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PDMCX JOINT VENTURE | 3 Months Ended
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Feb. 02, 2020
PDMCX JOINT VENTURE [Abstract] |
PDMCX JOINT VENTURE | NOTE 4 - PDMCX JOINT VENTURE In January 2018, Photronics, through its wholly owned Singapore subsidiary (hereinafter, within this Note “we”, “Photronics”, or “our”), and Dai Nippon Printing Co., Ltd., through its wholly owned subsidiary “DNP Asia Pacific PTE, Ltd.” (hereinafter, within this Note, “DNP”) entered into a joint venture under which DNP obtained a 49.99% interest in our IC business in Xiamen, China. The joint venture, known as “Xiamen American Japan Photronics Mask Co., Ltd.” (hereinafter, “PDMCX”), was established to develop and manufacture photomasks for leading edge and advanced generation semiconductors. We entered into this joint venture to enable us to compete more effectively for the merchant photomask business in China, and to benefit from the additional resources and investment that DNP provides to enable us to offer advanced-process technology to our customers. No gain or loss was recorded upon the formation of this joint venture. The total investment per the PDMCX operating agreement (“the Agreement”) is $160 million. As of February 2, 2020, Photronics and DNP had each contributed cash of approximately $48 million, and PDMCX obtained local financing of approximately $35 million. The remaining $29 million investment will be funded, over the next several quarters, with additional local financing of $15 million and approximately $14 million of cash contributions from Photronics and DNP. As discussed in Note 5, liens were granted to a financing entity on assets with a total carrying value of $92.9 million, as collateral for loans. Under the Agreement, DNP is afforded, under certain circumstances, the right to put its interest in PDMCX to Photronics. These circumstances include disputes regarding the strategic direction of PDMCX that may arise after the initial two-year term of the Agreement and cannot be resolved between the two parties. As of the date of issuance of these financial statements, DNP had not indicated its intention to exercise this right. In addition, both Photronics and DNP have the option to purchase, or put, their interest from, or to, the other party, should their ownership interest fall below twenty percent for a period of more than six consecutive months. Under all such circumstances, the sales of ownership interests would be at the exiting party’s ownership percentage of the joint venture’s net book value, with closing to take place within three business days of obtaining required approvals and clearance. We recorded net losses from the operations of PDMCX of $3.7 million, and $1.3 million during the three-month periods ended February 2, 2020 and January 27, 2019, respectively. General creditors of PDMCX do not have recourse to the assets of Photronics, Inc., and our maximum exposure to loss from PDMCX at February 2, 2020, was $36.6 million. As required by the guidance in Topic 810 - “Consolidation” of the Accounting Standards Codification, we evaluated our involvement in PDMCX for the purpose of determining whether we should consolidate its results in our financial statements. The initial step of our evaluation was to determine whether PDMCX was a variable interest entity (“VIE”). Due to its lack of sufficient equity at risk to finance its activities without additional subordinated financial support, we determined that it was a VIE. Having made this determination, we then assessed whether we were the primary beneficiary of the VIE, and concluded that we were the primary beneficiary during the current and prior year reporting periods; thus, as required, the PDMCX financial results have been consolidated with Photronics, Inc. Our conclusion was based on the facts that we held a controlling financial interest in PDMCX (which resulted from our having the power to direct the activities that most significantly impacted its economic performance) and had the obligation to absorb losses and the right to receive benefits that could potentially be significant to PDMCX. Our conclusions that we had the power to direct the activities that most significantly affected the economic performance of PDMCX during the current and prior year reporting periods was based on our 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 we held during the current and prior-year periods, we had the obligation to absorb losses, and the right to receive benefits, that could potentially be significant to PDMCX. The carrying amounts of PDMCX assets and liabilities included in our condensed consolidated balance sheets are presented in the following table, together with our exposure to loss related to these assets and liabilities.
|  | February 2, 2020 |  |  | October 31, 2019 |
Classification |  | Carrying Amount |  |  | Photronics Interest |  |  | Carrying Amount |  |  | Photronics Interest |
Current assets |  | $ | 23,638 |  |  | $ | 11,821 |  |  | $ | 24,142 |  |  | $ | 12,074 |
Non-current assets |  |  | 110,296 |  |  |  | 55,159 |  |  |  | 114,015 |  |  |  | 57,019 |
Total assets |  |  | 133,934 |  |  |  | 66,980 |  |  |  | 138,157 |  |  |  | 69,093 |
Current liabilities |  |  | 24,044 |  |  |  | 12,024 |  |  |  | 16,889 |  |  |  | 8,446 |
Non-current liabilities |  |  | 36,716 |  |  |  | 18,362 |  |  |  | 42,094 |  |  |  | 21,051 |
Total liabilities |  |  | 60,760 |  |  |  | 30,386 |  |  |  | 58,983 |  |  |  | 29,497 |
Net assets |  | $ | 73,174 |  |  | $ | 36,594 |  |  | $ | 79,174 |  |  | $ | 39,596 |

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- Definition The entire disclosure for a variable interest entity (VIE), including but not limited to, judgments and assumptions in determining whether to consolidate and in identifying the primary beneficiary, gain (loss) recognized on the initial consolidation of the VIE, terms of arrangements, amounts and classification of the VIE's assets and liabilities, and the entity's maximum exposure to loss. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -URI http://asc.fasb.org/topic&trid=2197479 + Details
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