REVENUE

9 Months Ended

Aug. 01, 2021

REVENUE [Abstract]

REVENUE

NOTE 7 - REVENUE

We recognize revenue when, or as, control of a good or service transfers to a customer, in an amount that reflects the consideration to which we expect to be entitled in exchange for transferring those goods or services. We account 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 our revenue comes from the sales of photomasks. We typically contract with our customers to sell sets of photomasks, which are comprised of multiple layers, the predominance of which we invoice as they ship to customers. As the photomasks are manufactured to customer specifications, they have no alternative use to us and, as our contracts generally provide us with the right to payment for work completed to date, we recognize revenue as we perform, or “over time”, on most of our contracts. We measure our performance to date using an input method, which is based on our estimated costs to complete the various manufacturing phases of a photomask. At the end of a reporting period, there will be a number of uncompleted revenue contracts on which we have performed; for any such contracts under which we are entitled to be compensated for our costs incurred plus a reasonable profit, we recognize revenue and a corresponding contract asset for such performance. We account for shipping and handling activities that we perform after a customer obtains control of a good as being activities to fulfill our promise to transfer the good to the customer, rather than as promised services, or performance obligations, under the contract. We report our revenue net of any sales or similar taxes we collect on behalf of government 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, our photomasks do not have standard or “list” prices. The transaction prices of the vast majority of our revenue contracts include only fixed amounts of consideration. In certain instances, such as when we offer 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, Contract Liabilities, and Accounts Receivable

We recognize a contract asset when our performance under a contract precedes our receipt of consideration from a customer, or before payment is due, and our receipt of consideration is conditional upon factors other than the passage of time. Contract assets reflect our transfer of control of photomasks that are in process or completed but not yet shipped to customers. A receivable is recognized when we have an unconditional right to payment for our performance, which generally occurs when we ship the photomasks. Our contract assets primarily consist of a significant amount of our in-process production orders and fully manufactured photomasks which have not yet shipped, for which we have 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, we net contract assets with contract liabilities (deferred revenue) for financial reporting purposes. Contract assets of $8.9 million are included in Other current assets, and contract liabilities of $15.4 million and $5.2 million are included in Accrued liabilities and Other liabilities, respectively, in our August 1, 2021, condensed consolidated balance sheet. Our October 31, 2020 condensed consolidated balance sheet includes contract assets of $6.3 million, included in Other current assets, and contract liabilities of $8.0 million and $5.2 million are included in Accrued liabilities and Other liabilities, respectively. We did not impair any contract assets during the three or nine-month periods ended August 1, 2021 or August 2, 2020. We recognized $1.7 million and $5.0 million of revenue from the settlement of contract liabilities that existed at the beginning of the three and nine-month periods ended August 1, 2021, and recognized $1.9 million and $2.3 million of revenue in the respective prior year periods, that related to the settlement of contract liabilities that existed at the beginning of those periods.

We generally record our accounts receivable at their billed amounts. All outstanding past due customer invoices are reviewed for collectibility during, and at the end of, every reporting period. To the extent we believe a loss on the collection of a customer invoice is probable, we record the loss and credit the allowance for credit losses. In the event that an amount is determined to be uncollectible, we charge the allowance for credit losses and derecognize the related receivable. We did not incur any credit losses on our accounts receivable during the nine-month period ended August 1, 2021, and credit losses on our accounts receivable were immaterial during the three and nine-month periods ended August 2, 2020.

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

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

Disaggregation of Revenue

The following tables present our revenue for the three and nine-month periods ended August 1, 2021 and August 2, 2020, disaggregated by product type, geographic origin, and timing of recognition.

	Three Months Ended				Nine Months Ended
	August 1, 2021		August 2, 2020		August 1, 2021		August 2, 2020
Revenue by Product Type
IC
High-end	$	42,351	$	38,665	$	120,390	$	117,974
Mainstream		75,423		70,001		214,332		194,517
Total IC	$	117,774	$	108,666	$	334,722	$	312,491
FPD
High-end	$	40,640	$	36,670	$	114,685	$	108,248
Mainstream		12,229		12,559		33,066		39,666
Total FPD	$	52,869	$	49,229	$	147,751	$	147,914
	$	170,643	$	157,895	$	482,473	$	460,405

	Three Months Ended				Nine Months Ended
	August 1, 2021		August 2, 2020		August 1, 2021		August 2, 2020
Revenue by Geography *
Taiwan	$	63,849	$	60,836	$	179,441	$	182,463
Korea		39,575		39,488		118,597		116,485
United States		24,693		28,351		78,447		78,276
China		32,664		20,988		77,391		58,374
Europe		9,437		7,688		27,269		23,562
Other		425		544		1,328		1,245
	$	170,643	$	157,895	$	482,473	$	460,405

* This table disaggregates revenue by the location in which it was earned.

	Three Months Ended				Nine Months Ended
	August 1, 2021		August 2, 2020		August 1, 2021		August 2, 2020
Revenue by Timing of Recognition
Over time	$	157,941	$	137,442	$	443,923	$	401,347
At a point in time		12,702		20,453		38,550		59,058
	$	170,643	$	157,895	$	482,473	$	460,405

Contract Costs

We pay commissions to third-party sales agents for certain sales they procure on our behalf. However, the bases 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, we do not recognize any portion of these sales commissions as costs of obtaining a contract, nor do we currently foresee other circumstances under which we would recognize contract obtainment costs as assets.

Remaining Performance Obligations

As we are typically required to fulfill customer orders within a short time period, our 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 Topic 606, we have elected not to disclose our 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

Our photomasks are sold under warranties that generally range from one to twenty-four months. We warrant that our photomasks conform to customer specifications, and 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 our revenue contracts. Historically, customer claims under warranties have been immaterial.