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 June 26, 2010
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
|
incorporation or organization)
|
|
Identification No.)
|
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
|
Accelerated filer
x
|
|
|
Non-accelerated filer
o
|
Smaller reporting company
o
|
(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 July 28, 2010,
50,258,462 shares of the registrants common stock, par value $0.001 per share,
were outstanding.
Table of
Contents
FORMFACT
OR, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 26,
2010
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)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 26,
2010
|
|
June 27,
2009
|
|
June 26,
2010
|
|
June 27,
2009
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
57,640
|
|
$
|
31,198
|
|
$
|
97,306
|
|
$
|
58,567
|
|
Cost of revenues
|
|
54,709
|
|
32,524
|
|
96,703
|
|
63,572
|
|
Gross profit (loss)
|
|
2,931
|
|
(1,326
|
)
|
603
|
|
(5,005
|
)
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
15,997
|
|
13,938
|
|
31,088
|
|
28,047
|
|
Selling, general and administrative
|
|
18,725
|
|
18,263
|
|
36,592
|
|
44,574
|
|
Restructuring charges, net
|
|
2,513
|
|
264
|
|
6,063
|
|
7,943
|
|
Total operating expenses
|
|
37,235
|
|
32,465
|
|
73,743
|
|
80,564
|
|
Operating loss
|
|
(34,304
|
)
|
(33,791
|
)
|
(73,140
|
)
|
(85,569
|
)
|
Interest income, net
|
|
722
|
|
762
|
|
1,497
|
|
1,877
|
|
Other income (expense), net
|
|
(82
|
)
|
(89
|
)
|
35
|
|
(505
|
)
|
Loss before income taxes
|
|
(33,664
|
)
|
(33,118
|
)
|
(71,608
|
)
|
(84,197
|
)
|
Provision for (benefit from) income taxes
|
|
200
|
|
32,728
|
|
440
|
|
19,592
|
|
Net loss
|
|
$
|
(33,864
|
)
|
$
|
(65,846
|
)
|
$
|
(72,048
|
)
|
$
|
(103,789
|
)
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(0.68
|
)
|
$
|
(1.33
|
)
|
$
|
(1.44
|
)
|
$
|
(2.11
|
)
|
Weighted-average number of shares used in per
share calculations:
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
50,084
|
|
49,394
|
|
49,989
|
|
49,297
|
|
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)
|
|
June 26,
2010
|
|
December 26,
2009
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
89,076
|
|
$
|
122,043
|
|
Marketable securities
|
|
308,685
|
|
327,192
|
|
Accounts receivable, net of allowance for doubtful
accounts of $8,932 at June 26, 2010 and $9,260 at December 26,
2009, respectively
|
|
44,105
|
|
29,412
|
|
Inventories
|
|
35,792
|
|
25,548
|
|
Deferred tax assets
|
|
3,321
|
|
3,296
|
|
Refundable income taxes
|
|
425
|
|
26,774
|
|
Prepaid expenses and other current assets
|
|
14,130
|
|
12,346
|
|
Total current assets
|
|
495,534
|
|
546,611
|
|
Restricted cash
|
|
680
|
|
680
|
|
Property and equipment, net
|
|
96,904
|
|
97,758
|
|
Deferred tax assets
|
|
2,299
|
|
2,202
|
|
Other assets
|
|
8,027
|
|
8,717
|
|
Total assets
|
|
$
|
603,444
|
|
$
|
655,968
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
32,095
|
|
$
|
29,250
|
|
Accrued liabilities
|
|
32,002
|
|
23,417
|
|
Income taxes payable
|
|
272
|
|
481
|
|
Deferred revenue
|
|
8,648
|
|
10,856
|
|
Total current liabilities
|
|
73,017
|
|
64,004
|
|
Long-term income taxes payable
|
|
6,423
|
|
6,423
|
|
Deferred rent and other liabilities
|
|
4,984
|
|
5,626
|
|
Deferred tax liability
|
|
2,134
|
|
2,134
|
|
Total liabilities
|
|
86,558
|
|
78,187
|
|
Commitments and contingencies (Note 16)
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
Preferred stock, $0.001 par value:
|
|
|
|
|
|
10,000,000 shares authorized; no shares issued and
outstanding at June 26, 2010 and December 26, 2009,
respectively
|
|
|
|
|
|
Common stock, $0.001 par value:
|
|
|
|
|
|
250,000,000 shares authorized; 50,258,462 and
49,762,008 shares issued and outstanding at June 26, 2010 and
December 26, 2009, respectively
|
|
51
|
|
50
|
|
Additional paid-in capital
|
|
641,164
|
|
630,333
|
|
Accumulated other comprehensive income
|
|
1,574
|
|
1,253
|
|
Retained earnings (accumulated deficit)
|
|
(125,903
|
)
|
(53,855
|
)
|
Total stockholders equity
|
|
516,886
|
|
577,781
|
|
Total liabilities and stockholders equity
|
|
$
|
603,444
|
|
$
|
655,968
|
|
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)
|
|
Six Months Ended
|
|
|
|
June 26,
|
|
June 27,
|
|
|
|
2010
|
|
2009
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
Net loss
|
|
$
|
(72,048
|
)
|
$
|
(103,789
|
)
|
Adjustments to reconcile net income to net cash
used in operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
16,884
|
|
15,995
|
|
Amortization (accretion) of investments
|
|
222
|
|
(6
|
)
|
Stock-based compensation expense
|
|
9,152
|
|
11,909
|
|
Deferred income tax provision (benefit)
|
|
(89
|
)
|
34,642
|
|
Excess tax benefits from equity based compensation
plans
|
|
|
|
(437
|
)
|
Provision for doubtful accounts receivable
|
|
(328
|
)
|
4,931
|
|
Provision for excess and obsolete inventories
|
|
512
|
|
5,818
|
|
Loss on disposal and impairment of property and
equipment
|
|
1,502
|
|
144
|
|
Non-cash restructuring
|
|
1,034
|
|
366
|
|
Foreign currency transaction (gains) / losses
|
|
426
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
|
(13,976
|
)
|
(4,976
|
)
|
Inventories
|
|
(10,633
|
)
|
(5,545
|
)
|
Prepaids and other current assets
|
|
(1,745
|
)
|
5,858
|
|
Refundable income taxes
|
|
26,349
|
|
14,683
|
|
Other assets
|
|
(248
|
)
|
6,389
|
|
Accounts payable
|
|
1,192
|
|
(8,252
|
)
|
Accrued liabilities
|
|
9,043
|
|
(8,752
|
)
|
Income tax payable
|
|
(212
|
)
|
(3,285
|
)
|
Deferred rent
|
|
(652
|
)
|
(257
|
)
|
Deferred revenues
|
|
(2,205
|
)
|
4,821
|
|
Net cash used in operating activities
|
|
(35,820
|
)
|
(29,743
|
)
|
Cash flows from investing
activities:
|
|
|
|
|
|
Acquisition of property and equipment
|
|
(16,484
|
)
|
(8,753
|
)
|
Purchases of marketable securities
|
|
(145,590
|
)
|
(287,616
|
)
|
Proceeds from maturities of marketable securities
|
|
155,225
|
|
149,430
|
|
Proceeds from sales of marketable securities
|
|
9,000
|
|
18,905
|
|
Net cash provided by (used in) investing
activities
|
|
2,151
|
|
(128,034
|
)
|
Cash flows from financing
activities:
|
|
|
|
|
|
Proceeds from issuances of common stock and
awards, net
|
|
1,536
|
|
2,565
|
|
Excess tax benefits from equity based compensation
plans
|
|
|
|
437
|
|
Net cash provided by financing activities
|
|
1,536
|
|
3,002
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
(834
|
)
|
(45
|
)
|
Net decrease in cash and cash equivalents
|
|
(32,967
|
)
|
(154,820
|
)
|
Cash and cash equivalents, beginning of period
|
|
122,043
|
|
337,926
|
|
Cash and cash equivalents, end of period
|
|
$
|
89,076
|
|
$
|
183,106
|
|
Supplemental cash flow
disclosures:
|
|
|
|
|
|
Purchases of property and equipment through
accounts payable and accruals
|
|
$
|
1,026
|
|
$
|
(5,065
|
)
|
Income taxes refunded, net
|
|
$
|
(25,625
|
)
|
$
|
(26,576
|
)
|
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 our subsidiaries have
been prepared in accordance with accounting principles generally accepted in
the United States of America (GAAP) and pursuant to the instructions to Form 10-Q
and Article 10 of Regulation S-X of the Securities and Exchange Commission
(the SEC). Our interim financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for annual financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary to
fairly present our financial position, results of operations and cash flows
have been included. Operating results for the three and six months ended June 26,
2010 are not necessarily indicative of the results that may be expected for the
year ending December 25, 2010, or for any other period. The balance sheet
at December 26, 2009 has been derived from the audited consolidated financial
statements at that date but does not include all of the information and
footnotes required by GAAP for complete financial statements. The condensed
consolidated financial statements include our accounts as well as those of our
wholly-owned subsidiaries after elimination of all significant inter-company
balances and transactions.
The
preparation of condensed consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
amounts reported in our condensed consolidated financial statements and
accompanying notes. Actual results could differ from those estimates, and
material effects on our consolidated operating results and financial position
may result.
These financial statements
and notes should be read with the consolidated financial statements and notes
thereto for the year ended December 26, 2009 included in our Annual Report
on Form 10-K filed with the SEC on February 24, 2010.
Fiscal Year.
We operate
on a 52/53 week fiscal year, whereby the year ends on the last Saturday of
December. Fiscal 2010 will end on December 25, 2010, and will consist of
52 weeks.
Reclassifications.
Certain
reclassifications have been made to the prior years Condensed Consolidated
Statement of Cash Flows to conform to the current year presentation. The
reclassifications had no effect on the Condensed Consolidated Statements of
Operations or Balance Sheets.
Note 2
Recent Accounting Pronouncements and Other Reporting Considerations
In April 2010, the FASB
issued an update to amend the guidance on the milestone method in revenue
recognition. The amendment provides guidance on the criteria that should be met
for determining whether the milestone method of revenue recognition is
appropriate in research or development transactions. The amendment is effective
on a prospective basis for milestones achieved in fiscal years, and interim
periods within those years, beginning on or after June 15, 2010. Early
adoption is permitted. We are currently evaluating the impact of adopting this
amendment on our consolidated balance sheets and statement of operations.
In January 2010, the
FASB issued guidance to amend the disclosure requirements related to recurring
and nonrecurring fair value measurements. The guidance requires new disclosures
on the transfers of assets and liabilities between Level 1 (quoted prices in
active market for identical assets or liabilities) and Level 2 (significant
other observable inputs) of the fair value measurement hierarchy, including the
reasons and the timing of the transfers.
Additionally, the guidance requires a roll forward of activities on
purchases, sales, issuance, and settlements of the assets and liabilities
measured using significant unobservable inputs (Level 3 fair value measurements).
The guidance is effective for interim or annual financial reporting periods
beginning after December 15, 2009, except for the disclosures about
purchases, sales, issuances and settlements in the roll forward activity in
Level 3 fair value measurements, which are effective for fiscal years beginning
after December 15, 2010 and for interim periods within those fiscal years.
Therefore, we have not yet adopted the guidance with respect to the roll
forward activity in Level 3 fair value measurements. Other than requiring
additional disclosures, adoption of this new guidance in the first quarter of
fiscal 2010 did not have a material impact on our financial statements.
Note 3 Concentration of Credit and Other Risks
Financial
instruments that potentially subject us to concentrations of credit risk
consist primarily of cash equivalents, investments and trade receivables. Our
cash equivalents and marketable securities are held in safekeeping by large,
creditworthy financial institutions. We invest our excess cash primarily in
U.S. banks, government and agency bonds, money market funds and corporate
obligations. We have established guidelines relative to credit ratings,
diversification and maturities that seek to maintain safety and liquidity.
6
Table of Contents
We
sell our products to large multinational semiconductor manufacturers primarily
located in Asia and North America. Four customers represented 28%, 12%, 12% and
11% of total revenues during the three months ended June 26, 2010, and one
customer represented 44% of total revenues for the three months ended June 27,
2009. Three customers represented 22%, 14% and 12% of total revenues during the
six months ended June 26, 2010, and one customer represented 56% of total
revenues for the six months ended June 27, 2009. No other customer
accounted for more than 10% of total revenues in any of these fiscal periods.
We
have significant accounts receivables concentrated with a few customers in the
semiconductor industry. While our 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 June 26, 2010, two customers
accounted for approximately 30% and 13% of gross accounts receivable. At
December 26, 2009, three customers accounted for approximately 21%, 18%
and 16% of gross accounts receivable. No other customer accounted for more than
10% of gross accounts receivable in any of these fiscal periods.
Note 4
Restructuring Charges
Restructuring
charges include costs related to employee termination benefits, cost of
long-lived assets abandoned or impaired, as well as contract termination costs.
The determination of when we accrue for employee termination benefits and which
standard applies depends on whether the termination benefits are provided under
a one-time benefit arrangement or under an on-going benefit arrangement. For
restructuring charges recorded as an on-going benefit arrangement, a liability
for post-employment benefits is recorded when payment is probable, the amount
is reasonably estimable, and the obligation relates to rights that have vested
or accumulated. For restructuring charges recorded as a one-time benefit
arrangement, we recognize 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. The timing of the
recognition of one-time employee termination benefits is dependent 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. We record charges related to long-lived assets to be abandoned when the
assets cease to be used. We record a liability for contract termination costs
that will continue to be incurred under a contract for its remaining term
without economic benefit to us at the cease-use date.
We
recorded net restructuring charges of $2.5 million and $6.1 million for the
three and six months ended June 26, 2010, respectively, and $0.3 million
and $7.9 million in the comparable periods of fiscal 2009. The restructuring
plans implemented in the first and second quarters of 2010 are discussed below.
In
the first quarter of fiscal 2010, we implemented a restructuring plan (the Q1
2010 Restructuring Plan) intended to align resources in continuation of our
global regionalization strategy to place more decision-making in regions close
to our semiconductor customers. As part of this regionalization strategy, we
moved certain assembly and test operations from our back-end manufacturing
processes in Livermore, California to Asia, and planned to bring-up and qualify
our back-end manufacturing operations in Singapore. As a result of this
restructuring plan, our worldwide headcount was expected to be reduced by 106
full-time employees. The activities comprising the reduction in force were
expected to be completed by the end of the first quarter of fiscal 2011. We recorded $3.6 million and $27,000 in
charges for the Q1 2010 Restructuring Plan in the first and second quarter of
fiscal 2010, which were all related to severance and related benefits.
In
the second quarter of fiscal 2010, we announced a series of corporate
initiatives, including a reduction in workforce, that represented a renewed focus
on streamlining and simplifying our operations as well as reducing our
quarterly operating costs (the Q2 2010 Restructuring Plan). These actions
included reducing the scope of the previously contemplated manufacturing
operations in Korea, resulting in a reduction of workforce of 16 employees
related to the assembly and test function. Additionally, we undertook a
further workforce reduction of 67 employees spread across all functions of the
organization to further streamline and simplify our operations and reduce
operating costs. The activities comprising the reduction in force are
expected to be substantially completed by the end of the fourth quarter of
fiscal 2010.
We
recorded $4.9 million in charges for the Q2 2010 Restructuring Plan in the
second quarter of fiscal 2010 primarily for severance and related benefits.
Additionally, in conjunction with the Q2 2010 Restructuring Plan we identified
certain equipment and software assets related to our assembly and test
operations in Korea that would no longer be utilized. As a result, we
recorded an impairment charge of approximately $0.9 million, representing the
net book value of these assets. Additionally, in connection with the Q2
2010 Restructuring Plan and related shift of certain operations to Singapore,
we have re-evaluated the estimated useful life of certain assets, primarily
leasehold improvements, in our Singapore facilities, as discussed in Note 10.
7
Table of
Contents
Due
to the decisions we made regarding our manufacturing operations in Korea and
the expected timing of the qualification of our Singapore back-end
manufacturing operations, these Korea manufacturing operations have been moved
back to our Livermore location in the second quarter of fiscal 2010, resulting
in an increased demand for manufacturing staff in our Livermore location. As a
result, management has undertaken a plan to rescind the previously issued severance
arrangements for certain employees impacted by the Q1 2010 Restructuring
Plan. Additionally, these employees have been informed that if and when
the manufacturing line transition occurs we will review our severance and
retention packages at that time. As a result of this rescission plan, as
of June 26, 2010, we have reversed the existing accrual for the severance
costs booked in conjunction with the Q1 2010 Restructuring Plan, including the
accrued retention bonus to date, resulting in a benefit to our statement of
operations of $3.3 million. We expect to have the rescission plan
completed by the end of our third fiscal quarter.
The
liabilities we have accrued represent our best estimate of the obligations we
expect to incur and could be subject to adjustment as market conditions change.
The cash payments associated with the reduction in force are expected to be
paid by the end of the first quarter of fiscal 2011.
The
activities in the restructuring accrual for the six months ended June 26,
2010 were as follows (in thousands):
|
|
Employee
|
|
Property
|
|
|
|
|
|
|
|
Severance
|
|
and
|
|
Contract
|
|
|
|
|
|
and
|
|
Equipment
|
|
Termination
|
|
|
|
|
|
Benefits
|
|
Impairment
|
|
and Other
|
|
Total
|
|
Accrual at December 26, 2009
|
|
$
|
973
|
|
$
|
|
|
$
|
76
|
|
$
|
1,049
|
|
Charges for Q1 2010 Restructuring Plan
|
|
3,550
|
|
|
|
|
|
3,550
|
|
Cash payments
|
|
(991
|
)
|
|
|
|
|
(991
|
)
|
Accrual at March 27, 2010
|
|
$
|
3,532
|
|
$
|
|
|
$
|
76
|
|
$
|
3,608
|
|
Reversal of Charges for Q1 2010 Restructuring Plan
booked in Q110
|
|
(3,282
|
)
|
|
|
|
|
(3,282
|
)
|
Charges for Q1 2010 Restructuring Plan
|
|
27
|
|
|
|
|
|
27
|
|
Charges for Q2 2010 Restructuring Plan
|
|
4,910
|
|
858
|
|
|
|
5,768
|
|
Non-cash settlement
|
|
(28
|
)
|
(858
|
)
|
|
|
(886
|
)
|
Cash payments
|
|
(216
|
)
|
|
|
|
|
(216
|
)
|
Accrual at June 26, 2010
|
|
$
|
4,943
|
|
$
|
|
|
$
|
76
|
|
$
|
5,019
|
|
Restructuring
charges are reflected separately as Restructuring in the Condensed
Consolidated Statements of Operations. The remaining accrual as of June 26,
2010 that relates to severance benefits will be paid out by the end of the
first quarter of fiscal 2011. As such, the restructuring accrual is recorded as
a current liability within Accrued liabilities in the Condensed Consolidated
Balance Sheets.
Note 5
Fair Value
We use 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. We also have a building held for
sale in Livermore, California and 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 Sheets.
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, we consider the principal or most advantageous
market in which we 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, which 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.
8
Table of
Contents
Assets Measured at Fair
Value on a Recurring Basis
We
measure and report 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 table
represents our fair value hierarchy for our financial assets (cash equivalents
and marketable securities) measured at fair value on a recurring basis as of June 26,
2010 (in thousands):
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
40,696
|
|
$
|
|
|
$
|
40,696
|
|
Commercial paper
|
|
|
|
18,998
|
|
18,998
|
|
Marketable securities
|
|
|
|
|
|
|
|
U. S. Treasury
|
|
|
|
119,108
|
|
119,108
|
|
Municipal bonds
|
|
|
|
206
|
|
206
|
|
Agency securities
|
|
|
|
181,372
|
|
181,372
|
|
Commercial paper
|
|
|
|
7,999
|
|
7,999
|
|
Total
|
|
$
|
40,696
|
|
$
|
327,683
|
|
$
|
368,379
|
|
The Level 1 assets consist
of our money market fund deposits. The Level 2 assets consist of our
available-for-sale investment portfolio, which are valued utilizing a market
approach. Our 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 our pricing vendors or when a broker price is more reflective of
fair values in the market in which the investment trades. Our broker-priced
investments are labeled as Level 2 investments because fair values of
these investments are based on similar assets without applying significant
judgments. In addition, all of our 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
Level 3 assets include a building and certain manufacturing equipment held for
sale in Livermore, California. The building held for sale is classified as
Level 3 as we used unobservable inputs in its valuation reflecting our
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 $0.9 million as of June 26,
2010 and December 26, 2009. We also classified certain manufacturing
equipment located in Livermore, CA as held for sale as of June 26, 2010.
The equipment was classified as Level 3 as we used unobservable inputs in our
valuation reflecting our 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 $0.5 million at June 26, 2010 and $0.6 million at
December 26, 2009.
Our 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
We
classify our 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 until realized.
9
Table of
Contents
Marketable
securities at June 26, 2010 consisted of the following (in thousands):
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Market
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
U.
S. Treasury
|
|
$
|
118,587
|
|
$
|
521
|
|
$
|
|
|
$
|
119,108
|
|
Agency
Securities
|
|
181,146
|
|
226
|
|
|
|
181,372
|
|
Obligations
of states and political subdivisions
|
|
205
|
|
1
|
|
|
|
206
|
|
Commercial
Paper
|
|
7,999
|
|
|
|
|
|
7,999
|
|
|
|
$
|
307,937
|
|
$
|
748
|
|
$
|
|
|
$
|
308,685
|
|
Marketable
securities at December 26, 2009 consisted of the following (in thousands):
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Market
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
U.
S. Treasury
|
|
$
|
135,061
|
|
$
|
300
|
|
$
|
(67
|
)
|
$
|
135,294
|
|
Agency
Securities
|
|
172,670
|
|
339
|
|
(192
|
)
|
172,817
|
|
Commercial
Paper
|
|
16,992
|
|
|
|
|
|
16,992
|
|
Obligations
of states and political subdivisions
|
|
2,071
|
|
18
|
|
|
|
2,089
|
|
|
|
$
|
326,794
|
|
$
|
657
|
|
$
|
(259
|
)
|
$
|
327,192
|
|
The
marketable securities with gross unrealized losses have been in a loss position
for less than 12 months as of December 26, 2009.
We
typically invest in highly-rated securities with low probabilities of default.
Our 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 gains on our investments
during the three and six months ended June 26, 2010 was caused primarily
by changes in interest rates. When evaluating the investments for
other-than-temporary impairment, we review 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.
Contractual
maturities of marketable securities as of June 26, 2010 were as follows
(in thousands):
|
|
Amortized
Cost
|
|
Market
Value
|
|
Due in one year or less
|
|
$
|
149,627
|
|
$
|
149,845
|
|
Due after one year to three years
|
|
158,310
|
|
158,840
|
|
|
|
$
|
307,937
|
|
$
|
308,685
|
|
Realized
gains and losses on sales and maturities of marketable securities were
immaterial for the three and six months ended June 26, 2010 and June 27,
2009, respectively.
Note 7
Allowance for Doubtful Accounts
A majority of our trade
receivables are derived from sales to large multinational semiconductor
manufacturers throughout the world. In order to monitor potential credit
losses, we perform ongoing credit evaluations of our customers financial
condition. An allowance for doubtful accounts is maintained for probable credit
losses based upon our assessment of the expected collectability of all accounts
receivable. The allowance for doubtful accounts is reviewed on a quarterly
basis to assess the adequacy of the allowance. We take into consideration
(1) any circumstances of which we are aware of a customers inability to
meet its financial obligations; and (2) our judgments as to prevailing
economic conditions in the industry and their impact on our customers. If
circumstances change, and the financial condition of our customers are
adversely affected and they are unable to meet their financial obligations to
us, we may need to take additional allowances, which would result in an
increase in our net loss.
10
Table of Contents
We recorded a reduction in
provision for doubtful debts of $0.1 million in the first quarter of fiscal
2010 primarily due to the payment of accounts receivable that was previously
reserved. In the second quarter of fiscal 2010, we provided additional
allowance for doubtful debts of $0.3 million for accounts determined to be
uncollectible and a reduction in provision for doubtful debts of $0.5 million
due to the receipt of payments for accounts receivable that were previously reserved.
The allowance for doubtful accounts consisted of the following activity for the
three and six months ended June 26, 2010 (in thousands):
|
|
Allowance for
Doubtful
Accounts Receivable
|
|
Balance at December 26, 2009
|
|
$
|
9,260
|
|
Additions
|
|
|
|
Deductions
|
|
(147
|
)
|
Balance at March 27, 2010
|
|
$
|
9,113
|
|
Additions
|
|
315
|
|
Deductions
|
|
(496
|
)
|
Balance at June 26, 2010
|
|
$
|
8,932
|
|
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. Provision for
estimated excess and obsolete inventories is made based on our managements
analysis of inventory levels and future sales forecasts. Once the value is
adjusted, the original cost of our 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.
We
design, manufacture and sell a custom product into a market that has been
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 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. These factors make inventory valuation adjustments part of
our normal recurring cost of revenue.
During the three months ended June 26, 2010, we recognized a
benefit of $0.7 million which was comprised of a charge of $4.0 million to the
inventory provision for the increased level of materials held in excess of
actual demand, offset by a reduction of $4.7 million for the revaluation of
previously reserved materials. We recorded charges for aggregated inventory write
downs of $0.5 million for the six months ended June 26, 2010, and
$0.8 million and $5.8 million for the three and six months ended June 27,
2009, respectively. We retain a portion of the excess inventory until the
customers design is discontinued. The inventory may be used to satisfy
customer warranty obligations.
When
our products have been delivered, but the revenue associated with that product
is deferred because the related revenue recognition criteria have not been met,
we defer the related cost of revenue. The deferred inventory costs do not
exceed the deferred revenue amounts.
Inventories
consisted of the following (in thousands):
|
|
June 26,
|
|
December 26,
|
|
|
|
2010
|
|
2009
|
|
Raw materials
|
|
$
|
4,812
|
|
$
|
2,405
|
|
Work-in-progress
|
|
22,565
|
|
11,457
|
|
Finished goods:
|
|
|
|
|
|
Deferred cost of revenue
|
|
3,483
|
|
6,097
|
|
Manufactured finished goods
|
|
4,932
|
|
5,589
|
|
|
|
$
|
35,792
|
|
$
|
25,548
|
|
Note 9
Warranty
We offer warranties on our
products, other than certain evaluation and early adopter products that are not
offered with warranty. We also record a
liability for the estimated future costs associated with customer warranty
claims, which is based upon historical experience and our estimate of the level
of future costs. Warranty costs are reflected in the Condensed Consolidated
Statements of Operations as a cost of revenues.
11
Table of
Contents
A reconciliation of the
changes in our warranty liability (included in Accrued liabilities in the
Condensed Consolidated Balance Sheets) is as follows (in thousands):
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 26,
|
|
June 27,
|
|
June 26,
|
|
June 27,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Warranty accrual beginning balance
|
|
$
|
307
|
|
$
|
914
|
|
$
|
732
|
|
$
|
1,098
|
|
Accrual for warranties issued during the period
|
|
254
|
|
(200
|
)
|
(142
|
)
|
(28
|
)
|
Settlements made during the period
|
|
(154
|
)
|
(80
|
)
|
(183
|
)
|
(436
|
)
|
Warranty accrual ending balance
|
|
$
|
407
|
|
$
|
634
|
|
$
|
407
|
|
$
|
634
|
|
Note 10 Long Lived Assets
Property and equipment consisted of the following (in thousands):
|
|
Useful Life
|
|
June 26,
|
|
December 26,
|
|
|
|
(in years)
|
|
2010
|
|
2009
|
|
Machinery and equipment
|
|
5 to 7
|
|
$
|
114,008
|
|
$
|
115,938
|
|
Computer equipment and software
|
|
3 to 5
|
|
35,944
|
|
34,810
|
|
Furniture and fixtures
|
|
5
|
|
7,192
|
|
7,172
|
|
Leasehold improvements
|
|
1 to 15
|
|
75,340
|
|
71,816
|
|
|
|
|
|
232,484
|
|
229,736
|
|
Less: Accumulated depreciation and amortization
|
|
|
|
(154,270
|
)
|
(146,365
|
)
|
|
|
|
|
78,214
|
|
83,371
|
|
Construction-in-progress
|
|
|
|
18,690
|
|
14,387
|
|
|
|
|
|
$
|
96,904
|
|
$
|
97,758
|
|
At
June 26, 2010, the net book value of our total intangible assets was $6.5
million, with $7.8 million as the gross amount and $1.3 million as the
accumulated amortization. All of our intangible assets were purchased intellectual
properties. We recorded $0.4 and $0.9 million amortization expense for our
intangible assets for the three and six months ended June 26, 2010,
respectively. The purchased intellectual property assets had a weighted average
amortization period of 3.8 years at June 26, 2010. The intangible assets
are included in Other Assets in the Condensed Consolidated Balance Sheets.
During
the three months ended June 26, 2010 we wrote off fully depreciated assets
with an acquired cost of $4.8 million.
In addition to the impairment of certain assets related to our assembly
and test operations in Korea (see Note 4), we recorded an impairment of $1.0
million related to the termination of an on-going project that had been
recorded in construction-in-progress.
As discussed in Note 4,
in the second quarter of fiscal 2010, we announced the Q2 2010 Restructuring
Plan targeted at returning the Company to profitability. As part of this
restructuring plan, we are consolidating certain of our manufacturing
operations by, among other things, moving the assembly and testing operation
from Korea to Singapore. As a result of this planned and on-going expansion of
operations in our Singapore location, we re-evaluated our expectation as to
whether or not our renewal option for the related lease was reasonably
assured. As a result of this analysis,
we have re-evaluated and adjusted the estimated remaining useful life of
leasehold improvements in our Singapore facility by approximately five years.
In the current quarter, the benefit from the extended remaining useful life of the
Singapore facility leasehold improvements was immaterial. We expect the benefit
of extending the estimated useful lives of these assets to be $0.7 million for
the fiscal year ending December 25, 2010.
During
the second quarter of fiscal 2010, we determined that an impairment analysis of
our long-lived assets was required due to the combined effect of a sustained
decline in the Companys stock price, a significant change in our business
strategy in connection with the Q2 2010 Restructuring Plan and recurring
operating losses. Accordingly, management tested the recoverability of its long
lived assets in the second quarter of fiscal 2010.
We
determined our long-lived asset group to be our consolidated long-lived assets
as we have determined that we operate as one reporting unit and segment. The recoverability of assets to be held and
used was measured by comparing the carrying amount of these assets to the
estimated undiscounted future cash flows expected to be generated by the
assets. If the carrying amount of the asset exceeds its estimated undiscounted
future net cash flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of the asset. As a
result of this test, we concluded that the Companys business is able to fully
recover the carrying value of its assets and did not recognize any impairment
charges in the second quarter of fiscal 2010.
12
Table
of Contents
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
|
|
Six Months Ended
|
|
|
|
June 26,
|
|
June 27,
|
|
June 26,
|
|
June 27,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Net loss
|
|
$
|
(33,864
|
)
|
$
|
(65,846
|
)
|
$
|
(72,048
|
)
|
$
|
(103,789
|
)
|
Unrealized gain/(loss) on investments, net
|
|
336
|
|
(151
|
)
|
350
|
|
(564
|
)
|
Cumulative translation adjustments
|
|
89
|
|
359
|
|
(29
|
)
|
(300
|
)
|
Comprehensive loss
|
|
$
|
(33,439
|
)
|
$
|
(65,638
|
)
|
$
|
(71,727
|
)
|
$
|
(104,653
|
)
|
Components of accumulated
other comprehensive income were as follows (in thousands):
|
|
June 26,
|
|
December 26,
|
|
|
|
2010
|
|
2009
|
|
Unrealized gain on marketable securities, net of
tax of $299 at June 26, 2010 and December 26, 2009, respectively
|
|
$
|
449
|
|
$
|
99
|
|
Cumulative translation adjustments
|
|
1,125
|
|
1,154
|
|
Accumulated other comprehensive income
|
|
$
|
1,574
|
|
$
|
1,253
|
|
Note 12 Stockholders Equity
Stock Option Plans
We
have three equity incentive plans: Incentive Option Plan and Management
Incentive Option Plan (together, the Prior Plans), and 2002 Equity Incentive
Plan (the 2002 Plan), which became effective in June 2002. Upon the
effectiveness of the 2002 Plan, we ceased granting any equity awards under the
Prior Plans, although forfeited, repurchased, cancelled or terminated Prior
Plan shares were transferred to the 2002 Plan.
Stock
option activity under the Prior Plans and the 2002 Plan during the six months
ended June 26, 2010 is set forth below:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Weighted
|
|
Remaining
|
|
Aggregate
|
|
|
|
Options
|
|
Average
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Outstanding
|
|
Exercise Price
|
|
Life in Years
|
|
Value
|
|
Balances, December 26, 2009
|
|
5,859,820
|
|
$
|
26.17
|
|
|
|
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
(11,763
|
)
|
7.98
|
|
|
|
|
|
Options cancelled:
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(58,170
|
)
|
35.67
|
|
|
|
|
|
Expired
|
|
(25,094
|
)
|
37.95
|
|
|
|
|
|
Balances, March 27, 2010
|
|
5,764,793
|
|
$
|
26.06
|
|
3.96
|
|
$
|
6,180,392
|
|
Options granted
|
|
420,570
|
|
14.90
|
|
|
|
|
|
Options exercised
|
|
(5,325
|
)
|
6.87
|
|
|
|
|
|
Options cancelled:
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(266,392
|
)
|
19.66
|
|
|
|
|
|
Expired
|
|
(276,688
|
)
|
29.55
|
|
|
|
|
|
Balances, June 26, 2010
|
|
5,636,958
|
|
$
|
25.38
|
|
3.85
|
|
$
|
2,220,585
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at June 26, 2010
|
|
5,419,362
|
|
$
|
25.61
|
|
3.77
|
|
$
|
2,220,585
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 26, 2010
|
|
4,569,506
|
|
$
|
26.25
|
|
3.42
|
|
$
|
2,220,585
|
|
13
Table of
Contents
The
weighted average grant-date fair value of options granted during the quarter
ended June 26, 2010 was $6.37 per share. The intrinsic value of option
exercises during the three and six months ended June 26, 2010 was $36,000
and $0.2 million. Cash received from stock option exercises during the three
and six months ended June 26, 2010 was $37,000 and $0.1 million. We did
not realize any gross tax benefits in connection with these exercises.
Restricted Stock Units
Activity of the restricted stock units under the 2002 Plan during the six
months ended June 26, 2010 is set forth below:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
Grant Date
|
|
|
|
Units
|
|
Fair Value
|
|
Restricted stock units at December 26, 2009
|
|
1,491,678
|
|
$
|
18.51
|
|
Awards granted
|
|
48,640
|
|
16.58
|
|
Awards released
|
|
(101,872
|
)
|
20.18
|
|
Awards cancelled
|
|
(85,127
|
)
|
18.18
|
|
Restricted stock units at March 27, 2010
|
|
1,353,319
|
|
$
|
18.33
|
|
Awards granted
|
|
631,678
|
|
15.39
|
|
Awards released
|
|
(260,344
|
)
|
17.89
|
|
Awards cancelled
|
|
(60,032
|
)
|
20.36
|
|
Restricted stock units at June 26, 2010
|
|
1,664,621
|
|
$
|
17.21
|
|
Note 13
Stock-Based Compensation
We
account 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 charges included in
the Condensed Consolidated Statement of Operations (in thousands):
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 26,
|
|
June 27,
|
|
June 26,
|
|
June 27,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Stock-based compensation expense included in:
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
994
|
|
$
|
935
|
|
$
|
1,965
|
|
$
|
1,693
|
|
Research and development
|
|
1,963
|
|
1,449
|
|
3,356
|
|
2,438
|
|
Selling, general and administrative
|
|
937
|
|
4,738
|
|
3,831
|
|
7,562
|
|
Restructuring
|
|
176
|
|
|
|
176
|
|
216
|
|
Total stock-based compensation
|
|
4,070
|
|
7,122
|
|
9,328
|
|
11,909
|
|
Tax effect on stock-based compensation
|
|
|
|
(2,400
|
)
|
|
|
(4,018
|
)
|
Total stock-based compensation, net of tax
|
|
$
|
4,070
|
|
$
|
4,722
|
|
$
|
9,328
|
|
$
|
7,891
|
|
Stock Options
There were 420,570 options granted during the three months ended June 26,
2010. There were no options granted in the first quarter of fiscal 2010. The
following weighted-average assumptions were used in the estimated grant-date
fair value calculations for stock options:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 26,
|
|
June 27,
|
|
June 26,
|
|
June 27,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Stock Options:
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
49.74
|
%
|
53.3
|
%
|
49.74
|
%
|
53.4
|
%
|
Risk-free interest rate
|
|
1.91
|
%
|
1.68
|
%
|
1.91
|
%
|
1.68
|
%
|
Expected term (in years)
|
|
4.47
|
|
4.67
|
|
4.47
|
|
4.67
|
|
14
Table
of Contents
Employee Stock Purchase Plan
There were no shares issued under the Employee Stock Purchase Plan (ESPP)
during the three months ended June 26, 2010 and June 27, 2009, respectively.
During the six months ended June 26, 2010 and June 27, 2009, 157,961 shares and
154,145 shares, respectively, were issued under the ESPP.
Unrecognized Compensation Costs
At June 26, 2010, the
unrecognized stock-based compensation, adjusted for estimated forfeitures, was
as follows (in thousands):
|
|
|
|
Average Expected
|
|
|
|
Unrecognized
|
|
Recognition Period
|
|
|
|
Expense
|
|
in years
|
|
Stock options
|
|
$
|
7,713
|
|
1.82
|
|
Restricted stock units
|
|
18,066
|
|
2.67
|
|
Employee Stock Purchase Plan
|
|
113
|
|
0.09
|
|
Total unrecognized stock-based compensation
expense
|
|
$
|
25,892
|
|
|
|
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 three and six months ended June 26, 2010 and June 27, 2009, respectively,
was 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.
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
|
|
Six Months Ended
|
|
|
|
June 26,
|
|
June 27,
|
|
June 26,
|
|
June 27,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Basic net loss per share
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(33,864
|
)
|
$
|
(65,846
|
)
|
$
|
(72,048
|
)
|
$
|
(103,789
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding
|
|
50,084
|
|
49,394
|
|
49,989
|
|
49,297
|
|
Diluted net loss per share
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(33,864
|
)
|
$
|
(65,846
|
)
|
$
|
(72,048
|
)
|
$
|
(103,789
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing basic
net loss per share
|
|
50,084
|
|
49,394
|
|
49,989
|
|
49,297
|
|
Add stock options, restricted stock units, ESPP,
warrants and common stock subject to repurchase
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing diluted
net loss per share
|
|
50,084
|
|
49,394
|
|
49,989
|
|
49,297
|
|
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
anti-dilutive (in thousands):
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 26,
|
|
June 27,
|
|
June 26,
|
|
June 27,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Options to purchase common stock
|
|
5,076
|
|
5,373
|
|
5,134
|
|
5,475
|
|
Restricted stock units
|
|
596
|
|
31
|
|
88
|
|
|
|
Employee Stock Purchase Plan
|
|
174
|
|
98
|
|
174
|
|
98
|
|
Total potentially dilutive securities
|
|
5,846
|
|
5,502
|
|
5,396
|
|
5,573
|
|
15
Table of
Contents
Note 15 Income Taxes
The
income tax provision for the three and six months ended June 26, 2010 primarily
reflects taxes on our non-U.S. operations. We maintain a valuation
allowance for our Federal, state, and certain non-U.S. jurisdictions
deferred tax assets. The income tax provision for the three and six
months ended June 27, 2009 is primarily due to the recognition of a valuation
allowance against the Companys Federal and state deferred tax assets in
accordance with the prevailing guidance for accounting for income taxes.
Accounting
standards related to accounting for uncertainty in income taxes recognized in
an enterprises financial statements prescribe a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return as well as
guidance on de-recognition of tax benefits. We classify interest and
penalties related to uncertain tax positions as part of the income tax
provision. Related to the unrecognized tax benefits, we accrued interest of
approximately $46,000 and zero penalties and approximately $0.1 million and
zero penalties for the three and six months ended June 26, 2010,
respectively. We recognized interest expense of $10,000 and zero
penalties and $0.1 million and zero penalties for the three and six months
ended June 27, 2009, respectively. Related to the unrecognized tax
benefits, we have an accrued total interest of $0.9 million and zero penalties
as of June 26, 2010.
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 June 26, 2010,
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.
Note 16 Commitments and Contingencies
Environmental Matters
We are 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. We
believe that we comply in all material respects with the environmental laws and
regulations that apply to us, 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 our facilities because we
believe that it is not probable that a liability has been incurred as of June
26, 2010.
While we believe that we are in compliance in all material respects
with the environmental laws and regulations that apply to us, in the future, we
may receive environmental violation notices and, if received, final resolution
of the violations identified by these notices could harm our operations, which
may adversely impact our operating results and cash flows. New laws and
regulations, stricter enforcement of existing laws and regulations, the
discovery of previously unknown contamination at our or others sites or the
imposition of new cleanup requirements could also harm our operations, thereby
adversely impacting our operating results and cash flows.
Legal Matters
From time to time, we may be subject to legal proceedings and claims in
the ordinary course of business. For the fiscal quarter ended June 26, 2010, we
were not involved in any material legal proceedings, other than the proceedings
summarized below. In the future we may become a party to additional legal
proceedings, including proceedings designed to protect our intellectual
property rights that require us to spend significant resources. Litigation, in
general, and intellectual property litigation in particular, can be expensive
and disruptive to normal business operations. Moreover, the results of legal
proceedings are difficult to predict, and the costs incurred in litigation can
be substantial, regardless of outcome.
Patent Litigation
We initiated patent
infringement litigation in the United States against Phicom Corporation, a
Korea corporation, with a current operating name of TSC Memsys Corp., here
referred to as Phicom, and against Micronics Japan Co., Ltd., a Japan
corporation, and its U.S. subsidiary, both collectively Micronics Japan. In
2005, we filed a patent infringement lawsuit in the United States
16
Table of Contents
District Court for the District of Oregon
against Phicom charging that it is willfully infringing four U.S. patents that
cover key aspects of our wafer probe cardsU.S. Patent Nos. 5,974,662,
6,246,247, 6,624,648, and 5,994,152. In 2006, we also filed an amended
complaint in the same Oregon district court adding two additional patents to
the litigationU.S. Patent Nos. 7,073,254 and 6,615,485. Also in 2006, we 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 our wafer
probe cardsU.S. Patent Nos. 6,246,247, 6,509,751, 6,624,648, and
7,073,254. The relief sought in the
complaints includes past damages and injunctive relief.
These two district court
actions were stayed pending resolution of the complaint that we filed with the
United States International Trade Commission, or ITC, on or about
November 13, 2007, seeking institution of a formal investigation into the
activities of Micronics Japan and Phicom. The requested investigation as filed
encompassed U.S. Patent Nos. 5,994,152, 6,509,751, 6,615,485, 6,624,648 and
7,225,538 and alleged 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 and alleged 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 us.
In November 2009 in
response to a request for review of prior decisions by an ITC Administrative
Law Judge, the Commission issued a decision, which is termed a final
determination, finding certain of our asserted patent claims valid, but not
infringed, and other asserted patent claims invalid. The Commission did not find a violation of
Section 337 of the Tariff Act of 1930 and terminated the investigation
without issuing an exclusionary order against any products. We did not appeal
the final determination to the Court of Appeals for the Federal Circuit. The
stay in the district court action against Micronics Japan was lifted, and in
July 2010 we reached an amicable resolution of the action against Micronics Japan
resulting in the dismissal of the patent infringement lawsuit in the United
States District Court for the Northern District of California. The terms and conditions of the settlement
agreement are confidential. The stay in
the district court action against Phicom was also lifted and the parties were
directed to engage in a non-binding mediation in an attempt to amicable resolve
the litigation. If the matter is not
amicably resolved, we anticipate the action will proceed forward.
In addition to the United
States litigations, we also initiated actions in Seoul, South Korea against
Phicom. In 2004 we filed two actions in Seoul Southern District Court, located
in Seoul, South Korea, against Phicom alleging infringement of our Korean
Patent Nos. 252,457, 324,064, 278,342 and 399,210. In the action alleging
infringement of our Korean Patent Nos. 278,342 and 399,210, the Seoul Southern
District Court closed the case after rejecting our petition. We filed an appeal
to the Seoul High Court regarding the decisions on our Korean Patent Nos.
278,342 and 399,210, but elected to voluntarily withdraw the appeal. The Seoul
Southern District Court also rendered decisions unfavorable to us related to
our Korean Patent Nos. 252,457 and 324,064 and the Seoul High Court dismissed
our appeals of those decisions. The Seoul High Court decisions are subject to a
final appeal to the Korea Supreme Court but we elected not to file such
appeals. We also in 2006 filed in the Seoul Central District Court two actions,
including a preliminary injunction action, against Phicom alleging infringement
of certain claims of our Korea Patent No. 252,457. The Seoul Central
District Court did not accept the preliminary injunction action and both
actions have been closed.
In response to our
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 our 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 our Korean Patent Nos. 278,342 and
399,210; and in 2006, issued a ruling holding invalid certain claims of our
Korean Patent No. 324,064. We appealed those rulings to the Korea Supreme
Court, which affirmed the Korea Patent Court rulings and dismissed our appeals.
In 2006, the Korea Patent Court issued a ruling upholding the validity of our
Korean Patent No. 252,457. Phicom appealed the Patent Court ruling on
Korean Patent No. 252,457 to the Korea Supreme Court. In June 2008,
the Korea Supreme Court reversed the Patent Court ruling, finding invalid
certain claims of our Korean Patent No. 252,457 and remanding the case for
further trial. We also filed a correction trial with KIPO on certain claims of
Korean Patent No. 252,457. KIPO has issued decisions unfavorable to us in
both of the actions relating to our Korean Patent No. 252,457, and those
actions are now pending before the Korea Patent Court.
Additionally, one or more
third parties have initiated challenges in the U.S. and in foreign patent
offices against certain of the above and other of our patents. These actions
include re-examination proceedings filed in the U.S. Patent and Trademark
Office, USPTO, against three of our U.S. patents that were at issue in the ITC
investigation. In the USPTO re-examination proceedings, all of the challenged
claims have been finally rejected as non-patentable, and we have requested
review of those rejections. The foreign actions include proceedings in Korea
against two of our Korean patents, and proceedings in Taiwan against four of
our Taiwan patents.
In July 2010, we filed a
patent infringement lawsuit in the United States District Court for the
Northern District of California against Micro-Probe Incorporated charging that
it is willfully infringing six U.S. patents that cover aspects of our proprietary
technology and wafer probe cards. The
complaint seeks both injunctive relief and money damages for Micro-Probes
alleged
17
Table of Contents
infringement of our US Patent No. 6,441,315
for Contact Structures With Blades Having A Wiping Motion, US Patent No.
6,825,422 for Interconnection Element With Contact Blade, US Patent No.
6,965,244 for High Performance Probe System, US Patent No. 7,227,371 for High
Performance Probe System, US Patent No. 6,246,247 for Probe Card Assembly and
Kit, and Methods of Using Same, and US Patent No. 6,624,648 for Probe Card
Assembly. The complaint also seeks injunctive relief and damages against
Micro-Probe for unfair competition and further includes claims directed against
a former employee for breach of confidence relative to our confidential and
propriety information and against the former employee and Micro-Probe for
conspiring to breach that confidence. Neither Micro-Probe nor the former
employee, nor counsel on their behalf, has made an appearance in court in the
action.
No provision has been made
for patent-related litigation because we believe that it is not probable that a
liability had been incurred as of June 26, 2010. We will incur material
attorneys fees in prosecuting and defending the various identified actions.
Commercial Litigation
On February 20, 2009,
we 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 us and Spansion, has failed to pay us for
probe cards that we designed, developed and manufactured pursuant to several
purchase orders placed by Spansion with us pursuant to the agreement. The
complaint states that as of February 13, 2009, Spansion owed us $8,094,533
for probe cards delivered by us and not paid for by Spansion. In the complaint,
we are 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 we believe Spansion received from a
certain third party entity, (iii) a prejudgment writ of attachment in
favor of us 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 our complaint against Spansion.
In November 2009, we sold all rights, title and interest in the bankruptcy
claim to a third party in exchange for net proceeds of less than full value of
the asserted claim.
Indemnification Arrangements
We from time to time in the ordinary course of our business enter into
contractual arrangements with third parties that include indemnification
obligations. Under these contractual arrangements, we have 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 our wafer probe cards infringe a third partys intellectual
property and our lessors in connection with facility leasehold liabilities that
we may cause. In addition, we have entered into indemnification agreements with
our directors and certain of our officers, and our bylaws contain
indemnification obligations in favor of our directors, officers and agents.
These indemnity arrangements may limit the type of the claim, the total amount
that we 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 indemnification obligation may vary, and for most arrangements,
survives the agreement term and is indefinite. 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.
We have not had any requests for indemnification under these arrangements. We
have not recorded any liabilities for these indemnification arrangements on our
condensed consolidated balance sheet as of June 26, 2010.
Substantially all of our indemnities and commitments provide for
limitations on the maximum potential future payments we could be obligated to
make. However, we are unable to estimate the maximum amount of liability
related to our indemnities and commitments because such liabilities are
contingent upon the occurrence of events which are not reasonably determinable.
Our management believes that any liability for these indemnities and
commitments would not be material to our accompanying consolidated financial
statements.
Note 17
Derivative Financial Instruments
We
operate and sell our products in various global markets. As a result, we are
exposed to changes in foreign currency exchange rates. We utilize 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. We do not use
derivative financial instruments for speculative or trading purposes. Our
derivative instruments, which are generally settled in the same quarter, are
not designated as hedging instruments. We record the fair value of these
contracts as of the end of our reporting period to our consolidated balance
sheet with changes in fair value recorded in our consolidated statement of
operations in Other income (expense), net for both realized and unrealized
gains and losses.
18
Table of
Contents
As of June 26, 2010, there were three outstanding foreign exchange
forward contracts to sell Japanese Yen and Korean Won and buy Taiwan Dollars.
The following table provides information about our foreign currency forward
contracts outstanding as of June 26, 2010 (in thousands):
|
|
Contract Amount
(Local Currency)
|
|
Contract Amount
(U.S. Dollars)
|
|
Japanese Yen
|
|
1,260,138
|
|
$
|
14,099
|
|
Taiwan Dollar
|
|
(3,676
|
)
|
(115
|
)
|
Korean Won
|
|
8,245,552
|
|
6,834
|
|
Total USD notional amount of outstanding foreign
exchange contracts
|
|
|
|
$
|
20,818
|
|
The contracts were entered into on June 25, 2010 and matured on June
29, 2010. There was no change in the value of these contracts as of June 26,
2010. Additionally, no gains or losses relating to the outstanding derivative
contracts were recorded in the three months ended June 26, 2010.
The location and amount of gains and losses related to non-designated
derivative instruments that matured in the three and six months ended June 26,
2010 and June 27, 2009 in the Condensed Consolidated Statement of Operations
are as follows (in thousands):
|
|
|
|
Amount of Gain or (Loss) Recognized on
Derivatives
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Derivatives Not Designated as
|
|
Location of Gain or (Loss)
|
|
June 26,
|
|
June 27,
|
|
June 26,
|
|
June 27,
|
|
Hedging
Instruments
|
|
Recognized on Derivatives
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
Other
Income (expense), net
|
|
$
|
(258
|
)
|
$
|
(792
|
)
|
$
|
(439
|
)
|
$
|
1,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 18
Departure of Executive Officers
We
entered into a Separation Agreement on June 6, 2010 (CEO Separation Agreement)
with Mario Ruscev in connection with his resignation as Chief Executive Officer
on May 19, 2010. Under the CEO Separation Agreement, Dr. Ruscev will receive a
lump sum severance payment of $690,411, consisting of one year of his current
base salary and a prorata portion of his annual bonus, less required payroll
deductions and withholdings. In accordance with the CEO Separation Agreement,
this amount will be paid in November 2010.
In addition, the vesting of 11,750 restricted stock units and 138,500
stock option awards has been accelerated and Dr. Ruscev will have 12 months to
exercise any vested and unexpired outstanding stock options.
We entered into a
Separation Agreement on June 1, 2010 (CFO Separation Agreement) with Jean
Bernard Vernet in connection with his resignation as Chief Financial Officer on
May 19, 2010. Under the CFO Separation Agreement, Mr. Vernet is entitled to
receive a lump sum severance payment of $162,500, less required payroll
deductions and withholdings. This amount was paid in May 2010. In addition, the vesting of 3,000 restricted
stock units and 7,500 stock option awards has been accelerated and Mr. Vernet
will have nine months to exercise any vested and unexpired outstanding stock
options.
We
recorded a net charge of $0.6 million within Selling, General &
Administrative expenses in the Condensed Consolidated Statements of Operations,
comprised of $0.9 million of severance expenses net of $0.3 million benefits
from the stock-based compensation.
We
will pay for monthly COBRA premiums for up to six and twelve months,
respectively, for Mr.
Vernet and Dr. Ruscev, as well as
provide reimbursement for
reasonable relocation expenses for both Mr. Vernet and Dr. Ruscev. They have
signed a general release and waiver of claims in favor of the Company, and
continue to be bound by the Companys employment, confidential information and
invention assignment agreement.
19
Table of
Contents
Item 2.
Managements Discussion and Analysis of Financial
Condition and Results of Operations
Cautionary
Statement Regarding Forward-Looking Statements
This Quarterly Report on
Form 10-Q contains forward-looking statements within the meaning of the
Securities Exchange Act of 1934 and the Securities Act of 1933, which are
subject to risks, uncertainties and assumptions that are difficult to predict.
The forward-looking statements include statements concerning, among other
things, our business strategy, including anticipated trends and developments in
and management plans for our business and the markets in which we operate,
financial results, operating results, revenues, gross margin, operating
expenses, products, projected costs and capital expenditures, research and
development programs, sales and marketing initiatives, and competition. In some
cases, you can identify these statements by forward-looking words such as may,
might, 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 26, 2009, in our Quarterly
Report on Form 10-Q for the quarter ended March 27, 2010, and in the section
titled Risk Factors and elsewhere in this Quarterly Report. You should
carefully consider the numerous risks and uncertainties described under these
sections.
The following discussion and
analysis should be read in conjunction with our condensed consolidated
financial statements and the accompanying notes contained in this Quarterly
Report. Unless expressly stated or the context otherwise requires, the terms we,
our, us and FormFactor refer to FormFactor, Inc. and its
subsidiaries.
Overview
We design, develop,
manufacture, sell and support precision, high performance advanced
semiconductor wafer probe card products and solutions. Semiconductor
manufacturers use our wafer probe cards to perform wafer sort and test on the
semiconductor die, or chips, on the whole semiconductor wafer, 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. During
wafer sort and test, a wafer probe card is mounted in a prober and connected to
a semiconductor tester. The wafer probe card is used as an interface to connect
electrically with and test individual chips on a wafer. Our wafer probe cards
are used by our customers in the front end of the semiconductor manufacturing
process, as are our parametric, or in-line, probe cards. We 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.
We incurred a net loss of
$33.9 million in the second quarter of fiscal 2010 as compared to net loss of
$65.8 million for the second quarter of fiscal 2009. The net loss for the
second quarter of fiscal 2010 includes $2.5 million of pre-tax restructuring
charges and $0.6 million of severance costs related to the recent change in
executive management, as well as the impairment of certain fixed assets of $1.0
million. The net loss for the second quarter of fiscal 2009 included a $44.7
million valuation allowance recorded against our deferred tax assets. We
incurred a net loss of $72.0 million in the first half of fiscal 2010 as
compared to net loss of $103.8 million for the first half of fiscal 2009. The
net loss for the first half of fiscal 2010 is primarily due to low revenue and
margins, $6.1 million of pre-tax restructuring charges, and the impairment of
certain fixed assets of $1.0 million. The net loss for the first half of fiscal
2009 is primarily due to the low revenues and margins, the $44.7 million
valuation allowance for our deferred tax assets, $7.9 million restructuring
charges and the $4.9 million provision for bad debts due to the heightened risk
of non-payment of certain accounts receivable.
Our cash, cash equivalents
and marketable securities totaled approximately $397.8 million as of June 26,
2010, as compared to $449.2 million at December 26, 2009. 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 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
could further decline in the third quarter of fiscal 2010 and in future fiscal
quarters.
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.
20
Table of
Contents
Cost of Revenues.
Cost of
revenues consists primarily of manufacturing materials, payroll, shipping and
handling costs 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 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 of a customer 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 based
on assumptions about future demand, changes to manufacturing processes, and
overall 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 costs related to employee termination benefits, cost of long-lived
assets abandoned or impaired, as well as contract termination costs.
Use of Estimates.
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 of intangible assets, the assessment of recoverability of
long-lived assets, 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.
Results of Operations
The
following table sets forth our operating results as a percentage of revenues
for the periods indicated:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 26,
|
|
June 27,
|
|
June 26,
|
|
June 27,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Revenues
|
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
Cost of revenues
|
|
94.9
|
|
104.3
|
|
99.4
|
|
108.5
|
|
Gross profit
|
|
5.1
|
|
(4.3
|
)
|
0.6
|
|
(8.5
|
)
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
27.8
|
|
44.7
|
|
31.9
|
|
47.9
|
|
Selling, general and administrative
|
|
32.5
|
|
58.5
|
|
37.6
|
|
76.1
|
|
Restructuring charges
|
|
4.4
|
|
0.8
|
|
6.2
|
|
13.6
|
|
Total operating expenses
|
|
64.7
|
|
104.0
|
|
75.7
|
|
137.6
|
|
Operating loss
|
|
(59.6
|
)
|
(108.3
|
)
|
(75.1
|
)
|
(146.1
|
)
|
Interest income, net
|
|
1.3
|
|
2.4
|
|
1.5
|
|
3.2
|
|
Other income (expense)
|
|
(0.1
|
)
|
(0.3
|
)
|
0.0
|
|
(0.9
|
)
|
Loss before income taxes
|
|
(58.4
|
)
|
(106.2
|
)
|
(73.6
|
)
|
(143.8
|
)
|
Provision for (benefit from) income taxes
|
|
0.3
|
|
104.9
|
|
0.5
|
|
33.5
|
|
Net loss
|
|
(58.7
|
)%
|
(211.1
|
)%
|
(74.1
|
)%
|
(177.3
|
)%
|
21
Table of
Contents
Three and Six Months Ended
June 26, 2010 and June 27, 2009:
Revenues
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 26,
|
|
June 27,
|
|
|
|
June 26,
|
|
June 27,
|
|
|
|
|
|
2010
|
|
2009
|
|
% Change
|
|
2010
|
|
2009
|
|
% Change
|
|
|
|
(In thousands, except percentages)
|
|
Revenues by Market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DRAM
|
|
$
|
42,390
|
|
$
|
25,267
|
|
67.8
|
%
|
$
|
74,158
|
|
$
|
48,813
|
|
51.9
|
%
|
Flash
|
|
8,434
|
|
1,852
|
|
355.4
|
|
11,894
|
|
2,471
|
|
381.3
|
|
SoC
|
|
6,816
|
|
4,079
|
|
67.1
|
|
11,254
|
|
7,283
|
|
54.5
|
|
Total revenues
|
|
$
|
57,640
|
|
$
|
31,198
|
|
84.8
|
%
|
$
|
97,306
|
|
$
|
58,567
|
|
66.1
|
%
|
Revenues for the
three and six months ended June 26, 2010 increased 84.8%, or $26.4 million, and
66.1%, or $38.7 million
, compared to the revenues of the comparable periods
of the prior year. The increases are primarily due to increased demand for our
advanced wafer probe cards caused by an overall improvement in the
semiconductor market, and in particular the memory segment.
Our revenues for
the three and six months ended June 26, 2010 were primarily generated by sales
of wafer probe cards to manufacturers of DRAM devices. Revenues for our products
that address the DRAM segment in the three and six months ended June 26, 2010
increased significantly compared to the same periods in the prior year,
primarily due to the ramp of DDR3 and the introduction of our SmartMatrix
products.
Revenues
from sales to Flash memory device manufacturers increased significantly in the
three and six months ended June 26, 2010 compared to the same periods in the
prior year. The increases were driven by sales in NOR and a significant
increase in NAND Flash wafer probe cards, resulting from the recent
qualification of TouchMatrix at one of our largest customers.
Revenues from
sales to SoC device manufacturers increased in the three and six months ended
June 26, 2010 compared to the same periods in the prior year, primarily due to
the overall upturn in the semiconductor industry which positively impacted
revenues from sales of our wafer probe cards.
Revenues by Geographic Region
The following table sets
forth our revenues by geographic region for the periods indicated:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 26,
|
|
% of
|
|
June 27,
|
|
% of
|
|
June 26,
|
|
% of
|
|
June 27,
|
|
% of
|
|
|
|
2010
|
|
Revenue
|
|
2009
|
|
Revenue
|
|
2010
|
|
Revenue
|
|
2009
|
|
Revenue
|
|
|
|
(In thousands, except percentages)
|
|
Taiwan
|
|
$
|
22,464
|
|
39.0
|
%
|
$
|
5,869
|
|
18.8
|
%
|
$
|
37,026
|
|
38.1
|
%
|
$
|
7,035
|
|
12.0
|
%
|
Japan
|
|
12,333
|
|
21.3
|
|
14,018
|
|
44.9
|
|
16,841
|
|
17.3
|
|
33,884
|
|
57.8
|
|
North America
|
|
11,447
|
|
19.9
|
|
6,232
|
|
20.0
|
|
20,011
|
|
20.5
|
|
9,180
|
|
15.7
|
|
Asia Pacific (1)
|
|
8,828
|
|
15.3
|
|
3,925
|
|
12.6
|
|
18,773
|
|
19.3
|
|
6,000
|
|
10.3
|
|
Europe
|
|
2,568
|
|
4.5
|
|
1,154
|
|
3.7
|
|
4,655
|
|
4.8
|
|
2,468
|
|
4.2
|
|
Total revenues
|
|
$
|
57,640
|
|
100.0
|
%
|
$
|
31,198
|
|
100.0
|
%
|
$
|
97,306
|
|
100.0
|
%
|
$
|
58,567
|
|
100.0
|
%
|
(1) Includes all
countries in the Asia Pacific region except Taiwan and Japan, which are
disclosed separately.
Geographic revenue
information is based on the location to which we ship the customer product. For
example, if certain South Korean customer purchases through their North
American subsidiary and requests the products to be shipped to an address in
Europe, this sale will be reflected in the revenue for Europe.
The significant increases in
Taiwan, Asia Pacific, and North America revenues for the three and six months
ended June 26, 2010 compared to the same periods in the prior year were
primarily driven by increased demand for our DRAM wafer probe cards in these
regions. The decreases in Japan revenue
for the three and six months ended June 26, 2010 compared to the same periods
in the prior year were primarily due to the decrease in our DRAM product sales
in the region. Revenue in Europe increased for the three and six months ended
June 26, 2010 due to the increased demand for all of our products in this
region.
22
Table of
Contents
The following customers
accounted for more than 10% of our revenues:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 26,
|
|
June 27,
|
|
June 26,
|
|
June 27,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Elpida Memory(3)
|
|
28.1
|
%
|
43.7
|
%
|
21.6
|
%
|
56.4
|
%
|
Samsung(2)
|
|
12.0
|
|
*
|
|
12.4
|
|
*
|
|
Inotera
|
|
11.8
|
|
*
|
|
*
|
|
*
|
|
Hynix Semiconductor(1)
|
|
10.5
|
|
*
|
|
13.8
|
|
*
|
|
(1)
Includes Hynix Semiconductor
and its consolidated subsidiary Hynix-Numonyx.
(2)
Includes Samsung
Semiconductor and its consolidated subsidiary Samsung Austin Semiconductor.
(3)
Includes Elpida Memory and
its consolidated subsidiaries, Rexchip and Tera Probe.
*
Less than 10% of revenues.
The percentages above
reflect customer constellations as of June 26, 2010. Prior period
concentrations have been updated to reflect the current customer compositions.
Gross Profit (Loss)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 26,
|
|
June 27,
|
|
June 26,
|
|
June 27,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(In thousands, except percentages)
|
|
Gross profit (loss)
|
|
$
|
2,931
|
|
$
|
(1,326
|
)
|
$
|
603
|
|
$
|
(5,005
|
)
|
Gross margin
|
|
5.1
|
%
|
(4.3
|
)%
|
0.6
|
%
|
(8.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin fluctuates with revenue levels, product mix, selling
prices, factory loading, and material costs. For the three and six months ended
June 26, 2010, gross margin improved compared to the same periods in the prior
year, primarily due to the increases in revenue driving higher factory
utilization, thereby reducing unit manufacturing costs, combined with favorable
changes in product mix from lower margin to higher margin products. In the
second quarter of fiscal 2010, we recognized a benefit of $0.7 million, which
was comprised of a charge of $4.0 million to the inventory provision for the
increased level of materials held in excess of actual demand, offset by a
reduction of $4.7 million for the revaluation of previously reserved materials.
In the second quarter of fiscal 2009, we
recorded inventory provision charges of $0.8 million. The higher inventory
write-downs in the second quarter of fiscal 2009 were associated with deterioration
in the DRAM memory segment in that period. Gross margins of the three and six
months ended June 26, 2010 included stock-based compensation expense of
$1.0 million and $2.0 million. In addition, we recorded $1.0 million loss
for the impairment of certain equipment related to the termination of an
on-going project in the second quarter of fiscal 2010. Gross margins of the three and six months
ended June 27, 2009 included stock-based compensation expense of $0.9 million
and $1.7 million, respectively.
Our gross margins may continue to be adversely affected if we are
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.
Research and Development
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 26,
|
|
June 27,
|
|
June 26,
|
|
June 27,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(In thousands, except percentages)
|
|
Research and development
|
|
$
|
15,997
|
|
$
|
13,938
|
|
$
|
31,088
|
|
$
|
28,047
|
|
% of revenues
|
|
27.8
|
%
|
44.7
|
%
|
31.9
|
%
|
47.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expenses increased in absolute dollars for the three and six
months ended June 26, 2010 compared to the same periods in the prior year
primarily due to the increase in personnel costs as well as certain new
technology product development related costs. For the three and six months
ended June 26, 2010, personnel costs increased $3.1 million and $4.3 million
from the comparable periods of prior year, primarily due to headcount increases
as well as costs of employee incentive programs totaling $1.2 million for the
second quarter of fiscal 2010. These increases were partially offset by a
reduction in costs associated with certain research and development projects
that were determined to be non-strategic activities and terminated in the
current quarter. Stock-based compensation included within research and
development expenses was $2.0 million and $3.4 million for the three and
six months ended June 26, 2010 compared to $1.4 million and $2.5 million
for the three and six months ended June 27, 2009, with the increase in absolute
dollars being primarily due to the increase in employee stock awards.
23
Table of
Contents
As
a percent of revenues, research and development expenses decreased during the
three and six months ended June 26, 2010 compared to the three and six months
ended June 27, 2009 primarily due to the increased revenue base.
We
are continuing our strategic investments in research and development, including
investments in the development of our next generation parallelism architecture
and products, fine pitch, 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
|
|
Six Months Ended
|
|
|
|
June 26,
|
|
June 27,
|
|
June 26,
|
|
June 27,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(In thousands, except percentages)
|
|
Selling, general and administrative
|
|
$
|
18,725
|
|
$
|
18,263
|
|
$
|
36,592
|
|
$
|
44,574
|
|
% of revenues
|
|
32.5
|
%
|
58.5
|
%
|
37.6
|
%
|
76.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses in absolute dollars for the three months
ended June 26, 2010 increased $0.5 million from the comparable period of the
prior year. Selling, general and
administrative expenses decreased $8.0 million in absolute dollars for the six
months ended June 26, 2010 compared to the same period in the prior year
primarily due to a decrease in outside legal and other professional fees, a
decrease in allowance for provision for doubtful accounts, decrease in
personnel related costs, and facilities-related costs and depreciation.
In
the second quarter of fiscal 2010, we recorded expense of $1.4 million for
incentive bonus amounts and $1.6 million for outside professional service fees.
In connection with the departure of certain executive management of the
Company, we recorded $1.0 million of severance costs in the second quarter of
fiscal 2010. In the second quarter of fiscal 2009, we did not record any
charges for incentive bonus programs or severance packages. Furthermore,
professional fees were $0.6 million during the three months ended June 27,
2009. Additionally, there was a $0.5 million increase in costs allocated to
selling, general and administrative from other functional expense categories,
primarily resulting from increased facilities costs. Stock-based compensation
expenses included within selling, general and administrative expense in the
Condensed Consolidated Statements of Operations were $0.9 million and
$3.8 million for the three and six months ended June 26, 2010 compared to
$4.7 and $7.6 million for the comparable periods of the prior year. The
decrease in stock-based compensation was primarily due to the fully vesting of
the shares that were granted in the first half of fiscal 2006.
As
a percent of revenue, selling, general and administrative expenses decreased in
three and six months ended June 26, 2010 as compared to the comparable periods
of the prior year, primarily due to the increased revenue base along with the
reduction in expenses discussed above.
Restructuring Charges
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 26,
|
|
June 27,
|
|
June 26,
|
|
June 27,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(In thousands, except percentages)
|
|
Restructuring charges
|
|
$
|
2,513
|
|
$
|
264
|
|
$
|
6,063
|
|
$
|
7,943
|
|
% of revenues
|
|
4.4
|
%
|
0.8
|
%
|
6.2
|
%
|
13.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
recorded net restructuring charges of $2.5 million and $6.1 million for the
three and six months ended June 26, 2010, respectively, and $0.3 million and
$7.9 million in the comparable periods of fiscal 2009. The restructuring plans
implemented in the first and second quarters of 2010 are discussed below.
In
the first quarter of fiscal 2010, we implemented a restructuring plan
(the Q1 2010 Restructuring Plan) intended to align resources in continuation
of our global regionalization strategy to place more decision-making in regions
close to our semiconductor customers. As part of this regionalization strategy,
we moved certain assembly and test operations from our back-end manufacturing
processes in Livermore, California to Asia, and planned to bring-up and qualify
our back-end manufacturing operations in Singapore. As a result of this
restructuring plan, our worldwide headcount was expected to be reduced by 106
full-time employees. The activities comprising the reduction in force were
expected to be completed by the end of the first quarter of fiscal 2011. We recorded $3.6 million and $27,000 in
charges for Q1 2010 Restructuring Plan in the first and second quarter of
fiscal 2010, which were all related to severance and related benefits.
24
Table of
Contents
In
the second quarter of fiscal 2010, we announced a series of corporate
initiatives, including a reduction in workforce, which represented a renewed
focus on streamlining and simplifying our operations as well as reducing our
quarterly operating costs (the Q2 2010 Restructuring Plan). These actions
included reducing the scope of the previously contemplated manufacturing
operations in Korea, resulting in a reduction of workforce of 16 employees
related to the assembly and test function. Additionally, we undertook a
further workforce reduction of 67 employees spread across all functions of the
organization to further streamline and simplify our operations and reduce
operating costs. The activities comprising the reduction in force are
expected to be substantially completed by the end of the fourth quarter of
fiscal 2010. We expect to realize quarterly savings, excluding stock-based
compensation expenses, of approximately $2.0 million commencing in the third
quarter of fiscal 2010 as a result of the restructuring actions taken in the
second quarter of fiscal 2010.
We recorded
$4.9 million in charges for the Q2 2010 Restructuring Plan in the second
quarter of fiscal 2010 primarily for severance and related benefits.
Additionally, in conjunction with the Q2 2010 Restructuring Plan we identified
certain equipment and software assets related to our assembly and test
operations in Korea that would no longer be utilized. As a result,
we recorded an impairment charge of approximately $0.9 million, representing
the net book value of these assets. Additionally, in connection with the
Q2 2010 Restructuring Plan and related shift of certain of our manufacturing operations
to Singapore, we have re-evaluated our expectation as to whether or not our
renewal option for the related lease was reasonably assured. As a result of this analysis, we have
re-evaluated and adjusted the estimated remaining useful life of certain
assets, primarily leasehold improvements, in our Singapore facility by
approximately five years. In the current quarter, the benefit from the extended
remaining useful life of the Singapore facility leasehold improvements was
immaterial.
We expect to
realize quarterly savings of approximately $0.3 million commencing in the third
quarter of fiscal 2010.
Due
to the decisions we made regarding our manufacturing operations in Korea and
the expected timing of the qualification of our Singapore back-end
manufacturing operations, these Korea manufacturing operations have been moved
back to our Livermore location in the second quarter of fiscal 2010, resulting
in an increased demand for manufacturing staff in our Livermore location. As a
result, management has undertaken a plan to rescind the previously issued
severance arrangements for certain employees impacted by the Q1 2010
Restructuring Plan. Additionally, these employees have been informed that
if and when the manufacturing line transition occurs we will review our severance
and retention packages at that time. As a result of this rescission plan,
as of June 26, 2010 we have reversed the existing accrual for the
severance costs booked in conjunction with the Q1 2010 Restructuring Plan,
including the accrued retention bonus to date, resulting in a benefit to our
statement of operations of $3.3 million. We expect to have the rescission
plan completed by the end of our third fiscal quarter.
The
liabilities we have accrued represent our best estimate of the obligations we
expect to incur and could be subject to adjustment as market conditions change.
We may incur additional charges for property, plant and equipment write-offs in
future quarters. The cash payments
associated with the reduction in force are expected to be paid out by the end
of the first quarter of fiscal 2011.
Interest Income and Other Income (Expense), Net
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 26,
|
|
June 27,
|
|
June 26,
|
|
June 27,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(In thousands, except percentages)
|
|
Interest income
|
|
$
|
722
|
|
$
|
762
|
|
$
|
1,497
|
|
$
|
1,877
|
|
% of revenue
|
|
1.3
|
%
|
2.4
|
%
|
1.5
|
%
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
$
|
(82
|
)
|
$
|
(89
|
)
|
$
|
35
|
|
$
|
(505
|
)
|
% of revenues
|
|
(0.1
|
)%
|
(0.3
|
)%
|
0.0
|
%
|
(0.9
|
)%
|
25
Table of
Contents
The decrease in interest
income on cash, cash equivalents and marketable securities for the three and
six months ended June 26, 2010 as compared with the same periods of the
prior year were primarily related to lower average balances. Cash, cash
equivalents, restricted cash and marketable securities were $398.4 million at June 26,
2010 compared to $487.5 million at June 27, 2009. Weighted average yields
for the three months ended June 26, 2010 and June 27, 2009 were 0.74%
and 0.73%, and the weighted average yield for both the six months ended June 26,
2010 and June 27, 2009 was 0.75%.
Other income for the three
months and six months ended June 26, 2010 was mainly comprised of income
from the sale of component supplies and net realized gains related to the sale
of investments offset by foreign currency losses primarily related to Korean
Won and Japanese Yen.
Provision for Income Taxes
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 26,
|
|
June 27,
|
|
June 26,
|
|
June 27,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(In thousands, except percentages)
|
|
Provision for (benefit from) income taxes
|
|
$
|
200
|
|
$
|
32,728
|
|
$
|
440
|
|
$
|
19,592
|
|
Effective tax rate
|
|
0.6
|
%
|
98.8
|
%
|
0.6
|
%
|
23.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
income tax provision for the three and six months ended June 26, 2010
primarily reflects taxes on our non-U.S. operations. We maintain a
valuation allowance for our Federal, state, and certain non-U.S.
jurisdictions deferred tax assets. The income tax provision for the
three and six months ended June 27, 2009 is primarily due to the
recognition of a valuation allowance against the Companys Federal and state
deferred tax assets in accordance with the prevailing guidance for accounting
for income taxes.
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 recent cumulative losses, ability to carry back losses
against prior taxable income and lesser weight to projected financial results
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 valuation allowance
is reviewed quarterly and will be maintained until sufficient positive evidence
exists to support the reversal of the valuation allowance. Under current
tax laws, this valuation allowance will not limit our ability to utilize
Federal and state deferred tax assets provided we can generate sufficient
future taxable income.
Accounting
standards related to accounting for uncertainty in income taxes recognized in
an enterprises financial statements prescribe a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return as well as
guidance on de-recognition of tax benefits. We classify interest and
penalties related to uncertain tax positions as part of the income tax
provision. Related to the unrecognized tax benefits, we accrued interest of
approximately $46,000 and zero penalties and approximately $0.1 million and
zero penalties for the three and six months ended June 26, 2010,
respectively. We recognized interest expense of $10,000 and zero
penalties and $0.1 million and zero penalties for the three and six months
ended June 27, 2009, respectively. Related to the unrecognized tax
benefits, we have accrued total interest of $0.9 million and zero penalties as
of June 26, 2010.
The
amount of income taxes we pay is subject to audit 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 June 26, 2010, 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.
Our
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.
26
Table of
Contents
Liquidity and Capital Resources
|
|
June 26,
|
|
December 26,
|
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
Working capital
|
|
$
|
422,517
|
|
$
|
482,607
|
|
(12.5
|
)%
|
Cash, cash equivalents and marketable securities
|
|
397,761
|
|
449,235
|
|
(11.5
|
)
|
|
|
|
|
|
|
|
|
|
|
Working capital:
The decrease
in working capital in the six months ended June 26, 2010 was primarily due
to the use of cash for operating activities and a decrease in our refundable
income taxes due to the receipt of a federal income tax refund of $26.2 million
in March 2010, offset partially by increases in accounts receivable,
inventories and accrued liabilities.
Cash, cash equivalents and
marketable securities:
Cash and cash equivalents
consist of deposits held at major banks, money market funds and U.S. government
securities 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 $12.4
million held by our foreign subsidiaries as of June 26, 2010.
Days Sales Outstanding:
Days sales
outstanding from receivables (DSO) was 82 days at June 26, 2010,
compared with 103 days at December 26, 2009. DSO decreased due to our
improved collection efforts and a shift in our sales to customers with shorter
payment terms.
|
|
Six Months Ended
|
|
|
|
June 26,
|
|
June 27,
|
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
Cash used in operating activities
|
|
$
|
(35,820
|
)
|
$
|
(29,743
|
)
|
20.4
|
%
|
Cash provided by (used in) investing activities
|
|
2,151
|
|
(128,034
|
)
|
101.7
|
|
Cash provided by financing activities
|
|
1,536
|
|
3,002
|
|
(48.8
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
operating activities:
Net cash used in operating activities for
the six months ended June 26, 2010 are primarily driven by the net loss of
$72.0 million incurred during the first half of fiscal 2010 offset in part
by non-cash charges consisting of $16.9 million of depreciation and
amortization, $9.2 million of stock-based compensation and $1.5 million of
loss on disposal and impairment of property and equipment. The net change in
operating assets and liabilities for the six months ended June 26, 2010 of
$6.9 million consisted primarily of the decrease in refundable income taxes,
due to the receipt of a federal income tax refund of $26.2 million in
March 2010, offset by an increase in accounts receivable due to higher
revenues as well as an increase in inventories due to higher sales forecast.
Net
cash used in operating activities for the six months ended June 27, 2009
was primarily driven by the operating loss offset in part by non-cash charges.
The net change in operating assets and liabilities for the six months ended
June 27, 2009 consisted primarily of the increase in gross accounts
receivable and deferred revenue due a shift to longer payment terms for several
customers, 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 provided by investing activities for
the six months ended June 26, 2010 are primarily related to $164.2 million
proceeds from maturities and sales of marketable securities offset by purchases
of marketable securities totaling $145.6 million and $16.5 million cash used in
the acquisition of property and equipment for new product technology. 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.
The
cash flows used in investing activities for the six months ended June 27,
2009 were primarily relate to the purchase of marketable securities and cash
used for capital expenditures in support of information technology system
upgrades and new product technology.
Cash flows provided by financing activities:
The cash flows
provided by financing activities for the six months ended June 26, 2010
are proceeds received from 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.
27
Table of Contents
The
cash flows provided by financing activities for the six months ended
June 27, 2009 were primarily due to $1.9 million received from the
January 2009 purchase 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 $0.7 million.
Our
cash, cash equivalents and marketable securities declined in the second quarter
of fiscal 2010. Given the uncertainty in the global economy and the timing and
relative strength and duration of a recovery in the semiconductor industry, 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. To the extent necessary, we may also
consider 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 remaining
quarters of fiscal 2010.
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 June 26, 2010, 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.
Critical
Accounting Policies
Our
critical accounting policies are disclosed in our Annual Report on
Form 10-K for the year ended December 26, 2009. Our critical
accounting policies have not materially changed during the quarter ended June 26,
2010.
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 26,
2009. Our exposure to market risk has not changed materially since
December 26, 2009.
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 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
second quarter of fiscal 2010 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
28
Table of
Contents
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.
On or about July 14,
2010, we filed a patent infringement lawsuit in the United States District
Court for the Northern District of California against Micro-Probe Incorporated
charging that it is willfully infringing six of our U.S. patents that cover
aspects of FormFactors proprietary technology and wafer probe cards. The complaint seeks both injunctive relief
and money damages for Micro-Probes alleged infringement of FormFactors US
Patent No. 6,441,315 for Contact Structures With Blades Having A Wiping
Motion, US Patent No. 6,825,422 for Interconnection Element With Contact
Blade, US Patent No. 6,965,244 for High Performance Probe System, US
Patent No. 7,227,371 for High Performance Probe System, US Patent No. 6,246,247
for Probe Card Assembly and Kit, and Methods of Using Same, and US Patent No. 6,624,648
for Probe Card Assembly. The complaint also seeks injunctive relief and
damages against Micro-Probe for unfair competition and further includes claims
directed against a former employee for breach of confidence relative to FormFactors
confidential and propriety information and against the former employee and
Micro-Probe for conspiring to breach that confidence. Neither Micro-Probe nor
the former employee, nor counsel on their behalf, have made an appearance in
court in the action.
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 26, 2009, our Quarterly Report on Form 10-Q for the quarter
ended March 27, 2010, 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.
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. Four customers represented 28%, 12%,
12% and 11% of total revenues for the three months ended June 26, 2010.
Three customers represented 22%, 14% and 12% of total revenues for the six
months ended June 26, 2010. In the
second quarter of 2010, our ten largest customers accounted for 86% 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.
Consolidation in the semiconductor industry may increase this concentration. As
a result of the global economic and semiconductor industry downturns, we have
in the more recent past 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
delay in the recovery of the semiconductor industry, or a weaker than
anticipated recovery, or another downturn in the semiconductor industry, from
manufacturing delays, quality or reliability issues with our products, or from
interruptions to our customers operations
29
Table of
Contents
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. If a customer fails to pay us or delays payment for
our products, 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 downturn. 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.
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 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 and in the United
States. 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 United States federal district court action
against a competitor, Phicom Corporation, with a current operating name of TCS
Memsys Corp. We have also filed a
lawsuit in the United States District Court for the Northern District of
California against Micro-Probe Incorporated charging that it is willfully
infringing six of our U.S. patents that cover aspects of our proprietary
technology and wafer probe cards. The
complaint also seeks injunctive relief and damages against Micro-Probe for
unfair competition and further includes claims directed against a former
employee for breach of confidence relative to FormFactors confidential and
propriety information and against the former employee and Micro-Probe for
conspiring to breach that confidence. We may not obtain a favorable ruling in
this U.S. federal district court action. 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.
30
Table of Contents
We have recorded significant restructuring, inventory write-offs 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 fiscal 2008, fiscal 2009, and
fiscal 2010. As we continue to align our operations with our global
regionalization plan and with business requirements, we may implement
additional cost reduction actions, which would require us to take additional,
potentially material, restructuring charges related to 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, including
intangible assets, 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.
Other adverse changes in market conditions, particularly if such changes have
the effect of changing one of the critical assumptions or estimates we used to
calculate the amount of impairment charge, if any, 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.
Our restructuring plan may not properly align our cost structure with
our business needs and overall semiconductor industry requirements and may
adversely affect our business, financial condition, or operating results.
During
the second quarter of 2010, we conducted a reduction in force as part of a
company-wide cost reduction plan in order to help focus our resources more
strategically towards business needs and industry requirements as part of our
global reorganization activities. We expect to realize quarterly savings,
excluding stock-based compensation expenses, of approximately $2.0 million
commencing in the third quarter of 2010 as a result of these restructuring
actions. If we experience expenses in excess of what we anticipate in
connection with these restructuring activities, such as unanticipated costs
associated with bringing up assembly and test operations in Singapore rather
than Korea, or with our slowing our transition from Livermore to Singapore of
certain back-end manufacturing operations, our business, financial condition,
or operating results could be adversely and materially affected. Our business,
financial condition and operating results could also be adversely and
materially affected if we experience unanticipated inefficiencies as a result
of our restructuring activities, such as impaired customer relationships caused
by reduced headcount or delay in ramping the manufacture of our SmartMatrix and
TouchMatrix products, or our decision to implement an end of life plan for
our Harmony products, We also cannot assure you that we will not undertake
additional workforce reductions, that any of our restructuring efforts will be
successful, or that we will be able to realize the cost savings and other
anticipated benefits from our previous or future restructuring plans. In
addition, part of our restructuring plan involves increased work in building up
our Singapore back-end manufacturing operations, which involves numerous risks,
including operational business issues such as productivity, efficiency, and
quality; geographic, cultural, and communication issues; and information
security, intellectual property protection, and other legal issues. Any of these
issues could render our restructuring plan ineffective, which could have a
materially adverse effect on our business, financial condition, or operating
results.
Our efforts to introduce and implement price increases for certain of
our products could result in certain customers deciding to not purchase our
products, which could negatively impact our business and financial results.
During
our second fiscal quarter we issued new pricing guidelines to customers for
certain of our products based on our belief that our company pricing strategy
and guidelines had fallen below normal industry cost-down trend rates. We believe that our new pricing guidelines
are consistent with normal industry cost learning curves, but certain customers
may react negatively to our new pricing and elect to not purchase our products,
or to phase out the purchase of our products, in which case our business,
financial condition and operating results could be materially and adversely
impacted.
Our delay in qualifying our SmartMatrix and TouchMatrix products at
certain of our customers could result in the loss of market share at those
customers, which could negatively impact our business and financial results.
We
are transitioning from our Harmony platform products to our SmartMatrix and
TouchMatrix product lines and have notified our customers of our end of life,
or EOL, plans for our Harmony products.
Although we believe our new SmartMatrix and TouchMatrix products enable
our customers to lower their cost of ownership and we are in, or have
completed, the qualification phase of this transition at all our customers, we
are late to market with these new products and we do expect to lose market
share as we make this product transition.
This share loss is the result of the time required for SmartMatrix and
TouchMatrix product qualifications and of our customers manufacturing lead
times as they move from qualification volumes to full commercial production
volumes, which could result in lost opportunities for us and negatively impact our
business, financial and operating results.
Because of this market timing, our products are not being used by
certain of our customers in their current high volume production runs for
certain devices, which could result in our losing follow-on orders for those
devices, and could also result in customers electing to continue purchasing
wafer probe cards from suppliers other than us to test their future
semiconductor devices, which could result in our loss of market share and have
a negative impact on our business and financial results.
31
Table of
Contents
Item 6.
Exhibits
Exhibit
|
|
|
|
Incorporated by Reference
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
Date
|
|
Number
|
|
Herewith
|
|
|
|
|
|
|
|
|
|
|
|
10.1+
|
|
Employment
Letter Agreement, dated May 19, 2010, between G. Carl Everett, Jr.
and FormFactor, Inc.
|
|
8-K
|
|
5/25/10
|
|
000-50307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2+
|
|
Employment
Letter Agreement, dated May 19, 2010, between Richard DeLateur and
FormFactor, Inc.
|
|
8-K
|
|
5/25/10
|
|
000-50307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1+
|
|
Separation
Agreement and General Release, dated June 1, 2010, between Jean Vernet
and FormFactor, Inc.
|
|
8-K
|
|
6/7/10
|
|
000-50307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2+
|
|
Separation
Agreement and General Release, dated June 6, 2010, between Mario Ruscev
and FormFactor, Inc.
|
|
8-K
|
|
6/7/10
|
|
000-50307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
*
|
*
|
This exhibit shall not be
deemed filed for purposes of Section 18 of the Securities Exchange Act
of 1934 or otherwise subject to the liabilities of that section, nor shall it
be deemed incorporated by reference in any filing under the Securities Act of
1933 or the Securities Exchange Act of 1934, whether made before or after the
date hereof and irrespective of any general incorporation language in any
filings.
|
|
|
+
|
Indicates a management
contract or compensatory plan or arrangement.
|
32
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.
|
|
|
|
|
|
Date:
August 4, 2010
|
By:
|
/s/ Richard DeLateur
|
|
|
|
|
|
|
|
Richard DeLateur
|
|
|
|
Chief Financial Officer
|
|
|
|
(Duly Authorized Officer, Principal Financial
Officer,
and Principal Accounting Officer)
|
33
Table of
Contents
EXHIBIT INDEX
Exhibit
|
|
|
|
Incorporated by Reference
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
Date
|
|
Number
|
|
Herewith
|
|
|
|
|
|
|
|
|
|
|
|
10.1+
|
|
Employment
Letter Agreement, dated May 19, 2010, between G. Carl Everett, Jr.
and FormFactor, Inc.
|
|
8-K
|
|
5/25/10
|
|
000-50307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2+
|
|
Employment
Letter Agreement, dated May 19, 2010, between Richard DeLateur and
FormFactor, Inc.
|
|
8-K
|
|
5/25/10
|
|
000-50307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1+
|
|
Separation
Agreement and General Release, dated June 1, 2010, between Jean Vernet
and FormFactor, Inc.
|
|
8-K
|
|
6/7/10
|
|
000-50307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2+
|
|
Separation
Agreement and General Release, dated June 6, 2010, between Mario Ruscev
and FormFactor, Inc.
|
|
8-K
|
|
6/7/10
|
|
000-50307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
*
|
*
|
This exhibit shall not be
deemed filed for purposes of Section 18 of the Securities Exchange Act
of 1934 or otherwise subject to the liabilities of that section, nor shall it
be deemed incorporated by reference in any filing under the Securities Act of
1933 or the Securities Exchange Act of 1934, whether made before or after the
date hereof and irrespective of any general incorporation language in any
filings.
|
|
|
+
|
Indicates a management
contract or compensatory plan or arrangement.
|
34
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