What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-03 compared with 2020-08-04 · 149 added, 119 removed, 221 unchanged (55% of the section changed)

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The forward-looking statements are only predictions based on our current expectations and our projections about future events.

All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q.

All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as

of the filing date of this Quarterly Report on Form 10-Q.

You should not place undue reliance on these forward-looking statements.

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FormFactor, Inc., headquartered in Livermore, California, is a leading provider of test and measurement solutions.

We provide a broad range of high-performance probe cards, analytical probes, probe stations, metrology systems, and thermal sub-systems to both semiconductor companies and scientific institutions.

We provide a broad range of high-performance probe cards, analytical probes, probe stations, metrology systems, and thermal and cryogenic sub-systems to both semiconductor companies and scientific institutions.

Our products provide electrical and optical information from a variety of semiconductor and electro-optical devices and integrated circuits from research, through development to production.

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Sales of our probe cards and analytical probes are included in the Probe Cards segment, while sales of our probe stations, metrology systems and thermal sub-systems are included in the Systems segment.

We generated net income of $36.4 million in the first six months of fiscal 2020 as compared to $12.4 million in the first six months of fiscal 2019.

The increase in net income was primarily due to increased revenues and good leverage on operating expenses, which only marginally increase on significantly higher operating levels.

We generated net income of $59.3 million in the first nine months of fiscal 2020 as compared to $20.7 million in the first nine months of fiscal 2019.

The increase in net income was primarily due to increased revenues and leverage on operating expenses, which only marginally increased on significantly higher operating levels.

Impact of COVID-19

An outbreak of an illness caused by a novel coronavirus in 2019 (“COVID-19”) has resulted in millions of infections and well over six hundred thousand deaths worldwide as of the date of filing this Quarterly Report.

COVID-19 continues to spread in many of the regions that we, our customers and our suppliers operate.

The COVID-19 pandemic has resulted in significant governmental measures being implemented to control the spread of the virus, including the imposition of stay-at-home and other orders in locations where we have manufacturing and other activities.

We experienced a significant disruption to our operations as a result of the COVID-19 pandemic during the last two weeks of our first fiscal quarter of 2020.

Through our second quarter we implemented social distancing, contact tracing, and various other measures to enable our manufacturing sites to continue efficient production.

While we believe those measures have been largely successful, we continue to monitor the situation closely.

The COVID-19 pandemic continues to cause serious illness and death in many of the regions that we, our customers and our suppliers operate.

The COVID-19 pandemic has resulted in significant governmental actions designed to control the spread of the virus, including the imposition of safety requirements and other orders in locations where we have manufacturing and other activities.

We have maintained social distancing, contact tracing, and various other measures to enable our manufacturing sites to continue efficient production.

We believe that we operate in a critical infrastructure industry, as defined by the U.S.

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This reduces the current and anticipated impacts of the COVID-19 pandemic on our major customers and suppliers, and upon our operations, as compared to companies that are not part of the critical infrastructure.

After a temporary suspension of manufacturing to implement safety measures in our California and Oregon locations during our first fiscal quarter of 2020, consistent with federal guidelines and state and local orders, we recommenced manufacturing.

We currently continue to operate in all of our manufacturing sites at production levels comparable to those prior to the pandemic, albeit subject to certain safety and related constraints.

Our other operations are similarly continuing with substantial work-from-home activities.

If the provisions of governmental health orders or other safety requirements applicable to us or our customers or suppliers continue or become more restrictive for an extended period of time, or if we have occurrences of COVID-19 in any of our facilities, we may experience further disruptions or delays in manufacturing, product design, product development, customer support, manufacturing and sales, and an overall loss of productivity and efficiency.

If the provisions of governmental health orders or other safety requirements applicable to us or our customers or suppliers become more restrictive for an extended period of time, or if we have repeated occurrences of COVID-19 in any of our facilities, we may experience disruptions or delays in manufacturing, product design, product development, customer support, manufacturing and sales, and an overall loss of productivity and efficiency.

Even with our continued operations, COVID-19 has had, and may have further, negative impacts on our supply chain, workforce and customers.

The continued progression of the COVID-19 pandemic and associated macro-economic, trade-related, and even site-specific restrictions, including but not limited to the effects of any overall global, regional or national economic slowdowns or other economic downturns, increased trade and transport costs, and inability to access customer sites for certain activities could also negatively impact our business or results of operations through new restrictions at our operating locations or at those of our customers or suppliers.

As the COVID-19 pandemic is a widespread public health crisis, it is also adversely affecting major economies and financial markets world-wide.

The continued progression of the COVID-19 pandemic and associated macro-economic, trade-related, and site-specific restrictions, including but not limited to the effects of any overall global, regional or national economic slowdowns or other economic downturns, increased trade and transport costs, and inability to access customer sites for certain activities could also negatively impact our business or results of operations.

As the COVID-19 pandemic is a widespread public health crisis, it is adversely affecting major economies and financial markets world-wide.

A resulting economic downturn can be expected to eventually negatively affect the demand for our products, and contribute to volatile demand and supply conditions affecting the markets for our products.

Governments in several countries where we operate, including the United States, have enacted stabilization and stimulus measures in an effort to counteract some of the impacts of COVID-19.

We have benefited and may continue to benefit from some of these measures, although we do not believe those benefits have had or will have a material effect upon our financial results or financial condition.

We have benefited and may continue to benefit from some of these measures directly or indirectly, although we do not believe those benefits have had or will have a material effect upon our financial results or financial condition.

Governments may discontinue, amend, replace or otherwise change or supplement such stabilization and stimulus measures in ways that are difficult to predict, and it is possible that such changes could have a material effect upon our financial results or financial condition, or the financial results or financial condition of our customers or suppliers.

While to date the disruptions in our operations, supply chain and customer demand as a result of the COVID-19 pandemic have been somewhat limited, we believe that the COVID-19 pandemic represents a sustained threat that may eventually give rise to a variety of more significant adverse impacts on our business and financial results.

While to date the disruptions in our operations, supply chain and customer demand as a result of the COVID-19 pandemic have been somewhat limited, we believe that the COVID-19 pandemic represents a sustained threat that may give rise to a variety of more significant adverse impacts on our business and financial results.

We consider this as a near or longer term trend, although we cannot identify or quantify the specific impacts given current levels of uncertainty and the broad variety of effects that may arise from a pandemic of this magnitude.

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Actual results in these areas could differ from management’s estimates.

During the six months ended June 27, 2020, there were no significant changes in our significant accounting policies or estimates from those reported in our Annual Report on Form 10-K for the year ended December 28, 2019, which was filed with the Securities and Exchange Commission on February 21, 2020.

During the nine months ended September 26, 2020, there were no significant changes in our significant accounting policies or estimates from those reported in our Annual Report on Form 10-K for the year ended December 28, 2019, which was filed with the Securities and Exchange Commission on February 21, 2020.

Results of Operations

The following table sets forth our operating results as a percentage of 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,

Revenues 100.0 % 100.0 % 100.0 % 100.0 %

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Interest expense (0.1) (0.3) (0.1) (0.4)

Other income (expense), net — 0.1 — —

Other income, net 0.2 0.2 — 0.1

Income before income taxes 12.5 7.0 12.9 6.5

Provision for income taxes 1.4 1.7 1.6 1.6

Provision (benefit) for income taxes (0.3) 1.1 0.9 1.5

Net income 12.8 % 5.9 % 12.0 % 5.0 %

Revenues by Segment and Market

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,

(In thousands)

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Three Months Ended

2020 % of Revenues June 29,

September 26,

2020 % of Revenues September 28,

2019 % of Revenues $ Change % Change

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Total revenues $ 177,996 100.0 % $ 140,604 100.0 % $ 37,392 26.6 %

Six Months Ended

2020 % of Revenues June 29,

Nine Months Ended

September 26,

2020 % of Revenues September 28,

2019 % of Revenues $ Change % Change

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Total revenues $ 496,573 100.0 % $ 410,835 100.0 % $ 85,738 20.9 %

The increase in Foundry & Logic product revenue for the three and six months ended June 27, 2020, compared to the three and six months ended June 29, 2019, was driven principally by increased unit sales to large semiconductor foundries and integrated device manufacturers, as well as increasing our market share with our larger customers as part of our success in diversifying the products we sell to our strategic accounts as they increased manufacturing of new chip designs on leading-edge nodes.

Additionally, we began to see an increase in sales due to the demand for 5G handsets and devices.

The decrease in DRAM product revenue for the three and six months ended June 27, 2020, compared to the three and six months ended June 29, 2019, was driven by decreased unit sales as a result of decreased customer demand.

The increase in Flash product revenue for the three months ended June 27, 2020, compared to the three months ended June 29, 2019, was driven by increased unit sales as a result of increased customer demand.

This increase helped reduce the overall decrease in the six months ended June 27, 2020, compared to the six months ended June 29, 2019, as our revenue in this market continues to be highly variable.

The increase in Systems product revenue for the six months ended June 27, 2020, compared to the six months ended June 29, 2019, was driven by increased sales of probe stations year over year, which includes an increase in revenue from 300mm stations, and additional contribution from our acquisition of FRT GmbH, partially offset by lower revenue from thermal sub-systems and 200mm stations.

The increase in Foundry & Logic product revenue for the three and nine months ended September 26, 2020, compared to the three and nine ended September 28, 2019, was driven principally by increased unit sales to large semiconductor foundries and integrated device manufacturers, demonstrating success in diversifying across our strategic accounts.

Additionally, sales have increased due to the demand for 5G handsets and devices and work from home infrastructure spending.

The decrease in DRAM product revenue for the three and nine months ended September 26, 2020, compared to the three and nine months ended September 28, 2019, was driven by a decreased customer demand as a result of the absorption of large purchases in fiscal 2019.

The increase in Flash product revenue for the three months ended September 26, 2020, compared to the three months ended September 28, 2019, was driven by increased sales as a result of increased customer demand for our legacy products and the acquisition of Baldwin Park.

This increase helped offset what would have otherwise been a decrease in demand in the nine months ended September 26, 2020, compared to the nine months ended September 28, 2019.

Our revenue in this market continues to be highly variable.

The increase in Systems product revenue for the three months ended September 26, 2020, compared to the three months ended September 28, 2019, was driven by increased sales of metrology systems due to the acquisition for FRT GmbH and increased sales of probe stations, partially offset by lower revenue from thermal sub-systems.

The increase in Systems product revenue for the nine months ended September 26, 2020, compared to the nine months ended September 28, 2019, was driven by our acquisition of FRT GmbH, partially offset by lower revenue from thermal sub-systems and 200mm stations.

Due to COVID-19, there were various impacts across our segments due to governmental mandates of social distancing.

This resulted in a temporary factory shutdown for almost two weeks during our first fiscal quarter of 2020 in certain locations, limiting our manufacturing capacity.

These shutdowns negatively affected revenue, especially in our Probes segment.

We believe these shutdowns negatively affected revenue and impacted our ability to maintain typical lead times, especially in our Probes segment.

Revenues by Geographic Region

Three Months Ended Six Months Ended

Revenue June 29,

Revenue June 27,

Revenue June 29,

Three Months Ended Nine Months Ended

September 26,

Revenue September 28,

Revenue September 26,

Revenue September 28,

(Dollars in thousands)

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subsidiary and requests the products to be shipped to an address in South Korea, this sale will be reflected in the revenue for South Korea rather than the U.S.

Changes in revenue by geographic region for the three and six months ended June 27, 2020, compared to the three and six months ended June 29, 2019, were primarily attributable to changes in customer demand, shifts in customer regional manufacturing strategies, particularly with our large multinational customers, and product sales mix.

Changes in revenue by geographic region for the three and nine months ended September 26, 2020, compared to the three and nine months ended September 28, 2019, were primarily attributable to changes in customer demand, shifts in customer regional manufacturing strategies, particularly with our large multinational customers, and product sales mix.

Cost of Revenues and Gross Margins

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Three Months Ended

2020 June 29,

September 26,

2020 September 28,

2019 $ Change % Change

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Gross margin 43.1 % 39.3 %

Six Months Ended

2020 June 29,

Nine Months Ended

September 26,

2020 September 28,

2019 $ Change % Change

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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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Gross margin 45.8 % 48.7 % — % 42.4 % 42.0 % 53.3 % — % 39.7 %

For the three and six months ended June 27, 2020, gross profit and gross margins increased compared to the three and six months ended June 29, 2019, primarily due to increased sales and higher factory utilization.

For the three and six months ended June 27, 2020, gross profit and gross margin decreased compared to the three and six months ended June 29, 2019, primarily as a result of lower sales and less favorable product mix, in particular lower probe station sales.

For the three and nine months ended September 26, 2020, gross profit and gross margins increased compared to the three and nine months ended September 28, 2019, primarily due to increased sales, product mix, and higher factory utilization.

For the three months ended September 26, 2020, gross profit increased due to the additional contribution of FRT GmbH.

This increase helped offset the nine months ended September 26, 2020 gross profit decrease as a result of a less favorable product mix.

Gross margin decreased compared to the three and nine months ended September 28, 2019, primarily as a result of less favorable product mix.

Corporate and Other

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Gross profit and gross margin fluctuate with revenue levels, product mix, selling prices, factory loading and material costs.

For the three and six months ended June 27, 2020, compared to the three and six months ended June 29, 2019, gross profit and gross margins have improved, primarily on higher sales.

For the three and nine months ended September 26, 2020, compared to the three and nine months ended September 28, 2019, gross profit and gross margins have improved, primarily on higher sales and product mix.

Cost of revenues included stock-based compensation expense 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,

Stock-based compensation $ 962 $ 1,117 $ 2,800 $ 3,031

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Three Months Ended

2020 June 29,

September 26,

2020 September 28,

2019 $ Change % Change

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% of revenues 12.9 % 14.4 %

Six Months Ended

2020 June 29,

Nine Months Ended

September 26,

2020 September 28,

2019 $ Change % Change

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% of revenues 13.1 % 14.6 %

The increase in research and development expenses in the three and six months ended June 27, 2020 when compared to the corresponding period in the prior year was primarily driven by increased headcount combined with higher variable performance based compensation and higher project material costs, partially offset by a decrease in travel due to travel restrictions and decreased stock-based compensation related to the timing of annual grants.

The increase in research and development expenses in the three and nine months ended September 26, 2020 when compared to the corresponding period in the prior year was primarily driven by increased headcount combined with higher variable performance based compensation, annual compensation adjustments, higher project material costs, and the addition of the acquisition of Baldwin Park, partially offset by a decrease in travel due to travel restrictions and decreased stock-based compensation related to the timing of annual grants.

A detail of the changes is as follows (in thousands):

Three Months Ended June 27, 2020 compared to Three Months Ended June 29, 2019 Six Months Ended June 27, 2020 compared to Six Months Ended June 29, 2019

Three Months Ended September 26, 2020 compared to Three Months Ended September 28, 2019 Nine Months Ended September 26, 2020 compared to Nine Months Ended September 28, 2019

Employee compensation costs 2,721 5,280

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Research and development included stock-based compensation expense 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,

Stock-based compensation $ 1,326 $ 1,729 $ 4,154 $ 4,830

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Three Months Ended

2020 June 29,

September 26,

2020 September 28,

2019 $ Change % Change

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% of revenues 17.9 % 18.4 %

Six Months Ended

2020 June 29,

Nine Months Ended

September 26,

2020 September 28,

2019 $ Change % Change

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% of revenues 16.6 % 18.8 %

The decrease in selling, general and administrative in the three and six months ended June 27, 2020 when compared to the corresponding period in the prior year was primarily due to decreased general operating expenses due to the gain on contingent consideration from the remeasurement of the contingent consideration related to the acquisition of FRT GmbH, as well as decreased travel due to travel restrictions and decreased amortization of intangibles, partially offset by an increase in headcount combined with higher variable performance based compensation, higher stock-based compensation, and higher costs from acquisition of FRT GmbH.

The increase in selling, general and administrative in the three and nine months ended September 26, 2020 when compared to the corresponding period in the prior year was primarily due to an increase in headcount combined with higher variable performance based compensation, higher information technology security remediation costs, partially offset by the gain on contingent consideration from the remeasurement of the contingent consideration related to the acquisition of FRT GmbH, decreased travel due to travel restrictions, and decreased amortization of intangibles.

A detail of the changes is as follows (in thousands):

Three Months Ended June 27, 2020 compared to Three Months Ended June 29, 2019 Six Months Ended June 27, 2020 compared to Six Months Ended June 29, 2019

Three Months Ended September 26, 2020 compared to Three Months Ended September 28, 2019 Nine Months Ended September 26, 2020 compared to Nine Months Ended September 28, 2019

Employee compensation 3,713 7,216

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Selling, general and administrative included stock-based compensation expense 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,

Stock-based compensation $ 3,221 $ 3,658 $ 9,820 $ 9,227

Interest Income and Interest Expense

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,

(Dollars in thousands)

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Interest income is earned on our cash, cash equivalents, restricted cash and marketable securities.

The decrease in interest income for the three and six months ended June 27, 2020 compared with the corresponding period of the prior year was attributable to lower investment yields due to the low interest rate environment partially offset by higher invested balances.

Interest expense primarily includes interest on our term loans, partially offset by income from our interest-rate swap derivative contracts, as well as term loan issuance costs amortization charges.

The decrease in interest expense for the three and six months ended June 27, 2020 compared to the same period of the prior year was primarily due to lower outstanding debt balances related to the acquisition of Cascade Microtech in fiscal 2016 as a result of principal payments made, partially offset by additional interest expense related to the term loan originated to finance the acquisition of FRT GmbH in the fourth quarter of 2019 and additional interest expense related to the term loan originated to finance the purchase of a building in the second quarter of 2020.

The decrease in interest income for the three and nine months ended September 26, 2020 compared with the corresponding period of the prior year was attributable to lower investment yields due to the low interest rate environment.

Interest expense primarily includes interest on our term loans, interest rate swap derivative contracts, and term loan issuance costs amortization charges.

The decrease in interest expense for the three and nine months ended September 26, 2020 compared to the same period of the prior year was primarily due to lower outstanding debt balances due to the pay-off of the CMI Term Loan on June 30, 2020, partially offset by the FRT Term Loan originated in the fourth quarter of 2019 and the Building Term Loan originated in the second quarter of 2020.

Other Expense, Net

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Provision for Income Taxes

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,

(In thousands, except percentages)

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

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

Effective tax rate (2.2) % 16.1 % 7.0 % 22.2 %

Provision for income taxes reflects the tax provision on our operations in foreign and U.S.

Provision (benefit) for income taxes reflects the tax provision on our operations in foreign and U.S.

jurisdictions, offset by tax benefits from tax credits and the foreign-derived intangible income ("FDII") deduction.

We expect the FDII deduction and corresponding benefit to be available after utilizing our previous net operating loss carryforwards, resulting in a decrease in our effective tax rate for the three and six months ended June 27, 2020, compared to the three and six months ended June 29, 2019.

The effective tax rate for the third quarter of 2020 was significantly impacted by two discrete items.

First, on July 23, 2020, the U.S.

Department of Treasury and the Internal Revenue Service finalized regulations T.D.

9902 with respect to the global intangible low-taxes income high-tax exception, resulting in a decrease in our effective tax rate.

This adjustment was retroactive to the fiscal years 2018 and 2019 and the cumulative impact is taken into account during the three months ended September 26, 2020.

Second, we realized a significant discrete tax benefit from stock-based compensation due to stock price increases over the most recent three year period.

These items together resulted in a decrease in our effective tax rate for the three and nine months ended September 26, 2020, compared to the three and nine months ended September 28, 2019.

Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuation allowance, changes to U.S.

federal, state or foreign tax laws, changes in ASC 718 stock-based compensation expense/benefit, future expansion into areas with varying country, state, and local income tax rates, deductibility of certain costs and expenses by jurisdiction.

federal, state or foreign tax laws, changes in ASC 718 stock-based compensation expense/benefit, future expansion into areas with varying country, state, and local income tax rates, and deductibility of certain costs and expenses by jurisdiction.

We expect the FDII deduction and corresponding benefit to be available after utilizing our previous net operating loss carryforwards, resulting in a decrease from the U.S.

statutory rate and included in our worldwide effective tax rate for the year ended December 26, 2020.

Liquidity and Capital Resources

Capital Resources

Our working capital was $332.2 million at June 27, 2020, compared to $282.5 million at December 28, 2019.

Our working capital was $319.9 million at September 26, 2020, compared to $282.5 million at December 28, 2019.

Cash and cash equivalents primarily consist of deposits held at banks and money market funds.

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Our investment policy requires investments to be rated single A or better, and limits the types of acceptable investments, issuer concentration and duration of the investment.

Our cash, cash equivalents and marketable securities totaled approximately $261.1 million at June 27, 2020, compared to $220.9 million at December 28, 2019.

Our cash, cash equivalents and marketable securities totaled approximately $241.5 million at September 26, 2020, compared to $220.9 million at December 28, 2019.

We believe that we will be able to satisfy our working capital requirements and scheduled term loan repayments for at least the next twelve months with the liquidity provided by our existing cash, cash equivalents, marketable securities and cash provided by operations.

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Government rather than a similar investment where the counterparty is a bank.

If we are unsuccessful in maintaining or growing our revenues, maintaining or reducing our cost structure (in response to a potential reduction in demand due to an industry downturn, COVID-19, or other event), or increasing our available cash through debt or equity financings, our cash, cash equivalents and marketable securities may decline in fiscal 2020.

We utilize a variety of tax planning and financing strategies to manage our worldwide cash and deploy funds to locations where needed.

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The following table sets forth our net cash flows from operating, investing and financing activities:

Six Months Ended

2020 June 29,

Nine Months Ended

September 26,

2020 September 28,

(In thousands)

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Operating Activities

Net cash provided by operating activities for the six months ended June 27, 2020 was primarily attributable to net income of $36.4 million and $39.3 million of net non-cash expenses, offset by changes in operating assets and liabilities, as explained below.

Accounts receivable, net, decreased $11.3 million to $86.6 million at June 27, 2020, compared to $97.9 million at December 28, 2019, as a result of changes in customer sales mix, timing of customer shipments and timing of customer payments.

Inventories, net, increased $4.6 million to $87.8 million at June 27, 2020, compared to $83.3 million at December 28, 2019, as a result of timing of customer demand expected to ship at the beginning of next quarter, as well as smaller impact related to increased inventory purchases to mitigate the impact of COVID-19 on our supply chain.

Accounts payable increased $3.4 million to $44.3 million at June 27, 2020, compared to $40.9 million at December 28, 2019, as a result of timing of vendor payments.

Net cash provided by operating activities for the nine months ended September 26, 2020 was primarily attributable to net income of $59.3 million and net non-cash expenses of $61.8 million, further fluctuated by changes in operating assets and liabilities, as explained below.

Accounts receivable, net, decreased $1.0 million to $96.9 million at September 26, 2020, compared to $97.9 million at December 28, 2019, as a result of changes in customer sales mix, timing of customer shipments and timing of customer payments, offset slightly by the increased accounts receivable due to the acquisitions of FRT and Baldwin Park.

Inventories, net, increased $11.4 million to $94.6 million at September 26, 2020, compared to $83.3 million at December 28, 2019, as a result of anticipated projected customer demand, as well as smaller impact related to increased inventory purchases to mitigate the impact of COVID-19 on our supply chain and the increased inventory due to the acquisitions of FRT and Baldwin Park.

Accounts payable increased $22.0 million to $62.9 million at September 26, 2020, compared to $40.9 million at December 28, 2019, as a result of timing of vendor payments.

Investing Activities

Net cash used in investing activities for the six months ended June 27, 2020 was primarily related to $36.7 million of cash used in the acquisition of property, plant and equipment, which includes $24.0 million used in the acquisition of a building adjacent to our leased facilities in Livermore, California, partially offset by $15.7 million of net proceeds from sales of marketable securities.

Net cash used in investing activities for the nine months ended September 26, 2020 was primarily related to $41.9 million of acquisition of property, plant and equipment, which includes $24.0 million used in the acquisition of a building adjacent to our leased facilities in Livermore, California.

Additionally, we paid $35.0 million of acquisition of Baldwin Park, net of cash acquired, partially offset by $20.6 million of net proceeds from sales of marketable securities.

Financing Activities

Net cash used in financing activities for the six months ended June 27, 2020 primarily related to $26.3 million of principal payments made towards the repayment of our term loans and $3.8 million related to tax withholding associated with the net share settlements of our equity awards, partially offset by $18.0 million of proceeds received from the new term loan for our building purchase, as well as $4.9 million of proceeds received from issuances of common stock under our employee stock purchase plan and stock option plans.

Net cash used in financing activities for the nine months ended September 26, 2020 primarily related to $41.1 million of principal payments made towards the repayment of our term loans and $15.4 million related to tax withholding associated with the net share settlements of our equity awards, partially offset by $18.0 million of proceeds received from the new term loan for our building purchase, as well as $9.6 million of proceeds received from issuances of common stock under our employee stock purchase plan and stock option plans.

CMI Term Loan

On June 24, 2016, we entered into a senior secured term loan facility of $150 million.

On June 24, 2016, we entered into 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 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.

As of June 27, 2020, the balance outstanding pursuant to the CMI Term Loan was $12.5 million.

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 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% of original principal 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.

FRT Term Loan

On October 25, 2019, we entered into a $23.4 million three-year credit facility loan agreement to fund the acquisition of FRT GmbH, which we acquired on October 9, 2019.

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

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%.

As of June 27, 2020, the balance outstanding pursuant to the FRT term loan was $19.6 million.

The interest rate at September 26, 2020 was 1.30%.

As of September 26, 2020, the balance outstanding pursuant to the FRT term loan was $18.3 million.

Building Term Loan

On June 22, 2020, we entered into an $18.0 million 15-year credit facility loan agreement.

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

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

The proceeds of the Building Term Loan were used to finance the 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%.

As of June 27, 2020, the balance outstanding pursuant to the Building Term Loan was $18.0 million.

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

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

As of September 26, 2020, the balance outstanding pursuant to the Building Term Loan was $17.8 million.

On March 17, 2020, we entered into a forward starting interest rate swap agreement to hedge the interest payments on the Building Term Loan for the notional amount of $18.0 million, and an amortization period that matches the debt.

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.

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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 6, Debt , of Notes to Condensed Consolidated Financial Statements.

Stock Repurchase Program

In October 2020, our Board of Directors authorized a program to repurchase up to $50.0 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based compensation plans.

The share repurchase program will expire on October 28, 2022.

Contractual Obligations and Commitments

The following table summarizes our significant contractual commitments to make future payments in cash under contractual obligations as of June 27, 2020:.

The following table summarizes our significant contractual commitments to make future payments in cash under contractual obligations as of September 26, 2020:

Payments Due In Fiscal Year

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Total $ 4,300 $ 16,409 $ 15,087 $ 6,064 $ 5,822 $ 31,073 $ 78,755

(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.

This also excludes any amounts related to our interest rate swap;

see Note 6, Debt , of Notes to Condensed Consolidated Financial Statements.

Off-Balance Sheet Arrangements

Historically, we have not participated in transactions that have generated relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

As of June 27, 2020, we were not involved in any such off-balance sheet arrangements.

As of September 26, 2020, we were not involved in any such off-balance sheet arrangements.

Recent Accounting Pronouncements

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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 2. Management’s Discussion and Analysis