What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-09-07 compared with 2022-06-15 · 153 added, 129 removed, 132 unchanged (68% of the section changed)

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higher-performance electronic products such as photonics, microelectronic mechanical systems and certain nanotechnology applications.

Our selling cycle is tightly interwoven with the development and release of new semiconductor and display

designs and applications, particularly as they relate to the semiconductor industry's migration to more advanced product innovation, design methodologies, and fabrication processes.

The demand for photomasks primarily depends on design activity

rather than sales volumes from products manufactured using photomask technologies.

Our selling cycle is tightly interwoven with the development and release of new semiconductor and display designs

and applications, particularly as they relate to the semiconductor industry’s migration to more advanced product innovation, design methodologies, and fabrication processes.

The demand for photomasks primarily depends on design activity rather than

sales volumes from products manufactured using photomask technologies.

Consequently, an increase in semiconductor or display sales does not necessarily result in a corresponding increase in photomask sales.

However, the reduced use of

customized ICs, reductions in design complexity, other changes in the technology or methods of manufacturing or designing semiconductors, or a slowdown in the introduction of new semiconductor or display designs could reduce demand for photomasks

‒ even if the demand for semiconductors and displays increases.

Advances in semiconductor, display, and photomask design and production methods that shift the burden of achieving device performance away from lithography could also reduce the

demand for photomasks.

However, the reduced use of customized

ICs, reductions in design complexity, other changes in the technology or methods of manufacturing or designing semiconductors, or a slowdown in the introduction of new semiconductor or display designs could reduce demand for photomasks ‒ even if

the demand for semiconductors and displays increases.

Advances in semiconductor, display, and photomask design and production methods that shift the burden of achieving device performance away from lithography could also reduce the demand for

Historically, the microelectronics industry has been volatile, experiencing periodic downturns and slowdowns in design activity.

These negative trends have been characterized by, among other things, diminished product

demand, excess production capacity, and accelerated erosion of selling prices, with a concomitant effect on revenue and profitability.

These negative trends have been characterized by, among other things, diminished product demand, excess

production capacity, and accelerated erosion of selling prices, with a concomitant effect on revenue and profitability.

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

This results in a minimal level of backlog, typically two to three weeks of backlog for FPD photomasks and one

to two weeks for IC photomasks.

This results in a minimal level of backlog, typically two to three weeks of backlog for FPD photomasks and one to

two weeks for IC photomasks.

However, the demand for some IC photomasks has expanded beyond the industry’s capacity to supply them within the traditional time period, thus the backlog in some cases can expand to as long as two to three months.

The global semiconductor and FPD industries are driven by end markets which have been closely tied to consumer-driven applications of high-performance devices, including, but not limited to,

mobile display devices, mobile communications, and computing solutions.

While we cannot predict the timing of the industry's transition to volume production of next-generation technology nodes, or the timing of up and down-cycles with precise

accuracy, we believe that such transitions and cycles will continue into the future, beneficially and adversely affecting our business, financial condition, and operating results as they occur.

We believe our ability to remain successful in these

environments is dependent upon the achievement of our goals of being a service and technology leader and efficient solutions supplier, which we believe should enable us to continually reinvest in our global infrastructure.

The global semiconductor and FPD industries are driven by end markets which have been closely tied to consumer-driven applications of high-performance devices, including, but not limited to, mobile

display devices, mobile communications, and computing solutions.

While we cannot predict the timing of the industry’s transition to volume production of next-generation technology nodes, or the timing of up and down-cycles with precise accuracy, we

believe that such transitions and cycles will continue into the future, beneficially and adversely affecting our business, financial condition, and operating results as they occur.

We believe our ability to remain successful in these environments

is dependent upon the achievement of our goals of being a service and technology leader and efficient solutions supplier, which we believe should enable us to continually reinvest in our global infrastructure.

Impact of the COVID-19 Pandemic

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Results of Operations

Three and Six Months Ended May 1, 2022

Three and Nine Months Ended July 31, 2022

The following table presents selected operating information expressed as a percentage of revenue.

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Three Months Ended

Six Months Ended

Nine Months Ended

Cost of goods sold

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Research and development expenses

Other operating income, net

Operating income

Non-operating income (expense), net

Non-operating income, net

Income before income tax provision

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Net income attributable to Photronics, Inc.

All tabular comparisons included in the following discussion, unless otherwise indicated, are for the three months ended May 1, 2022 (Q2 FY22), January 30, 2022 (Q1

FY22), and May 2, 2021 (Q2 FY21), and for the six months ended May 1, 2022 (YTD FY22) and May 2, 2021 (YTD FY21), in millions of dollars.

All tabular comparisons included in the following discussion, unless otherwise indicated, are for the three month periods ended July 31, 2022 (Q3 FY22), May 1, 2022 (Q2

FY22), and August 1, 2021 (Q3 FY21), and for the nine month periods ended July 31, 2022 (YTD FY22) and August 1, 2021 (YTD FY21), in millions of dollars.

The columns may not foot due to rounding.

Our quarterly revenues can be affected by the seasonal

purchasing practices of our customers.

As a result, demand for our products is typically reduced during the first or second quarter of our fiscal year by the North American, European, and Asian holiday periods, as some of our customers reduce

their development and, consequently, their buying activities during those periods.

Our quarterly revenues can be affected by the seasonal purchasing practices of our customers.

As a result, demand for our products is typically reduced during the first quarter of our fiscal year by the North American,

European, and Asian holiday periods, as some of our customers reduce their development and, consequently, their buying activities during those periods.

The following tables present changes in disaggregated revenue in Q3 FY22 and YTD FY22 from revenue in prior reporting periods.

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IC photomask revenue increased 10.6% and 36.9% in Q3 FY22, compared with Q2 FY22 and Q3 FY21, respectively, and increased 30.5% in YTD FY22, compared with YTD FY21.

These increases were driven by continued demand

growth and better pricing for mainstream photomasks used for computer chips needed for the production of products considered part of the “internet-of-things”, 5G wireless technology applications, cryptocurrency mining, and consumer products.

Concurrently, strong demand for high-end logic photomasks in Asia also allowed for better pricing.

FPD revenue decreased 2.3% in Q2 FY22, compared with Q1 FY22, due to a decline in mainstream demand, unfavorable product mix, and the weakening of the Japanese yen, as well as softened demand for G10.5+ large area

FPD revenues increased 22.9% in Q2 FY22, compared with Q2 FY21, as a result of improved demand for both AMOLED photomasks used in mobile applications and G10.5+ large area masks.

Demand and ASPs also improved from the prior year quarter

for mainstream photomasks.

On a year-to-date basis, FPD revenue increased 25.2% as a result of improved demand for AMOLED photomasks and ASPs for mainstream products.

Gross margin increased by 2 .8 percentage points

in Q2 FY22, from Q1 FY22, primarily as a result of the increase in revenue from the prior quarter.

Material costs increased 2.4% from the prior quarter, but decreased, as a percentage of revenue, by 140 basis points.

Labor costs increased 5.4%,

but decreased 20 basis points, as a percentage of revenue.

Equipment and other overhead costs increased 3.4% but decreased 120 basis points as a percentage of revenue, primarily driven by increased importation costs into China,

partially offset by decreased outside processing costs, including sputtering and coating.

Gross margin increased by 9.7 percentage points

in Q2 FY22, from Q2 FY21, primarily as a result of the increase in revenue from the prior year quarter.

Material costs increased 13.1% from the prior year quarter, but decreased 340 basis points, as a percentage of revenue.

Labor costs increased

15.8% from the prior year quarter but decreased 110 basis points as a percent of revenue;

the increase was primarily the result of increased labor costs in Asia.

These increases were driven by continued strong

demand growth in Asia and the U.S.

for high-end products, and increased pricing and continued growth for mainstream products used for computer chips used in the production of consumer goods, products considered part of the “internet-of-things”, 5G

wireless technology applications, and cryptocurrency mining.

We expect this trend to continue in the near term, spurred by continued demand for products that support remote work and learning, advanced display technologies, and accelerated regional

investments resulting from growing nationalism to insure local availability of computer chips

FPD revenue was $58.7 million in Q3 FY22, unchanged from Q2 FY22, and increased 11.0% from Q3 FY21.

On a year-to-date basis, FPD revenue increased 20.1%.

These increases were driven by strong demand for mobile AMOLED

displays and G10.5+ large area masks used for ultra-large screen televisions.

FPD mainstream revenue decreased from both the prior and prior year quarters, as we devoted capacity to producing higher-margin high-end products.

Year over year FPD

mainstream volume increased slightly, but ASP declined due to a less favorable product mix.

We believe that the strong demand for AMOLED photomasks used in mobile devices will continue in the near term, as expected technology advances drives

increasing overall demand for higher-value masks.

Gross margin increased by 3.8 percentage points in Q3 FY22, from Q2 FY22, primarily as a result of the increase in revenue from the prior quarter.

Material costs increased 1.7% from the prior quarter, but decreased, as

a percentage of revenue, by 140 basis points.

Labor costs increased 2.8%, but decreased 50 basis points, as a percentage of revenue.

Equipment and other overhead costs were essentially flat but decreased 190 basis points as a percentage of revenue.

Gross margin increased by 11.5 percentage points in Q3 FY22, from Q3 FY21, primarily as a result of the increase in revenue from the prior year quarter.

Material costs increased 10.2% from the prior year quarter, but

decreased 420 basis points, as a percentage of revenue.

Labor costs increased 15.3% from the prior year quarter but decreased 120 basis points as a percent of revenue, as labor increased in both the U.S.

and at several Asia-based facilities,

reflecting tight labor markets.

Equipment and other overhead costs rose 4.8%, but decreased 620 basis points, as a percentage of revenue.

Increased outsourced manufacturing costs and importation costs into China , which were partially offset by decreased depreciation expense, were the most significant contributors to the net increase in

equipment and other overhead costs.

Gross margin increased by 10.6 percentage points in YTD FY22, from YTD FY21, primarily as a result of the increase in revenue from

the prior year.

Material costs increased 11.8% from the prior year quarter, but decreased 350 basis points, as a percentage of revenue.

Labor costs increased 12.5% from the prior year quarter but decreased 140 basis points as a percent of

the increase was primarily the result of increased labor costs in Asia.

Increased outsourced manufacturing costs, partially offset by decreased depreciation and equipment maintenance

expenses, were the most significant contributors to the net increase in equipment and other overhead costs.

Gross margin increased by 10.9 percentage points in YTD FY22, from YTD FY21, primarily as a result of the increase in revenue from the prior year.

Material costs increased 11.3% from the prior year quarter, but

decreased 370 basis points, as a percentage of revenue.

Labor costs increased 13.5% from the prior year period but decreased 130 basis points as a percent of revenue as labor increased significantly at almost all of our locations, reflecting tight

labor markets.

Equipment and other overhead costs rose 5.4%, but decreased 590 basis points, as a percentage of revenue.

Increased outsourced manufacturing costs

and importation costs into China , which were partially offset by decreased depreciation expense, were the most significant contributors to the net increase in equipment and other overhead costs.

Increased outsourced manufacturing costs, partially offset by decreased depreciation and amortization expenses, were the most

significant contributors to the net increase in equipment and other overhead costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $16.0 million in Q3 FY22, compared with $16.6 million in Q2 FY22.

The increase of $0.9

million was primarily the result of increased compensation and related expenses of $1.2 million, which were partially offset by decreased professional fees of $0.3 million.

Selling, general and administrative expenses increased $2.5 million in

Q2 FY22, from $14.1 million in Q1 FY21, primarily as a result of increased compensation and related expenses of $2.4 million.

The increases in compensation and related expenses from both prior periods included increased severance costs of $0.7

million, primarily related to the retirement of our former chief executive officer.

The decrease of $0.6 million was primarily the result of decreased compensation and related expenses

of $0.9 million, which were partially offset by increased professional fees of $0.3 million.

The decrease in compensation and related expenses was primarily related to $0.7 million of severance costs incurred in Q2 FY22 in connection with the

retirement of our former chief executive officer.

Selling, general and administrative expenses increased $0.9 million in Q3 FY22, from $15.1 million in Q3 FY21, primarily as a result of increased compensation and related expenses of $0.5 million

and increased professional fees of $0.3 million.

Selling, general and administrative expenses were $48.3 million in YTD FY22, compared with $43.2 million in YTD FY21.

The increase of $4.2 million was primarily the result of increased compensation and related

expenses of $3.9 million, and increased export duties of $0.3 million.

The increase of $5.1 million was primarily the result of increased compensation and related expenses

of $4.4 million, and increased travel expenses of $0.3 million.

Research and Development Expenses

Research and development expenses, which primarily consist of development and qualification efforts related to process technologies for high-end IC and FPD applications, were $4.2 million in Q3

FY22, compared with $5.9 million in Q1 FY22;

the decrease was primarily the result of decreased development activities in the U.S.

Research and development expenses decreased by $0.2 million in Q2 FY22, from $4.4 million incurred in Q2 FY21,

with decreased development activities in the U.S.

and China exceeding increases at our Taiwan-based facilities.

Research and development expenses increased by $1.1 million in YTD FY22 to $10.1 million, compared with $9.1 million in YTD FY21.

The increase was driven by more development activities in the

and Taiwan, which were partially offset by a decrease in such activities in China.

FY22, essentially unchanged from Q2 FY22.

Research and development expenses decreased by $1.2 million in Q3 FY22, from $5.3 million incurred in Q3 FY21, primarily driven by decreased development activities in the U.S.

Research and development expenses were $14.3 million in YTD FY22, down slightly from $14.4 million in YTD FY21, primarily as a result of increased development activities in the U.S.

being offset by

decreased activity in China.

Other Operating Income, Net

In the third quarter of fiscal 2021, we recorded a $3.5 million gain on the trade-in of a lithography tool with a tool vendor as partial compensation for a more advanced tool.

Non-operating Income (Expense)

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Non-operating income (expense), net

Non-operating income (expense) increased $3.3 million to $8.0 million in Q2 FY22, compared with $4.7 million in Q1 FY22, primarily due to

favorable movements of the South Korean won and the New Taiwan dollar against the U.S.

dollar offsetting unfavorable movements of the RMB against the U.S.

In addition, our interest expense decreased by $0.9 million as a result of

subsidies we received on our China-based debt.

Non-operating income (expense) increased $8.8 million to $8.0 million in Q2 FY22, compared with $(0.8) million in Q2 FY21, and increased $12.8 million to $12.7 million in YTD FY22, compared with $(0.1) million in YTD

These increases were primarily due to favorable movements of the South Korean won and the New Taiwan dollar against the U.S.

Non-operating income (expense) decreased $4.4 million to $3.6 million in Q3 FY22, compared with $8.0 million in Q2 FY22, primarily due to reduced gains of the South Korean won and the New Taiwan dollar against the U.S.

dollar exceeding reduced losses of the RMB against the U.S.

In addition, less favorable movement of the RMB and unfavorable movement of the South Korean won against the Japanese yen, which were partially offset by favorable movement of the

New Taiwan dollar against the Japanese yen, also contributed to the decrease.

In Q2 FY22 interest expense on our debt was substantially offset by subsidies we received on our China-based debt;

the absence of such subsidies in Q3 FY22 is the primary

cause of our $0.6 million increase in interest expense in the current quarter.

Non-operating income (expense) decreased $0.1 million to $3.6 million in Q3 FY22, compared with $3.7 million in Q3 FY21.

Unfavorable movement of the RMB and less favorable movement of the South Korean won against the

dollar exceeding favorable movements of the New Taiwan dollar and the Singapore dollar against the U.S.

dollar were the primary drivers of the negative impact of foreign currency transactions.

Interest expense decreased as a result of our

lower average debt balance, which decreased significantly as a result of early repayments made in YTD FY22.

Non-operating income (expense) increased $12.7 million to $16.4 million in YTD FY22, compared with $3.6 million in YTD FY21.

The increase was primarily due to favorable movements of the South Korean won, the New Taiwan

dollar, and the Singapore dollar against the U.S.

dollar, which were partially offset by unfavorable movements of the RMB against the U.S.

favorable foreign currency results were partially offset by increased interest expense in the current year periods, which resulted from our receiving lower subsidies on our China-based debt.

Interest expense increased $0.9 million in YTD FY22 as a result of lower subsidies received on our

China-based debt.

Income Tax Provision

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Effective income tax rate

The effective income tax rate is sensitive to the jurisdictional mix of earnings, due, in part, to the non-recognition of tax benefits on

losses in jurisdictions with valuation allowances where the tax benefit of the losses is not available.

The effective income tax rate decrease in Q2 FY22, compared with Q1 FY22, is primarily due to changes in the jurisdictional mix of earnings.

The effective income tax rate increase in Q2 FY22, compared with Q2 FY21, is primarily due to a decrease in credits in a non-U.S.

jurisdiction and the release of valuation allowance for a loss carryforward in a

The effective income tax rate is sensitive to the jurisdictional mix of earnings, due in part to the non-recognition of tax benefits on losses in jurisdictions with valuation allowances where the tax benefits of the

losses are not available.

The effective income tax rate increase in Q3 FY22, compared with Q2 FY22, is primarily due to changes in the jurisdictional mix of earnings and an increase in foreign taxes in Q3 FY22.

The effective income tax rate increase in Q3 FY22, compared with Q3 FY21, is primarily due to an increase in foreign taxes and a decrease in credits in non-U.S.

jurisdictions, in Q3 FY22, and the release of valuation

allowance for a loss carryforward in a non-U.S.

jurisdiction in Q3 FY21.

The effective income tax rate increase in YTD FY22, compared with YTD FY21, is primarily due to a decrease in credits in a non-U.S.

jurisdiction and the release of valuation allowance for a loss carryforward in a

jurisdiction in YTD FY21.

The effective income tax rate increase in YTD FY22, compared with YTD FY21, is primarily due to an increase in foreign taxes and a decrease in credits in non-U.S.

jurisdictions, in Q3 FY22, and the release of valuation

allowance for a loss carryforward in a non-U.S.

jurisdiction in Q3 FY21.

Net Income Attributable to Noncontrolling Interests

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Liquidity and Capital Resources

Cash and cash equivalents was $329.3 million and

$276.7 million as of May 1, 2022, and October 31, 2021, respectively.

As of the most recent balance sheet date, total cash and cash equivalents included $266.1 million held by foreign subsidiaries.

Net Cash, a non-GAAP financial measure as

defined and discussed in the Non-GAAP Financial Measures section below, was $246.7 million and $165.0 million as of May 1, 2022 , and October 31, 2021, respectively.

Our primary sources of liquidity

are our cash on hand, cash we generate from operations, and borrowing capacity we have available from financial institutions.

Cash and cash equivalents was $380.8 million and $276.7 million as of July 31, 2022, and October 31, 2021, respectively.

As of the most recent balance sheet date, total cash and

cash equivalents included $318.4 million held by foreign subsidiaries.

Net Cash, a non-GAAP financial measure as defined and discussed in the Non-GAAP Financial Measures section below, was $323.5 million

and $165.0 million as of July 31, 2022, and October 31, 2021, respectively.

Our primary sources of liquidity are our cash on hand, cash we generate from operations, and borrowing capacity we have available from

financial institutions.

Our corporate credit agreement has a $50 million borrowing limit, with an expansion capacity to $100 million.

Although we have not accessed funds under our corporate credit facilities since 2011, it continues to afford us financial flexibility.

Although we have not accessed funds under our corporate credit facilities since 2011, it continues to

afford us financial flexibility.

In addition, in China, we currently have approximately $21.2 million of borrowing capacity to support local operations.

See Note 5 to the condensed consolidated financial statements for additional information on our currently available financing.

See Note 5 to the condensed consolidated financial

statements for additional information on our currently available financing.

We continually evaluate alternatives for efficiently funding our capital expenditures and ongoing operations.

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We believe that our liquidity, including available financing, is sufficient to meet our requirements through the next twelve months and thereafter for the foreseeable

Through the utilization of our existing liquidity, cash we generate from operations, and (potentially) our borrowing capacity under our financing arrangements, we plan to continue to invest in our business, with our investments targeted

to align with our customers’ technology road maps.

In addition, we stand ready to invest in mergers, acquisitions, or strategic partnerships, should the right opportunity be available.

align with our customers’ technology road maps.

We may also elect to use our cash to reduce our debt through early repayments.

In addition, we stand ready to invest in mergers, acquisitions, or strategic partnerships, should a suitable opportunity

We estimate capital expenditures for the remainder of FY22 will be approximately $54 million;

these investments will

be targeted towards high-end and mainstream point tools that will increase our operating capacity and efficiency, and enable us to support our customers’ near-term demands.

As of May 1, 2022, we had outstanding capital commitments of approximately $115 million and recognized liabilities related to capital equipment purchases of approximately $8 million.

Although payment timing could

vary, primarily as a result of the timing of tool installation and testing, we currently estimate that we will fund $96 million of our total $123 million committed and recognized obligations for capital expenditures over the next twelve

Please refer to Notes 5 and 7, respectively, to the condensed consolidated financial statements for information on our outstanding debt and lease commitments.

these investments will be targeted towards high-end and mainstream point tools that

will increase our operating capacity and efficiency, and enable us to support our customers’ near-term demands.

As of July 31, 2022, we had outstanding capital commitments of approximately $145.4 million and

recognized liabilities related to capital equipment purchases of approximately $8.3 million.

Although payment timing could vary, primarily as a result of the timing of tool delivery, installation, and testing, we currently estimate that we will

fund $120.5 million of our total $153.7 million committed and recognized obligations for capital expenditures over the next twelve months.

Please refer to Notes 5 and 7, respectively, to the condensed consolidated financial statements for

information on our outstanding debt and lease commitments.

In September 2020, the Company’s board of directors authorized the repurchase of up to $100 million of its common stock, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Act.

This authorization does not obligate the Company to repurchase any dollar amount or number of shares of common stock.

As of May 1, 2022, our current share repurchase program had approximately $31.7 million remaining under

As of July 31, 2022, our current share repurchase program had approximately $31.7 million remaining under

its authorization.

Depending on market conditions, we may utilize some or the entire remaining approved amount to reacquire additional shares.

As discussed in Note 4 to the condensed consolidated financial statements, DNP, the noncontrolling interest in our China-based joint venture has, under certain circumstances, the right to put

its interest in the joint venture to Photronics, or to purchase our interest in the joint venture.

Under all such circumstances, the sale of DNP’s interest would be at its 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.

As discussed in Note 4 to the condensed consolidated financial statements, DNP, the noncontrolling interest in our China-based joint venture has, under certain circumstances, the right to put its

interest in the joint venture to Photronics, or to purchase our interest in the joint venture.

Under all such circumstances, the sale of DNP’s interest would be at its 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.

As of the date of issuance of this report, DNP had not indicated its intention to exercise this right.

As of May 1, 2022, Photronics and DNP each had net

investments in this joint venture of approximately $92.6 million.

As of July 31, 2022, Photronics and DNP each had net investments

in this joint venture of approximately $96.1 million.

Net cash provided by operating activities

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Net cash provided by operating activities reflects net income adjusted for certain non-cash items, including depreciation and

amortization, share-based compensation, and the effects of changes in operating assets and liabilities.

Net cash provided by operating activities increased by $45.1 million in YTD FY22, compared with YTD FY21, due to increased net income, which

was partially offset by lower depreciation expense.

Free Cash Flow and LTM (“Last Twelve Months”) Free Cash Flow, which are non-GAAP financial measures as discussed in the “ Non-GAAP Financial Measures ”

section below, increased by $79.4 and $95.3 million, respectively, compared with YTD FY21, primarily due to the increase in Net cash provided by operating activities discussed above.

amortization, share-based compensation, and the impacts of cash from changes in operating assets and liabilities.

Net cash provided by operating activities increased by $82.8 million in YTD FY22, compared with YTD FY21, due to increased net income

and cash generated from changes in working capital.

Free Cash Flow and LTM (“Last Twelve Months”) Free Cash Flow, which are non-GAAP financial measures as discussed in the “Non-GAAP Financial Measures” section below, increased by $124.4 and $114.6

million, respectively, compared with YTD FY21, primarily due to the increase in Net cash provided by operating activities discussed above and a reduction in spending on property, plant and equipment.

Investing Activities:

Net cash flows used in investing activities primarily consisted of purchases of property, plant and equipment of $34.8

million, which decreased $38.7 million in YTD FY22, as compared with YTD FY21.

Net cash flows used in investing activities primarily consisted of purchases of property, plant and equipment of $46.3 million,

which decreased $46.0 million in YTD FY22, compared with YTD FY21.

The reduced spending on property, plant and equipment was partially offset by a $4.4 million decrease in investment related government incentives received in China.

The reduction in

expenditures resulted from timing of deliveries and payments on outstanding commitments.

Financing Activities:

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In addition, we received debt proceeds of $20.9 million in YTD FY21 and did not incur debt in YTD FY22.

The increase in our cash balance from the beginning of the year was reduced by the effects of exchange rate changes in the amount of $21.3 million in YTD FY22, which was in contrast to the $4.5

million positive impact the effects of exchange rate changes had on our cash balance in YTD FY21.

Non-GAAP Financial Measures

We consider Free Cash Flow, LTM Free Cash Flow, and Net Cash, which are “non-GAAP financial measures” (as such term is defined by the SEC), to be useful metrics in measuring our cash-generating

We consider Free Cash Flow, LTM Free Cash Flow, and Net Cash, which are “non-GAAP financial measures” (as such term is defined by the SEC), to be useful metrics in measuring our cash-generation

(Note that we may define these terms differently than other companies that use similarly-named non-GAAP financial measures.) These non-GAAP metrics are not intended to represent funds available for our discretionary use or to be used

as a substitute for Cash and cash equivalents or Net cash provided by operating activities , as measured under GAAP.

The following tables reconcile Net cash provided by operating activities to Free Cash Flow and present the calculations of LTM Free Cash Flow for Q2 FY22 and Q2 FY21.

The following tables reconcile Net cash provided by operating activities to Free Cash Flow for YTD FY22 and YTD FY21, and present the calculations of LTM Free Cash Flow for Q3 FY22 and Q3 FY21.

The columns may not foot due to rounding.

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LTM Free Cash Flow

First six months of the respective fiscal year

October fiscal year end

First six months of the prior year

First nine months of the respective fiscal year

Prior fiscal year

First nine months of the prior year

LTM free cash flow

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Please refer to Part II, Item 7 of our 2021 Form 10-K for discussion of our critical accounting estimates.

There have been no changes to our critical accounting estimates since the filing of our Form 10-K for the

year ended October 31, 2021.

There have been no changes to our critical accounting estimates since the filing of our Form 10-K for the year

ended October 31, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis