Item 2.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Overview
Management's discussion and analysis (“MD&A”) of the Company's financial condition, results of operations and outlook should be read in conjunction with its condensed consolidated financial statements and related notes. Various segments of this MD&A contain forward-looking statements, all of which are presented based on current expectations, which may be adversely affected by uncertainties and risk factors (presented throughout this filing and in the Company's Form 10-K for fiscal 2020), that may cause actual results to materially differ from these expectations.
We sell substantially all of our photomasks to semiconductor designers and manufacturers, and manufacturers of FPDs. Photomask technology is also being applied to the fabrication of other higher-performance electronic products such as photonics, microelectronic mechanical systems and certain nanotechnology applications. Our selling cycle is tightly interwoven with the development and release of new semiconductor and display designs and applications, particularly as they relate to the semiconductor industry's migration to more advanced product innovation, design methodologies, and fabrication processes. The demand for photomasks primarily depends on design activity rather than sales volumes from products manufactured using photomask technologies. Consequently, an increase in semiconductor or display sales does not necessarily result in a corresponding increase in photomask sales. However, the reduced use of customized ICs, reductions in design complexity, other changes in the technology or methods of manufacturing or designing semiconductors, or a slowdown in the introduction of new semiconductor or display designs could reduce demand for photomasks ‒ even if the demand for semiconductors and displays increases. Advances in semiconductor, display, and photomask design and production methods that shift the burden of achieving device performance away from lithography could also reduce the demand for photomasks. Historically, the microelectronic industry has been volatile, experiencing periodic downturns and slowdowns in design activity. These downturns have been characterized by, among other things, diminished product demand, excess production capacity, and accelerated erosion of selling prices, with a concomitant effect on revenue and profitability.
We are typically required to fulfill customer orders within a short period of time after receipt of an order, sometimes within twenty-four hours. 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.
The global semiconductor and FPD industries are driven by end markets which have been closely tied to consumer-driven applications of high-performance devices, including, but not limited to, mobile display devices, mobile communications, and computing solutions. While we cannot predict the timing of the industry's transition to volume production of next-generation technology nodes, or the timing of up and down-cycles with precise accuracy, we believe that such transitions and cycles will continue into the future, beneficially and adversely affecting our business, financial condition, and operating results as they occur. We believe our ability to remain successful in these environments is dependent upon the achievement of our goals of being a service and technology leader and efficient solutions supplier, which we believe should enable us to continually reinvest in our global infrastructure.
Recent Developments
In the second quarter of fiscal 2021, we entered into a five-year $7.2 million finance lease for a high-end inspection tool. Monthly payments on the lease, which commenced in February 2021, are $0.1 million per month. Upon the payment of the fiftieth monthly payment and prior to payment of the fifty-first monthly payment, we may exercise an early buyout option to purchase the tool at 33.684638% of its original cost. If we do not exercise the early buyout option, then at the end of the five-year lease term, the lease shall continue to renew on a month-to-month basis at the same rental terms; at our option, after the original term or any renewal periods, we may return the tool, elect to extend the lease, or purchase the tool at its fair market value. Since we are reasonably certain that we will exercise the early buyout option, our lease liability reflects such exercise and we have classified the lease as a finance lease. The interest rate implicit in the lease is 1.08%.
In the first quarter of fiscal 2021, we entered into a five-year $35.5 million finance lease for a high-end lithography tool. Monthly payments on the lease, which commenced in January 2021, increased from $0.04 million 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 at 39.84% of the initial lease liability. If we do not exercise the early buyout option, then at the end of the five-year lease term, at our option, we may return the tool, elect to extend the lease term for a period and a lease payment to be agreed with lessor at the time, or purchase the tool for its then-fair market value as determined by the lessor. Since we are reasonably certain that we will exercise the early buyout option, our lease liability reflects such exercise and we have classified the lease as a finance lease. The interest rate implicit in the lease is 1.58%. The lease agreement incorporates the covenants included in our Corporate Credit Agreement, which are detailed in Note 6, and includes a cross-default provision for any agreement or instrument with an outstanding, committed balance greater than $5.0 million in which we are the indebted party.
Results of Operations
Three and Six Months Ended May 2, 2021
The following table presents selected operating information expressed as a percentage of revenue. The columns may not foot due to rounding.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
May 2,
2021
|
|
|
January 31,
2021
|
|
|
May 3,
2020
|
|
|
May 2,
2021
|
|
|
May 3,
2020
|
|
Revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of goods sold
|
|
|
75.4
|
|
|
|
79.9
|
|
|
|
78.7
|
|
|
|
77.6
|
|
|
|
78.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
24.6
|
|
|
|
20.1
|
|
|
|
21.3
|
|
|
|
22.4
|
|
|
|
21.5
|
|
Selling, general and administrative expenses
|
|
|
8.8
|
|
|
|
9.2
|
|
|
|
9.3
|
|
|
|
9.0
|
|
|
|
9.2
|
|
Research and development expenses
|
|
|
2.7
|
|
|
|
3.1
|
|
|
|
3.1
|
|
|
|
2.9
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
13.0
|
|
|
|
7.7
|
|
|
|
8.9
|
|
|
|
10.4
|
|
|
|
9.6
|
|
Other income (expense), net
|
|
|
(0.5
|
)
|
|
|
0.4
|
|
|
|
(0.7
|
)
|
|
|
-
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
12.5
|
|
|
|
8.2
|
|
|
|
8.2
|
|
|
|
10.4
|
|
|
|
10.5
|
|
Income tax provision
|
|
|
2.3
|
|
|
|
1.9
|
|
|
|
2.6
|
|
|
|
2.1
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
10.2
|
|
|
|
6.3
|
|
|
|
5.6
|
|
|
|
8.3
|
|
|
|
6.2
|
|
Net income attributable to noncontrolling interests
|
|
|
3.6
|
|
|
|
1.0
|
|
|
|
1.2
|
|
|
|
2.3
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Photronics, Inc. shareholders
|
|
|
6.6
|
%
|
|
|
5.3
|
%
|
|
|
4.4
|
%
|
|
|
6.0
|
%
|
|
|
5.5
|
%
|
Note: All tabular comparisons included in the following discussion, unless otherwise indicated, are for the three months ended May 2, 2021 (Q2 FY21), January 31, 2021 (Q1 FY21) and May 3, 2020 (Q2 FY20), and for the six months ended May 2, 2021 (YTD FY21) and May 3, 2020 (YTD FY20), in millions of dollars. The columns may not foot due to rounding.
Revenue
Our quarterly revenues can be affected by the seasonal purchasing practices of our customers. As a result, demand for our products is typically reduced during the first, and sometimes the second, quarters of our fiscal year, by the North American, European, and Asian holiday periods, as some of our customers reduce their development and, consequently, their buying activities during those periods.
The following tables present changes in disaggregated revenue in Q2 FY21 and YTD FY21 from revenue in prior reporting periods.
Quarterly Changes in Revenue by Product Type
|
|
Q2 FY21 from Q1 FY21
|
|
|
Q2 FY21 from Q2 FY20
|
|
|
YTD FY21 from YTD FY20
|
|
|
|
Revenue in
Q2 FY21
|
|
|
Increase
(Decrease)
|
|
|
Percent
Change
|
|
|
Increase
(Decrease)
|
|
|
Percent
Change
|
|
|
Revenue in
YTD FY21
|
|
|
Increase
(Decrease)
|
|
|
Percent
Change
|
|
IC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High-end *
|
|
$
|
41.3
|
|
|
$
|
4.5
|
|
|
|
12.2
|
%
|
|
$
|
3.0
|
|
|
|
7.8
|
%
|
|
$
|
78.0
|
|
|
$
|
(1.3
|
)
|
|
|
(1.6
|
)%
|
Mainstream
|
|
|
70.7
|
|
|
|
2.6
|
|
|
|
3.8
|
%
|
|
|
12.2
|
|
|
|
20.7
|
%
|
|
|
138.9
|
|
|
|
14.4
|
|
|
|
11.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total IC
|
|
$
|
112.0
|
|
|
$
|
7.0
|
|
|
|
6.7
|
%
|
|
$
|
15.1
|
|
|
|
15.6
|
%
|
|
$
|
216.9
|
|
|
$
|
13.1
|
|
|
|
6.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FPD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High-end *
|
|
$
|
39.4
|
|
|
$
|
4.8
|
|
|
|
13.7
|
%
|
|
$
|
7.6
|
|
|
|
23.9
|
%
|
|
$
|
74.0
|
|
|
$
|
2.5
|
|
|
|
3.4
|
%
|
Mainstream
|
|
|
8.4
|
|
|
|
(4.1
|
)
|
|
|
(32.9
|
)%
|
|
|
(5.7
|
)
|
|
|
(40.7
|
)%
|
|
|
20.8
|
|
|
|
(6.3
|
)
|
|
|
(23.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FPD
|
|
$
|
47.8
|
|
|
$
|
0.7
|
|
|
|
1.4
|
%
|
|
$
|
1.8
|
|
|
|
4.0
|
%
|
|
$
|
94.9
|
|
|
$
|
(3.8
|
)
|
|
|
(3.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
159.8
|
|
|
$
|
7.7
|
|
|
|
5.1
|
%
|
|
$
|
17.0
|
|
|
|
11.9
|
%
|
|
$
|
311.8
|
|
|
$
|
9.3
|
|
|
|
3.1
|
%
|
* High-end photomasks typically have higher average selling prices (ASPs) than mainstream products.
Quarterly Changes in Revenue by Geographic Origin
|
|
Q2 FY21 from Q1 FY21
|
|
|
Q2 FY21 from Q2 FY20
|
|
|
YTD FY21 from YTD FY20
|
|
|
|
Revenue in
Q2 FY21
|
|
|
Increase
(Decrease)
|
|
|
Percent
Change
|
|
|
Increase
(Decrease)
|
|
|
Percent
Change
|
|
|
Revenue in
YTD FY21
|
|
|
Increase
(Decrease)
|
|
|
Percent
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
59.0
|
|
|
$
|
2.4
|
|
|
|
4.3
|
%
|
|
$
|
3.5
|
|
|
|
6.3
|
%
|
|
$
|
115.6
|
|
|
$
|
(6.0
|
)
|
|
|
(5.0
|
)%
|
Korea
|
|
|
40.2
|
|
|
|
1.5
|
|
|
|
3.8
|
%
|
|
|
4.0
|
|
|
|
11.0
|
%
|
|
|
79.0
|
|
|
|
2.0
|
|
|
|
2.6
|
%
|
United States
|
|
|
27.1
|
|
|
|
0.5
|
|
|
|
2.1
|
%
|
|
|
2.3
|
|
|
|
9.2
|
%
|
|
|
53.8
|
|
|
|
3.8
|
|
|
|
7.7
|
%
|
China
|
|
|
23.7
|
|
|
|
2.7
|
|
|
|
13.0
|
%
|
|
|
6.2
|
|
|
|
35.7
|
%
|
|
|
44.7
|
|
|
|
7.3
|
|
|
|
19.6
|
%
|
Europe
|
|
|
9.3
|
|
|
|
0.7
|
|
|
|
7.9
|
%
|
|
|
0.9
|
|
|
|
11.1
|
%
|
|
|
17.8
|
|
|
|
2.0
|
|
|
|
12.3
|
%
|
Other
|
|
|
0.4
|
|
|
|
(0.1
|
)
|
|
|
(25.5
|
)%
|
|
|
0.1
|
|
|
|
18.3
|
%
|
|
|
0.9
|
|
|
|
0.2
|
|
|
|
28.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
159.8
|
|
|
$
|
7.7
|
|
|
|
5.1
|
%
|
|
$
|
17.0
|
|
|
|
11.9
|
%
|
|
$
|
311.8
|
|
|
$
|
9.3
|
|
|
|
3.1
|
%
|
Revenue increased 5.1% in Q2 FY21, compared with Q1 FY21, primarily driven by increased demand for high-end FPD, including AMOLED and LTPS, and IC logic photomasks, and higher pricing for some mainstream IC nodes. These growth factors were somewhat moderated by lower revenue from mainstream FPD photomasks as we focused production on high-end FPD products.
Revenue increased 11.9% in Q2 FY21, compared with Q2 FY20, primarily driven by the same factors discussed above, as growth in IC and high-end FPD, was partially offset by declines in mainstream FPD photomasks.
Revenue increased 3.1% in YTD FY21, compared with YTD FY20, primarily driven by mainstream IC, due to higher demand and improved pricing, and high-end FPD, as a result of higher demand for mobile displays. These increases were partially offset by lower high-end IC and mainstream FPD.
Gross Margin
|
|
Q2 FY21
|
|
|
Q1 FY21
|
|
|
Percent
Change
|
|
|
Q2 FY20
|
|
|
Percent
Change
|
|
|
YTD FY21
|
|
|
YTD FY20
|
|
|
Percent
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
39.2
|
|
|
$
|
30.5
|
|
|
|
28.6
|
%
|
|
$
|
30.4
|
|
|
|
29.0
|
%
|
|
$
|
69.8
|
|
|
$
|
65.0
|
|
|
|
7.3
|
%
|
Gross margin
|
|
|
24.6
|
%
|
|
|
20.1
|
%
|
|
|
|
|
|
|
21.3
|
%
|
|
|
|
|
|
|
22.4
|
%
|
|
|
21.5
|
%
|
|
|
|
|
Gross margin increased by 4.5 percentage points in Q2 FY21, from Q1 FY21, as a result of the increase in revenue from the prior quarter. Material costs were essentially unchanged from the prior quarter despite the increase in revenue, as a result, material costs, as a percentage of revenue, decreased 150 basis points. Labor remained flat, but as a percentage of revenue, fell 70 basis points. Equipment and other overhead costs decreased 1.7%, or 230 basis points as a percentage of revenue, with reduced outsourced manufacturing costs most significantly contributing to the decline.
Gross margin increased by 3.3 percentage points in Q2 FY21, from Q2 FY20, primarily due to the 11.9% increase in revenue from the prior year quarter. Material costs increased 10.0% from the prior year quarter, with the largest increase occurring at our China-based IC facility, where the increase was in line with that facility’s increased revenue. Globally, material costs, as a percentage of revenue, decreased 50 basis points. Labor costs increased 17.6% from the prior year quarter, but only represented a 60 basis point increase, as a percent of revenue, while equipment and other overhead costs rose moderately at 1.9%, but fell 330 basis points as a percentage of revenue. Increased equipment service contract costs were the most significant contributor to the rise in equipment and other overhead costs.
Gross margin increased by 0.9 percentage points in YTD FY21, from YTD FY20, primarily as a result of the 3.1% increase in revenue from the prior year period. Material costs increased 3.1% from the prior year period, but were unchanged as a percentage of revenue. Labor costs increased 11.5% from the prior year, but only 90 basis points when compared to revenue. Equipment and other overhead costs decreased 2.0%, or 180 basis points as a percentage of revenue, with reduced outsourced manufacturing costs most significantly contributing to the decline.
As we operate in a high fixed cost environment, increases or decreases in our revenues and capacity utilization will generally positively or negatively impact our gross margin.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $14.1 million in Q2 FY21, or unchanged from Q1 FY21 and increased $0.8 million from Q2 FY20. The increase is primarily the result of increased compensation costs. Selling, general and administrative expenses were $28.1 million in YTD FY21, as compared with $27.5 million in YTD FY20. The increase is primarily the result of increased compensation expenses, which were partially offset by decreased travel expenses.
Research and Development Expenses
Research and development expenses, which primarily consist of development efforts related to high-end process technologies for high-end IC and FPD applications, were $4.4 million in Q2 FY21, compared with $4.7 million in Q1 FY21 and $4.5 million in Q2 FY20. Decreased development activities at our Asia-based sites, which were partially offset by increased activities in the U.S., led to the overall decrease from the prior quarter and the prior year quarter. Year over year, research and development expenses increased $0.5 million, due to an increase in development activities in the U.S. exceeding a decline in such activities in Asia.
Other Income (Expense)
|
|
Q2 FY21
|
|
|
Q1 FY21
|
|
|
Q2 FY20
|
|
|
YTD FY21
|
|
|
YTD FY20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency transactions impact, net
|
|
$
|
(2.1
|
)
|
|
$
|
1.4
|
|
|
$
|
(1.4
|
)
|
|
$
|
(0.7
|
)
|
|
$
|
3.3
|
|
Interest expense, net
|
|
|
1.2
|
|
|
|
(0.8
|
)
|
|
|
0.8
|
|
|
|
0.4
|
|
|
|
(1.0
|
)
|
Interest income and other income (expense), net
|
|
|
-
|
|
|
|
0.1
|
|
|
|
(0.3
|
)
|
|
|
0.2
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
$
|
(0.8
|
)
|
|
$
|
0.7
|
|
|
$
|
(1.0
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
2.8
|
|
Other income and expense, net decreased $1.5 million in Q2 FY21 from Q1 FY21, primarily as a result of less favorable foreign currency exchange movements in China against the U.S. dollar, which were somewhat mitigated by reduced losses against the U.S. dollar in Korea. The $3.5 million unfavorable foreign currency exchange movement was partially offset by a $2.0 million favorable change in interest expense that resulted from interest subsidies received in China, which we recognize at the time of their receipt.
Other income and expense, net changed favorably from a loss of $1.0 million in Q2 FY20 to a loss $0.8 million in Q2 FY21. The $0.7 million negative impact of foreign currency transactions was primarily due to unfavorable movements against the U.S. dollar in Korea and against the Japanese yen in Taiwan, which were partially offset by favorable movements against the U.S. dollar and the Japanese yen in China. The $0.7 million unfavorable change from foreign currency transactions was partially offset by a $0.4 million favorable change in interest expense that resulted from interest subsidies received in China, which we recognize at the time of their receipt.
Other income and expense, net changed unfavorably from a net other income of $2.8 million in YTD FY20 to a net other expense of $0.1 million in YTD FY21. The $4.0 million negative impact of foreign currency transactions was primarily caused by unfavorable movements against the U.S. dollar in Korea and unfavorable movements against the U. S. dollar and the Japanese yen in Taiwan, which were partially offset by favorable movements against the U.S. dollar in China. The overall unfavorable impact of foreign currency transactions was partially offset by a $1.4 million favorable change in interest expense that resulted from interest subsidies received in China, which we recognize at the time of their receipt.
Income Tax Provision
|
|
Q2 FY21
|
|
|
Q1 FY21
|
|
|
Q2 FY20
|
|
|
YTD FY21
|
|
|
YTD FY20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
3.7
|
|
|
$
|
2.9
|
|
|
$
|
3.8
|
|
|
$
|
6.7
|
|
|
$
|
12.9
|
|
Effective income tax rate
|
|
|
18.5
|
%
|
|
|
23.6
|
%
|
|
|
32.2
|
%
|
|
|
20.5
|
%
|
|
|
40.5
|
%
|
The effective income tax rate is sensitive to the jurisdictional mix of earnings, due, in part, to the non-recognition of tax benefits on losses in jurisdictions with valuation allowances.
The effective income tax rate decrease in Q2 FY21, compared with Q1 FY21, is primarily due to changes in the period to period forecasted mix of jurisdictional earnings.
The effective income tax rate decrease in Q2 FY21, compared with Q2 FY20, is primarily due to an increase in credits in a non-U.S. jurisdiction in Q1 FY21, and the establishment of a valuation allowance for a non-U.S.-based loss carryforward in Q2 FY20.
The effective income tax rate decreased in YTD FY21, compared with YTD FY20, primarily due to the establishment of a valuation allowance for a loss carryforward in a non-U.S. jurisdiction in YTD-FY20, as well as changes in the jurisdictional mix of earnings.
Liquidity and Capital Resources
Cash and cash equivalents totaled $256.0 million and $278.7 million as of May 2, 2021 and October 31, 2020 respectively. As of most recent balance sheet date, total cash and cash equivalents included $182.7 million held by foreign subsidiaries. Our primary sources of liquidity are cash on hand, cash generated from operations and borrowing capacity available from financial institutions. Our corporate credit agreement has a $50 million borrowing limit, with an expansion capacity to $100 million. Although we have not accessed funds under our corporate credit facilities since 2011, it continues to afford us financial flexibility. In addition, in China we have approximately $30.0 million of borrowing capacity for local operations on our various lines of credit. See Item 1. Condensed Consolidated Financial Statements - Notes to Condensed Consolidated Financial statements - Note 6 for additional information.
We continually evaluate alternatives for efficiently funding our capital expenditures and ongoing operations. These reviews may result in our engagement in a variety of financing transactions, in the transfer of cash among subsidiaries, and/or the repatriation of cash to the U.S. The transfer of funds among subsidiaries could be subject to foreign withholding taxes and, in certain jurisdictions, repatriation of these funds to the U.S. may subject them to U.S. state income taxes and/or local country withholding taxes. We believe that our liquidity, including available financing, is sufficient to meet our requirements through the next 12 months and thereafter for the foreseeable future. We continually seek organic and inorganic growth opportunities and stand ready to invest at the appropriate time utilizing our existing liquidity and available borrowing capacity. To support our growth strategy, we continue to invest in manufacturing equipment to expand capacity and enhance capability. We estimate capital expenditures for the full year 2021 to be approximately $120 million, focused on high end and mainstream point tools to enhance operating capacity and efficiency. As of May 2, 2021, we had outstanding capital commitments of approximately $32 million and recognized liabilities related to capital equipment purchases of approximately $23 million. Although payment timing could vary, primarily as a result of the timing of tool installation and testing, we currently estimate that we will fund $45 million of our total $55 million committed and recognized obligations for capital expenditures over the next twelve months.
In September 2020, the Company’s board of directors authorized the repurchase of up to $100 million of its common stock, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Act. This authorization does not obligate the Company to repurchase any dollar amount or number of shares of common stock. As of May 2, 2021, our current share repurchase program had approximately $59.3 million available under its authorization. Depending on market conditions, we may utilize some or all of the remaining approved amount to reacquire additional shares.
Cash Flows
|
|
Six months ended
|
|
|
|
May 2, 2021
|
|
|
May 3, 2020
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
58,219
|
|
|
$
|
61,323
|
|
Net cash used in investing activities
|
|
$
|
(67,898
|
)
|
|
$
|
(25,006
|
)
|
Net cash used in financing activities
|
|
$
|
(18,638
|
)
|
|
$
|
(5,371
|
)
|
Operating Activities: 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. The decrease in cash provided by operating activities for the six months ended May 2, 2021 compared to the six months ended May 3, 2020 was primarily due to changes in working capital experienced in Asia, the effects of which were partially offset by an increase in net income.
Investing Activities: Cash flows used for investing activities consists primarily of purchases of property, plant and equipment. For the six months ended May 2, 2021, purchases of property, plant and equipment were $73.5 million compared to $30.1 million for the six months ended May 3, 2020 as we increased our tool purchases in the current year primarily in response to market demands in Asia.
Financing Activities: Cash flows used in financing activities consist primarily of share repurchases, proceeds / repayments of debt, and contributions from noncontrolling interests. The increase in cash used in financing activities during the six months ended May 3, 2021 compared to the same period ended May 3, 2020, was primarily driven by $11.3 million increased proceeds from debt, offset by $8.2 million increase in debt repayments, $7.6 million decrease in contributions from noncontrolling interests, and $6.4 million increased purchases of treasury stock.
In January 2018, Photronics, through its wholly owned Singapore subsidiary, and DNP, through its wholly owned subsidiary “DNP Asia Pacific PTE, Ltd.” entered into a joint venture under which DNP obtained a 49.99% interest in our IC business in Xiamen, China. The joint venture, which we refer to as PDMCX, was established to develop and manufacture photomasks for leading edge and advanced generation semiconductors. Under the joint venture’s operating agreement, DNP is afforded, under certain circumstances, the right to put its interest in PDMCX to Photronics. These circumstances include disputes regarding the strategic direction of PDMCX that may arise after the initial two-year term of the operating agreement that cannot be resolved between the two parties. As of the date of issuance of this report, DNP had not indicated its intention to exercise this right. In addition, both Photronics and DNP have the option to purchase, or put, their interest from, or to, the other party, should their ownership interest fall below 20% for a period of more than six consecutive months. Under all such circumstances, the sales of ownership interests would be at the exiting party’s ownership percentage of the joint venture’s net book value, with closing to take place within three business days of obtaining required approvals and clearance. Should DNP exercise an option to put their, or purchase our, interest in PDMCX we may, depending on the relationship of the fair and book value of PDMCX’s net assets, incur a loss. As of May 2, 2021, Photronics and DNP each had net investments in PDMCX of $59.1 million.
Business Outlook
Our demand outlook for both IC and FPD is positive, with growing confidence, as we enter the second half of the year. It appears the trends we have been monitoring over the last few quarters are continuing, and our expectations are solidifying for sequential growth to continue throughout the rest of the year; thus, we are expanding capacity to align with these trends and expand our share of the growing market. As such, while we, as always, caution that our outlook, due to our short backlog (which typically does not exceed two weeks) is limited, we reaffirm our Q4 FY20 expectation for revenue to increase, as a percentage of FY20 revenue, in the high single digits. In addition, we expect margins to continue to improve as revenue growth generally enables contribution margin expansion and we continue to keep costs under control. Additionally, our investment strategy of timing capital expenditures with a robust business environment and customer commitments should minimize negative margin implications from new tools coming online. As a result, we continue to anticipate that operating profit will grow at a rate similar to the 23% increase we experienced in FY20.
Effect of Recent Accounting Pronouncements
See “Item 1. Condensed Consolidated Financial Statements– Notes to Condensed Consolidated Financial Statements – Note 16 – Recent Accounting Pronouncements” for recent accounting pronouncements that may impact our financial reporting.