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JOINT VENTURE, TECHNOLOGY LICENSE AND OTHER AGREEMENTS WITH MICRON TECHNOLOGY, INC. | 12 Months Ended
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Oct. 30, 2016
JOINT VENTURE, TECHNOLOGY LICENSE AND OTHER AGREEMENTS WITH MICRON TECHNOLOGY, INC. [Abstract] |
JOINT VENTURE, TECHNOLOGY LICENSE AND OTHER AGREEMENTS WITH MICRON TECHNOLOGY, INC. | NOTE 5 - JOINT VENTURE, TECHNOLOGY LICENSE AND OTHER AGREEMENTS WITH MICRON TECHNOLOGY, INC. In May 2006, Photronics and Micron Technology, Inc. ("Micron") entered into the MP Mask joint venture (“MP Mask”), which developed and produced photomasks for leading-edge and advanced next generation semiconductors. At the time of the formation of the joint venture, the Company also entered into an agreement to license photomask technology developed by Micron and certain supply agreements. In May 2016 the Company sold its investment in MP Mask to Micron for $93.1 million and recorded a gain on the sale of $0.1 million, which is included in the Company’s 2016 consolidated statement of income in Interest and other income (expense), net. On that same date a supply agreement commenced between the Company and Micron, which provides that we will be the majority outsourced supplier of Micron’s photomasks and related services. The supply agreement has a one year term, subject to mutually agreeable renewals. In addition, the Company forevermore has the rights to use technology under the prior technology license agreement. This joint venture was a variable interest entity ("VIE") (as that term is defined in ASC 810) because all costs of the joint venture were passed on to the Company and Micron through purchase agreements they had entered into with the joint venture, and it was dependent upon the Company and Micron for any additional cash requirements. On a quarterly basis the Company reassessed whether its interest in MP Mask gave it a controlling financial interest in this VIE. The purpose of this quarterly reassessment was to identify the primary beneficiary (which is defined in ASC 810 as the entity that consolidates a VIE) of the VIE. As a result of the reassessments in fiscal year 2016, the Company determined that Micron remained the primary beneficiary of the VIE, by virtue of its tie-breaking voting rights within MP Mask’s Board of Managers, thereby having given it the power to direct the activities of MP Mask that most significantly impacted 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 utilized MP Mask for both high-end IC photomask production and research and development purposes. MP Mask charged its variable interest holders based on their actual usage of its facility and charged separately for any research and development activities it engaged in at the requests of its owners. MP Mask was 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, had held majority voting power on the Board of Managers. The voting power held by each party was subject to change as ownership interests changed. Under the MP Mask joint venture operating agreement, the Company may have been required to make additional capital contributions to MP Mask up to the maximum amount defined in the operating agreement. However, had the Board of Managers determined that further additional funding was required, MP Mask would have pursued its own financing. If MP Mask was unable to obtain its own financing, it may have requested additional capital contributions from the Company. Had the Company chosen not to make a requested contribution to MP Mask, its ownership percentage may have been reduced. MP Mask did not request, and the Company did not make, any contributions to MP Mask in fiscal years 2016 or 2015 and it did not receive any distributions (other than upon its sale of its investment to Micron in fiscal year 2016) from MP Mask during those fiscal years. The Company's investment in the VIE, which represented its maximum exposure to loss, was $93.0 million at November 1, 2015. This amount is reported in the Company's fiscal year 2015 consolidated balance sheet as Investment in joint venture. The Company recorded losses from operations from its investment in MP Mask of $0.1 million in fiscal years 2016 and 2015 and recorded no income or loss from the investment in fiscal year 2014. Income (loss) from MP Mask is included in Interest and other income, net, in the consolidated statements of income. The Company, in 2016, recorded $0.4 million of commission revenue earned under the supply agreements it had with Micron and MP Mask, and amortization of $0.1 million of the related supply agreement intangible asset. In 2016 the Company also recorded cost of sales in the amount of $5.7 million for photomasks produced by MP Mask for the Company's customers, and incurred expenses of $0.5 million for research and development activities and other goods and services purchased from MP Mask by the Company. As of November 1, 2015, the Company owed MP Mask $4.3 million and had a receivable from Micron of $6.4 million, both primarily related to the aforementioned supply agreements. The Company, in 2015, recorded $0.8 million of commission revenue earned under the supply agreements it had with Micron and MP Mask, and amortization of $0.2 million of the related supply agreement intangible asset. In 2015 the Company also recorded cost of sales in the amount of $4.8 million for photomasks produced by MP Mask for the Company's customers, and incurred expenses of $3.1 million for research and development activities and other goods and services purchased from MP Mask by the Company. As of November 2, 2014, the Company owed MP Mask $4.2 million and had a receivable from Micron of $6.8 million, both primarily related to the aforementioned supply agreements. The Company, in 2014, recorded $1.2 million of commission revenue earned under the supply agreements it had with Micron and MP Mask, and amortization of $0.2 million of the related supply agreement intangible asset. In 2014 the Company also recorded cost of sales in the amount of $3.2 million for photomasks produced by MP Mask for the Company's customers, and incurred expenses of $1.6 million for research and development activities and other goods and services purchased from MP Mask by the Company. In 2014 the Company purchased equipment from MP Mask for $1.3 million. Summarized financial information of MP Mask is presented below. The financial results of 2016 are through May 5, 2016, the date of the sale of the Joint Venture.
|  | As of Fiscal Year End |
|  | 2016 |  |  | 2015 |
Current assets |  | $ | - |  |  | $ | 30,567 |
Noncurrent assets |  |  | - |  |  |  | 173,840 |
Current liabilities |  |  | - |  |  |  | 18,234 |
Noncurrent liabilities |  |  | - |  |  |  | - |
|  | Fiscal Year |
|  | 2016 |  |  | 2015 |  |  | 2014 |
Net sales |  | $ | 49,626 |  |  | $ | 96,068 |  |  | $ | 81,399 |
Gross profit |  |  | 2,736 |  |  |  | 1,215 |  |  |  | 3,427 |
Net income (loss) |  |  | - |  |  |  | (151 | ) |  |  | 1,259 |

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- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=66011266&loc=d3e33918-111571 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -SubTopic 10 -Section 35 -Paragraph 35 -URI http://asc.fasb.org/extlink&oid=64825282&loc=d3e32847-111569 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.12) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -SubTopic 10 -Section 35 -Paragraph 32 -URI http://asc.fasb.org/extlink&oid=64825282&loc=d3e32787-111569 + Details
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