What changed in this filing

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Item 1. Financial Statements

2020-11-03 compared with 2020-08-04 · 188 added, 132 removed, 590 unchanged (35% of the section changed)

3 unchanged sentences

(In thousands, except share and per share amounts)

September 26,

2020 December 28,

3 unchanged sentences

Accounts receivable, net of allowance for doubtful accounts of $ 222 and $ 222

96,946 97,868

Inventories, net 94,616 83,258

28 unchanged sentences

Additional paid-in capital 896,576 885,821

Accumulated other comprehensive loss 458 ( 659 )

Accumulated other comprehensive income (loss) 2,479 ( 659 )

Accumulated deficit ( 184,991 ) ( 244,241 )

5 unchanged sentences

(In thousands, except per share amounts)

Three Months Ended Six Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Revenues $ 177,996 $ 140,604 $ 496,573 $ 410,835

8 unchanged sentences

Interest expense ( 193 ) ( 422 ) ( 682 ) ( 1,539 )

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

Other income, net 299 226 141 223

Income before income taxes 22,392 9,863 63,729 26,616

Provision for income taxes 2,162 2,290 4,978 4,322

Provision (benefit) for income taxes ( 499 ) 1,584 4,479 5,906

Net income $ 22,891 $ 8,279 $ 59,250 $ 20,710

9 unchanged sentences

(In thousands)

Three Months Ended Six Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Net income $ 22,891 $ 8,279 $ 59,250 $ 20,710

1 unchanged sentence

Translation adjustments and other 1,867 ( 1,814 ) 2,231 ( 2,042 )

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

Unrealized gains (losses) on available-for-sale marketable securities ( 148 ) 11 349 304

Unrealized gains (losses) on derivative instruments 302 ( 536 ) 558 ( 1,222 )

5 unchanged sentences

(In thousands, except shares)

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

Six Months Ended June 27, 2020

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

Nine Months Ended September 26, 2020

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

5 unchanged sentences

Net income — — — — 59,250 59,250

Balances, September 26, 2020 77,383,494 $ 78 $ 896,576 $ 2,479 $ ( 184,991 ) $ 714,142

Three Months Ended September 26, 2020

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

Issuance of common stock under the Employee Stock Purchase Plan 173,975 — 3,809 — — 3,809

Issuance of common stock pursuant to exercise of options 100,000 — 844 — — 844

3 unchanged sentences

Net income — — — — 22,891 22,891

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

Six Months Ended June 29, 2019

Balances, September 26, 2020 77,383,494 $ 78 $ 896,576 $ 2,479 $ ( 184,991 ) $ 714,142

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

FORMFACTOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except shares)

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

Nine Months Ended September 28, 2019

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

5 unchanged sentences

Net income — — — — 20,710 20,710

Balances, September 28, 2019 75,696,234 $ 76 $ 879,527 $ ( 2,180 ) $ ( 262,877 ) $ 614,546

Three Months Ended September 28, 2019

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 under the Employee Stock Purchase Plan 242,774 — 3,136 — — 3,136

Issuance of common stock pursuant to exercise of options 93,749 — 664 — — 664

Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 667,930 1 ( 5,741 ) — — ( 5,740 )

Stock-based compensation — — 6,444 — — 6,444

Other comprehensive income — — — 758 — 758

Other comprehensive loss — — — ( 2,339 ) — ( 2,339 )

Net income — — — — 8,279 8,279

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

Balances, September 28, 2019 75,696,234 $ 76 $ 879,527 $ ( 2,180 ) $ ( 262,877 ) $ 614,546

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

2 unchanged sentences

(In thousands)

Six Months Ended

2020 June 29,

Nine Months Ended

September 26,

2020 September 28,

Cash flows from operating activities:

21 unchanged sentences

Acquisition of property, plant and equipment ( 41,887 ) ( 14,242 )

Acquisition of business, net of cash acquired ( 34,999 ) —

Proceeds from sale of a subsidiary 82 93

31 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 six months ended June 27, 2020 and June 29, 2019 each contained 26 weeks.

Fiscal 2020 and 2019 each contain 52 weeks and the nine months ended September 26, 2020 and September 28, 2019 each contained 39 weeks.

Fiscal 2020 will end on December 26, 2020.

Significant Accounting Policies

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

Our significant accounting policies have not changed during the nine months ended September 26, 2020 from those disclosed in our Annual Report on Form 10-K for the year ended December 28, 2019.

Reclassifications

5 unchanged sentences

ASU 2016-13 also provides that credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses.

The guidance was amended through various ASU's subsequent to ASU 2016-13, all of which was effective for us beginning fiscal 2020.

The guidance was amended through various ASU's subsequent to ASU 2016-13, all of which was effective beginning fiscal 2020.

We adopted ASU 2016-13 on a prospective basis on December 29, 2019, the first day of fiscal 2020.

15 unchanged sentences

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.

In May 2020, the SEC issued Final Rule Release No.

33-10786, which amends the financial statement requirements for acquisitions and dispositions of businesses and related pro forma financial information required under SEC Regulation S-X, Rule 3-05.

The final rule modifies the significance test required in SEC Regulation S-X, Rule 1-02(w) by raising the significance threshold for reporting dispositions of a business from 10% to 20% and by modifying the calculation of the investment and income tests.

The modifications are effective for fiscal years starting after December 31, 2020 with early adoption permitted.

We early adopted these modifications on June 28, 2020, the first day of the third quarter.

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 Six Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Intel Corporation 25.6 % 23.9 % 32.4 % 23.8 %

Taiwan Semiconductor Manufacturing Co.,LTD.

Samsung Electronics., LTD.

2 unchanged sentences

10.1 % 11.9 % * *

SK Hynix Inc.

* 13.5 % * 10.6 %

56.9 % 49.3 % 32.4 % 44.4 %

*Represents less than 10% of total revenues.

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

At September 26, 2020, two customers accounted for 26.6 % and 18.3 % 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.

2 unchanged sentences

Inventories, net, consisted of the following (in thousands):

September 26,

2020 December 28,

4 unchanged sentences

Note 4 — Acquisition

FRT Acquisition

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

1 unchanged sentence

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

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

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

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

We subsequently made certain immaterial adjustments to the acquisition price allocation related to

acquired assets and assumed liabilities, including to intangibles assets.

We finalized our allocation of the assets acquired, including goodwill and intangibles, and liabilities assumed for the purchase as follows (in thousands):

Cash and cash equivalents $ 1,687

50 unchanged sentences

We have not presented unaudited combined pro forma financial information as the FRT acquisition was not significant to our consolidated results of operations and financial position.

Baldwin Park Acquisition

On July 30, 2020, we acquired the probe card assets of Advantest Corporation ("Baldwin Park") for total cash consideration of $ 35 million.

This acquisition brings important enabling technologies and capabilities for designing and manufacturing advanced 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.

As of the reporting date, we have not completed the valuation of assets acquired and liabilities assumed.

While the identification of identifiable intangible assets is still in process, we expect certain amounts provisionally recorded as goodwill will be ultimately allocated to such assets as customer relationships, developed technologies, backlog and potentially other technology-related assets as we complete purchase accounting.

Consistent with the status of the identification of intangible assets, at this time we do not have an estimate of the allocation of value between amortizing and non-amortizing intangible assets, however we do expect that some amount of intangible assets provisionally recorded as goodwill will ultimately be allocated to an amortizing intangible asset.

At the time such amount is estimable, we will record any amortization required between the acquisition date and the date at which the amounts become estimable.

While we do not yet have a reasonable basis on which to record any such amortization, the impact to the financial statements as a whole is not expected to be material assuming typical lives of these assets and ranges of potential allocation of value.

The amounts presented below represent provisional amounts of assets acquired and liabilities assumed, which are recorded based on the best information available.

As described above, adjustments to fair value for intangible assets have not yet been determined, however preliminary estimates have been determined for trade inventories and property, plant, and equipment step up.

These provisional amounts are included in the table below and in the condensed consolidated balance sheets and are subject to revision as the fair value of the associated assets acquired and liabilities assumed is finalized.

The total estimated purchase price would be allocated to the underlying assets acquired and liabilities assumed based on the provisional amounts, as follows (in thousands):

Accounts receivable $ 4,365

Inventory 2,318

Property, plant and equipment 9,053

Operating lease, right of use assets 519

Prepaid expenses and other current assets 317

Tangible assets acquired 16,572

Accounts payable and accrued liabilities ( 572 )

Operating lease liabilities ( 519 )

Total tangible assets acquired and liabilities assumed 15,481

Goodwill 19,519

Net Assets Acquired $ 35,000

The operating results of the acquired business are included in the Company’s results of operations since the date of acquisition.

Pro forma financial information has not been provided for the acquisition of Baldwin Park as it is not significant to the Company’s operations and financial position.

Included in Cost of revenues in the Condensed Consolidated Statements of Income in the three and nine months ended September 26, 2020 is $ 0.5 million of amortization of the estimated step-up to fair value for finished goods and work-in-process inventories acquired and then sold to customers within the quarter.

Note 5 — Goodwill and Intangible Assets

6 unchanged sentences

Addition - FRT GmbH Acquisition — 975 975

Addition - Baldwin Park Acquisition 19,519 — 19,519

Foreign currency translation — 1,067 1,067

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.

Goodwill, gross, as of September 26, 2020 $ 192,001 $ 28,756 $ 220,757

No goodwill impairments have been recorded during the nine months ended September 26, 2020 and the twelve months ended December 28, 2019.

Intangible assets were as follows (in thousands):

June 27, 2020 December 28, 2019

September 26, 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 Six Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Cost of revenues $ 4,985 $ 4,707 $ 15,661 $ 14,137

5 unchanged sentences

Thereafter 5,025

The table above does not include amortization related to the Baldwin Park acquisition as the fair value of intangible assets and their useful lives have not yet been determined.

Note 6 — Debt

Our debt consisted of the following (in thousands):

September 26,

2020 December 28,

2 unchanged sentences

Term loans less issuance costs $ 35,994 $ 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):

Future principal and interest payments on our term loans as of September 26, 2020, based on the interest rate in effect at that date were as follows (in thousands):

Payments Due In Fiscal Year

4 unchanged sentences

Total $ 2,423 $ 9,636 $ 9,538 $ 1,340 $ 1,351 $ 14,801 $ 39,089

(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.

(1) Represents our minimum interest payment commitments at 1.91 % per annum for the Building Term Loan and 1.30 % per annum for the FRT 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”).

Pursuant to the Credit Agreement, we obtained 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.

The CMI Term Loan bore 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 elected to pay interest at 2.00 % over the one-month LIBOR rate.

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

The principal payments on the CMI Term Loan were 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 final payment on the CMI Term Loan was June 30, 2020 and we are no longer subject to the terms of the Credit Agreement.

FRT Term Loan

2 unchanged sentences

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 $ 2.0 million plus interest.

The interest rate at June 27, 2020 was 1.36 %

The interest rate at September 26, 2020 was 1.30 %

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

9 unchanged sentences

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.

As of September 26, 2020, the balance outstanding pursuant to the FRT term loan was $ 18.3 million and we were in compliance with all covenants.

Building Term Loan

3 unchanged sentences

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

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

The interest rate at September 26, 2020 was 1.91 %.

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.

2 unchanged sentences

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.

As of September 26, 2020, the notional amount of the loan that is subject to this interest rate swap is $ 17.8 million.

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

2 unchanged sentences

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.

As of September 26, 2020, the balance outstanding pursuant to the Building Term Loan was $ 17.8 million and we were in compliance with all covenants under the Credit Agreement.

Note 7 — Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

September 26,

2020 December 28,

3 unchanged sentences

Accrued employee stock purchase plan contributions withheld 1,648 3,331

Accrued contingent consideration 2,966 —

Other accrued expenses 3,275 2,991

6 unchanged sentences

• 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 and six months ended June 27, 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 nine months ended September 26, 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 six months of fiscal 2020.

No changes were made to our valuation techniques during the first nine 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):

June 27, 2020 Level 1 Level 2 Level 3 Total

September 26, 2020 Level 1 Level 2 Level 3 Total

Cash equivalents:

5 unchanged sentences

Corporate bonds — 17,391 — 17,391

Commercial paper — 2,149 — 2,149

34,198 21,902 — 56,100

34 unchanged sentences

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.

Contingent consideration as of September 26, 2020 was estimated to be $ 3.0 million, a net decrease of $ 2.4 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 net $ 3.6 million decrease in the estimated contingent consideration from subsequent remeasurement of the liability and foreign currency translation.

Interest Rate Swaps

4 unchanged sentences

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 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 $ —

Three Months Ended September 26, 2020 $ ( 53 ) Interest expense $ ( 38 ) Interest expense $ —

Three Months Ended September 28, 2019 $ 12 Interest expense $ 113 Interest expense $ —

Nine Months Ended September 26, 2020 $ ( 323 ) Interest expense $ ( 26 ) Interest expense $ —

Nine Months Ended September 28, 2019 $ ( 78 ) Interest expense $ 496 Interest expense $ —

Foreign Exchange Derivative Contracts

4 unchanged sentences

We do not use derivative financial instruments for speculative or trading purposes.

For accounting purposes, certain of our foreign currency forward contracts are not designated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded within Other expense, net in our Condensed Consolidated Statement of Income for both realized and unrealized gains and losses.

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

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.

For accounting purposes, certain of our foreign currency forward contracts are not designated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded within Other income, net in our Condensed Consolidated Statement of Income for both realized and unrealized gains and losses.

Certain of our foreign currency forward contracts are designated as cash flow hedges, and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded as a component of Accumulated other comprehensive income (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 September 26, 2020, we expect to reclassify $ 0.5 million of the amount accumulated in other comprehensive income (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 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):

All of our foreign exchange derivative contracts outstanding at September 26, 2020 will mature by the third quarter of fiscal 2021.

The following table provides information about our foreign currency forward contracts outstanding as of September 26, 2020 (in thousands):

Currency Contract Position Contract Amount

2 unchanged sentences

Euro Dollar Buy ( 10,341 ) ( 11,591 )

Euro Dollar Sell 9,835 11,447

Japanese Yen Sell 2,119,658 20,070

4 unchanged sentences

Amount of Gain (Loss) Recognized on Derivatives

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

Three Months Ended Nine Months Ended

Derivatives Not Designated as Hedging Instruments Location of Gain (Loss) Recognized on Derivatives September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Foreign exchange forward contracts Other income, net $ 529 $ ( 76 ) $ 878 $ 198

The impact of foreign exchange derivative contracts designated as cash flow hedges on our Condensed Consolidated Statements of Income was as follows (in thousands):

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 June 27, 2020 $ 52 Cost of revenues $ 139

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

Three Months Ended September 26, 2020 $ ( 553 ) Cost of revenues $ 150

Research and development 23

Selling, general and administrative 63

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

Three Months Ended September 28, 2019 $ ( 642 ) Cost of revenues $ ( 126 )

Research and development ( 23 )

Selling, general and administrative ( 58 )

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

Nine Months Ended September 26, 2020 $ 427 Cost of revenues $ 109

Research and development 11

Selling, general and administrative 16

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

Nine Months Ended September 28, 2019 $ ( 1,096 ) Cost of revenues $ ( 297 )

Research and development ( 42 )

2 unchanged sentences

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, 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.

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 nine months ended September 26, 2020 or September 28, 2019.

Note 9 — Warranty

7 unchanged sentences

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

Six Months Ended

2020 June 29,

Nine Months Ended

September 26,

2020 September 28,

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

4 unchanged sentences

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

September 26,

2020 December 28,

17 unchanged sentences

Awards forfeited ( 42,384 ) 14.64

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

RSUs at September 26, 2020 2,769,153 19.52

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 six months ended June 27, 2020.

On August 27, 2020, we granted 258,600 PRSUs to certain senior executives for a total grant date fair value of $ 6.9 million, which will be recognized ratably over the requisite service period.

The performance criteria are based on a metric called Total Shareholder Returns ("TSR") for the period of July 1, 2020 - June 30, 2023, relative to the TSR of the companies identified as being part of the S&P semiconductor Select Industry Index (FormFactor peer companies) as of August 27, 2020.

There were no other market based PRSUs granted during the nine months ended September 26, 2020.

PRSUs are included as part of the RSU activity above.

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Options exercised ( 205,769 ) 8.32

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

Outstanding at September 26, 2020 156,000 $ 8.38 1.39 $ 2,427,060

Vested and expected to vest at September 26, 2020 156,000 $ 8.38 1.39 $ 2,427,060

Exercisable at September 26, 2020 156,000 $ 8.38 1.39 $ 2,427,060

Employee Stock Purchase Plan

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

Six Months Ended

June 27, 2020

Nine Months Ended

September 26, 2020

Shares issued 485,566

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

Three Months Ended Six Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Cost of revenues $ 962 $ 1,117 $ 2,800 $ 3,031

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Unrecognized Compensation Costs

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

At September 26, 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 Six Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Weighted-average shares used in computing basic net income per share 77,029 75,280 76,436 74,749

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Contractual Obligations and Commitments

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.

Our contractual obligations and commitments have not materially changed as of September 26, 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 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.

As of September 26, 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

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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 7 years as of June 27, 2020 and the weighted-average discount rate was 4.70 %.

The weighted-average remaining lease term for our operating leases was 7 years as of September 26, 2020 and the weighted-average discount rate was 4.52 %.

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

Three Months Ended Six Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Lease expense:

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$ 2,222 $ 2,031 $ 6,789 $ 6,226

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

Future minimum payments under our non-cancelable operating leases were as follows as of September 26, 2020 (in thousands):

Fiscal Year Amount

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Transaction price allocated to the remaining performance obligations:

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.

On September 26, 2020, we had $ 3.8 million of remaining performance obligations, which were comprised of deferred service contracts and extended warranty contracts not yet delivered.

We expect to recognize approximately 31.9 % of our remaining performance obligations as revenue in the remainder of fiscal 2020, approximately 49.9 % in fiscal 2021, and approximately 18.2 % 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 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 assets as of September 26, 2020 and December 28, 2019 were $ 3.5 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 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.

Contract liabilities as of September 26, 2020 and December 28, 2019 were $ 14.7 million and $ 10.8 million, respectively.

During the nine months ended September 26, 2020, we recognized $ 8.6 million of revenue, that was included in contract liabilities as of December 28, 2019.

Costs to obtain a contract:

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Three Months Ended

June 27, 2020 June 29, 2019

September 26, 2020 September 28, 2019

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

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Gross margin 46.2 % 49.8 % — % 43.1 % 41.3 % 53.9 % — % 39.3 %

Six Months Ended

June 27, 2020 June 29, 2019

Nine Months Ended

September 26, 2020 September 28, 2019

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

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Three Months Ended

June 27, 2020 June 29, 2019

September 26, 2020 September 28, 2019

Probe Cards Systems Total Probe Cards Systems Total

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Geographical region:

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

Taiwan $ 33,351 $ 3,584 $ 36,935 $ 16,513 $ 1,742 $ 18,255

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South Korea 28,337 1,234 29,571 22,779 818 23,597

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

China 24,851 3,695 28,546 24,427 6,956 31,383

Japan 12,288 4,857 17,145 13,640 3,289 16,929

Europe 11,679 5,300 16,979 5,754 3,794 9,548

Asia-Pacific 1

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Total $ 150,773 $ 27,223 $ 177,996 $ 116,447 $ 24,157 $ 140,604

Six Months Ended

June 27, 2020 June 29, 2019

Nine Months Ended

September 26, 2020 September 28, 2019

Probe Cards Systems Total Probe Cards Systems Total

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United States 79,575 16,790 96,365 88,127 18,170 106,297

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

South Korea 56,278 2,494 58,772 75,157 3,334 78,491

Europe 36,656 15,498 52,154 15,601 14,088 29,689

Japan 24,502 11,072 35,574 31,807 11,647 43,454

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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.

On October 19, 2020, subsequent to the balance sheet date, we acquired High Precision Devices, Inc., for total cash consideration of $ 17.0 million, subject to adjustment for changes in working capital and payoff of debt as stipulated in the merger agreement.

This acquisition brings highly specialized skills and know-how to address the unique test challenges within the emerging quantum computing, superconducting computing, and ultra-sensitive sensor markets which operate at temperatures as low as 30 millikelvin.

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.

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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