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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 Form 10-Q
 
(Mark one)
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 2020
Or 
 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
incorporation or organization)
 (I.R.S. Employer
Identification No.)
 
7005 Southfront Road, Livermore, California 94551
(Address of principal executive offices, including zip code)
 
(925) 290-4000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section12(b) of the Act:
Title of each classTrading Symbol(s) Name of each exchange on which registered
Common stock, $0.001 par valueFORM Nasdaq Global Market
 ______________________________________
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   No 
 
Indicate by check mark whether the registrant submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes   No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated FilerAccelerated Filer
Non-accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No  

As of July 31, 2020, 77,058,712 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.





FORMFACTOR, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 27, 2020
INDEX

 
   
 
   
 
   
  
 
  
 
  
  
  
  
  
  
 

2


PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
FORMFACTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 June 27,
2020
December 28,
2019
ASSETS 
Current assets:  
Cash and cash equivalents$199,926  $144,545  
Marketable securities61,177  76,327  
Accounts receivable, net of allowance for doubtful accounts of $226 and $22286,616  97,868  
Inventories, net87,813  83,258  
Restricted cash1,424  1,981  
Prepaid expenses and other current assets18,458  15,064  
Total current assets455,414  419,043  
Restricted cash1,375  1,411  
Operating lease, right-of-use-assets29,027  31,420  
Property, plant and equipment, net of accumulated depreciation83,662  58,747  
Goodwill200,293  199,196  
Intangibles, net43,785  57,610  
Deferred tax assets69,712  71,252  
Other assets966  1,203  
Total assets$884,234  $839,882  
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current liabilities: 
Accounts payable$44,334  $40,914  
Accrued liabilities37,620  36,439  
Current portion of term loans, net of unamortized issuance costs21,325  42,846  
Deferred revenue13,789  9,810  
Operating lease liabilities6,168  6,551  
Total current liabilities123,236  136,560  
Term loans, less current portion, net of unamortized issuance costs28,725  15,639  
Deferred tax liabilities6,343  6,986  
Long-term operating lease liabilities26,816  29,088  
Other liabilities8,392  10,612  
Total liabilities193,512  198,885  
 
Stockholders’ equity: 
Common stock, $0.001 par value: 
250,000,000 shares authorized; 76,501,459 and 75,764,990 shares issued and outstanding77  76  
Additional paid-in capital898,069  885,821  
Accumulated other comprehensive loss458  (659) 
Accumulated deficit(207,882) (244,241) 
Total stockholders’ equity690,722  640,997  
Total liabilities and stockholders’ equity$884,234  $839,882  
 
The accompanying notes are an integral part of these condensed consolidated financial statements. 
3



FORMFACTOR, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 Three Months EndedSix Months Ended
 June 27,
2020
June 29,
2019
June 27,
2020
June 29,
2019
Revenues$157,824  $138,018  $318,577  $270,231  
Cost of revenues91,657  82,666  185,020  162,358  
Gross profit66,167  55,352  133,557  107,873  
Operating expenses:    
Research and development20,919  20,074  42,186  39,797  
Selling, general and administrative22,755  26,283  50,448  51,467  
Total operating expenses43,674  46,357  92,634  91,264  
Operating income22,493  8,995  40,923  16,609  
Interest income376  684  1,061  1,264  
Interest expense(171) (522) (489) (1,117) 
Other income (expense), net(67) 81  (158) (3) 
Income before income taxes22,631  9,238  41,337  16,753  
Provision for income taxes2,162  2,290  4,978  4,322  
Net income$20,469  $6,948  $36,359  $12,431  
Net income per share: 
Basic $0.27  $0.09  $0.48  $0.17  
Diluted$0.26  $0.09  $0.46  $0.16  
Weighted-average number of shares used in per share calculations:   
Basic 76,275  74,478  76,140  74,483  
Diluted78,861  76,189  78,710  76,061  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4



FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months EndedSix Months Ended
June 27,
2020
June 29,
2019
June 27,
2020
June 29,
2019
Net income $20,469  $6,948  $36,359  $12,431  
Other comprehensive income (loss), net of tax:
Translation adjustments and other763  689  364  (228) 
Unrealized gains on available-for-sale marketable securities524  142  497  293  
Unrealized gains (losses) on derivative instruments80  (73) 256  (686) 
Other comprehensive income (loss), net of tax1,367  758  1,117  (621) 
Comprehensive income$21,836  $7,706  $37,476  $11,810  

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except shares)
(Unaudited)
 SharesCommon StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal
Six Months Ended June 27, 2020
Balances, December 28, 201975,764,990  $76  $885,821  $(659) $(244,241) $640,997  
Issuance of common stock under the Employee Stock Purchase Plan311,591  —  4,066  —  —  4,066  
Issuance of common stock pursuant to exercise of options105,769  1  868  —  —  869  
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax319,109  —  (3,800) —  —  (3,800) 
Stock-based compensation—  —  11,114  —  —  11,114  
Other comprehensive income—  —  —  1,117  —  1,117  
Net income—  —  —  —  36,359  36,359  
Balances, June 27, 202076,501,459  $77  $898,069  $458  $(207,882) $690,722  
Three Months Ended June 27, 2020
Balances, March 28, 202076,158,251  $77  $895,600  $(909) $(228,351) $666,417  
Issuance of common stock pursuant to exercise of options50,000  —  422  —  —  422  
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax293,208  —  (3,415) —  —  (3,415) 
Stock-based compensation—  —  5,462  —  —  5,462  
Other comprehensive income—  —  —  1,367  —  1,367  
Net income—  —  —  —  20,469  20,469  
Balances, June 27, 202076,501,459  $77  $898,069  $458  $(207,882) $690,722  

Six Months Ended June 29, 2019
Balances, December 29, 201874,139,712  $74  $862,897  $780  $(283,587) $580,164  
Issuance of common stock under the Employee Stock Purchase Plan301,497  —  3,670  —  —  3,670  
Issuance of common stock pursuant to exercise of options19,207  —  90  —  —  90  
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax231,365  1  (2,157) —  —  (2,156) 
Stock-based compensation—  —  10,524  —  —  10,524  
Other comprehensive loss—  —  —  (621) —  (621) 
Net income—  —  —  —  12,431  12,431  
Balances, June 29, 201974,691,781  $75  $875,024  $159  $(271,156) $604,102  
Three Months Ended June 29, 2019
Balances, March 30, 201974,488,498  $74  $871,617  $(599) $(278,104) $592,988  
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax203,283  1  (1,855) —  —  (1,854) 
Stock-based compensation—  —  5,262  —  —  5,262  
Other comprehensive income—  —  —  758  —  758  
Net income—  —  —  —  6,948  6,948  
Balances, June 29, 201974,691,781  $75  $875,024  $159  $(271,156) $604,102  

The accompanying notes are an integral part of these condensed consolidated financial statements.
6



FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Six Months Ended
 June 27,
2020
June 29,
2019
Cash flows from operating activities:  
Net income $36,359  $12,431  
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation9,240  8,289  
Amortization13,717  14,169  
Reduction in the carrying amount of right-of-use assets2,419  2,620  
Stock-based compensation expense11,265  10,584  
Provision for excess and obsolete inventories6,407  5,304  
Gain on contingent consideration(3,700)   
Other adjustments to reconcile net income to net cash provided by operating activities1,327  (173) 
Changes in assets and liabilities:
Accounts receivable11,364  24,177  
Inventories(11,089) (11,574) 
Prepaid expenses and other current assets(3,271) 1,838  
Other assets248  (572) 
Accounts payable5,247  (11,115) 
Accrued liabilities1,529  (309) 
Other liabilities292  (93) 
Deferred revenues3,855  2,216  
Operating lease liabilities(2,762) (2,416) 
Net cash provided by operating activities82,447  55,376  
Cash flows from investing activities:  
Acquisition of property, plant and equipment(36,743) (11,460) 
Proceeds from sale of a subsidiary82  56  
Purchases of marketable securities(19,726) (20,776) 
Proceeds from maturities and sales of marketable securities35,410  19,710  
Net cash used in investing activities(20,977) (12,470) 
Cash flows from financing activities:  
Proceeds from issuances of common stock4,935  3,870  
Tax withholdings related to net share settlements of equity awards(3,800) (2,157) 
Proceeds from term loan debt18,000    
Principal repayments on term loans(26,322) (18,750) 
Payment of term loan debt issuance costs(78)   
Net cash used in financing activities(7,265) (17,037) 
Effect of exchange rate changes on cash, cash equivalents and restricted cash583  279  
Net increase in cash, cash equivalents and restricted cash54,788  26,148  
Cash, cash equivalents and restricted cash, beginning of period147,937  100,546  
Cash, cash equivalents and restricted cash, end of period$202,725  $126,694  
Non-cash investing and financing activities:  
Change in accounts payable and accrued liabilities related to property, plant and equipment purchases$2,274  $(2,497) 
Operating lease, right-of-use assets obtained in exchange for lease obligations428  35,885  
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net$4,133  $1,700  
Cash paid for interest473  778  
The accompanying notes are an integral part of these condensed consolidated financial statements.

7


FORMFACTOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Note 1 — Basis of Presentation and New Accounting Pronouncements
 
Basis of Presentation
The accompanying condensed consolidated financial information of FormFactor, Inc. is unaudited and has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). However, such information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial information as of December 28, 2019 is derived from our 2019 Annual Report on Form 10-K. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2019 Annual Report on Form 10-K filed with the SEC on February 21, 2020. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.
 
Fiscal Year 
We operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December. Fiscal 2020 and 2019 each contain 52 weeks and the six months ended June 27, 2020 and June 29, 2019 each contained 26 weeks. Fiscal 2020 will end on December 26, 2020.

Significant Accounting Policies
Our significant accounting policies have not changed during the six months ended June 27, 2020 from those disclosed in our Annual Report on Form 10-K for the year ended December 28, 2019.

Reclassifications
Certain immaterial reclassifications were made to the prior year financial statements to conform to the current year presentation.

New Accounting Pronouncements
ASU 2016-13
In June 2016, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, "Measurement of Credit Losses on Financial Instruments (Topic 326)." The provisions of this standard require financial assets measured at amortized cost to be presented at the net amount expected to be collected. An allowance account would be established to present the net carrying value at the amount expected to be collected. ASU 2016-13 also provides that credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. The guidance was amended through various ASU's subsequent to ASU 2016-13, all of which was effective for us beginning fiscal 2020. We adopted ASU 2016-13 on a prospective basis on December 29, 2019, the first day of fiscal 2020. The adoption did not have a material effect on our financial position, results of operations or cash flows.

ASU 2018-15
In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The new guidance clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018-15 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019. We adopted ASU 2018-15 on a prospective basis on December 29, 2019, the first day of fiscal 2020. The adoption did not have a material effect on our financial position, results of operations or cash flows.

ASU 2019-12
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740),” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted, including adoption in any interim period for which financial statements have not yet been issued. Depending on the amendment, adoption may be applied on the retrospective, modified retrospective or prospective basis. We have not yet determined the impact of this standard on our financial position, results of operations or cash flows.


8


ASU 2020-04
In March 2020, the FASB issued ASU 2020-04, "Referenced Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments in this update apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments in this update are elective and are effective upon issuance for all entities. We have not yet evaluated the transition approach for our LIBOR indexed contracts and have not determined whether we will be electing such expedients and exceptions.


Note 2 — Concentration of Credit and Other Risks

Each of the following customers accounted for 10% or more of our revenues for the periods indicated:
Three Months EndedSix Months Ended
June 27,
2020
June 29,
2019
June 27,
2020
June 29,
2019
Intel Corporation36.1 %26.1 %36.2 %23.8 %
Samsung Electronics., LTD.*11.1 %*12.4 %
Micron Technology, Inc.*10.1 %**
36.1 %47.3 %36.2 %36.2 %
*Represents less than 10% of total revenues.

At June 27, 2020, two customers accounted for 15.8% and 18.1% of gross accounts receivable, respectively. At December 28, 2019, three customers accounted for 25.7%, 15.1% and 11.5% of gross accounts receivable, respectively.

Note 3 — Inventories, net

Inventories are stated at the lower of cost (principally standard cost, which approximates actual cost on a first in, first out basis) or net realizable value.
 
Inventories, net, consisted of the following (in thousands):
June 27,
2020
December 28,
2019
Raw materials$39,743  $38,528  
Work-in-progress31,530  29,720  
Finished goods16,540  15,010  
$87,813  $83,258  

Note 4 Acquisition

On October 9, 2019, we acquired 100% of the shares of FRT GmbH ("FRT"), a German-based company, for total consideration of $26.9 million, net of cash acquired of $1.7 million. The fair value of the purchase consideration was comprised of a $22.2 million cash payment and $6.5 million of contingent consideration as of October 9, 2019.



9


We estimated the acquisition price and the allocation of fair value to assets acquired and liabilities assumed as of the acquisition date, October 9, 2019. We subsequently made certain immaterial adjustments to the acquisition price allocation related to acquired assets and assumed liabilities, including to intangibles assets. Our purchase accounting remains open at June 27, 2020, subject to finalization of the fair value of certain acquired assets and liabilities. The estimated fair value of assets acquired, including goodwill and intangibles, and liabilities assumed is as follows (in thousands):

Amount
Cash and cash equivalents$1,687  
Accounts receivable3,079  
Inventory2,643  
Property, plant and equipment696  
Operating lease, right of use assets 335  
Prepaid expenses and other current assets838  
Tangible assets acquired9,278  
Customer deposits (1,933) 
Accounts payable and accrued liabilities(1,182) 
Operating lease liabilities(335) 
Deferred tax liabilities(5,757) 
Total tangible assets acquired and liabilities assumed 71  
Intangible assets17,429  
Goodwill11,123  
Net Assets Acquired $28,623  

The intangible assets as of the closing date of the acquisition included (in thousands):

AmountWeighted Average Useful Life (in years)
Developed technologies$12,505  8.0
Customer relationships3,071  6.0
Backlog1,645  0.5
Trade names208  2.0
Total intangible assets$17,429  7.0

Indications of fair value of the intangible assets acquired in connection with the acquisition were determined using either the income, market or replacement cost methodologi