UNITED STATES SECURITIES AND EXCHANGE COMMISSION
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 28, 2003 |
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.
| Delaware (State or other jurisdiction of incorporation or organization) |
13-3711155 (I.R.S Employer Identification No.) |
| 2140 Research Drive, Livermore, California 94550 (Address of principal executive offices, including zip code) |
| (925) 294-4300 (Registrant’s 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 ( )
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ( ) No (x)
The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of July 31, 2003 was 34,255,274 shares.
FormFactor, Inc.
Form 10-Q for the Quarterly Period Ended June 28, 2003
Index
| Page | ||||||||
| Part I. | Financial Information |
1 | ||||||
| Item 1. | Unaudited Condensed Consolidated Financial Statements |
1 | ||||||
Unaudited Condensed Consolidated Income Statements for the three and
six months ended June 28, 2003 and June 29, 2002 |
1 | |||||||
Unaudited Condensed Consolidated Balance Sheets as of June 28, 2003 and
December 28, 2002 |
2 | |||||||
Unaudited Condensed Consolidated Statements of Cash Flows for the six months
ended June 28, 2003 and June 29, 2002 |
3 | |||||||
Notes to Unaudited Condensed Consolidated Financial Statements |
4 | |||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and
Results of Operations |
8 | ||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
34 | ||||||
| Item 4. | Controls and Procedures |
34 | ||||||
| Part II. | Other Information |
35 | ||||||
| Item 1. | Legal Proceedings |
35 | ||||||
| Item 2. | Changes in Securities and Use of Proceeds |
35 | ||||||
| Item 3. | Defaults Upon Senior Securities |
36 | ||||||
| Item 4. | Submission of Matters to a Vote of Security Holders |
36 | ||||||
| Item 5. | Other Information |
36 | ||||||
| Item 6. | Exhibits and Reports on Form 8-K |
36 | ||||||
| Signature | 38 | |||||||
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
FORMFACTOR, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share date)
(unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||
| June 29, 2002 | June 28, 2003 | June 29, 2002 | June 28, 2003 | ||||||||||||||||
Revenues |
$ | 18,510 | $ | 22,094 | $ | 35,798 | $ | 40,763 | |||||||||||
Cost
of revenues(1) |
9,422 | 11,469 | 18,281 | 21,269 | |||||||||||||||
Gross margin |
9,088 | 10,625 | 17,517 | 19,494 | |||||||||||||||
Operating expenses: |
|||||||||||||||||||
Research
and development(1) |
3,579 | 3,831 | 6,828 | 7,356 | |||||||||||||||
Selling,
general and administrative(1) |
4,172 | 4,478 | 8,164 | 8,491 | |||||||||||||||
Stock-based compensation |
302 | 371 | 467 | 704 | |||||||||||||||
Total operating expenses |
8,053 | 8,680 | 15,459 | 16,551 | |||||||||||||||
Operating income |
1,035 | 1,945 | 2,058 | 2,943 | |||||||||||||||
Interest income |
199 | 174 | 389 | 336 | |||||||||||||||
Interest expense |
(31 | ) | (13 | ) | (48 | ) | (27 | ) | |||||||||||
Other expense, net |
(4 | ) | (30 | ) | (22 | ) | (49 | ) | |||||||||||
| 164 | 131 | 319 | 260 | ||||||||||||||||
Income before income taxes |
1,199 | 2,076 | 2,377 | 3,203 | |||||||||||||||
Provision for income taxes |
(485 | ) | (789 | ) | (817 | ) | (1,217 | ) | |||||||||||
Net income |
$ | 714 | $ | 1,287 | $ | 1,560 | $ | 1,986 | |||||||||||
Net income per share: |
|||||||||||||||||||
Basic |
$ | 0.16 | $ | 0.12 | $ | 0.35 | $ | 0.25 | |||||||||||
Diluted |
$ | 0.02 | $ | 0.04 | $ | 0.05 | $ | 0.07 | |||||||||||
Weighted-average number of shares
used in per share calculations: |
|||||||||||||||||||
Basic |
4,438 | 10,894 | 4,517 | 7,806 | |||||||||||||||
Diluted |
29,535 | 31,170 | 29,754 | 29,950 | |||||||||||||||
| (1) | Amounts exclude stock-based compensation, as follows: |
||||||||||||||||||
Cost
of revenues |
$ | 41 | $ | 59 | $ | 63 | $ | 114 | |||||||||||
Research
and development |
45 | 78 | 48 | 147 | |||||||||||||||
Selling,
general and administration |
216 | 234 | 356 | 443 | |||||||||||||||
Total |
$ | 302 | $ | 371 | $ | 467 | $ | 704 | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
FORMFACTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
| December 28, | June 28, | |||||||||
| 2002 | 2003 | |||||||||
ASSETS |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ | 26,786 | $ | 115,614 | ||||||
Short-term investments |
7,557 | 3,855 | ||||||||
Accounts receivable, net of allowance for doubtful accounts
of $253 in 2002 and $203 in 2003 |
11,986 | 12,214 | ||||||||
Inventories, net |
4,230 | 6,415 | ||||||||
Deferred tax assets, current portion |
2,571 | 2,571 | ||||||||
Prepaid expenses and other current assets |
3,463 | 1,482 | ||||||||
Total current assets |
56,593 | 142,151 | ||||||||
Restricted cash |
2,835 | — | ||||||||
Property and equipment, net |
16,538 | 16,040 | ||||||||
Deferred tax assets, less current portion |
1,068 | 1,068 | ||||||||
Long term investments |
— | 2,944 | ||||||||
Other assets |
484 | 445 | ||||||||
Total assets |
$ | 77,518 | $ | 162,648 | ||||||
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) |
||||||||||
Current liabilities |
||||||||||
Bank line of credit |
$ | 375 | $ | 1,375 | ||||||
Notes payable, current portion |
500 | — | ||||||||
Accounts payable |
6,712 | 6,419 | ||||||||
Accrued liabilities |
7,677 | 6,703 | ||||||||
Deferred revenue |
793 | 269 | ||||||||
Total current liabilities |
16,057 | 14,766 | ||||||||
Notes payable, less current portion |
625 | — | ||||||||
Deferred revenue |
672 | 552 | ||||||||
Total liabilities |
17,354 | 15,318 | ||||||||
Redeemable convertible preferred stock |
64,895 | — | ||||||||
Redeemable convertible preferred stock warrants |
306 | — | ||||||||
| 65,201 | — | |||||||||
Stockholders’ equity (deficit) |
||||||||||
Common stock |
5 | 34 | ||||||||
Additional paid-in capital |
20,064 | 168,606 | ||||||||
Notes receivable from stockholders |
(3,447 | ) | (1,426 | ) | ||||||
Deferred stock-based compensation, net |
(12,294 | ) | (12,514 | ) | ||||||
Accumulated other comprehensive income |
— | 9 | ||||||||
Accumulated deficit |
(9,365 | ) | (7,379 | ) | ||||||
Total stockholders’ equity (deficit) |
(5,037 | ) | 147,330 | |||||||
Total liabilities, redeemable convertible preferred stock
and stockholders’ equity (deficit) |
$ | 77,518 | $ | 162,648 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
| Six Months Ended | ||||||||||||
| June 29, 2002 | June 28, 2003 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 1,560 | $ | 1,986 | ||||||||
Adjustments to reconcile net income to net cash provided
by operating activities: |
||||||||||||
Depreciation and amortization |
2,664 | 2,570 | ||||||||||
Stock-based compensation expense |
435 | 704 | ||||||||||
Common stock issued for services provided |
57 | — | ||||||||||
Interest income from stockholders’ notes receivable |
(119 | ) | (110 | ) | ||||||||
Provision for doubtful accounts |
(105 | ) | (50 | ) | ||||||||
Provision for excess and obsolete inventories |
840 | 1,251 | ||||||||||
Loss on disposal of property and equipment |
166 | 10 | ||||||||||
Changes in assets and liabilities: |
||||||||||||
Accounts receivable |
2,005 | (168 | ) | |||||||||
Inventories |
(2,103 | ) | (3,437 | ) | ||||||||
Prepaid and other current assets |
(1,401 | ) | 2,095 | |||||||||
Accounts payable |
1,149 | (296 | ) | |||||||||
Accrued liabilities |
(248 | ) | (994 | ) | ||||||||
Deferred revenues |
887 | (644 | ) | |||||||||
Net cash provided by operating activities |
5,787 | 2,917 | ||||||||||
Cash flows from investing activities: |
||||||||||||
Acquisition of property and equipment |
(1,850 | ) | (2,039 | ) | ||||||||
Purchase of investments |
(18,361 | ) | (6,771 | ) | ||||||||
Proceeds from maturities of investments |
10,808 | 7,529 | ||||||||||
Restricted cash |
— | 2,835 | ||||||||||
Other assets |
(3 | ) | 10 | |||||||||
Net cash provided (used) in investing activities |
(9,406 | ) | 1,564 | |||||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from issuance of common stock, net |
1,080 | 82,647 | ||||||||||
Proceeds from payment of notes receivable from stockholders |
8 | 2,021 | ||||||||||
Repurchase of common stock |
— | (200 | ) | |||||||||
Proceeds from issuance of bank line of credit |
368 | 1,000 | ||||||||||
Repayment
of notes payable and bank line of credit |
(352 | ) | (1,125 | ) | ||||||||
Net cash provided by financing activities |
1,104 | 84,343 | ||||||||||
Effect of exchange rate changes on cash and cash
equivalents |
— | 4 | ||||||||||
Net increase (decrease) in cash and cash equivalents |
(2,515 | ) | 88,828 | |||||||||
Cash and cash equivalents, beginning of the period |
20,565 | 26,786 | ||||||||||
Cash and cash equivalents, end of the period |
$ | 18,050 | $ | 115,614 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
FORMFACTOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 – Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of FormFactor, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they 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 of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 28, 2003 are not necessarily indicative of the results that may be expected for the year ending December 27, 2003, or for any other period. The balance sheet at December 28, 2002 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These financial statements and notes should be read with the financial statements and notes thereto for the year ended December 28, 2002 included in the Company’s final prospectus dated June 11, 2003 for its initial public offering filed with the Securities and Exchange Commission.
NOTE 2 – Initial Public Offering
The Securities and Exchange Commission declared the Company’s first registration statement, which the Company filed on Form S-1 (Registration No. 333-86738) under the Securities Act of 1933 in connection with the initial public offering of its common stock, effective on June 11, 2003. Under this registration statement, the Company registered 6,900,000 shares of its common stock, including 900,000 shares subject to the underwriters’ over-allotment option, with an aggregate public offering price of $96.6 million. The Company registered 6,505,305 of these shares on its behalf and 394,695 of these shares on behalf of certain stockholders of the Company, including a director and certain officers of the Company.
The Company’s public offering commenced on June 12, 2003 and all of the shares of the Company’s common stock that it registered on its behalf and on behalf of the selling stockholders were sold for the aggregate public offering price of $96.6 million through an underwriting syndicate managed by Morgan Stanley & Co. Incorporated, Lehman Brothers Inc., Banc of America Securities LLC and Thomas Weisel Partners LLC. This offering terminated after the sale of all of the shares of the Company’s common stock that it registered under its registration statement on Form S-1.
The sale of shares of common stock by the Company, including the sale of 900,000 shares pursuant to the exercise of the over-allotment option by the underwriters, resulted in aggregate gross proceeds of approximately $91.1 million, approximately $6.4 million of which the Company applied to underwriting discounts and commissions and approximately $2.5 million of which the Company applied to related costs. As a result, the Company received approximately $82.2 million of the offering proceeds.
The sale of shares of common stock by the selling stockholders resulted in aggregate gross proceeds of approximately $5.5 million, approximately $2.7 million of which the selling stockholders paid to the Company to repay loans from the Company and approximately $387,000 of which the selling stockholders applied to underwriting discounts and commissions. As a result, the selling stockholders received approximately $2.4 million of the offering proceeds.
4
FORMFACTOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NOTE 3 – Significant Accounting Policies
The Company’s significant accounting policies are disclosed in the Company’s final prospectus dated June 11, 2003 for the year ended December 28, 2002. The Company’s significant accounting policies have not materially changed during the three and six months ended June 28, 2003.
NOTE 4 – 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. Reserves for potentially excess and obsolete inventory are made based on management’s analysis of inventory levels and future sales forecasts.
Inventories, net of reserves, consisted of the following (in thousands):
| December 28, | June 28, | |||||||
| 2002 | 2003 | |||||||
Raw materials |
$ | 1,520 | $ | 2,318 | ||||
Work-in-progress |
2,319 | 3,170 | ||||||
Finished goods |
391 | 927 | ||||||
| $ | 4,230 | $ | 6,415 | |||||
NOTE 5 – Warranty Accrual
The Company offers warranties on certain products and records a liability for the estimated future costs associated with warranty claims, which is based upon historical experience and the Company’s estimate of the level of future costs. Warranty costs are reflected in the income statement as a cost of revenues. A reconciliation of the changes in the Company’s warranty liability for the six months ended June 28, 2003 follows (in thousands):
Warranty accrual at December 29, 2002 |
$ | 679 | ||
Accrual for warranties issued during the period |
465 | |||
Charges
against the accrual during the period |
(608 | ) | ||