UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 29, 2012

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission file number 0-15451

PHOTRONICS, INC.

(Exact name of registrant as specified in its charter)

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x  No o

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

Large Accelerated Filer o Accelerated Filer x Non-Accelerated Filer o Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o  No x

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

Class	Outstanding at June 1, 2012
Common Stock, $0.01 par value	60,391,283 Shares

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements made by or on behalf of Photronics, Inc. ("Photronics" or the "Company"). These statements are based on management's beliefs, as well as assumptions made by, and information currently available to, management. Forward-looking statements may be identified by words like "expect", "anticipate", "believe", "plan", "projects", and similar expressions, or the negative of such terms, or other comparable terminology. All forward-looking statements involve risks and uncertainties that are difficult to predict. In particular, any statement contained in this quarterly report on Form 10-Q, in press releases, written statements, or other documents filed with the Securities and Exchange Commission, or in the Company's communications and discussions with investors and analysts in the normal course of business through meetings, phone calls, or conference calls regarding the consummation and benefits of future acquisitions, expectations with respect to future sales, financial performance, operating efficiencies, or product expansion, are subject to known and unknown risks, uncertainties, and contingencies, many of which are beyond the control of the Company. These factors may cause actual results, performance, or achievements to differ materially from anticipated results, performance, or achievements expressed or implied by such forward-looking statements. Factors that might affect such forward-looking statements include, but are not limited to, overall economic and business conditions; economic and political conditions in international markets; the demand for the Company's products; competitive factors in the industries and geographic markets in which the Company competes; changes in federal, state and international tax requirements (including tax rate changes, new tax laws and revised tax law interpretations); interest rate fluctuations and other capital market conditions, including changes in the market price of the Company's common stock; foreign currency exchange rate fluctuations; changes in technology; the timing, impact, and other uncertainties of future acquisitions; the seasonal and cyclical nature of the semiconductor and flat panel display industries; management changes; damage or destruction to the Company's facilities, or the facilities of its customers or suppliers, by natural disasters, labor strikes, political unrest, or terrorist activity; the ability of the Company to (i) place new equipment in service on a timely basis; (ii) obtain additional financing; (iii) achieve anticipated synergies and other cost savings in connection with acquisitions and productivity programs; (iv) fully utilize its tools; (v) achieve desired yields, pricing, product mix, and market acceptance of its products and (vi) obtain necessary export licenses. Any forward-looking statements should be considered in light of these factors. Accordingly, there is no assurance that the Company's expectations will be realized. The Company does not assume responsibility for the accuracy and completeness of the forward-looking statements and does not assume an obligation to provide revisions to any forward-looking statements, except as otherwise required by securities and other applicable laws.

2

PHOTRONICS, INC.

AND SUBSIDIARIES

INDEX

PART I.	FINANCIAL INFORMATION	Page
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets at April 29, 2012 and October 30, 2011	4
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended April 29, 2012 and May 1, 2011	5
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended April 29, 2012 and May 1, 2011	6
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended April 29, 2012 and May 1, 2011	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25
Item 4.	Controls and Procedures	26
PART II.	OTHER INFORMATION
Item 1A.	Risk Factors	27
Item 6.	Exhibits	27

3

PART I.   FINANCIAL INFORMATION

Item 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PHOTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)

(unaudited)

	April 29, 2012		October 30, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	191,960	$	189,928
Accounts receivable, net of allowance of $3,946 in 2012 and $4,055 in 2011		89,123		85,540
Inventories		20,453		22,100
Deferred income taxes		638		609
Other current assets		7,721		7,030
Total current assets		309,895		305,207
Property, plant and equipment, net		382,800		368,680
Investment in joint venture		85,831		79,984
Intangible assets, net		39,918		42,462
Deferred income taxes		11,687		11,239
Other assets		9,116		10,282
Total assets	$	839,247	$	817,854
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term borrowings	$	7,874	$	5,583
Accounts payable		55,485		54,772
Accrued liabilities		25,909		35,546
Total current liabilities		89,268		95,901
Long-term borrowings		172,312		152,577
Deferred income taxes		742		737
Other liabilities		8,047		8,883
Total liabilities		270,369		258,098
Commitments and contingencies
Equity:
Preferred stock, $0.01 par value, 2,000 shares authorized, none issued and outstanding		-		-
Common stock, $0.01 par value, 150,000 shares authorized, 60,106 shares issued and outstanding at April 29, 2012 and 59,651 at October 30, 2011		601		597
Additional paid-in capital		490,350		486,674
Retained earnings		26,691		13,605
Accumulated other comprehensive income		8,431		10,171
Total Photronics, Inc. shareholders' equity		526,073		511,047
Noncontrolling interests		42,805		48,709
Total equity		568,878		559,756
Total liabilities and equity	$	839,247	$	817,854

See accompanying notes to condensed consolidated financial statements.

4

PHOTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended						Six Months Ended
	April 29, 2012			May 1, 2011			April 29, 2012			May 1, 2011
Net sales	$	117,451		$	133,103		$	229,605		$	253,926
Costs and expenses:
Cost of sales		(87,590	)		(96,617	)		(174,286	)		(186,845	)
Selling, general and administrative		(12,201	)		(11,448	)		(23,526	)		(22,162	)
Research and development		(4,441	)		(3,940	)		(8,885	)		(7,711	)
Consolidation, restructuring and related charges		(58	)		-			(1,176	)		-
Operating income		13,161			21,098			21,732			37,208
Other income (expense):
Debt extinguishment loss		-			(30,286	)		-			(30,286	)
Interest expense		(1,795	)		(1,881	)		(3,575	)		(3,592	)
Investment and other income (expense), net		827			(704	)		2,198			1,963
Income (loss) before income taxes		12,193			(11,773	)		20,355			5,293
Income tax provision		(2,663	)		(3,260	)		(5,984	)		(6,742	)
Net income (loss)		9,530			(15,033	)		14,371			(1,449	)
Net income attributable to noncontrolling interests		(712	)		(1,405	)		(1,285	)		(2,878	)
Net income (loss) attributable to Photronics, Inc.	$	8,818		$	(16,438	)	$	13,086		$	(4,327	)
Earnings (loss) per share:
Basic	$	0.15		$	(0.30	)	$	0.22		$	(0.08	)
Diluted	$	0.14		$	(0.30	)	$	0.21		$	(0.08	)
Weighted-average number of common shares outstanding:
Basic		60,086			55,685			59,952			54,751
Diluted		76,590			55,685			76,472			54,751

See accompanying notes to condensed consolidated financial statements.

5

PHOTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

	Three Months Ended					Six Months Ended
	April 29, 2012		May 1, 2011			April 29, 2012			May 1, 2011
Net income (loss)	$	9,530	$	(15,033	)	$	14,371		$	(1,449	)
Other comprehensive income (loss), net of tax of $0:
Foreign currency translation adjustments		741		11,420			(412	)		19,787
Amortization of cash flow hedge		32		32			64			64
Other comprehensive income (loss)		773		11,452			(348	)		19,851
Comprehensive income (loss)		10,303		(3,581	)		14,023			18,402
Less: comprehensive income attributable to  noncontrolling interests		1,795		1,760			2,642			5,788
Comprehensive income (loss) attributable to Photronics, Inc.	$	8,508	$	(5,341	)	$	11,381		$	12,614

See accompanying notes to condensed consolidated financial statements.

6

PHOTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Six Months Ended
	April 29, 2012			May 1, 2011
Cash flows from operating activities:
Net income (loss)	$	14,371		$	(1,449	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		44,135			46,467
Consolidation, restructuring and related charges		262			-
Debt extinguishment loss		-			23,504
Changes in assets and liabilities:
Accounts receivable		(2,829	)		(11,380	)
Inventories		1,622			(11,450	)
Other current assets		(698	)		1,500
Accounts payable, accrued liabilities and other		5,536			16,798
Net cash provided by operating activities		62,399			63,990
Cash flows from investing activities:
Purchases of property, plant and equipment		(67,626	)		(39,254	)
Investment in joint venture		(5,899	)		(8,498	)
Other		(1,600	)		(250	)
Net cash used in investing activities		(75,125	)		(48,002	)
Cash flows from financing activities:
Proceeds from long-term borrowings		25,000			17,000
Proceeds from issuance of convertible debt		-			115,000
Repayments of long-term borrowings		(2,343	)		(60,303	)
Payments of deferred financing fees		(198	)		(4,145	)
Repurchase of common stock by subsidiary		(7,577	)		(3,294	)
Proceeds from exercise of share-based arrangements		431			356
Net cash provided by financing activities		15,313			64,614
Effect of exchange rate changes on cash		(555	)		6,565
Net increase in cash and cash equivalents		2,032			87,167
Cash and cash equivalents at beginning of period		189,928			98,945
Cash and cash equivalents at end of period	$	191,960		$	186,112
Supplemental disclosure of non-cash information:
Change in accrual for purchases of property, plant and equipment	$	(14,308	)	$	3,079
Deposit related to facility purchase		2,000			-
Capital lease obligation for purchase of equipment		-			21,248
Common stock issued to extinguish debt		-			17,390
Investment in joint venture		-			1,750

See accompanying notes to condensed consolidated financial statements.

7

PHOTRONICS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

Three Months and Six Months Ended April 29, 2012 and May 1, 2011

(unaudited)

(in thousands, except share amounts)

NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION

Photronics, Inc. and its subsidiaries ("Photronics" or “the Company") is one of the world's leading manufacturers of photomasks, which are high precision photographic quartz plates containing microscopic images of electronic circuits. Photomasks are a key element in the manufacture of semiconductors and flat panel displays ("FPDs"), and are used as masters to transfer circuit patterns onto semiconductor wafers and flat panel substrates during the fabrication of integrated circuits ("ICs") and a variety of FPDs and, to a lesser extent, other types of electrical and optical components. The Company currently operates principally from eight manufacturing facilities, two of which are located in Europe, two in Taiwan, one in Korea, and three in the United States. The Company ceased manufacturing photomasks at its Singapore facility in December 2011.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the fiscal year ending October 28, 2012. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended October 30, 2011.

NOTE 2 - CHANGES IN EQUITY

The following tables set forth the Company's consolidated changes in equity for the three and six month periods ended April 29, 2012 and May 1, 2011:

	Three Months Ended April 29, 2012
	Photronics, Inc. Shareholders
									Accumulated
					Additional				Other			Non-
	Common Stock				Paid-in		Retained		Comprehensive			controlling			Total
	Shares		Amount		Capital		Earnings		Income			Interests			Equity
Balance at January 30, 2012		60,015	$	600	$	488,674	$	17,873	$	8,773		$	48,526		$	564,446
Net income		-		-		-		8,818		-			712			9,530
Other comprehensive income (loss)		-		-		-		-		(310	)		1,083			773
Sale of common stock through employee stock option and purchase plans		81		1		94		-		-			-			95
Restricted stock awards vesting and expense		10		-		210		-		-			-			210
Share-based compensation expense		-		-		506		-		-			-			506
Repurchase of common stock by subsidiary		-		-		866		-		(32	)		(7,516	)		(6,682	)
Balance at April 29, 2012		60,106	$	601	$	490,350	$	26,691	$	8,431		$	42,805		$	568,878

8

	Three Months Ended May 1, 2011
	Photronics, Inc. Shareholders
								Retained			Accumulated
					Additional			Earnings			Other			Non-
	Common Stock				Paid-in			(Accumulated			Comprehensive			controlling			Total
	Shares		Amount		Capital			Deficit)			Income			Interests			Equity
Balance at January 31, 2011		53,865	$	539	$	437,360		$	9,487		$	12,906		$	58,170		$	518,462
Net income (loss)		-		-		-			(16,438	)		-			1,405			(15,033	)
Other comprehensive income		-		-		-			-			11,097			355			11,452
Common stock issued to extinguish debt		4,492		45		39,123			-			-			-			39,168
Sale of common stock through employee stock option and purchase plans		45		-		88			-			-			-			88
Restricted stock awards vesting and expense		15		-		234			-			-			-			234
Share-based compensation expense		-		-		375			-			-			-			375
Common stock warrants exercised		122		1		1,157			-			-			-			1,158
Repurchase of common stock by subsidiary		-		-		(328	)		-			(12	)		(2,949	)		(3,289	)
Balance at May 1, 2011		58,539	$	585	$	478,009		$	(6,951	)	$	23,991		$	56,981		$	552,615

	Six Months Ended April 29, 2012
	Photronics, Inc. Shareholders
									Accumulated
					Additional				Other			Non-
	Common Stock				Paid-in		Retained		Comprehensive			controlling			Total
	Shares		Amount		Capital		Earnings		Income			Interests			Equity
Balance at October 31, 2011		59,651	$	597	$	486,674	$	13,605	$	10,171		$	48,709		$	559,756
Net income		-		-		-		13,086		-			1,285			14,371
Other comprehensive income (loss)		-		-		-		-		(1,705	)		1,357			(348	)
Sale of common stock through employee stock option and purchase plans		203		2		237		-		-			-			239
Restricted stock awards vesting and expense		75		-		452		-		-			-			452
Share-based compensation expense		-		-		919		-		-			-			919
Common stock warrants exercised		177		2		1,051		-		-			-			1,053
Repurchase of common stock by subsidiary		-		-		1,017		-		(35	)		(8,546	)		(7,564	)
Balance at April 29, 2012		60,106	$	601	$	490,350	$	26,691	$	8,431		$	42,805		$	568,878

9

	Six Months Ended May 1, 2011
	Photronics, Inc. Shareholders
											Accumulated
					Additional						Other			Non-
	Common Stock				Paid-in			Accumulated			Comprehensive			controlling			Total
	Shares		Amount		Capital			Deficit			Income			Interests			Equity
Balance at November 1, 2010		53,779	$	538	$	436,825		$	(2,624	)	$	7,062		$	54,142		$	495,943
Net income (loss)		-		-		-			(4,327	)		-			2,878			(1,449	)
Other comprehensive income		-		-		-			-			16,941			2,910			19,851
Common stock issued to extinguish debt		4,492		45		39,123			-			-			-			39,168
Sale of common stock through employee stock option and purchase plans		110		1		146			-			-			-			147
Restricted stock awards vesting and expense		36		-		422			-			-			-			422
Share-based compensation expense		-		-		664			-			-			-			664
Common stock warrants exercised		122		1		1,157			-			-			-			1,158
Repurchase of common stock by subsidiary		-		-		(328	)		-			(12	)		(2,949	)		(3,289	)
Balance at May 1, 2011		58,539	$	585	$	478,009		$	(6,951	)	$	23,991		$	56,981		$	552,615

NOTE 3 - JOINT VENTURE, TECHNOLOGY LICENSE AND OTHER AGREEMENTS WITH MICRON TECHNOLOGY, INC.

On May 5, 2006, Photronics and Micron Technology, Inc. ("Micron") entered into the MP Mask joint venture (“MP Mask”), which develops and produces photomasks for leading-edge and advanced next generation semiconductors. As part of the formation of the joint venture, Micron contributed its existing photomask technology center located in Boise, Idaho, (headquarters of MP Mask) and Photronics invested $135 million in exchange for a 49.99% interest in MP Mask (to which $64.2 million of the original investment was allocated), a license for photomask technology of Micron, and certain supply agreements.

This joint venture is a variable interest entity ("VIE") (as that term is defined in the Accounting Standards Codification ("ASC") because all costs of the joint venture are passed on to the Company and Micron through purchase agreements they have entered into with the joint venture, and it is dependent upon the Company and Micron for any additional cash requirements. On a quarterly basis the Company reassesses whether its interest in MP Mask gives it a controlling financial interest in this VIE. The purpose of this quarterly reassessment is to identify the primary beneficiary (which is defined in the ASC as the entity that consolidates a VIE) of the VIE. As a result of the reassessment in the current quarter, the Company determined that Micron is still the primary beneficiary of the VIE, by virtue of its tie-breaking voting rights within MP Mask’s Board of Managers, thereby giving it the power to direct the activities of MP Mask that most significantly impact its economic performance, including its decision making authority in the ordinary course of business and its purchasing the majority of products produced by the VIE.

The Company has utilized MP Mask for both high-end IC photomask production and research and development purposes. MP Mask charges its variable interest holders based on their actual usage of its facility. MP Mask separately charges for any research and development activities it engages in at the requests of its owners. The Company recorded cost of sales of $2.1 million and $4.1 million and research and development expenses of $0.2 million and $0.5 million during the three and six month periods ended April 29, 2012. Cost of sales of $4.8 million and $8.3 million and research and development expenses of $0.2 million and $0.5 million were recorded during the three and six month periods ended May 1, 2011.

MP Mask is governed by a Board of Managers, appointed by Micron and the Company. Since MP Mask's inception, Micron, as a result of its majority ownership, has held majority voting power on the Board of Managers. The voting power held by each party is subject to change as ownership interests change. Under the MP Mask joint venture operating agreement, the Company may be required to make additional capital contributions to MP Mask up to the maximum amount defined in the operating agreement. However, should the Board of Managers determine that further additional funding is required, MP Mask shall pursue its own financing. If MP Mask is unable to obtain its own financing, it may request additional capital contributions from the Company. Should the Company choose not to make a requested contribution to MP Mask, its ownership percentage may be reduced. The Company increased its investment in the MP Mask joint venture by $5.4 million and $5.8 million during the three and six month periods ended April 29, 2012, respectively. During the three and six month periods ended May 1, 2011, the Company increased its investment in MP Mask by $6.2 million and $10.2 million, respectively. These investments were primarily related to capital calls made by the joint venture. In May 2012 the Company made an additional capital contribution to MP Mask of $7.5 million.

10

The Company's investment in the VIE, which represents its maximum exposure to loss, was $85.8 million at April 29, 2012, and $80.0 million at October 30, 2011. These amounts are reported in the Company's condensed consolidated balance sheets as "Investment in joint venture". The Company recorded income from its investment in the VIE of $0.6 million in the six month period ended May 1, 2011, and recorded no income from its investment in the three month period ended May 1, 2011, or in the three or six month periods ended April 29, 2012. Income from the VIE is included in "Investment and other income, net" in the condensed consolidated statements of operations.

In the first quarter of 2008 a capital lease agreement with Micron commenced for the U.S. nanoFab facility in Boise, Idaho. Quarterly lease payments, which bore interest at 8%, were $3.8 million through January 2013. This lease was cancelled in the third fiscal quarter of 2009, at which time the Company and Micron (the lessor) entered into a new lease agreement for the facility. Under the provisions of the new lease agreement, quarterly lease payments were reduced from $3.8 million to $2.0 million, the term of the lease was extended from December 31, 2012 to December 31, 2014, and ownership of the property would not transfer to the Company at the end of the lease term. The interest rate of the new lease agreement remained at 8%.  As a result of the new lease agreement, the Company reduced its lease obligation and the carrying value of its assets under capital leases by approximately $28 million. The Company paid the capital lease obligation in full in April 2011 with a portion of the net proceeds of the March 2011 issuance of its 3.25% convertible senior notes.

In the second quarter of fiscal 2012 the Company paid $35 million to Micron in connection with the purchase of the U.S. nanoFab facility and the remaining term of the operating lease agreement through 2014 was cancelled. Also in connection with this purchase, the Company entered into a $25 million term loan agreement in the second quarter of fiscal 2012 (see Notes 4 and 14 for further discussion).

NOTE 4 - LONG-TERM BORROWINGS

Long-term borrowings consist of the following:

	April 29, 2012		October 30, 2011
3.25% convertible senior notes due on April 1, 2016	$	115,000	$	115,000
Term loan, which bears interest at a variable rate, as defined (2.5% at April 29, 2012)		25,000		-
5.5% convertible senior notes due on October 1, 2014		22,054		22,054
3.09% capital lease obligation payable through March 2016		16,875		19,218
4.75% financing loan with customer		1,257		1,888
		180,186		158,160
Less current portion		7,874		5,583
	$	172,312	$	152,577

In March 2012 the Company, in connection with its purchase of the U.S. nanoFab facility (see Notes 3 and 14 for further discussion), further amended the credit facility. The amendment included the addition of a $25 million term loan maturing in March 2017 with minimum quarterly principal payments of $0.6 million (quarterly payments commence in June 2012 and are based on a ten year repayment period). The amendment also included a twenty-five basis point reduction in the interest rate charged on any borrowings under the credit facility. The credit facility bears interest (2.5% at April 29, 2012), based on the Company’s total leverage ratio, at LIBOR plus a spread, as defined in the credit facility.

In March 2011 the Company issued through a private offering, pursuant to Rule 144A under the Securities Act of 1933, as amended, $115 million aggregate principal amount of 3.25% convertible senior notes. The notes mature on April 1, 2016, and note holders may convert each $1,000 principal amount of notes to 96.3879 shares of common stock (equivalent to an initial conversion price of $10.37 per share of common stock) at any time prior to the close of business on the second scheduled trading day immediately preceding April 1, 2016.  The conversion rate is subject to adjustment upon the occurrence of certain events, which are described in the indenture dated March 28, 2011.  The Company is not required to redeem the notes prior to their maturity date. Interest on the notes accrues in arrears, and is paid semiannually through the notes’ maturity date. Interest payments on the notes commenced on October 1, 2011. The net proceeds of the notes were approximately $110.7 million, which were used, in part, to acquire $35.4 million of the Company’s 5.5% convertible senior notes which were to mature on October 1, 2014, and to repay, in full, its then outstanding obligations under capital leases of $19.8 million.

11

In March 2011 the Company amended its credit facility (“the credit facility”) which, as amended, included, among other things: i) a reduction of the aggregate commitments of the lenders from $65 million to $30 million; ii) a reduction of the applicable interest rates and modifications of the leverage ratios related thereto; iii) an extension of the maturity date to April 30, 2015; iv) an increase in the permitted amount of certain financed capital assets up to $75 million outstanding at any one time; v) an allowance to issue the 3.25% convertible senior notes; vi) an increase in the investments “basket” from $15 million to $25 million per year; vii) an allowance to repurchase the 5.5% convertible senior notes and other indebtedness; and viii) removal of the limitation on maximum last twelve months capital expenditures.

The credit facility is secured by substantially all of the Company’s assets located in the United States, as well as common stock the Company owns in certain of its foreign subsidiaries, and is subject to the following financial covenants:  minimum fixed charge ratio, total leverage ratio and minimum unrestricted cash balance. As of April 29, 2012, the Company had no outstanding borrowings under the credit facility and $30 million was available for borrowing.

In June 2011 the Company acquired $5.0 million of its 5.5% convertible senior notes in exchange for 0.7 million shares of its common stock, with a fair value of $6.5 million, and cash of $3.2 million (the note holders received 147.529 shares and cash of $647 for each $1,000 note). The Company, in connection with this repurchase, recorded an extinguishment loss of $5.0 million, which included the write off of deferred financing fees of $0.3 million.

In March 2011 the Company acquired $30.4 million of its 5.5% convertible senior notes in exchange for 4.5 million shares of its common stock, with a fair value of $39.2 million, and cash of $19.7 million (the note holders received 147.529 shares and cash of $647 for each $1,000 note). The Company, in connection with this repurchase, recorded an extinguishment loss of $30.1 million, which included the write off of deferred financing fees of $1.7 million. The loss is included in other income (expense) in the Company’s condensed consolidated statements of operations.

In September 2009 the Company issued, through a public offering, $57.5 million aggregate principal amount of 5.5% convertible senior notes, which were to mature on October 1, 2014.  Under the terms of the offering, the note holders could convert each $1,000 principal amount of notes to 196.7052 shares of common stock (equivalent to an initial conversion price of $5.08 per share of common stock) on, or before, September 30, 2014.  The conversion rate is subject to adjustment upon the occurrence of certain events which are described in the indenture dated September 16, 2009.  The Company is not required to redeem the notes prior to their maturity.  The net proceeds of this offering were approximately $54.9 million, which were used to reduce amounts outstanding under the Company’s credit facility. As discussed above, $35.4 million aggregate principal amount of these notes were acquired by the Company during fiscal year 2011.

In April 2011 the Company entered into a five year, $21.2 million capital lease for manufacturing equipment. Payments under the lease, which bears interest at 3.09%, are $0.4 million per month through March 2016. The lease agreement provides that the Company must maintain the equipment in good working order, and includes a cross default with cross acceleration provision related to certain nonfinancial covenants incorporated in the Company's credit facility agreement. As of April 29, 2012, the total amount payable through the end of the lease term was $17.9 million, of which $16.9 million represented principal and $1.0 million represented interest.

In January 2010 the Company borrowed $3.7 million from a customer to purchase manufacturing equipment. This loan bears interest at 4.75% and is primarily being repaid with product supplied to the customer. Product valued at $0.2 million and $0.5 million was shipped to the customer and applied against the loan during the three and six month periods ended April 29, 2012, respectively, and product valued at $0.3 million and $0.6 million was applied against the loan in the respective prior year periods. The Company estimates that the loan will be fully repaid in fiscal 2013.

NOTE 5 - COMMON STOCK WARRANTS

In September 2009 the Company entered into two warrant agreements with Intel Capital Corporation to purchase a total of 750,000 shares of the Company's common stock. Under one warrant agreement 500,000 shares of the Company's common stock can be purchased at an exercise price of $4.15 per share and under the second warrant agreement 250,000 shares of the Company's common stock can be purchased at an exercise price of $5.08 per share. The warrant agreements expire in September 2014. Also in September 2009, the Company and Intel Corporation entered into an agreement to share technical and operations information regarding the development of the Company's products, the capabilities of the Company's photomask manufacturing lines and the alignment of photomask toolsets. Intel Capital Corporation also invested in the Company's convertible debt offering of September 2009. The warrants were recorded at their fair value on their date of grant, which was determined using the Black-Scholes option pricing model. As of April 29, 2012, none of the warrants issued to Intel Capital Corporation had been exercised.

12

In conjunction with the May 2009 amendment to its then existing credit facility, the Company also entered into a warrant agreement with its lenders. See Note 6 for further discussion of these warrants.

NOTE 6 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company utilizes derivative instruments to reduce its exposure to the effects of the variability of interest rates and foreign currencies on its financial performance when it believes such action is warranted. Historically, the Company has been a party to derivative instruments to hedge either the variability of cash flows of a prospective transaction or the fair value of a recorded asset or liability. In certain instances, the Company has designated these transactions as hedging instruments. However, whether or not a derivative was designated as being a hedging instrument, the Company's purpose for engaging in the derivative has always been for risk management (and not speculative) purposes. The Company historically has not been a party to a significant number of derivative instruments and does not expect its derivative activity to significantly increase in the foreseeable future.

In addition to the utilization of derivative instruments discussed above, the Company attempts to minimize its risk of foreign currency exchange rate variability by, whenever possible, procuring production materials within the same country that it will utilize the materials in manufacturing, and by selling to customers from manufacturing sites within the country in which the customers are located.

In May 2009, in connection with an amendment to its credit facility, the Company issued 2.1 million warrants, each exercisable for one share of the Company's common stock at an exercise price of $0.01 per share. Forty percent of the warrants were exercisable upon issuance, and the remaining balance was to become exercisable in twenty percent increments at various points in time after October 31, 2009. As a result of certain net cash settleable put provisions within the warrant agreement, the warrants were recorded as a liability in the Company's consolidated balance sheet. As of the issuance date and for future periods that such warrants remained outstanding, the Company had adjusted the liability based upon the current fair value of the warrants, with any changes in their fair value being recognized in earnings. Due to the warrants' exercise price of $0.01 per share, their fair value approximated the market price of the Company's common stock. Approximately 1.2 million of these warrants were cancelled as a result of the Company's early repayment of certain amounts under its credit facility during the year ended November 1, 2009, and the associated liability was reduced accordingly. During the three month period ended January 29, 2012, all of the 0.2 million of these warrants that remained outstanding were exercised. In connection with this exercise, the Company recognized a gain of $0.1 million, included in investment and other income, net, in its condensed consolidated statements of operations. Warrant exercises during the three and six month periods ended May 1, 2011, resulted in the Company recognizing losses of $0.7 million and $0.8 million, respectively, which were also included in investment and other income (expense), net. See Note 5 for disclosures related to other common stock warrants.

A portion of an existing loss on a cash flow hedge in the amount of $0.1 million is expected to be reclassified into earnings over the next twelve months.

The table below presents the effect of derivative instruments on the Company's condensed consolidated balance sheets at April 29, 2012 and October 30, 2011.

Derivatives
Not Designated
as Hedging		Fair Value at
Instruments Under		April 29,		October 30,
ASC 815	Balance Sheet Location	2012		2011
Warrants on common stock	Other liabilities	$	-	$	1,147

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The table below presents the effect of derivative instruments on the Company's condensed consolidated statements of operations for the three and six month periods ended April 29, 2012 and May 1, 2011.

		Amount of Gain (Loss) Recognized
Derivatives		Related to Derivative Instruments
Not Designated		Three Months Ended					Six Months Ended
as Hedging	Location of Gain (Loss)
Instruments Under	Related to	April 29,		May 1,			April 29,		May 1,
ASC 815	Derivative Instruments	2012		2011			2012		2011
Warrants on common stock	Investment and other income (expense), net	$	-	$	(745	)	$	94	$	(820	)

NOTE 7 - SHARE-BASED COMPENSATION

In March 2007 shareholders approved a new share-based compensation plan ("Plan"), under which options, restricted stock, restricted stock units, stock appreciation rights, performance stock, performance units, and other awards based on, or related to, shares of the Company's common stock may be granted from shares authorized but unissued or shares previously issued and reacquired by the Company. A maximum of six million shares of common stock may be issued under the Plan. Awards may be granted to officers, employees, directors, consultants, advisors, and independent contractors of the Company or its subsidiaries. In the event of a change in control (as defined in the Plan), the vesting of awards may be accelerated. The Plan, aspects of which are more fully described below, prohibits further awards from being issued under prior plans. The Company incurred total share-based compensation costs for the three and six month periods ended April 29, 2012, of $0.7 million and $1.4 million, respectively, and $0.6 million and $1.1 million for the three and six month periods ended May 1, 2011, respectively. The Company received cash from option exercises of $0.1 million and $0.2 million for the three and six month periods ended April 29, 2012, respectively, and $0.1 million and $0.2 million for the three and six month periods ended May 1, 2011, respectively. No share-based compensation cost was capitalized as part of an asset and no related income tax benefits were recorded during the periods presented.

Stock Options

Option awards generally vest in one to four years, and have a ten-year contractual term. All incentive and non-qualified stock option grants have an exercise price equal to the market value of the underlying common stock on the date of grant. The grant date fair values of options are based on closing prices of the Company’s common stock on the dates of grant using the Black-Scholes option pricing model. Expected volatility is based on the historical volatility of the Company's stock. The Company uses historical option exercise behavior and employee termination data to estimate expected term, which represents the period of time that the options granted are expected to remain outstanding. The risk-free rate of return for the estimated term of the option is based on the U.S. Treasury yield curve in effect at the date of grant. The weighted-average inputs and risk-free rate of return ranges used to calculate the grant date fair value of options issued during the three and six month periods ended April 29, 2012 and May 1, 2011, are presented in the following table.

	Three Months Ended				Six Months Ended
	April 29, 2012		May 1, 2011		April 29, 2012		May 1, 2011
Expected volatility		102.2%		98.8%		102.1%		98.7%
Risk free rate of return		0.9%		1.9%		0.7% - 0.9%		1.0% - 1.9%
Dividend yield		N/A		N/A		N/A		N/A
Expected term		4.3 years		4.2 years		4.3 years		4.2 years

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Information on outstanding and exercisable option awards as of April 29, 2012, is presented below.

Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at April 29, 2012		4,099,414	$	8.43	6.4 years	$	6,106
Exercisable at April 29, 2012		2,320,526	$	11.17	4.9 years	$	3,236

There were 32,000 share options granted during the three month period ended April 29, 2012, with a grant date fair value of $4.72 per share, and there were 369,250 share options granted during the three month period ended May 1, 2011, with a weighted-average grant date fair value of $4.81 per share. There were 524,500 share options granted during the six month period ended April 29, 2012, with a weighted-average grant date fair value of $4.47 per share and 620,750 share options granted during the six month period ended May 1, 2011, with a weighted-average grant date fair value of $4.75 per share. As of April 29, 2012, the total unrecognized compensation cost related to unvested option awards was approximately $4.3 million. That cost is expected to be recognized over a weighted-average amortization period of 2.8 years.

Restricted Stock

The Company periodically grants restricted stock awards. The restrictions on these awards lapse over a service period that has ranged from less-than-one to eight years. No restricted stock awards were granted during the three month period ended April 29, 2012, and 168,750 restricted stock awards were issued during the six month period ended April 29, 2012, with a weighted-average grant date fair value of $6.28 per share. No restricted stock awards were granted during the three month period ended May 1, 2011, and 176,250 restricted stock awards were issued during the six month period ended May 1, 2011, with a weighted-average grant date fair value of $6.71 per share. As of April 29, 2012, the total compensation cost not yet recognized related to unvested restricted stock awards was approximately $1.7 million. That cost is expected to be recognized over a weighted-average amortization period of 2.6 years. As of April 29, 2012, there were 285,127 shares of restricted stock outstanding.

NOTE 8 - CONSOLIDATION, RESTRUCTURING AND RELATED CHARGES

In the first quarter of fiscal 2012 the Company ceased the manufacture of photomasks at its Singapore facility and, in connection therewith, recorded charges of $0.1 million and $1.2 million during the three and six month periods ended April 29, 2012, respectively. The Company expects that this restructuring will be completed in fiscal 2012, and expects its total cost to range between $1.5 million and $1.9 million, with that cost primarily being comprised of employee termination costs and asset write-downs. The following table sets forth the Company’s restructuring reserve primarily related to its Singapore facility as of April 29, 2012, and reflects the activity affecting the reserve for the three and six month periods then ended.

	Three Months Ended									Six Months Ended
	April 29, 2012									April 29, 2012
	January 30, 2012		Charges		Utilized			April 29, 2012		October 31, 2011		Charges		Utilized			April 29, 2012
Employee terminations	$	419	$	28	$	(248	)	$	199	$	-	$	914	$	(715	)	$	199
Asset write-downs		-		30		(30	)		-		-		262		(262	)		-
	$	419	$	58	$	(278	)	$	199	$	-	$	1,176	$	(977	)	$	199

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NOTE 9 - INCOME TAXES

The effective income tax rates for the three and six month periods ended April 29, 2012 differ from the U.S. statutory rate of 35% primarily due to changes in the deferred tax asset and valuation allowance combined with income taxed at lower rates in non-U.S. jurisdictions. The effective income tax rates for the three and six month periods ended May 1, 2011, differ from the U.S. statutory rate, primarily due to the impact of the non-deductible debt extinguishment loss recorded in the second quarter of fiscal 2011, combined with income taxed at lower rates in non-U.S. jurisdictions. Entities within certain jurisdictions are excluded from the Company’s effective income tax rate if they are projected to generate a loss for the year and the tax benefits of such losses are not anticipated to be realized in the foreseeable future.

The liability for unrecognized tax benefits included in the condensed consolidated balance sheets at April 29, 2012 and October 30, 2011, is $2.0 million and $1.9 million, respectively, which, if recognized would reduce the effective tax rate. There have been no material changes in the Company’s liability for unrecognized tax benefits or related disclosures subsequent to the annual reporting period ended October 30, 2011.

PKLT, the Company’s FPD manufacturing facility in Taiwan, is accorded a tax holiday which commences in 2012 and expires in 2017.  The tax holiday did not impact the 2012 effective rate based on PKLT’s current tax loss position, and had no dollar or per share effect in the three or six month periods ended April 29, 2012 and May 1, 2011.

NOTE 10 - EARNINGS (LOSS) PER SHARE

The calculation of basic and diluted earnings (loss) per share is presented below.

	Three Months Ended					Six Months Ended
	April 29, 2012		May 1, 2011			April 29, 2012			May 1, 2011
Net income (loss) attributable to Photronics, Inc.	$	8,818	$	(16,438	)	$	13,086		$	(4,327	)
Effect of dilutive securities:
Interest expense on convertible notes, net of related tax effects		1,542		-			3,084			-
Gains related to common stock warrants fair value adjustment		-		-			(94	)		-
Earnings (loss) for diluted earnings (loss) per share	$	10,360	$	(16,438	)	$	16,076		$	(4,327	)
Weighted-average common shares computations:
Weighted-average common shares used for basic earnings (loss) per share		60,086		55,685			59,952			54,751
Effect of dilutive securities:
Convertible notes		15,423		-			15,423			-
Share-based payment awards		829		-			830			-
Common stock warrants		252		-			267			-
Potentially dilutive common shares		16,504		-			16,520			-
Weighted-average common shares used for diluted earnings (loss) per share		76,590		55,685			76,472			54,751
Basic earnings (loss) per share	$	0.15	$	(0.30	)	$	0.22		$	(0.08	)
Diluted earnings (loss) per share	$	0.14	$	(0.30	)	$	0.21		$	(0.08	)

In periods in which the Company incurred a net loss, the assumed exercises and vestings of certain outstanding share-based awards had an antidilutive effect. The assumed exercise of certain outstanding common stock warrants and the conversion of convertible senior notes to common stock would also have been antidilutive in the periods that the Company reported a net loss. The table below shows the amounts of incremental weighted-average shares of these share-based payment awards, common stock warrants, and convertible debt that were not considered potentially dilutive common shares in the fiscal periods presented.

16

	Three Months Ended				Six Months Ended
	April 29, 2012		May 1, 2011		April 29, 2012		May 1, 2011
Convertible notes		-		13,336		-		14,455
Share-based payment awards		-		1,374		-		1,221
Common stock warrants		-		554		-		535
Total potentially dilutive shares excluded		-		15,264		-		16,211

The table below shows the outstanding weighted-average share-based payment awards that were excluded from the calculation of diluted earnings or loss per share because their exercise price exceeded the average market value of the common shares for the period or, under application of the treasury stock method, they were otherwise determined to be anti-dilutive.

	Three Months Ended				Six Months Ended
	April 29, 2012		May 1, 2011		April 29, 2012		May 1, 2011
Potentially dilutive share-based payment awards excluded		2,471		2,215		2,511		2,044

NOTE 11 – GEOGRAPHIC INFORMATION

The Company operates as a single operating segment as a manufacturer of photomasks, which are high precision quartz plates containing microscopic images of electronic circuits for use in the fabrication of ICs and FPDs. Geographic net sales are based primarily on where the Company's manufacturing facility is located. The Company's net sales by geographic area and for ICs and FPDs for the three and six month periods ended April 29, 2012 and May 1, 2011, and its long-lived assets by geographic area as of April 29, 2012, and October 30, 2011, are presented below.

	Three Months Ended				Six Months Ended
	April 29, 2012		May 1, 2011		April 29, 2012		May 1, 2011
Net sales
Asia	$	69,937	$	79,482	$	140,173	$	158,173
Europe		10,386		13,046		20,734		23,810
North America		37,128		40,575		68,698		71,943
	$	117,451	$	133,103	$	229,605	$	253,926
IC	$	89,111	$	100,999	$	175,917	$	189,800
FPD		28,340		32,104		53,688		64,126
	$	117,451	$	133,103	$	229,605	$	253,926

	As of
	April 29, 2012		October 30, 2011
Long-lived assets
Asia	$	186,939	$	197,956
Europe		10,200		10,879
North America		185,661		159,845
	$	382,800	$	368,680

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The Company is typically impacted during its first fiscal quarter by the North American and European holiday periods, as some customers reduce their effective workdays and orders during these periods. Additionally, the Company can be impacted during its first or second quarter by the Asian New Year holiday period, which may also reduce customer orders.

NOTE 12 - FAIR VALUE MEASUREMENTS

The accounting framework for determining fair value includes a hierarchy for ranking the quality and reliability of the information used to measure fair value, which enables the reader of the financial statements to assess the inputs used to develop those measurements. The fair value hierarchy consists of three tiers as follows: Level 1, defined as quoted market prices in active markets for identical securities; Level 2, defined as inputs other than Level 1 that are observable, either directly or indirectly; and Level 3, defined as unobservable inputs that are not corroborated by market data.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The table below presents assets and liabilities as of October 30, 2011, that are measured at fair value on a recurring basis. The Company did not have any assets or liabilities measured at fair value on a recurring basis as of April 29, 2012.

	October 30, 2011
	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Common stock warrants (liability)	$	-	$	1,147	$	-	$	1,147
Total liabilities	$	-	$	1,147	$	-	$	1,147

The fair value of the common stock warrants liability was determined using the Black-Scholes option pricing model. A significant observable input into the model included the market price of the Company's common stock at the measurement date. Gains or losses related to fair value adjustments to the common stock warrants liability are included in other income (expense), net.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company did not have any nonfinancial assets or liabilities measured at fair value on a nonrecurring basis as of April 29, 2012 and October 30, 2011.

Fair Value of Other Financial Instruments

The fair values of the Company's cash and cash equivalents (Level 1 measurements), accounts receivable, accounts payable, and certain other current assets and current liabilities (Level 2 measurements) approximate their carrying value due to their short-term maturities. The fair value of the Company’s financing loan with a customer is a Level 2 measurement that approximates its carrying value due to its short-term maturity. The fair value of the Company’s variable rate long-term debt is a Level 2 measurement and approximates its carrying value due to the variable nature of the underlying interest rates. The fair value of the Company’s convertible senior notes is a Level 2 measurement, that is determined using recent bid prices. The table below presents the fair and carrying values of the Company’s convertible senior notes at April 29, 2012 and October 30, 2011.

	April 29, 2012				October 30, 2011
	Fair Value		Carrying Value		Fair Value		Carrying Value
3.25% convertible senior notes	$	113,862	$	115,000	$	109,260	$	115,000
5.5% convertible senior notes	$	32,734	$	22,054	$	32,791	$	22,054

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NOTE 13 - SUBSIDIARY SHARE REPURCHASE

Since the second quarter of fiscal 2011, the board of directors of Photronics Semiconductor Mask Corporation (PSMC), a subsidiary of the Company based in Taiwan, authorized several share repurchase programs for PSMC to purchase for retirement shares of its outstanding common stock. For the three and six month periods ended April 29, 2012, PSMC purchased 15.7 million and 18.0 million shares, respectively, at a cost of $6.7 million and $7.6 million, respectively. In the second quarter of fiscal 2011, PSMC purchased 7.7 million shares for $3.3 million. These repurchase programs increased the Company’s ownership in PSMC to 59.14% at May 1, 2011, to 62.25% at October 30, 2011, and to 66.81% at April 29, 2012.

The table below presents the effect of the change in the Company’s ownership interest in PSMC on the Company's equity for the three and six month periods ended April 29, 2012 (15.7 million and 18.0 million shares of common stock of PSMC repurchased, respectively) and May 1, 2011 (7.7 million shares of PSMC stock repurchased).

	Three Months Ended						Six Months Ended
	April 29, 2012			May 1, 2011			April 29, 2012			May 1, 2011
Net income (loss) attributable to Photronics, Inc.	$	8,818		$	(16,438	)	$	13,086		$	(4,327	)
Increase (decrease) in Photronics, Inc.'s additional paid-in capital		866			(328	)		1,017			(328	)
Decrease in accumulated other comprehensive income		(32	)		-			(35	)		-
Change from net income (loss) attributable to Photronics, Inc. and transfer from noncontrolling interest	$	9,652		$	(16,766	)	$	14,068		$	(4,655	)

Subsequent to the quarter ended April 29, 2012, PSMC completed its most recent share repurchase program in May 2012 with the repurchase of an additional 2.9 million shares for $1.3 million, which increased the Company’s ownership in PSMC to 67.60%.

NOTE 14 – OPERATING LEASES

The Company leases various real estate and equipment under non-cancelable operating leases.

In connection with the Company’s purchase of the U.S. nanoFab facility in the second quarter of fiscal 2012 (see Notes 3 and 4), the Company’s lease agreement with Micron for the U.S. nanoFab facility was cancelled, which reduced the Company’s related outstanding operating lease commitments by a total of $15 million for fiscal years 2013 and 2014.

Future minimum lease payments under non-cancelable operating leases with initial terms in excess of one year as of April 29, 2012, are as follows:

2012	$	1,200
2013		1,329
2014		642
2015		542
2016		500
Thereafter		896
	$	5,109

See Note 4 for disclosures related to the Company’s capital lease obligation.

19

NOTE 15 - COMMITMENTS AND CONTINGENCIES

As of April 29, 2012, the Company had commitments outstanding for capital expenditures of approximately $55 million.

The Company is subject to various claims that arise in the ordinary course of business. The Company believes such claims, individually or in the aggregate, will not have a material effect on its condensed consolidated financial statements.

NOTE 16 - RECENT ACCOUNTING PRONOUNCEMENTS

In June 2011 the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”, with the purpose of increasing the prominence of items reported in other comprehensive income.  The amended guidance requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate statements.  The amendments also required that reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) be presented on the face of the financial statements.  However, in December 2011 the FASB issued ASU No. 2011-12 that deferred the effective date for amendments to the presentation of reclassifications of items out of other comprehensive income.  ASU No. 2011-12 was issued to allow the FASB time to redeliberate whether it is necessary to require entities to present reclassification adjustments, by component, in both the statement where net income is presented and the statement where comprehensive income is presented for both interim and annual financial statements, as originally required under ASU No. 2011-05. This deferral was still in effect as of April 29, 2012.  During the FASB’s redeliberation period, entities will continue to report reclassifications out of accumulated other comprehensive income using guidance in effect before ASU No. 2011-05 was issued.  ASU No. 2011-05 is to be applied retrospectively and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011.  The Company adopted ASU No. 2011-05, subject to the deferral provisions of ASU No. 2011-12, on January 30, 2012.

In May 2011 the FASB issued ASU No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs", which amended its guidance on fair value measurements with the purpose of achieving commonality of its fair value measurement and disclosure requirements with those of IFRSs. ASU No. 2011-04 clarifies the FASBs intentions regarding the application of existing fair value measurement and disclosure requirements, changes certain principles for measuring fair value and changes the disclosure requirements for fair value measurements. ASU No. 2011-04 is to be applied prospectively and is effective during interim and annual periods beginning after December 15, 2011. The Company adopted ASU No. 2011-04 on January 30, 2012, and has included its required disclosures in Note 12.

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 and may be adversely affected by uncertainties and risk factors (presented throughout this filing and in the Company's Annual Report on Form 10-K for the fiscal 2011 year), that may cause actual results to materially differ from these expectations.

The Company sells substantially all of its 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. Thus, the Company's selling cycle is tightly interwoven with the development and release of new semiconductor designs and flat panel applications, particularly as it relates to the semiconductor industry's migration to more advanced design methodologies and fabrication processes. The Company believes that the demand for photomasks primarily depends on design activity rather than sales volumes from products produced using photomask technologies. Consequently, an increase in semiconductor or FPD 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 FPD designs could reduce demand for photomasks even if demand for semiconductors and FPDs increases. Advances in semiconductor, FPD and photomask design and semiconductor production methods could also reduce the demand for photomasks. Historically, the semiconductor industry has been volatile, with sharp periodic downturns and slowdowns. These downturns have been characterized by, among other things, diminished product demand, excess production capacity and accelerated erosion of selling prices.

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The global semiconductor industry is driven by end markets which have been closely tied to consumer driven applications of high performance semiconductor devices including, but not limited to, mobile communications and computing solutions. The Company is typically required to fulfill its customer orders within a short period of time, sometimes within 24 hours. This results in the Company having a minimal level of backlog orders, typically one to two weeks for IC photomasks and two to three weeks for FPD photomasks. The Company 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, but believes that such transitions and cycles will continue into the future, beneficially and adversely affecting its business, financial condition and operating results in the near term. The Company believes its ability to remain successful in these environments is dependent upon achieving its goals of being a service and technology leader and efficient solutions supplier, which it believes should enable it to continually reinvest in its global infrastructure.

Material Changes in Results of Operations

Three and Six Months ended April 29, 2012 and May 1, 2011

The following table represents selected operating information expressed as a percentage of net sales.

	Three Months Ended						Six Months Ended
	April 29, 2012			May 1, 2011			April 29, 2012			May 1, 2011
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		(74.6	)		(72.6	)		(75.9	)		(73.6	)
Gross margin		25.4			27.4			24.1			26.4
Selling, general and administrative expenses		(10.4	)		(8.6	)		(10.2	)		(8.7	)
Research and development expenses		(3.8	)		(3.0	)		(3.9	)		(3.0	)
Consolidation, restructuring and related charges		-			-			(0.5	)		-
Operating income		11.2			15.8			9.5			14.7
Debt extinguishment loss		-			(22.8	)		-			(11.9	)
Other expense, net		(0.8	)		(1.9	)		(0.6	)		(0.7	)
Net income (loss) before income taxes		10.4			(8.9	)		8.9			2.1
Income tax provision		(2.3	)		(2.4	)		(2.6	)		(2.7	)
Net income (loss)		8.1			(11.3	)		6.3			(0.6	)
Net income attributable to noncontrolling interests		(0.6	)