0001104659-11-043177 | 10-Q | XBRL Viewer

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 25, 2011	Jun. 26, 2010	Jun. 25, 2011	Jun. 26, 2010
Revenues	$ 46,558	$ 57,640	$ 86,987	$ 97,306
Cost of revenues	36,668	53,710	73,027	95,704
Gross profit	9,890	3,930	13,960	1,602
Operating expenses:
Research and development	10,878	15,997	22,438	31,088
Selling, general and administrative	11,154	18,725	23,541	36,592
Restructuring charges, net	(1,099)	2,513	(60)	6,063
Impairment of long-lived assets		999	351	999
Total operating expenses	20,933	38,234	46,270	74,742
Operating loss	(11,043)	(34,304)	(32,310)	(73,140)
Interest income, net	369	722	793	1,497
Other income (expense), net	584	(82)	210	35
Loss before income taxes	(10,090)	(33,664)	(31,307)	(71,608)
Provision for (benefit from) income taxes	(2,412)	200	(2,205)	440
Net loss	$ (7,678)	$ (33,864)	$ (29,102)	$ (72,048)
Net loss per share:
Basic and Diluted (in dollars per share)	$ (0.15)	$ (0.68)	$ (0.57)	$ (1.44)
Weighted-average number of shares used in per share calculations:
Basic and Diluted (in shares)	50,773	50,084	50,705	49,989

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 25, 2011	Dec. 25, 2010
Current assets:
Cash and cash equivalents	$ 130,085	$ 121,207
Marketable securities	194,142	226,028
Restricted cash	383	383
Accounts receivable, net	28,017	28,598
Inventories	21,799	25,003
Deferred tax assets	297	329
Prepaid expenses and other current assets	9,022	14,743
Total current assets	383,745	416,291
Restricted cash	297	297
Property, plant and equipment, net	35,078	37,311
Deferred tax assets	7,364	5,445
Other assets	5,110	6,710
Total assets	431,594	466,054
Current liabilities:
Accounts payable	16,023	14,948
Accrued liabilities	15,176	24,045
Income taxes payable	382	1,894
Deferred revenue	4,409	4,637
Total current liabilities	35,990	45,524
Long-term income taxes payable	4,209	4,248
Deferred rent and other liabilities	4,101	5,081
Total liabilities	44,300	54,853
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 25, 2011 and December 25, 2010, respectively
Common stock, $0.001 par value: 250,000,000 shares authorized; 50,849,589 and 50,587,917 shares issued and outstanding at June 25, 2011 and December 25, 2010, respectively	52	52
Additional paid-in capital	655,674	651,263
Accumulated other comprehensive income	2,811	2,027
Accumulated deficit	(271,243)	(242,141)
Total stockholders' equity	387,294	411,201
Total liabilities and stockholders' equity	$ 431,594	$ 466,054

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 25, 2011	Dec. 25, 2010
CONDENSED CONSOLIDATED BALANCE SHEETS
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	250,000,000	250,000,000
Common stock, shares issued	50,849,589	50,587,917
Common stock, shares outstanding	50,849,589	50,587,917

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 25, 2011	Jun. 26, 2010
Cash flows from operating activities:
Net loss	$ (29,102)	$ (72,048)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	5,818	16,884
Amortization of investments	243	222
Stock-based compensation expense	6,321	9,152
Deferred income tax benefit	(2,627)	(89)
Recovery of doubtful accounts receivable	(266)	(328)
Provision for excess and obsolete inventories	3,524	512
Loss (gain) on disposal of long-lived assets	(32)	503
Impairment of long-lived assets	351	999
Non-cash restructuring	(1,582)	1,034
Foreign currency transaction (gains) losses	(404)	426
Changes in assets and liabilities:
Accounts receivable	1,065	(13,976)
Inventories	(430)	(13,247)
Prepaid expenses and other current assets	4,668	869
Refundable income taxes	(12)	26,349
Other assets	1,055	(248)
Accounts payable	1,456	1,192
Accrued liabilities	(8,467)	9,043
Income tax payable	(824)	(212)
Deferred rent	(65)	(652)
Deferred revenues	(229)	(2,205)
Net cash used in operating activities	(19,539)	(35,820)
Cash flows from investing activities:
Acquisition of property, plant and equipment	(2,733)	(16,484)
Proceeds from sales of property, plant and equipment	33
Purchases of marketable securities	(112,182)	(145,590)
Proceeds from maturities of marketable securities	144,165	155,225
Proceeds from sales of marketable securities		9,000
Net cash provided by investing activities	29,283	2,151
Cash flows from financing activities:
Proceeds from issuances of common stock and awards, net of issuance costs	1,576	1,536
Purchase and retirement of common stock	(3,007)
Net cash provided by (used in) financing activities	(1,431)	1,536
Effect of exchange rate changes on cash and cash equivalents	565	(834)
Net increase (decrease) in cash and cash equivalents	8,878	(32,967)
Cash and cash equivalents, beginning of period	121,207	122,043
Cash and cash equivalents, end of period	130,085	89,076
Supplemental cash flow disclosures:
Changes in accounts payable and accrued liabilities related to property and equipment purchases	(406)	1,026
Income taxes paid (refunded)	$ 1,263	$ (25,625)

Basis of Presentation and Summary of Significant Accounting Policies

6 Months Ended

Jun. 25, 2011

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Summary of Significant Accounting Policies

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies

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 U.S. 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 25, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011, or for any other period. The balance sheet at December 25, 2010 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 25, 2010 included in our Annual Report on Form 10-K filed with the SEC on February 17, 2011.

Fiscal year. We operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December. Fiscal 2011 will end on December 31, 2011, and will consist of 53 weeks.

Reclassifications. Certain reclassifications have been made to the prior period’s Condensed Consolidated Balance Sheet, Statement of Cash Flows and Statement of Operations to conform to the current year presentation.

Significant Accounting Policies. Other than the accounting policies discussed in Note 2 — Recent Accounting Pronouncements and Other Reporting Considerations, our significant accounting policies have not materially changed during the three and six months ended June 25, 2011 from those disclosed in our Annual Report on Form 10-K for the year ended December 25, 2010.

Recent Accounting Pronouncements and Other Reporting Considerations

6 Months Ended

Jun. 25, 2011

Recent Accounting Pronouncements and Other Reporting Considerations

Recent Accounting Pronouncements and Other Reporting Considerations

Note 2 —Recent Accounting Pronouncements and Other Reporting Considerations

Fair Value

Effective December 26, 2010, as required, we adopted the guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. Specifically, we have adopted the guidance requiring the disclosure of the roll forward of activities on purchases, sales, issuances and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). Other than requiring additional disclosures, adoption of this new guidance in the first quarter of fiscal 2011 did not have a material impact on our consolidated financial statements.

Additionally, in May 2011 updated authoritative guidance to amend existing requirements for fair value measurements and disclosures was issued. The guidance expands the disclosure requirements around fair value measurements categorized in Level 3 of the fair value hierarchy and requires disclosure of the level in the fair value hierarchy of items that are not measured at fair value but whose fair value must be disclosed. It also clarifies and expands upon existing requirements for fair value measurements of financial assets and liabilities as well as instruments classified in shareholders’ equity. The guidance will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and are to be applied prospectively. This new guidance impacts how we report on fair value measurements only, and will have no effect on our results of operations, financial position or liquidity upon its required adoption by us on January 1, 2012.

Revenue Recognition

In October 2009, additional authoritative guidance that modifies accounting for revenue arrangements with multiple deliverables was issued. The guidance eliminates the residual method of revenue recognition and establishes a hierarchy for determining the selling price of a deliverable in a sale arrangement whereby the selling price for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence (“TPE”) if VSOE is not available, or estimated selling price if neither VSOE or TPE is available. As required, we adopted this guidance effective December 26, 2010 on a prospective basis for revenue arrangements entered into or materially modified after the adoption date. The adoption of the additional authoritative guidance modifying revenue recognition accounting standards did not have any impact on our consolidated financial position, results of operations, or cash flows for the three and six months ended June 25, 2011, nor is it expected to have a material impact on total net revenues for the year ended December 31, 2011 based on current business practices.

Comprehensive Income

In June 2011 authoritative guidance that addresses the presentation of comprehensive income in interim and annual reporting of financial statements was issued. The guidance is intended to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income by eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. Such changes in stockholders’ equity will be required to be disclosed in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and should be applied retrospectively for all periods presented. Early adoption is permitted. This new guidance impacts how we report comprehensive income only, and will have no effect on our results of operations, financial position or liquidity upon its required adoption by us on January 1, 2012.

- Definition

Represents disclosures of new accounting pronouncements that have been issued but not yet adopted, including (1) description of the new pronouncement, the date that adoption is required and the date that the entity plans to adopt, if earlier; (2) discussion of the methods of adoption allowed by the pronouncement and the method expected to be utilized by the entity, if determined; (3) discussion of the impact that adoption of the pronouncement is expected to have on the financial statements of the entity, unless such impact is not known or reasonably estimable (in which case, a statement to that effect should be made) and; (4) disclosure of the potential impact of other significant matters that the entity believes might result from the adoption of the pronouncement (for example, technical violations of debt covenant agreements and planned or intended changes in business practices). Also represents disclosures of new accounting pronouncements that have been adopted recently including (1) the nature of and reason for the change, including an explanation of why the newly adopted accounting principle is preferable; (2) the method of applying the change and (i) a description of prior-period information that has been retrospectively adjusted, if any (ii) the effect of the change on income from continuing operations, net income (or other appropriate captions of changes in in the applicable net assets or performance indicator), any other affected financial statement line item, and any affected per-share amounts for the current period and any prior periods retrospectively adjusted (iii) the cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented (iv) if retrospective application is impracticable, the reasons therefore and a description of the alternative method used to report the change.

+ References + Details

Concentration of Credit and Other Risks

6 Months Ended

Jun. 25, 2011

Concentration of Credit and Other Risks

Concentration of Credit and Other Risks

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.

We sell our products to large multinational semiconductor manufacturers primarily located in Asia and North America. Four customers represented 17%, 15%, 12% and 10% of total revenues during the three months ended June 25, 2011, and four customers also represented 28%, 12%, 12% and 11% of total revenues during the three months ended June 26, 2010. Five customers represented 16%, 11%, 11%, 10% and 10% of total revenues during the six months ended June 25, 2011, and three customers represented 22%, 14% and 12% of total revenues during the six months ended June 26, 2010. 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 25, 2011, two customers accounted for approximately 23% and 15% of gross accounts receivable. At December 25, 2010, three customers accounted for approximately 21%, 19% and 11% of gross accounts receivable. No other customer accounted for more than 10% of gross accounts receivable in either of these fiscal periods.

- Definition

The entire disclosure for any concentrations existing at the date of the financial statements that make an entity vulnerable to a reasonably possible, near-term, severe impact. This disclosure informs financial statement users about the general nature of the risk associated with the concentration, and may indicate the percentage of concentration risk as of the balance sheet date.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15A
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Statement of Position (SOP)
-Number 94-6
-Paragraph 21, 22, 24
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 21
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 275
-SubTopic 10
-Section 50
-Paragraph 16
-URI http://asc.fasb.org/extlink&oid=6927468&loc=d3e6327-108592

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 20
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13531-108611

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 275
-SubTopic 10
-Section 50
-Paragraph 18
-URI http://asc.fasb.org/extlink&oid=6927468&loc=d3e6351-108592

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 275
-SubTopic 10
-Section 50
-Paragraph 20
-URI http://asc.fasb.org/extlink&oid=6927468&loc=d3e6404-108592

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 275
-SubTopic 10
-Section 50
-Paragraph 21
-URI http://asc.fasb.org/extlink&oid=6927468&loc=d3e6442-108592

+ Details

Restructuring Charges

6 Months Ended

Jun. 25, 2011

Restructuring Charges

Restructuring Charges

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. Restructuring charges are reflected separately as ‘Restructuring charges, net’ in the Condensed Consolidated Statements of Operations.

2010 Restructuring Activities

We recorded $3.6 million in restructuring charges in the three months ended March 27, 2010 as part of our then-current regionalization strategy (the “Q1 2010 Restructuring Plan”). These charges consisted of termination benefits related to reductions in work force of 106 full-time positions, which were all related to severance and related benefits. 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, 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 a reduction in workforce impacting 67 employees spread across all functions of the organization, as well as a reduction in 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. In conjunction with this action, we also undertook a plan to rescind the previously issued severance arrangements for certain employees impacted by the Q1 2010 Restructuring Plan. As a result of this rescission plan, as of June 26, 2010, we had reversed the existing accrual of $3.3 million for certain of the severance costs booked in conjunction with the Q1 2010 Restructuring Plan, including the accrued retention bonus to date.

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.

The activities comprising the above reductions in force were substantially completed by the end of fiscal 2010.

In addition to the above, we executed certain additional restructuring actions during the remainder of fiscal 2010. The ending restructuring accrual of $1.8 million as of December 25, 2010 reflects the unpaid amounts related to these actions as of that date.

2011 Restructuring Activities

In the first quarter of fiscal 2011, we implemented a restructuring plan (the “Q1 2011 Restructuring Plan”) which resulted in the reduction of our global workforce by 13 full-time employees across the organization. We recorded $1.1 million in charges for severance and related benefits during the quarter related to this plan. The activities comprising this reduction in workforce were substantially completed by the end of the second quarter of fiscal 2011.

In the second quarter of fiscal 2011, we implemented a restructuring plan (the “Q2 2011 Restructuring Plan”) which resulted in the reduction of our global workforce by 13 full-time employees across the organization. We recorded $0.6 million in charges for severance and related benefits during the quarter related to this plan. The activities comprising this reduction in workforce are expected to be completed by the end of the third quarter of fiscal 2011.

Additionally, in the second quarter of fiscal 2011 we executed an amendment to the existing lease arrangement for our facility in Singapore which released us from our obligations related to the floor previously utilized for manufacturing in this facility. In addition, we have been granted a rent reduction for the remaining occupied facilities in this building. We previously had recorded certain asset retirement obligations and accruals related to our ceasing use of these facilities in connection with a prior restructuring action. As a result, we have recorded a benefit of $1.5 million to ‘Restructuring charges, net’ in our Condensed Consolidated Statement of Operations for the three and six months ending June 25, 2011.

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 remaining cash payments associated with our various reductions in workforce are expected to be paid by the end of the third quarter of fiscal 2011. As such, the restructuring accrual is recorded as a current liability within ‘Accrued liabilities’ in the Condensed Consolidated Balance Sheets.

The activities in the restructuring accrual for the six months ended June 25, 2011 were as follows (in thousands):

	Employee
	Severance			Contract
	and			Termination
	Benefits			and Other			Total
Accrual at December 25, 2010	$	1,382		$	451		$	1,833
Q1 2011 Restructuring Plan charges	1,082			—			1,082
Cash payments	(1,633		)	(53		)	(1,686		)
Other adjustments	(40		)	—			(40		)
Accrual at March 26, 2011		791			398			1,189
Q2 2011 Restructuring Plan charges	627			—			627
Singapore facility restructuring adjustments	—			(374		)	(374		)
Cash payments	(728		)	(24		)	(752		)
Other adjustments	(345		)	—			(345		)
Accrual at June 25, 2011	$	345		$	—		$	345

- Definition

The entire disclosure for restructuring and related activities. Description of restructuring activities such as exit and disposal activities, include facts and circumstances leading to the plan, the expected plan completion date, the major types of costs associated with the plan activities, total expected costs, the accrual balance at the end of the period, and the periods over which the remaining accrual will be settled.

+ References + Details

Fair Value

6 Months Ended

Jun. 25, 2011

Fair Value

Fair Value

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 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 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. We apply the following fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: 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 instrument’s 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.

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. treasury securities, agency securities and foreign currency derivatives (see Note 17—Derivative Financial Instruments of the Notes to Condensed Consolidated Financial Statements for discussion of fair value of foreign currency derivatives). The following tables represent the fair value hierarchy for our other financial assets (cash equivalents and marketable securities):

Fair value measured on a recurring basis as of June 25, 2011 (in thousands):

	Level 1		Level 2		Total
Assets:
Cash equivalents
Money market funds	$	93,088	$	—	$	93,088
U. S. Treasury	—		5,000		5,000
Agency securities	—		9,999		9,999
Commercial paper	—		5,000		5,000
Marketable securities
U. S. Treasury	—		86,311		86,311
Agency securities	—		97,336		97,336
Commercial paper	—		10,495		10,495
Total	$	93,088	$	214,141	$	307,229

Fair value measured on a recurring basis as of December 25, 2010 (in thousands):

	Level 1		Level 2		Total
Assets:
Cash equivalents
Money market funds	$	82,996	$	—	$	82,996
Commercial paper	—		16,991		16,991
Marketable securities
U. S. Treasury	—		105,865		105,865
Agency securities	—		108,173		108,173
Commercial paper	—		11,990		11,990
Total	$	82,996	$	243,019	$	326,015

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. Broker’s 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.

We did not have any significant transfers of assets measured at fair value on a recurring basis to or from Level 1 and Level 2 during the periods ended June 25, 2011 and June 26, 2010.

Assets Measured at Fair Value on a Nonrecurring Basis

All of our long-lived assets measured at fair value on a nonrecurring basis were classified as Level 3 assets within the fair value hierarchy. We did not recognize any realized gains or losses on such assets during the three and six months ended June 25, 2011, respectively.

At the end of fiscal 2010, we had a building held for sale in Livermore, California, which was classified as Level 2 because the estimated fair value of the building was determined using inputs that reflected the assumptions market participants would use in pricing the building developed based on market data obtained from sources independent of us. During the quarter ended March 26, 2011 we placed this building back into service at its carrying value of $0.8 million, resulting in a reclassification of the balance from ‘Prepaid expenses and other current assets’ to ‘Property and equipment, net’ in the Condensed Consolidated Balance Sheet. See Note 10 — Long-lived Assets of the Notes to the Condensed Consolidated Financial Statements for more information.

At the end of fiscal 2010, we also had certain manufacturing equipment held for sale in Livermore, California which was classified as Level 3 as we used unobservable inputs in their 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. As of both June 25, 2011 and December 25, 2010, our held for sale assets in Livermore were valued at $0.4 million and continued to be classified as Level 3 based on the fact that we used unobservable inputs in their 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.

Other than the building previously held for sale that was put into service during the three months ended March 26, 2011, we did not have any assets that were transferred to or from Level 3 during the three and six months ended June 25, 2011 and June 26, 2010.

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.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 133
-Paragraph 44A, 44B
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15C, 15D
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15A
-Subparagraph a-d
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15B
-Subparagraph a, b
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 3, 10, 14, 15
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 157
-Paragraph 32, 33, 34
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 159
-Paragraph 17-22, 27, 28
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258

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-Name Accounting Standards Codification
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Reference 12: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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Reference 13: http://www.xbrl.org/2003/role/presentationRef
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Reference 14: http://www.xbrl.org/2003/role/presentationRef
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+ Details

Marketable Securities

6 Months Ended

Jun. 25, 2011

Marketable Securities

Marketable Securities

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 in accumulated other comprehensive income until realized.

Marketable securities at June 25, 2011 consisted of the following (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
U. S. Treasury	$	85,957	$	354	$	—		$	86,311
Agency Securities	97,188		151		(3		)	97,336
Commercial Paper	10,496		—		(1		)	10,495
	$	193,641	$	505	$	(4	)	$	194,142

Marketable securities at December 25, 2010 consisted of the following (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
U. S. Treasury	$	105,513	$	372	$	(20	)	$	105,865
Agency Securities	108,361		36		(224		)	108,173
Commercial Paper	11,988		2		—			11,990
	$	225,862	$	410	$	(244	)	$	226,028

The marketable securities with gross unrealized losses have been in a loss position for less than 12 months as of June 25, 2011 and December 25, 2010, respectively.

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. We believe that the unrealized losses are not other-than-temporary. We do not have a foreseeable need to liquidate the portfolio and anticipate recovering the full cost of the securities either as market conditions improve, or as the securities mature.

Contractual maturities of marketable securities as of June 25, 2011 were as follows (in thousands):

	Amortized Cost		Fair Value
Due in one year or less	$	93,420	$	93,605
Due after one year to three years	100,221		100,537
	$	193,641	$	194,142

Realized gains and losses on sales and maturities of marketable securities were immaterial for the three and six months ended June 25, 2011 and June 26, 2010, respectively.

Allowance for Doubtful Accounts

6 Months Ended

Jun. 25, 2011

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

Note 7 — Allowance for Doubtful Accounts

We recorded a reduction in provision for doubtful accounts of $0.6 million in the first quarter of fiscal 2011 primarily due to the receipt of payments totaling $0.3 million for accounts receivable previously reserved and the write-off of previously reserved accounts receivable in the amount of $0.3 million. We did not record any significant new allowances in the second quarter of fiscal 2011, nor did we release any previously reserved bad debts. A reconciliation of the changes in our allowance for doubtful accounts receivable consisted of the following activity for our quarterly fiscal periods ended June 25, 2011 and June 26, 2010, respectively (in thousands):

	Allowance for Doubtful Accounts Receivable Activity for fiscal quarters ended:
	June 25,			June 26,
	2011			2010
Beginning balance	$	847		$	9,260
Additions	—			—
Deductions	(610		)	(147		)
First fiscal quarter ending balance	237			9,113
Additions	28			315
Deductions	—			(496		)
Second fiscal quarter ending balance	$	265		$	8,932

- Definition

The entire disclosure for claims held for amounts due a company. Examples include trade accounts receivables, notes receivables, loans receivables.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 02
-Paragraph 3, 4
-Article 5

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 03
-Paragraph 7
-Article 9

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Statement of Position (SOP)
-Number 01-6
-Paragraph 13
-Subparagraph d
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Article 4
-Section 08
-Paragraph k

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 210
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.5-02.3,4)
-URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 310
-SubTopic 10
-Section 50
-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=6965416&loc=d3e5074-111524

Reference 7: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
-Topic 310
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=6965416&loc=d3e5066-111524

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08.(k))
-URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 310
-SubTopic 10
-Section 50
-Paragraph 11
-URI http://asc.fasb.org/extlink&oid=6965416&loc=d3e5162-111524

+ Details

Inventories

6 Months Ended

Jun. 25, 2011

Inventories

Inventories

Note 8 — Inventories

Inventories consisted of the following (in thousands):

	June 25,		December 25,
	2011		2010
Raw materials	$	6,139	$	2,736
Work-in-progress	9,865		16,807
Finished goods	5,795		5,460
	$	21,799	$	25,003

We record provisions for excess and obsolete inventory based on forecasts of future demand. While management believes the estimates and assumptions underlying its current forecasts are reasonable, there is risk that additional charges may be necessary if current forecasts are greater than actual demand.

Warranty

6 Months Ended

Jun. 25, 2011

Warranty

Warranty

Note 9 — Warranty

We offer warranties on certain products and record a liability for the estimated future costs associated with 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 Statement of Operations as a cost of revenues. A reconciliation of the changes in our warranty accrual liability (included in ‘Accrued liabilities’ in the Condensed Consolidated Balance Sheets) consisted of the following activity for our quarterly fiscal periods ended June 25, 2011 and June 26, 2010, respectively (in thousands):

	Warranty Accrual Activity for fiscal quarters ended:
	June 25,			June 26,
	2011			2010
Beginning balance	$	433		$	732
Accrual (release) of warranties during the period	(180		)	(396		)
Settlements made during the period	(64		)	(29		)
First fiscal quarter ending balance	189			307
Accrual (release) of warranties during the period	322			254
Settlements made during the period	(193		)	(154		)
Second fiscal quarter ending balance	$	318		$	407

Long-lived Assets

6 Months Ended

Jun. 25, 2011

Long-lived Assets

Long-lived Assets

Note 10 — Long-lived Assets

Property, plant and equipment consisted of the following (in thousands):

	June 25,			December 25,
	2011			2010
Building	$	790		$	—
Machinery and equipment	123,564			115,847
Computer equipment and software	35,511			35,493
Furniture and fixtures	6,063			6,180
Leasehold improvements	70,212			69,934
	236,140			227,454
Less: Accumulated depreciation, amortization and enterprise-wide impairment	(213,927		)	(207,992		)
	22,213			19,462
Construction-in-progress	12,865			17,849
	$	35,078		$	37,311

During the quarter ended March 26, 2011 we placed a building previously identified as held for sale back into service at its carrying value of $0.8 million. This amount represents the lesser of its carrying amount before the building was classified as held for sale, adjusted for any depreciation that would have been recognized had the building been continuously classified as held and used, or the fair value at the date of the subsequent decision not to sell. The building is being depreciated over its estimated remaining useful life of ten years.

During the three and six months ended June 25, 2011 we wrote-off fully depreciated assets with an acquired cost of $0.2 million and $0.4 million, respectively. In addition, during the three months ended March 26, 2011 we recorded an impairment of $0.4 million related to the termination of aspects of an on-going project related to certain software development for internal use that had been recorded in construction-in-progress. This impairment charge is included in “Impairment of long-lived assets” in the Condensed Consolidated Statements of Operations for the six months ended June 25, 2011.

At June 25, 2011, the carrying amount of our intangible asset, which consists of purchased intellectual property, was $3.8 million, with $5.9 million as the gross amount and $2.1 million as the accumulated amortization. We recorded $0.3 million and $0.6 million amortization expense for our intangible asset during the three and six months ended June 25, 2011, respectively, all of which was charged to cost of revenues. The intangible asset had a remaining amortization period of 3.3 years at June 25, 2011. The intangible asset is included in ‘Other assets’ in the Condensed Consolidated Balance Sheets.

Comprehensive Loss

6 Months Ended

Jun. 25, 2011

Comprehensive Loss

Comprehensive Loss

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 25,			June 26,			June 25,			June 26,
	2011			2010			2011			2010
Net loss	$	(7,678	)	$	(33,864	)	$	(29,102	)	$	(72,048	)
Unrealized gain on investments, net	237			336			210			350
Cumulative translation adjustments	284			89			574			(29		)
Comprehensive loss	$	(7,157	)	$	(33,439	)	$	(28,318	)	$	(71,727	)

Components of accumulated other comprehensive income was as follows (in thousands):

	June 25,		December 25,
	2011		2010
Unrealized gain (loss) on marketable securities, net of tax of $428 at June 25, 2011 and $299 at December 25, 2010, respectively	$	74	$	(136	)
Cumulative translation adjustments	2,737		2,163
Accumulated other comprehensive income	$	2,811	$	2,027

- Definition

The entire disclosure for comprehensive income. Includes, but is not limited to, the following: 1) the amount of income tax expense or benefit allocated to each component of other comprehensive income, including reclassification adjustments, 2) the reclassification adjustments for each classification of other comprehensive income and 3) the ending accumulated balances for each component of comprehensive income. Components of comprehensive income include: (1) foreign currency translation adjustments; (2) gains (losses) on foreign currency transactions that are designated as, and are effective as, economic hedges of a net investment in a foreign entity; (3) gains (losses) on intercompany foreign currency transactions that are of a long-term-investment nature, when the entities to the transaction are consolidated, combined, or accounted for by the equity method in the reporting enterprise's financial statements; (4) change in the market value of a futures contract that qualifies as a hedge of an asset reported at fair value; (5) unrealized holding gains (losses) on available-for-sale securities and that resulting from transfers of debt securities from the held-to-maturity category to the available-for-sale category; (6) a net loss recognized as an additional pension liability not yet recognized as net periodic pension cost; and (7) the net gain (loss) and net prior service cost or credit for pension plans and other postretirement benefit plans.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 130
-Paragraph 14-26
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 45
-Paragraph 11
-URI http://asc.fasb.org/extlink&oid=6920043&loc=d3e637-108580

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 45
-Paragraph 14
-URI http://asc.fasb.org/extlink&oid=6920043&loc=d3e681-108580

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 45
-Paragraph 13
-URI http://asc.fasb.org/extlink&oid=6920043&loc=d3e653-108580

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.3-04)
-URI http://asc.fasb.org/extlink&oid=6959260&loc=d3e187085-122770

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 45
-Paragraph 16
-URI http://asc.fasb.org/extlink&oid=6920043&loc=d3e709-108580

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 55
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6920433&loc=d3e998-108581

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 45
-Paragraph 12
-URI http://asc.fasb.org/extlink&oid=6920043&loc=d3e640-108580

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Glossary Reclassification Adjustments
-URI http://asc.fasb.org/extlink&oid=6522872

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
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-Paragraph 17
-URI http://asc.fasb.org/extlink&oid=6920043&loc=d3e716-108580

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 45
-Paragraph 15
-URI http://asc.fasb.org/extlink&oid=6920043&loc=d3e689-108580

+ Details

Stockholders' Equity

6 Months Ended

Jun. 25, 2011

Stockholders' Equity

Stockholders' Equity

Note 12 — Stockholders’ Equity

Common Stock Repurchase Program

On October 20, 2010, our Board of Directors authorized a program to repurchase up to $50.0 million of outstanding common stock. Under the authorized stock repurchase program, we may repurchase shares from time to time on the open market; the pace of repurchase activity will depend on levels of cash generation, current stock price, and other factors. The stock repurchase program was announced on October 26, 2010 and expires on October 19, 2011. The program may be modified or discontinued at any time. During fiscal year 2010 we repurchased and retired 70,000 shares of common stock for $0.6 million under this repurchase authorization. During the first fiscal quarter of 2011 we repurchased and retired an additional 262,712 shares for $2.3 million, and during the second fiscal quarter of 2011 we repurchased and retired an additional 117,437 shares for $1.0 million.

Repurchased shares are retired upon the settlement of the related trade transactions. Our policy related to repurchases of our common stock is to charge the excess of cost over par value to additional paid-in capital. All repurchases were made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.

Equity Incentive Plans

We have four equity incentive plans for which we have reserved shares for issuance upon the exercise of stock options: the 1996 Stock Option Plan, the Incentive Option Plan and the Management Incentive Option Plan (together, the “Prior Plans”), and the 2002 Equity Incentive Plan (the “2002 Plan”), which became effective in April 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 are transferred to the 2002 Plan.

Stock Options

Stock option activity under the Prior Plans and the 2002 Plan during the six months ended June 25, 2011 is set forth below:

					Weighted
					Average
			Weighted		Remaining	Aggregate
	Options		Average		Contractual	Intrinsic
	Outstanding		Exercise Price		Life in Years	Value
Balances, December 25, 2010	5,318,387		$	14.53
Options granted	202,250		8.94
Options exercised	(12,515	)	6.23
Options cancelled:
Forfeited	(70,275	)	9.86
Expired	(105,289	)	29.18
Balances, March 26, 2011	5,332,558			14.11
Options granted	257,500		10.33
Options exercised	(7,485	)	6.50
Options cancelled:
Forfeited	(74,993	)	9.34
Expired	(274,166	)	21.67
Balances, June 25, 2011	5,233,414		$	13.61	4.66	$	1,390,870

Vested and expected to vest at June 25, 2011	4,742,994		$	14.00	4.52	$	1,307,436

Exercisable at June 25, 2011	1,779,537		$	21.01	2.20	$	741,670

The intrinsic value of option exercises during the three and six months ended June 25, 2011 was $17,000 and $60,000, respectively. Cash received from stock option exercises during the three and six months ended June 25, 2011 was $39,000 and $0.1 million, respectively. We did not realize any gross tax benefits in connection with these exercises.

Restricted Stock Units

Restricted stock unit activity under the 2002 Plan during the six months ended June 25, 2011 is set forth below:

			Weighted
			Average Grant Date
	Units		Fair Value
Non-vested restricted stock units at December 25, 2010	1,372,912		$	16.29
Awards granted	51,600		8.89
Awards released	(103,525	)	17.92
Awards cancelled	(112,118	)	17.08
Non-vested restricted stock units at March 26, 2011	1,208,869			15.77
Awards granted	585,655		10.28
Awards released	(313,741	)	16.50
Awards cancelled	(54,654	)	15.40
Non-vested restricted stock units at June 25, 2011	1,426,129		$	13.37

- Definition

The entire disclosure for shareholders' equity, comprised of portions attributable to the parent entity and noncontrolling interest, if any, including other comprehensive income (as applicable). Including, but not limited to: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms, and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables, effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Principles Board Opinion (APB)
-Number 12
-Paragraph 10
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 04
-Article 3

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Article 4
-Section 08
-Paragraph d

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Research Bulletin (ARB)
-Number 43
-Chapter 1
-Section B
-Paragraph 7, 11A
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 129
-Paragraph 2, 3, 4, 5, 6, 7, 8
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 08
-Article 4

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 5
-Paragraph 15
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 02
-Paragraph 29, 30, 31
-Article 5

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 4
-Section E

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 4
-Section C

Reference 11: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.3-04)
-URI http://asc.fasb.org/extlink&oid=6959260&loc=d3e187085-122770

Reference 12: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
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-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21463-112644

Reference 13: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644

Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 4
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Reference 15: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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Reference 16: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08.(d),(e))
-URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690

Reference 18: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 6
-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21506-112644

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-Publisher FASB
-Name Accounting Standards Codification
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-SubTopic 30
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-Name Accounting Standards Codification
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-SubTopic 10
-Section S99
-Paragraph 2
-Subparagraph (SAB TOPIC 4.E)
-URI http://asc.fasb.org/extlink&oid=6228006&loc=d3e74512-122707

Reference 21: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Glossary Preferred Stock
-URI http://asc.fasb.org/extlink&oid=6521494

Reference 22: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 210
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.5-02.29-31)
-URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682

Reference 23: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section S99
-Paragraph 4
-Subparagraph (SAB TOPIC 4.C)
-URI http://asc.fasb.org/extlink&oid=6959260&loc=d3e187143-122770

+ Details

Stock-Based Compensation

6 Months Ended

Jun. 25, 2011

Stock-Based Compensation

Stock-Based Compensation

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 Statements of Operations (in thousands):

	Three Months Ended				Six Months Ended
	June 25,		June 26,		June 25,		June 26,
	2011		2010		2011		2010
Stock-based compensation expense included in:
Cost of revenues	$	758	$	994	$	1,603	$	1,965
Research and development	951		1,963		2,212		3,356
Selling, general and administrative	644		937		2,507		3,831
Restructuring	—		176		—		176
Total stock-based compensation	2,353		4,070		6,322		9,328
Tax effect on stock-based compensation	—		—		—		—
Total stock-based compensation, net of tax	$	2,353	$	4,070	$	6,322	$	9,328

Stock Options

During the three and six months ended June 25, 2011, we granted 257,500 and 459,750 stock options, respectively, under the 2002 Plan with a weighted average grant-date fair value of $4.34 and $4.06, respectively. During the three months ended June 26, 2010, we granted 420,570 stock options under the 2002 Plan with a weighted average grant-date fair value of $6.37 and no stock options under the 2002 Plan were granted during the quarter ended March 27, 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 25,		June 26,		June 25,		June 26,
	2011		2010		2011		2010
Stock Options:
Dividend yield	—	%	—	%	—	%	—	%
Expected volatility	50.54	%	49.74	%	50.30	%	49.74	%
Risk-free interest rate	1.65	%	1.91	%	1.67	%	1.91	%
Expected term (in years)	4.29		4.47		4.26		4.47

Employee Stock Purchase Plan

There were no shares issued under the Employee Stock Purchase Plan (“ESPP”) during the three months ended June 25, 2011 and June 26, 2010, respectively. During the six months ended June 25, 2011 and June 26, 2010, we issued 228,737 shares and 157,961 shares, respectively, under the ESPP. The following weighted-average assumptions were used in estimating the fair value of employee’s purchase rights under the ESPP:

	Three Months Ended				Six months ended
	June 25,		June 26,		June 25,		June 26,
	2011		2010		2011		2010
ESPP:
Dividend yield	—	%	—	%	—	%	—	%
Expected volatility	52.63	%	38.90	%	51.51	%	42.54	%
Risk-free interest rate	0.18	%	0.17	%	0.20	%	0.22	%
Expected term (in years)	0.5		0.5		0.5		0.5

Unrecognized Compensation Costs

At June 25, 2011, the unrecognized stock-based compensation, adjusted for estimated forfeitures, was as follows (in thousands):

			Average Expected
	Unrecognized		Recognition Period
	Expense		in years
Stock options	$	12,468	2.38
Restricted stock units	14,892		2.51
Employee Stock Purchase Plan	98		0.09
Total unrecognized stock-based compensation expense	$	27,458

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 123R
-Paragraph 64, 65, A240
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Statement of Position (SOP)
-Number 93-6
-Paragraph 53
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 14

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 50
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 10
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 10
-Section 50
-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 40
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929

+ Details

Net Loss per Share

6 Months Ended

Jun. 25, 2011

Net Loss per Share

Net Loss per Share

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 25, 2011 and June 26, 2010, 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 25,			June 26,			June 25,			June 26,
	2011			2010			2011			2010

Numerator:
Net loss used in computing basic and diluted net loss per share	$	(7,678	)	$	(33,864	)	$	(29,102	)	$	(72,048	)
Denominator:
Weighted-average shares used in computing basic net loss per share	50,773			50,084			50,705			49,989
Add potentially dilutive securities	—			—			—			—
Weighted average shares used in computing diluted net loss per share	50,773			50,084			50,705			49,989

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 25,	June 26,	June 25,	June 26,
	2011	2010	2011	2010
Options to purchase common stock	4,834	5,076	4,846	5,134
Restricted stock units	1,210	596	1,080	88
Employee Stock Purchase Plan	27	174	14	174
Total potentially dilutive securities	6,071	5,846	5,940	5,396

Income Taxes

6 Months Ended

Jun. 25, 2011

Income Taxes

Income Taxes

Note 15 — Income Taxes

We recorded an income tax benefit of $2.4 million and $2.2 million for the three and six months ended June 25, 2011, respectively, and an income tax provision of $0.2 million and $0.4 million for the three and six months ended June 26, 2010, respectively. The income tax benefit recorded for the three months and six months ended June 25, 2011 primarily relates to a $2.5 million release of the deferred tax valuation allowance for a non-US jurisdiction, offset by income tax expense in certain of our non-U.S. operations in foreign jurisdictions. The income tax provision for the three and six months ended June 26, 2010 reflects the tax provision on our non-U.S. operations in foreign jurisdictions. We continue to maintain a valuation allowance for our U.S. Federal and state deferred tax assets.

During the quarter ended June 25, 2011, we determined that it is more likely than not that the deferred tax assets of a non-US jurisdiction will be realized after considering all positive and negative evidence. Positive evidence included finalization of our current restructuring activity for the related foreign jurisdiction and conclusion that such location will continue to be in operation for the foreseeable future, as well as a forecast of future taxable income sufficient to realize such deferred tax assets prior to the expiration of existing net operating loss carryforwards due to a change in the entity’s structure to a cost-plus arrangement. Accordingly, a deferred tax valuation allowance release of $2.5 million was recorded as an income tax benefit during the quarter. Our conclusion that it is more likely than not that such deferred tax assets will be realized is strongly influenced by the expectation that such location will continue to be in operation for the foreseeable future. We believe such conclusion is reasonable in light of our current operational structure and forecasted operations, both for the foreign jurisdiction and our consolidated operations; however, such conclusion is inherently uncertain. Therefore, if we have material unforeseen losses or are required to restructure our non-U.S. operations to further align our operating expense structure with our expected revenues, then its ability to generate sufficient income necessary to realize a portion of the deferred tax assets may be reduced and an additional charge to increase the valuation allowance may be recorded.

The liability for uncertain tax positions was classified as a long-term income taxes liability as payments are not anticipated over the next 12 months. It may be reduced when liabilities are settled with taxing authorities or when the statute of limitations expires without assessment from tax authorities. We are unable to make a reasonable estimate as to when cash settlements with the relevant taxing authorities will occur. Unrecognized tax benefits increased by $0.7 million to $18.2 million during the six months ended June 25, 2011 primarily as a result of additional R&D credit reserves and foreign transfer pricing reserves. If recognized, $14.3 million of these unrecognized tax benefits (net of U.S. Federal benefit) would be recorded as a reduction of future income tax provision before consideration of changes in valuation allowance.

We classify interest and penalties related to uncertain tax positions as part of the income tax provision. For the three months and six months ended June 25, 2011, we recognized interest benefits and penalties of approximately $9,000 and $2,000, respectively. For the three months and six months ended June 26, 2010, we recognized interest charges and penalties of approximately $46,000 and $0.1 million, respectively. As of June 25, 2011 and June 26, 2010, we have accrued total interest and penalties of $0.4 million and $0.9 million related to the unrecognized tax benefits.

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. A number of years may elapse before an uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our reserves for income taxes reflect the most likely outcome. We adjust these reserves, as well as the related interest, in light of changing facts and circumstances. However, if an ultimate tax assessment exceeds our estimate of tax liabilities, additional tax expense will be recorded. The impact of such adjustments could have a material impact on our results of operations in future periods.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 08
-Paragraph h
-Article 4

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 109
-Paragraph 136, 172
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 109
-Paragraph 43, 44, 45, 46, 47, 48, 49
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 15
-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 9
-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08.(h))
-URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319

+ Details

Commitments and Contingencies

6 Months Ended

Jun. 25, 2011

Commitments and Contingencies

Commitments and Contingencies

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. We did not receive any notices of violations of environmental laws and regulations in fiscal 2010 or during the first six months of 2011. 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 25, 2011.

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 additional 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.

Indemnification Arrangements

We may, 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 party’s 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. We believe that substantially all of our indemnity arrangements provide either for limitations on the maximum potential future payments we could be obligated to make, or for limitations on the types of claims and damages we could be obligated to indemnify, or for both. However, it is not possible to determine or reasonably estimate the maximum potential amount of future payments under these indemnification obligations due to the varying terms of such obligations, the history of prior indemnification claims, the unique facts and circumstances involved in each particular contractual arrangement and in each potential future claim for indemnification, and the contingency of any potential liabilities upon the occurrence of events that are not reasonably determinable. We have not had any requests for indemnification under these arrangements. Our management believes that any liability for these indemnity arrangements would not be material to our accompanying consolidated financial statements. We have not recorded any liabilities for these indemnification arrangements on our Condensed Consolidated Balance Sheet as of June 25, 2011.

Legal Matters

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. For the periods ended June 25, 2011, 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.

Customs and Trade Matters

In July 2011 we received an inquiry from a foreign jurisdiction tax authority regarding certain indirect tax matters. We plan to cooperate with this inquiry, which relates to our prior shipping processes for new product qualifications and for products for certain of our repair center activities. To date, we have accrued $1.0 million for potential exposure related to this matter, but it is possible that the inquiry could result in additional material liabilities and that we could incur material expenses in responding to the inquiry.

Patent Litigation

In 2005, we filed a patent infringement lawsuit in the United States District Court for the District of Oregon against Phicom Corporation, a Korea corporation, and its U.S. subsidiary, both collectively “Phicom”, charging that it is willfully infringing four U.S. patents that cover key aspects of our wafer probe cards—U.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 litigation—U.S. Patent Nos. 7,073,254 and 6,615,485. The district court action was stayed pending resolution of the complaint that we filed with the United States International Trade Commission, or Commission, on or about November 13, 2007, seeking institution of a formal investigation into the activities of Phicom and of Micronics Japan Co., Ltd. An investigation was initiated and, in November 2009, in response to a request for review of prior decisions by the assigned Administrative Law Judge, the Commission issued a decision, which is termed a “final determination,” finding certain of FormFactor’s 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 Phicom, now operating under the name TSC MEMSYS Co. Ltd., was lifted and the parties engaged in a non-binding mediation in an attempt to amicable resolve the litigation. We anticipate that the matter will be resolved amicably through a confidential settlement agreement.

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 sought both injunctive relief and money damages for Micro-Probe’s alleged infringement of our U.S. Patent No. 6,441,315 for “Contact Structures With Blades Having A Wiping Motion,” U.S. Patent No. 6,825,422 for “Interconnection Element With Contact Blade,” U.S. Patent No. 6,965,244 for “High Performance Probe System,” U.S. Patent No. 7,227,371 for “High Performance Probe System,” U.S. Patent No. 6,246,247 for “Probe Card Assembly and Kit, and Methods of Using Same,” and U.S. Patent No. 6,624,648 for “Probe Card Assembly.” The complaint also sought 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. After Micro-Probe and the former employee filed motions to dismiss, we voluntarily filed an amended complaint which was substantially similar to our original complaint except that we added a claim against the former employee alleging misappropriation of trade secrets and we omitted the infringement allegation related to our U.S. Patent No. 6,624,648, which is the subject of a re-examination proceeding before the U.S. Patent and Trademark Office, or USPTO. Micro-Probe and the former employee have both filed answers to our amended complaint. We have filed a second amended complaint in which we added allegations of infringement based upon two additional patents: U.S. Patent No. 7,671,614 for “Apparatus and Method for Adjusting An Orientation of Probes” and U.S. Patent No. 7,225,538 for “Resilient Contact Structures Formed And Then Attached To A Substrate”.

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 requests for re-examination proceedings filed by Micro-Probe with the USPTO directed to our U.S. Patent Nos. 6,246,247, 6,825,422, 6,441,315, 6,965,244, 7,225,538, 7,227,371 and 7,671,614. The USPTO granted the re-examination requests directed to U.S. Patent Nos. 6,246,247, 6,825,422 and 6,441,315, and granted in part the requests directed to U.S. Patent Nos. 6,965,244, 7,227,371 and 7,671,614. The foreign actions include proceedings in Taiwan against several of our Taiwan patents.

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 25, 2011. We will incur material attorneys’ fees in prosecuting and defending the various identified actions.

- Definition

The entire disclosure for commitments and contingencies.

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+ Details

Derivative Financial Instruments

6 Months Ended

Jun. 25, 2011

Derivative Financial Instruments

Derivative Financial Instruments

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, primarily trade receivables and payables. 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 for hedge accounting treatment. We record the fair value of these contracts as of the end of our reporting period to our Condensed Consolidated Balance Sheet with changes in fair value recorded within “Other income (expense), net” in our Condensed Consolidated Statement of Operations for both realized and unrealized gains and losses.

As of June 25, 2011, we had the following outstanding foreign exchange forward contracts that we entered into to hedge forecasted revenues and purchases (in thousands):

Currency	Contract Position	Contract Amount (Local Currency)		Contract Amount (U.S. Dollars)
Japanese Yen	Sell	328,170		$	4,066
Korean Won	Buy	(40,360	)	(1,398		)
Taiwan Dollar	Buy	(893,408	)	(828		)
Total USD notional amount of outstanding foreign exchange contracts				$	1,840

The contracts were entered into on June 23, 2011 and matured on June 28, 2011. 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. There was no change in the value of these contracts as of June 25, 2011. Additionally, no gains or losses relating to the outstanding derivative contracts were recorded in the three and six months ended June 25, 2011.

The location and amount of gains and losses related to non-designated derivative instruments that matured in the three and six months ended June 25, 2011 and June 26, 2010 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 25,			June 26,			June 25,			June 26,
Hedging Instruments	Recognized on Derivatives	2011			2010			2011			2010

Foreign exchange forward contracts	Other income (expense), net	$	(73	)	$	(258	)	$	(289	)	$	(439	)

- Definition

The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items.

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+ Details

Document and Entity Information - shares	6 Months Ended
Document and Entity Information - shares	Jun. 25, 2011	Jul. 27, 2011
Document and Entity Information
Entity Registrant Name	FORMFACTOR INC
Entity Central Index Key	0001039399
Document Type	10-Q
Document Period End Date	Jun. 25, 2011
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		50,849,589
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2