What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-02-22 compared with 2020-02-21 · 132 added, 87 removed, 237 unchanged (48% of the section changed)

4 unchanged sentences

Risk Factors" and elsewhere in this Annual Report on Form 10-K.

FormFactor, Inc., headquartered in Livermore, California, is a leading provider of electrical 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.

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

Customers use our products and services to lower production costs, improve yields, and enable development of complex next-generation products.

On October 9, 2019, we acquired 100% of the shares of FRT GmbH ("FRT"), a German-based company, for total consideration of $25.9 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 $5.4 million 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.

We also entered into a term loan with a lender for an aggregate amount of $23.4 million to finance the acquisition.

See Notes 4 and 5 of Notes to Consolidated Financial Statements for additional information.

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, thermal systems, and cryogenic 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.

Customers use our products and services to lower production costs, improve yields, and enable development of their complex next-generation products.

We operate in two reportable segments consisting of the Probe Cards segment and the Systems segment.

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

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

We generated net income of $78.5 million in fiscal 2020 compared to net income of $39.3 million in fiscal 2019 and net income of $104.0 million in fiscal 2018.

The increase in net income in fiscal 2020 compared to fiscal 2019 was primarily due to increased revenue and leverage on operating expenses, which only marginally increased on significantly higher operating levels, as well as a decrease in provision for income taxes due to a lower effective tax rate in 2020.

The decrease in net income in fiscal 2019 compared to fiscal 2018 was primarily due to a $75.8 million income tax benefit recognized in fiscal 2018 related to the release of valuation allowances against certain U.S.

deferred tax assets and the increase in provision for income taxes due to the recognition of deferred tax expense.

The increase in net income in fiscal 2018 compared to fiscal 2017 was primarily due to a $75.8 million income tax benefit recognized in fiscal 2018 related to the release of valuation allowances against certain U.S.

deferred tax assets, partially offset by lower revenues and higher operating expenses.

Impact of COVID-19

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.

Department of Homeland Security.

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.

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 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 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 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 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.

For a further description of the uncertainties and business risks associated with the COVID-19 pandemic, see Part I, Item 1A, " Risk Factors" in this Annual Report on Form 10-K.

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

7 unchanged sentences

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses in the reporting period.

Our accounting policies are fundamental to understanding our financial condition and results of operations reported in our

financial statements and related disclosures.

Our accounting policies are fundamental to understanding our financial condition and results of operations reported in our financial statements and related disclosures.

We have identified the following accounting policies as being critical because they require our management to make particularly difficult, subjective and/or complex judgments about the effect of matters that are inherently uncertain.

81 unchanged sentences

Total revenues $ 589,464 100.0 % $ 529,675 100.0 % $ 59,789 11.3 %

The increase in Foundry & Logic product revenue in fiscal 2019 compared to fiscal 2018 was primarily driven by higher demand in 2019 from two major customers, resulting primarily from increased demand in traditional server and end-user computing, as well as growth in new market applications, including 5G.

The relative increase with respect to fiscal 2018 was compounded by lower 2018 revenues from one larger customer resulting from node transitions.

These major customers accounted for 25.3% and 11.5% of total revenues for fiscal 2019, compared to 19.0% and less than 10%, respectively for fiscal 2018.

The increase in DRAM and decrease in Flash product revenues in fiscal 2019 compared to fiscal 2018 were driven by changes in unit sales that we believe were driven in part by increased market share, designs that require new probe cards and node transitions.

The increase in Systems product revenue in fiscal 2019 compared to fiscal 2018 was driven by increased sales of probe stations, which includes a new 200mm platform, and the additional revenue from the newly acquired FRT GmbH, partially offset by lower revenue from thermal sub-systems.

The increase in Foundry & Logic product revenue in fiscal 2020 compared to fiscal 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 infrastructure spending to support working from home and distance learning.

The decrease in DRAM product revenues in fiscal 2020 compared to fiscal 2019 was driven by a decreased customer demand as a result of the absorption of large purchases in fiscal 2019.

Flash product revenue stayed relatively flat in fiscal 2020 compared to fiscal 2019 driven by the acquisition of Baldwin Park.

This offset what would have otherwise been a decrease in demand.

Our revenue in this market continues to be highly variable.

The increase in Systems product revenue in fiscal 2020 compared to fiscal 2019 was driven by additional revenue from the acquisitions of FRT and HPD and increased sales of probe stations, partially offset by lower revenue from thermal systems.

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 in certain locations for almost two weeks during our first fiscal quarter of 2020, limiting our manufacturing capacity.

We believe these shutdowns and governmental mandates negatively affected revenue and impacted our ability to maintain typical lead times throughout fiscal 2020, especially in our Probe Cards segment.

Revenues by Geographic Region

3 unchanged sentences

(In thousands, except percentages)

United States $ 155,202 26.3 % $ 133,648 25.2 % $ 186,654 34.0 %

South Korea 116,882 19.8 91,247 17.2 81,727 14.9

China $ 174,915 25.2 % $ 106,256 18.0 % $ 77,851 14.7 %

Taiwan 150,837 21.7 86,539 14.7 107,476 20.3

Japan 52,584 8.9 49,814 9.4 44,559 8.1

United States 127,628 18.4 155,202 26.3 133,648 25.2

South Korea 86,951 12.5 116,882 19.8 91,247 17.2

Europe 65,572 9.5 41,473 7.0 39,671 7.5

Japan 43,605 6.3 52,584 8.9 49,814 9.4

Asia-Pacific (1)

32,991 4.8 21,468 3.7 25,980 4.9

Rest of the world 9,060 1.6 3,988 0.8 2,510 0.5

Rest of World 11,117 1.6 9,060 1.6 3,988 0.8

Total Revenues $ 693,616 100.0 % $ 589,464 100.0 % $ 529,675 100.0 %

3 unchanged sentences

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 U.S.

Changes in revenue by geographic region in fiscal 2019 compared to fiscal 2018 were primarily attributable to changes in customer demand, shifts in customer regional manufacturing strategies, and product sales mix with the increase in the United States, South Korea and China relating primarily to increased sales to two customers in 2019 that also comprised greater than 10% of consolidated sales as further described in Note 2 of Notes to Consolidated Financial Statements .

Changes in revenue by geographic region in fiscal 2020 compared to fiscal 2019 were primarily attributable to changes in customer demand, shifts in customer regional manufacturing strategies, particularly with our large multinational customers, for example the increase in China in fiscal 2020, and product sales mix.

Cost of Revenues and Gross Margins

Cost of revenues consists primarily of manufacturing materials, payroll, shipping and handling costs, manufacturing-related overhead and amortization of certain intangible assets.

Cost of revenues consists primarily of manufacturing materials, compensation and benefits, shipping and handling costs, manufacturing-related overhead and amortization of certain intangible assets.

Our manufacturing operations rely on a limited number of suppliers to provide key components and materials for our products, some of which are a sole source.

We order materials and supplies based

on backlog and forecasted customer orders.

We order materials and supplies based on backlog and forecasted customer orders.

Tooling and setup costs related to changing manufacturing lots at our suppliers are also included in the cost of revenues.

10 unchanged sentences

Gross margin 43.1 % 49.3 % — % 39.7 %

Gross profit in the Probe Cards segment increased in fiscal 2019 compared to fiscal 2018 primarily due to increased sales, offset by higher variable costs and by less favorable product mix.

Gross profit and gross margin in the Systems segment increased in fiscal 2019 compared to fiscal 2018 due to increased sales.

Gross profit and gross margin in the Probe Cards segment increased in fiscal 2020 compared to fiscal 2019, primarily due to increased sales, higher factory utilization, and product mix.

Gross profit and gross margin in the Systems segment decreased in fiscal 2020 compared to fiscal 2019, primarily as a result of less favorable product mix.

Corporate and Other

Corporate and Other includes unallocated expenses relating to amortization of intangible assets, share-based compensation, restructuring charges, net, and acquisition-related costs, including charges related to inventory stepped up to fair value and other costs, which are not used in evaluating the results of, or in allocating resources to, our reportable segments.

Corporate and Other includes unallocated expenses relating to amortization of intangible assets, inventory and fixed asset fair value adjustments due to acquisitions, share-based compensation, and restructuring charges, net, which are not used in evaluating the results of, or in allocating resources to, our reportable segments.

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

For fiscal 2019 compared to fiscal 2018, gross profit increased due to increased sales while gross margins remained relatively consistent with fluctuations in product mix.

For fiscal 2020 compared to fiscal 2019, gross profit increased due to increased sales while gross margins increased by only 1.2% with fluctuations in product mix.

Stock-based compensation expense included in gross profit for fiscal 2020 and 2019 was $4.0 million and $4.1 million, respectively.

10 unchanged sentences

% of revenues 13.8 % 14.2 %

The increase in research and development expenses in fiscal 2019 compared to fiscal 2018 was primarily driven by an increase in employee compensation costs caused by increases in headcount, annual compensation and benefit adjustments and employee performance-based compensation, partially offset by a decrease in project material costs.

The components of this increase were as follows (in millions):

The increase in research and development expenses in fiscal 2020 compared to fiscal 2019 was primarily driven by an increase in employee compensation costs caused by increases in headcount combined with higher variable performance-based compensation, a full year of expenses for FRT, which was acquired in the last quarter of fiscal 2019, as well as incremental expenses from newly acquired Baldwin Park, acquired in the third quarter of fiscal 2020, and HPD, acquired in the fourth quarter of fiscal 2020.

There was also an increase in project material costs.

The components of this increase were as follows (in thousands):

Fiscal 2020 compared to Fiscal 2019

Employee compensation costs $ 7,128

Stock-based compensation 1.0

Project material costs 1,152

Depreciation 245

General operating expenses (447)

Stock-based compensation (543)

Stock-based compensation expense included within research and development in fiscal 2020 and 2019 was $5.8 million and $6.4 million, respectively.

10 unchanged sentences

% of revenues 18.0 % 18.7 %

The increase in selling, general and administrative in fiscal 2019 compared to fiscal 2018 was primarily due to higher variable costs on increased sales volumes, primarily related to increases in headcount costs and employee incentive compensation, as well as additional costs from the FRT acquisition, offset partially by a decrease in the amortization of intangible assets.

The components of this increase were as follows (in millions):

The increase in selling, general and administrative in fiscal 2020 compared to fiscal 2019 was primarily due to an increase in variable costs with the increased sales volumes, increase in headcount with recent acquisitions, higher variable performance based compensation, higher consulting fees primarily related to information technology security remediation costs, partially offset by a gain on contingent consideration related to the acquisition of FRT, decreased travel due to travel restrictions, and decreased amortization of intangibles as certain intangibles recognized in the acquisition of MicroProbe and Cascade Microtech reached the end of their useful lives, which was only partially offset by the additions of intangibles arising from the more recent acquisitions for FRT, Baldwin Park, and HPD.

The components of this overall increase were as follows (in thousands):

Fiscal 2020 compared to Fiscal 2019

Employee compensation costs $ 4.1

Stock-based compensation 3.9

Depreciation and amortization (1.2)

Employee compensation $ 10,417

Consulting fees 3,580

Stock-based compensation 1,302

Amortization of intangibles (1,254)

Gain on contingent consideration (2,879)

Travel related costs (3,576)

General operating expenses 1,173

Stock-based compensation expense included within selling, general and administrative in fiscal 2020 and 2019 was $14.1 million, and $12.8 million, respectively.

10 unchanged sentences

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

The increase in interest income in fiscal 2019 compared to fiscal 2018 was attributable to higher investment yields, related in part to longer duration investments, as well as higher average investment 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 in fiscal 2019 compared to fiscal 2018 was primarily due to lower outstanding debt balances related to the CMI acquisition 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.

The decrease in interest income in fiscal 2020 compared to fiscal 2019 was attributable to lower investment yields due to the low interest rate environment despite higher invested balances.

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 in fiscal 2020 compared to fiscal 2019 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.

This activity lowers interest expense due to lower interest rates on the outstanding debt.

Other Income (Expense), Net

6 unchanged sentences

Effective tax rate 7.8 % 22.9 % (206.6) %

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

jurisdictions, offset by tax benefits from a partial release of valuation allowance against U.S.

federal and state deferred tax assets ("DTAs") and from lapsing of statute of limitations related to uncertain tax positions in foreign jurisdictions.

As of December 28, 2019, we maintain a valuation allowance of $36.6 million primarily against our California deferred tax assets and foreign tax credits, due to uncertainty about the future realization of these assets.

The benefit for income taxes in fiscal 2018 includes a $75.8 million reduction to our valuation allowance on our U.S.

deferred tax assets as sufficient positive evidence existed to support the realization of such DTAs.

The effective tax rate in fiscal 2018 also benefited from a lower statutory tax rate in the U.S., partially offset by higher profits in foreign jurisdictions.

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.

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.

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 exemption, 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 fiscal 2020.

Furthermore, the benefit derived from the FDII deduction is influenced by the relative weighting of export sales and domestic sales and when export sales are proportionally higher the expected effective tax rate is reduced due to a larger realized deduction.

In addition to these impacts, the effective tax rate was impacted favorably by additional deductions for stock compensation due to increased stock prices between the grant date and vest date.

Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, the relative mix of export sales and domestic sales, changes to the valuation allowance, changes to U.S.

federal, state or foreign tax laws, future expansion into areas with varying country, state, and local income tax rates, deductibility of certain costs and expenses by jurisdiction.

1 unchanged sentence

Capital Resources

Our working capital increased to $282.5 million at December 28, 2019 compared to $235.3 million at December 29, 2018 primarily due to higher cash, cash equivalents and investment balances resulting from cash generated from operations on higher sales and strong collections, partially offset by higher accrued liabilities on higher volumes and higher current debt balance due to timing of debt payments.

Our working capital increased to $332.5 million at December 26, 2020 compared to $282.5 million at December 28, 2019, primarily due to higher cash and cash equivalents resulting from cash generated from operations and higher inventories and accounts receivable on higher operating levels, partially offset by higher accounts payable and accrued liabilities on higher volumes and higher deferred revenue.

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

Marketable securities primarily consist of U.S.

agency securities and corporate bonds.

treasuries and corporate bonds.

We typically invest in highly-rated securities with low probabilities of default.

4 unchanged sentences

Our future capital requirements may vary materially from those now planned.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets.

An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition.

As a result of the current and uncertain future impact of COVID-19, we have taken actions to preserve and improve our liquidity primarily by limiting our exposures to volatile markets and investments, as well as actively working to minimize counterparty risk, for example, by directly investing in securities where the counterparty is the U.S.

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.

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

As part of these strategies, we indefinitely reinvest a portion of our foreign earnings.

Should we require additional capital in the U.S., we may elect to repatriate indefinitely-reinvested foreign funds or raise capital in the U.S.

Should we require additional capital in the U.S., we may elect to repatriate indefinitely-reinvested foreign funds or raise capital in the United States.

Fiscal Year Ended

6 unchanged sentences

Net cash provided by operating activities in fiscal 2020 was primarily attributable to net income of $78.5 million, which included $88.9 million of net non-cash items, offset by changes in operating assets and liabilities using $1.9 million of cash as discussed in more detail below.

Accounts receivable increased $2.6 million to $97.9 million at December 28, 2019 compared to $95.3 million at December 29, 2018 as a result of strong collections despite increased revenues and changes in payment terms related to customer mix.

Inventories, net, increased $5.6 million to $83.3 million at December 28, 2019 compared to $77.7 million at December 29, 2018 as a result of higher sales volumes, partially offset by a $10.4 million increase to our provision for excess and obsolete inventories.

Accrued liabilities increased $8.7 million to $36.4 million at December 28, 2019 compared to $27.7 million at December 29, 2018, as a result of an increase in employee performance-based compensation and benefits and an increase in accrued income taxes due to timing of payments.

Accounts payable increased $0.9 million to $40.9 million at December 28, 2019 compared to $40.0 million at December 29, 2018, as a result of higher volumes mostly offset by the impact of timing of vendor payments.

Accounts receivable increased $9.7 million to $107.6 million at December 26, 2020 compared to $97.9 million at December 28, 2019, as a result of higher operating levels and the acquisitions of Baldwin Park and HPD, offset by timing of customer payments and diligent management of collections.

Inventories, net, increased $16.0 million to $99.2 million at December 26, 2020 compared to $83.3 million at December 28, 2019, as a result of anticipated projected customer demand and the increased inventory due to the acquisitions of Baldwin Park and HPD, partially offset by a $13.1 million increase to our provision for excess and obsolete inventories.

Accrued liabilities increased $18.9 million to $55.3 million at December 26, 2020 compared to $36.4 million at December 28, 2019, as a result of an increase in employee performance-based compensation and benefits, increases in the contributions withheld for employee stock purchase plan, increases to accrued warranty, and the increased liabilities due to the acquisitions of FRT, Baldwin Park, and HPD.

Accounts payable increased $21.1 million to $62.0 million at December 26, 2020 compared to $40.9 million at December 28, 2019, as a result of higher volumes, timing of vendor payments and the increased accounts payable due to the acquisitions of Baldwin Park and HPD.

Investing Activities

Net cash used in investing activities in fiscal 2019 primarily related to $20.8 million of cash used in the acquisition of property, plant and equipment, $20.5 million paid (net of cash acquired) as part of the consideration for the acquisition of FRT, and $25.1 million used for the purchase of marketable securities, net of maturities.

Net cash used in investing activities in fiscal 2020 primarily related to $55.9 million of cash used in the acquisition of property, plant and equipment, including a new production facility in Livermore California, $51.9 million paid (net of cash acquired) as part of the consideration for the acquisition of Baldwin Park and HPD, and $8.7 million used for the purchase of marketable securities, net of maturities.

Financing Activities

Net cash used in financing activities in fiscal 2019 primarily related to $30.0 million of principal payments made towards the repayment of our term loan and $8.0 million related to tax withholdings associated with the net share settlements of our equity awards, largely offset by $23.4 million of proceeds from a term loan to fund the acquisition of FRT and $8.1 million of proceeds received from issuances of common stock under our stock incentive plans.

Net cash used in financing activities in fiscal 2020 primarily related to $43.4 million of principal payments made towards the repayment of our term loans and $15.5 million related to tax withholdings associated with the net share settlements of our equity awards, offset by $18.0 million of proceeds from a term loan to fund the purchase of the building in Livermore and $10.0 million of proceeds received from issuances of common stock under our stock incentive plans.

CMI Term Loan

On June 24, 2016, we entered into a credit agreement (the “Credit Agreement”) with HSBC Bank USA, National Association ("HSBC").

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 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 acquisition of Cascade Microtech in fiscal 2016.

As of December 28, 2019, the balance outstanding was $35 million.

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.

As of December 28, 2019, the interest rate pursuant to the CMI Term Loan was 3.71%.

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%.

As of December 28, 2019, the notional amount of the loan that is subject to this interest rate swap is $22.5 million.

See Note 7 of Notes to Condensed Consolidated Financial Statements for additional information.

The CMI Term Loan amortizes in equal quarterly installments, which began June 30, 2016, in annual amounts equal to 5% for year one, 10% for year two, 20% for year three, 30% for year four and 35% for year five.

The Credit Agreement allows voluntary prepayment to be made at any time to prepay the CMI Term Loan in whole or in part without penalty or premium.

As of December 28, 2019 and December 29, 2018, we have made prepayments of $40.0 million with no prepayments made during fiscal 2019.

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

The obligations under the CMI 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 December 28, 2019, we were in compliance with all covenants under the Credit Agreement.

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 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 quarterly installments over a five-year period.

The principal payments on the CMI Term Loan were scheduled to be 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.

We accelerated payments of these scheduled amounts and made the final payment on the CMI Term Loan on June 30, 2020, approximately one year before the original maturity.

We are no longer subject to the terms of the Credit Agreement.

FRT Term Loan

On October 25, 2019, we entered into a $23.4 million three-year term 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 of Notes to Consolidated Financial Statements 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 beginning January 25, 2020.

See Note 5 of Notes to Consolidated Financial Statements for additional information relating to the term loans.

On October 25, 2019, we entered into a euro denominated $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.

The interest rate at December 26, 2020 was 1.24%.

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 December 26, 2020, the balance outstanding pursuant to the FRT term loan was $17.1 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 December 26, 2020 was 1.90%.

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 December 26, 2020, the notional amount of the loan that is subject to this interest rate swap is $17.5 million.

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 December 26, 2020, the balance outstanding pursuant to the Building Term Loan was $17.5 million and we were in compliance with all covenants under the Credit Agreement.

Stock Repurchase Program

In February 2017, our Board of Directors authorized a program to repurchase up to $25 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based incentive plans.

The share repurchase program expired on February 1, 2020.

In October 2020, our Board of Directors authorized a program to repurchase up to $50 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based incentive plans.

The share repurchase program will expire October 28, 2022.

This repurchase program replaced the previous repurchase program that expired in February 2020 to purchase up to $25.0 million of outstanding common stock.

During fiscal 2020, 2019 and 2018, we did not repurchase any shares.

During fiscal 2017, we repurchased 1,367,617 shares of common stock for $19.0 million.

Contractual Obligations and Commitments

7 unchanged sentences

Total $ 17,373 $ 16,041 $ 6,594 $ 6,254 $ 6,222 $ 25,974 $ 78,458

(1) Represents our minimum interest payment commitments at 1.35 % per annum for the FRT Term Loan and 3.71 % per annum for the CMI Term Loan.

(1) Represents our minimum interest payment commitments at 1.24% per annum for the FRT Term Loan and 1.90% per annum for the Building Term Loan.

The table above excludes our gross liability for unrecognized tax benefits, which totaled $32.5 million as of December 26, 2020.

16 unchanged sentences

New Accounting Pronouncements

See Note 6 and Note 17 of Notes to Consolidated Financial Statements.

See Note 16, New Accounting Pronouncements , of Notes to Consolidated Financial Statements.

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-K

Item 7. Management’s Discussion and Analysis