XML 48 R34.htm IDEA: XBRL DOCUMENT

Accounting Policies, by Policy (Policies)

12 Months Ended

Oct. 31, 2025

Accounting Policies, by Policy (Policies) [Line Items]

The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accounting policies used to prepare these financial statements are the same as those used to prepare the consolidated financial statements in prior years, except as described in these notes or for the adoption of new standards as outlined below.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Photronics, Inc., its wholly owned subsidiaries, in which Photronics is considered the primary beneficiary, and the majority-owned subsidiaries which it controls.

All intercompany balances and transactions have been eliminated in consolidation.

Noncontrolling interests in subsidiaries related to Photronics ownership interests of less than 100% are reported as Noncontrolling interests in the consolidated balance sheets. The results of noncontrolling ownership interests held by Photronics, net of tax, are reported as Net (income) attributable to noncontrolling interests in the consolidated statements of income.

Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires Photronics to make estimates and assumptions that affect amounts reported in them. The Company’s estimates are based on historical experience and on various assumptions that are believed to be reasonable, based on the facts and circumstances available at the time they are made. Subsequent actual results may differ from such estimates. The Company reviews these estimates periodically and reflects any effects of revisions in the period in which they are determined.

Translation of Foreign Currency Financial Statements

Photronics reporting currency is the U.S. dollar. The functional currency of the majority of Photronics foreign subsidiaries is their local currency. As such, amounts included in the consolidated statements of income, comprehensive income, cash flows, and changes in equity are translated using average exchange rates during each period. Assets and liabilities are translated at period-end exchange rates and resulting foreign currency translation adjustments are recorded in the consolidated balance sheets as a component of Accumulated other comprehensive loss.

Foreign Currency Transactions

Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured into their respective functional currencies at exchange rates in effect at the balance sheet date. The resulting exchange gain or loss is included in Photonics’ consolidated statements of income as Foreign currency transactions impact, net.

Cash and Cash Equivalents

Cash and cash equivalents include cash and highly liquid investments with an original maturity of three months or less, readily convertible to known amounts of cash, and so near to their maturity that they present insignificant risk of changes in value because of changes in interest rates. Restricted cash is included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the consolidated statements of cash flows. The carrying values of cash equivalents approximate their fair values, due to the short-term maturities of these instruments.

Restricted Cash

Restricted cash in the amounts of $2.9 million and $2.8 million are included in Other assets on the Company’s October 31, 2025 and October 31, 2024, consolidated balance sheets, respectively. The restrictions on these amounts are primarily related to land lease agreements and customs requirements.

Investments

The Company’s classification of investments is as follows:

-	Maturing within three months or less from the date of purchase	Cash and cash equivalents
-	Maturing, as of the date of purchase, more than three months, but
	with remaining maturities of less than one year, from the balance sheet date	Short-term investments
-	Maturing one year or more from the balance sheet date	Long-term marketable investments

Based upon the Company’s intent and ability to hold its time deposits to maturity, maturities of which range up to twelve months at purchase, such securities are classified as held-to-maturity and are carried at amortized cost, which approximates market value. The Company’s U.S. Government Securities, commercial paper and money market funds are classified as available-for-sale. Available-for-sale investments are reported at fair value, with unrealized gains or losses (net of tax) reported in Accumulated other comprehensive income (loss). In the event of a sale of these securities, the Company would determine the cost of the investment sold at the specific individual security level and would include any gain or loss in Interest income and other income, net, where the Company also reports periodic interest earned and the amortization (accretion) of discounts (premiums) related to these investments.

When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, and the Company’s ability and intent to hold the investment for a period of time, which may be sufficient for anticipated recovery in market values.

Accounts Receivable, Unbilled Receivables and Allowance for Credit Losses

We generally record the Company’s accounts receivable at their billed amounts. The Company recognizes unbilled receivables when the Company has satisfied its performance obligations, has an unconditional right to consideration, but has not yet issued an invoice. All outstanding past due customer invoices are reviewed for collectability during, and at the end of, every reporting period. To the extent that the Company believes a loss on the collection of a customer invoice is probable, the Company records the loss and credits an allowance for credit losses. In the event that an amount is determined to be uncollectible, the Company charges the allowance for credit losses and derecognizes the related receivable. Refer to the Company’s revenue recognition policy, below, for additional information on the Company’s accounting for accounts receivable.

Inventories

Inventories are stated at the lower of cost, determined under the first-in, first-out (“FIFO”) method, or net realizable value. Please refer to Note 4 for additional information on the Company’s inventories. Inventory reserves are established when conditions indicate that the net realizable value is less than cost due to assigned expiration dates or other causes based on individual facts and circumstances. If net realizable value is less than cost at the balance sheet date, the carrying amount is reduced to the realizable value, and the difference is recognized as a loss on valuation of inventories within cost of sales.

Property, Plant and Equipment, Net

Property, plant and equipment, except as described below under “Impairment of Long-Lived Assets,” is stated at cost less accumulated depreciation and amortization. Repairs and maintenance, as well as renewals and replacements of a routine nature, are charged to operations as incurred, while those that improve or extend the lives of existing assets are capitalized. Upon sale or other disposition, the cost of the asset and its related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in earnings.

Depreciation and amortization, essentially all of which are included in Cost of goods sold in the Company’s consolidated statements of income, are computed using the straight-line method over the estimated useful lives of the related assets. Buildings and improvements are depreciated over 10 to 39 years, machinery and equipment over 5 to 15 years, and furniture, fixtures, and office equipment over 3 to 5 years. Leasehold improvements are amortized over the lesser of the life of the lease or the estimated useful life of the improvement. The Company employs judgment when making assumptions about the estimated useful lives and depreciation periods the Company assigns to property, plant and equipment, and when events or changes in circumstances such as a significant industry downturn, plant closures, technological obsolescence, or other occurrences indicate that their carrying amounts may not be recoverable.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determinations of recoverability are based upon the Company’s judgment and estimates of undiscounted future cash flows resulting from the use of the assets and their eventual disposition. Measurement of an impairment loss for long-lived assets that the Company expects to hold and use is based on the fair value of the assets, determined using a market or income approach, compared with the carrying value of the asset. The carrying values of assets determined to be impaired would be reduced to their estimated fair values.

Property, plant and equipment and other long-lived assets to be sold or otherwise disposed of are reported at the lower of carrying amount or fair value less cost to sell.

Stock Repurchases

The Company records stock repurchases under the cost method, recording the entire cost of the acquired stock. When the Company retires the Company’s repurchased shares, any excess of the repurchase price paid over par value is allocated between additional paid-in capital and retained earnings.

Revenue Recognition

The Company recognizes revenue when, or as, control of a good or service transfers to a customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those goods or services. The Company accounts for an arrangement as a revenue contract when each party has approved and is committed to perform under the contract, the rights of the contracting parties regarding the goods or services to be transferred and the payment terms are identifiable, the arrangement has commercial substance, and collection of consideration is probable. Substantially all of the Company’s revenue comes from the sales of photomasks. The Company typically contracts with the Company’s customers to sell sets of photomasks, which are comprised of multiple layers, the predominance of which the Company invoices as they ship to customers. As the photomasks are manufactured to customer specifications, they have no alternative use to the Company and, as the Company’s contracts generally provide the Company with the right to payment for work completed to date, the Company recognizes revenue as the Company performs, or “over time,” on most of the Company’s contracts. The Company measures the Company’s performance to date using an input method, which is based on the Company’s estimated costs to complete the various manufacturing phases of a photomask. At the end of a reporting period, there are a number of uncompleted revenue contracts on which the Company has performed; for any such contracts under which the Company is entitled to be compensated for the Company’s costs incurred plus a reasonable profit, the Company recognizes revenue and a corresponding contract asset for such performance. The Company accounts for shipping and handling activities that the Company performs after a customer obtains control of a good as being activities to fulfill the Company’s promise to transfer the good to the customer, rather than as promised services, or performance obligations, under the contract. The Company reports the Company’s revenue net of any sales or similar taxes the Company collects on behalf of governmental entities.

As stated above, photomasks are manufactured to customer specifications in accordance with their proprietary designs; thus, they are individually unique. Due to their uniqueness and other factors, their transaction prices are individually established through negotiations with customers; consequently, the Company’s photomasks do not have standard or “list” prices. The transaction prices of the vast majority of the Company’s revenue contracts include only fixed amounts of consideration. In certain instances, such as when the Company offers a customer an early payment discount, an estimate of variable consideration would be included in the transaction price, but only to the extent that a significant reversal of revenue would not occur when the uncertainty related to the variability was resolved.

Contract Assets and Contract Liabilities

The Company recognizes a contract asset when the Company’s performance under a contract precedes the Company’s receipt of consideration from a customer, or before payment is due, and the Company’s receipt of consideration is conditional upon factors other than the passage of time. Contract assets reflect the Company’s transfer of control to customers of photomasks that are in process or completed but not yet shipped to customers. A receivable is recognized when the Company has an unconditional right to payment for the Company’s performance, which generally occurs when the Company ships the photomasks. The Company’s contract assets primarily consist of a significant amount of the Company’s in-process production orders and fully manufactured photomasks which have not yet shipped, for which the Company has an enforceable right to collect consideration (including a reasonable profit) in the event the in-process orders are cancelled by customers. On an individual contract basis, the Company nets contract assets with contract liabilities (deferred revenue) for financial reporting purposes. The Company’s net credit losses on the accounts receivable during 2025 were immaterial. The Company did not impair any contract assets or accounts receivable in 2025 or 2024.

Contract Costs

The Company pays commissions to third-party sales agents for certain sales that they procure on the Company’s behalf. However, the basis of the commissions are the transaction prices of the sales, which are completed in less than one year; thus, no relationship is established with a customer that will result in future business. Therefore, the Company would not recognize any portion of these sales commissions as costs of obtaining a contract, nor does the Company currently foresee other circumstances under which the Company would recognize such assets.

Remaining Performance Obligations

As the Company is typically required to fulfill customer orders within a short time period, the Company’s backlog of orders is generally not in excess of one to two weeks for IC photomasks and two to three weeks for FPD photomasks. As allowed under ASC 606 – Revenue Contracts with Customers, the Company has elected not to disclose the Company’s remaining performance obligations, which represent the costs associated with the completion of the manufacturing process of in-process photomasks related to contracts that have an original duration of one year or less.

Product Warranties

The Company’s photomasks are sold under warranties that generally range from one to twenty-four months. The Company warrants that the Company’s photomasks conform to customer specifications, and the Company will typically repair, replace, or issue a refund for any photomasks that fail to do so. The warranties do not represent separate performance obligations in the Company’s revenue contracts. Historically, customer claims under warranties have been immaterial.

Leases

The Company determines if an agreement is, or contains, a lease on the earlier of the date of the agreement or the date on which the Company commits to entering the agreement and evaluates at that time whether the lease is an operating lease or a finance lease. The Company recognizes right-of-use assets and lease liabilities for operating and finance leases with terms greater than 12 months. Please refer to Note 11 – Leases for additional information.

The Company’s involvement in lease arrangements has typically been as a lessee. The Company determines if an agreement is, or contains, a lease on the earlier of the date of the agreement or the date on which the Company commits to entering the agreement. An arrangement is determined to be a lease when it conveys to the Company the right to control the use of an identified asset for a period of time in exchange for consideration. The Company’s having the right to control an identified asset is determined by whether the Company is entitled to substantially all of its economic benefits and can direct its use. The Company recognizes leases on the Company’s consolidated balance sheet when a lessor makes an asset underlying a lease having a term in excess of twelve months available for the Company’s use. As allowed under ASC Topic 842 – “Leases” (“Topic 842”), the Company has elected 1) not to apply the recognition requirements to leases that, at their commencement dates, have lease terms of twelve months or less and do not include options to purchase their underlying assets that the Company is reasonably certain to exercise and 2) for all classes of assets, the practical expedient to not separate lease components of a contract from non-lease components of a contract.

If an arrangement is determined to be, or includes a lease, the Company then applies the classification criteria in ASC 842 - Leases to determine whether the lease is a finance lease or an operating lease. For both types of leases, at their commencement dates (which are the dates on which a lessor makes an underlying asset available for the Company’s use), the Company recognizes Right-of-Use (“ROU”) assets, which represent the Company’s rights to use the underlying assets, and lease liabilities which represent the Company’s obligation to make payments for such rights. The present value of lease payments over the term of the lease provides the basis for the initial measurement of ROU assets and their related lease liabilities. Variable lease payments, other than those that are dependent on an index or on a rate (at which they are measured on their commencement dates), are not included in the measurement of ROU assets and their related lease liabilities. Lease terms include extension periods if the lease agreement includes an option to extend the lease that the Company is reasonably certain to exercise.

The initial measurement process for finance leases and operating leases is the same, except that, for operating leases, the Company generally applies the Company’s incremental borrowing rates for collateralized borrowings over terms similar to those of the leases to determine the lease liability while, for finance leases, the Company uses the interest rates implicit in the leases. The initial measurement of ROU assets may require further adjustments for lease prepayments and initial direct costs the Company incurs.

Operating leases are expensed on a straight-line basis over the terms of the leases, and are included in the consolidated statement of income in Cost of goods sold, Selling, general and administrative, or Research and development expense in accordance with the use of the underlying asset. Finance lease ROU assets are amortized over the estimated useful life of the underlying asset; the expenses are included in the consolidated statement of income in Cost of goods sold. Finance lease liabilities are subsequently remeasured by increasing the liability to reflect interest accrued during a period and decreasing the liability to reflect payments made during the period. Interest expense incurred on finance leases is included in Interest expense, net on the consolidated statements of income.

Cash paid for operating leases and interest paid for finance leases are included in the consolidated statement of cash flows as operating activities in Accounts payable, accrued liabilities and other; cash paid for finance lease principal is included in Repayments of debt in the financing activities section of the consolidated statement of cash flows.

Share-Based Compensation

We recognize share-based compensation expense on a straight-line basis over the requisite service period during which the awards are expected to vest. Share-based compensation expense includes the estimated effects of forfeitures, which are adjusted over the requisite service period to the extent actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures are recognized in the period of change and will impact the amount of expense to be recognized in future periods. Determining the appropriate option pricing model, calculating the grant date fair value of share-based awards, and estimating forfeiture rates requires considerable judgment, including estimations of stock price volatility and the expected term of options granted.

We use the Black-Scholes option pricing model to value employee stock options. The Company estimates stock price volatility based on daily averages of the Company’s common stock’s historical volatility over a term approximately equal to the estimated time period the grant will remain outstanding. The expected term of options and forfeiture rate assumptions are derived from historical data.

Research and Development

Research and development costs are expensed as incurred and consist primarily of development efforts related to high-end process technologies for advanced subwavelength reticle solutions for IC and FPD photomask technologies. Research and development expenses were $15.8 million, $16.6 million, and $13.7 million for the years ended October 31, 2025, 2024 and 2023, respectively.

Government Grants

The Company receives or expects to receive in the future, various types of government assistance, primarily in the form of grants or refundable tax credits. Government assistance is recognized when there is reasonable assurance that: (1) the Company will comply with the relevant conditions and (2) the assistance will be received. Government assistance related to reimbursing fixed asset purchases, such as reimbursement grants and refundable federal investment tax credits, are recorded as a reduction to the related asset(s), which then reduces depreciation expense over the expected useful life of the asset on a straight-line basis. If some, or all, of the amount of government assistance becomes repayable (e.g. due to non-fulfillment of the grant conditions) or there is no longer reasonable assurance the amount will be received (e.g. due to additional interpretive guidance) then the adjustment is accounted for prospectively as a change in accounting estimate. The effect of the change in estimate is recognized in the period in which management concludes that it is no longer reasonably assured that all of the grant conditions will be met. A corresponding financial liability is recognized for the amount of the repayment, if any.

The Company accounts for funds the Company receives from government grants by either reducing the costs of the assets (if the grant relates to capital expenditures) or expenses which could be Cost of goods sold, Selling, general and administrative, or Research and development expenses in the consolidated statements of income. If the funds the Company receives cannot be attributed to specific assets or expenses, they would be recognized as other income, and included in Interest income and other income, net in the consolidated statements of income. Funds the Company receive from government grants are classified in the Company’s consolidated statements of cash flows as either Net cash provided by operating activities or Net cash provided by investing activities, in accordance with how the Company expends the funds. When a grant is received before conditions of the grant have been met, the grant is recorded in Accrued liabilities or Other liabilities in the Consolidated Balance Sheets.

The Company expects to receive refundable federal investment tax credits through the CHIPS Act in connection with ongoing capital expenditure expansion projects. As a result, as of October 31, 2025, the Company has reduced property, plant and equipment, net by $15.9 million of which $5.0 million was recorded during fiscal year 2024. The application submitted in 2024 for direct capital grants through the CHIPS Act in connection with the proposed projects is still under review process.

For the years ended October 31, 2025, 2024, and 2023, the Company’s subsidiaries in China received cash subsidies from local government authorities related to the acquisition of property, plant, and equipment in the amounts of $2.2 million, $2.1 million, and $2.5 million, respectively. The Company has recorded these subsidies as reductions of property, plant, and equipment.

Income Taxes

The income tax provision is computed on the basis of the income or loss before income taxes for each entity in its respective tax jurisdiction. Deferred income taxes reflect the tax effects of differences between the carrying amounts of assets and liabilities for financial reporting purposes and their amounts used for income tax purposes, as well as the tax effects of net operating losses and tax credit carryforwards. We employ judgment and make assumptions when establishing valuation allowances for deferred income tax assets, if their realization is not deemed to be more likely than not, by considering future market growth, operating forecasts, future taxable income, and the mix of earnings among the tax jurisdictions in which we operate. Accordingly, income taxes charged against earnings may have been impacted by changes in the valuation allowances. We are eligible for investment tax credits in U.S. and non-U.S. tax jurisdictions. We account for investment tax credits under the “flow-through” method of accounting. As permitted in ASC 740 “Income Taxes”, under the flow-through method of accounting, the tax benefit from an investment tax credit is recorded as a reduction of income taxes in the period in which the credit is generated.

We consider income taxes in each of the tax jurisdictions in which we operate in order to determine our effective income tax rate. Our current income tax expense is thus identified, and temporary differences resulting from differing treatments of items for tax and financial reporting purposes are assessed. These differences result in deferred tax assets, which are presented on our consolidated balance sheets, and deferred tax liabilities, which are included in Other liabilities on our consolidated balance sheets.

We account for uncertain tax positions by recording a liability for unrecognized tax benefits resulting from uncertain tax positions taken, or expected to be taken, in our tax returns. We include any applicable interest and penalties related to uncertain tax positions in the liability and in our income tax provision.

Earnings Per Share

Basic earnings per share attributed to Photronics shareholders is computed independently for each period presented and is based on the weighted-average number of common shares outstanding for the period, excluding any dilutive common share equivalents. Diluted earnings per share (“EPS”) reflects the potential dilution that could occur if certain share-based payment awards were exercised or earned.

Variable Interest Entities

We account for the investments the Company makes in certain legal entities in which equity investors do not have: 1) sufficient equity at risk for the legal entity to finance its activities without additional subordinated financial support or, 2) as a group, the holders of the equity investment at risk do not have either the power, through voting or similar rights, to direct the activities of the legal entity that most significantly impact the entity’s economic performance or, 3) the obligation to absorb the expected losses of the legal entity or the right to receive expected residual returns of the legal entity as “variable interest entities”, or “VIEs”.

We consolidate the results of any such entity in which the Company has determined that the Company has a controlling financial interest. The Company would have a “controlling financial interest” (and thus be considered the “primary beneficiary” of the entity) in such an entity when the Company has both the power to direct the activities that most significantly affect the VIE’s economic performance and the obligation to absorb the losses of, or right to receive the benefits from, the VIE that could be potentially significant to the VIE. On a quarterly basis, the Company reassesses whether the Company has a controlling financial interest in any investments the Company has in these entities.

We would account for investments the Company makes in VIEs in which the Company has determined that the Company does not have a controlling financial interest but have a significant influence over, and hold at least a twenty percent ownership interest in, using the equity method. An investment not meeting the parameters to be accounted for under the equity method would be accounted for using the cost method, unless the investment had a readily determinable fair value, at which value it would then be reported.

Recent Accounting Pronouncements

In November 2024, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”) and in January 2025, the FASB issued ASU No. 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date, which clarified the effective date of ASU 2024-03. ASU 2024-03 will require the Company to disclose the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization, as applicable, as well as qualitatively describe remaining amounts included in those captions. The guidance in this ASU will be effective for Photronics in its fiscal year 2028 Form 10-K, with early application of the amendments allowed. The Company is currently evaluating the impact the adoption of this ASU may have on the Company’s consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this ASU related to the rate reconciliation and income taxes paid disclosures to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. The amendments allow investors to better assess, in their capital allocation decisions, how an entity’s worldwide operations and related tax risks and tax planning and operational opportunities affect its income tax rate and prospects for future cash flows. The guidance in this ASU will be effective for Photronics in its fiscal year 2026 Form 10-K, with early application of the amendments allowed. The Company is currently evaluating the effect of this ASU adoption on its disclosures.

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance in this ASU is effective for Photronics in its fiscal year 2025 Form 10-K. The Company adopted ASU 2023-07, please see NOTE 18 – SEGMENT REPORTING.

Variable Interest Entities

As required by the guidance in ASC Topic 810 - “Consolidation”, the Company evaluated the Company’s involvement in PDMCX for the purpose of determining whether the Company should consolidate its results in the Company’s financial statements. The initial step of the Company’s evaluation was to determine whether PDMCX was a VIE. Due to its lack of sufficient equity at risk to finance its activities without additional subordinated financial support, the Company determined that it is a VIE. Having made this determination, the Company then assessed whether the Company was the primary beneficiary of the VIE, and concluded that the Company was the primary beneficiary during the current and prior years reporting periods; thus, as required, the PDMCX financial results have been consolidated with Photronics. The Company’s conclusion was based on the fact that the Company held a controlling financial interest in PDMCX (which resulted from the Company’s having the power to direct the activities that most significantly impacted its economic performance) and had both the obligation to absorb losses and the right to receive benefits that could potentially be significant to PDMCX. The Company’s conclusion that the Company had the power to direct the activities that most significantly affected the economic performance of PDMCX during the current and prior year periods were based on the Company’s right to appoint the majority of its Board of Directors, which has, among others, the powers to manage the business (through its rights to appoint and evaluate PDMCX’s management), incur indebtedness, enter into agreements and commitments, and acquire and dispose of PDMCX’s assets. In addition, as a result of the 50.01% variable interest the Company held during the current and prior year periods, the Company had the obligation to absorb losses, and the right to receive benefits, that could potentially be significant to PDMCX.

Revenue

The Company’s invoice terms generally range from net thirty to ninety days, depending on both the geographic market in which the transaction occurs and the Company’s payment agreements with specific customers. In the event that the Company’s evaluation of a customer’s business prospects and financial condition indicate that the customer presents a collectability risk, the Company will modify terms of sale, which may require payment in advance of performance. At the time of adoption, the Company elected the practical expedient allowed under ASC Topic 606 “Revenue from Contracts with Customers” (“Topic 606”) that permits the Company not to adjust a contract’s promised amount of consideration to reflect a financing component when the period between when the Company transfers control of goods or services to customers and when the Company is paid is one year or less.

In instances when the Company is paid in advance of the Company’s performance, the Company records a contract liability and, as allowed under the practical expedient in Topic 606, recognize interest expense only if the period between when the Company receives payment from the customer and the date when the Company expects to be entitled to the payment is greater than one year. Historically, advance payments the Company has received from customers have generally not preceded the completion of the Company’s performance obligations by more than one year.

Employee Stock Purchase Plan

The Company’s Employee Stock Purchase Plan (“ESPP”) permits employees to purchase Photronics, Inc. common shares at 85% of the lower of the closing market price at the commencement or ending date of the Plan year (which is approximately one year from the commencement date). The Company recognizes the ESPP expense over that same period. As of October 31, 2025, the maximum number of shares of common stock approved by the Company’s shareholders to be purchased under the ESPP was 1.85 million shares, of which approximately 1.7 million shares had been issued through October 31, 2025. As of October 31, 2025, there is $0.2 million of unrecognized compensation cost.

Unremitted Earnings in Foreign Investment

Due to the Tax Cuts and Jobs Act, which was signed into law in December 2017, as of fiscal year end 2018, U.S. deferred taxes were no longer provided on the undistributed earnings of non-U.S. subsidiaries. Our policy to indefinitely reinvest these earnings in non-U.S. operations remains unchanged for the purpose of determining deferred tax liabilities for U.S. state and foreign withholding taxes. Therefore, should we elect in the future to repatriate the remaining foreign earnings deemed to be indefinitely reinvested, we may incur additional state and foreign withholding tax expense on those earnings, the amount of which is not practicable to compute.

Interest and Penalties Related to Uncertain Tax Positions

We include unrecognized tax benefits in Other liabilities, and we include any applicable interest and penalties related to uncertain tax positions in our income tax provision.

Fair Value Financial Instruments

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- These are investments where values are based on unadjusted quoted prices for identical assets in an active market the Company has the ability to access.

Level 2- These are investments where values are based on quoted market prices that are not active or model derived valuations in which all significant inputs are observable in active markets.

Level 3- These are investments where values are derived from techniques in which one or more significant inputs are unobservable.

Restricted Stock [Member]

Accounting Policies, by Policy (Policies) [Line Items]

Share-Based Compensation

Restricted Stock Awards

The Company periodically grants restricted stock awards, the restrictions on which typically lapse over a service period of one to four years. The fair values of the awards are determined on the date of grant, based on the closing stock price of the Company’s common stock.

Restricted Stock Units [Member]

Accounting Policies, by Policy (Policies) [Line Items]

Share-Based Compensation

Restricted Stock Units

Commencing Q2 FY25, the Company began granting restricted stock units, the restrictions on which typically lapse over a service period of one to four years. The fair value of the awards is determined on the date of grant, based on the closing price of the Company’s common stock.

Stock Option [Member]

Accounting Policies, by Policy (Policies) [Line Items]

Share-Based Compensation

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 must have an exercise price no less than 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 and are calculated using the Black-Scholes option pricing model. Expected volatility is based on the historical volatility of the Company’s common stock. The Company uses historical option exercise behavior and employee termination data to estimate expected term, which represents the period of time that options granted are expected to remain outstanding. The risk-free rate of return for the estimated term of an option is based on the U.S. Treasury yield curve in effect at the date of grant.