| REVENUE | NOTE 6 - 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. 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 is 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 to customers of photomasks that are in process or completed but not yet shipped. 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. Our contract assets and liabilities are typically classified as current, as our production cycle and our lead times are both under one year. Contract assets of $5.6 million are included in Other current assets, and contract liabilities of $8.8 million and $5.2 million are included in Accrued liabilities and Other liabilities, respectively, in our August 2, 2020 condensed consolidated balance sheet. Our October 31, 2019 condensed consolidated balance sheet includes contract assets of $7.6 million, included in “Other” current assets, and contract liabilities of $11.5 million, included in Accrued liabilities. We did not impair any contract assets during the nine-month periods ended August 2, 2020 or July 28, 2019. We recognized $1.9 million and $2.3 million of revenue from the settlement of contract liabilities that existed at the beginning of the three and nine-month periods ended August 2, 2020, and recognized $0.8 million and $1.1 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 doubtful accounts. In the event that an amount is determined to be uncollectible, we charge the allowance for doubtful accounts and derecognize the related receivable. Credit losses incurred on our accounts receivable during the three and nine-month periods ended August 2, 2020, and July 28, 2019, were immaterial. Our invoice terms generally range from net thirty 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’ve 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 2, 2020 and July 28, 2019, disaggregated by product type, geographic origin, and timing of recognition. At the beginning of fiscal year 2020, we changed the threshold for the definition of high-end FPD, from G8 and above and active matrix organic light-emitting diode (AMOLED) display screens, to G10.5 and above, AMOLED, and low-temperature polysilicon display screens (LTPS), to reflect the overall advancement of technology in the FPD industry. Our definition of high-end IC products remains as 28 nanometer or smaller. The revenue by product type for the three and nine-month periods ended July 28, 2019, presented below has been reclassified to conform to the current period presentation.
Three Months Ended Nine Months Ended
August 2, 2020 July 28, 2019 August 2, 2020 July 28, 2019
Revenue by Product Type
IC
High-end $ 38,665 $ 38,460 $ 117,974 $ 111,455
Mainstream 70,001 61,725 194,517 182,197
Total IC $ 108,666 $ 100,185 $ 312,491 $ 293,652
FPD
High-end $ 36,670 $ 23,088 $ 108,248 $ 60,490
Mainstream 12,559 14,839 39,666 40,262
Total FPD $ 49,229 $ 37,927 $ 147,914 $ 100,752
$ 157,895 $ 138,112 $ 460,405 $ 394,404
Three Months Ended Nine Months Ended
August 2, 2020 July 28, 2019 August 2, 2020 July 28, 2019
Revenue by Geographic Origin
Taiwan $ 60,836 $ 61,273 $ 182,463 $ 175,482
Korea 39,488 37,120 116,485 110,395
United States 28,351 25,364 78,276 74,579
China 20,988 5,963 58,374 7,693
Europe 7,688 7,937 23,562 24,725
Other 544 455 1,245 1,530
$ 157,895 $ 138,112 $ 460,405 $ 394,404
Revenue by Timing of Recognition
Over time $ 137,442 $ 122,938 $ 401,347 $ 362,078
At a point in time 20,453 15,174 59,058 32,326
$ 157,895 $ 138,112 $ 460,405 $ 394,404 Contract Costs We pay commissions to third-party sales agents for certain sales that they obtain for us. 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 would 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 such 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 two two three Sales and Similar Taxes We report our revenue net of any sales or similar taxes we collect on behalf of governmental entities. Product Warranties Our photomasks are sold under warranties that generally range from one |
