Table of Contents
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
x
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26,
2009
or
o
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period
from to
Commission file number: 000-50307
FormFactor, Inc.
(Exact name of registrant as specified in its
charter)
DELAWARE
|
|
13-3711155
|
(State or other
jurisdiction of
|
|
(I.R.S. Employer
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incorporation or
organization)
|
|
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 submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of the Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes
o
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 definition of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated filer
o
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Accelerated filer
x
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|
|
|
Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
|
|
|
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 October 30, 2009, 49,752,726
shares of the registrants common stock, par
value $0.001 per share, were outstanding.
Table of Contents
FORMFACTOR, INC.
FORM 10-Q FOR THE QUART
ERLY
PERIOD ENDED SEPTEMBER 26, 2009
INDEX
2
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1.
Financial
Statements
FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
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Three Months Ended
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Nine Months Ended
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September 26,
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September 27,
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September 26,
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September 27,
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2009
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2008
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2009
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2008
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Revenues
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$
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43,773
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$
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52,584
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$
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102,340
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$
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170,300
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Cost of revenues
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36,435
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40,583
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100,007
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134,626
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|
Gross profit
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7,338
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12,001
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2,333
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35,674
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Operating expenses:
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|
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|
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|
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Research and development
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13,775
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17,079
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41,823
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49,288
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Selling, general and
administrative
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17,366
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23,675
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61,939
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69,038
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|
Restructuring
|
|
|
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141
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|
7,943
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|
8,684
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|
Total operating expenses
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31,141
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40,895
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111,705
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127,010
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Operating loss
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|
(23,803
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)
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(28,894
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)
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(109,372
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)
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(91,336
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)
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Interest income
|
|
694
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|
2,805
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|
2,571
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|
10,808
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Other income (expense), net
|
|
(415
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)
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263
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|
(920
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)
|
404
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|
Loss before income taxes
|
|
(23,524
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)
|
(25,826
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)
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(107,721
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)
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(80,124
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)
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Provision for (benefit
from) income taxes
|
|
377
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|
(11,785
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)
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19,969
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|
(29,463
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)
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Net loss
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$
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(23,901
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)
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$
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(14,041
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)
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$
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(127,690
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)
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$
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(50,661
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)
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Net loss per share:
|
|
|
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Basic
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$
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(0.48
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)
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$
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(0.29
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)
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$
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(2.59
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)
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$
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(1.04
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)
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Diluted
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$
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(0.48
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)
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$
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(0.29
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)
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$
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(2.59
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)
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$
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(1.04
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)
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Weighted-average number of
shares used in per share calculations:
|
|
|
|
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|
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Basic
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49,582
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48,988
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49,392
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48,855
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Diluted
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49,582
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48,988
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49,392
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48,855
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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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September 26,
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December 27,
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|
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2009
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2008
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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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149,920
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|
$
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337,926
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|
Marketable securities
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312,687
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184,968
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Accounts receivable,
net of allowances for doubtful accounts of $9,260 at September 26, 2009
and $4,220 at December 27, 2008
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48,233
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34,127
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Inventories
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21,166
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18,788
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|
Deferred tax assets
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3,768
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23,039
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Refundable income taxes
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18,130
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29,413
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Prepaid expenses and
other current assets
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11,462
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14,702
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Total current assets
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565,366
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642,963
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Restricted cash
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680
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680
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Property and equipment,
net
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96,998
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113,813
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Deferred tax assets
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1,928
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20,580
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Other assets
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3,599
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7,674
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Total assets
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$
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668,571
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$
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785,710
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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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27,450
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$
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33,214
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Accrued liabilities
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16,718
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25,693
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Income taxes payable
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105
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1,904
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Deferred revenue
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10,001
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4,946
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Deferred rent
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458
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|
452
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Total current
liabilities
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54,732
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|
66,209
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|
Long-term income taxes
payable
|
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6,334
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7,732
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Deferred rent and other
liabilities
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5,416
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5,705
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Total liabilities
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66,482
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79,646
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Commitments and
contingencies (Note 16)
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Stockholders equity
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|
|
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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 September 26,
2009 and December 27, 2008, respectively
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|
|
|
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Common stock, $0.001
par value:
|
|
|
|
|
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250,000,000 shares
authorized; 49,752,366 and 49,062,308 shares issued and outstanding at
September 26, 2009 and December 27, 2008, respectively
|
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50
|
|
49
|
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Additional paid-in
capital
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626,211
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602,295
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|
Accumulated other
comprehensive income
|
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1,720
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1,922
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Retained earnings
(accumulated deficit)
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|
(25,892
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)
|
101,798
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Total stockholders
equity
|
|
602,089
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|
706,064
|
|
Total liabilities and
stockholders equity
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$
|
668,571
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|
$
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785,710
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|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
Table of Contents
FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
Nine
Months Ended
|
|
|
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September 26,
2009
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September 27,
2008
|
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Cash
flows from operating activities:
|
|
|
|
|
|
Net loss
|
|
$
|
(127,690
|
)
|
$
|
(50,661
|
)
|
Adjustments to
reconcile net income to net cash used in operating activities:
|
|
|
|
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|
Depreciation and
amortization
|
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24,204
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|
24,063
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|
Stock-based
compensation expense
|
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16,412
|
|
17,905
|
|
Deferred income tax
provision (benefit)
|
|
37,952
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|
(9,727
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)
|
Excess tax benefits
from equity based compensation plans
|
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(508
|
)
|
(266
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)
|
Provision for doubtful
accounts receivable
|
|
5,040
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|
489
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|
Provision for excess
and obsolete inventories
|
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5,639
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12,307
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|
Loss on disposal of
property and equipment
|
|
743
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|
982
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|
Non-cash restructuring
|
|
366
|
|
|
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Foreign currency
transaction gains
|
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(845
|
)
|
|
|
Changes in assets and
liabilities:
|
|
|
|
|
|
Accounts receivable
|
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(18,236
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)
|
28,900
|
|
Inventories
|
|
(7,971
|
)
|
(5,302
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)
|
Prepaids and other current
assets
|
|
3,487
|
|
510
|
|
Refundable income taxes
|
|
11,582
|
|
(22,942
|
)
|
Other assets
|
|
6,374
|
|
830
|
|
Accounts payable
|
|
(1,475
|
)
|
(3,779
|
)
|
Accrued liabilities
|
|
(9,038
|
)
|
(7,811
|
)
|
Income tax payable
|
|
(3,198
|
)
|
1,046
|
|
Deferred rent
|
|
(392
|
)
|
(302
|
)
|
Deferred revenues
|
|
5,050
|
|
(99
|
)
|
Net cash used in
operating activities
|
|
(52,504
|
)
|
(13,857
|
)
|
Cash
flows from investing activities:
|
|
|
|
|
|
Acquisition of property
and equipment
|
|
(13,078
|
)
|
(26,418
|
)
|
Purchases of marketable
securities
|
|
(419,600
|
)
|
(181,004
|
)
|
Proceeds from
maturities of marketable securities
|
|
259,999
|
|
49,015
|
|
Proceeds from sales of
marketable securities
|
|
31,198
|
|
277,331
|
|
Release of restricted
cash
|
|
|
|
1,570
|
|
Advance payment for
acquisition of assets (Refer to Note 19)
|
|
(1,731
|
)
|
|
|
Net cash provided by (used
in) investing activities
|
|
(143,212
|
)
|
120,494
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
Proceeds from issuances
of common stock and awards, net
|
|
7,119
|
|
5,678
|
|
Excess tax benefits
from equity based compensation plans
|
|
508
|
|
266
|
|
Net cash provided by
financing activities
|
|
7,627
|
|
5,944
|
|
Effect of exchange rate
changes on cash and cash equivalents
|
|
83
|
|
(199
|
)
|
Net increase (decrease)
in cash and cash equivalents
|
|
(188,006
|
)
|
112,382
|
|
Cash and cash
equivalents, beginning of period
|
|
337,926
|
|
315,232
|
|
Cash and cash
equivalents, end of period
|
|
$
|
149,920
|
|
$
|
427,614
|
|
Supplemental
cash flow disclosures:
|
|
|
|
|
|
Purchases of property
and equipment through accounts payable and accruals
|
|
$
|
(4,897
|
)
|
$
|
(11,400
|
)
|
Income taxes paid
(refunded), net
|
|
$
|
(25,991
|
)
|
$
|
|
|
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 considered
necessary to fairly present the Companys financial position, results of
operations and cash flows have been included. Operating results for the three
and nine months ended September 26, 2009 are not necessarily indicative of
the results that may be expected for the year ending December 26, 2009, or
for any other period. The balance sheet at December 27, 2008 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 27,
2008 included in the Companys Annual Report on Form 10-K filed with the
SEC on February 27, 2009.
Fiscal Year
. The Company
operates on a 52/53 week fiscal year, whereby the year ends on the last
Saturday of December. Fiscal 2009 will end on December 26, 2009, and will
consist of 52 weeks.
Reclassifications.
Certain prior period balances have been
reclassified to conform to the current financial statement presentation. None
of these reclassifications had an impact on reported net loss for any periods
presented.
Codification.
In June 2009
the Financial Accounting Standards Board, or FASB, established the Accounting
Standards Codification, or Codification, as the source of authoritative GAAP
recognized by the FASB. The Codification is effective in the first interim and
annual periods ending after September 15, 2009 and had no effect on the
Companys unaudited condensed consolidated financial statements.
Subsequent Events
.
The Company has performed an evaluation of subsequent
events through November 5, 2009, which is the date the financial
statements were issued.
Note 2 Recent Accounting Pronouncements and Other Reporting
Considerations
In August 2009, the FASB issued Accounting Standards Update titled
Fair Value Measurements and Disclosures Measuring Liabilities at Fair Value
which provides clarification that in circumstances in which a quoted price in
an active market for the identical liability is not available, a reporting
entity is required to measure fair value of such liability using one or more of
the techniques prescribed by the update. The Company will adopt this guidance
in the fourth quarter of fiscal 2009. The adoption of this standard is not
expected to have a material impact on the Companys consolidated financial
statements.
In June 2009, the FASB issued an accounting standard intended to
improve financial reporting by providing additional guidance to companies
involved with variable interest entities and by requiring additional
disclosures about a companys involvement in variable interest entities. This
standard is effective for interim and annual periods ending after November 15,
2009. The adoption of this standard is not expected to have a material impact
on the Companys financial statements.
In June 2009, the FASB issued accounting guidance related to
accounting for transfers and servicing of financial assets and extinguishments
of liabilities. This accounting guidance requires more information about transfers
of financial assets where companies have continuing exposure to the risk
related to transferred financial assets. It eliminates the concept of a
qualifying special purpose entity, changes the requirements for derecognizing
financial assets, and requires additional disclosure. This standard is
effective for interim and annual periods ending after November 15, 2009.
The adoption of this standard is not expected to have a material impact on the
Companys financial statements.
For the quarter beginning March 29, 2009, the Company adopted the
FASB accounting guidance related to recognition and presentation of
other-than-temporary impairments. This accounting guidance amends the prior
other-than-temporary impairment (OTTI) guidance in U.S. GAAP to make the
guidance more operational and to improve the presentation of
other-than-temporary impairments in a companys financial statements. Prior to
its issuance, if OTTI was determined to exist, the Company recognized an OTTI
charge into earnings in an amount equal to the difference between the
investments amortized cost basis and its fair value as of the balance sheet
date of the reporting period. Under this accounting guidance, if OTTI has been
incurred, and it is more-likely-than-not that the Company will not sell the
investment security before the recovery of its amortized cost basis, then the
OTTI is separated into (a) the amount representing the credit loss and (b) the
amount related to all other factors. The amount of the total OTTI related to
6
Table of Contents
the credit loss is recognized in earnings. The amount of the total OTTI
related to other factors is recognized in accumulated other comprehensive
income (AOCI). There was no initial effect of adoption on March 28,
2009.
For the quarter beginning March 29, 2009, the Company adopted new
accounting guidance issued by the FASB related to determination of fair value
when the volume and level of activity for an asset or liability have
significantly decreased and identification of transactions that are not
orderly. This accounting guidance provides additional guidance for estimating
fair value in accordance with the accounting standard on fair value
measurements. The adoption of this accounting guidance did not have an impact
on the Companys consolidated results of operations or financial condition.
For the quarter beginning March 29, 2009, the Company adopted
accounting guidance issued by the FASB related to interim disclosures about
fair value of financial instruments. This accounting guidance amends the
previously issued accounting standard that related to financial instruments, to
require disclosures about fair value of financial instruments in interim
financial statements as well as in annual financial statements. The adoption of
this accounting guidance did not have an impact on the Companys consolidated
results of operations or financial condition. See Note 5 for additional
disclosures included in accordance with this accounting guidance.
For the quarter beginning March 29, 2009, the Company adopted FASBs
newly issued accounting standard related to subsequent events. This accounting
standard establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. It requires the disclosure of the
date through which an entity has evaluated subsequent events and the basis for
that datethat is, whether that date represents the date the financial
statements were issued or were available to be issued. This disclosure should
alert all users of financial statements that an entity has not evaluated
subsequent events after that date in the set of financial statements being
presented. Adoption of accounting standard did not have an impact on the
Companys consolidated results of operations or financial condition
.
In September 2009, the Financial Accounting Standards Board
ratified accounting guidance regarding revenue arrangements with multiple
deliverables. In absence of vendor-specific objective evidence (VSOE) or other
third party evidence (TPE) of the selling price for the deliverables in a
multiple-element arrangement, this accounting guidance requires companies to
use an estimated selling price (ESP) for the individual deliverables. Companies
shall apply the relative-selling price model for allocating an arrangements
total consideration to its individual elements. Under this model, the ESP is
used for both the delivered and undelivered elements that do not have VSOE or
TPE of the selling price. This accounting guidance will be applied on a
prospective basis for revenue arrangements entered into or materially modified
beginning in fiscal 2011, with earlier application permitted. Since the Company
will apply this accounting guidance on a prospective basis, it is currently
unable to evaluate its effect on its consolidated financial statements.
Note 3
Concentration of Credit and Other
Risks
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents,
investments and trade receivables. The Companys cash equivalents and
marketable securities are held in safekeeping by large, creditworthy financial
institutions. The Company invests its excess cash primarily in U.S. banks,
government and agency bonds, money market funds and corporate obligations. The
Company has established guidelines relative to credit ratings, diversification
and maturities that seek to maintain safety and liquidity.
The Company sells its products to large multinational semiconductor
manufacturers primarily located in Asia and North America. During the three
months ended September 26, 2009 and September 27, 2008 one customer
represented 53.0% and 15.5%, respectively, of total revenues. No other customer
represented greater than 10% of total revenues for these fiscal periods. One
customer represented 55.0% of total revenues during the nine months ended September 26,
2009, and three customers represented 23.4%, 13.1%, and 13.0% of total revenues
for the nine months ended September 27, 2008. No other customer accounted
for more than 10% of total revenues in either of these fiscal periods.
The Company has significant accounts receivables concentrated with a
few customers in the semiconductor industry. While the Companys allowance for
doubtful accounts balance is based on historical loss experience along with
anticipated economic trends, unanticipated financial instability in the
semiconductor industry could lead to higher than anticipated losses. As of September 26,
2009, three customers accounted for greater than 10% of gross accounts
receivable. As of December 27, 2008, four of the Companys customers
accounted for greater than 10% of gross accounts receivable.
Note 4
Restructuring Charges
Restructuring charges include costs related to one-time employee
termination benefits, cost of long-lived assets abandoned, as well as contract
termination costs. The Company recognizes a liability for employee termination
benefits when a plan of termination, approved by management and establishing
the terms of the benefit arrangement, has been communicated to employees.
7
Table of Contents
The timing of the recognition of one-time employee termination benefits
is dependant upon the period of time the employees are required to render
service after communication. If employees are not required to render service in
order to receive the termination benefits or if employees will not be retained
to render service beyond the minimum legal notification period, a liability for
the termination benefits is recognized at the communication date. In instances
where employees will be retained to render service beyond the minimum legal
notification period, the liability for employee termination benefits is
measured initially at the communication date based on the fair value of the
liability as of the termination date and is recognized ratably over the future
service period. The Company records charges related to long-lived assets to be
abandoned when the assets cease to be used. The Company records a liability for
contract termination costs that will continue to be incurred under a contract
for its remaining term without economic benefit to the Company at the cease-use
date.
The Company recorded restructuring charges of $0.1 million for the three
months ended September 27, 2008 and $7.9 million and $8.7 million for the
nine months ended September 26, 2009 and September 27, 2008,
respectively. There were no restructuring charges incurred in the three months
ended September 26, 2009. The restructuring plan implemented in the first
quarter of 2009 is discussed in detail below. For a complete discussion of all
restructuring actions that were implemented prior to fiscal 2009, please refer
to the Notes to Consolidated Financial Statements included in the Companys
Annual Report on Form 10-K filed on February 27, 2009.
In the first quarter of fiscal 2009, the Company implemented a global
reorganization and cost reduction plan (the Q1 2009 Restructuring Plan)
designed to lower the Companys cash breakeven level in the current market
environment. The Q1 2009 Restructuring Plan extended the global cost reduction
plans implemented during fiscal 2008 and included workforce reductions of 178
employees spread across all functions of the organization. The Q1 2009
Restructuring Plan also included other actions such as the elimination of 24
contractor positions as well as non-replacement of certain voluntary employee
terminations. The Company recorded $7.7 million in charges for this
restructuring plan in the first quarter of fiscal 2009 of which $7.3 million
related to severance and related benefits and $0.4 million related to
write-down of certain assets taken out of service. The Company incurred
approximately $0.3 million
in connection with this restructuring plan in the second quarter of
fiscal 2009
related to severance and related benefits
.
The following table
summarizes the activity related to the Q1 2009 Restructuring Plan as of September 26,
2009 (in thousands):
|
|
Employee
Severance and
Benefits
|
|
Property
and Equipment
Write-down
|
|
Contract
Termination
and Other
|
|
Total
|
|
Accrual at
December 27, 2008
|
|
$
|
77
|
|
$
|
|
|
$
|
71
|
|
$
|
148
|
|
Q109 Restructuring
charges
|
|
7,332
|
|
366
|
|
(19
|
)
|
7,679
|
|
Cash payments
|
|
(5,287
|
)
|
|
|
19
|
|
(5,268
|
)
|
Non-cash settlements
|
|
(217
|
)
|
(366
|
)
|
|
|
(583
|
)
|
Accrual at
March 28, 2009
|
|
1,905
|
|
|
|
71
|
|
1,976
|
|
Q209 Restructuring
charges
|
|
250
|
|
|
|
14
|
|
264
|
|
Cash payments
|
|
(776
|
)
|
|
|
|
|
(776
|
)
|
Accrual at
June 27, 2009
|
|
1,379
|
|
|
|
85
|
|
1,464
|
|
Q309 Restructuring
charges
|
|
|
|
|
|
|
|
|
|
Cash payments
|
|
(1,120
|
)
|
|
|
|
|
(1,120
|
)
|
Accrual at
September 26, 2009
|
|
$
|
259
|
|
$
|
|
|
$
|
85
|
|
$
|
344
|
|
Restructuring charges are reflected separately as Restructuring in
the accompanying Condensed Consolidated Statements of Operations. The remaining
accrual as of September 26
, 2009
relates primarily to severance benefits
which will be paid within the next six months. As such, the restructuring
accrual is recorded as a current liability within Accrued Liabilities in the
Condensed Consolidated Balance Sheets.
Note 5 Fair Value
The Company uses
fair value measurements to record fair value adjustments to certain financial
and non-financial assets and to determine fair value disclosures. Our
marketable securities are financial assets recorded at fair value on a
recurring basis. The Company also has a building held for sale in Livermore, CA
as well as certain manufacturing equipment held for sale, which are measured at
fair value on a non-recurring basis and included within Prepaid expenses and
other current assets in the accompanying Condensed Consolidated Balance Sheet.
8
Table of Contents
The accounting
standard for fair value defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and requires
disclosures about fair value measurements. Fair value is defined as the price
that would be received from selling an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date.
When determining the fair value measurements for assets and liabilities
required to be recorded at fair value, the Company considers the principal or
most advantageous market in which it would transact and consider assumptions
that market participants would use when pricing the asset or liability, such as
inherent risk, transfer restrictions, and risk of nonperformance. The
accounting standard for fair value establishes a fair value hierarchy that
requires an entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. A financial instruments
categorization within the fair value hierarchy is based upon the lowest level
of input that is significant to the fair value measurement.
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 the quoted prices in active markets, that
are observable either directly or indirectly.
·
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 adopted accounting standard for
fair value as of the beginning of its fiscal 2008 year for its financial assets
and financial liabilities, and as of the beginning of its 2009 fiscal year as
it relates to nonrecurring fair value measurement requirements for
non-financial assets and liabilities.
Assets
Measured at Fair Value on a Recurring Basis
The Company measures and reports certain assets and liabilities at fair
value on a recurring basis, including money market funds, U. S. government
securities, municipal bonds, agency securities and foreign currency
derivatives. The following tables represent the Companys fair value hierarchy
for its financial assets (cash equivalents and marketable securities):
Fair value measured on a recurring basis as of September 26, 2009
(in thousands):
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
Cash
equivalents
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
128,275
|
|
$
|
|
|
$
|
128,275
|
|
Commercial paper
|
|
|
|
5,000
|
|
5,000
|
|
Marketable
securities
|
|
|
|
|
|
|
|
U. S. Treasury
|
|
|
|
91,444
|
|
91,444
|
|
Municipal bonds
|
|
|
|
7,379
|
|
7,379
|
|
Agency securities
|
|
|
|
208,867
|
|
208,867
|
|
Commercial paper
|
|
|
|
4,997
|
|
4,997
|
|
Total
|
|
$
|
128,275
|
|
$
|
317,687
|
|
$
|
445,962
|
|
Fair value measured on a recurring basis as of December 27, 2008
(in thousands):
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
Cash
equivalents
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
183,765
|
|
$
|
|
|
$
|
183,765
|
|
U. S. Treasury
|
|
|
|
20,000
|
|
20,000
|
|
Agency securities
|
|
|
|
79,977
|
|
79,977
|
|
Marketable
securities
|
|
|
|
|
|
|
|
U. S. Treasury
|
|
|
|
105,285
|
|
105,285
|
|
Municipal bonds
|
|
|
|
17,928
|
|
17,928
|
|
Agency securities
|
|
|
|
61,755
|
|
61,755
|
|
Total
|
|
$
|
183,765
|
|
$
|
284,945
|
|
$
|
468,710
|
|
9
Table of Contents
The Level 1 assets consist
of the Companys money market fund deposits
.
The Level 2 assets consist of the Companys
available-for-sale debt investment portfolio. The Companys investments are
priced by pricing vendors who provided observable inputs for their pricing
without applying significant judgments. Brokers pricing is used mainly when a
quoted price is not available, the investment is not priced by the Companys
pricing vendors or when a broker price is more reflective of fair values in the
market in which the investment trades. The Companys investments are labeled as
Level 2 investments because fair values for these investments are based on
similar assets without applying significant judgments. In addition, all of the
Companys investments have a sufficient level of trading volume to demonstrate
that the fair values used are appropriate for these investments.
Assets
Measured at Fair Value on a Nonrecurring Basis
The building held
for sale is classified as Level 3 as the Company used unobservable inputs in
its valuation reflecting the Companys assumptions that market participants
would use in pricing this asset due to the absence of recent comparable market
transactions and inherent lack of liquidity. The building held for sale was
valued at $900,000 as of September 26, 2009. The Company also classified
certain manufacturing equipment as held for sale as of September 26, 2009.
The equipment was classified as Level 3 as the Company used unobservable inputs
in its valuation reflecting the Companys assumptions that market participants
would use in pricing this asset due to the absence of observable market data on
pricing and inherent lack of liquidity. The manufacturing equipment held for
sale was valued at $250,000 at September 26, 2009.
The Companys fair value processes include controls that are designed
to ensure appropriate fair values are recorded. Such controls include model
validation, review of key model inputs, and analysis of period-over-period
fluctuations and independent recalculation of prices.
Note 6 Marketable Securities
The Company classifies
its marketable debt securities as available-for-sale. All marketable
securities represent the investment of funds available for current operations,
notwithstanding their contractual maturities. Such marketable securities are
recorded at fair value and unrealized gains and losses are recorded to
accumulated other comprehensive income (loss) until realized.
Marketable securities at September 26,
2009 consisted of the following (in thousands):
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Market
Value
|
|
U. S. Treasury
|
|
$
|
91,142
|
|
$
|
316
|
|
$
|
(14
|
)
|
$
|
91,444
|
|
Agency Securities
|
|
208,353
|
|
526
|
|
(12
|
)
|
208,867
|
|
Obligations of states
and political subdivisions
|
|
7,340
|
|
38
|
|
|
|
7,379
|
|
Commercial Paper
|
|
4,997
|
|
|
|
|
|
4,997
|
|
|
|
$
|
311,832
|
|
$
|
880
|
|
$
|
(26
|
)
|
$
|
312,687
|
|
Marketable securities at December 27,
2008 consisted of the following (in thousands):
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Market
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
U. S. Treasury
|
|
$
|
104,817
|
|
$
|
468
|
|
$
|
|
|
$
|
105,285
|
|
Agency Securities
|
|
60,943
|
|
836
|
|
(24
|
)
|
61,755
|
|
Obligations of states and
political subdivisions
|
|
17,862
|
|
126
|
|
(60
|
)
|
17,928
|
|
|
|
$
|
183,622
|
|
$
|
1,430
|
|
$
|
(84
|
)
|
$
|
184,968
|
|
The Company typically
invests in highly-rated securities with low probabilities of default. The
Companys investment policy requires investments to be rated single-A or
better, limits the types of acceptable investments, concentration as to
security holder and duration of the investment. The net unrealized losses on
the Companys investments during the three and nine months ended September 26,
2009 were caused primarily by changes in interest rates. When evaluating the
investments for other-than-temporary impairment, the Company reviews factors
such as the length of time and extent to which fair value has been below the
amortized cost basis, review of current market liquidity, interest rate risk,
the financial condition of the issuer, as well as credit rating downgrades.
10
Table of Contents
The Company believes that
the unrealized losses are not other-than-temporary. The Company does not have a
foreseeable need to liquidate the portfolio and anticipates recovering the full
cost of the securities either as market conditions improve, or as the
securities mature.
Contractual maturities of
marketable securities as of September 26, 2009 were as follows (in
thousands):
|
|
Amortized
Cost
|
|
Market
Value
|
|
Due in one year or less
|
|
$
|
221,350
|
|
$
|
221,731
|
|
Due after one year to
three years
|
|
90,483
|
|
90,956
|
|
|
|
$
|
311,833
|
|
$
|
312,687
|
|
Realized gains on sales and
maturities of marketable securities were immaterial for the three and nine
months ended September 26, 2009. Realized losses on sales and maturities
of marketable securities were immaterial for the three months ended September 27,
2008 and were $0.5 million for the nine months ended September 27, 2008.
Note 7 Allowance for Doubtful Accounts
A majority of the Companys trade receivables are derived from sales to
large multinational semiconductor manufacturers throughout the world. In order
to monitor potential credit losses, the Company performs ongoing credit
evaluations of its customers financial condition. An allowance for doubtful
accounts is maintained for probable credit losses based upon the Companys
assessment of the expected collectibility of all accounts receivable. The
allowance for doubtful accounts is reviewed on a quarterly basis to assess the
adequacy of the allowance. The Company takes into consideration (1) any
circumstances of which the Company is aware of a customers inability to meet
its financial obligations; and (2) its judgments as to prevailing economic
conditions in the industry and their impact on its customers. If circumstances
change, and the financial condition of its customers are adversely affected and
they are unable to meet their financial obligations to the Company, the Company
may need to take additional allowances, which would result in an increase in
the Companys net loss.
The Company recorded a provision for doubtful accounts of $5.2 million
in the first quarter of fiscal 2009 primarily due to the heightened risk of
non-payment of accounts receivable by certain customers facing financial
difficulty. The Company recorded a reduction to provision for doubtful accounts
of $0.3 million in the second quarter of fiscal 2009 and a provision for
doubtful accounts of $0.1 million in the
third quarter of fiscal 2009. The allowance for doubtful accounts consisted of
the following activity for the three and nine months ended September 26,
2009 (in thousands):
|
|
Allowance
for
Doubtful
Accounts Receivable
|
|
Balance at
December 27, 2008
|
|
$
|
4,220
|
|
Net
additions/(reductions) to provision
|
|
5,246
|
|
Deductions
|
|
|
|
Balance at
March 28, 2009
|
|
9,466
|
|
Net
additions/(reductions) to provision
|
|
(315
|
)
|
Deductions
|
|
|
|
Balance at
June 27, 2009
|
|
9,151
|
|
Net
additions/(reductions) to provision
|
|
109
|
|
Deductions
|
|
|
|
Balance at
September 26, 2009
|
|
$
|
9,260
|
|
Note 8 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.
Provisions for estimated excess and obsolete inventories 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.
11
Table of Contents
The Company designs, manufactures and sells a fully custom product into
a market that is subject to cyclicality and significant demand fluctuations.
Probe cards are complex products, custom to a specific chip design and must be
delivered on short lead-times. Probe cards are manufactured in low volumes;
therefore, material purchases are often subject to minimum purchase order
quantities in excess of the actual demand. It is not uncommon for the Company
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 the Companys wafer probe cards. These factors make inventory
valuation adjustments part of the Companys normal recurring cost of revenue.
Excess and obsolete inventory write downs were $5.6 million, and
$12.3 million for the nine months ended September 26, 2009, and September 27,
2008, respectively. The Company retains a portion of the excess inventory until
the customers design is discontinued. The inventory may be used to satisfy
customer warranty obligations.
When the Companys
products have been delivered, but the revenue associated with that product is
deferred because the related revenue recognition criteria have not been met,
the Company defers the related inventory costs. The deferred inventory costs do
not exceed the deferred revenue amounts.
Inventories consisted of the following (in thousands):
|
|
September 26,
|
|
December 27,
|
|
|
|
2009
|
|
2008
|
|
Raw materials
|
|
$
|
1,841
|
|
$
|
2,147
|
|
Work-in-progress
|
|
8,131
|
|
7,120
|
|
Finished goods:
|
|
|
|
|
|
Deferred cost of
revenue
|
|
5,591
|
|
1,765
|
|
Manufactured finished
goods
|
|
5,603
|
|
7,756
|
|
|
|
$
|
21,166
|
|
$
|
18,788
|
|
Note 9 Warranty
The Company offers warranties on its products 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)
is as follows (in thousands):
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 26,
|
|
September 27,
|
|
September 26,
|
|
September 27,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Warranty accrual
beginning balance
|
|
$
|
634
|
|
$
|
1,480
|
|
$
|
1,098
|
|
$
|
1,383
|
|
Accrual for warranties
issued during the period
|
|
41
|
|
1,398
|
|
13
|
|
3,886
|
|
Settlements made during
the period
|
|
(79
|
)
|
(985
|
)
|
(515
|
)
|
(3,376
|
)
|
Warranty accrual ending
balance
|
|
$
|
596
|
|
$
|
1,893
|
|
$
|
596
|
|
$
|
1,893
|
|
12
Table of
Contents
Note 10 Property
and Equipment
Property and equipment consisted of the following (in thousands):
|
|
Useful Life
(in years)
|
|
September 26,
2009
|
|
December 27,
2008
|
|
Machinery and equipment
|
|
5 to 7
|
|
$
|
112,278
|
|
$
|
109,808
|
|
Computer equipment and
software
|
|
3 to 5
|
|
34,833
|
|
28,378
|
|
Furniture and fixtures
|
|
5
|
|
7,088
|
|
6,860
|
|
Leasehold improvements
|
|
1 to 15
|
|
70,726
|
|
70,699
|
|
|
|
|
|
224,925
|
|
215,745
|
|
Less: Accumulated depreciation
and amortization
|
|
|
|
(139,761
|
)
|
(116,900
|
)
|
|
|
|
|
85,164
|
|
98,845
|
|
Construction-in-progress
|
|
|
|
11,834
|
|
14,968
|
|
|
|
|
|
$
|
96,998
|
|
$
|
113,813
|
|
In fiscal 2007, as part of its global manufacturing plan, the Company
entered into a land lease offer agreement to establish a manufacturing facility
in Singapore. During fiscal 2008, the Company decided not to proceed with the
construction of the new manufacturing facility at this proposed site in
Singapore. Accordingly in the first quarter of fiscal 2009, the Company entered
into a contract for the early termination of the land lease offer agreement in
Singapore and received $6.7 million in exchange for surrendering to the
lessor the lease offer and related land.
Note 11
Comprehensive loss
Comprehensive loss includes foreign currency translation adjustments
and unrealized gains (losses) 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 loss were as follows (in thousands):
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 26,
|
|
September 27,
|
|
September 26,
|
|
September 27,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Net loss
|
|
$
|
(23,901
|
)
|
$
|
(14,041
|
)
|
$
|
(127,690
|
)
|
$
|
(50,661
|
)
|
Unrealized gain (loss)
on investments, net of taxes
|
|
6
|
|
116
|
|
(557
|
)
|
(719
|
)
|
Cumulative translation
adjustments
|
|
655
|
|
(273
|
)
|
355
|
|
(47
|
)
|
Other Comprehensive
income (loss)
|
|
661
|
|
(157
|
)
|
(202
|
)
|
(766
|
)
|
Comprehensive Loss
|
|
$
|
(23,240
|
)
|
$
|
(14,198
|
)
|
$
|
(127,892
|
)
|
$
|
(51,427
|
)
|
Components of accumulated other comprehensive income were as follows
(in thousands):
|
|
September 26,
|
|
December 27,
|
|
|
|
2009
|
|
2008
|
|
Unrealized gains and
losses on investments, net of tax
|
|
$
|
523
|
|
$
|
1,080
|
|
Foreign currency
translation adjustments
|
|
1,197
|
|
842
|
|
Accumulated other
comprehensive income
|
|
$
|
1,720
|
|
$
|
1,922
|
|
Note 12
Stockholders Equity
Stock Option Plans
The Company has three equity incentive plans: Incentive Option Plan and
Management Incentive Option Plan (together, 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, repurchased, cancelled or
terminated Prior Plan shares are transferred to the 2002 Plan.
13
Table of Contents
Stock option activity under the Prior Plans and the 2002 Plan during
the nine months ended September 26, 2009 is set forth below:
|
|
Options
Outstanding
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual
Life in Years
|
|
Aggregate
Intrinsic
Value
|
|
Balance at
December 27, 2008
|
|
6,686,820
|
|
$
|
27.36
|
|
|
|
|
|
Options granted
|
|
12,500
|
|
15.25
|
|
|
|
|
|
Options exercised
|
|
(42,498
|
)
|
8.76
|
|
|
|
|
|
Options cancelled:
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(220,130
|
)
|
32.86
|
|
|
|
|
|
Expired
|
|
(25,434
|
)
|
38.42
|
|
|
|
|
|
Balance at
March 28, 2009
|
|
6,411,258
|
|
27.23
|
|
4.65
|
|
$
|
9,061,934
|
|
Options granted
|
|
327,500
|
|
17.11
|
|
|
|
|
|
Options exercised
|
|
(104,794
|
)
|
7.85
|
|
|
|
|
|
Options cancelled:
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(243,520
|
)
|
37.71
|
|
|
|
|
|
Expired
|
|
(233,705
|
)
|
30.39
|
|
|
|
|
|
Balance at
June 27, 2009
|
|
6,156,739
|
|
$
|
26.49
|
|
4.66
|
|
$
|
7,180,708
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
(166,409
|
)
|
18.22
|
|
|
|
|
|
Options cancelled:
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(11,758
|
)
|
32.96
|
|
|
|
|
|
Expired
|
|
(198,040
|
)
|
38.61
|
|
|
|
|
|
Balance at
September 26, 2009
|
|
5,780,532
|
|
$
|
26.30
|
|
4.63
|
|
$
|
21,343,845
|
|
Vested and expected to
vest at September 26, 2009
|
|
5,475,368
|
|
$
|
26.38
|
|
4.58
|
|
$
|
20,030,980
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at
September 26, 2009
|
|
4,178,862
|
|
$
|
25.69
|
|
4.37
|
|
$
|
16,069,154
|
|
The intrinsic value of option grants during the nine months ended September 26,
2009 was $7.81 per share. The intrinsic value of option exercises during the
three and nine months ended September 26, 2009 was $0.9 million and $2.4
million, respectively. Cash received from stock option exercises during the
three and nine months ended September 26, 2009 was $3.0 million and $4.2
million, respectively. Gross tax
benefits from the exercises of stock options and other equity based awards was
approximately $1.3 million and $5.0 million for the three and nine months ended
September 26, 2009.
14
Table of Contents
Restricted Stock Units
Activity
of the restricted stock units under the 2002 Plan during the nine months ended September 26,
2009 is set forth below:
|
|
|
|
Weighted
|
|
|
|
|
|
Average Grant
|
|
|
|
Units
|
|
Date Fair Value
|
|
Restricted stock units
at December 27, 2008
|
|
583,865
|
|
$
|
19.92
|
|
Awards granted
|
|
25,300
|
|
14.90
|
|
Awards released
|
|
(117,307
|
)
|
20.10
|
|
Awards cancelled
|
|
(35,923
|
)
|
18.87
|
|
Restricted stock units
at March 28, 2009
|
|
455,935
|
|
19.65
|
|
Awards granted
|
|
686,190
|
|
17.13
|
|
Awards released
|
|
(31,730
|
)
|
20.87
|
|
Awards cancelled
|
|
(13,432
|
)
|
19.18
|
|
Restricted stock units
at June 27, 2009
|
|
1,096,963
|
|
18.05
|
|
Awards granted
|
|
12,560
|
|
21.82
|
|
Awards released
|
|
(5,170
|
)
|
18.48
|
|
Awards cancelled
|
|
(11,267
|
)
|
17.72
|
|
Restricted stock units
at September 26, 2009
|
|
1,093,086
|
|
$
|
18.09
|
|
Note 13 Stock-Based Compensation
The Company accounts for all stock-based compensation to employees and
directors, including grants of stock options, as stock-based compensation costs
in the Condensed Consolidated Financial Statements based on the fair value
measured as of the date of grant. These costs are recognized as an expense in
the Condensed Consolidated Statements of Operations over the requisite service
period and increase additional paid-in capital.
The
table below shows the stock-based compensation expense included in the
Condensed Consolidated Statement of Operations (in thousands):
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 26,
|
|
September 27,
|
|
September 26,
|
|
September 27,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Stock-based
compensation expense included in:
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
978
|
|
$
|
1,099
|
|
$
|
2,787
|
|
$
|
3,645
|
|
Research and
development
|
|
910
|
|
1,087
|
|
3,385
|
|
3,842
|
|
Selling, general and
administrative
|
|
2,615
|
|
2,908
|
|
10,240
|
|
9,795
|
|
Restructuring
|
|
|
|
|
|
|
|
623
|
|
Total stock-based
compensation
|
|
$
|
4,503
|
|
$
|
5,094
|
|
$
|
16,412
|
|
$
|
17,905
|
|
Tax effect on
stock-based compensation
|
|
|
|
(1,751
|
)
|
(4,018
|
)
|
(5,581
|
)
|
Total stock-based
compensation, net of tax
|
|
$
|
4,503
|
|
$
|
3,343
|
|
$
|
12,394
|
|
$
|
12,324
|
|
Stock-based
compensation expense for the nine months ended September 26, 2009 includes
$2.5 million resulting from the modification and acceleration of the vesting of
a portion of the options awarded to the Companys
founder and former
Executive Chairman of the Board of Directors
in conjunction with his
separation agreement and general release. Stock-based compensation expense for
the nine months ended September 27, 2008 includes approximately $0.3
million in stock-based compensation expense 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 and approximately $0.3 million in stock-based compensation
expense 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.
15
Table of Contents
The
fair value of restricted stock units is equal to the closing market price of
the underlying common stock as of the date of grant. The fair value of stock
option grants is estimated as of the date of grant using a Black-Scholes option
pricing model. The weighted average grant-date fair value of options granted
during the nine months ended September 26, 2009 was $7.81 per share. The
weighted-average assumptions used for valuation under the Black-Scholes model
were as follows:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 27,
|
|
September 26,
|
|
September 27,
|
|
|
|
2008
|
|
2009
|
|
2008
|
|
Stock Options:
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
|
|
|
|
|
Expected volatility
|
|
52.7
|
%
|
53.4
|
%
|
53.1
|
%
|
Risk-free interest rate
|
|
3.27
|
%
|
1.68
|
%
|
3.06
|
%
|
Expected term (in
years)
|
|
4.75
|
|
4.67
|
|
4.75
|
|
Risk-free interest rates are yields for zero-coupon U.S. Treasury notes
maturing approximately at the end of the expected option life. The expected
volatility is based on a blend of historical volatility of our common stock
using daily stock prices and implied market volatility, both over a period
equal to the expected option life. The expected term is based on historical
exercise behavior. In fiscal 2008, the Company
applied the simplified
method approach for deriving expected term. The simplified method is based on
the vesting period and the contractual term for each grant, or for each
vesting-tranche for awards with graded vesting. The mid-point between the
vesting date and the expiration date is used as the expected term under this
method.
Employee
Stock Purchase Plan
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 26, 2009
|
|
September 27, 2008
|
|
September 26, 2009
|
|
September 27, 2008
|
|
ESPP:
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
58.21
|
%
|
56.2
|
%
|
57.19
|
%
|
52.2
|
%
|
Risk-free interest rate
|
|
0.38
|
%
|
1.88
|
%
|
1.03
|
%
|
2.1
|
%
|
Expected term (in
years)
|
|
0.5 - 1.0 year
|
|
0.5 - 1.0 year
|
|
0.5 - 1.0 year
|
|
0.5 - 1.0 year
|
|
During
the three months ended September 26, 2009 and September 27, 2008,
115,011 shares and
150,410
shares,
respectively, were issued under the 2002 Employee Stock Purchase Plan (ESPP).
During the nine months ended September 26, 2009 and September 27,
2008, 269,156 shares and 286,349 shares, respectively, were issued under the
2002 Employee Stock Purchase Plan (ESPP).
Unrecognized
Compensation Costs
At September 26,
2009, the unrecognized stock-based compensation, adjusted for estimated
forfeitures, was as follows (in thousands):
|
|
|
|
Weighted
Average Expected
|
|
|
|
Unrecognized
|
|
Recognition
Period
|
|
|
|
Expense
|
|
in years
|
|
Stock options
|
|
$
|
16,604
|
|
1.35
|
|
Restricted stock units
|
|
11,950
|
|
3.01
|
|
Employee Stock Purchase
Plan
|
|
308
|
|
0.35
|
|
Total unrecognized
share-based compensation expense
|
|
$
|
28,862
|
|
|
|
Note 14 Net Loss per Share
Basic
net loss per share is computed by dividing net loss by the weighted-average
number of common shares outstanding for the period. Diluted net 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.
Diluted loss per share for the three and
nine months ended September 26, 2009 and September 27, 2008 were
based only on the weighted-average number of shares outstanding during that
period as the inclusion of any common stock equivalents would have been
anti-dilutive.
16
Table of Contents
A
reconciliation of the numerator and denominator used in the calculation of
basic and diluted net loss per share follows (in thousands):
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 26,
|
|
September 27,
|
|
September 26,
|
|
September 27,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(In
thousands)
|
|
Basic
net loss per share
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(23,901
|
)
|
$
|
(14,041
|
)
|
$
|
(127,690
|
)
|
$
|
(50,661
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted average common
stock outstanding
|
|
49,582
|
|
48,988
|
|
49,392
|
|
48,855
|
|
Diluted
net loss per share
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(23,901
|
)
|
$
|
(14,041
|
)
|
$
|
(127,690
|
)
|
$
|
(50,661
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted-average shares
used in computing basic net loss per share
|
|
49,582
|
|
48,988
|
|
49,392
|
|
48,855
|
|
Add stock options,
restricted stock, ESPP, warrants and common stock subject to repurchase
|
|
|
|
|
|
|
|
|
|
Weighted average shares
used in computing diluted net loss per share
|
|
49,582
|
|
48,988
|
|
49,392
|
|
48,855
|
|
The following table sets
forth the weighted-average of all potentially dilutive securities excluded from
the computation in the table above because their effect would have been
antidilutive:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 26,
|
|
September 27,
|
|
September 26,
|
|
September 27,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Options to purchase
common stock
|
|
4,465
|
|
6,788
|
|
5,362
|
|
6,865
|
|
Restricted stock units
|
|
|
|
43
|
|
2
|
|
39
|
|
Employee Stock Purchase
Plan
|
|
51
|
|
16
|
|
51
|
|
5
|
|
Total potentially
dilutive securities
|
|
4,516
|
|
6,847
|
|
5,415
|
|
6,909
|
|
Note 15 Income Taxes
During
the three months ended September 26, 2009 and September 27, 2008, the
Company recorded an income tax provision
of $0.4 million and an income tax benefit of $11.8 million,
respectively. During the nine months
ended September 26, 2009 and September 27, 2008, the Company recorded
an income tax provision of $20.0 million and an income tax benefit of $29.5
million, respectively. The Companys
income tax provision for the three months ended September 26, 2009 is
primarily related to income taxes of the Companys non U.S. operations. The income tax provision for the nine months
ended September 26, 2009 is primarily related to the Company recording a
valuation allowance covering substantially all of the Companys U.S. deferred
tax assets at the end of the second quarter of fiscal 2009 of $44.7 million.
The Company utilizes the asset and liability
method of accounting for income taxes, under which deferred taxes are
determined based on the temporary differences between the financial statement
and tax basis of assets and liabilities using tax rates expected to be in
effect during the years in which the basis differences reverse. A valuation
allowance is recorded when it is more likely than not that some of the deferred
tax assets will not be realized. Significant management judgment is required in
determining any valuation allowance recorded against deferred tax assets.
In evaluating the ability to recover deferred tax assets, the Company considered
available positive and negative evidence giving greater weight to its recent
cumulative losses and its ability to carryback losses against prior taxable
income and lesser weight to its projected financial results due to the
challenges of forecasting future periods. The Company also considered,
commensurate with its objective verifiability, the forecast of future taxable
income including the reversal of temporary differences and the implementation
of feasible and prudent tax planning strategies. At the end of the second quarter of fiscal
2009, changes in previously anticipated expectations necessitated a valuation
allowance against the excess tax benefits to be recognized in that quarter and
prior quarters since they are no longer more likely than not realizable.
Under current tax laws, this valuation allowance will not limit the Companys
ability to utilize Federal and state deferred tax assets provided it can
generate sufficient future taxable income.
The Company classifies interest and penalties
related to uncertain tax positions as part of income tax provision. The Company
recognized interest expense of $40,000 and $56,000 for the three months ended September 26,
2009 and September 27, 2008, respectively, and $170,000 and $305,000 for
the nine months ended September 26, 2009 and September 27, 2008,
respectively. As of September 26, 2009, the Company had approximately
$483,000 of interest and zero penalties related to uncertain tax positions.
17
Table of Contents
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 Companys estimate 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 September 26, 2009,
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 its
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 currently under examination by the State of
California Franchise Tax Board for fiscal years 2004 and 2005.
The Companys effective tax rate may vary from period to period based on
changes in estimated taxable income or loss by jurisdiction, changes to the
valuation allowance, changes to federal, state or foreign tax laws, future
expansion into areas with varying country, state, and local income tax rates,
deductibility of certain costs and expenses by jurisdiction.
Note 16 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. 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 September 26,
2009.
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
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 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 September 26, 2009, 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.
Patent
Litigation
The Company 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 cardsU.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 adding two additional patents to the litigationU.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, infringement and
enforceability of the Companys 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
18
Table of Contents
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, infringement and enforceability of the Companys
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, or ITC, which is described below.
On or about November 13, 2007, the Company filed
a complaint with the ITC seeking institution of a formal investigation by the
ITC into the activities of Micronics Japan and Phicom. The requested
investigation as filed encompassed 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. The ITC complaint 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. The asserted patents currently in the investigation are
U.S. Patent Nos. 5,994,152, 6,509,751, 6,615,485, 6,624,648 and 7,225,538.
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 (ALJ),
and in July 2008 was reassigned to the Honorable Charles E. Bullock, a
ALJ, 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
full ITC Commission (the Commission). On or about January 23, 2009, the
ALJ, after a September 2008 hearing, issued a claim construction ruling
interpreting and defining terms of certain of the claims of the
patents-in-suit. On or about January 28, 2009, the Company voluntarily
withdrew its allegations to the extent that they encompassed its U.S. Patent No. 7,168,162,
and on or about February 13, 2009, the ALJ issued an initial determination
holding invalid the asserted claims of the Companys U.S. Patent No. 6,624,648,
after finding as part of the claim construction ruling that one of the terms in
the asserted claims of that patent is indefinite. The Company appealed that
initial determination of invalidity to the Commission on or about February 18,
2009. The Commission agreed to review
the initial determination and a ruling, termed the Final Determination is
expected on, or about November 12, 2009.
The scheduled hearing relating to the Companys U.S.
Patent Nos. 5,994,152, 6,509,751, 6,615,485, and 7,225,538 was conducted from February 23,
2009 through March 6, 2009. The ALJ issued a decision, termed an Initial
Determination, on June 29, 2009. The Initial Determination is directed to
four FormFactor patents: 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, and 7,225,538, entitled Resilient Contact
Structures Formed and Then Attached to a Substrate. The Initial Determination
found all of the asserted claims of U.S. Patent Nos. 6,509,751, 6,615,485 and
7,225,538 valid and enforceable, and all but one of the asserted claims of U.S.
Patent No. 5,994,152 valid and all of the asserted claims
enforceable. The Initial Determination
did not find infringement of any of the asserted claims, and therefore did not
find a violation of Section 337.
The Company, Micronics Japan and Phicom filed
additional briefing to the Commission seeking review of parts of the ALJs
Initial Determination.
The Commission can accept, reject or
modify any of the ALJs recommendations.
The Commission issued a Notice on September 14, 2009 in which it
stated it would review only certain parts of the Initial Determination. The
only non-infringement finding the Commission will review is whether Phicoms
products infringe U.S. Patent No. 6,509,751. After review by the
Commission is completed, the Final Determination is scheduled to be issued on
or about November 12, 2009. The
Final Determination, which is an ITC remedial order in Section 337 cases,
is effective when issued and becomes final 60 days after issuance, subject to
Presidential review. The Company will evaluate whether it will file an appeal
with the Court of Appeals for the Federal Circuit, and if so on what issues,
after issuance of the Final Determination.
In addition to the United States litigations, the
Company also initiated actions in Seoul, South 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,
19
Table of Contents
entitled Probe Card Assembly; as well as two actions
the Company 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,
on appeal to
the High Court in Seoul as (i) on April 18, 2008, the Seoul Southern
District Court issued a ruling that dismissed the Companys complaint as it
related to Korean Patent Nos. 252,457 and 324,064, finding certain claims of
Patent Nos. 252,457 and 324,064 were invalid, and that one of the claims of
each of the patents was not infringed by Phicom, (ii) in July 2008,
the Seoul Central District Court dismissed the Companys complaint related to
Korean Patent No. 252,457, and (iii) on November 27, 2008, the
Seoul Southern District Court dismissed the Companys complaint related to
Korean Patent Nos. 278,342 and 399,210. The Company did not appeal the
judgment on the injunctive relief request related to Korean Patent No. 252,457
filed in the Seoul Central District.
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 Southern
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 finding invalid certain
claims of the Companys Korean Patent No. 252,457 and remanding the case
for further trial to the Patent Court.
Additionally, one or more third parties have initiated
challenges in the U.S. and foreign patent offices against certain of the above
and 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,
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 September 26, 2009. 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 then
officers, including one former officer who was a director at the time of
filing, 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 claimed 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. On July 25, 2008, the court granted the
defendants motion to dismiss the Consolidated Amended Complaint with leave to
amend. On August 22, 2008 the designated lead plaintiffs filed a Second
Amended Complaint. The Second Amended Complaint also alleged violations of
Sections 10(b) and 20(a), and Rule 10b-5 of the Securities
Exchange Act of 1934. The plaintiffs again claimed that defendants knowingly
issued materially false and misleading statements regarding the Companys
business and financial results prior to the restatement, as well as regarding
the development of the Harmony product line. Plaintiffs sought to recover
unspecified monetary damages, equitable relief and attorneys fees and costs.
Defendants filed a motion to dismiss the Second Amended Complaint on October 6,
2008, and a hearing on the motion was held on February 6, 2009. On July 14, 2009, the court issued a
ruling granting the Companys and the other defendants motion to dismiss the
second amended complaint without leave to amend. On July 28, 2009, plaintiffs filed a
Motion to Alter or Amend the Judgment and to Uphold a Revised, Narrowed Second
Amended Complaint. The revised complaint
does not contain the accounting and restatement allegations that were included
in the Second Amended Complaint but asks the Court to uphold only the
Harmony-related allegations. On September 14,
2009, the court issued a ruling denying plaintiffs Motion to Alter or Amend
the Judgment and to Uphold a Revised, Narrowed Second Amended Complaint. Plaintiffs
appealed to the Court of Appeals for the Ninth Circuit the Judgment dismissing
the case and the Courts ruling denying their Motion to Alter or Amend the
Judgment.
20
Table
of Contents
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 September 26, 2009.
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 then 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, 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
which were consolidated have been dismissed without prejudice, though the plaintiffs
will have the right to refile the actions at some point in the future.
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 September 26, 2009.
The Company believes that the factual allegations and
circumstances underlying the legal proceedings described above that have been 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 the Companys insurance coverage, could
individually or in the aggregate adversely impact the Companys financial
condition, liquidity or results of operations.
Commercial
Litigation
On February 20, 2009, the Company filed a
complaint for breach of contract, common counts, account stated and injunctive
relief against Spansion, LLC, a Delaware limited liability company (Spansion),
in the state superior court located in Santa Clara County, California. The
complaint alleges that Spansion, in breach of Spansions obligations under a
purchase agreement entered into by the Company and Spansion, has failed to pay
the Company for probe cards that the Company designed, developed and
manufactured pursuant to several purchase orders placed by Spansion with the
Company pursuant to the agreement. The complaint states that as of February 13,
2009, Spansion owed the Company $8,094,533 for probe cards delivered by the
Company and not paid for by Spansion. In the complaint, the Company is seeking (i) payment
of at least $8,094,533, (ii) a temporary protective order and an
injunction enjoining Spansion from assigning or in any way divesting itself of
any monies that the Company believes Spansion received from a certain third
party entity, (iii) a prejudgment writ of attachment in favor of the
Company over Spansions corporate assets and property, (iv) costs and (v) attorneys
fees. Prior to making any appearance or
filing any answer in the action, Spansion filed for protection under Chapter 11
of the Bankruptcy Laws of the United States, which served to stay the Companys
complaint against Spansion. The Company
has not recognized $1.4 million of revenue related to shipments to Spansion and
has reserved the remaining $6.7 million of the outstanding receivable from
Spansion.
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 liabilities. These arrangements include indemnities in
favor of customers in the event that the Companys wafer probe cards infringe a
third partys intellectual property and the Companys lessors in connection
with facility leasehold liabilities that the Company may cause. In addition,
the Company has entered into indemnification agreements with its directors and
certain of its officers, and its bylaws contain indemnification obligations in
favor of its directors, officers and agents. These indemnity arrangements may
limit the type of the claim, the total amount that the Company can be required
to pay in connection with the indemnification obligation and the time within
which an indemnification claim can be made. The duration of the
21
Table of Contents
indemnification obligation may vary, and for most
arrangements, survives the agreement term and is indefinite. The Company believes
that substantially all of its indemnity arrangements provide for limitations on
the maximum potential future payments it could be obligated to make. However,
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,
the unique facts and circumstances involved in each particular contractual
arrangement and in each potential future claim for indemnification, and the
contingency of any potential liabilities upon the occurrence of events that are
not reasonably determinable. The Company has not had any requests for
indemnification under these arrangements. The Companys management believes
that any liability for these indemnity arrangements would not be material to
its accompanying consolidated financial statements. The Company has not
recorded any liabilities for these indemnification arrangements on its
condensed consolidated balance sheet as of September 26, 2009.
Note 17 Derivative Financial Instruments
The Company
operates and sells its products in various global markets. As a result, the
Company is exposed to changes in foreign currency exchange rates. The Company
utilizes foreign currency forward contracts to hedge against future movements
in foreign exchange rates that affect certain existing foreign currency
denominated assets and liabilities. Under this program, our strategy is to have
increases or decreases in our foreign currency exposures offset by gains or
losses on the foreign currency forward contracts to mitigate the risks and
volatility associated with foreign currency transaction gains or losses. The
Company does not use derivative financial instruments for speculative or
trading purposes. The Companys derivative instruments, which are generally
settled in the same quarter, are not designated as hedging instruments. The
Company records the fair value of these contracts as of the end of its
reporting period to its consolidated balance sheet with changes in fair value
recorded in its consolidated statement of operations. The statement of
operations classification for the fair values of these forward contracts is to
non-operating income, net, for both realized and unrealized gains and losses.
As of September 26, 2009, there were three
outstanding foreign exchange forward contracts to sell Japanese Yen, Korean Won
and Taiwan Dollars. The following table provides information about the Companys
foreign currency forward contracts outstanding as of September 26, 2009
(in thousands):
|
|
Contract
Amount
(Local Currency)
|
|
Contract
Amount
(U.S. Dollars)
|
|
Japanese Yen
|
|
3,057,387
|
|
$
|
33,990
|
|
Taiwan Dollar
|
|
27,763
|
|
857
|
|
Korean Won
|
|
2,654,422
|
|
2,219
|
|
Total USD notional
amount of outstanding foreign exchange contracts
|
|
|
|
$
|
37,066
|
|
The contracts were entered into on September 25,
2009 and matured on September 29, 2009. Accordingly, there were no amounts
reported in the Companys Condensed Consolidated Balance Sheets as of September 26,
2009 related to these contracts. Additionally, no gains or losses relating to
the outstanding derivative contracts were recorded in the fiscal quarter ended September 26,
2009.
22
Table of Contents
The location and amount of gains and losses related to
non-designated derivative instruments that matured in the fiscal quarter ended September 26,
2009 in the Condensed Consolidated Statement of Operations are as follows (in
thousands):
|
|
Location
of Gain or
|
|
Amount of
Gain or
|
|
Derivatives Not Designated as Hedging
|
|
(loss)
Recognized in
|
|
(Loss)
Recognized in
|
|
Instruments Under ASC 815
|
|
Loss on
Derivative
|
|
Loss on
Derivative
|
|
|
|
|
|
|
|
Foreign exchange
forward contracts
|
|
Other Income (expense), net
|
|
$
|
(2,327
|
)
|
|
|
|
|
|
|
|
Note 18 Departure of Executive Officer
The Company entered
into a Separation Agreement and Mutual Release as of May 1, 2009 (the Separation
Agreement) with its founder and former
Executive Chairman Dr. Igor
Khandros, who retired from the Company and the board of directors.
Under the terms of the Separation Agreement,
the Company
accelerated vesting of
options
to acquire 75,000 shares and permitted certain vested stock options to be
exercisable until the earlier of (i) May 1, 2014 or (ii) the
original expiration date of the applicable stock option (Refer to Note 12).
The Company and Dr. Khandros also entered into a
consulting agreement effective as of May 1, 2009 under which
Dr. Khandros
would continue to serve as a key advisor to the Company for a term of one-year
for a quarterly consulting fee of $75,000
. The consulting agreement was terminated by Dr. Khandros effective July 1,
2009.
Note 19 Subsequent Events
In October 2009,
the Company completed the acquisition of certain assets from Electroglas Inc.,
a company under Chapter 11 bankruptcy protection in Delaware (Electroglas).
Prior to the acquisition, Electroglas was engaged in the supply of
semiconductor manufacturing equipment and software to the semiconductor
industry. The assets acquired consisted of manufacturing and testing equipment,
spare parts and components related to the purchased equipment and other
technology assets related to
precision motion control automation and all
of the intellectual property rights of
Electroglas, with the exception of certain trademark rights. The Company
believes that the acquisition of these assets will enable it to continue to
improve its manufacturing efficiency and provide its customers with high
quality end products. The purchase price for the assets, including transaction
costs, of approximately $10.5 million will be capitalized in the fourth quarter
of fiscal 2009. Approximately $2.3
million of the purchase price for these assets was paid or accrued in the third
quarter of fiscal 2009 and has been included in Other Assets in the condensed
consolidated balance sheet.
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 27, 2008, and in the section titled Risk Factors
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.
23
Table of Contents
Overview
We design, develop, manufacture, sell and support precision, high
performance advanced semiconductor wafer probe card products and solutions.
Semiconductor manufacturers use our wafer probe cards to perform wafer sort and
test on the semiconductor die, or chips, or the whole semiconductor wafer,
which is prior to singulation of the wafer into individual separate chips. We
work closely with our customers on product design, as each wafer probe card is
a custom product that is specific to the chip and wafer designs of the customer.
We operate in a single industry segment and have derived substantially all of
our revenues from the sale of wafer probe cards incorporating our proprietary
technology, including our MicroSpring® interconnect technology.
The oversupply of memory devices coupled with the overall global
economic downturn and uncertainty in fiscal 2008 had a significant impact on
global semiconductor device manufacturing. In the first half of fiscal 2009, we
saw our markets continue to be affected by the continuing global macroeconomic
downturn which resulted in a significant decrease in demand and continuing
market challenges for our advanced wafer probe cards. In the third quarter of
fiscal 2009, we saw improvement across all of our business segments. In the
DRAM market, demand and supply conditions tightened, as PC and memory module
makers along with digital consumer electronics makers increased their DRAM
procurement in anticipation of future demand trends.
Given these conditions, DRAM device pricing took an
upward turn in the third quarter of fiscal 2009. Additionally, we also
experienced
market share gains in DRAM, acceleration in DDR III,
positive mobile DRAM activity and improved results in both Flash and Logic
markets. As a result, revenue was up 40.3% sequentially from the three months
ended June 27, 2009. Compared to the third quarter of fiscal 2008, revenue
was down 16.8%, an improvement from the 40.0% year over year decline we saw in
the second quarter of fiscal 2009. While this may signal increased market confidence,
we believe the global economic environment remains volatile, creating an
uncertain demand environment.
We incurred a net loss of $23.9 million in the third quarter of fiscal
2009 as compared to net loss of $14.0 million for the third quarter of fiscal
2008 primarily due to lower revenues. We incurred a net loss of $127.7 million
in the first nine months of fiscal 2009 as compared to net loss of $50.7
million for the first nine months of fiscal 2008 primarily due to lower
revenues, the recognition of a valuation allowance of $44.7 million for our
deferred tax assets as well as the $5.0 million provision for bad debts due to
the heightened risk of non-payment of certain accounts receivable. Net loss for
the first nine months of fiscal 2008 included $0.5 million in provision for
doubtful debts. In the first quarter of fiscal 2009, we initiated a global
reorganization and cost reduction plan designed to lower our cash breakeven
level in the current market environment. As part of the plan, we reduced our workforce
by approximately 22% and implemented certain non-severance measures that we
expect to result in future cost savings.
In addition, we are restructuring our operations through our global
regionalization strategy by, for example, placing more decision-making in
regions close to our semiconductor customers to enhance customer relationships,
strengthening our local design, application and service capabilities to improve
customer responsiveness, changing our manufacturing structure for shorter cycle
time and improved product delivery capabilities, and realigning our research
and development efforts. We have accelerated our regionalization efforts by
bringing up back-end manufacturing in Asia.
We qualified our back-end manufacturing in Korea during our first
quarter of fiscal 2009 and plan to do so in Japan in the fourth quarter of
fiscal 2009, followed by Singapore in fiscal 2010. The combination of these initiatives is
intended to result in a lower manufacturing cost, a simplified manufacturing
process and decreased cycle times for our customers.
We established a valuation allowance of $44.7
million in the second quarter of fiscal 2009 against the excess tax benefits
recognized in prior quarters. This charge resulted in an income tax provision,
rather than an income tax benefit, for the nine months ended September 26,
2009. This valuation allowance was based on our quarterly assessment of the
realizability of our deferred tax assets. Significant management judgment is
required in determining any valuation allowance recorded against deferred tax
assets. In evaluating the ability to
recover deferred tax assets, we considered available positive and negative
evidence giving greater weight to our recent cumulative losses, ability to
carryback losses against prior taxable income and lesser weight to our
projected financial results due to the challenges of forecasting future
periods. We also considered,
commensurate with its objective verifiability, the forecast of future taxable
income including the reversal of temporary differences and the implementation
of feasible and prudent tax planning strategies.
The necessity for this valuation allowance and
any future adjustments will be based on the available positive and negative
evidence at that time, commensurate with its objective verifiability.
Under current
tax law, this valuation allowance will not limit our ability to utilize Federal
and state deferred tax assets provided we can generate sufficient future
taxable income. Our tax provisions in future periods will primarily
consist of income taxes on our profits in certain jurisdictions outside of the
US in the event they materialize.
Our cash, cash equivalents and marketable securities totaled
approximately $462.6 million as of September 26, 2009 as compared to
$522.9 million at December 27, 2008. We believe that we will be able
to satisfy our working capital requirements for the next twelve months with the
liquidity provided by our existing cash, cash equivalents and marketable
securities. If demand for our products does not increase or if we are
unsuccessful in improving our operating efficiency, reducing our cash outlays
or increasing our available cash through financing, our cash, cash equivalents
and marketable securities will further decline in the fourth quarter of fiscal
2009.
24
Table of Contents
We believe it is likely that the global economic and semiconductor
industry downturns will persist; however, we cannot predict their severity or
duration. Given the overall weakness of the United States and global economy,
and the ongoing downturn in the semiconductor industry and its effects on
demand for our products, we are unable to precisely forecast when or if
revenues and profitability will return to previous levels.
Revenues.
We derive
substantially all of our revenues from product sales of wafer probe cards.
Revenues from our customers are subject to fluctuations due to factors including,
but not limited to, design cycles, technology adoption rates, competitive
pressure to reduce prices, cyclicality of the different end markets into which
our customers products are sold and market conditions in the semiconductor
industry. 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. We expect that revenues from the
sale of wafer probe cards will continue to account for substantially all of our
revenues for the foreseeable future.
Cost of Revenues.
Cost of
revenues consists primarily of manufacturing materials, payroll 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 a 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 provisions 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 and market
conditions.
Research and Development
.
Research and development expenses include expenses related to product
development, engineering and material costs. Almost all research and
development costs are expensed as incurred. We plan to continue to invest in
research and development activities to improve and enhance existing
technologies and to develop new technologies for current and new markets and
for new applications.
Selling, General and
Administrative
.
Selling, general and administrative expenses include expenses related to
sales, marketing, and administrative personnel, provision for doubtful
accounts, internal and outside sales representatives commissions, market
research and consulting, and other sales, marketing, and administrative
activities. These expenses also include costs for protecting and enforcing our
patent rights and regulatory compliance costs.
Restructuring Charges.
Restructuring
charges include expenses related to employee termination severance pay and
benefits, and property and equipment impairment charges incurred as part of our
global cost reduction plans.
Use of
Estimates.
Our discussion and analysis of our financial
condition and results of operations are based upon our unaudited condensed consolidated
financial statements. The preparation of consolidated financial statements in
conformity with generally accepted accounting principles in the United States
of America (GAAP) requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Estimates may change as new
information is obtained. Significant items that are subject to such estimates
include the fair value of revenue elements, fair value of marketable
securities, allowance for doubtful accounts, reserves for product warranty,
valuation of obsolete and slow moving inventory, valuation and recognition of
stock-based compensation, provision for income taxes and valuation allowance
for deferred tax assets and, tax liabilities and accruals for other
liabilities.
25
Table of Contents
Results of Operations
The following table sets forth our operating
results as a percentage of revenues for the periods indicated:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 26,
|
|
September 27,
|
|
September 26,
|
|
September 27,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Revenues
|
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
Cost of revenues
|
|
83.2
|
|
77.2
|
|
97.7
|
|
79.1
|
|
Gross profit
|
|
16.8
|
|
22.8
|
|
2.3
|
|
20.9
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
31.5
|
|
32.4
|
|
40.9
|
|
28.9
|
|
Selling, general and
administrative
|
|
39.7
|
|
45.0
|
|
60.5
|
|
40.5
|
|
Restructuring charge
|
|
|
|
0.3
|
|
7.8
|
|
5.1
|
|
Total operating
expenses
|
|
71.1
|
|
77.7
|
|
109.2
|
|
74.5
|
|
Operating loss
|
|
(54.4
|
)
|
(54.9
|
)
|
(106.9
|
)
|
(53.6
|
)
|
Interest income, net
|
|
1.6
|
|
5.3
|
|
2.5
|
|
6.4
|
|
Other income (expense)
|
|
(0.9
|
)
|
0.5
|
|
(0.9
|
)
|
0.2
|
|
Loss before income
taxes
|
|
(53.7
|
)
|
(49.1
|
)
|
(105.3
|
)
|
(47.0
|
)
|
Provision for (benefit
from) income taxes
|
|
0.9
|
|
(22.4
|
)
|
19.5
|
|
(17.3
|
)
|
Net loss
|
|
(54.6
|
)%
|
(26.7
|
)%
|
(124.8
|
)%
|
(29.7
|
)%
|
26
Table of Contents
Three and Nine Months Ended September 26, 2009
and September 27, 2008:
Revenues
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 26,
|
|
September 27,
|
|
|
|
September 26,
|
|
September 27,
|
|
|
|
|
|
2009
|
|
2008
|
|
% Change
|
|
2009
|
|
2008
|
|
% Change
|
|
|
|
(In thousands, except percentages)
|
|
Revenues by Market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DRAM
|
|
$
|
36,430
|
|
$
|
36,525
|
|
(0.3
|
)%
|
$
|
85,243
|
|
$
|
108,421
|
|
(21.4
|
)%
|
Flash
|
|
2,096
|
|
8,470
|
|
(75.3
|
)
|
4,567
|
|
36,207
|
|
(87.4
|
)
|
Logic
|
|
5,247
|
|
7,589
|
|
(30.9
|
)
|
12,530
|
|
25,672
|
|
(51.2
|
)
|
Total revenues
|
|
$
|
43,773
|
|
$
|
52,584
|
|
(16.8
|
)%
|
$
|
102,340
|
|
$
|
170,300
|
|
(39.9
|
)%
|
The decrease
in revenue for the three and nine months ended September 26, 2009 was
primarily due to weak demand for our advanced wafer probe cards caused by the
ongoing downturn in the semiconductor market. For certain of our products we
also experienced pricing pressure due to the availability of competitive
products, which also contributed to the decrease in revenues.
Our
revenues for the three and nine months ended September 26, 2009 were
primarily generated by sales of wafer probe cards to manufacturers of DRAM
devices. Revenues for our products that address the DRAM segment declined
slightly in the three and nine months ended September 26, 2009 as compared
to the comparable periods in the prior year, primarily due to
a number of
factors including the relative supply and demand of various semiconductor
devices and end products incorporating those devices, semiconductor
manufacturers efforts to curtail spending and conserve cash by taking capacity
offline, reducing production, delaying the transition to new technology nodes
and
postponing the implementation of tooling
cycles. We also experienced pricing pressure on certain DRAM test products due
to the competitive environment.
Revenues
from sales to Flash memory device manufacturers also decreased significantly in
the three and nine months ended September 26, 2009 compared to the
comparable periods in the prior year, with the decrease driven by sales decline
in both NOR and NAND Flash wafer probe cards. The weakness in NOR Flash
can be attributed to a decline in purchases by certain key customers. The
decrease was primarily driven by a decline in revenues from NOR Flash wafer
probe cards resulting from our largest NOR customer filing for bankruptcy
protection in the first quarter of fiscal 2009. Additionally, revenues from
NAND Flash wafer probe cards declined as NAND Flash memory device manufacturers
significantly reduced their output in the first quarter of fiscal 2009, in an
attempt to promote industry absorption of excess inventories.
Revenues
from manufacturers of Logic devices decreased in the three and nine months
ended September 26, 2009 compared to the comparable periods in the prior
year, primarily due to the overall downturn in the semiconductor industry which
negatively impacted the revenues from sales of our wafer probe cards.
Current
global economic and semiconductor market conditions have adversely impacted the
profitability of our customers and their capital spending and are likely to
result in product revenues in the near term that are lower than our revenue
levels in comparable periods during prior fiscal years.
Revenue by
Geographic Region
The following
table sets forth our revenues by geographic region for the periods indicated:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 26,
2009
|
|
% of
Revenues
|
|
September 27,
2008
|
|
% of
Revenues
|
|
September 26,
2009
|
|
% of
Revenues
|
|
September 27,
2008
|
|
% of
Revenues
|
|
|
|
(In
thousands except percentages)
|
|
Japan
|
|
$
|
22,895
|
|
52.0
|
%
|
$
|
14,371
|
|
27.3
|
%
|
$
|
56,780
|
|
55.0
|
%
|
$
|
55,036
|
|
32.3
|
%
|
North America
|
|
7,046
|
|
16.0
|
|
9,959
|
|
18.9
|
|
16,226
|
|
16.0
|
|
34,440
|
|
20.2
|
|
Asia Pacific
|
|
11,400
|
|
26.0
|
|
22,855
|
|
43.5
|
|
24,434
|
|
24.0
|
|
65,387
|
|
38.4
|
|
Europe
|
|
2,432
|
|
6.0
|
|
5,399
|
|
10.3
|
|
4,900
|
|
5.0
|
|
15,437
|
|
9.1
|
|
Total revenues
|
|
$
|
43,773
|
|
100
|
%
|
$
|
52,584
|
|
100
|
%
|
$
|
102,340
|
|
100
|
%
|
$
|
170,300
|
|
100
|
%
|
Geographic revenue information is based on the location to which we
ship the customer product. For example, certain South Korean customers purchase
through their North American subsidiaries and accordingly, if the product is
shipped to an address in South Korea it is reflected in the revenue for Asia
Pacific.
27
Table of Contents
The increase in Japan for the three and nine months ended September 26,
2009 as compared to the same period in the prior year was primarily due to the
increase in our DRAM product sales in the region. The decrease in revenues in Asia Pacific for
the three and nine months ended September 26, 2009 as compared to the same
period 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 nine months ended September 26,
2009 compared to the same period in the prior year was primarily driven by
decreased demand for all our products in this region. Revenue in Europe
increased for the three months ended September 26, 2009 primarily due to
the increased demand for our Logic products in this region.
The following customers accounted for more than 10% of our revenues:
|
|
Three Months Ended
|
|
Nine
Months Ended
|
|
|
|
September 26,
|
|
September 27,
|
|
September 26,
|
|
September 27,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Elpida Memory (1)
|
|
53.0
|
%
|
15.5
|
%
|
55.0
|
%
|
23.4
|
%
|
Spansion
|
|
|
*
|
|
*
|
|
*
|
13.1
|
|
Intel Corporation
|
|
|
*
|
|
*
|
|
*
|
13.0
|
|
(1) Includes Elpida Memory and its consolidated
subsidiaries, Rexchip and Tera Probe
* Less than 10% of revenues.
Gross Profit
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 26,
|
|
September 27,
|
|
September 26,
|
|
September 27,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(In thousands except
percentages)
|
|
Gross profit
|
|
$
|
7,338
|
|
$
|
12,001
|
|
$
|
2,333
|
|
$
|
35,674
|
|
Gross margin
|
|
16.8
|
%
|
22.8
|
%
|
2.3
|
%
|
20.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin fluctuates with revenue levels, product mix, selling
prices, factory loading, and material costs. For the three and nine months
ended September 26, 2009, gross margin declined compared to the same
period in the prior year, primarily due to the significant decline in revenue
driving lower factory utilization, thereby increasing unit manufacturing costs,
combined with declines in average selling prices as well as unfavorable change
in product mix
from
higher margin to lower margin products
. This decline was partially
mitigated by lower personnel costs as a result of our fiscal 2008 and 2009
global cost reduction plans as well as a decline in inventory write-downs.
Inventory provision decreased from $12.3 million or 7.2% of revenues in
the first nine months of fiscal 2008 to $5.6 million, or 5.5% of revenues,
in the first nine months of fiscal 2009.
The higher inventory write-downs in first nine months
of fiscal 2008 were associated with deterioration in the DRAM memory segment in
that period.
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. Stock-based compensation included in g
ross margin was
$1.0 million or 2.2% of revenues, and $1.1million, or 2.1% of revenues, in
the three months ended September 26, 2009 and September 27, 2008, respectively,
and $2.8 million, or 2.7% of revenues and $3.6 million, or 2.1% of revenues for
the nine months ended September 26, 2009 and September 27, 2008,
respectively. The decline of stock-based compensation, in absolute dollars, was
primarily as a result of reductions in headcount as a result of our 2008 and
2009 global cost reduction plans.
28
Table of
Contents
In the near future, our
gross margins will likely continue to be adversely affected by lower levels of
product revenues in comparison to the same periods in the prior fiscal year,
even though we have taken significant steps to reduce our production levels and
operating cost structure. Additionally, we may be required to record additional
inventory write-downs if estimated average selling prices of products held in finished
goods and work in process inventories at a quarter-end date are below the
manufacturing cost of those products. Also, as part of our global
regionalization strategy, we continued our efforts to transition back-end
manufacturing to Asia in the third quarter of fiscal 2009. We qualified our back-end manufacturing in
Korea during our first quarter of fiscal 2009 and plan to do so in Japan in the
fourth quarter of fiscal 2009, followed by Singapore in fiscal 2010. This
initiative is intended, in part, to reduce manufacturing cost. However, as we go through our ramp up of new
technologies over the coming quarters, we will see associated costs related to
the transition before we more fully experience the benefits of lower
manufacturing costs by the second half of fiscal 2010.
Research and Development
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 26,
|
|
September 27,
|
|
September 26,
|
|
September 27,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(In thousands
except percentages)
|
|
Research
and development
|
|
$
|
13,775
|
|
$
|
17,079
|
|
$
|
41,823
|
|
$
|
49,288
|
|
% of
revenues
|
|
31.5
|
%
|
32.4
|
%
|
40.9
|
%
|
28.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expenses decreased in absolute dollars for the three and nine
months ended September 26, 2009 compared to the same period in the prior
year primarily due to a decrease in certain new technology product development
related costs, personnel costs and depreciation, facilities and information
technology allocations. For the three and nine months ended September 26,
2009, personnel costs decreased $2.3 million and $5.4 million, respectively,
primarily due to reductions in headcount as a result of our global
reorganization plans, expenses related to new technology and product
development decreased $0.6 million in both periods, and depreciation and
facilities and information technology allocations decreased $0.2 million and
$1.0 million, respectively, primarily due to the implementation of corporate
cost reduction initiatives. Stock-based compensation included within research
and development was $0.9 million for the three months ended September 26,
2009 compared to $1.1 million for the three months ended September 27,
2008, and $3.3 million for the first nine months of fiscal 2009 as compared to
$3.8 million for the nine months of fiscal 2008. The decline in stock-based
compensation in absolute dollars was primarily due to reductions in headcount
resulting from the 2008 and 2009 global cost reduction plans.
As a percent of revenues, research and development expenses declined
slightly during the three months ended September 26, 2009 as compared to
the comparable period in the prior year. This was because the decline in
research and development expenses in absolute dollars was slightly more than
the decline in revenues in absolute dollars for the comparable period. As a
percent of revenues, research and development expenses increased during the
nine months ended September 26, 2009 as compared to the comparable periods
in the prior year, primarily due to the declining revenue base.
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 remain
committed to product development in new and emerging technologies.
Selling, General and Administrative
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 26,
|
|
September 27,
|
|
September 26,
|
|
September 27,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(In thousands except percentages)
|
|
Selling,
general and administrative
|
|
$
|
17,366
|
|
$
|
23,675
|
|
$
|
61,939
|
|
$
|
69,038
|
|
% of
revenues
|
|
39.7
|
%
|
45.0
|
%
|
60.5
|
%
|
40.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses decreased in absolute dollars for the three
and nine months ended September 26, 2009 compared to the same period in
the prior year primarily due to a decrease in personnel-related costs and other
discretionary spending. For the three and nine months ended September 26,
2009, personnel related costs decreased by approximately $3.2 million and
$7.9 million, respectively, primarily due to the work force reductions. Other
discretionary spending decreased by $0.3 million and $1.3 million,
respectively, due to the newly implemented corporate cost reduction
initiatives. Outside legal and other
professional fees
29
Table of
Contents
decreased
by $2.6 million in the three months ended September 26, 2009 and by $2.3
million in the nine months ended September 26, 2009, as compared to the
comparable periods in the prior year. The decrease in legal fees for the three
and nine months ended September 26, 2009 was primarily due to the
scheduling of the International Trade Commission hearing on the investigation
(337-TA-621) of two of our competitors which arose out of our complaint filed
in late 2007. The decrease for the three and nine months ended September 26,
2009 reflects that the majority of the fees and costs related to the hearing
and post hearing activities were completed by the end of the first quarter of
fiscal 2009. In comparison, in the third quarter of fiscal 2008, we were
engaged in active discovery activities.
Additionally, we recorded a provision for doubtful accounts of $109,000
in the three months ended September 26, 2009. There was no provision for
doubtful accounts in the three months ended September 27, 2008. Provision
for doubtful accounts was $5.0 million in the nine months ended September 26,
2009 compared to $0.5 million in the comparable period in the prior year. We
recorded a provision for doubtful debts primarily due to the heightened risk of
non-payment of accounts receivable by certain customers facing financial
difficulty. In addition, stock-based compensation included within selling,
general and administrative expense was $2.6 million and $10.2 million for the
three and nine months ended September 26, 2009, compared to
$2.9 million and $9.8 million for the three and nine months ended September 27,
2008. The decrease in stock-based compensation for the three months ended September 26,
2009 was due to reductions in headcount as a result of our 2008 and 2009 global
cost reduction plans The increase in stock-based compensation for the nine
months ended September 26, 2009 was due to an option modification
compensation expense of $2.5 million in connection with the retirement of Dr. Igor
Y. Khandros, our founder and former executive chairman of our board of
directors in May 2009, offset in part by a decrease due to reductions in
headcount as a result of our 2008 and 2009 global cost reduction plans.
As a percent of revenues, selling, general and administrative expenses
declined during the three months ended September 26, 2009 as compared to
the comparable period in the prior year. This was primarily because the decline
in selling, general and administrative expenses in absolute dollars was more
than the decline in revenues in absolute dollars for the comparable period. As
a percent of revenue, selling, general and administrative expenses increased in
nine months ended September 26, 2009 as compared to the comparable period
in the prior year, primarily due to the declining revenue base.
Restructuring Charges
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 26,
|
|
September 27,
|
|
September 26,
|
|
September 27,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(In thousands except percentages)
|
|
Restructuring
charges
|
|
$
|
|
|
$
|
141
|
|
$
|
7,943
|
|
$
|
8,684
|
|
% of
revenues
|
|
|
%
|
0.3
|
%
|
7.8
|
%
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the first quarter of
fiscal 2009, we implemented the Q1 2009 Restructuring Plan that included
reducing our global workforce by 22%. The Q1 2009 Restructuring Plan extended
the cost reduction plans implemented during fiscal 2008 and impacted employees
across all functions of the organization. We recorded $7.7 million in relation
to the Q1 2009 Restructuring Plan in the first quarter of fiscal 2009 and $0.3
million in relation to the Q1 2009 Restructuring Plan in the second quarter of
fiscal 2009. The plan consisted primarily of involuntary employee terminations
and benefit costs and write-down of certain assets taken out of service. During the three and nine months ended September 26,
2009, we paid $1.1 million and $7.2 million of severance and benefits
related to the Q1 Restructuring 2009 Plan. We anticipate that the remainder of
the employee-related charges resulting from the cost reduction plan implemented
in the first quarter of fiscal 2009 will be paid within the next six months. We
expect to realize a quarterly cost savings of approximately $3.4 million as a
result of the
actions
taken in the first quarter of fiscal 2009 related to this plan
.
30
Table of Contents
In both the first and second quarters of fiscal 2008,
we implemented global cost reduction plans that included reducing our global
workforce. We recorded $0.1 million and $8.7 million in restructuring charges
in the three and nine months ended September 27, 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 related to the first
quarter of fiscal 2008 and second quarter of fiscal 2008 cost reduction plans
were paid by the end of fiscal 2008.
Interest Income and Other Income (Expense), Net
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 26,
|
|
September 27,
|
|
September 26,
|
|
September 27,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(In thousands except percentages)
|
|
Interest
income
|
|
$
|
694
|
|
$
|
2,805
|
|
$
|
2,571
|
|
$
|
10,808
|
|
% of
revenue
|
|
1.6
|
%
|
5.3
|
%
|
2.5
|
%
|
6.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
$
|
(415
|
)
|
$
|
263
|
|
$
|
(920
|
)
|
$
|
404
|
|
% of
revenues
|
|
(0.9
|
)%
|
0.5
|
%
|
(0.9
|
)%
|
0.2
|
%
|
The decrease in interest income on cash, cash
equivalents and marketable securities
for the three and nine
months ended September 26, 2009
was primarily a result of lower interest yields
as compared to
the comparable periods in the prior year as well as lower average balances.
Weighted average yields for the three months ended September 26, 2009 and September 27,
2008 were 0.69% and 2.12%, respectively and weighted average yields for the
nine months ended September 26, 2009 and September 27, 2008 were
0.73% and 2.58%, respectively. Cash, cash equivalents, restricted cash and
marketable securities were $463.3 million at September 26, 2009 compared
to $536.1 million at September 27, 2008. Other income (expense) for the
three and nine months ended September 26, 2009 was mainly comprised of
bank fees and foreign currency losses primarily related to Japanese Yen offset
by net realized gains related to the sale of investments.
Provision for (Benefit from) Income Taxes
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 26,
|
|
September 27,
|
|
September 26,
|
|
September 27,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(In thousands, except percentages)
|
|
Provision
for (benefit from) income taxes
|
|
$
|
377
|
|
$
|
(11,785
|
)
|
$
|
19,969
|
|
$
|
(29,463
|
)
|
Effective
tax rate
|
|
1.6
|
%
|
(45.6
|
)%
|
18.5
|
%
|
(36.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended September 26,
2009 and September 27, 2008, the Company recorded an income tax provision
of $0.4 million and an income tax benefit of $11.8 million, respectively. During the nine months ended September 26,
2009 and September 27, 2008, the Company recorded an income tax provision
of $20.0 million and an income tax benefit of $29.5 million, respectively. The Companys income tax provision for the
three months ended September 26, 2009 is primarily related to income taxes
of the Companys non U.S. operations.
The income tax provision for the nine months ended September 26,
2009 is primarily related to the Company recording a valuation allowance
covering substantially all of the Companys U.S. deferred tax assets at the end
of the second quarter of fiscal 2009 of $44.7 million.
The
Company utilizes the asset and liability method of accounting for income taxes,
under which deferred taxes are determined based on the temporary differences
between the financial statement and tax basis of assets and liabilities using
tax rates expected to be in effect during the years in which the basis
differences reverse. A valuation allowance is recorded when it is more likely
than not that some of the deferred tax assets will not be realized. Significant
management judgment is required in determining any valuation allowance recorded
against deferred tax assets. In evaluating the ability to recover
deferred tax assets, we considered available positive and negative evidence
giving greater weight to our recent cumulative losses and our ability to
carryback losses against prior taxable income and lesser weight to our
projected financial results due to the challenges of forecasting future
periods. We also considered, commensurate with its objective
verifiability, the forecast of future taxable income including the reversal of
temporary differences and the implementation of feasible and prudent tax
planning strategies. At the end of the
second quarter of fiscal 2009, changes in previously anticipated expectations
necessitated a valuation allowance against the excess tax benefits to be
recognized in that quarter and prior quarters since they are no longer more
likely than not realizable. Under current tax laws, this valuation
allowance will not limit our ability to utilize Federal and state deferred tax
assets provided it can generate sufficient future taxable income.
31
Table of
Contents
We
anticipate we will continue to record a valuation allowance against the losses
of certain jurisdictions, primarily Federal and state, until such time as we
are able to determine it is more likely than not the deferred tax asset will be
realized. Such position is dependent on whether there will be sufficient
future taxable income to realize such deferred tax assets. We
expect our future tax provisions, during the time such valuation allowances are
recorded, will consist primarily of the tax expense of our non-US jurisdictions
that are profitable.
We
classify interest and penalties related to uncertain tax positions as part of
the income tax provision. We recognized interest expense of $40,000 and $56,000
and for the three months ended September 26, 2009 and September 27,
2008, respectively, and $170,000 and $305,000 for the nine months ended September 26,
2009 and September 27, 2008, respectively. As of September 26, 2009,
the Company had approximately $483,000 of interest and zero penalties related
to uncertain tax positions.
The amount of income taxes we pay is subject to ongoing audits by
Federal, state and non-U.S. tax authorities which might result in proposed
assessments. Our estimate for the potential outcome for any uncertain tax issue
is judgmental in nature. However, we believe that we have adequately provided
for any reasonably foreseeable outcome related to those matters. Our future
results may include favorable or unfavorable adjustments to our estimated tax
liabilities in the period the assessments are made or resolved or when statutes
of limitation on potential assessments expire. As of September 26, 2009,
changes to our uncertain tax positions in the next 12 months, that are
reasonably possible, are not expected to have a significant impact on our
financial position or results of operations.
We and our subsidiaries file income tax returns in
the U.S. Federal jurisdiction, various U.S. states and non-U.S. jurisdictions.
We are currently under examination by the State of California Franchise Tax
Board for fiscal years 2004 and 2005.
Liquidity and Capital Resources
(Dollars in thousands)
|
|
September 26,
2009
|
|
Change
|
|
December 27,
2008
|
|
Working
capital
|
|
$
|
510,634
|
|
(11.5
|
)%
|
$
|
576,754
|
|
Cash
and cash equivalents and marketable securities
|
|
462,607
|
|
(11.5
|
)
|
522,894
|
|
|
|
|
|
|
|
|
|
|
|
Working capital:
The decrease in working capital in the nine months
ended September 26, 2009 was primarily due to a decrease in our cash, cash
equivalents and marketable securities balances due to use of cash for operating
and investing activities, a decrease in deferred tax assets due to the
establishment
of a valuation allowance in the second quarter of fiscal 2009, and
an increase in deferred revenue due to
lengthening of payment terms for certain customers. This was offset in part by
decreases in accounts payable and accrued liabilities and an increase in
accounts receivable due to lengthening of payment terms for certain customers.
Cash, cash equivalents and marketable securities:
Cash and cash equivalents consist of
deposits held at major banks, money market funds, U.S. government securities
and commercial paper that at the time of purchase had maturities of 90 days or
less. Marketable securities consist of U.S. government and agency securities
and municipal bonds. Cash, cash equivalents and marketable securities include
$14.1 million held by our foreign subsidiaries as of September 26, 2009.
Day Sales Outstanding:
Days sales outstanding from receivables, or DSO, was
116 days at September 26, 2009 compared with 87 days at December 27,
2008. Our DSO calculation is based on gross accounts receivable, including
accounts receivable for amounts in deferred revenue, net of allowance for
doubtful accounts. The increase in DSO is primarily due to the shift to longer
payment terms for several customers. A
dditionally,
with the continuing challenges in the semiconductor market, one customer which
is in cash preservation mode is extending payments past original due dates.
|
|
Nine Months Ended
|
|
(Dollars in thousands)
|
|
September 26,
2009
|
|
Change
|
|
September 27,
2008
|
|
Cash
used in operating activities
|
|
$
|
(52,504
|
)
|
279
|
%
|
$
|
(13,857
|
)
|
Cash
provided by (used in) investing activities
|
|
(143,212
|
)
|
(219
|
)
|
120,494
|
|
Cash
provided by financing activities
|
|
7,627
|
|
28
|
|
5,944
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
Net cash used
in operating activities for the nine months ended September 26, 2009 was
primarily driven by the operating loss offset in part by non-cash charges.
32
Table of
Contents
The net change in operating assets and liabilities for the nine months
ended September 26, 2009 consisted primarily of
the increase in gross accounts receivable
due to a shift to longer payment terms for certain customers and
a one of our
customers extending payments past its original due date
, decrease in refundable income taxes due
to the receipt of a federal income tax refund of $29.0 million in March 2009,
a decrease in prepaid expenses due to the receipt of a consumption tax refund
of $3.4 million and a decrease in other assets due to the receipt of $6.7
million related to the termination of a prepaid land lease agreement in
Singapore,
offset by the decrease in accounts payable and accrued liabilities.
Cash flows from investing activities:
The cash flows used in investing
activities for the nine months ended September 26, 2009 primarily relate
to the purchase of marketable securities,
net of receipts from the sales and maturities thereof as well as cash
used for capital expenditures in support of information technology system
upgrades and new product technology. Cash flows used in investing activities
for the nine months ended September 26, 2009 also included $1.7 million of
consideration paid for the purchase of manufacturing and testing equipment and
technology assets from Electroglas (See Note 19 Subsequent Events).
We carefully monitor our
investments to minimize risks and have not experienced other-than-temporary
investment losses. Except for experiencing declining yields, our investment
portfolio has not been negatively impacted by the ongoing economic turmoil in
the credit markets.
Cash flows from
financing activities:
The cash flows provided by financing activities for the nine months
ended September 26, 2009 are primarily due to $3.6 million received from
the January 2009 and July 2009 purchases under our 2002 Employee
Stock Purchase Plan, or ESPP and net proceeds from the exercise of stock
options offset by stock withheld in lieu of payment of employee taxes related
to the release of restricted stock units of $3.5 million.
Our
cash, cash equivalents and marketable securities declined in the third quarter
of fiscal 2009. Given the uncertainty in the global economy and the downturn in
the semiconductor industry coupled with the decrease in demand for our
products, we are focusing on improving our operating efficiency to achieve
break even operating cash flow. Our actions have included operational expense
reduction initiatives, re-timing or eliminating certain capital spending and
research and development projects and re-negotiating longer payment terms with
our vendors. We believe that we will be able to satisfy our cash requirements
for the next twelve months with the liquidity provided by our existing cash,
cash equivalents and marketable securities. We are also considering
establishing manufacturing and technology partnerships, or to seek short and
long-term debt obligations, or to obtain new financing facilities which may not
be available on terms favorable to us or at all. Our future capital
requirements may vary materially from those now planned. However, if we are
unsuccessful in improving our operating efficiency, reducing our cash outlays
or increasing our available cash through financing, our cash, cash equivalents
and marketable securities will further decline in the fourth quarter of fiscal
2009.
Off-Balance
Sheet Arrangements
Historically,
we have not participated in transactions that have generated 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 September 26,
2009, we were not involved in any such off-balance sheet arrangements.
Recent
Accounting Pronouncements
For a discussion on the
impact of recently issued accounting pronouncements, please refer to Note 2 of
the Notes to the Unaudited Condensed Consolidated Financial Statements in this
Quarterly Report on Form 10-Q.
Item 3.
Quantitative
and Qualitative Disclosures About Market Risk
For financial market
risks related to changes in interest rates and foreign currency exchange rates,
reference is made to Item 7A: Quantitative and Qualitative Disclosures about
Market Risk contained in Part II of our Annual Report on Form 10-K
for the fiscal year ended December 27, 2008. Our exposure to market risk
has not changed materially since December 27, 2008.
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based
on our managements evaluation (with the participation of our principal
executive officer and principal financial officer), as of the end of the period
covered by this report, our principal executive officer and principal financial
officer have concluded that our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended, (the Exchange Act)) are effective to ensure that
information required to be disclosed by us in reports that we
33
Table of
Contents
file
or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange
Commission rules and forms and is accumulated and communicated to our
management, including our principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required
disclosure.
Changes in Internal Control over Financial Reporting
There
was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during our third quarter of fiscal 2009
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
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 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 16 - Commitments
and Contingencies of the Notes to 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 27,
2008, 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.
The ongoing global economic and semiconductor industry
downturns could continue to negatively affect our business, results of
operations, and financial condition.
The
ongoing financial crisis and resulting global economic downturn could continue
to adversely affect our business. Our
customers could continue to curtail capital expenditures and to defer adoption
of emerging technologies in response to slow demand for consumer and other
products incorporating devices tested with our wafer probe cards. A protracted downturn could cause customers
to file for bankruptcy protection or insolvency proceeding, as occurred in 2009
with our customers Spansion and Qimonda, resulting in our loss of revenue. In the current economic environment, many
customers are seeking extended payment terms, which could impact their payment
histories and result in our deferring of revenue. We have also, on a one time basis agreed to
further extended payment terms on a material purchase order, which could
increase our potential bad debt exposure.
34
Table of Contents
We may experience the
insolvency of key suppliers, leading to delays in the development and shipment
of our products, increased expense and loss of revenue. We may also experience increased impairment
charges due to decline in the fair values of marketable debt securities.
We derive a
substantial portion of our revenues from a small number of customers, and we
could continue to experience significant declines in our revenues if any major
customer does not place, cancels, reduces or delays a purchase of our products,
or does not pay us, or delays or extends payment for our products past their
original due dates.
A relatively small number of
customers have accounted for a significant portion of our revenues in any
particular period. One customer accounted for 53.0% of our revenues in the
quarter ended September 26, 2009, and our ten largest customers accounted
for 90.7% of our revenues. In the first quarter of fiscal 2009, fewer than ten
customers accounted for all 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. As a result of the ongoing global
economic and semiconductor industry downturns, we have experienced significant
declines in our revenues. In the future, the cancellation, reduction or
deferral of even a small number of purchases of our products could
significantly reduce our revenues in any particular quarter. Cancellations,
reductions or deferrals could result from a prolonged or another 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. Furthermore, because our probe cards are
custom products designed for our customers unique wafer designs, any
cancellations, reductions or delays can result in significant, non-recoverable
costs. In some situations, our customers might be able to cancel or reduce
orders without a significant penalty. Our customers could also fail to pay all
or part of an invoice for our products. In the current global economic and
semiconductor industry downturns, we are more exposed to this non-payment risk
because of concerns regarding the financial viability of certain semiconductor
manufacturers. For example, in the first quarter of fiscal 2009, we recorded a
$5.2 million pre-tax expense to increase our allowance for doubtful
accounts as a result of the heightened non-payment risk of accounts receivable
primarily related to three customers. Additionally, on February 20, 2009,
we filed a complaint in a California state superior court against Spansion, LLC
in which we are seeking, among other things, payment of approximately
$8.1 million for probe cards purchased by and delivered to Spansion; the
action was stayed by Spansion LLCs filing for bankruptcy protection in the
United States. In addition, our customers
could delay payment for our products past their original due dates, or in light
of a customers financial condition, we may agree to extend the customers
payment terms for our products. In the current global economic and
semiconductor industry downturns, we are more exposed to our customers delaying
or extending payment for our products past their original due dates. For
example, days sales outstanding from receivables, or DSO, was 116 days at
September 26, 2009 compared with 87 days at December 27, 2008. If a customer
fails to pay us or delays payment for our products, we may be unable to
recognize revenue for such products and defer recognizing revenue for other
sales of product to the same customer in the future. We may be unable to
recognize revenue, our financial condition and liquidity could be impacted, and
we may incur additional charges for bad debt reserve to the extent certain of
our customers continue to face financial difficulties during this down turn. It is also possible that if we make the
decision to file one or more additional actions against customers to seek
payment of outstanding receivables that it will negatively impact a customer
relationship and result in lost revenues in the future. Customers with financial difficulties may be
forced to materially reduce or discontinue operations, file for bankruptcy or
other relief, or may be acquired by one of our other customers, any of which
would further reduce our customer base.
The markets in
which we participate are competitive, and if we do not compete effectively, our
operating results could be harmed.
We are experiencing increased competition in the wafer
probe card market and we expect competition to intensify in the future.
Increased competition has resulted and in the future is likely to result in
price reductions, reduced gross margins or loss of market share. Competitors
might introduce new competitive products for the same markets that our products
currently serve. These products may have better performance, lower prices and/or
broader acceptance than our products. In addition, for products such as wafer
probe cards, semiconductor manufacturers typically qualify more than one
source, to avoid dependence on a single source of supply. As a result, our
customers would likely purchase products from our competitors. Current and
potential competitors include AMST Co., Ltd., Feinmetall GmbH,
Japan Electronic Materials Corporation, Korea Instrument Co., Ltd.,
SV Probe Inc., Micronics Japan Co., Ltd., Microfriend Inc.,
MicroProbe Inc., Phicom Corporation, Technoprobe Asia Pte. Ltd.,
Tokyo Cathode Laboratory Co., Ltd., TSE Co., Ltd., Verigy
Ltd., and Wentworth Laboratories, Inc., among others. Many of our current
and potential competitors have greater name recognition, larger customer bases,
more established customer relationships or greater financial, technical,
manufacturing, marketing and other resources than we do. As a result, they
might be able to respond more quickly to new or emerging technologies and
changes in customer requirements, devote greater resources to the development,
promotion, sale and support of their products, and reduce prices to increase
market share. Some of our competitors also supply other types of test
equipment, or offer both advanced wafer probe cards and needle probe cards.
Those competitors that offer both advanced wafer probe cards and needle probe
cards might have strong, existing relationships with our existing customers or
with potential customers. Because we do not offer a needle probe card or other
conventional technology wafer probe card for less advanced applications, it may
be difficult for us to introduce our advanced wafer probe cards to these
customers and potential customers for certain wafer test applications. It is also possible that one or more of our
competitors may be able to increase their relative revenue with mutual
customers, resulting in a loss of revenue share to us. It is further possible that existing or new
competitors, including test equipment manufacturers, may offer new technologies
that reduce the value of our wafer probe cards.
35
Table of Contents
If we fail to
protect our proprietary rights, our competitors might gain access to our
technology, which could adversely affect our ability to compete successfully in
our markets and harm our operating results.
If we chose not to protect our proprietary rights
adequately or fail in our efforts to protect our proprietary rights, our
competitors might gain access to our technology. Unauthorized parties might
attempt to copy aspects of our products or to obtain and use information that
we regard as proprietary. Others might independently develop similar or
competing technologies or methods or design around our patents. In addition,
the laws of many foreign countries in which we or our customers do business do
not protect our intellectual property rights to the same extent as the laws of
the United States. To date, we have not been successful in our efforts to
enforce our proprietary rights in South Korea.
As a result, our proprietary rights could be compromised, our
competitors might offer products similar to ours and we might not be able to
compete successfully. We also cannot assure that:
·
our
means of protecting our proprietary rights will be adequate;
·
patents
will be issued from our pending or future applications;
·
our
existing or future patents will be sufficient in scope or strength to provide
any meaningful protection or commercial advantage to us;
·
our
patents or other intellectual property will not be invalidated, circumvented or
successfully challenged in the United States or foreign countries; or
·
others
will not misappropriate our proprietary technologies or independently develop
similar technologies, duplicate our products or design around any of our
patents or other intellectual property, or attempt to manufacture and sell
infringing products in countries that do not strongly enforce intellectual
property rights.
We have spent in the past and may be required to spend
in the future significant resources to monitor and protect our intellectual
property rights. We presently believe that it is likely that two or more of our
competitors are using methodologies or have implemented structures into certain
of their products that are covered by one or more of our intellectual property
rights. We have in the past brought claims to protect our rights, and we are
currently involved in patent infringement litigation, including an ongoing
proceeding against two competitors before the International Trade Commission,
or ITC. The ITC administrative law judge issued a decision, or initial
determination, on June 29, 2009, which did not find infringement of our
asserted claims under the four U.S. patents at issue and therefore, did not
find a violation of Section 337 of the Tariff Act of 1930. On September 14,
2009, the ITC issued a notice providing that it would review part of the
Initial Determination, but the only infringement finding to be reviewed is
Phicoms infringement of one of the asserted patents. We may not obtain a
favorable ruling from the ITC. In
certain cases, our competitors have initiated re-examination proceedings in the
U.S. Patent and Trademark Office and invalidity proceedings in foreign patent
offices against certain of our patents. Any litigation, whether or not resolved
in our favor, and whether initiated by us or by a third party, could result in
significant and possibly material expense to us and divert the efforts of our
management and technical personnel. In addition, while patents are territorial
and a ruling on a certain given patent does not necessarily impact the validity
or enforceability of a corresponding or related patent in a different country,
an adverse ruling in one country might negatively impact our ability to enforce
the corresponding or related patent in other countries. Finally, certain of our
customer contracts contain provisions that require us to defend and/or
indemnify our customers for third party intellectual property infringement
claims, which would increase the cost to us of an adverse ruling in such a
claim. An adverse determination could also negatively impact our ability to
license certain of our technologies and methods to others, and result in our
competitors being allowed to sell products with, or add to their products,
features and benefits contained in our products, thereby reducing our
competitive advantages over these competing products.
If we do not
innovate and keep pace with technological developments in the semiconductor
industry, our products might not be competitive and our revenues and operating
results could suffer.
We must continue to innovate and to invest in research
and development to improve our competitive position and to meet the testing
requirements of our customers. Our future growth depends, in significant part,
upon our ability to work effectively with and anticipate the testing needs of
our customers and to develop and support new products and product enhancements
to meet these needs on a timely and cost-effective basis. Our customers
testing needs are becoming more challenging as the semiconductor industry
continues to experience rapid technological change driven by the demand for
complex circuits that are shrinking in size and at the same time are increasing
in speed and functionality and becoming less expensive to produce. Examples of
trends driving demand for technological research and development include
semiconductor manufacturers transitions to 70 and below nanometer technology
nodes, to one gigabit density devices, to Double Data Rate II, or DDR II,
architecture devices, and to Double Data Rate III, or DDR III, architecture
devices. Our customers expect that they will be able to integrate our wafer
probe cards into any manufacturing process as soon as it is deployed.
Therefore, to meet these expectations and remain competitive, we must
continually design, develop and introduce on a timely basis new products and
product enhancements with improved features. For example,
in October 2009, we acquired certain intellectual property rights
and other technology assets related to precision motion control automation from
Electroglas, a company under Chapter 11 bankruptcy protection
, which had been an important technology
partner in the development of certain manufacturing equipment for future
products. However, it is unclear whether we will be able to proceed with
the development effort on the same timeline and any delay in the timeline could
negatively impact our financial results. It is possible that
36
Table of Contents
our internal development efforts and engagements with
third parties regarding the development of manufacturing equipment having
similar functionality may have a lengthy bring-up time and negatively impact
our ability to complete new products and realize revenue from those products.
Successful product design, development and
introduction on a timely basis require that we:
·
design
innovative and performance-enhancing product architectures, technologies and
features that differentiate our products from those of our competitors;
·
in
some cases engage with third parties who have particular expertise in order to
complete one or more aspects of the design and manufacturing process;
·
transition
our products to new manufacturing technologies;
·
identify
emerging technological trends in our target markets;
·
maintain
effective marketing strategies;
·
respond
effectively to technological changes or product announcements by others; and
·
adjust
to changing market conditions quickly and cost-effectively.
Not only do we need the technical expertise to
implement the changes necessary to keep our technologies current, but we must also
rely heavily on the judgment of our management to anticipate future market
trends. If we are unable to timely predict industry changes, or if we are
unable to modify our products or design, manufacture and deliver new products
on a timely basis, or if a third party with which we engage does not timely
deliver a component or service for one of our product modifications or new
products, we might lose customers or market share. In addition, we might not be
able to recover our research and development expenditures, which could harm our
operating results.
If semiconductor manufacturers do not
migrate elements of final test to wafer probe test, market acceptance of other
applications of our technology could be delayed.
We are working with some existing
and new customers as they evolve the focus of their semiconductor test efforts
from the individual device level to the wafer level. This evolution is
typically a long-term process in which the outcome and the affect on our
business is not clear. Semiconductor manufacturers might not adopt
wafer-level final test in a way that uses our technology. Our technology
to perform elements of final test on the wafer may not scale with the needs of
semiconductor manufacturers. Further, the pace and manner in which wafer-level
testing is adopted will also vary by manufacturer and will be affected by
factors like capital tooling cycles and end market growth in different
application segments. We believe, for example, that testing in stacked
packaging or 3-D packaging applications is more likely to migrate to wafer
level test than other applications. If the migration of elements of
final test to wafer probe test does not grow as we anticipate, or if
semiconductor manufacturers do not adopt our technology for their wafer probe
test requirements, market acceptance of other applications for our technology
could be delayed. In addition, to the extent manufacturers do not invest in
wafer test technology enabling the identification of known good die, or KGD, or
if the projected or anticipated investment in such technology is delayed or
reduced, it could delay the introduction of certain of our technologies and
negatively affect our business.
Changes in test strategies, equipment
and processes could cause us to lose revenues.
The demand for wafer probe cards
depends in large part upon the number of semiconductor designs, the pace of
technology and architecture transitions in chip designs, and overall
semiconductor unit volume. The time it takes to test a wafer depends upon the number
of devices being tested, the complexity of these devices, the test software
program and the test equipment itself. As test programs become
increasingly effective and test throughput increases, the number of wafer probe
cards required to test a given volume of devices declines. Therefore, advances
in the test process could cause us to lose sales. Further, most
semiconductor manufacturers are implementing chip designs featuring built-in
self-test (BIST) capabilities or similar design for testability (DFT)
functions or methodologies that increase test throughput and reduce the cost of
test
.
These
efforts include strategies to reduce the technical requirements on test
equipment, or to improve gather data about device performance early in the
manufacturing process, or to test the device later in the life of the product
for quality assurance purposes. In some cases, BIST or DFT can
create opportunities for our technologies. In other cases BIST or DFT can
reduce requirements for wafer level test and therefore reduce our
opportunities. Although we seek to work with our customers to show ways
that our technologies can be applied together with BIST and DFT approaches to
create opportunities to further reduce the cost of test, the overall impact of BIST
and DFT technologies, as they exist today and as they may be developed in the
future, could slow the migration to wafer level testing and adversely affect
our revenues. Similar results could occur if new chip designs are
implemented which we are unable to test efficiently, or if semiconductor
manufacturers reduce generally the amount or degree of wafer test they perform.
We incur significant research and development expenses in
conjunction with the introduction of new product architectures and platforms. Often,
we time our product introductions to
37
Table of Contents
the introduction of new test
equipment platforms or the declination of manufacturers to adopt a new test
platform. Because our customers require both test equipment and wafer probe
cards, any delay or disruption in the introduction of new test equipment
platforms would negatively affect our growth.
If the Company does not execute planned
cost reduction measures timely and successfully, the Company may not meet
certain operational goals and it could result in the Company incurring total
costs and expenses that are greater than expected.
The Company has implemented cost reduction measures over the last few years
and is continuing to implement such measures in an effort to improve the
Companys expense structure. Such actions have included workforce reductions,
the movement of certain manufacturing activities to geographic areas that are
closer to the Companys customers, the bring-up of a shared service center, the
consolidation of manufacturing capacity, and the centralization of support
functions to regional and global shared service centers. The Company expects to
realize cost savings in the future through these actions and may announce
future actions to further improve its operating expenses. The risks associated
with these actions include potential delays in their implementation, increased
shorter term costs associated with such actions, such as the need to provide
internal training and resources as certain activities are moved from one
location to a different location and the need to retain duplicative
capabilities; the failure to meet operational targets due to, for example,
unplanned departures of employees and excessive training requirements, which
could result in the Company incurring greater than anticipated operating
expenses and, consequently, overall lower operating results.
We have recorded
significant restructuring, inventory write-off and asset impairment charges in
the past and may do so again in the future, which could have a material
negative impact on our business.
We recorded material restructuring charges related to
our global workforce reductions and impairment charges related to our
long-lived assets in the first and second quarters of fiscal 2008 and the first
quarter of fiscal 2009. If the current challenging economic conditions persist,
we may implement additional cost-reduction actions, which would require us to
take additional, potentially material, restructuring charges related to, among
other things, employee terminations or asset disposal or exit costs. We may
also be required to write off additional inventory if our product build plans
or usage of inventory experience further declines, and such additional
write-offs could constitute material charges. In addition, a further decline in
our stock price or significant adverse change in market conditions could
require us to take additional material impairment charges related to our
long-lived assets. Our long-lived assets with estimable useful lives are
amortized over their respective estimated useful lives using the straight-line
method, and are reviewed for impairment annually, or
whenever events
or changes in circumstances indicate that their carrying amount may not be
recoverable.
The
valuation of our long-lived assets requires assumptions and estimates of many
critical factors, including revenue and market growth, operating cash flows,
market multiples, and discount rates. Declines in our stock price, or any other
adverse change in market conditions, particularly if such change has the effect
of changing one of the critical assumptions or estimates we used to calculate
the amount of impairment charge, could result in a change to the estimation of
fair value that could result in future impairment charges. Any such additional
material charges, whether related to restructuring or asset impairment, may
have a material negative impact on our operating results and related financial
statements.
Changes
in our tax rates, inability to realize our deferred tax assets or exposure to
additional tax liabilities could adversely affect our operating results.
We are subject to income taxes in both the United
States and various foreign jurisdictions, and our domestic and international
tax liabilities are subject to the allocation of expenses in different
jurisdictions. Our effective tax rate could be adversely affected by changes in
the mix of earnings in countries with different statutory tax rates, the
inability to realize our deferred tax assets, as a result of recurring losses,
changes in tax laws such as reducing the export sales and research and
development tax credits, changes in our operational activities in connection
with implementation of our global regionalization strategy, and material audit
assessments. For example, realization of our deferred tax assets, which are
predominantly in the United States, is dependent on our ability to generate
sufficient future taxable income in the United States. If we determine that we
may not be able to realize some portion of our deferred tax assets in the
future, we would record a valuation allowance against the deferred tax assets
that could result in additional income tax expense. For example, in the second
quarter of fiscal 2009, we recorded a non-cash charge of $44.7 million to
establish a valuation allowance against the excess tax benefits recognized in
prior quarters since they are no longer more likely than not realizable. This valuation allowance will not limit our
ability to utilize our
federal and state
deferred tax assets to offset future U.S. profits. In
addition, the amount of income taxes we pay could be subject to ongoing audits
in various jurisdictions and a material assessment by a governing tax authority
could adversely affect our operating results.
38
Table of Contents
Our equity plans have evergreen provisions that
automatically increase the number of shares available for issuance each year
without stockholder approval, and as a result of this annual increase in
shares, you may experience dilution and we may not seek your approval for
further additions to our existing plans or for new plans.
Our 2002 Equity Incentive Plan and 2002 Employee Stock
Purchase Plan have evergreen provisions that automatically increase the number
of shares available for issuance under these plans each year without
stockholder approval. Specifically, our 2002 Equity Incentive Plans evergreen
provision increases the number of shares available for issuance on each January 1
st
by an amount
equal to 5% of the total amount of the companys outstanding common stock as of
December 31
st
of
the prior year, and our 2002 Employee Stock Purchase Plans evergreen provision
increases the number of shares available for issuance on each January 1
st
by an amount
equal to 1% of the total amount of the companys outstanding common stock as of
December 31
st
of
the prior year. These evergreen provisions, which have a compounding effect,
have been in place since the adoption of the plans in 2003. In 2009, these
evergreen provisions added 2,453,115 shares to the 2002 Equity Incentive Plan
and 490,623 shares to the 2002 Employee Stock Purchase Plan, which shares were
available for issuance on January 1, 2009. In 2008, these evergreen
provisions added 2,432,112 shares to the 2002 Equity Incentive Plan and 486,422
shares to the 2002 Employee Stock Purchase Plan, which shares were available
for issuance on January 1, 2008, and we had 49,062,308 shares of common
stock outstanding on December 27, 2008. In 2007, these evergreen
provisions added 2,343,067 shares to the 2002 Equity Incentive Plan and 468,613
shares to the 2002 Employee Stock Purchase Plan, which shares were available
for issuance on January 1, 2007, and we had 48,642,258 shares of common
stock outstanding on December 29, 2007. In 2006, these evergreen
provisions added 2,011,834 shares to the 2002 Equity Incentive Plan and 402,366
shares to the 2002 Employee Stock Purchase Plan, which shares were available
for issuance on January 1, 2006, and we had 46,861,334 shares of common
stock outstanding on December 30, 2006. In 2005, these evergreen
provisions added 1,944,281 shares to the 2002 Equity Incentive Plan and 388,856
shares to the 2002 Employee Stock Purchase Plan, which shares were available
for issuance on January 1, 2005, and we had 40,236,686 shares of common
stock outstanding on December 31, 2005. In 2004, these evergreen
provisions added 1,840,502 shares to the 2002 Equity Incentive Plan and 368,100
shares to the 2002 Employee Stock Purchase Plan, which shares were available
for issuance on January 1, 2004, and we had 38,885,637 shares of common
stock outstanding on December 25, 2004. Since the adoption of the plans,
we have added 13,024,911 shares to the 2002 Equity Incentive Plan and 2,604,980
shares under the 2002 Employee Stock Purchase Plan. Due to the annual increase in
the amount of shares available for issuance under these equity plans and to the
extent that we issue these shares and they become outstanding, you will
continue to experience dilution. While
the equity plans are in effect, it is more likely that due to the plans
evergreen provision, we will not ask our stockholders to approve or disapprove
further additions to the plans. In
addition, while the equity plans are in effect, it is more likely that due to
the plans evergreen provisions, we will not ask our stockholders to approve or
disapprove the adoption of any new equity plans.
Item 5.
Other Matters
In our third quarter earning
release, included in our Form 8-K filed on October 28, 2009, we disclosed
non-GAAP net loss of $20.9 million, or $0.42 per share, for the three months
ended September 26, 2009. The non-GAAP
net loss figures excluded the effect of stock-based compensation, including the
tax benefit of such expense, but did not reflect that a corresponding valuation
allowance was established for the tax benefit.
As a result, non-GAAP net loss should have been reported as $19.4
million, or $0.39 per share.
Item 6.
Exhibits
The following exhibits are
filed herewith:
Exhibit
|
|
|
|
Incorporated by Reference
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
Date
|
|
Number
|
|
Herewith
|
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.
39
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 Principal Accounting Officer)
|
|
|
|
Date: November 5,
2009
|
|
|
40
Table
of Contents
EXHIBIT
INDEX
Exhibit
|
|
|
|
Incorporated by Reference
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
Date
|
|
Number
|
|
Herewith
|
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.
41
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