Table of Contents
UNITED
STATES
SECURITIES
AND EXCHANGE
COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the
quarterly period ended June 28, 2008
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or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the
transition period from to
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Commission file number: 000-50307
FormFactor, Inc.
(Exact name of registrant as specified in its
charter)
DELAWARE
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13-3711155
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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7005 Southfront Road, Livermore, California
94551
(Address of principal executive offices, including
zip code)
(925) 290-4000
(Registrants telephone number, including
area code)
Indicate by
check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes
x
No
o
Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company
.
See definitions of large accelerated filer, accelerated filer and
smaller reporting company in Rule 12b-2
of the Exchange Act. (Check one):
Large Accelerated filer
x
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes
o
No
x
As of July 26,
2008, 48,871,994 shares of the registrants common stock, par value $0.001 per
share, were outstanding.
Table
of Contents
FORMFACTOR, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
JUNE 28, 2008
INDEX
2
Table of Contents
PART I. FINANCIAL
INFORMATION
Item
1.
Financial Statements
FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
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Three Months Ended
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Six Months Ended
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June 28,
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June 30,
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June 28,
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June 28,
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2008
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2007
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2008
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2007
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Revenues
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$
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52,013
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$
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114,124
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$
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117,716
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$
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216,395
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Cost of revenues
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40,912
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49,966
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94,043
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97,954
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Gross margin
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11,101
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64,158
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23,673
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118,441
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Operating expenses:
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Research and development
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15,821
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14,384
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32,209
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28,485
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Selling, general and administrative
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22,705
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23,056
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45,363
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45,984
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Restructuring charges
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3,223
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8,543
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Total operating expenses
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41,749
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37,440
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86,115
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74,469
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Operating income (loss)
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(30,648
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)
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26,718
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(62,442
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)
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43,972
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Interest income
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3,128
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5,557
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8,003
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11,001
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Other income (expense)
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(652
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)
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(61
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)
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141
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(181
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)
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Income (loss) before income taxes
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(28,172
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)
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32,214
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(54,298
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)
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54,792
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Provision (benefit) for income taxes
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(9,513
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)
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11,109
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(17,678
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)
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18,476
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Net income (loss)
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$
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(18,659
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)
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$
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21,105
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$
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(36,620
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)
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$
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36,316
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Net income (loss) per share:
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Basic
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$
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(0.38
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$
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0.44
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$
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(0.75
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)
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$
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0.76
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Diluted
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$
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(0.38
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$
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0.43
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$
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(0.75
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$
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0.74
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Weighted-average number of shares used in
per share calculations:
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Basic
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48,835
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47,893
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48,789
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47,639
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Diluted
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48,835
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49,516
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48,789
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49,289
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The accompanying notes are an integral part
of these condensed consolidated financial statements
3
Table
of Contents
FORMFACTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
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June 28,
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December 29,
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2008
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2007
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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427,176
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$
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315,232
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Marketable securities
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115,559
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254,814
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Accounts receivable, net
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45,555
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69,486
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Inventories
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24,718
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29,309
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Deferred tax assets
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18,492
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17,995
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Refundable income taxes
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18,231
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2,043
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Prepaid expenses and other current assets
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12,841
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13,461
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Total current assets
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662,572
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702,340
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Restricted cash
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2,250
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2,250
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Property and equipment, net
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126,205
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130,882
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Deferred tax assets
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13,575
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10,038
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Other assets
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9,587
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9,812
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Total assets
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$
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814,189
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$
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855,322
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LIABILITIES
AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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30,626
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$
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42,893
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Accrued liabilities
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20,115
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30,029
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Income tax payable
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225
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1,328
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Deferred revenue and customer advances
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7,807
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5,535
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Deferred rent
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458
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462
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Total current liabilities
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59,231
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80,247
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Long-term income tax payable
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13,089
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12,248
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Deferred rent and other liabilities
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5,800
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5,877
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Total liabilities
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78,120
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98,372
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Commitments and contingencies (Note 10)
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Stockholders equity
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Preferred stock, $0.001 par value:
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10,000,000 shares authorized; no shares
issued and outstanding at June 28, 2008 and December 29, 2007,
respectively
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Common stock, $0.001 par value:
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250,000,000 shares authorized; 48,871,994
and 48,642,258 shares issued and outstanding at June 28, 2008 and
December 29, 2007, respectively
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49
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49
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Additional paid-in capital
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589,901
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573,553
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Accumulated other comprehensive income
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320
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929
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Retained earnings
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145,799
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182,419
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Total stockholders equity:
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736,069
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756,950
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Total liabilities and stockholders equity
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$
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814,189
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$
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855,322
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The accompanying notes are an integral part
of these condensed consolidated financial statements
4
Table
of Contents
F
ORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(In thousands)
(Unaudited)
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Six Months Ended
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June 28,
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June 30,
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2008
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2007
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Cash
flows from operating activities:
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Net income (loss)
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$
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(36,620
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$
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36,316
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Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
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Depreciation and amortization
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15,776
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12,616
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Stock-based compensation expense
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12,811
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13,840
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Deferred income taxes
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(2,653
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)
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(2,277
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Excess tax benefits from equity based
compensation plans
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(127
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)
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(5,470
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)
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Provision for excess and obsolete
inventories
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11,846
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5,234
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Loss on disposal and impairment of property
and equipment
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982
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283
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Changes in assets and liabilities:
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Accounts receivable
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23,938
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(24,004
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Inventories
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(7,391
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)
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(16,689
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Prepaid expenses and other current assets
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1,911
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(2,227
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Refundable income taxes
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(16,062
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)
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Other assets
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224
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(499
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)
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Accounts payable
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(5,327
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)
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9,625
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Accrued liabilities
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(8,735
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)
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(2,491
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Income taxes payable
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(895
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16,546
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Deferred rent
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(195
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)
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102
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Deferred revenues and customer advances
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2,266
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(902
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)
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Net cash provided by (used in) operating
activities
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(8,251
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)
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40,003
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Cash
flows from investing activities:
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Acquisition of property and equipment
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(20,772
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)
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(30,641
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Purchase of marketable securities
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(163,568
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)
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(120,192
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)
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Proceeds from maturities and sales of
marketable securities
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301,141
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87,718
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Net cash provided by (used in) investing
activities
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116,801
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(63,115
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)
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Cash
flows from financing activities:
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Proceeds from issuance of common stock
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3,453
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20,112
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Excess tax benefits from equity based
compensation plans
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127
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5,470
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Net cash provided by financing activities
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3,580
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25,582
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Effect of exchange rate changes on cash and
cash equivalents
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(186
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)
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9
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Net increase (decrease) in cash and cash
equivalents
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111,944
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2,479
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Cash and cash equivalents, beginning of the
period
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315,232
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284,131
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Cash and cash equivalents, end of the
period
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$
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427,176
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$
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286,610
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Supplemental
disclosure of significant non-cash investing activities:
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Purchases of property and equipment through
accounts payable and accrued liabilities
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$
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(9,153
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)
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$
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142
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
Table of Contents
FORMFACTOR, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1
Basis of Presentation
Basis of presentation.
The
accompanying unaudited condensed consolidated interim financial statements of
FormFactor, Inc. and its subsidiaries (the Company) have been prepared
in accordance with accounting principles generally accepted in the United
States of America and pursuant to the instructions to Form 10-Q and Article 10
of Regulation S-X of the Securities and Exchange Commission (the SEC). The
Companys interim financial statements do not include all of the information
and footnotes required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair statement
have been included. Operating results for the three and six months ended June 28,
2008 are not necessarily indicative of the results that may be expected for the
year ending December 27, 2008, or for any other period. The balance sheet
at December 29, 2007 has been derived from the audited consolidated
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the
United States of America for complete financial statements. These financial
statements and notes should be read with the consolidated financial statements
and notes thereto for the year ended December 29, 2007 included in the
Companys Annual Report on Form 10-K filed with the SEC on February 27,
2008, and with the interim financial statements and notes included in the
Companys Report on Form 10-Q for the period ended March 29, 2008.
Fiscal Year.
The
Company operates on a 52/53 week fiscal year, whereby the year ends on the
Saturday nearest December 31. Fiscal year 2008 will end on December 27,
2008, and will consist of 52 weeks.
Note
2 Significant Accounting Policies
The Companys significant accounting policies
are disclosed in the Companys Annual Report on Form 10-K for the fiscal
year ended December 29, 2007. As described in Note 4, the Company adopted
certain provisions of the Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 157, Fair
Value Measurements
as of the first day of the first quarter of fiscal
2008.
Note 3
Restructuring Charges
Fiscal 2008 Quarter 1 Cost Reduction Plan
On
February 5, 2008, the Company announced a cost reduction plan that
included reducing its global workforce. The worldwide reduction in workforce
involved approximately 114 employees, or 14% of the headcount prior to the
reduction. The plan was designed to
restructure the Company to better align with the market environment. The majority of the activities comprising the
quarter 1 cost reduction plan were completed by the end of the first quarter of
fiscal 2008 and consisted primarily of global workforce reductions and property
and equipment impairments. During the three months ended March 29, 2008
the Company recorded a charge of $5.3 million related to the quarter 1 cost
reduction plan. In addition, the Company and Jorge L. Titinger, its former Senior
Vice President, Product Business Group, mutually agreed to eliminate Mr. Titingers
position as part of
6
Table of Contents
the Companys quarter 1
restructuring activities in light of market and business conditions. In
connection with his departure, at March 29, 2008,
the Company recorded
charges of approximately $613,000, consisting primarily of a severance payment
of $204,000 and approximately $287,000 in stock-based compensation resulting
from the accelerated vesting of a portion of his unvested restricted stock
units representing an aggregate of 18,680 shares. These charges were recorded
as components of restructuring in the Condensed Consolidated Statements of
Operations.
During the three months ended June 28, 2008, the Company paid
approximately $2.3 million related to accrued severance, benefits and other
costs. Additionally, the Company
recognized a reduction of $345,000 as adjustments to costs previously accrued
for the quarter 1 cost reduction plan.
These charges are recorded as components of restructuring in the
Condensed Consolidated Statements of Operations.
Fiscal 2008 Quarter 2 Cost Reduction Plan
On
April 8, 2008, the Company announced its commitment to implement a second
global cost reduction plan that included reducing its global workforce by
approximately 12%, with reductions primarily coming from the Companys North
America operations. The plan also included the consolidation of a facility in
Livermore, California. The plan was designed to restructure the Company to
better align with the market environment. A substantial portion of the
activities comprising the quarter 2 cost reduction plan was completed by the
end of the second quarter of fiscal 2008 with the remaining activities to be
completed in the third quarter of fiscal 2008.
During
the three months ended June 28, 2008, the Company recorded a charge of
approximately $3.6 million related to the quarter 2 cost reduction plan which
includes approximately $328,708 associated with the facility consolidation. The
Company paid approximately $2.8 million related to accrued severance, benefits
and other costs and $88,302 related to the facility consolidation. These
charges are recorded as components of restructuring in the Condensed
Consolidated Statements of Operations.
The
following table summarizes the activities related to both cost reduction plans
as of June 28, 2008 (in thousands):
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Fiscal 2008 Restructuring
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Quarter 1 Cost Reduction Plan
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Quarter 2 Cost Reduction Plan
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Employee
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Property
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Employee
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Contract
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Severance and
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and Equipment
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Severance and
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Termination and
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Benefits
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Impairment
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Benefits
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Other
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Total
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|
Accrual at December 29, 2007
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Restructuring charges
|
|
4,680
|
|
640
|
|
|
|
|
|
5,320
|
|
Cash payments
|
|
(1,508
|
)
|
|
|
|
|
|
|
(1,508
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)
|
Non-cash settlements
|
|
(477
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)
|
(640
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)
|
|
|
|
|
(1,117
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)
|
Accrual at March 29, 2008
|
|
$
|
2,695
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|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
2,695
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|
Restructuring charges (reversals)
|
|
(345
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)
|
|
|
3,239
|
|
329
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|
3,223
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|
Cash payments
|
|
(2,277
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)
|
|
|
(2,781
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)
|
(88
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)
|
(5,146
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)
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Non-cash settlements
|
|
|
|
|
|
(173
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)
|
|
|
(173
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)
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Accrual at June 28, 2008
|
|
$
|
73
|
|
$
|
|
|
$
|
285
|
|
$
|
241
|
|
$
|
599
|
|
The
charges above have been reflected separately as restructuring in the Condensed
Consolidated Statements of Operations. The remaining accrual, as of June 28,
2008 relates to severance benefits and other costs associated with the facility
consolidation which will be paid within the next twelve months. As such, the
restructuring accrual is recorded as a current liability within accrued
liabilities in the Condensed Consolidated Balance Sheets.
7
Table of Contents
Note
4 Fair Value
Effective December 30, 2007, the Company
adopted SFAS No. 157, Fair Value Measurements. In February 2008,
FASB issued FASB Staff Position No. FAS 157-2, Effective Date of FASB
Statement No. 157, which provides a one year deferral of the effective
date of SFAS 157 for non-financial assets and non-financial liabilities, except
those that are recognized or disclosed in the financial statements at fair
value at least annually. The Company adopted the provisions of SFAS 157 with
respect to its financial assets and liabilities only. SFAS No. 157 defines
fair value, establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about fair value
measurements. SFAS No. 157 applies under other accounting pronouncements
that require or permit fair value measurements and does not require any new
fair value measurements. The standard describes a fair value hierarchy based on
three levels of inputs, the first two of which are considered observable and
the last unobservable, that may be used to measure fair value:
·
Level
1 - Quoted prices in active markets for identical assets or liabilities.
·
Level
2 - Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data for substantially the full term
of the assets or liabilities.
·
Level 3 - Unobservable inputs that are
supported by little or no market activity and that are significant to the fair
value of the assets or liabilities.
The Company measures and reports certain financial assets and
liabilities at fair value on a recurring basis, including money market funds,
U. S. government securities, municipal bonds, U. S. government sponsored
enterprise securities or agency securities and foreign currency derivatives. In
accordance with SFAS 157, the following table represents the Companys fair
value hierarchy for its financial assets (cash equivalents and marketable securities)
measured at fair value on a recurring basis as of June 28, 2008:
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Level 1
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Level 2
|
|
Total
|
|
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|
(In thousands)
|
|
Cash Equivalents
|
|
|
|
|
|
|
|
Money Market funds
|
|
$
|
366,991
|
|
$
|
|
|
$
|
366,991
|
|
Marketable Securities
|
|
|
|
|
|
|
|
U. S. Government securities
|
|
|
|
26,677
|
|
26,677
|
|
Municipal bonds
|
|
|
|
33,584
|
|
33,584
|
|
Agency securities
|
|
|
|
55,298
|
|
55,298
|
|
Total Cash Equivalents and Marketable
Securities
|
|
$
|
366,991
|
|
$
|
115,559
|
|
$
|
482,550
|
|
Note
5 Inventories
Inventories are stated at the lower of cost
(principally standard cost which approximates actual cost on a first-in,
first-out basis) or market value. Adjustments for potential excess and obsolete
inventory are made based on managements analysis of inventory levels and
future sales forecasts. Once the value
is adjusted, the original
cost of the Companys inventory less
the related inventory write-down represents the new cost basis of such
products. Reversal of these write-downs
is recognized only when the related inventory has been scrapped or sold.
Inventories consisted of the following:
|
|
June 28,
|
|
December 29,
|
|
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Raw materials
|
|
$
|
6,124
|
|
$
|
12,442
|
|
Work-in-progress
|
|
11,458
|
|
12,971
|
|
Finished goods
|
|
7,136
|
|
3,896
|
|
|
|
$
|
24,718
|
|
$
|
29,309
|
|
8
Table of Contents
Note
6 Warranty
The Company offers warranties on its products, other than certain
evaluation and early adopter products that are not offered with warranty, and
records a liability for the estimated future costs associated with customer
warranty claims, which is based upon historical experience and the Companys
estimate of the level of future costs. Warranty costs are reflected in the Condensed
Consolidated Statements of Operations as a cost of revenues. A reconciliation
of the changes in the Companys warranty liability (included in accrued
liabilities in the Condensed Consolidated Balance Sheets) for the three and six
months ended June 28, 2008 and June 30, 2007, respectively, follows:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
June 30,
|
|
June 28,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Warranty accrual beginning balance
|
|
$
|
2,303
|
|
$
|
822
|
|
$
|
1,383
|
|
$
|
778
|
|
Accrual for warranties issued during the
period
|
|
648
|
|
1,795
|
|
2,488
|
|
2,634
|
|
Settlements made during the period
|
|
(1,471
|
)
|
(1,477
|
)
|
(2,391
|
)
|
(2,272
|
)
|
Warranty accrual ending balance
|
|
$
|
1,480
|
|
$
|
1,140
|
|
$
|
1,480
|
|
$
|
1,140
|
|
Note 7 Stock-Based Compensation
The Company
recorded stock-based compensation for the three and six months ended June 28,
2008 and June 30, 2007 as follows:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
June 30,
|
|
June 28,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
(In thousands)
|
|
Stock-based compensation expense by type of
award:
|
|
|
|
|
|
|
|
|
|
Employee stock options (1) (2)
|
|
$
|
5,343
|
|
$
|
5,844
|
|
$
|
9,567
|
|
$
|
11,439
|
|
Employee stock purchase plan
|
|
689
|
|
713
|
|
1,821
|
|
1,603
|
|
Restricted stock units (3) (4)
|
|
694
|
|
32
|
|
1,282
|
|
848
|
|
Net change in amounts capitalized as
inventory
|
|
(32
|
)
|
(127
|
)
|
141
|
|
(50
|
)
|
Total stock-based compensation
|
|
6,694
|
|
6,462
|
|
12,811
|
|
13,840
|
|
Tax effect on stock-based compensation
|
|
(2,210
|
)
|
(2,049
|
)
|
(3,830
|
)
|
(4,633
|
)
|
Effect on net income (loss)
|
|
$
|
4,484
|
|
$
|
4,413
|
|
$
|
8,981
|
|
$
|
9,207
|
|
(1)
|
The six
months ended June 28, 2008 includes approximately $256,000 in net stock-based
compensation benefit resulting from the modification and acceleration of the
vesting of a portion of the Companys former Chief Financial Officers stock
options in conjunction with his separation agreement and general release.
|
|
|
(2)
|
The six months ended June 30,
2007 includes approximately $575,000 in stock-based compensation resulting
from the accelerated vesting of a portion of the Companys former Presidents
stock options in conjunction with his separation agreement and general
release.
|
|
|
(3)
|
The six months
ended June 28, 2008 includes approximately $287,000 in stock-based
compensation resulting from the acceleration of the vesting of a portion of
the Companys former Senior Vice President, Product Business Groups
restricted stock units in conjunction with his separation agreement and
general release (See Note 3 Restructuring Charges.)
|
|
|
(4)
|
The six months ended
June 30, 2007 includes approximately $798,000 in incremental stock-based
compensation resulting from the acceleration of the Companys former
Presidents remaining unvested restricted stock units in conjunction with his
separation agreement and general release.
|
Equity Incentive Plans
The Company
has four equity incentive plans: 1996 Stock Option Plan, Incentive Option Plan
and Management Incentive Option Plan (collectively, the Prior Plans), and
2002 Equity Incentive Plan (2002 Plan), which became effective in June 2002.
Upon the effectiveness of the 2002 Plan, the Company ceased granting any equity
awards under the Prior Plans, although forfeited Prior Plan shares are
transferred to the 2002 Plan.
9
Table of Contents
Stock Options
The following
weighted average assumptions were used in the estimated grant-date fair value
calculations using the Black-Scholes option pricing model for stock options for
the three and six months ended June 28, 2008 and June 30, 2007,
respectively:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
June 30,
|
|
June 28,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Stock Options:
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
53.5
|
%
|
44.0
|
%
|
53.3
|
%
|
44.3
|
%
|
Risk-free interest rate
|
|
2.64
|
%
|
4.63
|
%
|
2.99
|
%
|
4.63
|
%
|
Expected term (in years)
|
|
4.75
|
|
4.70
|
|
4.75
|
|
4.71
|
|
Stock option activity under the Prior Plans and the 2002 Plan during
the six months ended June 28, 2008 is set forth below:
|
|
Shares
|
|
Options
|
|
Weighted Average
|
|
|
|
Available
|
|
Outstanding
|
|
Exercise Price
|
|
Balances, December 29, 2007
|
|
4,930,527
|
|
6,611,496
|
|
$
|
29.18
|
|
Additional shares reserved
|
|
2,432,112
|
|
|
|
|
|
Options granted
|
|
(846,010
|
)
|
846,010
|
|
21.81
|
|
Awards granted
|
|
(603,240
|
)
|
|
|
|
|
Options exercised
|
|
|
|
(65,299
|
)
|
7.66
|
|
Options cancelled:
|
|
|
|
|
|
|
|
Forfeited
|
|
582,675
|
|
(582,675
|
)
|
36.01
|
|
Awards cancelled
|
|
34,720
|
|
|
|
|
|
Balances, June 28, 2008
|
|
6,530,784
|
|
6,809,532
|
|
$
|
27.89
|
|
Restricted Stock Units
Restricted
stock units are converted into shares of the Companys common stock upon release
on a one-for-one basis. The vesting of restricted stock units is subject to the
employees continuing service to the Company. The cost of these awards is
determined using the fair value of the Companys common stock on the date of
the grant, and compensation cost is recognized over the vesting period.
Restricted stock units generally vest over four years.
Activity of
the restricted stock units under the 2002 Plan during the six months ended June 28,
2008 is set forth below:
|
|
|
|
Weighted
|
|
|
|
|
|
Average Grant
|
|
|
|
Units
|
|
Date Fair Value
|
|
Restricted stock units at December 29,
2007
|
|
22,150
|
|
$32.76
|
|
Awards Granted
|
|
603,240
|
|
20.54
|
|
Awards Released
|
|
(27,180
|
)
|
30.27
|
|
Awards Cancelled
|
|
(34,720
|
)
|
19.36
|
|
Restricted stock units at June 28,
2008
|
|
563,490
|
|
$20.21
|
|
Employee
Stock Purchase Plan
The Companys 2002 Employee Stock Purchase
Plan (the ESPP) provides that eligible employees may contribute up to 15% of
their eligible earnings toward the semi-annual purchase of the Companys common
stock, subject to certain limitations. Under the ESPP,
10
Table of Contents
employees may purchase the Companys common stock through payroll
deductions at a price equal to 85% of the lower of the fair market value at the
beginning of the applicable offering period or at the end of each applicable
purchase period. Until February 1, 2007, each offering period was
generally two years in length, consisting of four six month purchase periods.
Effective from February 1, 2007, the offering periods under the ESPP are a
12 month fixed offering period commencing on February 1 of each calendar
year and ending on January 31
st
of
the subsequent calendar year, and a six month fixed offering period commencing
on August1
st
of each calendar year and ending on January 31
st
of the subsequent calendar year. The 12 month offering period consists of
two six month purchase periods and the six month offering period consists of
one six month purchase period. During the six months ended June 28, 2008 and
June 30, 2007, 150,410 shares and 122,523 shares, respectively, were
issued under the ESPP. As of June 28, 2008, the Company had $0.7 million
of total unrecognized deferred stock-based compensation related to ESPP grants,
which will be recognized over the weighted average period of 0.5 years.
Compensation expense is calculated using the fair value of the employees
purchase rights under the Black-Scholes model.
Note 8 Net Income
(Loss) per Share
Basic net income (loss) per share is computed by dividing net income
(loss) by the weighted-average number of common shares outstanding for the
period. Diluted net income (loss) per share is computed giving effect to all
potential dilutive common stock, including stock options, restricted stock
units and common stock subject to repurchase.
A reconciliation of the numerator and denominator used in the
calculation of basic and diluted net income (loss) per share follows:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
June 30,
|
|
June 28,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Basic net income (loss) per share
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(18,659
|
)
|
$
|
21,105
|
|
$
|
(36,620
|
)
|
$
|
36,316
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted-average common stock outstanding
|
|
48,835
|
|
47,893
|
|
48,789
|
|
47,639
|
|
Diluted
net income (loss) per share
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(18,659
|
)
|
$
|
21,105
|
|
$
|
(36,620
|
)
|
$
|
36,316
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing
basic net income (loss) per share
|
|
48,835
|
|
47,893
|
|
48,789
|
|
47,639
|
|
Add: Dilutive potential common shares used
in computing diluted net income (loss) per share
|
|
|
|
1,623
|
|
|
|
1,650
|
|
Weighted-average number of shares used in
computing diluted net income (loss) per share
|
|
48,835
|
|
49,516
|
|
48,789
|
|
49,289
|
|
The
following table sets forth the weighted-average potentially dilutive securities
excluded from the computation in the table above because their effect would
have been antidilutive:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
June 30,
|
|
June 28,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Options to purchase common stock
|
|
7,021
|
|
2,531
|
|
6,981
|
|
2,205
|
|
Restricted Stock Units
|
|
577
|
|
|
|
424
|
|
|
|
Employee Stock Purchase Plan
|
|
1,536
|
|
|
|
913
|
|
|
|
Total potentially dilutive securities
|
|
9,134
|
|
2,531
|
|
8,318
|
|
2,205
|
|
11
Table
of Contents
Note 9 Income Taxes
Under FASB Interpretation No. 48 Accounting
for Uncertainty in Income Taxes an Interpretation of FAS 109, the Company
classifies interest and penalties related to uncertain tax positions as part of
income tax expense. The Company recognized interest expense of $134,000 and
$249,000 for the three and six months ended June 28, 2008 and June 30,
2007, respectively. As of June 28, 2008, the Company had approximately
$1,079,000 of interest and zero penalties related to uncertain tax positions.
The amount of income taxes the Company pays
is subject to ongoing audits by federal, state and non-U.S tax authorities
which might result in proposed assessments. The Company estimates for the
potential outcome for any uncertain tax issue is judgmental in nature. However,
the Company believes that it has adequately provided for any reasonably
foreseeable outcome related to those matters. The Companys future results may
include favorable or unfavorable adjustments to its estimated tax liabilities
in the period the assessments are made or resolved or when statutes of
limitation on potential assessments expire. As of June 28, 2008, changes
to the Companys uncertain tax positions in the next 12 months, that are
reasonably possible, are not expected to have a significant impact on the
Companys financial position or results of operations.
The Company and its subsidiaries file income
tax returns in the U.S. federal jurisdiction, various U.S states and non-U.S.
jurisdictions. The Company is no longer subject to U.S. federal, state and
local, or non-U.S. income tax examinations by tax authorities for years prior
to 2001. The Company is currently under examination by the U. S. Internal
Revenue Service for fiscal years 2004, 2005 and 2006 and the State of
California Franchise Tax Board for fiscal years 2004 and 2005.
The Company intends to file a carryback claim
for its projected 2008 net operating loss. The expected tax benefits of this
carryback claim are reported as Refundable Income Taxes in the Condensed
Consolidated Balance Sheets.
Note
10 Commitments and Contingencies
Environmental Matters
The Company is subject to U.S. federal, state
and local, and foreign governmental laws and regulations relating to the
protection of the environment, including those governing the discharge of
pollutants into the air and water, the management and disposal of hazardous
substances and wastes, the clean-up of contaminated sites and the maintenance
of a safe workplace. The Company believes that it complies in all material
respects with the environmental laws and regulations that apply to it,
including those of the California Department of Toxic Substances Control, the
Bay Area Air Quality Management District, the City of Livermore Water Resources
Division and the California Division of Occupational Safety and Health. The
Company received two notices of violation in fiscal 2007 and one notice of
violation in the first quarter of fiscal 2008 from the City of Livermore
regarding violation of certain applicable waste water discharge limits. For
each notice received, the Company promptly investigated the violation, took
appropriate steps to address the cause of the violation, and implemented
corrective measures to prevent a recurrence. The Company implemented additional
waste water treatment capability in consultation with the City of Livermore,
and purchased additional waste water discharge capacity, which the Company
required as a result of its increased manufacturing capacity, through the City
of Livermore. No provision has been made for loss from environmental
remediation liabilities associated with the Companys Livermore facility
because the Company believes that it is not probable that a liability has been
incurred as of June 28, 2008.
While the Company believes that it is in
compliance in all material respects with the environmental laws and regulations
that apply to it, in the future, the Company may receive additional
environmental violation notices, and if received, final resolution of the
violations identified by these notices could harm the Companys operations,
which may adversely impact its operating results and cash flows. New laws and
regulations, stricter enforcement of existing laws and regulations, the
discovery of previously unknown contamination at the Company or others sites
or the imposition of new cleanup requirements could also harm the Companys
operations, thereby adversely impacting its operating results and cash flows.
Legal Matters
From time to time, the Company may be subject
to legal proceedings and claims in the ordinary course of business. For the
fiscal quarter ended June 28, 2008, the Company was not involved in any
material legal proceedings, other than the proceedings summarized below. In the
future the Company may become a party to additional legal proceedings,
including proceedings designed to protect its intellectual property rights that
require the Company to spend significant resources.
12
Table of Contents
Patent Litigation
The Company has initiated patent infringement
litigation in the United States against Phicom Corporation, a Korea
corporation, and its U.S. subsidiary, both collectively Phicom, and against
Micronics Japan Co., Ltd., a Japan corporation, and its U.S.
subsidiary, both collectively Micronics Japan. In 2005, the Company filed a patent
infringement lawsuit in the United States District Court for the District of
Oregon against Phicom charging that it is willfully infringing four U.S.
patents that cover key aspects of the Companys wafer probe cards U.S. Patent
Nos. 5,974,662, entitled Method of Planarizing Tips of Probe Elements of
a Probe Card Assembly, 6,246,247, entitled Probe Card Assembly and Kit, and
Methods of Using Same, 6,624,648, entitled Probe Card Assembly and
5,994,152, entitled Fabricating Interconnects and Tips Using Sacrificial
Substrates. In 2006, the Company also filed an amended complaint in the same
Oregon district court that adds two additional patents to the litigation U.S.
Patent Nos. 7,073,254, entitled Method for Mounting a Plurality of Spring
Contact Elements and 6,615,485, entitled Probe Card Assembly and Kit, And
Methods of Making Same. Phicom answered the complaint and the amended
complaint by denying infringement, alleging defenses and asserting
counterclaims seeking adjudications on the validity and enforceability of the
Companys patents and whether Phicom is infringing those patents. Also in 2006, the Company filed a patent
infringement lawsuit in the United States District Court for the Northern
District of California against Micronics Japan charging that it is willfully
infringing four U.S. patents that cover key aspects of the Companys wafer
probe cardsU.S. Patent Nos. 6,246,247, entitled Probe Card Assembly and
Kit, and Methods of Using Same, 6,509,751, entitled Planarizer for a
Semiconductor Contactor, 6,624,648, entitled Probe Card Assembly and
7,073,254, entitled Method for Mounting a Plurality of Spring Contact
Elements. Micronics Japan answered the complaint by denying infringement,
alleging defenses and asserting counterclaims seeking adjudications on the
validity and enforceability of the Companys patents and whether Micronics
Japan is infringing those patents. The complaints in these actions seek both
injunctive relief and monetary damages. These two district court actions have
been stayed pending resolution of the complaint that the Company filed with the
United States International Trade Commission, which is described below.
On or about November 13, 2007, the
Company filed a complaint with the United States International Trade
Commission, or ITC, seeking institution of a formal investigation by the ITC
into the activities of Micronics Japan and Phicom. The requested investigation
encompasses U.S. Patent Nos. 5,994,152, entitled Fabricating
Interconnects and Tips Using Sacrificial Substrates, 6,509,751, entitled Planarizer
for a Semiconductor Contactor, 6,615,485, entitled Probe Card Assembly and
Kit, And Methods of Making Same, 6,624,648, entitled Probe Card Assembly,
7,168,162, entitled Method of Manufacturing a Probe Card and 7,225,538,
entitled Resilient Contact Structures Formed and Then Attached to a Substrate,
and alleges that infringement by each of Micronics Japan and Phicom of certain
of the identified patents constitute unfair acts in violation of 19 U.S.C.
Section 1337. In the ITC complaint, the Company alleges violations of Section 337
of the Tariff Act of 1930 in the importation into the United States of certain
probe card assemblies, components thereof, and certain tested DRAM and NAND
flash memory devices and products containing such devices that infringe patents
owned by the Company, and requests a permanent exclusion order banning
importation into the United States of infringing products and certain
downstream products.
On or about December 13, 2007, the ITC
provided public notice that it voted to institute an investigation of certain
probe card assemblies, components thereof, and certain tested DRAM and NAND
flash memory devices and products containing such devices. The products at
issue in this investigation are probe card assemblies, which are used to test
semiconductor devices that have been fabricated on silicon wafers, memory chips
that have been so tested, and products containing such chips.
The investigation (337-TA-621) was originally
referred to the Honorable Theodore R. Essex, an ITC administrative law judge,
and in July 2008 was reassigned to the Honorable Charles E. Bullock, an
ITC administrative law judge, who will make an initial determination as to
whether there is a violation of Section 337; that initial determination is
subject to review by the ITC. On August 6, 2008, the Honorable Charles E.
Bullock set the hearing date to January 7, 2009, and the initial determination due
date to April 18, 2009. The target date for the ITCS final determination is
August 18, 2009. ITC remedial orders in Section 337 investigations are
effective when issued and become final 60 days after issuance, subject to
Presidential review.
In addition to the United States litigations,
the Company also initiated actions in Seoul, Korea against Phicom. In 2004 the
Company filed two actions in Seoul Southern District Court, located in Seoul,
South Korea, against Phicom alleging infringement of the Companys Korean
Patent Nos. 252,457, entitled Method of Fabricating Interconnections
Using Cantilever Elements and Sacrificial Substrates, 324,064, entitled Contact
Tip Structures for Microelectronic Interconnection Elements and Methods of
Making Same, 278,342, entitled Method of Altering the Orientation of Probe
Elements in a Probe Card Assembly and 399,210, entitled Probe Card Assembly;
as well as two actions the Company
13
Table of Contents
filed in 2006
in Seoul Central District Court against Phicom alleging infringement of certain
claims of its Korean Patent No. 252,457 and seeking injunctive relief.
These actions are all pending, except that in April 2008, the Seoul
Southern District Court dismissed the Companys complaint as it related to
Korean Patent Nos. 252,457 and 324,064, and in July 2008, the Seoul
Central District Court dismissed the Companys complaint related to Korean
Patent No. 252,457. The Company has appealed the dismissals to the Korea
High Courts, and did not appeal the judgment on the denial of its injunctive
relief request.
In response to the Companys initiation of
the infringement actions in Korea, Phicom filed in the Korean Intellectual
Property Office, or KIPO, invalidity actions challenging the validity of some
or all of the claims of each of the Companys four patents at issue in the
Seoul District Court infringement actions. KIPO dismissed Phicoms challenges
against all four of the patents-at-issue. Phicom appealed the dismissals of the
challenges to the Korea Patent Court. In 2005 the Korea Patent Court issued
rulings holding invalid certain claims of the Companys Korean Patent
Nos. 278,342 and 399,210. In 2006,
the Korea Patent Court issued a ruling holding invalid certain claims of the
Companys Korean Patent No. 324,064, and also issued a ruling upholding
the validity of the Companys Korean Patent No. 252,457. The Company
appealed the Patent Court invalidity rulings to the Korea Supreme Court. Phicom
appealed the Patent Court ruling on Korean Patent No. 252,457 to the Korea
Supreme Court. In September 2007, the Korea Supreme Court affirmed the
Patent Court rulings holding invalid certain claims of the Companys Korean
Patent Nos. 278,342 and 399,210. In April 2008, the Korea Supreme
Court affirmed the Patent Court ruling holding invalid certain claims of the
Companys Korean Patent No. 324,064. In June 2008, the Korea Supreme
Court reversed the Patent Court ruling and invalidated certain claims of the
Companys Korean Patent No. 252,457.
Additionally, one or more third parties have
initiated challenges in the U.S. and foreign patent offices against other of
the Companys patents. These actions include re-examination proceedings filed
in the U.S. Patent and Trademark Office against certain of the Companys U.S.
Patents that are at issue in the ITC investigation, and proceedings in Korea
against two of the Companys Korean patents and proceedings filed in Taiwan
against four of the Companys Taiwan patents.
No provision has been made for patent-related
litigation because the Company believes that it is not probable that a
liability had been incurred as of June 28, 2008. The Company will incur
material attorneys fees in prosecuting and defending the various identified
actions.
Securities Litigation
On October 31, 2007, a plaintiff filed a
purported stockholder class action in the United States District Court for the
Northern District of California in which the Company and certain of its current
officers, including one officer who is a director, are named as defendants
under the caption Danny McCasland, Individually and on Behalf of All Others
Similarly Situated v. FormFactor, Inc., Igor Y. Khandros, Ronald C. Foster
and Richard M. Freeman. Subsequently, plaintiffs filed two other purported
stockholder class actions in the United States District Court for the Northern
District of California under the captions Yuk Ling Lui, on Behalf of Herself
and All Others Similarly Situated v. FormFactor, Inc., Igor Y. Khandros,
Ronald C. Foster and Richard M. Freeman, and Victor Albertazzi, Individually
and on Behalf of All Others Similarly Situated v. FormFactor, Inc., Igor
Y. Khandros, Ronald C. Foster and Richard M. Freeman. The three actions have
been consolidated. The plaintiffs filed these actions following the Companys
restatement of its financial statements for the fiscal year ended December 30,
2006, for each of the fiscal quarters for that year, and for the fiscal
quarters ended March 31 and June 30, 2007. In April 2008, the
designated lead plaintiffs filed a Consolidated Amended Complaint. The
plaintiffs claim violations of Sections 10(b) and 20(a), and Rule 10b-5
of the Securities Exchange Act of 1934, alleging that the defendants knowingly
issued materially false and misleading statements regarding the Companys
business and financial results prior to the restatements. The plaintiffs seek
to recover unspecified monetary damages, equitable relief and attorneys fees
and costs. On or about July 25,
2008, the court granted the Companys motion to dismiss the Consolidated
Amended Complaint, and set a deadline of August 22, 2008 by which the
designated lead plaintiffs could file an amended complaint.
No provision has been made for the securities
litigation because the Company believes that it is not probable that a
liability had been incurred as of June 28, 2008.
Stockholder Derivative Litigation
On November 19, 2007, a plaintiff filed
a purported stockholder derivative action in the Superior Court of the State of
California for the County of Alameda in which the Company is named as a nominal
defendant and certain of its directors and officers are named as defendants
under the caption John King, Derivatively on Behalf of Nominal Defendant
FormFactor, Inc. v. Dr. Igor Y. Khandros, Dr. Homa Bahrami, Dr. Thomas
J. Campbell, G. Carl Everett, Jr., Lothar Maier, James A. Prestridge,
Harvey A. Wagner, Ronald C. Foster and Richard M. Freeman, and FormFactor, Inc.
Subsequently, another plaintiff filed a second purported stockholder class
action in the Superior Court of the State of California for the County of
Alameda under the caption Joseph Priestley, Derivatively on Behalf of
FormFactor, Inc. v. Igor Y. Khandros,
14
Table of Contents
Mario Ruscev,
James A. Prestridge, Thomas J. Campbell, Harvey A. Wagner, G. Carl Everett, Jr.,
Homa Bahrami, Lothar Maier, William H. Davidow and Joseph R. Bronson, and
FormFactor, Inc. The plaintiffs filed these two later actions following
the Companys restatement of its financial statements for the fiscal year ended
December 30, 2006, for each of the fiscal quarters for that year, and for
the fiscal quarters ended March 31 and June 30, 2007. The plaintiffs
allege that the defendants breached their fiduciary duties and violated
applicable law by issuing, and permitting the Company to issue, materially
false and misleading statements regarding the Companys business and financial
results prior to the restatements. The plaintiffs seek to recover monetary
damages, and attorneys fees and costs. The two derivative actions have been
consolidated, and a consolidated amended complaint is expected to be filed in
mid September 2008.
No provision has been made for the
stockholder derivative litigation because the Company believes that it is not
probable that a liability had been incurred as of June 28, 2008.
The Company believes that the factual
allegations and circumstances underlying the legal proceedings in this Note 10
filed against the Company are without merit. The Company also believes that it
does not have a material monetary damages exposure in these legal proceedings
that would individually or in the aggregate have a material adverse effect on
its financial condition, liquidity or results of operations; however, these
legal proceedings have been costly and it is possible the Company will incur
significant, and possibly material, attorneys fees, which may not be covered
by its insurance policies. These legal proceedings may also divert the Companys
managements time and attention away from business operations, which could
prove to be disruptive to the Companys business operations. In addition, an
unfavorable outcome or settlement of these proceedings, particularly if it is
not covered by or exceeds our insurance coverage, could individually or in the
aggregate adversely impact the Companys financial condition, liquidity or
results of operations.
Indemnification
Arrangements
The Company
from time to time in the ordinary course of its business enters into
contractual arrangements with third parties that include indemnification
obligations. Under these contractual arrangements, the Company has agreed to
defend, indemnify and/or hold the third party harmless from and against certain
losses. These arrangements may limit the time within which an indemnification
claim can be made, the type of claim and the total amount that the Company can
be required to pay in connection with the indemnification obligation. In
addition, the Company has entered into indemnification agreements with its
directors and certain of its officers, and the Companys bylaws contain
indemnification obligations in favor of the Companys directors, officers and
agents. It is not possible to determine or reasonably estimate the maximum
potential amount of future payments under these indemnification obligations due
to the varying terms of such obligations, the history of prior indemnification
claims and the unique facts and circumstances involved in each particular
contractual arrangement and in each potential future claim for indemnification.
The Company has not had any requests for indemnification under these
arrangements. The Company has not recorded any liabilities for these
indemnification arrangements on the Companys Condensed Consolidated Balance Sheets
as of June 28, 2008.
Note
11 Stockholders Equity
Comprehensive Income (Loss)
Comprehensive
income (loss) includes foreign currency translation adjustments and unrealized
gains on available-for-sale securities, the impact of which has been excluded
from net income and reflected as components of stockholders equity.
Components of
comprehensive income (loss) were as follows:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 28,
2008
|
|
June 30,
2007
|
|
June 28,
2008
|
|
June 30,
2007
|
|
|
|
(In thousands)
|
|
(In thousands)
|
|
Net income (loss)
|
|
$
|
(18,659
|
)
|
$
|
21,105
|
|
$
|
(36,620
|
)
|
$
|
36,316
|
|
Change in unrealized gain on marketable
securities
|
|
(571
|
)
|
(534
|
)
|
(835
|
)
|
(437
|
)
|
Cumulative translation adjustments
|
|
(554
|
)
|
(66
|
)
|
226
|
|
(63
|
)
|
Comprehensive income (loss)
|
|
$
|
(19,784
|
)
|
$
|
20,505
|
|
$
|
(37,229
|
)
|
$
|
35,816
|
|
15
Table of Contents
Components of
accumulated other comprehensive income (loss) was as follows:
|
|
June 28,
|
|
December 29,
|
|
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Unrealized gain on marketable securities
|
|
$
|
(3
|
)
|
$
|
832
|
|
Foreign currency translation adjustments
|
|
323
|
|
97
|
|
Accumulated other comprehensive income
|
|
$
|
320
|
|
$
|
929
|
|
Note
12 Derivative Financial Instruments
We use derivative instruments to manage our exposure to foreign
currencies. As of June 28, 2008, we had three outstanding foreign exchange
forward contracts to sell Japanese Yen, Korean Won and Taiwan Dollars. The
following table provides information about our foreign currency forward
contracts outstanding as of June 28, 2008:
|
|
Contract Amount
(Local Currency)
|
|
Contract Amount
(U.S. Dollars)
|
|
|
|
(In thousands)
|
|
Japanese Yen
|
|
3,039,575
|
|
$
|
28,670
|
|
Taiwan Dollar
|
|
36,045
|
|
1,186
|
|
Korean Won
|
|
832,300
|
|
795
|
|
Total USD notional amount of outstanding
foreign exchange contracts
|
|
|
|
$
|
30,651
|
|
The contracts were entered into on June 27, 2008 and matured on July 25,
2008. No gain or loss relating to the outstanding derivative contracts was
recorded as of June 28, 2008.
Note
13 Recent Accounting Pronouncements
In May 2008, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 162, The
Hierarchy of Generally Accepted Accounting Principles. The statement is
intended to improve financial reporting by identifying a consistent hierarchy
for selecting accounting principles to be used in preparing financial
statements that are prepared in conformance with generally accepted accounting
principles. The statement is effective 60 days following the SECs
approval of the Public Company Accounting Oversight Board
(PCAOB) amendments to AU Section 411, The Meaning of Present Fairly
in Conformity with GAAP, and is not expected to have any impact on the Companys
consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities, an amendment
of FASB Statement No. 133. SFAS No. 161 amends and expands the
disclosure requirements of SFAS No. 133 with the intent to provide users
of financial statements with an enhanced understanding of: (i) how and why
an entity uses derivative instruments; (ii) how derivative instruments and
related hedged items are accounted for under SFAS No. 133 and its related
interpretations and (iii) how derivative instruments and related hedged
items affect an entitys financial position, financial performance and cash
flows. This statement is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early
adoption encouraged. The Company is currently assessing the impact of the
adoption of SFAS No. 161 on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding
an amendment of FASB Statement No. 115. This statement permits entities
to choose to measure many financial instruments and certain other items at fair
value. Entities shall report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent
reporting date. This statement is effective as of the beginning of an
entitys first fiscal year that begins after November 15, 2007. The
adoption of SFAS No. 159, effective January 1, 2008, did not have a
material impact on the Companys financial position, results of operations or
cash flows as the Company did not elect the fair value measurement option for
any additional financial instruments or other items.
16
Table of Contents
Item
2.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
Cautionary
Statement Regarding Forward-Looking Statements
This Quarterly
Report on Form 10-Q contains forward-looking statements within the meaning
of the Securities Exchange Act of 1934 and the Securities Act of 1933, which
are subject to risks, uncertainties and assumptions that are difficult to
predict. The forward-looking statements include statements concerning, among
other things, our business strategy, including anticipated trends and
developments in and management plans for our business and the markets in which
we operate, financial results, operating results, revenues, gross margin,
operating expenses, products, projected costs and capital expenditures,
research and development programs, sales and marketing initiatives, and
competition. In some cases, you can identify these statements by
forward-looking words such as may, might, will, could, should, expect,
plan, anticipate, believe, estimate, predict, intend and continue,
the negative or plural of these words and other comparable terminology.
The
forward-looking statements are only predictions based on our current
expectations and our projections about future events. All forward-looking
statements included in this Quarterly Report are based upon information
available to us as of the filing date of this Quarterly Report. You should not
place undue reliance on these forward-looking statements. We undertake no
obligation to update any of these statements for any reason. These
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, levels of activity,
performance or achievements to differ materially from those expressed or
implied by these statements. These factors include the matters discussed in the
section titled Risk Factors in our Annual Report on Form 10-K for the
year ended December 29, 2007, and in the section titled Risk Factors and
elsewhere in this Quarterly Report. You should carefully consider the numerous
risks and uncertainties described under these sections.
The following
discussion and analysis should be read in conjunction with our condensed
consolidated financial statements and the accompanying notes contained in this Quarterly
Report. Unless expressly stated or the context otherwise requires, the terms we,
our, us and FormFactor refer to FormFactor, Inc. and its
subsidiaries.
Overview
We design, develop, manufacture, sell and support precision, high
performance advanced semiconductor wafer probe cards and wafer test solutions.
Semiconductor manufacturers use our wafer probe cards to perform wafer sort and
test on the semiconductor die, or chips, on the whole semiconductor wafer,
prior to singulation of the wafer into individual chips. During wafer sort and
test, a wafer probe card is mounted in a prober, which is in turn connected to
a semiconductor tester, and the wafer probe card is used as an interface to
connect electronically with and test individual chips on a wafer. Our wafer probe cards are used by our
customers in the front end of the semiconductor manufacturing process, as are
our parametric or in-line probe cards. We work closely with our customers to
design, develop and manufacture custom wafer probe cards. Each wafer probe card
is a custom product that is specific to the chip and wafer designs of the
customer. At the core of our product offering are our proprietary technologies,
including our MicroSpring interconnect technology and design processes. Our
17
Table of Contents
MicroSpring interconnect
technology includes a resilient contact element manufactured at our production
facilities in Livermore, California. We operate in a single industry segment
and have derived substantially all of our revenues from the sale of wafer probe
cards incorporating our MicroSpring interconnect technology.
Our customers operate in the highly cyclical semiconductor industry and
are subject to significant fluctuations in the demand for their products.
Because of the nature of our customers and our business, our revenue growth is
driven in significant part by the number of new semiconductor designs that our
customers develop the technology transitions involved in these designs and our
customers production volumes. In the past, this has resulted in our being subject
to demand fluctuations that have resulted in significant variations of
revenues, expenses and results of operations. We expect these fluctuations and
the resulting variations in our financial results to continue in future
periods.
Revenues.
We
derive substantially all of our revenues from product sales of wafer probe
cards. Wafer probe card sales, including service and non-recurring engineering
revenue associated with wafer probe card sales, accounted for virtually all of
our revenues in the first six months of fiscal 2008 and 2007. Revenues from
licensing of our design and manufacturing technologies have historically been
insignificant. Historically, increases in revenues have resulted from increased
demand for our existing products, the introduction of new, more complex
products and the penetration of new markets. Revenues from our customers are
subject to quarterly, annual and other fluctuations due to design cycles,
technology adoption rates and cyclicality of the different end markets into
which our customers products are sold.
Cost of Revenues.
Cost of revenues
consists primarily of manufacturing materials, compensation and
manufacturing-related overhead. Our
manufacturing operations rely upon a limited number of suppliers to provide key
components and materials for our products, some of which are sole source. We
order materials and supplies based on backlog and forecasted customer orders.
Tooling and setup costs related to changing manufacturing lots at our suppliers
are also included in the cost of revenues. We expense all warranty costs and
inventory write-downs or write-offs as cost of revenues.
We design, manufacture and sell a fully custom product into the
semiconductor test market, which is subject to significant variability and
demand fluctuations. Our wafer probe cards are complex products that are custom
to a specific chip design and must be delivered on relatively short lead-times
as compared to our overall manufacturing process. As our advanced wafer probe
cards are manufactured in low volumes and must be delivered on relatively short
lead-times, it is not uncommon for us to acquire production materials and start
certain production activities based on estimated production yields and
forecasted demand prior to or in excess of actual demand for our wafer probe
cards. We record an adjustment to our inventory valuation for estimated
obsolete and non-saleable inventories equal to the difference between the cost
of inventories and the estimated market value based upon assumptions about future
demand market conditions. If actual market conditions are less favorable than
those projected by management, additional inventory write downs would be
required. Once established, the original cost of our inventory less the related
inventory valuation adjustments represents the new cost basis of such products.
Reversal of these write downs is recognized only when the related inventory has
been scrapped or sold.
Research and Development
.
Research and development expenses include expenses related to product
development and design, engineering and material costs. Almost all research and
development costs are expensed as incurred. We plan to continue to invest a
significant amount in research and development activities to develop new
technologies for current and new markets and new applications in the future,
and to improve or advance existing technologies.
Selling, General and Administrative
.
Selling, general and administrative expenses include expenses related to sales,
marketing, and administrative personnel, internal and outside sales
representatives commissions, market research and consulting, and other sales,
marketing, and administrative activities. These expenses also include costs for
enforcing our patent rights and regulatory compliance costs.
Restructuring Charges.
Restructuring charges
includes expenses related to employee termination severance pay and benefits
and property and equipment impairment charges incurred as part of our
previously announced, global cost reduction plans.
18
Table
of Contents
Use of Estimates.
Our discussion and
analysis of our financial condition and results of operations are based upon
our unaudited condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amount of
assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our
estimates, including those related to uncollectible receivables, inventories,
marketable securities, intangible assets, income taxes, warranty obligations,
excess component and order cancellation costs, contingencies and litigation,
and stock-based compensation. Our
estimates, which are based on historical experience and on various other
assumptions believed to be reasonable under the circumstances, allow us to make
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources.
Results
of Operations
The following table sets forth our operating results as a percentage of
revenues for the periods indicated:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
June 30,
|
|
June 28,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Revenues
|
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
Cost of revenues
|
|
78.7
|
|
43.8
|
|
79.9
|
|
45.3
|
|
Gross margin
|
|
21.3
|
|
56.2
|
|
20.1
|
|
54.7
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
30.4
|
|
12.6
|
|
27.4
|
|
13.2
|
|
Selling, general and administrative
|
|
43.7
|
|
20.2
|
|
38.4
|
|
21.2
|
|
Restructuring charge
|
|
6.2
|
|
|
|
7.3
|
|
|
|
Total operating expenses
|
|
80.3
|
|
32.8
|
|
73.1
|
|
34.4
|
|
Operating income (loss)
|
|
(59.0
|
)
|
23.4
|
|
(53.0
|
)
|
20.3
|
|
Interest income
|
|
6.0
|
|
4.9
|
|
6.8
|
|
5.1
|
|
Other income (expense)
|
|
(1.3
|
)
|
(0.1
|
)
|
0.1
|
|
(0.1
|
)
|
Income (loss) before income taxes
|
|
(54.3
|
)
|
28.2
|
|
(46.1
|
)
|
25.3
|
|
Provision (benefit) for income taxes
|
|
(18.3
|
)
|
9.7
|
|
(15.0
|
)
|
8.5
|
|
Net income (loss)
|
|
(36.0
|
)%
|
18.5
|
%
|
(31.1
|
)%
|
16.8
|
%
|
Three and Six Months Ended June 28, 2008 and June 30, 2007
Revenues
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 28,
2008
|
|
June 30,
2007
|
|
% Change
|
|
June 28,
2008
|
|
June 30,
2007
|
|
% Change
|
|
|
|
(in thousands, except percentages)
|
|
Revenues by Market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DRAM
|
|
$
|
31,721
|
|
$
|
80,120
|
|
(60.4
|
)%
|
$
|
71,896
|
|
$
|
155,608
|
|
(53.8
|
)%
|
Flash
|
|
11,519
|
|
20,171
|
|
(42.9
|
)
|
27,737
|
|
36,872
|
|
(24.8
|
)
|
Logic
|
|
8,773
|
|
13,833
|
|
(36.6
|
)
|
18,083
|
|
23,915
|
|
(24.4
|
)
|
Total revenues
|
|
$
|
52,013
|
|
$
|
114,124
|
|
(54.4
|
)%
|
$
|
117,716
|
|
$
|
216,395
|
|
(45.6
|
)%
|
Revenues in the three months ended June 28, 2008 decreased 54.4%,
or $62.1 million, to $52.0 million from $114.1 million in the comparable period
a year ago. Revenues for the six months
ended June 28, 2008 decreased 45.6%, or $98.7 million, to $117.7 million
from $216.4 million in the comparable period a year ago. The decrease in revenue for the three months
and six months ended June 28, 2008 is primarily due to weak demand for our
advanced wafer probe cards caused by the continued downturn in the
semiconductor market, particularly in the DRAM market.
For certain
of our products we also experienced certain pricing pressure in light of the
availability of competitive products, which also contributed to the decrease in
revenues.
19
Table of Contents
Our revenues for the three and six months ended June 28, 2008 were
primarily generated by sales of wafer probe cards to manufacturers of DRAM
devices. Revenues for our products that address the DRAM segment in the three
and six months ended June 28, 2008 decreased significantly compared to the
comparable period a year ago, primarily due to weak market conditions in which
DRAM device pricing fell below the industry average of semiconductor
manufacturers cash costs. Given the current price of DRAM devices, our
customers that manufacture DRAM devices took certain actions, including
decisions to delay test capacity expansions and ramping of key devices.
We also experienced market share reduction due to challenges in the introduction
of our Harmony architecture-based products, and pricing pressure on certain
DRAM products due to the competitive environment.
Revenues from sales to Flash memory device
manufacturers decreased significantly in the three months ended June 28,
2008 compared to the three months ended June 30, 2007 with the decrease,
in terms of dollars, split almost equally between NAND and NOR Flash wafer
probe cards. Revenues from sales to
Flash memory device manufacturers decreased in the six months ended June 28,
2008 compared to the comparable period a year ago. Market conditions for Flash
memory devices weakened during the six months ended June 28, 2008 compared
to the comparable period a year ago and, as a consequence, our customers that
manufacture Flash memory devices took certain actions that impacted the demand
for our products. The weakness in NOR Flash can be attributed to cash
preservation on the part of certain key customers, pushing our production ramp
of 65-nanometer into the fourth quarter of 2008. The weakness in NAND Flash can
be attributed to slower sub 50-nanometers ramp by manufacturers due to an
oversupply of NAND Flash devices and the consequent falling price of these
devices
.
We also
experienced market share reduction due to challenges in the introduction of our
Harmony architecture-based products, and pricing pressure on certain Flash
memory products due to the competitive environment.
Revenues from manufacturers of Logic devices decreased significantly in
the three months ended June 28, 2008 compared to the comparable period a
year ago primarily due to reduced demand for chipset applications. For the six
months ended June 28, 2008, Logic devices revenue decreased but at a
slower rate primarily due to delayed production ramp of a key customers
ongoing transition to advanced technology nodes in both chipset application and
high performance flip-chip microprocessors, which are used in personal
computer, gaming and graphics applications.
Revenue by Geographic Region
The following table sets forth our revenues by geographic region for
the periods indicated.
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
% of
|
|
June 30,
|
|
% of
|
|
June 28,
|
|
% of
|
|
June 30,
|
|
% of
|
|
|
|
2008
|
|
Revenues
|
|
2007
|
|
Revenues
|
|
2008
|
|
Revenues
|
|
2007
|
|
Revenues
|
|
|
|
(In thousands, except percentages)
|
|
(In thousands, except percentages)
|
|
Japan
|
|
$
|
23,206
|
|
44.6
|
%
|
$
|
49,129
|
|
43.0
|
%
|
$
|
53,407
|
|
45.3
|
%
|
$
|
77,220
|
|
35.7
|
%
|
Asia Pacific
|
|
13,274
|
|
25.5
|
|
36,949
|
|
32.4
|
|
33,145
|
|
28.2
|
|
71,960
|
|
33.2
|
|
North America
|
|
13,467
|
|
25.9
|
|
23,865
|
|
20.9
|
|
25,208
|
|
21.4
|
|
51,245
|
|
23.7
|
|
Europe
|
|
2,066
|
|
4.0
|
|
4,181
|
|
3.7
|
|
5,956
|
|
5.1
|
|
15,970
|
|
7.4
|
|
Total revenues
|
|
$
|
52,013
|
|
100.0
|
%
|
$
|
114,124
|
|
100.0
|
%
|
$
|
117,716
|
|
100.0
|
%
|
$
|
216,395
|
|
100.0
|
%
|
Geographic revenue information is based on the location to which we
send the customer invoices. For example, certain Korean customers purchase
through their North American subsidiaries and accordingly, revenues derived
from sales to such customers are reflected in North America revenues.
The decreases in Japan and Asia Pacific for the three and six months
ended June 28, 2008 as compared to the same periods in the prior year was
primarily due to the decrease in our DRAM product sales in the region. The
decrease in revenues in North America for the three and six months ended June 28,
2008 compared to the same periods in the prior year was primarily driven by
decreased demand for our Flash and Logic wafer probe cards. Revenue in Europe decreased for the three and
six months ended June 28, 2008 primarily due to the decreased demand for
our Commodity and Specialty DRAM products in this region.
20
Table of Contents
The following customers accounted for more than 10% of our revenues for
the three and six months ended June 28, 2008 and June 30, 2007:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
June 30,
|
|
June 28,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Elpida Memory
|
|
29.6
|
%
|
29.8
|
%
|
26.9
|
%
|
24.7
|
%
|
Spansion
|
|
12.5
|
|
12.4
|
|
15.1
|
|
*
|
|
Intel Corporation
|
|
17.4
|
|
13.4
|
|
14.7
|
|
12.6
|
|
Powerchip Semiconductor
|
|
*
|
|
11.7
|
|
*
|
|
*
|
|
Hynix Semiconductor
|
|
*
|
|
10.2
|
|
*
|
|
12.1
|
|
* Less than
10% of revenues.
Gross Margin
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
June 30,
|
|
June 28,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
(In thousands)
|
|
Gross
margin
|
|
$
|
11,101
|
|
$
|
64,158
|
|
$
|
23,673
|
|
$
|
118,441
|
|
% of
revenues
|
|
21.3
|
%
|
56.2
|
%
|
20.1
|
%
|
54.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in gross margin for the three and six months ended June
28, 2008 as compared to the same periods in fiscal 2007 is primarily due to the
decline in revenue combined with our fixed cost structure and secondly,
increase in inventory write-downs due to weaker demand. Excess custom probe
card inventory write-downs increased from $5.2 million or 2.4% of revenues in
the six months ended June 30, 2007 to $11.8 million or 10% of revenues in the
six months ended June 28, 2008, as a result of sudden changes in demand,
overall decline in the market and the uncertainty regarding slope of market recovery.
Excess custom inventories are not uncommon for us as our advanced wafer probe
cards are custom designs manufactured in low volumes and must be delivered on
relatively short lead times, which requires us to acquire production materials
and start certain production activities based on estimated production yields
and forecasted demand prior to or in excess of actual demand for our wafer probe
cards. Warranty expense decreased $1.1 million for the three months ended June
28, 2008 compared to the same period in the prior year due to lower sales
volumes and lower experience charges, and is flat on a year to date basis. The
portion of facility and overhead costs incurred in product development efforts
increased $0.7 million for the six months ended June 28, 2008 versus same
period in the prior year.
Research and
Development
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
June 30,
|
|
June 28,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
(In thousands)
|
|
Research
and development
|
|
$
|
15,821
|
|
$
|
14,384
|
|
$
|
32,209
|
|
$
|
28,485
|
|
% of
revenues
|
|
30.4
|
%
|
12.6
|
%
|
27.4
|
%
|
13.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses increased in absolute dollars for the
three and six months ended June 28, 2008 as compared to the same periods
in the prior year primarily due to an increase in new technology, product
development related costs and facility expansion offset by a decrease in
personnel costs. For the three and six months ended June 28, 2008, expenses
related to new technology and product development increased $1.5 million and
$3.5 million, respectively, depreciation and facilities and information
technology allocations increased $0.2 million and $0.5 million, respectively,
due to new investment in research and development equipment and facilities
expansion and personnel costs decreased $0.5 million and $0.3 million,
respectively, due to newly implemented cost saving strategies. Stock-based
compensation increased by $0.3 million for the three months ended June 28,
2008 and remained relatively flat for the six months ended June 28, 2008,
compared to the same periods in fiscal 2007 primarily due to an increase in
headcount offset by an increase in turnover which resulted in a higher
forfeiture rate used to calculate stock-based compensation expense. We are
continuing our strategic investments in research and development, including the
development of our next generation parallelism architecture and products, fine
pitch memory and logic products, advanced MicroSpring interconnect technology
and new process technologies. We are also making incremental investments in new
technologies and products as we focus on new market opportunities.
21
Table of Contents
Selling, General and
Administrative
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
|
June 28,
|
|
June 30,
|
|
June 28,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Selling, general and administrative
|
|
$
|
22,705
|
|
$
|
23,056
|
|
$
|
45,363
|
|
$
|
45,984
|
|
% of revenues
|
|
43.7
|
%
|
20.2
|
%
|
38.4
|
%
|
21.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses decreased in absolute
dollars for the three and six months ended June 28, 2008 compared to the
same periods in the prior year primarily due to a decrease in expenses related
to personnel costs. For the three and six months ended June 28, 2008,
changes in the prior period for the personnel related costs decreased by
approximately $1.5 million and $1.7 million, respectively, primarily due to the
changes in the prior period for the key employee bonus plan and profit sharing
plans, while outside legal services incurred for protecting our intellectual
property portfolio, tax services and other expenses increased by approximately
$1.1 million and $2.7 million, respectively. In addition, stock-based
compensation expense also decreased $0.1 million and $1.6 million for the three
and six months ended June 28, 2008, respectively, primarily due to an
increase in turnover which resulted in a higher forfeiture rate used to
calculate stock-based compensation expense and higher than normal forfeiture
activity.
Restructuring Charges
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
June 30,
|
|
June 28,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Restructuring charges
|
|
$
|
3,223
|
|
$
|
|
|
$
|
8,543
|
|
$
|
|
|
% of revenues
|
|
6.2
|
%
|
|
%
|
7.3
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In both the first and second quarters of fiscal 2008, we implemented global cost reduction plans that included reducing our global workforce. We recorded $3.2 million and $8.5 million in restructuring charges in the three and six months ended June 28, 2008, respectively. Both plans consisted primarily of involuntary employee termination and benefit costs and facility impairment charges related to vacating buildings in Livermore, California. Substantially all of the employee related charges for the first quarter 2008 cost reduction plan were paid during the second quarter of fiscal 2008 and we expect that substantially all of the second quarter 2008 cost reduction plan will be paid by the end of the third quarter of fiscal 2008. We expect to realize a quarterly cost savings of approximately $7.0 million as a result of the reduced employee related expenses.
Interest Income and
Other Income (Expense), Net
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
June 30,
|
|
June 28,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Interest income
|
|
$
|
3,128
|
|
$
|
5,557
|
|
$
|
8,003
|
|
$
|
11,001
|
|
% of revenue
|
|
6.0
|
%
|
4.9
|
%
|
6.8
|
%
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
$
|
(652
|
)
|
$
|
(61
|
)
|
$
|
141
|
|
$
|
(181
|
)
|
% of revenues
|
|
(1.3
|
)%
|
(0.1
|
)%
|
(0.1
|
)%
|
(0.1
|
)%
|
The
decrease in interest income on cash, cash equivalents and marketable securities
was primarily a result of lower interest rates
for the three and six
months ended June 28, 2008 as compared to the three and six months ended June 30,
2007. Seeking greater investment safety, we have re-allocated our investment
securities from longer maturity, higher yield municipal securities to U.S.
government and U.S. government sponsored enterprises shorter maturity
securities. Cash, cash equivalents, restricted cash and marketable securities
were $545.0 million at June 28, 2008 compared to $528.4 million at June 30,
2007. Other income for the three and six months ended June 28, 2008 and June 30,
2007 was mainly comprised of foreign currency gains and losses primarily
related to Japanese Yen and realized gains related to the sale of investments.
22
Table of Contents
Provision for Income Taxes
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
June 30,
|
|
June 28,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Provision (benefit) for income taxes
|
|
$
|
(9,513
|
)
|
$
|
11,109
|
|
$
|
(17,678
|
)
|
$
|
18,476
|
|
Effective tax rate
|
|
(33.8
|
)%
|
34.5
|
%
|
(32.6
|
)%
|
33.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our effective tax rate was (33.8)% and (32.6)% for the three and six
months ended June 28, 2008, respectively, and 34.5% and 33.7% for the
three and six months ended June 30, 2007, respectively. The effective tax rate for the three and six
months ended June 28, 2008 is a benefit compared to a provision for the
same period in the prior year primarily due to a projected pretax loss in the
U.S. We believe that our expected U.S.
loss is fully realizable based on sufficient amounts of taxes paid in prior
years for which we may file carryback refund claims. We also expect to incur a pretax loss in
Singapore for which no tax benefit is recognized, which will reduce the
expected consolidated benefit below the U.S. statutory rate.
Liquidity and Capital Resources
(Dollars in thousands)
|
|
June 28,
2008
|
|
Change
|
|
June 30,
2007
|
|
Working capital
|
|
$
|
603,341
|
|
(3.0
|
)%
|
$
|
622,093
|
|
Cash and cash equivalents and marketable
securities
|
|
542,735
|
|
(4.8
|
)
|
570,046
|
|
|
|
|
|
|
|
|
|
|
|
Working capital:
The decrease in working capital in the first
six months of fiscal 2008 was primarily due to a decrease in our cash, cash
equivalents and marketable securities balances resulting from additional cash
used in operating activities primarily driven by the operating loss incurred
during the six months ended June 28, 2008, offset by cash provided by
investing activities driven by the liquidation of certain municipal bond
investments and cash from financing activities.
Cash, cash equivalents and
marketable securities:
Cash and cash equivalents consist of deposits held at major banks, and
money market funds. Marketable securities consist of U.S. government
agency and government sponsored enterprise obligations, U.S. government
securities and municipal bonds. Cash, cash equivalents and marketable
securities include $3.4 million held by our foreign subsidiaries as of June 28,
2008.
Days sales outstanding from receivables, or DSO, was 65 days at June 28,
2008 compared with 41 days at June 30, 2007. The increase in DSO is
primarily due to the significant decrease in revenue for the six months ended June 28,
2008 combined with the increased mix of customers with longer standard payment
terms. At June 28, 2008, 42% of the
accounts receivable balance included payment terms of 60 days or greater as
compared to 12% at June 30, 2007.
|
|
Six Months Ended
|
|
(Dollars in thousands)
|
|
June 28,
2008
|
|
Change
|
|
June 30,
2007
|
|
Cash provided by (used in) operating
activities
|
|
$
|
(8,251
|
)
|
(121
|
)%
|
$
|
40,003
|
|
Cash provided by (used for) investing activities
|
|
116,801
|
|
(285
|
)
|
(63,115
|
)
|
Cash provided by financing activities
|
|
3,580
|
|
(86
|
)
|
25,582
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating
activities:
Net
cash used in operating activities was primarily driven by the operating loss
incurred during the six months ended June 28, 2008. Net cash used in
operating activities was also the result of cash used to increase inventories
and refundable incomes taxes and decrease accounts payable and accrued
liabilities. This was offset by cash provided by decreases in accounts receivable
and prepaid expenses and other current assets, an increase in deferred revenues
and customer advances and the impact of non-cash items, primarily depreciation
and amortization expense, stock-based compensation, and reserves for excess and
obsolete inventory.
23
Table of Contents
Cash flows from investing
activities:
The
cash flows from investing activities primarily relate to the proceeds from the
liquidation of a significant portion of the investments in municipal bonds
offset by the purchase of U.S. Treasury and U.S. government agency
securities. In addition, cash was used
in the acquisition of property and equipment primarily from capital expenditures
in support of factory capacity, service center and information technology
system upgrades, and new product technology.
Cash flows from financing
activities:
The
cash flows from financing activities for the six months ended June 28,
2008 is primarily attributable to $0.4 million of net proceeds from the
exercise of stock options and $3.1 million received from the January 2008
purchases under our 2002 Employee Stock Purchase Plan, or ESPP. Net cash provided by financing activities for
the six months ended June 30, 2007 was attributable to $17.0 million of
net proceeds from the exercise of stock options and $3.1 million received from
the January 2007 ESPP purchases. Tax benefits related to the exercise of
stock options during the six months ended June 28, 2008 were $0.1 million
compared to $5.5 million for the six months ended June 30, 2007 due to the
significant decrease in stock option activity.
We believe that we will be able to satisfy our working capital
requirements for the next twelve months through cash generated from operations,
together with the liquidity provided by our existing cash, cash equivalents and
marketable securities. Although we believe that we have sufficient capital to
fund our activities for at least the next twelve months, our future
capital requirements may vary materially from those now planned. We anticipate
that the amount of capital we will need in the future will depend on many
factors, including the timing and extent of spending to support product
development efforts, the expansion of sales and marketing activities, our
current global expansion plans and the requirements of any potential
investments in, or acquisitions of, complementary businesses, products or
technologies that we may enter into in the future. Depending upon our future capital
requirements, we may seek additional equity or debt financing. Additional funds
may not be available on terms favorable to us or at all.
Off-Balance Sheet Arrangements
As part of our ongoing business, we do not participate in transactions
that generate relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or
special purpose entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. As of June 28, 2008 we are not involved in any such
off-balance sheet arrangements.
Recent Accounting Pronouncements
In May 2008, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 162, The
Hierarchy of Generally Accepted Accounting Principles. The statement is
intended to improve financial reporting by identifying a consistent hierarchy
for selecting accounting principles to be used in preparing financial
statements that are prepared in conformance with generally accepted accounting
principles The statement is effective 60 days following the SECs approval
of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411,
The Meaning of Present Fairly in Conformity with GAAP, and is not expected to
have any impact on our consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures
about Derivative Instruments and Hedging Activities, an amendment of FASB
Statement No. 133. SFAS No. 161 amends and expands the disclosure
requirements of SFAS No. 133 with the intent to provide users of financial
statements with an enhanced understanding of: 1) how and why an entity uses
derivative instruments; 2) how derivative instruments and related hedged items
are accounted for under SFAS No. 133 and its related interpretations and
3) how derivative instruments and related hedged items affect an entitys
financial position, financial performance and cash flows. This statement is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early adoption encouraged. We are
currently assessing the impact of the adoption of SFAS No. 161 on our
consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial LiabilitiesIncluding an
amendment of FASB Statement No. 115. This statement permits entities to
choose to measure many financial instruments and certain other items at fair
value. Entities shall report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent
reporting date. This statement is effective as of the
24
Table of Contents
beginning of an entitys first fiscal year
that begins after November 15, 2007. The adoption of SFAS No. 159,
effective January 1, 2008, did not have a material impact on our financial
position, results of operations or cash flows as we did not elect the fair
value measurement option for any additional financial instruments or other
items.
Item 3.
Quantitative
and Qualitative Disclosures About Market Risk
Interest
Rate Sensitivity
Our exposure to market risk for changes in interest rates relates
primarily to our investment portfolio. We invest in a number of securities
including U.S. government securities, U.S. government sponsored enterprises (GSE)
securities, municipal bonds and money market funds. We attempt to ensure the
safety and preservation of our invested principal funds by limiting default
risk, market risk and reinvestment risk. By policy, we limit the amount of
credit exposure to an issuer, except U.S. Treasury and GSE securities. We do
not use interest rate derivative instruments to manage interest rate exposures
nor do we invest for trading or speculative purposes. The fair market value of
our fixed rate securities may be adversely impacted by increases in interest
rates while income earned on floating rate securities may decline as a result
of decreases in interest rates. If overall interest rates had fallen by 10% in
the second fiscal quarter of 2008, the fair value of our investment portfolio
would have declined approximately $1.7 million, assuming consistent investment
levels.
As of June 28, 2008, all of our investments were in money market
accounts, municipal bonds, GSE and U.S. government securities.
Foreign
Currency Exchange Risk
We conduct certain operations in foreign currencies. We enter into
currency forward exchange contracts to hedge a portion, but not all, of
existing foreign currency denominated amounts. Gains and losses on these
contracts are generally recognized in income. Because the effect of movements
in currency exchange rates on the currency forward exchange contracts generally
offsets the related effect on the underlying items being hedged, these
financial instruments are not expected to subject us to risks that would
otherwise result from changes in currency exchange rates. We do not use
derivative financial instruments for trading or speculative purposes. We
recognized a net loss of $0.1 million for the six months ended June 28,
2008 from the fluctuation in foreign exchange rates and the valuation of these
hedge contracts recognized in our financial statements under other expense.
25
Table of Contents
Item 4.
Controls
and Procedures
Evaluation
of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as defined in Exchange Act Rule 13a-15(e) as of June 28,
2008 in connection with the filing of this Form 10-Q. Based on that
evaluation, our management, including our Chief Executive Officer and Chief
Financial Officer concluded that, as of June 28, 2008, in light of the
material weakness described below, our disclosure controls and procedures were
not effective to ensure that information we are required to disclose in reports
that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in rules and
forms of the SEC and is accumulated and communicated to our management as
appropriate to allow timely decisions regarding required disclosure.
A material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of the
companys annual or interim financial statements will not be prevented or
detected on a timely basis.
The following material weakness in internal control over financial
reporting existed as of June 28, 2008. We did not maintain effective
controls over the valuation of inventory and the related cost of revenues
accounts. Specifically, we did not maintain effective controls to ensure that
the estimation process to value inventory complied with our companys
accounting policies. This control deficiency resulted in the restatement of our
annual and interim financial statements for 2006 and interim financial
statements for the first and second quarters of 2007 and audit adjustments to
our annual financial statements for fiscal 2007. Additionally, this control
deficiency could result in a misstatement of the inventory and cost of revenues
accounts that would result in a material misstatement of our financial
statements that would not be prevented or detected on a timely basis.
We have undertaken the remedial actions described below and in
connection with the preparation of this Quarterly Report, our management
performed additional analyses, reconciliations and other post-closing
procedures and has concluded that the Companys consolidated financial
statements for the periods covered by and included in this Quarterly Report are
fairly stated in all material respects in accordance with generally accepted
accounting principles in the U.S. for each of the periods presented herein.
Managements Plan for Remediation
We continue to make progress on the implementation of our managements
plan to remediate the material weakness
. The remediation plan addresses
the design of controls and revision of procedures regarding inventory valuation
and includes:
·
Analysis
of changes in the level of excess and obsolete inventory by category,
·
Separate
re-performance of excess and obsolete inventory calculation,
·
Hiring
personnel with requisite experience and providing ongoing training and
supervision, and
·
Implementation
of new software functionality for valuing inventory.
During the second quarter of fiscal 2008, we added a management resource
with requisite experience to oversee our cost accounting group, and we
completed implementation of new software functionality to value inventory. We are also building new software
functionality to calculate excess and obsolete inventory.
Changes in Internal Control over Financial
Reporting
Our management, including our Chief Executive
Officer and Chief Financial Officer, evaluated our internal control over
financial reporting as defined in Exchange Act Rule 13a-15(f) to
determine whether any changes in our internal control over financial reporting
occurred during the second quarter of fiscal 2008 that materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting. Based on that evaluation, there have been no such changes during the
second quarter of fiscal 2008, except for those described above under
Managements Plan for Remediation.
Limitations on the Effectiveness of Controls
Control systems, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the
control systems objectives are being met. Further, the design of any control
systems must reflect the fact that there are resource constraints, and the
benefits of all controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within our company have been detected. These inherent limitations include
the realities that
26
Table of Contents
judgments in
decision making can be faulty and that breakdowns can occur because of simple
error or mistake. Control systems can also be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the controls. The design of any system of controls is based, in
part, on certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Over time, controls may become
inadequate because of changes in conditions or deterioration in the degree of
compliance with policies or procedures.
CEO and CFO Certifications
We have attached as exhibits to this Form 10-Q the certifications
of our Chief Executive Officer and Chief Financial Officer, which are required
in accordance with the Exchange Act. We recommend that this Item 4 be read in
conjunction with the certifications for a more complete understanding of the
subject matter presented.
PART II.
OTHER INFORMATION
Item 1.
Legal Proceedings
The information relating to Legal Matters set forth under Note 10 -
Commitments and Contingencies of the Notes to Unaudited Condensed Consolidated
Financial Statements of this Form 10-Q is incorporated herein by
reference.
Item 1A.
Risk
Factors
In addition to the other information in this Form 10-Q, you should
carefully consider the risk factors discussed in our Annual Report on Form 10-K
for the year ended December 29, 2007, and the updated risk factors set
forth below in evaluating FormFactor and our business. If any of the identified
risks actually occur, our business, financial condition and results of
operations could suffer. The trading price of our common stock could decline
and you may lose all or part of your investment in our common stock. The risks
and uncertainties described in our Annual Report on Form 10-K, and below
are not the only ones we face. Additional risks that we currently do not know
about or that we currently believe to be immaterial may also impair our
business operations.
Cyclicality in the semiconductor industry historically has affected
our sales and may do so in the future, and as a result we would experience
reduced revenues or operating results.
The semiconductor
industry has historically been cyclical and is characterized by wide
fluctuations in product supply and demand. From time to time, this industry has
experienced significant downturns, often in connection with, or in anticipation
of, maturing product and technology cycles, excess inventories and declines in
general economic conditions. This cyclicality could cause our operating results
to decline dramatically from one period to the next. For example, our revenues
in the second quarter of fiscal 2008 declined by 56.8% compared to our revenues
for the fourth quarter of fiscal 2007. By way of further example, we expect our
revenues to be substantially lower in the third quarter of fiscal 2008 compared
to fiscal 2007 due in significant part to continuing challenges in the semiconductor
market, particularly in the DRAM market, and we cannot provide any assurance
when semiconductor market conditions will improve. Our business depends heavily
upon the development and manufacture of new semiconductors, the rate at which
semiconductor manufacturers make transitions to smaller nanometer technology
nodes and implement tooling cycles, the volume of production by semiconductor
manufacturers and the overall financial strength of our customers, which, in
turn, depend upon the current and anticipated market demand for semiconductors
and products, such as personal computers and cell phones, that use
semiconductors. Semiconductor manufacturers generally sharply curtail their
spending, including their equipment spending, during industry downturns and
historically have lowered their spending disproportionately more than the
decline in their revenues. This is particularly true when there is a point
during an industry cycle in which the semiconductor manufacturers costs
related to semiconductor devices approaches or exceeds the sales price of the
devices. As a result, if we are unable to adjust our levels of manufacturing
and human resources or manage our costs and deliveries from suppliers in
response to lower spending by semiconductor manufacturers, our gross margin may
decline and cause us to experience operating losses.
27
Table
of Contents
We depend upon the sale of our wafer probe cards for
substantially all of our revenues, and the majority of our wafer probe cards
are utilized by semiconductor manufacturers for testing DRAM devices; if we
experience a downturn in demand for our products, our revenues could decline.
We have historically derived substantially all of our revenues from the
sale of our wafer probe cards to manufacturers of DRAM, flash memory devices,
and microprocessor, chipset and other logic devices. For the six months ended June 28,
2008 and for fiscal year 2007, sales to manufacturers of DRAM devices accounted
for 61.1% and 70.9%, respectively, of our revenues, sales to manufacturers of
flash memory devices accounted for 23.6% and 19.2%, respectively, of our
revenues, and sales to manufacturers of logic devices accounted for 15.4% and
9.8%, respectively, of our revenues.
We anticipate
that sales of our wafer probe cards will represent a substantial majority of
our revenues for the foreseeable future. Our success depends in large part upon
the continued acceptance of our products within these markets and our ability
to continue to develop and introduce new products that meet our customers
requirements on a timely basis for these markets. In particular, to continue to
grow our business, we need to further penetrate the flash memory market and to
gain additional market share with flash memory manufacturers. We also need to
successfully qualify and deliver our DRAM and flash wafer probe card products
incorporating our Harmony architecture. While we have successfully qualified
and delivered certain Harmony-based wafer probe cards which are being used by
some of our customers in commercial volume during the fabrication of
semiconductor devices, and reduced manufacturing lead times, this does not
necessarily mean that we have solved all manufacturing issues for all designs
of our Harmony-based products. To the extent that we are unable to realize cost
reductions and manufacturing efficiencies in the production of our wafer probe
cards or if we are not able to timely deliver our products, our revenues and
business operations could be adversely impacted and our ability to grow could
suffer. As our Harmony-based wafer probe cards are used in greater volume in
commercial production, it is possible that we will identify certain areas of
technical performance that require improvement and if we are unable to
continually, efficiently and in a timely manner improve our products; our
operating results could be harmed. If chip manufacturers fail to make
architecture, node or technology transitions as we anticipate, or if
anticipated or announced transitions are delayed, it could adversely impact our
revenues and operating results. In addition, we might not be able to sustain or
increase our revenues from sales of our wafer probe cards, particularly if
conditions in the semiconductor market continue to deteriorate or do not
improve or if the market enters into another downturn. Any decrease in revenues
from sales of our wafer probe cards could harm our business more than it would
if we offered a more diversified line of products
We derive a substantial
portion of our revenues from a small number of customers, and our revenues
could decline significantly if any major customer cancels, reduces or delays a
purchase of our products.
A relatively small number of customers has
accounted for a significant portion of our revenues in any particular period.
Three customers accounted for 56.7% of our revenues in the first six months of
fiscal 2008, and four customers accounted for 63.0% of our revenues in fiscal
year 2007. In first six months of fiscal 2008 and in fiscal year 2007, our ten
largest customers accounted for 86.3% and 90.7%, respectively, of our revenues.
We anticipate that sales of our products to a relatively small number of
customers will continue to account for a significant portion of our revenues.
The cancellation or deferral of even a small number of purchases of our
products could significantly reduce our revenues in any particular quarter.
Cancellations or deferrals could result from a downturn in the semiconductor
industry, manufacturing delays, quality or reliability issues with our
products, or interruptions to our customers operations due to fire, natural
disasters or other events. Our customers could cease purchasing our products
with short or no notice to us or fail to pay all or part of an invoice. In some
situations, our customers might be able to cancel orders without a significant
penalty. In addition, consolidation in the semiconductor industry, particularly
among manufacturers of DRAM, could reduce our customer base, lead to lost or
delayed sales and reduced demand for our wafer probe cards and result in
increased pricing pressures. Additionally, certain customers may not want to
rely entirely or substantially on a single wafer probe card supplier and, as a
result, such customers could reduce their purchases of our wafer probe cards.
If we do not effectively implement changes to our business
execution structure to better position our company for long-term, profitable
growth, our business could continue to decline and might not succeed.
During an extended
period of rapid growth and expansion over the last several years, our main
focus was on growing capacity and meeting customer mission-critical needs.
During the current downturn within the semiconductor industry, in general, and
in our industry, in particular, we are now focused on realigning our business
execution structure to better position our company for long-term, profitable
growth. Our business could decline and we might not succeed if we do not
successfully and efficiently implement appropriate changes to our business
execution structure, including placing more decision-making in geographic
territories close to our customers, strengthening our local design, application
and service capabilities, changing our manufacturing structure for shorter
cycle time and improved customer responsiveness, and restructuring our research
and development group.
28
Table of Contents
If we do not effectively realign our
company structure and operations to current revenue levels and proactively
manage other changes in our business, our ability to invest and position our
business for future growth will be negatively impacted and our business might
not succeed.
Our rapid growth
over the past several years has placed significant demands on our management team, information
systems and design, applications and manufacturing infrastructure. During the
current downturn in our business, we are focusing on financial
management and alignment of our net cash expenditures to current revenue levels
in order to achieve operating cash flow breakeven level. If we are unable to effectively realign our
business, our ability to invest and position our business for future growth
will be negatively impacted and our business may not succeed. Additionally, if we do not proactively manage other changes in our business, including
deteriorating semiconductor market conditions and other challenges in the
markets in which we compete, we may not be in a position to increase
productivity and support growth when the business environment changes to become
more positive. If our management fails to proactively and effectively manage
our business in response to changing market conditions, our business might not
succeed.
Because we conduct
most of our business internationally, we are subject to operational, economic,
financial and political risks abroad.
Sales of our
products to customers outside the United States have accounted for a
significant part of our revenues. Our international sales as a percentage of
our revenues were 78.6% and 82.2% for the six months ended June 28, 2008
and for fiscal year 2007, respectively. Additionally, certain of our Korean
customers purchase through their North American subsidiaries. In the future, we
expect international sales, particularly in Europe, Japan, South Korea and
Taiwan, to continue to account for a significant percentage of our revenues.
Accordingly, we will be subject to risks and challenges that we would not
otherwise face if we conducted our business solely in the United States. These
risks and challenges include:
·
compliance
with a wide variety of foreign laws and regulations;
·
legal
uncertainties regarding taxes, tariffs, quotas, export controls, export
licenses and other trade barriers;
·
political
and economic instability in, or foreign conflicts that involve or affect, the
countries of our customers;
·
difficulties
in collecting accounts receivable and longer accounts receivable payment
cycles;
·
difficulties
in staffing and managing personnel, distributors and representatives;
·
reduced
protection for intellectual property rights in some countries;
·
currency exchange rate fluctuations,
which could affect the value of our assets denominated in local currency, as
well as the price of our products relative to locally produced products;
·
seasonal
fluctuations in purchasing patterns in other countries; and
·
fluctuations
in freight rates and transportation disruptions.
Any of these
factors could harm our existing international operations and business or impair
our ability to continue expanding into international markets.
Our plans to establish more extensive
international business operations are being evaluated, and our operating
results could be harmed to the extent we fail to devise and implement an
effective global strategy.
We are evaluating alternatives for diversifying certain of our business
operations beyond our current facility in Livermore, California. The first phase of this strategy was focused
on Singapore, where we have established design, sales and administrative
functions. We have also planned to
develop an assembly and test and back-end manufacturing facility there, with
the goal of eventually expanding our capabilities to include front-end
manufacturing processes. The
manufacturing plan is currently on hold as a result of changing market
conditions and cost overruns, and we cannot predict whether, when or in what form
the plan may be restarted. We are also
considering diversifying some of our other business operations to Asia in order
to be closer to our customers. All of
these international diversification efforts are subject to a variety of
complexities and risks, many of which our executive team has had little
experience in managing at FormFactor. Risks stem from the following, among
other things: (i) challenges in designing new facilities, replicating current
processes, and bringing new facilities up to full operation; (ii) unpredictable
costs for developing new facilities and acquiring equipment; (iii) building
local management teams and staff for functions that we have not previously
conducted outside of Livermore; (iv) requalifications and other procedures that
may be required by our customers; (v) rapidly changing business conditions that
may require plans to be changed or abandoned before they are fully implemented;
and (vi) challenges posed by distance and by differences in language and
culture. These and other factors could
delay us in developing and implementing our plans as well as impair our gross
margins, delay shipments and deliveries, cause us to lose sales, require us to
write off investments already made, damage our reputation and harm our business,
financial condition and operating results.
We may not be able to recruit or retain
qualified personnel, which could harm our business.
We believe our
ability to successfully manage and grow our business and to develop new
products depends, in large part, on our ability to recruit and retain qualified
employees, particularly highly skilled technical, sales, management and key
staff personnel. Competition for qualified resources is intense and other
companies may have greater resources available to provide substantial
inducements to lure key personnel away from us or to offer more competitive
compensation packages to individuals we are trying to hire. Additionally, we
have implemented various cost cutting efforts, which makes it challenging to
retain key people and recruit new talent, as needed. While we are continuing to
implement programs and actions for retaining key employees and recruiting new
talent, there can be no assurance that we will be able to successfully recruit
and retain the key personnel we require.
29
Table of Contents
Item 2.
Unregistered
Sales of Equity Securities and Use of Proceeds
The following table summarizes our stock repurchase activity for the
three and six months ended June 28, 2008:
|
|
Total
Number of
Shares
Purchased
|
|
Average Price
Paid per
Share
|
|
June (May 25, 2008 -
June 28, 2008): Employee transactions (1)
|
|
6,679
|
|
21.43
|
|
(1) Employee transactions are restricted shares
withheld to offset tax withholding that occurs when restricted shares vest.
Item 4.
Submission of Matters to a
Vote of Security Holders
We
held our 2008 Annual Meeting of Stockholders on May 22, 2008 at our
corporate headquarters at 7005 Southfront Road, Livermore, California 94551. At
the meeting, our stockholders voted on the following three proposals and cast
their votes as follows to approve such proposals:
Proposal
1: To elect three Class II directors to our board of directors, each to
serve on our Board of Directors until his or her successor has been elected and
qualified or until his or her earlier death, resignation or removal. The
director nominees were:
Nominee
|
|
For
|
|
Withheld
|
|
Dr. Homa Bahrami
|
|
34,652,796
|
|
11,738,358
|
|
G. Carl Everett, Jr.,
|
|
33,408,782
|
|
12,982,372
|
|
Dr. Mario Ruscev
|
|
45,907,317
|
|
483,837
|
|
Our
board of directors consists of eight members and is divided into three classes
Class I, II and III. Each director is elected for a three-year term
of office, with one class of directors being elected at each annual meeting of
stockholders.
Proposal
2: To ratify the selection of PricewaterhouseCoopers LLP as our independent
registered public accounting firm for the fiscal year ending December 27,
2008:
For
|
|
Against
|
|
Abstain
|
|
Broker Non-Votes
|
|
46,208,755
|
|
174,887
|
|
7,512
|
|
|
|
Proposal
3: To approve material terms under our 2002 Equity Incentive Plan with respect
to Section 162(m) of the Internal Revenue Code:
For
|
|
Against
|
|
Abstain
|
|
Broker Non-Votes
|
|
27,663,069
|
|
18,685,798
|
|
42,287
|
|
|
|
30
Table of Contents
Item 5. Other Information
On June 3,
2008, we announced that our board of directors has appointed Mario Ruscev,
currently president, as our next chief executive officer (CEO). Dr. Ruscev will succeed Dr. Igor Y.
Khandros, our companys founder, who will become executive chairman of our
board of directors. Dr. Khandros will succeed James Prestridge, our
current non-executive chairman, who will continue on our board of directors and
become its lead independent director. The
changes became effective at the beginning of our third quarter of fiscal 2008.
Item 6.
Exhibits
The following exhibits are filed herewith:
Exhibit
|
|
|
|
Incorporated by Reference
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
Date
|
|
Number
|
|
Herewith
|
|
|
|
|
|
|
|
|
|
|
|
10.01+
|
|
Employment
Offer Letter dated March 1, 2008 to Jean Bernard Vernet
|
|
8-K
|
|
3/31/08
|
|
000-50307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.02+
|
|
Separation
Agreement and General Release dated April 15, 2008 with Jorge L.
Titinger
|
|
8-K
|
|
4/21/08
|
|
000-50307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.03+
|
|
2002
Equity Incentive Plan, as amended, and forms of plan agreements
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
31.01
|
|
Certification
of Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
31.02
|
|
Certification
of Chief Financial Officer pursuant to 15 U.S.C. Section 7241, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
32.01*
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
X
|
*
This exhibit shall not be deemed filed
for purposes of Section 18 of the Securities Exchange Act of 1934 or
otherwise subject to the liabilities of that section, nor shall it be deemed
incorporated by reference in any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, whether made before or after the date hereof
and irrespective of any general incorporation language in any filings.
+
Indicates a management contract or
compensatory plan or arrangement.
31
Table of Contents
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
|
FORMFACTOR, INC.
|
|
|
|
|
|
|
By:
|
/s/ JEAN B.
VERNET
|
|
|
|
|
|
|
|
Jean B. Vernet
|
|
|
|
Chief Financial
Officer
|
|
|
|
(Principal
Financial Officer and
Duly Authorized Officer)
|
|
|
|
|
August 7, 2008
|
|
|
32
Table of Contents
EXHIBIT
INDEX
Exhibit
|
|
|
|
Incorporated by Reference
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
Date
|
|
Number
|
|
Herewith
|
|
|
|
|
|
|
|
|
|
|
|
10.01+
|
|
Employment
Offer Letter dated March 1, 2008 to Jean Bernard Vernet
|
|
8-K
|
|
3/31/08
|
|
000-50307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.02+
|
|
Separation
Agreement and General Release dated April 15, 2008 with Jorge L.
Titinger
|
|
8-K
|
|
4/21/08
|
|
000-50307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.03+
|
|
2002
Equity Incentive Plan, as amended, and forms of plan agreements
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
31.01
|
|
Certification
of Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
31.02
|
|
Certification
of Chief Financial Officer pursuant to 15 U.S.C. Section 7241, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
32.01*
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
X
|
*
This exhibit shall not be deemed filed
for purposes of Section 18 of the Securities Exchange Act of 1934 or
otherwise subject to the liabilities of that section, nor shall it be deemed
incorporated by reference in any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, whether made before or after the date hereof
and irrespective of any general incorporation language in any filings.
+
Indicates a management contract or
compensatory plan or arrangement.
33
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