Scott Gish - VP of Marketing and Corporate Communications Constantine Macricostas - Chairman and CEO Sean Smith - CFO Peter Kirlin - SVP, United States and Europe Christopher Progler - VP and CTO

Matt Petkun - D.A. Davidson & Co. Krish Sankar - Bank of America-Merrill Lynch Patrick Ho - Stifel Nicolaus Chip Bonnett - FM Global Brett Hodess - Merrill Lynch

Ladies and gentlemen, thank you for standing by. Welcome to the Photronics third quarter earnings call. (Operator Instructions). As a reminder, this conference is being recorded Wednesday, August 19, 2009. I would now like to turn the conference over to Scott Gish, Vice President of Marketing and Corporate Communications of Photronics. Please go ahead, sir.

': ': ':

Thank you, Scott, and good morning everyone. Before turning the call over to Sean, I would like to take a few minutes to review our accomplishments from Q3 as we discuss our served markets and strategic direction. During our second quarter conference call, we stated that order activity had bottomed in March and gradually improved thereafter. ': Our key initiatives entering the quarter were, number one, continuing to lower our cost structure and improve our balance sheet. Number two, further penetrate the high-end flat panel display and IC markets, while continuing to ramp NanoFab. I am pleased to announce that significant progress has been achieved in both areas. First, in July, we announced the closure of our Shanghai facility. The IC photomask market in China is competitive. It remains relatively small, and is mostly comprised of mature applications. These factors left little opportunity to establish a profitable operation. Closing the facility will enable us to realize savings of $45 million annually with low revenue impact. Secondly, our strategy to penetrate and win tapeouts of advanced IC photomasks gained considerable traction during the quarter. Sales of photomask, at and below 65 nanometers increased 23% sequentially. Success in this area was driven in large part by gains within memory-based markets, including Taiwan. High-end IC sales expanded in all regions, and volume commitment was secured from two major customers. At NanoFab, our newest and most advanced facility, sales again improved sequentially as we continued to ramp production. Qualification in a first production order was achieved with an additional Taiwanese DRAM manufacturer. Three previously qualified customers progressed to volume manufacturing, and five of our top 20 customers are now sourcing photomasks from NanoFab. ': Capital spending, especially for technology and related equipment is increasing. In addition, photomask technology has been established as a key component, enabling smaller transistors. Device scaling in both NAND flash and DRAM has been accelerating, driving additional demand for leading-edge photomasks. In the remaining of calendar 2009, we will stay intensely focused on cost control and advancing improvements. Simultaneously, we will aggressively pursue new technology node qualification and market share gains with the objective to outgrow the markets during the recovery. Thank you. Sean?

': During the quarter, as Deno alluded to, we announced the closure of our manufacturing facility in Shanghai. In connection therewith, including residual costs associated with our previously announced Manchester site closure, we recorded an aggregate charge of $10.7 million in the third quarter. The total Shanghai site closure is projected to be in the range of $11 million to $13 million, with approximately 85% of it being non-cash. On May 15, 2009, we also issued 2.1 million warrants in connection with our amended credit agreement. For the quarter, we recorded a mark-to-market, non-cash charge of $6.8 million related to the appreciation in value in our stock price since the issuance. For purposes of our discussions on operations for the third quarter, I will be primarily referring to our operating results, excluding the impact of these items. Net sales in the third quarter amounted to $95.4 million. Revenues for IC and FPD photomasks were $71.7 million, and $23.7 million respectively. Sequentially, total sales increased by 14.6%, or $12.2 million, with IC and FPD sales increasing by 12.4% and 22% respectively. The increase in sales was by and large attributable to increased high-end demand for IC and FPD photomasks. However, both IC and FPD photomasks for mainstream products improved sequentially as well. The quarterly revenue of $95.4 million was also enhanced by the early arrival of a few high-end photomask sets during the last few weeks of the quarter. These sets were previously expected to be taped out during the fourth quarter. Sales of advanced IC and FPD photomasks were 8% and 15% respectively of total sales for the quarter. Included in these percentages are mask sets for semiconductor designs at and below 65 nanometers, and FPD sets used to fabricate flat panel products using G7 and higher technology. Although not considered high-end, we also experienced increased demand for 90 nanometer sets during the quarter. As a percent of total sales for the third quarter, sales were approximately 63% in Asia, 26% in North America and 11% in Europe. The gross margin for the third quarter was 18.9% as compared to 13.1% for the third quarter of last year. Sequentially, gross margins improved by 520 basis points, due in part to the increased unit volume, high-end demand and continuous efforts on cost-reduction programs. Selling, general and administrative expenses for the third quarter were $10 million as compared to $13.7 million in the third quarter of 2008. Sequentially, SG&A decreased by $600,000. R&D expenses, which consists principally of continued development for advanced process technologies were $3.9 million for the third quarter. Excluding the consolidation charges related to our Manchester and Shanghai site closures, we generated operating income of $4.2 million on $95.4 million of sales during the third quarter as compared to an operating loss of $3.2 million on $105.7 million in sales for the third quarter of 2008. ': ': ': ': ': Research and development costs were $11.7 million for the first nine months of 2009 as compared to $13.1 million last year. Other expense, including warrants, was $16 million in 2009 compared with $6.3 million in 2008 as a result of increased interest expense associated with the increased interest rates, decreased investment income and increased foreign currency losses. For the first nine months, we recorded a tax provision of $2.9 million. ': Total debt at August 2, 2009 was $187 million. The principal components of outstanding debt include $123 million outstanding revolving credit balance, approximately $27 million in term loans, and approximately $37 million in capital lease and other obligations, including the US NanoFab. As a reminder, on May 15, we amended our credit agreement. The key terms and conditions of the amended agreement include the following: The total availability under the revolver was increased from $120 million to $130 million at the end of our fiscal year 2009, and from $100 million to $110 million at the end of our first quarter 2010 through maturity. ': On June 8, we completed or we entered into a new $27 million credit facility with our primary lenders, and repaid a foreign term loan of an equal amount and aligned the maturity of the new loan with our existing credit agreements. Additionally, $9.1 million of this new credit facility is due January 31, 2010. While we have some financial flexibility as a result of our amended agreements, we are also faced with higher interest costs. Our focus over the near term is to reduce our interest costs and debt levels through operating cash flow, monetization of certain assets and reviewing opportunities as they present themselves. Minority interest at the end of the third quarter amounted to $49.7 million, which primarily relates to the minority interest in the equity of our 57% majority-owned subsidiary, PSMC. Taking a look at our cash flows. Cash provided by operations for the third quarter was approximately $15 million, and it amounted to approximately $42 million year-to-date. Cash flow used in investing activities year-to-date amounted to $23.9 million, which includes $29.9 million for cash payments for capital expenditures. Free cash flow year-to-date amounted to $11.5 million, and is expected to improve for the remainder of the year. We continue to feel confident that our significant capital expenditure spending is behind us, and we expect to generate cash from operations for the year certainly in an amount sufficient to cover our planned capital expenditures. ': Capital expenditures for 2009 on a cash basis are expected to be less than $50 million, and when we take a look at our initial pass at CapEx in fiscal 2010, they should be in the range of $40 million to $50 million. However, we would like to emphasize to you this morning that we maintain a significant degree of flexibility in how we invest capital into our organization so that if trends accelerate or decelerate, we can move quickly to optimize our competitive position. ': As a result, based upon our current operating model, we are estimating our loss per share, excluding the impact of the charges related to the consolidation charges and exclusive of the potential mark-to-market impact of the recently issued warrants, the EPS loss for the fourth quarter is expected to be in the range of $0.15 to $0.09 per share. In summary, I would like to reiterate that we have made significant progress over the last few quarters in reducing our operating costs, stabilizing our financial situation, while expanding and growing our high-end business. While we are pleased with our progress, we are not done improving our business model. Over the near term, we plan to capitalize on our strategic position in an improving business environment while reducing our debt in order to ultimately return to bottom line profitability. That concludes my remarks. Now, I would like to turn the call back over to the operator for questions.

': Matt Petkun - D.A. Davidson & Co.: ':

Matt, I think you are correct with the short lead times, but what we had anticipated when we guided for Q3, based upon our qualification processes at the NanoFab and some new customer engagements that Deno alluded to in his opening remarks, we had planned for some of those orders to come-in in Q4. The process for regular transfers of high-end orders were pulled in, so we were able to capitalize on that. However, we generally believe that we will continue to see modest improvement as we move forward. Matt Petkun - D.A. Davidson & Co.: Okay. The next question I had again was kind of on the NanoFab. You are now only counting 65 nanometers or below versus a year ago. Those numbers included 90 nanometers. So, clearly, you are seeing improvement, but it sounds like you have had a lot of incremental customer traction. When can we see the numbers for the NanoFab start to improve on a year-over-year basis? I mean, the October quarter last year was over $10 million. Should we start to see double digit types of numbers from the leading edge?

': ': ': ': ': Matt Petkun - D.A. Davidson & Co.: ':

': Matt Petkun - D.A. Davidson & Co.: Sean, did you share depreciation and amortization on the quarter?

Depreciation and amortization in the quarter was; $19 million for depreciation and then about $2.4 million of amortization.

': Krish Sankar - Bank of America-Merrill Lynch: Sean, how do we think of the interest expense in Q4?

The interest expense is certainly one of the areas we need to take a hard look at. We have an effective yield if you look at Q3 of about 11.4% all-in, including cash and non-cash. So, it would probably be about the same amount, 11.5% all-in of our outstanding debt. So, that is why we are incented to try to use some of our cash on the balance sheet, and our operating cash flow and the sale of certain assets taken out of service to pay down our debt to improve the bottom line. Krish Sankar - Bank of America-Merrill Lynch: In terms of the high-end IC, do you think you have any terms of segmentation by customer or region for the IC photomask in the July quarter?

': ': Krish Sankar - Bank of America-Merrill Lynch: Along the same lines of the FPD, the high-end grew quite a lot, almost over 40%. Was this strength coming from Taiwan or was it Korea or both the regions?

Primarily Korea. Krish Sankar - Bank of America-Merrill Lynch: Primarily Korea. Then, did you guys see any new customer qualify in the NanoFab for July?

We said that we qualified three additional customers in the NanoFab, and we also moved three customers who were already qualified to volume production.

': Patrick Ho - Stifel Nicolaus: Thanks a lot, guys. I understand it is prudent to be cautiously optimistic at this time, but what is your take or what is your color in terms of the sustainability of business trends on a going-forward basis? Do you feel much better that the worst is over and at the very least, we are at an inflection point of a recovery?

': ': Patrick Ho - Stifel Nicolaus: Right. I think you guys have done a really good job at least on the cost cutting front over the last few quarters and taken some major moves along the way. Maybe this is more for you, Sean. Would it be fair to say that a lot of the major moves are out of the way and from here on out, they are kind of tweaking moves? Or are you guys still evaluating like the overall structural basis of the company, and there could still be additional sizable moves ahead?

': ': Patrick Ho - Stifel Nicolaus: Great. A final question from me, along with these cost cutting moves and aligning your manufacturing cost structure to the next recovery scenario, how have your suppliers or how do you feel the supply base is for you guys on a potential recovery scenario? Do you feel confident that they will be ready to ramp up whenever things really start picking up steam?

I think our supply chain is duly exercised and they are an active participant in our cost reduction. As Sean mentioned, we will be relentless day in and day out continuing to drive down our operating costs. However, they are largely intact. So, they are well-positioned to ramp with us.

':

Definitely not.

': Chip Bonnett - FM Global: Nice quarter, guys. Two questions for you. First, can you just give us an update on the total numbers for the NanoFab between the total numbers of customers qualified, and then total numbers of volume customers?

': Chip Bonnett - FM Global: Next, can you talk a little bit about the general sentiment among your customers? Your results here and just the general tone seemed much better. So what is kind of the sentiment out there?

': ':

': ':

': ': ': Chip Bonnett - FM Global: Okay, that is all pretty solid. Last question is just on margins. Sean, you talked about the drop-through, and I think you might have said the drop-through on gross margin is about the same as on the operating line. You can correct me on that, but any chance that that number can actually go a little bit higher than what you did, and then how would mix impact that?

': Chip Bonnett - FM Global: Was drop-through still around 60% there? Was that the number you gave?

This quarter we did 62% I believe as I quoted, but depending upon the mix, it could be anywhere from 50% to 60%. We have seen some quarters where it is 70% and some quarters where it is 48%, but around 60% is a good benchmark. Chip Bonnett - FM Global: ':

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: ': Brett Hodess - Merrill Lynch: ': ': ':

': ': Brett Hodess - Merrill Lynch: The second question I had was really for Sean. You mentioned on the interest expense front, trying to be opportunistic to get down the debt levels and the interest expense. When you are talking about being opportunistic, I know there is lot of different opportunities, but are you focusing mainly on taking out new debt as the credit markets continue to loosen up or would you actually consider an equity offering as well, you think, to improve that issue?

': ': ': ': Brett Hodess - Merrill Lynch: ':

': ': ':

We do have a lot of capacity in the high-end and the low-end, definitely. We have a lot of capacity, even north of first quarter, couple of years or year and a half ago.

That was how I was going to answer the question. We can achieve peak revenue levels historically with the installed base as it sits now without any doubt. Brett Hodess - Merrill Lynch: Can you exceed those levels given the higher ASP mix of the leading edge?

Yes, we can exceed them.

': Matt Petkun - D.A. Davidson & Co.: ':

': ': Matt Petkun - D.A. Davidson & Co.: How should we be thinking about Micron? I know primarily their volumes go through MP Mask, but I guess my understanding is that any overflow could go through the NanoFab. Is that correct?

': ': ': ': Matt Petkun - D.A. Davidson & Co.: Chris, it was my understanding that during the downturn, just given lower volumes at MP Mask, the intent is just to keep that shop busy first. Is that correct?

': ': Matt Petkun - D.A. Davidson & Co.: You did comment a little bit about just the technology partners that Micron has now. I assume you have an opportunity to serve some of the guys in Taiwan who will be accessing the Micron technology. Where will you be serving them from? I assume in Asia.

':

': Chip Bonnett - FM Global: ':

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': Chip Bonnett - FM Global: ':

': ': Chip Bonnett - FM Global: Sean, on the breakeven, the number you just threw out includes the Shanghai closing?

': ': Chip Bonnett - FM Global: Is it going to kind of stay around that level or do you anticipate that going any lower?

We will work to try to get that lower, barring any other significant move. I think we referred to it earlier on the call as tweaking, but we are going to continue to try to extract fixed costs out of our system. Chip Bonnett - FM Global: ':

': ':

(Operator Instructions). We have no further questions in the queue. I would like to turn the call back over to our presenters for any additional or closing remarks.

':

Ladies and gentlemen, that concludes the conference call for today. We thank you for your participation and ask that you please disconnect your line.