What changed in this filing

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Item 1. Financial Statements

2020-08-04 compared with 2020-05-07 · 245 added, 88 removed, 477 unchanged (41% of the section changed)

14 unchanged sentences

Operating lease, right-of-use-assets 29,027 31,420

Property, plant and equipment, net of accumulated depreciation of $277,017 and $273,001 63,745 58,747

Property, plant and equipment, net of accumulated depreciation 83,662 58,747

Goodwill 200,293 199,196

11 unchanged sentences

Total current liabilities 123,236 136,560

Term loan, less current portion, net of unamortized issuance costs 13,642 15,639

Term loans, less current portion, net of unamortized issuance costs 28,725 15,639

Deferred tax liabilities 6,343 6,986

3 unchanged sentences

Stockholders’ equity:

Preferred stock, $0.001 par value:

10,000,000 shares authorized;

no shares issued and outstanding — —

Common stock, $0.001 par value:

10 unchanged sentences

(In thousands, except per share amounts)

Three Months Ended

2020 March 30,

Three Months Ended Six Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Revenues $ 157,824 $ 138,018 $ 318,577 $ 270,231

8 unchanged sentences

Interest expense ( 171 ) ( 522 ) ( 489 ) ( 1,117 )

Other expense, net ( 91 ) ( 84 )

Other income (expense), net ( 67 ) 81 ( 158 ) ( 3 )

Income before income taxes 22,631 9,238 41,337 16,753

11 unchanged sentences

(In thousands)

Three Months Ended

2020 March 30,

Three Months Ended Six Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Net income $ 20,469 $ 6,948 $ 36,359 $ 12,431

Other comprehensive loss, net of tax:

Other comprehensive income (loss), net of tax:

Translation adjustments and other 763 689 364 ( 228 )

Unrealized gains (losses) on available-for-sale marketable securities ( 27 ) 151

Unrealized gains on available-for-sale marketable securities 524 142 497 293

Unrealized gains (losses) on derivative instruments 80 ( 73 ) 256 ( 686 )

Other comprehensive loss, net of tax ( 250 ) ( 1,379 )

Other comprehensive income (loss), net of tax 1,367 758 1,117 ( 621 )

Comprehensive income $ 21,836 $ 7,706 $ 37,476 $ 11,810

4 unchanged sentences

Shares Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total

Three Months Ended March 28, 2020

Six Months Ended June 27, 2020

Balances, December 28, 2019 75,764,990 $ 76 $ 885,821 $ ( 659 ) $ ( 244,241 ) $ 640,997

3 unchanged sentences

Stock-based compensation — — 11,114 — — 11,114

Other comprehensive loss — — — ( 250 ) — ( 250 )

Other comprehensive income — — — 1,117 — 1,117

Net income — — — — 36,359 36,359

Balances, June 27, 2020 76,501,459 $ 77 $ 898,069 $ 458 $ ( 207,882 ) $ 690,722

Three Months Ended June 27, 2020

Balances, March 28, 2020 76,158,251 $ 77 $ 895,600 $ ( 909 ) $ ( 228,351 ) $ 666,417

Shares Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total

Three Months Ended March 30, 2019

Issuance of common stock pursuant to exercise of options 50,000 — 422 — — 422

Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 293,208 — ( 3,415 ) — — ( 3,415 )

Stock-based compensation — — 5,462 — — 5,462

Other comprehensive income — — — 1,367 — 1,367

Net income — — — — 20,469 20,469

Balances, June 27, 2020 76,501,459 $ 77 $ 898,069 $ 458 $ ( 207,882 ) $ 690,722

Six Months Ended June 29, 2019

Balances, December 29, 2018 74,139,712 $ 74 $ 862,897 $ 780 $ ( 283,587 ) $ 580,164

Issuance of common stock under the Employee Stock Purchase Plan 301,497 — 3,670 — — 3,670

Issuance of common stock pursuant to exercise of options for cash 19,207 — 90 — — 90

Issuance of common stock pursuant to exercise of options 19,207 — 90 — — 90

Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 231,365 1 ( 2,157 ) — — ( 2,156 )

2 unchanged sentences

Net income — — — — 12,431 12,431

Balances, June 29, 2019 74,691,781 $ 75 $ 875,024 $ 159 $ ( 271,156 ) $ 604,102

Three Months Ended June 29, 2019

Balances, March 30, 2019 74,488,498 $ 74 $ 871,617 $ ( 599 ) $ ( 278,104 ) $ 592,988

Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 203,283 1 ( 1,855 ) — — ( 1,854 )

Stock-based compensation — — 5,262 — — 5,262

Other comprehensive income — — — 758 — 758

Net income — — — — 6,948 6,948

Balances, June 29, 2019 74,691,781 $ 75 $ 875,024 $ 159 $ ( 271,156 ) $ 604,102

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

2 unchanged sentences

(In thousands)

Three Months Ended

2020 March 30,

Six Months Ended

2020 June 29,

Cash flows from operating activities:

3 unchanged sentences

Amortization 13,717 14,169

Accretion of discount on investments ( 28 ) ( 71 )

Reduction in the carrying amount of right-of-use assets 2,419 2,620

Stock-based compensation expense 11,265 10,584

Amortization of debt issuance costs 19 51

Deferred income tax benefit ( 198 ) —

Provision for excess and obsolete inventories 6,407 5,304

Loss on disposal of long-lived assets 204 118

Loss on derivative instruments 676 59

Foreign currency transaction (losses) gains ( 266 ) 121

Gain on contingent consideration ( 3,700 ) —

Other adjustments to reconcile net income to net cash provided by operating activities 1,327 ( 173 )

Changes in assets and liabilities:

18 unchanged sentences

Tax withholdings related to net share settlements of equity awards ( 3,800 ) ( 2,157 )

Proceeds from term loan debt 18,000 —

Principal repayments on term loans ( 26,322 ) ( 18,750 )

Payment of term loan debt issuance costs ( 78 ) —

Net cash used in financing activities ( 7,265 ) ( 17,037 )

21 unchanged sentences

We operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December.

Fiscal 2020 and 2019 each contain 52 weeks and the three months ended March 28, 2020 and March 30, 2019 each contained 13 weeks.

Fiscal 2020 and 2019 each contain 52 weeks and the six months ended June 27, 2020 and June 29, 2019 each contained 26 weeks.

Fiscal 2020 will end on December 26, 2020.

Critical Accounting Policies

Our critical accounting policies have not changed during the three months ended March 28, 2020 from those disclosed in our Annual Report on Form 10-K for the year ended December 28, 2019.

Significant Accounting Policies

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

Reclassifications

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

New Accounting Pronouncements

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We have not yet determined the impact of this standard on our financial position, results of operations or cash flows.

In March 2020, the FASB issued ASU 2020-04, "Referenced Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments in this update apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022.

The amendments in this update are elective and are effective upon issuance for all entities.

We have not yet evaluated the transition approach for our LIBOR indexed contracts and have not determined whether we will be electing such expedients and exceptions.

Note 2 — Concentration of Credit and Other Risks

Each of the following customers accounted for 10% or more of our revenues for the periods indicated:

Three Months Ended

2020 March 30,

Three Months Ended Six Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Intel Corporation 36.1 % 26.1 % 36.2 % 23.8 %

1 unchanged sentence

* 11.1 % * 12.4 %

Micron Technology, Inc.

36.1 % 47.3 % 36.2 % 36.2 %

*Represents less than 10% of total revenues.

At March 28, 2020, two customers accounted for 27.7 % and 15.3 % of gross accounts receivable, respectively.

At June 27, 2020, two customers accounted for 15.8 % and 18.1 % of gross accounts receivable, respectively.

At December 28, 2019, three customers accounted for 25.7 %, 15.1 % and 11.5 % of gross accounts receivable, respectively.

9 unchanged sentences

On October 9, 2019, we acquired 100 % of the shares of FRT GmbH ("FRT"), a German-based company, for total consideration of $ 26.9 million, net of cash acquired of $ 1.7 million.

The fair value of the purchase consideration was comprised of a $ 22.2 million cash payment and $ 6.5 million of contingent consideration.

The fair value of the purchase consideration was comprised of a $ 22.2 million cash payment and $ 6.5 million of contingent consideration as of October 9, 2019.

We estimated the acquisition price and the allocation of fair value to assets acquired and liabilities assumed as of the acquisition date, October 9, 2019.

We subsequently made certain immaterial adjustments to the acquisition price allocation related to acquired assets and assumed liabilities, including to intangibles assets.

Our purchase accounting remains open at March 28, 2020, subject to finalization of the fair value of certain acquired assets and liabilities.

Our purchase accounting remains open at June 27, 2020, subject to finalization of the fair value of certain acquired assets and liabilities.

The estimated fair value of assets acquired, including goodwill and intangibles, and liabilities assumed is as follows (in thousands):

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The contingent consideration is a cash amount equal to 1.5 x Earnings Before Interest and Tax ("EBIT") as defined in the purchase agreement, from a minimum of zero up to a maximum of € 10.3 million, payable subject to the performance of the acquired business in calendar 2020.

We estimated the fair value of contingent consideration using a probability weighted approach.

For purchase accounting, we estimated the fair value of contingent consideration using a probability weighted approach.

Key assumptions in determining the fair value of contingent consideration include estimating the probability of achieving certain EBIT levels and discounting at an appropriate discount rate.

See Note 8, Fair Value and Derivative Instruments , for further discussion on the fair value of contingent consideration.

This acquisition strengthens our leadership in test and measurement by expanding our addressable market into 3D hybrid surface metrology and extending the optical applications scope of our existing Systems segment.

Separate from the purchase agreement, on October 25, 2019, we entered into a term loan agreement with a lender for an aggregate amount of $ 23.4 million to finance the acquisition.

The term loan agreement has not changed during the three months ended March 28, 2020 from that disclosed in our Annual Report on Form 10-K for the year ended December 28, 2019.

See Note 6, Debt , for further discussion of the term loan agreement.

Identifiable Intangible Assets

10 unchanged sentences

Expected cash flow from backlog was valued on a direct cash flow basis.

The identified trade names intangibles relate to the estimated fair value of future cash flows related to the FRT brand.

The identified trade names intangible relates to the estimated fair value of future cash flows related to the FRT brand.

We valued trade names by applying the relief-from-royalty method under the income approach.

15 unchanged sentences

Foreign currency translation — 122 122

Goodwill, gross, as of March 28, 2020 $ 172,482 $ 27,896 $ 200,378

No goodwill impairments have been recorded as of March 28, 2020 and December 28, 2019.

Goodwill, gross, as of June 27, 2020 $ 172,482 $ 27,811 $ 200,293

No goodwill impairments have been recorded during the six months ended June 27, 2020 and the twelve months ended December 28, 2019.

Intangible assets were as follows (in thousands):

March 28, 2020 December 28, 2019

June 27, 2020 December 28, 2019

Intangible Assets Gross Accumulated Amortization Net Gross Accumulated Amortization Net

5 unchanged sentences

Amortization expense was included in our Condensed Consolidated Statements of Income as follows (in thousands):

Three Months Ended

2020 March 30,

Three Months Ended Six Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Cost of revenues $ 4,926 $ 4,711 $ 10,676 $ 9,430

5 unchanged sentences

Thereafter 4,847

Note 6 — Debt

Our debt consisted of the following (in thousands):

2020 December 28,

Term loans $ 50,128 $ 58,514

Less unamortized issuance costs ( 78 ) ( 29 )

Term loans less issuance costs $ 50,050 $ 58,485

Future principal and interest payments on our term loans as of June 27, 2020, based on the interest rate in effect at that date were as follows (in thousands):

Payments Due In Fiscal Year

Remainder 2020 2021 2022 2023 2024 Thereafter Total

Term loans - principal payments $ 16,912 $ 8,845 $ 8,873 $ 1,050 $ 1,080 $ 13,368 $ 50,128

Term loans - interest payments (1)

328 537 392 293 273 1,445 3,268

Total $ 17,240 $ 9,382 $ 9,265 $ 1,343 $ 1,353 $ 14,813 $ 53,396

(1) Represents our minimum interest payment commitments at 1.92 % per annum for the Building Term Loan and 1.59 % per annum for the FRT Term Loan and 2.18 % per annum for the CMI Term Loan.

CMI Term Loan

On June 24, 2016, we entered into a Credit Agreement (the “Credit Agreement”) with HSBC Bank USA, National Association ("HSBC"), as administrative agent, co-lead arranger, sole bookrunner and syndication agent, other lenders that may from time-to-time be a party to the Credit Agreement, and certain guarantors.

Pursuant to the Credit Agreement, the lenders have provided us with a senior secured term loan facility of $ 150 million (the “CMI Term Loan”).

The proceeds of the CMI Term Loan were used to finance a portion of the purchase price paid in connection with the Cascade Microtech acquisition in fiscal 2016 and to pay related bank fees and expenses.

The CMI Term Loan bears interest at a rate equal to, at our option, (i) the applicable London Interbank Offered Rate ("LIBOR") rate plus 2.00 % per annum or (ii) Base Rate (as defined in the Credit Agreement) plus 1.00 % per annum.

We have currently elected to pay interest at 2.00 % over the one-month LIBOR rate.

Interest payments are payable in monthly installments over a five-year period.

The interest rate at June 27, 2020 was 2.41 %.

The principal payments on the CMI Term Loan are paid in equal quarterly installments that began June 30, 2016, in an annual amount equal to 5 % for year one, 10 % for year two, 20 % for year three, 30 % for year four and 35 % for year five.

The planned final payment on the CMI Term Loan is scheduled for the third quarter of fiscal 2020.

On July 25, 2016, we entered into an interest rate swap agreement with HSBC and other lenders to hedge the interest payments on the CMI Term Loan for the notional amount of $ 95.6 million.

As future levels of LIBOR over the life of the loan are uncertain, we entered into these interest-rate swap agreements to hedge the exposure in interest rate risks associated with movement in LIBOR rates.

By entering into the agreements, we convert a floating rate interest at one-month LIBOR plus 2 % into a fixed rate interest at 2.939 %.

The interest rate swap agreement ended as of March 27, 2020.

The obligations under the Term Loan are guaranteed by substantially all of our assets and the assets of our domestic subsidiaries, subject to certain customary exceptions.

The Credit Agreement contains negative covenants customary for financing of this type, as well as certain financial maintenance covenants.

As of June 27, 2020, the balance outstanding pursuant to the CMI Term Loan was $ 12.5 million and we were in compliance with all covenants under the Credit Agreement.

The CMI Term loan was subsequently fully paid as of June 30, 2020.

FRT Term Loan

On October 25, 2019, we entered into a $ 23.4 million three-year credit facility loan agreement (the "FRT Term Loan") with HSBC Trinkaus & Burkhardt AG, Germany, to fund the acquisition of FRT GmbH, which we acquired on October 9, 2019.

See Note 4, Acquisition, for further details of the acquisition.

The FRT Term Loan bears interest at a rate equal to the Euro Interbank Offered Rate ("EURIBOR") plus 1.75 % per annum and will be repaid in quarterly installments of approximately $ 1.9 million plus interest.

The interest rate at June 27, 2020 was 1.36 %

The obligations under the FRT Term Loan are fully and unconditionally guaranteed by FormFactor, Inc.

The FRT Term Loan contains negative covenants customary for financing of this type, including covenants that place limitations on the incurrence of additional indebtedness, the creation of liens, the payment of dividends;

dispositions;

fundamental changes, including mergers and acquisitions;

loans and investments;

sale leasebacks;

negative pledges;

transactions with affiliates;

changes in fiscal year;

sanctions and anti-bribery laws and regulations, and modifications to charter documents in a manner materially adverse to the Lenders.

The FRT Term Loan also contains affirmative covenants and representations and warranties customary for financing of this type.

As of June 27, 2020, the balance outstanding pursuant to the FRT term loan was $ 19.6 million and we were in compliance with all covenants.

Building Term Loan

On June 22, 2020, we entered into an $ 18.0 million 15 -year credit facility loan agreement (the “Building Term Loan”) with MUFG Union Bank, National Association ("Union Bank").

The proceeds of the Building Term Loan were used to purchase a building adjacent to our leased facilities in Livermore, California.

The Building Term Loan bears interest at a rate equal to the applicable LIBOR rate plus 1.75 % per annum.

Interest payments are payable in monthly installments over a fifteen -year period.

The interest rate at June 27, 2020 was 1.92 %.

On March 17, 2020, we entered into an interest rate swap agreement with Union Bank to hedge the interest payments on the Building Term Loan for the notional amount of $ 18.0 million.

As future levels of LIBOR over the life of the loan are uncertain, we entered into this interest-rate swap agreement to hedge the exposure in interest rate risks associated with movement in LIBOR rates.

By entering into the agreement, we convert a floating rate interest at one-month LIBOR plus 1.75 % into a fixed rate interest at 2.75 %.

The interest rate swap also includes a 0 % floor that is effective for one year from the date of the swap.

As of June 27, 2020, the notional amount of the loan that is subject to this interest rate swap is $ 18.0 million.

See Note 8, Fair Value and Derivative Instruments , for additional information.

The obligations under the Building Term Loan are guaranteed by a deed of trust covering certain real property and improvements and certain personal property used in connection therewith.

The deed of trust creates a first priority lien or encumbrance on the property with only such exceptions as may be approved by the Union Bank in writing.

The Credit Agreement contains covenants customary for financing of this type.

As of June 27, 2020, the balance outstanding pursuant to the Building Term Loan was $ 18.0 million and we were in compliance with all covenants under the Credit Agreement.

Note 7 — Accrued Liabilities

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• Level 3 valuations utilize unobservable inputs to the valuation methodology and include our own data about assumptions market participants would use in pricing the asset or liability based on the best information available under the circumstances.

We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during the three months ended March 28, 2020 or the year ended December 28, 2019.

We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during the three and six months ended June 27, 2020 or the year ended December 28, 2019.

The carrying values of Cash, Accounts receivable, net, Restricted cash, Prepaid expenses and other current assets, Accounts payable, Accrued liabilities, and Current portion of term loans, net of unamortized issuance costs, approximate fair value due to their short maturities.

No changes were made to our valuation techniques during the first three months of fiscal 2020.

No changes were made to our valuation techniques during the first six months of fiscal 2020.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):

March 28, 2020 Level 1 Level 2 Level 3 Total

June 27, 2020 Level 1 Level 2 Level 3 Total

Cash equivalents:

9 unchanged sentences

Total assets $ 129,753 $ 28,051 $ — $ 157,804

Foreign exchange derivative contracts $ — $ ( 154 ) $ — $ ( 154 )

Interest rate swap derivative contracts $ — $ ( 256 ) $ — $ ( 256 )

28 unchanged sentences

Contingent Consideration

Contingent consideration, arising from the acquisition of FRT (see Note 4), is a cash amount equal to 1.5 x EBIT as defined in the purchase agreement, up to a maximum of € 10.3 million, payable subject to the performance of the acquired business in calendar 2020.

Contingent consideration, arising from the acquisition of FRT, is a cash amount equal to 1.5 x EBIT as defined in the purchase agreement, up to a maximum of € 10.3 million, payable subject to the performance of the acquired business in calendar 2020.

We estimated the fair value of contingent consideration using a probability weighted approach.

Key assumptions in determining the fair value of contingent consideration include estimating the probability of achieving certain EBIT levels and discounting at an appropriate discount rate.

Contingent consideration as of March 28, 2020 was $ 6.5 million and which increased by $ 1.1 million from $ 5.4 million as of December 28, 2019 as a result of subsequent immaterial adjustments.

Key assumptions in determining the fair value of contingent consideration include estimating EBIT levels that are likely to be achieved during the performance period and discounting at an appropriate discount rate.

Contingent consideration as of June 27, 2020 was estimated to be $ 2.9 million, a net decrease of $ 2.5 million from $ 5.4 million as of December 28, 2019.

The net decrease was as a result of a $ 1.2 million increase in the estimated contingent consideration upon acquisition and as part of purchase accounting that was adjusted in the first fiscal quarter of 2020, offset by a $ 3.7 million decrease in the estimated contingent consideration from subsequent remeasurement of the liability.

Interest Rate Swaps

1 unchanged sentence

For accounting purposes, our interest rate swap contracts qualify for, and are designated as, cash flow hedges.

The cash flows associated with the interest rate swaps are reported in Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows and the fair value of the interest rate swap contracts are recorded within Prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets.

The cash flows associated with the interest rate swaps are reported in Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows and the fair value of the interest rate swap contracts are recorded within Accrued liabilities and Other liabilities in our Condensed Consolidated Balance Sheets.

The impact of the interest rate swaps on our Condensed Consolidated Statements of Income was as follows (in thousands):

Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion) Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)

Three Months Ended March 28, 2020 $ ( 96 ) Interest expense, net $ 22 Interest expense, net $ —

Three Months Ended March 30, 2019 $ ( 28 ) Interest expense, net $ ( 208 ) Interest expense, net $ —

Three Months Ended June 27, 2020 $ ( 174 ) Interest expense $ ( 10 ) Interest expense $ —

Three Months Ended June 29, 2019 $ ( 62 ) Interest expense $ 175 Interest expense $ —

Six Months Ended June 27, 2020 $ ( 270 ) Interest expense $ 12 Interest expense $ —

Six Months Ended June 29, 2019 $ ( 90 ) Interest expense $ 383 Interest expense $ —

Foreign Exchange Derivative Contracts

6 unchanged sentences

Certain of our foreign currency forward contracts are designated as cash flow hedges, and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded as a component of Accumulated other comprehensive loss and reclassified into earnings in the same period in which the hedged transaction affects earnings, and in the same line item on the Condensed Consolidated Statements of Income as the impact of the hedge transaction.

At March 28, 2020, we expect to reclassify $ 0.2 million of the amount accumulated in Other comprehensive loss to earnings during the next 12 months, due to the recognition in earnings of the hedged forecasted transactions.

At June 27, 2020, we expect to reclassify $ 0.2 million of the amount accumulated in Other comprehensive loss to earnings during the next 12 months, due to the recognition in earnings of the hedged forecasted transactions.

The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange rates and forward points.

All of our foreign exchange derivative contracts outstanding at March 28, 2020 will mature by the second quarter of fiscal 2021.

The following table provides information about our foreign currency forward contracts outstanding as of March 28, 2020 (in thousands):

All of our foreign exchange derivative contracts outstanding at June 27, 2020 will mature by the second quarter of fiscal 2021.

The following table provides information about our foreign currency forward contracts outstanding as of June 27, 2020 (in thousands):

Currency Contract Position Contract Amount

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Amount of Gain (Loss) Recognized on Derivatives

Three Months Ended

Derivatives Not Designated as Hedging Instruments Location of Gain (Loss) Recognized on Derivatives March 28, 2020 March 30, 2019

Three Months Ended Six Months Ended

Derivatives Not Designated as Hedging Instruments Location of Gain (Loss) Recognized on Derivatives June 27,

2020 June 29,

2019 June 27,

2020 June 29,

Foreign exchange forward contracts Other expense, net $ 234 $ 587 $ 349 $ 273

1 unchanged sentence

Amount of Loss Recognized in Accumulated OCI on Derivative Location of Loss Reclassified from Accumulated OCI into Income Amount of Loss Reclassified from Accumulated OCI into Income

Three Months Ended March 28, 2020 $ ( 3 ) Cost of revenues $ ( 120 )

Three Months Ended June 27, 2020 $ 52 Cost of revenues $ 139

Research and development 17

Selling, general and administrative 35

Three Months Ended March 30, 2019 $ ( 435 ) Cost of revenues $ ( 32 )

Three Months Ended June 29, 2019 $ 213 Cost of revenues $ 139

Research and development 12

Selling, general and administrative 32

Six Months Ended June 27, 2020 $ 126 Cost of revenues $ 258

Research and development 35

Selling, general and administrative 79

Six Months Ended June 29, 2019 $ 213 Cost of revenues $ 171

Research and development 19

Selling, general and administrative 51

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

We measure and report our non-financial assets such as Property, plant and equipment, Goodwill and Intangible assets at fair value on a non-recurring basis if we determine these assets to be impaired or in the period when we make a business acquisition.

Other than as discussed in Note 4, t here were no assets or liabilities measured at fair value on a nonrecurring basis during the three months ended March 28, 2020 or March 30, 2019.

Other than as discussed in Note 4, Acquisition , t here were no assets or liabilities measured at fair value on a nonrecurring basis during the three and six months ended June 27, 2020 or June 29, 2019.

Note 9 — Warranty

7 unchanged sentences

Changes in our warranty liability were as follows (in thousands):

Three Months Ended

2020 March 30,

Six Months Ended

2020 June 29,

Balance at beginning of period $ 1,942 $ 2,102

2 unchanged sentences

Balance at end of period $ 2,061 $ 1,827

Note 10 — Property, Plant and Equipment, net

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

2020 December 28,

Land $ 4,751 $ —

Machinery and equipment 207,199 201,861

Computer equipment and software 35,844 35,192

Furniture and fixtures 6,938 6,756

Leasehold improvements 77,470 76,081

Sub-total 332,202 319,890

Accumulated depreciation and amortization ( 281,539 ) ( 273,001 )

Net, property, plant and equipment 50,663 46,889

Construction-in-process 32,999 11,858

Total $ 83,662 $ 58,747

Note 11 — Stockholders’ Equity and Stock-Based Compensation

6 unchanged sentences

Awards forfeited ( 29,552 ) 14.23

RSUs at March 28, 2020 3,021,105 $ 14.39

The total fair value of RSUs vested during the three months ended March 28, 2020 was $ 1.0 million.

RSUs at June 27, 2020 2,639,694 14.45

Performance Restricted Stock Units

We may grant Performance RSUs ("PRSUs") to certain executives, which vest based upon us achieving certain market performance criteria.

There were no PRSUs granted during the three months ended March 28, 2020.

There were no PRSUs granted during the six months ended June 27, 2020.

PRSUs are included as part of the RSU activity above.

4 unchanged sentences

Options exercised ( 105,769 ) 8.21

Outstanding at March 28, 2020 306,000 $ 8.41 1.88 $ 3,607,620

Vested and expected to vest at March 28, 2020 306,000 $ 8.41 1.88 $ 3,607,620

Exercisable at March 28, 2020 306,000 $ 8.41 1.88 $ 3,607,620

Outstanding at June 27, 2020 256,000 $ 8.41 1.63 $ 4,816,740

Vested and expected to vest at June 27, 2020 256,000 $ 8.41 1.63 $ 4,816,740

Exercisable at June 27, 2020 256,000 $ 8.41 1.63 $ 4,816,740

Employee Stock Purchase Plan

Information related to activity under our Employee Stock Purchase Plan ("ESPP") was as follows:

Three Months Ended

March 28, 2020

Six Months Ended

June 27, 2020

Shares issued 311,591

3 unchanged sentences

Stock-based compensation was included in our Condensed Consolidated Statements of Income as follows (in thousands):

Three Months Ended

2020 March 30,

Three Months Ended Six Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Cost of revenues $ 901 $ 964 $ 1,838 $ 1,914

3 unchanged sentences

Unrecognized Compensation Costs

At March 28, 2020, the unrecognized stock-based compensation was as follows (dollars in thousands):

At June 27, 2020, the unrecognized stock-based compensation was as follows (dollars in thousands):

Unrecognized Expense Average Expected Recognition Period in Years

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The following table reconciles the shares used in calculating basic net income per share and diluted net income per share (in thousands):

Three Months Ended

2020 March 30,

Three Months Ended Six Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Weighted-average shares used in computing basic net income per share 76,275 74,478 76,140 74,483

3 unchanged sentences

Note 13 — Commitments and Contingencies

See Note 14, Leases .

Contractual Obligations and Commitments

Our contractual obligations and commitments have not materially changed as of March 28, 2020 from those disclosed in our Annual Report on Form 10-K for the year ended December 28, 2019.

Our contractual obligations and commitments have not materially changed as of June 27, 2020 from those disclosed in our Annual Report on Form 10-K for the year ended December 28, 2019.

Legal Matters

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business.

As of March 28, 2020, and as of the filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings.

As of June 27, 2020, and as of the filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings.

Note 14 — Leases

3 unchanged sentences

We did not include any of our renewal options in our lease terms for calculating our lease liability as the renewal options allow us to maintain operational flexibility and we are not reasonably certain we will exercise these options at this time.

The weighted-average remaining lease term for our operating leases was 8 years as of March 28, 2020 and the weighted-average discount rate was 4.40 %.

The weighted-average remaining lease term for our operating leases was 7 years as of June 27, 2020 and the weighted-average discount rate was 4.70 %.

The components of lease expense were as follows (in thousands):

Three Months Ended

2020 March 30,

Three Months Ended Six Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Lease expense:

3 unchanged sentences

$ 2,220 $ 2,014 $ 4,567 $ 4,195

Future minimum payments under our non-cancelable operating leases were as follows as of March 28, 2020 (in thousands):

Future minimum payments under our non-cancelable operating leases were as follows as of June 27, 2020 (in thousands):

Fiscal Year Amount

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Transaction price allocated to the remaining performance obligations:

On March 28, 2020, we had $ 4.0 million of remaining performance obligations, which were comprised of deferred service contracts and extended warranty contracts not yet delivered.

On June 27, 2020, we had $ 3.9 million of remaining performance obligations, which were comprised of deferred service contracts and extended warranty contracts not yet delivered.

We expect to recognize approximately 55.6 % of our remaining performance obligations as revenue in the remainder of fiscal 2020, approximately 29.6 % in fiscal 2021, and approximately 14.8 % in fiscal 2022 and thereafter.

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A contract asset is recorded when we have performed under the contract but our right to consideration is conditional on something other than the passage of time.

Contract assets as of March 28, 2020 and December 28, 2019 were $ 2.6 million and $ 0.9 million, respectively, and are reported on the Condensed Consolidated Balance Sheets as a component of Prepaid expenses and other current assets.

Contract assets as of June 27, 2020 and December 28, 2019 were $ 4.3 million and $ 0.9 million, respectively, and are reported on the Condensed Consolidated Balance Sheets as a component of Prepaid expenses and other current assets.

Contract liabilities include payments received in advance of performance under a contract and are satisfied as the associated revenue is recognized.

Contract liabilities are reported on the Condensed Consolidated Balance Sheets at the end of each reporting period as a component of Deferred revenue and Other liabilities.

Contract liabilities as of March 28, 2020 and December 28, 2019 were $ 10.7 million and $ 10.8 million, respectively.

During the three months ended March 28, 2020, we recognized $ 5.8 million of revenue, that was included in contract liabilities as of December 28, 2019.

Contract liabilities as of June 27, 2020 and December 28, 2019 were $ 14.7 million and $ 10.8 million, respectively.

During the six months ended June 27, 2020, we recognized $ 7.2 million of revenue, that was included in contract liabilities as of December 28, 2019.

Costs to obtain a contract:

1 unchanged sentence

Revenue by Category:

Refer to Note 14 of Notes to Condensed Consolidated Financial Statements for further details.

Refer to Note 16, Operating Segments and Enterprise-Wide Information , for further details.

Note 16 — Operating Segments and Enterprise-Wide Information

3 unchanged sentences

Three Months Ended

March 28, 2020 March 30, 2019

June 27, 2020 June 29, 2019

Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total

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Gross margin 46.0 % 44.6 % — % 41.9 % 42.7 % 52.0 % — % 40.1 %

Six Months Ended

June 27, 2020 June 29, 2019

Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total

Revenues $ 268,499 $ 50,078 $ — $ 318,577 $ 221,740 $ 48,491 $ — $ 270,231

Gross profit 122,266 24,053 ( 12,762 ) $ 133,557 $ 93,785 $ 25,688 $ ( 11,600 ) $ 107,873

Gross margin 45.5 % 48.0 % — % 41.9 % 42.3 % 53.0 % — % 39.9 %

Operating results provide useful information to our management for assessment of our performance and results of operations.

3 unchanged sentences

Three Months Ended

March 28, 2020 March 30, 2019

June 27, 2020 June 29, 2019

Probe Cards Systems Total Probe Cards Systems Total

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China $ 45,625 $ 3,133 $ 48,758 $ 16,304 $ 4,051 $ 20,355

Taiwan 29,806 3,365 33,171 12,826 2,046 14,872

United States 22,368 5,753 28,121 32,072 6,297 38,369

South Korea 14,249 864 15,113 27,360 811 28,171

Europe 8,767 5,365 14,132 4,474 6,174 10,648

Japan 6,679 3,380 10,059 12,867 3,226 16,093

Asia-Pacific 1

4,347 2,153 6,500 6,262 1,421 7,683

Rest of the world 1,943 27 1,970 1,472 355 1,827

Total $ 133,784 $ 24,040 $ 157,824 $ 113,637 $ 24,381 $ 138,018

Six Months Ended

June 27, 2020 June 29, 2019

Probe Cards Systems Total Probe Cards Systems Total

Foundry & Logic $ 215,092 $ — $ 215,092 $ 145,022 $ — $ 145,022

DRAM 43,748 — 43,748 64,930 — 64,930

Flash 9,659 — 9,659 11,788 — 11,788

Systems — 50,078 50,078 — 48,491 48,491

Total $ 268,499 $ 50,078 $ 318,577 $ 221,740 $ 48,491 $ 270,231

Timing of revenue recognition:

Products transferred at a point in time $ 267,277 $ 47,406 $ 314,683 $ 220,519 $ 46,481 $ 267,000

Services transferred over time 1,222 2,672 3,894 1,221 2,010 3,231

Total $ 268,499 $ 50,078 $ 318,577 $ 221,740 $ 48,491 $ 270,231

Geographical region:

China $ 82,905 $ 9,495 $ 92,400 $ 34,455 $ 7,743 $ 42,198

Taiwan 60,245 4,706 64,951 34,083 3,176 37,259

United States 47,979 12,058 60,037 59,727 12,905 72,632

Europe 24,977 10,198 35,175 9,847 10,294 20,141

6 unchanged sentences

1 Asia-Pacific includes all countries in the region except China, Japan, South Korea, and Taiwan, which are disclosed separately.

Note 17 — Subsequent Events

On July 30, 2020, subsequent to the balance sheet date, we acquired the probe card assets of Advantest Corporation for total consideration of $ 35.0 million.

This acquisition brings important enabling technologies and capabilities for designing and manufacturing advanced memory probe cards, and adds a complementary 3D-NAND Flash probe-card product that is qualified and in production at one of the world's leading NAND Flash manufacturers.

The transaction will be accounted for in accordance with the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date.

Due to the limited time since the acquisition date, the initial purchase allocation for the business combination is incomplete at this time.

Disclosures regarding amounts recognized for major classes of assets acquired and liabilities assumed will be provided once the initial accounting is completed.

The acquired business is not expected to be material to the Company’s operations and consolidated financial position.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements