High-end* $ 44.3 $ (8.3 ) (15.8 )% $ 1.8 4.1 % Mainstream 111.9 3.3 3.0 % 29.0 35.0 % Total IC $ 156.2 $ (5.0 ) (3.1 )% $ 30.8 24.5 % FPD High-end* $ 43.4 $ (7.3 ) (14.4 )% $ 2.4 5.9 % Mainstream 10.6 2.6 33.0 % (4.2 ) (28.3 )% Total FPD $ 54.1 $ (4.6 ) (7.9 )% $ (1.8 ) (3.2 )% Total Revenue $ 210.3 $ (9.7 ) (4.4 )% $ 29.0 16.0 % * High-end photomasks typically have higher ASPs than mainstream products.
Quarterly Changes in Revenue by Product Type Q4 FY23 compared with Q3 FY23 Q4 FY23 compared with Q4 FY22 Revenue in Increase Percent Increase Percent Q4 FY23 (Decrease) Change (Decrease) Change IC High-end * $ 57.7 $ 12.4 27.4 % $ 13.4 30.2 % Mainstream 106.8 (11.0 ) (9.3 )% (5.1 ) (4.5 )% Total IC $ 164.5 $ 1.4 0.8 % $ 8.3 5.3 % FPD High-end * $ 53.3 $ 3.3 6.6 % $ 9.9 22.8 % Mainstream 9.7 (1.4 ) (12.5 )% (0.9 ) (8.9 )% Total FPD $ 63.0 $ 1.9 3.1 % $ 9.0 16.5 % Total Revenue $ 227.5 $ 3.3 1.5 % $ 17.2 8.2 % * High-end photomasks typically have higher ASPs than mainstream products.
Gross margin increased by 9.5 percentage points in Q4 FY22, from Q4 FY21, primarily as a result of the increase in revenue from the prior year quarter, together with 1.6% decrease in material costs from the prior year quarter.
Gross margin decreased by 0.9 percentage points in Q4 FY23, from Q4 FY22, primarily as a result of the increase in material costs as a percentage of revenue from the prior year quarter. Equipment and other overhead costs increased 9.7%, or 37 basis points, as a percentage of revenue.
Revenue in Q4 FY22 of $210.3 million represented a decrease of 4.4% compared with Q3 FY22, and an increase of 16.0% from Q4 FY21. Overall IC revenue decreased 3.1% from Q3 FY22 due to lower high-end foundry and logic demand in Asia, but increased 24.5% from the prior year quarter.
Revenue in Q4 FY23 of $227.5 million represented an increase of 1.5% compared with Q3 FY23, and an increase of 8.2% from Q4 FY22. 26 Table of Contents Overall IC revenue increased 0.8 % from Q3 FY23, and increased 5.3% from Q4 FY22 due to stronger high-end foundry and logic demand in Asia.
The decrease from Q3 FY22 was primarily the result of decreased compensation and related expenses of $0.5 million, and the increase from the prior year quarter was primarily the result of increased professional fees of $0.7 million and increased travel expenses of $0.3 million.
The increase from the prior year quarter was primarily the result of increased compensation and related expenses of $1.0 million and increased insurance expenses of $0.2 million.
Revenue in YTD FY22 of $824.5 million surpassed our prior record revenue set in YTD FY21 by $160.8 million, or 24.2%. IC revenue increased by 28.9%, due to strong demand for both high-end and mainstream photomasks and improved pricing for mainstream products and products at the most advanced node levels.
Revenue in YTD FY23 of $892.1 million surpassed our prior record revenue set in YTD FY22 by $67.5 million, or 8.2%. IC revenue increased by 9.8%, due to strong demand for mainstream products earlier in the year.
As discussed in Note 4 of our consolidated financial statements in Part II, Item 8, DNP, the noncontrolling interest in our China-based joint venture has, under certain circumstances, the right to put its interest in the joint venture to Photronics, or to purchase our interest in the joint venture.
Depending on market conditions, we may utilize some or the entire remaining approved amount to reacquire additional shares. 30 Table of Contents As discussed in Note 6 of our consolidated financial statements, DNP, the noncontrolling interest in our China-based joint venture has, under certain circumstances, the right to put its interest in the joint venture to Photronics, or to purchase our interest in the joint venture.
Year-over-Year Changes in Revenue by Product Type FY22 compared to FY21 Revenue in FY22 Increase (Decrease) Percent Change IC High-end* $ 195.3 $ 32.4 19.9 % Mainstream 397.7 100.5 33.8 % Total IC $ 593.0 $ 132.9 28.9 % FPD High-end* $ 187.0 $ 31.3 20.1 % Mainstream 44.5 (3.4 ) (7.1 )% Total FPD $ 231.5 $ 27.9 13.7 % Total Revenue $ 824.5 $ 160.8 24.2 % * High-end photomasks typically have higher ASPs than mainstream photomasks.
Year-over-Year Changes in Revenue by Product Type YTD FY23 compared with YTD FY22 Revenue in Increase Percent YTD FY23 (Decrease) Change IC High-end * $ 195.0 $ (0.4 ) (0.2 )% Mainstream 456.3 58.6 14.7 % Total IC 651.3 $ 58.3 9.8 % FPD High-end * 200.8 $ 13.9 7.4 % Mainstream 40.0 (4.6 ) (10.3 )% Total FPD 240.8 $ 9.3 4.0 % Total Revenue 892.1 $ 67.5 8.2 % * High-end photomasks typically have higher ASPs than mainstream photomasks.
This results in a minimal level of backlog orders, typically one to two weeks of backlog for IC photomasks and two to three weeks of backlog for FPD photomasks.
This results in a minimal level of backlog orders, typically one to two weeks of backlog for IC photomasks and two to three weeks of backlog for FPD photomasks. However, the demand for some IC photomasks can extend longer than the traditional time period; thus, for some products, our backlog can expand to as long as two to three months.
Investing Activities : In FY22, net cash flows used in investing activities primarily consisted of purchases of $112.3 million of property, plant and equipment. Net cash flows used in investing activities increased by $44.3 million in FY22, compared with FY21, primarily as a result of our investment of $38.9 million in short-term debt securities in FY22.
Investing Activities : In FY23, net cash flows used in investing activities primarily consisted of purchases of $131.3 million of property, plant and equipment. Net cash flows used in investing activities decreased by $46.2 million in FY23, compared with FY22, primarily as a result of $47.5 million in proceeds from the maturity of available-for-sale debt securities.
Labor costs increased 21.8% from the prior year quarter, or 50 basis points as a percentage of revenue, primarily due to increased costs in some locations. Equipment and other overhead costs decreased 4.9%, or 580 basis points, as a percentage of revenue.
Labor costs increased 10.3% from the prior year, and increased 30 basis points as a percentage of revenue, primarily due to increased labor costs in Asia.
FPD revenue increased by 13.7%, driven by a 20.1% increase in revenue from high-end products, which was driven by increased demand and better pricing for AMOLED products used in mobile displays and increased demand for G10.5+ large area masks used for ultra-large televisions. 27 Table of Contents Gross Margin Percent Change Q4 FY22 Q3 FY22 Q4 FY21 Q4 FY22 from Q3 FY22 Q4 FY22 from Q4 FY21 Gross profit $ 80.3 $ 83.9 $ 51.9 (4.3 )% 54.5 % Gross margin 38.2 % 38.1 % 28.7 % Gross margin was 38.2% for Q4 FY22, representing a slight increase from the Q3 FY22 gross margin of 38.1%, as decreased revenue of 4.4% was offset by decreased material costs which fell 7.7%, or 80 basis points as a percentage of revenue.
We believe that strong demand for AMOLED photomasks will continue, as expected technology advances drives increasing overall demand for higher-value masks. 27 Table of Contents Gross Margin Percent Percent Q4 FY23 Q3 FY23 Change Q4 FY22 Change Gross profit $ 84.9 $ 86.8 (2.2 )% $ 80.3 5.7 % Gross margin 37.3 % 38.7 % 38.2 % Gross margin was 37.3% for Q4 FY23, representing a slight decrease from the Q3 FY23 gross margin of 38.7%, as increase in revenue of 1.5% was offset by increased material costs of 4.2%, or 69 basis points as a percentage of revenue.
Financing Activities : In FY22, net cash flows used in financing activities primarily consisted of debt repayments of $65.4 million, which were partially offset by contributions from noncontrolling interests of $25.0 million.
Net cash used in financing activities decreased by $20.2 million in FY23, compared with FY22, primarily due to decreased repayments of debt of $47.0 million, offset by decreased contributions from noncontrolling interests of $25.0 million that occurred in FY22 but did not repeat in FY23.
(Note that we may define these terms differently than other companies that use similarly-named non-GAAP financial measures.) These non-GAAP metrics are not intended to represent funds available for our discretionary use or to be used as a substitute for Cash and cash equivalents or Net cash provided by operating activities , as measured under GAAP.
These non-GAAP metrics are not intended to represent funds available for our discretionary use and are not intended to represent, or be used as a substitute for, net income attributable to Photronics, Inc. shareholders, diluted earnings per share, cash and cash equivalents, or cash flows from operations, as measured under GAAP.
Labor costs increased 15.6% from the prior year, or 100 basis points as a percentage of revenue. Equipment and other overhead costs increased by 2.7%, but decreased 580 basis points as a percentage of revenue, with increased outsourced manufacturing costs, which were partially offset by decreased depreciation expense, most significantly contributing to the overall cost increase.
Equipment and other overhead costs increased by 4.5% but decreased 95 basis points as a percentage of revenue, with increased utilities, equipment service contract costs, and less transfer of research and development cost from cost of goods sold to research and development expense, as well as increases in computer software costs, offset by decreased importation costs most significantly contributing to the overall cost increase.
Removed
However, the demand for some IC photomasks has recently expanded beyond the industry’s capacity to supply them within the traditional time period; thus, for some products, our backlog can expand to as long as two to three months.
Added
The columns may not foot due to rounding.
Removed
Recent Developments In the second quarter of 2021, under an MLA which we entered into effective October 2020, we entered into a five-year $7.2 million finance lease for a high-end inspection tool. Monthly payments on the lease, which commenced in February 2021, are $0.1 million per month.
Added
IC mainstream decreased in Q4 FY23 by 9.3% from Q3 FY23, and 4.5% from Q4 FY22 primarily the result of reduced mainstream demand in Asia. FPD revenue increased 3.1% and 16.5% in Q4 FY23, compared, respectively, with Q3 FY23 and Q4 FY22. The increases were caused by continued strong AMOLED demand in mobile display during Q4 FY23.
Removed
Upon the payment of the fiftieth monthly payment and prior to payment of the fifty-first monthly payment, we may exercise an early buyout option to purchase the tool for $2.4 million.
Added
Revenue from mainstream products decreased 12.5% from Q3 FY23 as more production capacity was dedicated to meet strong high-end demand.
Removed
If we do not exercise the early buyout option, then at the end of the five-year lease term, the lease shall continue to renew on a month-to-month basis at the same rental terms; at our option, after the original term or any renewal periods, we may return the tool, elect to extend the lease, or purchase the tool at its fair market value.
Added
FPD revenue increased by 4.0%, driven by a 7.4% increase in revenue from high-end products due to increased AMOLED demand in mobile displays, which offset decreased mainstream resulting from shifting capacity to meet strong high-end demand.
Removed
Since we are reasonably certain that we will exercise the early buyout option, our lease liability reflects such exercise and we have classified the lease as a finance lease. The interest rate implicit in the lease is 1.08%.
Added
The decrease from Q3 FY23 was primarily the result of decreased compensation and related expenses of $1.5 million offset partially by increased insurance expenses and outside services of $0.1 million and $0.1 million, respectively.
Removed
In the first quarter of 2021, under an MLA which we entered into effective July 2019, we entered into a five-year $35.5 million finance lease for a high-end lithography tool.
Added
Non-operating income (expense) increased from Q4 FY22, by $7.9 million, primarily due to higher interest and investment income earned on our cash balances, in addition to foreign currency transactions impact.
Removed
Monthly payments on the lease, which commenced in January 2021, increased from $0.04 million after the first three months to $0.6 million for the following nine months, followed by forty-eight monthly payments of $0.5 million. As of the due date of the forty-eighth monthly payment, we may exercise an early buyout option to purchase the tool for $14.1 million.
Added
The columns presented above may not foot due to rounding. Income Tax Provision On December 15, 2022, the European Union (EU) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development (OECD) Pillar Two Framework.
Removed
If we do not exercise the early buyout option, then at the end of the five-year lease term, at our option, we may return the tool, elect to extend the lease term for a period and a lease payment to be agreed with lessor at the time, or purchase the tool for its then-fair market value as determined by the lessor.
Added
The EU effective dates are January 1, 2024, and January 1, 2025, for different aspects of the directive. A significant number of other countries are expected to also implement similar legislation with varying effective dates in the future.
Removed
Since we are reasonably certain that we will exercise the early buyout option, our lease liability reflects such exercise and we have classified the lease as a finance lease. The interest rate implicit in the lease is 1.58%.

… 36 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+1 added−1 removed5 unchanged
Biggest changeThere can be no assurance that this approach will protect us from the need to recognize significant foreign currency transaction gains and losses, especially in the event of a significant adverse movement in the value of any foreign currency in which we conduct business against any of our functional currencies, including the U.S. dollar. 33 Table of Contents Our primary net foreign currency exposures as of October 31, 2022, included the South Korean won, the Japanese yen, the New Taiwan dollar, the Chinese renminbi, the Singapore dollar, the British pound sterling, and the euro.
Biggest changeThere can be no assurance that this approach will protect us from the need to recognize significant foreign currency transaction gains and losses, especially in the event of a significant adverse movement in the value of any foreign currency in which we conduct business against any of our functional currencies, including the U.S. dollar.
Interest Rate Risk A 10% adverse movement in the interest rates on our variable rate borrowings would not have had a material effect on our October 31, 2022, consolidated financial statements. 34 Table of Contents
Interest Rate Risk A 10% adverse movement in the interest rates on our variable rate borrowings would not have had a material effect on our October 31, 2023, consolidated financial statements. 35 Table of Contents
As of October 31, 2022, a 10% adverse movement in the value of these currencies against the functional currencies of our subsidiaries would have resulted in a net unrealized pre-tax loss of $34.7 million, which represents a decrease of $0.5 million from the same movement as of October 31, 2021.
As of October 31, 2023, a 10% adverse movement in the value of these currencies against the functional currencies of our subsidiaries would have resulted in a net unrealized pre-tax loss of $52.0 million, which represents an increase of $17.3 million from the same movement as of October 31, 2022.
We do not believe that a 10% change in the exchange rates of other non-U.S. dollar currencies would have had a material effect on our October 31, 2022, consolidated financial statements.
The increase in foreign currency rate change risk is primarily the result of increased net exposures of the New Taiwan dollar and South Korean won against the U.S. dollar. We do not believe that a 10% change in the exchange rates of other non-U.S. dollar currencies would have had a material effect on our October 31, 2023, consolidated financial statements.
Removed
The decrease in foreign currency rate change risk is primarily the result of decreased net exposures of the RMB against the U.S. dollar, which were largely offset increased net exposures of the New Taiwan dollar against the U.S. dollar.
Added
Our primary net foreign currency exposures as of October 31, 2023, included the South Korean won, the Japanese yen, the New Taiwan dollar, the Chinese renminbi, the Singapore dollar, the British pound sterling, and the euro.

Other PLAB 10-K year-over-year comparisons