DISCUSSION AND ANALYSIS OF THE MANAGEMENT OF PHOTRONICS INC ON THE FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)


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. 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 FPDs 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 negative trends 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.

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We are typically required to fulfill customer orders within a short period of
time, 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.

We are focused on improving our competitiveness by advancing our technology and
reducing costs and, in connection therewith, have invested and plan to continue
to invest in manufacturing equipment to serve the high-end markets. As we face
challenges that require us to make significant improvements in our
competitiveness, we continue to evaluate further cost reduction initiatives.

State-of-the-art production for semiconductor masks is considered to be 28
nanometer and smaller for ICs and Generation 10.5+ and 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 constitute the majority of designs
currently being fabricated in volume. 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. We expect advanced-generation designs
to continue to move to production throughout fiscal 2022, 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.

The photomask industry has been, and is expected to continue to be characterized
by technological change and evolving industry standards. 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. Additionally, demand for photomasks has been, and could,
in the future be adversely affected by changes in high-performance electronics
fabrication methods that affect the type or quantity of photomasks used, such as
changes in semiconductor demand that favor field-programmable gate arrays and
other semiconductor designs that replace application-specific ICs, or the use of
certain chip-stacking methodologies that lessen the emphasis on conventional
lithography technology. Furthermore, increased market acceptance of alternative
methods of transferring circuit designs onto semiconductor wafers could reduce
or eliminate the need for photomasks in the production of semiconductors. As of
the end of 2021, 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. However, should direct-write
lithography or any other alternative method of transferring IC designs to
semiconductor wafers without the use of photomasks achieve market acceptance,
and we do not anticipate, respond to, or utilize these or other changing
technologies due to resource, technological, or other constraints, our business
and results of operations could be materially adversely affected.

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 $109.1 million, $70.8 million and $178.3 million in 2021, 2020 and
2019, respectively, and the depreciation on these purchases has significantly
contributed to our cost of goods sold. We intend to continue to make the
required investments to support the technological demands of our customers that
we believe will position the Company for future growth. In support of this
effort, we expect capital expenditure payments to be approximately $100 million
in fiscal year 2022.

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The manufacture of photomasks for use in fabricating ICs, FPDs, and other
related products built using comparable photomask-based process technologies has
been, and continues to be, capital intensive. Our employees and our integrated
global manufacturing network represent a significant portion of our fixed
operating cost base. 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.

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. 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. 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 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. 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, to be 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. 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 9 of Part II, Item 8 of this report, 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.

In the fourth quarter of 2020, we entered into a MLA with a financing entity for
the lease of an inspection tool with a maximum value of $10 million.  The tool
was delivered during the fourth quarter of 2020, and the financing entity made a
progress payment to the vendor of $6.5 million in the first quarter of 2021. The
progress payment accrued interest at 1.56% payable monthly until the final
payment for the tool was made in the second quarter of 2021, at which point the
$7.2 million lease described above began.

In the fourth quarter of 2020, our Hefei, China, facility was approved to borrow
200 million RMB (approximately $31.3 million, at the balance sheet date) from
the China Construction Bank Corporation. This credit facility is subject to
annual reviews and extension, with the most recent extension allowing us to
borrow additional funds set to expire in August 2022. The loan proceeds were
used to fund purchases of two lithography tools at the Hefei facility. As of
October 31, 2021, we had borrowed 135.7 million RMB ($21.2 million) against this
approval (all of which was then outstanding), and 64.3 million RMB ($10.1
million) remained available to borrow. The interest rate on the loan is variable
and based on the RMB Loan Prime Rate of the National Interbank Funding Center.
The borrowings are secured by the Hefei facility, its related land use right,
and certain manufacturing equipment. The Hefei Equipment Loan is subject to
covenants and provisions, certain of which relate to the assets pledged as
security for the loan, including covenants for the ratio of total liabilities to
total assets and the ratio of current assets to current liabilities, all of
which we were in compliance with at October 31, 2021.

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In the fourth quarter of 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. Through October 31, 2021, we had
repurchased 5.6 million shares at a cost of $65.7 million (an average price of
$11.64 per share) under this authorization. All shares repurchased in 2020 were
retired in 2020, and all shares repurchased in 2021 were retired in 2021.

In the first quarter of 2020, we acquired the remaining 0.2% of the non-controlling interests in Photronics Cheonan, Ltd. for $ 0.6 million.

In the first quarter of 2020, we adopted ASU 2016-02 and all subsequent
amendments, collectively codified in Accounting Standards Codification Topic 842
- "Leases" ("Topic 842"). This guidance requires modified retrospective
adoption, either at the beginning of the earliest period presented or at the
beginning of the period of adoption; we elected to apply the guidance at the
beginning of the period of adoption, and recognized right-of-use leased assets
of approximately $6.5 million, and corresponding lease liabilities, which were
discounted at our incremental borrowing rates, on our November 1, 2019,
consolidated balance sheet to reflect our adoption of the guidance. Our adoption
of Topic 842 did not affect our cash flows or our ability to comply with
covenants under our credit agreements.

In the fourth quarter of 2019, our board of directors declared a dividend of one
preferred stock purchase right (a "Right"), payable on or about October 1, 2019,
for each share of common stock, par value $0.01 per share, of the Company
outstanding on September 30, 2019, to the stockholders of record on that date.
In connection with the distribution of the Rights, we entered into a Section 382
Rights Agreement (the "Rights Agreement"), dated as of September 23, 2019,
between the Company and Computershare Trust Company, N.A., a federally chartered
trust company, as rights agent. The purpose of the Rights Agreement is to deter
trading of our common stock that would result in a change in control (as defined
in Internal Revenue Control Section 382), thereby preserving our future ability
to use our historical federal net operating losses and other Tax Attributes (as
defined in the Rights Agreement). Each Right entitles the registered holder to
purchase from the Company one one-thousandth of a share of Series A Preferred
Stock, par value $0.01 per share, at a price of $33.63, subject to adjustment.
The Rights, which are described in the Company's Current Report on Form 8-K
filed on September 24, 2019, are in all respects subject to and governed by the
provisions of the Rights Agreement. The Rights will expire at the earliest to
occur of (i) the date on which our board of directors determines, in its sole
discretion, that the Rights Agreement is no longer necessary for the
preservation of material valuable tax attributes, or the tax attributes have
been fully utilized and may no longer be carried forward, and (ii) the close of
business on September 22, 2022.

In the fourth quarter of 2019, upon our request, a financing entity made an
advance payment of $3.5 million to an equipment vendor. We entered into an MLA
with this financing entity, which became effective in July 2019. The MLA enabled
us to request advance payments or other funds to finance equipment to be leased
or purchased in the U.S. In connection with this MLA, we had been approved for
financing of $35 million for the purchase of a high-end lithography tool.
Interest on this borrowing was variable and payable monthly at thirty-day LIBOR
plus 1% and was to continue to accrue until the borrowing was repaid or, as
allowed under the MLA, we entered into a lease for the equipment. During the
first quarter of 2021, this financing entity made an additional payment of $28
million to the equipment vendor on our behalf and we subsequently entered into
the $35.5 million finance lease described above.

In the fourth quarter of 2019, 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 of 1933 (as amended). We
repurchased 2.5 million shares at a cost of $27.9 million (an average price of
$11.34 per share) under this authorization. The repurchase program was
terminated on March 20, 2020.

In the second quarter of 2019, we repaid, at maturity, all $ 57.5 million principal amount of convertible senior notes that we issued in april 2016.

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In the first quarter of 2019, PDMCX obtained approval to borrow 345.0 million
RMB from the Industrial and Commercial Bank of China. From November 2018 through
July 2020, PDMCX entered into separate loan agreements (the "Project Loans") for
the entire approved amount and, as of October 31, 2021, 255.0 million RMB ($39.9
million) remained outstanding. The Project Loans were used to finance certain
capital expenditures at the PDMCX facility, and are collateralized by liens
granted on the land use right, building, and certain equipment located at the
facility. The interest rates on the Project Loans are variable (based on the RMB
Loan Prime Rate of the National Interbank Funding Center), and interest incurred
on the loans is eligible for reimbursement through incentives provided by the
Xiamen Torch Hi-Tech Industrial Development Zone, which provide for such
reimbursements up to a prescribed limit and duration. The Project Loans are
subject to covenants and provisions, certain of which relate to the assets
pledged as security for the loans, all of which we were in compliance with at
October 31, 2021.

In the first quarter of 2019, PDMCX obtained approval for revolving, unsecured
credit of the equivalent of $25.0 million, pursuant to which PDMCX may enter
into separate loan agreements with varying terms to maturity. This facility is
subject to annual reviews and extension. Unless extended, this facility will
expire in October 2022. As of October 31, 2021, PDMCX had 78.0 million RMB
($12.2 million) outstanding against the approval. The interest rates are
variable, based on the RMB Loan Prime Rate of the National Interbank Funding
Center. Interest incurred on the loans are eligible for reimbursement through
incentives provided by the Xiamen Torch Hi-Tech Industrial Development Zone,
which provide for such reimbursements up to a prescribed limit and duration.

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Results of Operations

The following tables show a selection of operating information expressed as a percentage of sales. Columns may not work due to rounding.

                                                                   Three Months Ended
                                                      October 31,       August 1,       October 31,
                                                         2021             2021             2020

Revenue                                                      100.0 %         100.0 %           100.0 %
Cost of goods sold                                            71.3            73.4              78.6

Gross profit                                                  28.7            26.6              21.4
Selling, general and administrative expenses                   7.9             8.8               8.6
Research and development expenses                              2.3             3.1               2.8
Other operating income, net                                      -             2.1                 -

Operating income                                              18.5            16.7              10.0
Non-operating income (expense), net                            2.1             2.2              (1.9 )

Income before income tax provision                            20.6            18.9               8.1
Income tax provision                                           4.8             4.6               2.3

Net income                                                    15.8            14.3               5.8
Net income attributable to noncontrolling
interests                                                      4.9             4.3               1.5

Net income attributable to Photronics, Inc.
shareholders                                                  10.9 %          10.0 %             4.3 %



                                                                        Year Ended
                                                      October 31,       October 31,       October 31,
                                                         2021              2020              2019

Revenue                                                      100.0 %           100.0 %           100.0 %
Cost of goods sold                                            74.8              77.9              78.1

Gross profit                                                  25.2              22.1              21.9
Selling, general and administrative expenses                   8.7               8.8               9.5
Research and development expenses                              2.8               2.8               2.9
Other operating income, net                                    0.5                 -                 -

Operating income                                              14.2              10.5               9.5
Non-operating income (expense), net                            1.1              (0.4 )            (0.3 )

Income before income tax provision                            15.4              10.1               9.2
Income tax provision                                           3.5               3.5               1.9

Net income                                                    11.9               6.6               7.3
Net income attributable to noncontrolling
interests                                                      3.5               1.1               1.9

Net income attributable to Photronics, Inc.
shareholders                                                   8.4 %             5.5 %             5.4 %



Note: All the following tabular comparisons, unless otherwise indicated, are for
the three months ended October 31, 2021 (Q4 FY21), August 1, 2021 (Q3 FY21) and
October 31, 2020 (Q4 FY20), and for the fiscal years ended October 31, 2021
(FY21) and October 31, 2020 (FY20). Please refer to the MD&A in our 2020 Annual
Report on Form 10-K for comparative discussion of our fiscal years ended October
31, 2020, and October 31, 2019. Table columns may not foot due to rounding.

Income

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 quarter 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.

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At the beginning of 2020, we changed the threshold for the definition of
high-end FPD, from G8 and above and AMOLED display screens, to G10.5+, AMOLED,
and LTPS display screens, to reflect the overall advancement of technology in
the FPD industry. Our definition of high-end IC products remained as 28
nanometer or smaller. High-end photomasks typically have higher ASPs than
mainstream products.

The following tables show the changes in income broken down by product type and geographic origin, in Q4 FY21 and FY21 compared to income from previous reporting periods.

Quarterly variations in income by type of product

                           Q4 FY21 from Q3 FY21                Q4 FY21 from Q4 FY20
                 Revenue in       Increase        Percent       Increase          Percent
                  Q4 FY21        (Decrease)       Change       (Decrease)          Change

IC
High-end*       $       42.6     $       0.2           0.5 %   $       4.4             11.6 %
Mainstream              82.9             7.4           9.9 %          15.1             22.3 %

Total IC        $      125.4     $       7.7           6.5 %   $      19.5             18.4 %

FPD
High-end*       $       41.0     $       0.3           0.8 %   $       9.7             30.9 %
Mainstream              14.9             2.6          21.5 %           2.8             23.2 %

Total FPD       $       55.8     $       3.0           5.6 %   $      12.5             28.8 %

Total Revenue   $      181.3     $      10.6           6.2 %   $      32.0             21.4 %


* High-end photomasks generally have higher ASPs than consumer products.

Quarterly variations in turnover by geographic origin **

                           Q4 FY21 from Q3 FY21                     Q4 FY21 from Q4 FY20

                 Revenue in       Increase        Percent        Increase          Percent
                  Q4 FY21        (Decrease)       Change        (Decrease)          Change

Taiwan          $       69.2     $       5.3           8.3 %    $      12.5             22.1 %
Korea                   37.8            (1.8 )        (4.5 )%           1.2              3.4 %
China                   38.3             5.7          17.4 %           17.3             82.6 %
United States           26.6             1.9           7.6 %           (0.1 )           (0.4 )%
Europe                   9.0            (0.5 )        (4.9 )%           1.0             13.0 %
Other                    0.4             0.0           5.4 %            0.0             (4.6 )%

Total revenue   $      181.3     $      10.6           6.2 %    $      32.0             21.4 %


** This table breaks down income according to where it was earned.

Revenue in Q4 FY21 of $181.3 million increased 6.2% compared with Q3 FY21 and
21.4% from Q4 FY20; on a year-to-date basis, revenue increased 8.9% in FY21,
compared with FY20, to $663.8 million.

A 6.5% increase in IC revenue in Q4 FY21, compared with Q3 FY21, was primarily
the result of strong demand for mainstream masks, particularly at the most
advanced levels. Industry-wide capacity constraints led to improved pricing for
both high-end and mainstream products that resulted in IC revenue increasing
18.4% in Q4 FY21, compared with Q4 FY20. Increased demand from logic customers
and Asia-based foundries were the sources of the increase, while demand for
memory masks remained stable.

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FPD revenue increased 5.6% in Q4 FY21, compared with Q3 FY21, and 28.8% in Q4
FY21, compared with Q4 FY20. The increase from Q3 FY21 was primarily the result
of increased demand attributable to new design releases of mainstream photomasks
for liquid crystal displays ("LCD"), as panel manufacturers began to shift to
introducing new designs to maintain or increase market share. This trend, and an
increase in demand for AMOLED photomasks for displays used in mobile
applications, were the primary drivers of the increase from the prior year
quarter.

Year-to-year variations in income by product type

                                     FY21 from FY20
                                                                 Percent
                 Revenue in FY21       Increase (Decrease)       Change

IC
High-end*       $           163.0     $                 6.8           4.4 %
Mainstream                  297.2                      34.9          13.3 %

Total IC        $           460.2     $                41.8          10.0 %

FPD
High-end*       $           155.7     $                16.1          11.5 %
Mainstream                   47.9                      (3.8 )        (7.4 )%

Total FPD       $           203.6     $                12.3           6.4 %

Total Revenue   $           663.8     $                54.1           8.9 %



* High end photomasks generally have higher ASPs than traditional photomasks.

Year-to-year variations in income by geographic origin **

                              FY21 from FY20

                 Revenue in       Increase        Percent
                    FY21         (Decrease)       Change

Taiwan          $      248.6     $       9.5           4.0 %
Korea                  156.4             3.3           2.2 %
China                  115.7            36.4          45.8 %
United States          105.0             0.1           0.1 %
Europe                  36.2             4.7          15.0 %
Other                    1.8             0.1           3.6 %

Total Revenue   $      663.8     $      54.1           8.9 %


** This table breaks down income according to where it was earned.

Revenue increased 8.9% in YTD FY21, compared with YTD FY20, to $663.8 million.
IC revenue increased 10.0%, due to both improved pricing for mainstream
photomasks, and improved pricing and increased demand for high-end masks at the
largest node levels. We believe that the increased demand for high-end
photomasks at the largest node levels may be indicative of a trend towards
chipmakers differentiating their products through the design of application
specific integrated circuits ("ASIC"), in lieu of migrating to smaller tech-node
photomasks. FPD revenue increased 6.4% from YTD FY20, due to both increased
demand and improved pricing for AMOLED photomasks and, to a lesser extent, LTPS
photomasks.

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Gross Margin

                                                             Percent Change
                                                         Q4 FY21       Q4 FY21
                                                         from Q3       from Q4
                Q4 FY21       Q3 FY21       Q4 FY20        FY21         FY20

Gross profit   $    51.9     $    45.3     $    31.9         14.6 %        62.9 %
Gross margin        28.7 %        26.6 %        21.4 %



Gross margin increased by 2.1 percentage points in Q4 FY21, from Q3 FY21,
primarily as a result of the increase in revenue from the prior quarter.
Material costs increased 3.4% from the prior quarter, but decreased, as a
percentage of revenue, by 80 basis points. Labor costs decreased 0.3% and fell
70 basis points, as a percentage of revenue. Equipment and other overhead costs
increased 4.3%, but decreased 60 basis points as a percentage of revenue, with
higher outsourced manufacturing costs, partially offset by decreased equipment
maintenance costs, most significantly contributing to the net cost increase.

Gross margin increased by 7.3 percentage points in Q4 FY21, from Q4 FY20,
primarily as a result of the increase in revenue from the prior year quarter.
Material costs increased 14.7% from the prior year quarter, but decreased 160
basis points, as a percentage of revenue. Labor costs increased 10.9% from the
prior year quarter, but fell 100 basis points as a percent of revenue, while
equipment and other overhead costs rose 6.3%, but fell 460 basis points, as a
percentage of revenue. Increased outsourced manufacturing costs and equipment
service contract costs were the most significant contributors to the rise in
equipment and other overhead costs.

                                        Percent Change
                FY21        FY20        FY21 from FY20

Gross profit   $ 167.0     $ 134.7                 24.1 %

Gross margin 25.2% 22.1%



Gross margin increased by 3.1 percentage points in YTD FY21, from YTD FY20,
primarily as a result of the increase in revenue from the prior year period.
Material costs increased 6.2% from the prior year period, but decreased 70 basis
points as a percentage of revenue. Labor costs increased 10.7% from the prior
year, but rose only 10 basis points when compared to revenue. Equipment and
other overhead costs increased by 1.2%, but decreased 250 basis points as a
percentage of revenue, with increased equipment service contract costs most
significantly contributing to the overall cost increase.

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 $14.3 million in Q4 FY21,
compared with $15.1 million in Q3 FY21, and $12.8 million in Q4 FY20. The
decrease from Q3 FY21 was primarily the result of decreased professional fees of
$0.3 million and compensation and related expenses of $0.2 million, and the
increase from the prior year quarter was primarily the result of increased
compensation and related expenses of $1.7 million and increased export duties
(primarily incurred in Asia) of $0.2 million; these increases were partially
offset by decreased professional fees of $0.9 million. Selling, general and
administrative expenses increased $3.9 million, or 7.4%, in YTD FY21, from YTD
FY20, primarily due to an increase in compensation and related expenses of $3.9
million.

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Research and Development Expenses

Research and development expenses, which primarily consist of development and
qualification efforts related to high-end process technologies for high-end IC
and FPD applications, were $4.1 million in Q4 FY21, compared with $5.3 million
in Q3 FY21; the decrease was primarily caused by a decline in development
activities in the U.S.  Research and development expenses in Q4 FY21 were
unchanged from Q4 FY20. On a year-to-date basis, research and development
expenses increased $1.3 million, primarily due to increased development
activities in the U.S. exceeding a decline in such activities at our China-based
FPD facility.

Other Operating Income, Net

In the third quarter of 2021, we recorded a $ 3.5 million gain on the exchange of a lithography tool with a tool supplier in partial compensation for a more advanced tool.

Non-operating income (expenses)

                                             Q4 FY21       Q3 FY21       Q4 

FY20

Impact of currency transactions, net $ 4.3 $ 4.3 $

  (2.2 )
Interest expense, net                            (1.0 )        (1.1 )        (0.8 )
Interest income and other income, net             0.5           0.5           0.1

Total other income (expense)                $     3.8     $     3.7     $    (2.9 )



Non-operating income and expense was essentially unchanged in Q4 FY21 from Q3
FY21, primarily due to favorable movements of the RMB against the U.S. dollar
offsetting unfavorable movements of the South Korean won against the U.S.
dollar, and interest expense, net decreasing due to our reduced loan and finance
lease balances. Non-operating income and expense changed favorably from a loss
of $2.9 million in Q4 FY20 to income of $3.8 million in Q4 FY21. The $6.7
million favorable change was primarily due to favorable movements of the New
Taiwan dollar and the South Korean won against the U.S. dollar, which were
partially offset by unfavorable movements of the RMB against the U.S. dollar.

                                             FY21       FY20

Impact of currency transactions, net $ 8.0 $ (0.5)
Interest expense, net

                         (1.7 )     (2.4 )

Interest income and other net income 1.2 0.5

Total other income (expense)                $  7.5     $ (2.3 )



Non-operating income and expense increased $9.8 million in YTD FY21, compared
with YTD FY20, primarily due to favorable movements of the South Korean won and
the RMB against the U.S. dollar. Interest expense, net decreased year over year,
due to a lower weighted-average interest rate on our debt, which offset a year
over year increase in our average debt balance.

Income Tax Provision

                             Q4 FY21       Q3 FY21       Q4 FY20

Income tax provision        $     8.7     $     7.8     $     3.5
Effective income tax rate        23.3 %        24.4 %        28.8 %



The effective income tax rates are sensitive to the jurisdictional mix of our
earnings, due, in part, to the non-recognition of tax provisions and benefits on
losses in jurisdictions with valuation allowances.

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The effective income tax rate decreased slightly in Q4 FY21, compared with Q3
FY21, primarily due to changes in the period-to-period mix of jurisdictional
earnings. The effective income tax rate decrease in Q4 FY21, compared with Q4
FY20, is primarily due to the benefits of investment credits in certain non-U.S.
jurisdictions in Q4 FY21, as well as changes in the jurisdictional mix of
earnings.

                             FY21       FY20

Income tax provision        $ 23.2     $ 21.3
Effective income tax rate     22.7 %     34.5 %


The decrease in the effective tax rate for a full year during FY21, compared to FY20, is mainly explained by the establishment of a valuation allowance for a loss carried forward on awe jurisdiction during fiscal year YTD-FY20, as well as changes in the jurisdictional distribution of income.

We consider all available evidence when evaluating the potential future
realization of deferred tax assets, and when, based on the weight of all
available evidence, we determine that it is more likely than not that some
portion or all of our deferred tax assets will not be realized, we reduce our
deferred tax assets by a valuation allowance. We also regularly assess the
potential outcomes of ongoing and future tax examinations and, accordingly, have
recorded accruals for such contingencies. Included in the balance of
unrecognized tax benefits as of October 31, 2021 and October 31, 2020, are $3.8
million and $2.0 million respectively, recorded in Other liabilities in the
consolidated balance sheets that, if recognized, would impact the effective tax
rates.

Net income attributable to non-controlling interests

Net income attributable to noncontrolling interests was $8.8 million in Q4 FY21,
compared with $7.3 million in Q3 FY21, and $2.1 million in Q4 FY20. On a
year-to-date basis, net income attributable to noncontrolling interests
increased $16.8 million from $6.5 million in YTD FY20 to $23.4 million in YTD
FY21. All of these increases resulted from improved net income at both our
Taiwan-based and China-based IC facilities.

Liquidity and capital resources

Cash and cash equivalents totaled $276.7 million and $278.7 million as of
October 31, 2021 and October 31, 2020, respectively. As of the most recent
balance sheet date, total cash and cash equivalents included $216.5 million held
by foreign subsidiaries. Our primary sources of liquidity are our cash on hand,
cash we generate from operations, and borrowing capacity we have 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 facility since 2011, it continues
to afford us financial flexibility. In addition, in China, we currently have
approximately $22.9 million of borrowing capacity to support local operations.
Please refer to Note 7 to the consolidated financial statements for additional
information on our current borrowing capacity.

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; 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 twelve months and thereafter for the foreseeable future.
Through the utilization of our existing liquidity, cash we generate from
operations, 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. In
addition, we stand ready to invest in mergers, acquisitions, or strategic
partnerships, should the right opportunity be available.

We estimate capital expenditures for our fiscal year 2022 will be approximately
$100 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. As of October 31, 2021, we had
outstanding capital commitments of approximately $73.7 million and recognized
liabilities related to capital equipment purchases of approximately $9.7
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 $61.4
million of our total $83.4 million committed and recognized obligations for
capital expenditures over the next twelve months. Please refer to Notes 9 and 14
to our consolidated financial statements for additional information on our lease
liabilities and unrecognized commitments, respectively.

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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
October 31, 2021, there was approximately $34.3 million remaining under that
authorization. Depending on market conditions, we may utilize some or the entire
remaining approved amount to reacquire additional shares.

Cash Flows

                                                                        Year Ended
                                                      October 31,       October 31,       October 31,
                                                         2021              2020              2019

Net cash provided by operating activities            $       150.8     $       143.0     $        68.4
Net cash used in investing activities                $      (103.5 )   $       (65.7 )   $      (151.4 )
Net cash used in financing activities                $       (53.9 )   $    

(16.0) $ (42.1)



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. Net cash provided by operating activities increased by
$7.7 million in 2021, compared with 2020, due to increased net income and share
based compensation, partially offset by lower depreciation and other noncash
adjustments and net changes in working capital, predominantly in Asia.

Investing Activities:  Net cash flows used in investing activities primarily
consisted of purchases of property, plant and equipment. Purchases of property,
plant and equipment were $109.1 million in 2021, compared with $70.8 million in
2020, as we increased our tool purchases in the current year, primarily in
response to market demands in Asia.

Financing Activities: Net cash flows used in financing activities primarily
consist of share repurchases, proceeds from and repayments of debt, and
contributions from and distributions to noncontrolling interests. Net cash used
in financing activities increased by $37.9 million in 2021, compared with 2020,
due to increased share repurchases of $13.9 million, an excess of the change in
distributions to, as compared with contributions from, noncontrolling interests
of $11.0 million, and increased debt repayments of $13.0 million.

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 October 31, 2021, Photronics and DNP
each had net investments in PDMCX of approximately $64.0 million.

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Business Outlook

Our current business outlook and direction was provided in our full year and fourth quarter fiscal 2021 results conference call, and accompanying slide show. These can be viewed in the investors section of our website – www.phototronics.com.

Our future results of operations and the other forward-looking statements
contained in this filing and in our Full Year and Fourth Quarter Fiscal 2021
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. A
number of other unforeseeable factors could cause actual results to differ
materially from our expectations.

Critical accounting estimates

Our consolidated financial statements are based on the selection and application
of accounting policies, which require management to make significant estimates
and assumptions. We believe the following to be the more critical areas that
require judgment when applying our accounting policies:

• Revenue recognition: application of GAAP related to valuation and

revenue recognition requires us to make judgments and estimates.

More specifically, the determination of whether the income related to our income

contracts must be accounted for over time or at a point in time, as these

determinations affect the timing and amount of our reported income and

Income. Other important judgments include estimating the point in the

manufacturing process for which we are entitled to receive payment, as well as

the progress of the order until its completion in order to determine the amount of

arrangement consideration earned for contractual revenue recognized over time.

• Tangible fixed assets: important judgment and assumptions are

employees when we establish estimated useful lives, amortization periods and

when depreciation is due to start on these assets that this valuation can

significantly our gross margin and our research and development expenses.

Significant judgment is also required when we periodically review the property,

factories and equipment for any potential impairment of carrying values, whenever

events such as a major industry downturn, plant closures,

obsolescence or any other change in circumstances indicate that their transport

the amounts may not be recoverable because the assessment of collectability requires us to

forecast future cash flows associated with these assets; this assessment may

significantly our gross margin and our operating expenses.

• Leases: important judgment is exercised in determining whether a

the arrangement is, or contains, a lease and, in some cases, if the

should be classified as an operating lease or a finance lease, which may

affect the timing and classification of rental costs.

• Contingencies: We are subject to the possibility of losses of various

contingencies. Significant judgment is required to estimate the probability

and the amount of a loss, if any, resulting from those contingencies. A regularization is carried out when

it is probable that a liability has been incurred or that an asset has been impaired

and the amount of the loss can be reasonably estimated. By counting the

resolution of contingencies, significant judgment may be required to estimate

the amounts relating to periods prior to the resolution which are charged to

   operations in the period of resolution and amounts related to future periods.



 • Income Taxes:  Our annual tax rate is determined based on our income and the

the jurisdictions where it is earned, the statutory tax rates and the tax impacts of

items treated differently for tax purposes than for financial reporting

purposes. Also inherent in determining our annual tax rate are judgments and

assumptions regarding the recoverability of certain deferred tax balances, and

our ability to maintain certain tax positions. We are subject to complex taxation

laws, in the we and many foreign jurisdictions, and how

they apply may be subject to interpretation. The realization of deferred tax assets is

dependent on the generation of sufficient taxable income in the

competence in future periods, which involves business plans, planning

opportunities and expectations for future results. Our assessment is based on

estimates and assumptions, and may involve a series of complex judgments about

   future events.



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There are a number of estimates and assumptions inherent in calculating the
various components of our tax provision. Future events such as changes in tax
legislation, geographic mix of earnings, completion of tax audits or earnings
repatriation plans could have an impact on those estimates and our effective tax
rate.

Please refer to Notes 3, 8, 9, 12 and 14 to our consolidated financial statements in Part II, Item 8 for additional information relating to these critical accounting estimates and our other significant accounting policies.

Effect of recent accounting positions

See “Article 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 21 Recent Accounting Statements” for recent accounting statements that may have an impact on our financial information.

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