UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
For the quarterly period ended March 26, 2022
Or
For the transition period from to
Commission file number: 000-50307
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(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 class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||||||||
______________________________________
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):
| ☒ | Accelerated Filer | ☐ | Non-accelerated Filer | ☐ | |||||||||||||
| Smaller 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 April 27, 2022, 78,063,870 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 MARCH 26, 2022
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)
| March 26, 2022 | December 25, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Marketable securities | |||||||||||
Accounts receivable, net of allowance for credit losses of $ | |||||||||||
| Inventories, net | |||||||||||
| Restricted cash | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Restricted cash | |||||||||||
| Operating lease, right-of-use-assets | |||||||||||
| Property, plant and equipment, net of accumulated depreciation | |||||||||||
| Goodwill | |||||||||||
| Intangibles, net | |||||||||||
| Deferred tax assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Current portion of term loans, net of unamortized issuance costs | |||||||||||
| Deferred revenue | |||||||||||
| Operating lease liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Term loans, less current portion, net of unamortized issuance costs | |||||||||||
| Deferred tax liabilities | |||||||||||
| Long-term operating lease liabilities | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Stockholders’ equity: | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
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 Ended | |||||||||||
| March 26, 2022 | March 27, 2021 | ||||||||||
| Revenues | $ | $ | |||||||||
| Cost of revenues | |||||||||||
| Gross profit | |||||||||||
| Operating expenses: | |||||||||||
| Research and development | |||||||||||
| Selling, general and administrative | |||||||||||
| Total operating expenses | |||||||||||
| Operating income | |||||||||||
| Interest income | |||||||||||
| Interest expense | ( | ( | |||||||||
| Other income, net | |||||||||||
| Income before income taxes | |||||||||||
| Provision for income taxes | |||||||||||
| Net income | $ | $ | |||||||||
| Net income per share: | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
| Weighted-average number of shares used in per share calculations: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
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 Ended | |||||||||||
| March 26, 2022 | March 27, 2021 | ||||||||||
| Net income | $ | $ | |||||||||
| Other comprehensive loss, net of tax: | |||||||||||
| Translation adjustments and other | ( | ( | |||||||||
| Unrealized losses on available-for-sale marketable securities | ( | ( | |||||||||
| Unrealized gains (losses) on derivative instruments | ( | ||||||||||
| Other comprehensive loss, net of tax | ( | ( | |||||||||
| Comprehensive income | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except shares)
(Unaudited)
| Shares of Common Stock | Common Stock | Shares of Treasury Stock | Treasury Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total | ||||||||||||||||||||||||||||||||||||||||
| Three Months Ended March 26, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 25, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under the Employee Stock Purchase Plan | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to exercise of options | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Purchase and retirement of common stock through repurchase program | ( | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balances, March 26, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Shares of Common Stock | Common Stock | Shares of Treasury Stock | Treasury Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total | ||||||||||||||||||||||||||||||||||||||||
| Three Months Ended March 27, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 26, 2020 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under the Employee Stock Purchase Plan | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to exercise of options | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Purchase of common stock through repurchase program | — | — | ( | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balances, March 27, 2021 | $ | ( | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
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)
| Three Months Ended | |||||||||||
| March 26, 2022 | March 27, 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation | |||||||||||
| Amortization | |||||||||||
| Reduction in the carrying amount of right-of-use assets | |||||||||||
| Stock-based compensation expense | |||||||||||
| Provision for excess and obsolete inventories | |||||||||||
| Non-cash restructuring charges | |||||||||||
| Other adjustments to reconcile net income to net cash provided by operating activities | |||||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable | |||||||||||
| Inventories | ( | ( | |||||||||
| Prepaid expenses and other current assets | ( | ||||||||||
| Other assets | ( | ( | |||||||||
| Accounts payable | |||||||||||
| Accrued liabilities | ( | ( | |||||||||
| Other liabilities | |||||||||||
| Deferred revenues | ( | ||||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisition of property, plant and equipment | ( | ( | |||||||||
| Purchases of marketable securities | ( | ( | |||||||||
| Proceeds from maturities and sales of marketable securities | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from issuances of common stock | |||||||||||
| Purchase of common stock through stock repurchase program | ( | ( | |||||||||
| Tax withholdings related to net share settlements of equity awards | ( | ( | |||||||||
| Principal repayments on term loans | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash, beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months Ended | |||||||||||
| March 26, 2022 | March 27, 2021 | ||||||||||
| Non-cash investing and financing activities: | |||||||||||
| Increase (decrease) in accounts payable and accrued liabilities related to property, plant and equipment purchases | $ | ( | $ | ||||||||
| Operating lease, right-of-use assets obtained in exchange for lease obligations | |||||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for income taxes, net | $ | $ | |||||||||
| Cash paid for interest | |||||||||||
| Operating cash outflows from operating leases | |||||||||||
| Reconciliation of cash, cash equivalents and restricted cash: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash, current | |||||||||||
| Restricted cash, non-current | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
FORMFACTOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — Basis of Presentation and New Accounting Pronouncements
Fiscal Year
We operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December. Fiscal 2022 and 2021 contain 53 weeks and 52 weeks, respectively, and the three months ended March 26, 2022 and March 27, 2021 each contained 13 weeks. Fiscal 2022 will end on December 31, 2022.
Significant Accounting Policies
Our significant accounting policies have not changed during the three months ended March 26, 2022 from those disclosed in our Annual Report on Form 10-K for the year ended December 25, 2021.
Reclassifications
Certain immaterial reclassifications were made to the prior year financial statements to conform to the current year presentation.
New Accounting Pronouncements
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 ASU provides temporary optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848),” which permits entities to apply optional expedients in Topic 848 to derivative instruments modified because of discounting transition resulting from reference rate reform. ASU 2020-04 became effective upon issuance and may be applied prospectively to contract modifications made on or before December 31, 2022. ASU 2021-01 became effective upon issuance and may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or prospectively for contract modifications made on or before December 31, 2022. The Company has not yet applied the relief afforded by these standard amendments and is currently assessing contracts that will require modification due to reference rate reform to which these standard amendments may be applied.
ASU 2021-08
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers, as if it had originated the contracts. This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The adoption impact of the new standard will depend on the magnitude of future acquisitions. The standard will not impact acquired contract assets or liabilities from business combinations occurring prior to the adoption date.
9
Note 2 — Concentration of Credit and Other Risks
Each of the following customers accounted for 10
| Three Months Ended | |||||||||||
| March 26, 2022 | March 27, 2021 | ||||||||||
| Intel Corporation | % | % | |||||||||
| Taiwan Semiconductor Manufacturing Co., LTD. | % | % | |||||||||
| % | % | ||||||||||
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):
| March 26, 2022 | December 25, 2021 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Work-in-progress | |||||||||||
| Finished goods | |||||||||||
| $ | $ | ||||||||||
Note 4 — Goodwill and Intangible Assets
Goodwill by reportable segment was as follows (in thousands):
| Probe Cards | Systems | Total | |||||||||||||||
| Goodwill, as of December 26, 2020 | $ | $ | $ | ||||||||||||||
| Addition - Baldwin Park Acquisition | |||||||||||||||||
| Addition - HPD Acquisition | |||||||||||||||||
| Foreign currency translation | ( | ( | |||||||||||||||
| Goodwill, as of December 25, 2021 | |||||||||||||||||
| Foreign currency translation | ( | ( | |||||||||||||||
| Goodwill, as of March 26, 2022 | $ | $ | $ | ||||||||||||||
We have no t recorded goodwill impairments for the three months ended March 26, 2022.
Intangible assets were as follows (in thousands):
| March 26, 2022 | December 25, 2021 | |||||||||||||||||||||||||||||||||||||
| Intangible Assets | Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||||
| Existing developed technologies | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Customer relationships | ||||||||||||||||||||||||||||||||||||||
| Trade name | ||||||||||||||||||||||||||||||||||||||
| Backlog | ||||||||||||||||||||||||||||||||||||||
| In-process research and development | ||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
10
Amortization expense was included in our Condensed Consolidated Statements of Income as follows (in thousands):
| Three Months Ended | |||||||||||
| March 26, 2022 | March 27, 2021 | ||||||||||
| Cost of revenues | $ | $ | |||||||||
| Selling, general and administrative | |||||||||||
| $ | $ | ||||||||||
The estimated future amortization of definite-lived intangible assets, excluding in-process research and development, is as follows (in thousands):
| Fiscal Year | Amount | |||||||
| Remainder of 2022 | $ | |||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
| $ | ||||||||
Note 5 — Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
| March 26, 2022 | December 25, 2021 | ||||||||||
| Accrued compensation and benefits | $ | $ | |||||||||
| Accrued income and other taxes | |||||||||||
| Accrued warranty | |||||||||||
| Employee stock purchase plan contributions withheld | |||||||||||
| Accrued restructuring charges | |||||||||||
| Other accrued expenses | |||||||||||
| $ | $ | ||||||||||
Note 6 — Restructuring Charges
On September 25, 2021, we adopted restructuring plans to improve our business effectiveness and streamline our operations by consolidating certain manufacturing facilities for both the Probe Cards segment and the Systems segment. This includes plans to consolidate or relocate certain leased locations in the United States to other locations in the United States, Germany and Asia. As a result of these changes to certain work locations, we have incurred, and expect to incur, personnel related costs to sever, relocate, or retain select employees. Additionally, we are undertaking actions to adjust capacity for certain product offerings. As a result of these adjustments, contract termination costs include charges to satisfy contract obligations. The liability was recognized using our best estimate and it is reasonably possible that the final amount will differ from the amount estimated in the near term. We expect the actions defined under these plans will be largely completed by the end of December 2022, except facilities charges which may extend beyond that time.
These plans are expected to result in FormFactor recording restructuring and other charges in the aggregate amount of approximately $6.0 million to $9.0 million, estimated to be comprised primarily of $1.0 million to $2.0 million of severance and employee-related costs, $2.0 million to 3.0 million in contract and lease termination costs, $1.0 million to $1.5 million in inventory impairments, and $2.0 million to $2.5 million of cost related to impairment of leasehold improvements, facility exits, and other costs. Approximately $3.0 million to $4.5 million and $3.0 million to $4.5 million is expected within the Probe Cards segment and Systems segment, respectively.
The Company has recognized to date restructuring and other charges in the aggregate amount of $4.4 million, comprised of $1.2 million of severance and employee-related costs, $1.5 million in contract and lease termination costs, $1.5 million in inventory impairments, and $0.3 million of cost related to impairment of leasehold improvements, facility exits and other costs.
11
Restructuring charges by reportable segment included in our Condensed Consolidated Statements of Income were as follows (in thousands):
| Three Months Ended | |||||||||||||||||
| March 26, 2022 | |||||||||||||||||
| Probe Cards | Systems | Total | |||||||||||||||
| Cost of revenues | $ | $ | $ | ||||||||||||||
| Research and development | |||||||||||||||||
| Selling, general and administrative | |||||||||||||||||
| $ | $ | $ | |||||||||||||||
Changes to the restructuring accrual in the three months ended March 26, 2022 were as follows (in thousands):
| Employee Severance and Benefits | Inventory Impairments | Contract Termination Costs | Total | ||||||||||||||||||||
| December 25, 2021 | $ | $ | $ | $ | |||||||||||||||||||
| Restructuring charges | |||||||||||||||||||||||
| Cash payments | ( | ( | ( | ||||||||||||||||||||
| Non-cash settlement | ( | ( | |||||||||||||||||||||
| March 26, 2022 | $ | $ | $ | $ | |||||||||||||||||||
Note 7 — Fair Value and Derivative Instruments
Whenever possible, the fair values of our financial assets and liabilities are determined using quoted market prices of identical securities or quoted market prices of similar securities from active markets. The three levels of inputs that may be used to measure fair value are as follows:
•Level 1 valuations are obtained from real-time quotes for transactions in active exchange markets involving identical securities;
•Level 2 valuations utilize significant observable inputs, such as quoted prices for similar assets or liabilities, quoted prices near the reporting date in markets that are less active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
•Level 3 valuations utilize unobservable inputs to the valuation methodology and include our own data about assumptions market participants would use in pricing the asset or liability based on the best information available under the circumstances.
We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during the three months ended March 26, 2022 or the year ended December 25, 2021.
The carrying values of Cash, Accounts receivable, net, Restricted cash, Prepaid expenses and other current assets, Accounts payable, Accrued liabilities, and Term loans, net of unamortized issuance costs, approximate fair value due to their short maturities.
No changes were made to our valuation techniques during the first three months of fiscal 2022.
12
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):
| March 26, 2022 | Level 1 | Level 2 | Total | |||||||||||||||||
| Assets: | ||||||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||
| Money market funds | $ | $ | $ | |||||||||||||||||
| Commercial paper | ||||||||||||||||||||
| U.S. treasuries | ||||||||||||||||||||
| Marketable securities: | ||||||||||||||||||||
| U.S. treasuries | ||||||||||||||||||||
| Certificates of deposit | ||||||||||||||||||||
| U.S. agency securities | ||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||
| Commercial paper | ||||||||||||||||||||
| Interest rate swap derivative contracts | ||||||||||||||||||||
| Total assets | $ | $ | $ | |||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Foreign exchange derivative contracts | $ | $ | ( | $ | ( | |||||||||||||||
| December 25, 2021 | Level 1 | Level 2 | Total | |||||||||||||||||
| Assets: | ||||||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||
| Money market funds | $ | $ | $ | |||||||||||||||||
| U.S. treasuries | ||||||||||||||||||||
| Commercial paper | ||||||||||||||||||||
| U.S. agency securities | ||||||||||||||||||||
| Marketable securities: | ||||||||||||||||||||
| U.S. treasuries | ||||||||||||||||||||
| Certificates of deposit | ||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||
| Commercial paper | ||||||||||||||||||||
| Interest rate swap derivative contracts | ||||||||||||||||||||
| Total assets | $ | $ | $ | |||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Foreign exchange derivative contracts | $ | $ | ( | $ | ( | |||||||||||||||
| Interest rate swap derivative contracts | ( | ( | ||||||||||||||||||
| Total liabilities | $ | $ | ( | $ | ( | |||||||||||||||
Cash Equivalents
The fair value of our cash equivalents is determined based on quoted market prices for similar or identical securities.
Marketable Securities
We classify our marketable securities as available-for-sale and value them utilizing a market approach. Our investments are priced by pricing vendors who provide observable inputs for their pricing without applying significant judgment. Broker 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 value. Our broker-priced investments are categorized as Level 2 investments because fair value is
13
based on similar assets without applying significant judgments. In addition, all investments have a sufficient trading volume to demonstrate that the fair value is appropriate.
Unrealized gains and losses were immaterial and were recorded as a component of Accumulated other comprehensive income in our Condensed Consolidated Balance Sheets. We did not have any other-than-temporary unrealized gains or losses at either period end included in these financial statements.
Interest Rate Swaps
The fair value of our interest rate swap contracts is determined at the end of each reporting period based on valuation models that use interest rate yield curves as inputs. For accounting purposes, our interest rate swap contracts qualify for, and are designated as, cash flow hedges. The cash flows associated with the interest rate swaps are reported in Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows and the fair value of the interest rate swap contracts are recorded within Prepaid expenses and other current assets and Other assets in our Condensed Consolidated Balance Sheets.
Foreign Exchange Derivative Contracts
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 and forecasted foreign currency revenue and expense transactions. Under this program, our strategy is to have increases or decreases in our foreign currency exposures mitigated by gains or losses on the foreign currency forward contracts in order 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. For accounting purposes, certain of our foreign currency forward contracts are not designated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded within Other income, net in our Condensed Consolidated Statement of Income for both realized and unrealized gains and losses. Certain of our foreign currency forward contracts are designated as cash flow hedges, and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded as a component of Accumulated other comprehensive loss and reclassified into earnings in the same period in which the hedged transaction affects earnings, and in the same line item on the Condensed Consolidated Statements of Income as the impact of the hedge transaction.
The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange rates and forward points. All of our foreign exchange derivative contracts outstanding at March 26, 2022 will mature by the first quarter of fiscal 2023.
The following table provides information about our foreign currency forward contracts outstanding as of March 26, 2022 (in thousands):
| Currency | Contract Position | Contract Amount (Local Currency) | Contract Amount (U.S. Dollars) | |||||||||||||||||
| Euro Dollar | Buy | ( | $ | ( | ||||||||||||||||
| Euro Dollar | Sell | |||||||||||||||||||
| Japanese Yen | Sell | |||||||||||||||||||
| Korean Won | Buy | ( | ( | |||||||||||||||||
| Taiwan Dollar | Sell | |||||||||||||||||||
| Total USD notional amount of outstanding foreign exchange contracts | $ | |||||||||||||||||||
Our foreign currency contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing models that utilize observable market inputs.
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Note 8 — Warranty
We offer warranties on certain products and record a liability for the estimated future costs associated with warranty claims at the time revenue is recognized. The warranty liability is based upon historical experience and our estimate of the level of future costs. While we engage in product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service delivery costs. We regularly monitor product returns for warranty and maintain a reserve for the related expenses based upon our historical experience and any specifically identified failures. As we sell new products to our customers, we must exercise considerable judgment in estimating the expected failure rates. This estimating process is based on historical experience of similar products, as well as various other assumptions that we believe to be reasonable under the circumstances. We provide for the estimated cost of product warranties at the time revenue is recognized as a component of Cost of revenues in our Condensed Consolidated Statement of Income.
Changes in our warranty liability were as follows (in thousands):
| Three Months Ended | |||||||||||
| March 26, 2022 | March 27, 2021 | ||||||||||
| Balance at beginning of period | $ | $ | |||||||||
| Accruals | |||||||||||
| Settlements | ( | ( | |||||||||
| Balance at end of period | $ | $ | |||||||||
Note 9 — Property, Plant and Equipment, net
Property, plant and equipment, net consisted of the following (in thousands):
| March 26, 2022 | December 25, 2021 | ||||||||||
| Land | $ | $ | |||||||||
| Building and building improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Computer equipment and software | |||||||||||
| Furniture and fixtures | |||||||||||
| Leasehold improvements | |||||||||||
| Sub-total | |||||||||||
| Less: Accumulated depreciation and amortization | ( | ( | |||||||||
| Net, property, plant and equipment | |||||||||||
| Construction-in-process | |||||||||||
| Total | $ | $ | |||||||||
Note 10 — Stockholders’ Equity and Stock-Based Compensation
Common Stock Repurchase Program
On October 26, 2020, our Board of Directors authorized a program to repurchase up to $50 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based compensation plans. The share repurchase program will expire on October 28, 2022. During the three months ended March 26, 2022, we repurchased and retired 240,548 shares of common stock for $9.4 million. During fiscal 2021 we repurchased and retired 622,400 shares of common stock for $24.0 million. As of March 26, 2022, $16.6 million remained available for future repurchases.
Our policy related to repurchases of our common stock is to charge the excess of cost over par value to additional paid-in capital once the shares are retired. All repurchases were made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.
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Restricted Stock Units
Restricted stock unit (“RSU”) activity under our equity incentive plan was as follows:
| Units | Weighted Average Grant Date Fair Value | ||||||||||
| RSUs at December 25, 2021 | $ | ||||||||||
| Awards granted | |||||||||||
| Awards vested | ( | ||||||||||
| Awards forfeited | ( | ||||||||||
| RSUs at March 26, 2022 | |||||||||||
Performance Restricted Stock Units
We may grant Performance RSUs (“PRSUs”) to certain executives, which vest based upon us achieving certain market performance criteria. There were no PRSUs granted during the three months ended March 26, 2022. PRSUs are included as part of the RSU activity above.
Employee Stock Purchase Plan
Information related to activity under our Employee Stock Purchase Plan (“ESPP”) was as follows:
| Three Months Ended | ||||||||
| March 26, 2022 | ||||||||
| Shares issued | ||||||||
| Weighted average per share purchase price | $ | |||||||
| Weighted average per share discount from the fair value of our common stock on the date of issuance | ||||||||