What changed in this filing

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Item 1. Financial Statements

2021-05-04 compared with 2020-11-03 · 209 added, 321 removed, 457 unchanged (54% of the section changed)

3 unchanged sentences

(In thousands, except share and per share amounts)

September 26,

2021 December 26,

33 unchanged sentences

77,758,530 and 77,437,997 shares issued and outstanding

Treasury stock, at cost, 136,402 and — shares

Additional paid-in capital 915,136 903,838

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

Accumulated other comprehensive income 3,150 5,886

Accumulated deficit ( 146,093 ) ( 165,718 )

5 unchanged sentences

(In thousands, except per share amounts)

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Three Months Ended

2021 March 28,

Revenues $ 186,636 $ 160,753

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Interest expense ( 180 ) ( 318 )

Other income, net 299 226 141 223

Other income (expense), net 172 ( 91 )

Income before income taxes 22,831 18,706

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

Provision for income taxes 3,206 2,816

Net income $ 19,625 $ 15,890

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(In thousands)

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Three Months Ended

2021 March 28,

Net income $ 19,625 $ 15,890

Other comprehensive income (loss), net of tax:

Other comprehensive loss, net of tax:

Translation adjustments and other ( 2,379 ) ( 399 )

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

Unrealized losses on available-for-sale marketable securities ( 131 ) ( 27 )

Unrealized gains (losses) on derivative instruments ( 226 ) 176

Other comprehensive income (loss), net of tax 2,021 ( 2,339 ) 3,138 ( 2,960 )

Other comprehensive loss, net of tax ( 2,736 ) ( 250 )

Comprehensive income $ 16,889 $ 15,640

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(In thousands, except shares)

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

Issuance of common stock under the Employee Stock Purchase Plan 485,566 — 7,875 — — 7,875

Issuance of common stock pursuant to exercise of options 205,769 1 1,712 — — 1,713

Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 927,169 1 ( 15,383 ) — — ( 15,382 )

Stock-based compensation — — 16,551 — — 16,551

Other comprehensive income — — — 3,138 — 3,138

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

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

Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 608,060 1 ( 11,583 ) — — ( 11,582 )

Stock-based compensation — — 5,437 — — 5,437

Other comprehensive income — — — 2,021 — 2,021

Net income — — — — 22,891 22,891

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

Stock Shares of

Stock Treasury

Stock Additional

Capital Accumulated

Comprehensive

Income (Loss) Accumulated

Deficit Total

Three Months Ended March 27, 2021

Balances, December 26, 2020 77,437,997 $ 78 — $ — $ 903,838 $ 5,886 $ ( 165,718 ) $ 744,084

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Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 41,749 — — — ( 1,141 ) — — ( 1,141 )

Purchase of common stock through repurchase program — — ( 136,402 ) ( 5,738 ) — — — ( 5,738 )

Stock-based compensation — — — — 6,952 — — 6,952

1 unchanged sentence

Net income — — — — — — 19,625 19,625

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

Balances, March 27, 2021 77,758,530 $ 78 ( 136,402 ) $ ( 5,738 ) $ 915,136 $ 3,150 $ ( 146,093 ) $ 766,533

Stock Shares of

Stock Treasury

Stock Additional

Capital Accumulated

Comprehensive

Loss Accumulated

Deficit Total

Three Months Ended March 28, 2020

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

Issuance of common stock under the Employee Stock Purchase Plan 311,591 — — — 4,066 — — 4,066

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Net income — — — — — — 15,890 15,890

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

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

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

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(In thousands)

Nine Months Ended

September 26,

2020 September 28,

Three Months Ended

2021 March 28,

Cash flows from operating activities:

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Provision for excess and obsolete inventories 3,394 3,287

Gain on contingent consideration ( 3,771 ) —

Other adjustments to reconcile net income to net cash provided by operating activities 2,140 407

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Acquisition of property, plant and equipment ( 13,470 ) ( 12,050 )

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

Proceeds from sale of a subsidiary — 40

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Proceeds from issuances of common stock 5,487 4,513

Purchase of common stock through stock repurchase program ( 5,738 ) —

Tax withholdings related to net share settlements of equity awards ( 1,141 ) ( 385 )

Proceeds from term loan debt 18,000 —

Principal repayments on term loans ( 2,376 ) ( 13,199 )

Payment of term loan debt issuance costs ( 78 ) —

Net cash used in financing activities ( 3,768 ) ( 9,071 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 1,456 ) 312

Net increase in cash, cash equivalents and restricted cash 40,306 24,194

Net increase (decrease) in cash, cash equivalents and restricted cash ( 12,790 ) 25,138

Cash, cash equivalents and restricted cash, beginning of period 191,098 147,937

Cash, cash equivalents and restricted cash, end of period $ 178,308 $ 173,075

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

FORMFACTOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Three Months Ended

2021 March 28,

Non-cash investing and financing activities:

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Cash paid for interest 173 291

Reconciliation of cash, cash equivalents and restricted cash:

Cash and cash equivalents $ 173,616 $ 169,607

Restricted cash, current 2,798 2,107

Restricted cash 1,894 1,361

Total cash, cash equivalents and restricted cash $ 178,308 $ 173,075

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

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However, such information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods.

The financial information as of December 28, 2019 is derived from our 2019 Annual Report on Form 10-K.

The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2020 Annual Report on Form 10-K filed with the SEC on February 22, 2021.

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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 nine months ended September 26, 2020 and September 28, 2019 each contained 39 weeks.

Fiscal 2021 and 2020 each contain 52 weeks and the three months ended March 27, 2021 and March 28, 2020 each contained 13 weeks.

Fiscal 2021 will end on December 25, 2021.

Significant Accounting Policies

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.

Our significant accounting policies have not changed during the three months ended March 27, 2021 from those disclosed in our Annual Report on Form 10-K for the year ended December 26, 2020.

Reclassifications

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New Accounting Pronouncements

In June 2016, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("ASU") No.

2016-13, "Measurement of Credit Losses on Financial Instruments (Topic 326)." The provisions of this standard require financial assets measured at amortized cost to be presented at the net amount expected to be collected.

An allowance account would be established to present the net carrying value at the amount expected to be collected.

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 beginning fiscal 2020.

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

The adoption did not have a material effect on our financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The new guidance clarifies the accounting for implementation costs in cloud computing arrangements.

ASU 2018-15 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019.

We adopted ASU 2018-15 on a prospective basis on December 29, 2019, the first day of fiscal 2020.

The adoption did not have a material effect on our financial position, results of operations or cash flows.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740),” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

In December 2019, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740),” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

Early adoption of the amendments is permitted, including adoption in any interim period for which financial statements have not yet been issued.

Depending on the amendment, adoption may be applied on the retrospective, modified retrospective or prospective basis.

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

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

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

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

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

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.

We adopted ASU 2019-12 on a prospective basis on December 27, 2020, the first day of fiscal 2021.

The adoption did not have a material effect on our consolidated financial position, results of operations or cash flows.

In March 2020, the FASB issued ASU 2020-04, “Referenced Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides temporary optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued.

In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848),” which permits entities to apply optional expedients in Topic 848 to derivative instruments modified because of discounting transition resulting from reference rate reform.

ASU 2020-04 became effective upon issuance and may be applied prospectively to contract modifications made on or before December 31, 2022.

ASU 2021-01 became effective upon issuance and may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or prospectively for contract modifications made on or before December 31, 2022.

The Company has not yet applied the relief afforded by these standard amendments and is currently assessing contracts that will require modification due to reference rate reform to which these standard amendments may be applied.

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 Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Three Months Ended

2021 March 28,

Intel Corporation 28.1 % 36.2 %

Taiwan Semiconductor Manufacturing Co., LTD.

Samsung Electronics., LTD.

39.6 % 36.2 %

Micron Technology, Inc.

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 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.

At March 27, 2021, one customer accounted for 22.8 % of gross accounts receivable.

At December 26, 2020, two customers accounted for 15.3 % and 13.7 % of gross accounts receivable, respectively.

Note 3 — Inventories, net

1 unchanged sentence

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

September 26,

2021 December 26,

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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.

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

High Precision Devices, Inc.

On October 19, 2020, we acquired 100 % of the shares of HPD for total consideration of $ 16.9 million, net of cash acquired of $ 1.7 million, which included an estimated adjustment for changes in working capital, which is not yet finalized.

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 acquisition was accounted for using the acquisition method of accounting, with FormFactor treated as the acquirer.

The acquired assets and liabilities of HPD were recorded at their respective fair values including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets.

Our Condensed Consolidated Statements of Income include the financial results of HPD subsequent to the acquisition date of October 19, 2020.

Revenue in fiscal 2020 related to HPD subsequent to the acquisition date that was included in our Condensed Consolidated Statements of Income was not material.

The acquisition price was allocated to the tangible and identified intangible assets acquired and liabilities assumed as of the closing date of the acquisition based upon their respective fair values.

The fair values assigned to assets acquired and liabilities assumed were based on management’s assumptions as of the reporting date.

We estimated the acquisition price and the allocation of fair value to assets acquired and liabilities assumed as of the acquisition date, October 19, 2020.

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):

We subsequently made certain immaterial adjustments within the measurement period to the preliminary acquisition price allocation.

See Note 5, Goodwill and Intangible Assets , for changes in identified intangible values and goodwill.

Our purchase accounting remains open at March 27, 2021, subject to finalization of the fair value of

consideration and certain deferred tax items.

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

Cash and cash equivalents $ 1,680

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Tangible assets acquired 9,566

Customer deposits ( 1,933 )

Deferred revenue ( 2,529 )

Accounts payable and accrued liabilities ( 1,268 )

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Customer relationships 3,600 5.0

Backlog 1,645 0.5

Order backlog 200 0.5

Trade names 220 5.0

Total intangible assets $ 11,520 8.2

Indications of fair value of the intangible assets acquired in connection with the acquisition were determined using either the income, market or replacement cost methodologies.

The fair value of the intangible assets acquired in connection with the acquisition was determined using either the income, market or replacement cost methodologies.

The intangible assets are being amortized over periods which reflect the pattern in which economic benefits of the assets are expected to be realized.

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

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

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

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

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

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

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

Identifiable Intangible Assets

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The key assumptions are described below.

Developed technologies acquired primarily consists of existing technology related to hybrid 3D surface metrology measurement equipment.

We valued the developed technologies using the multi-period excess earnings method under the income approach.

Developed technology acquired primarily consists of existing technology related to cryogenic probe stations, Adiabatic Demagnetization Refrigerator (“ADR”), and continuous ADR cryostats and similar tools, and technology related to other cryogenic applications.

We valued the developed technology using the multi-period excess earnings method under the income approach.

Using this approach, the estimated fair values were calculated using expected future cash flows from specific products discounted to their net present values at an appropriate risk-adjusted rate of return.

Customer relationships represent the fair value of future projected revenues that will be derived from the sale of products to FRT's existing customers.

The value of customer relationships represents the fair value of future projected revenues that will be derived from the sale of products to HPD's existing customers.

We valued customer relationships using the incremental cash flow method.

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The incremental cash flows are then discounted to a present value to arrive at an estimate of fair value for this asset class.

Backlog represents business under existing contractual obligations.

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

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

Order backlog represents the value of future sales under existing contracts as of the acquisition date.

Expected cash flow from order backlog was valued on a discounted direct cash flow basis, net of returns on contributory assets such as working capital, property and equipment, trade name and assembled workforce.

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

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

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The goodwill attributable to the acquisition was recorded as a non-current asset and is not amortized, but is subject to an annual review for impairment.

The goodwill arising from the acquisition was allocated to the FRT reporting unit within the Systems reportable segment.

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.

The goodwill arising from the acquisition was allocated to the HPD reporting unit within the Systems reportable segment.

We have not presented unaudited combined pro forma financial information as the HPD 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.

On July 30, 2020, we acquired the probe card assets of Advantest Corporation for total cash consideration of $ 35.0 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):

The acquisition was accounted for using the acquisition method of accounting, with FormFactor treated as the acquirer.

The acquired assets and liabilities of Baldwin Park were recorded at their respective fair values including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets.

Our Condensed Consolidated Statements of Income include the financial results of Baldwin Park subsequent to the acquisition date of July 30, 2020.

Revenue related to Baldwin Park since the acquisition date that was included in our Condensed Consolidated Statements of Income for fiscal 2020 was not material.

We estimated the acquisition price and the allocation of fair value to assets acquired and liabilities assumed as of the acquisition date, July 30, 2020.

We subsequently made certain immaterial adjustments within the measurement period to the acquisition price allocation as a result of finalization of our valuation of identifiable assets and liabilities.

See Note 5, Goodwill and Intangible Assets, for changes in identified intangible values and goodwill.

In the current quarter ended March 27, 2021, we finalized our allocation of the assets acquired, including goodwill and intangibles, and liabilities assumed for the purchase as follows (in thousands):

Accounts receivable $ 4,365

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Operating lease liabilities ( 519 )

Total tangible assets acquired and liabilities assumed 15,481

Total net tangible assets acquired and liabilities assumed 15,458

Intangible assets 13,600

Goodwill 5,942

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.

The intangible assets as of July 30, 2020 included (in thousands):

Amount Weighted Average Useful Life (in years)

Developed technologies $ 8,800 10.0

Customer relationships 4,400 3.0

In-process research and development 400 N/A

Total intangible assets $ 13,600 7.7

Indications of fair value of the intangible assets acquired in connection with the acquisition were determined using either the income, market or replacement cost methodologies.

The intangible assets are being amortized over periods which reflect the pattern in which economic benefits of the assets are expected to be realized.

Identifiable Intangible Assets

Valuation of intangible assets involves multiple assumptions.

The key assumptions are described below.

Developed technology acquired consists of existing technology related to 3D NAND Flash probe cards and the value expected to be derived from interconnect technology.

We valued the developed technology related to 3D NAND Flash using the multi-period excess earnings method under the income approach.

We valued the interconnect developed technology asset using the incremental cash flow method.

This method estimates value based on the incremental cash flow afforded by having the interconnect capability in place on the acquisition date versus having no capability in place and needing to replicate or replace that capability.

The incremental cash flows are then discounted to a present value to arrive at an estimate of fair value for this asset class.

In-process research and development (“IPR&D”) acquired primarily consists of research and development projects that were in process at the time of acquisition related to technologies used in DRAM probe cards.

Once these projects are complete they will be amortized over their useful life.

We valued the IPR&D using the multi-period excess earnings method under the income approach.

The value of customer relationships represents the fair value of future projected revenues that will be derived from the sale of products to Baldwin Park's existing customers.

We valued customer relationships using the incremental cash flow method.

This method estimates value based on the incremental cash flow afforded by having the customers relationships in place on the acquisition date versus having no relationships in place and needing to replicate or replace those relationships.

The incremental cash flows are then discounted to a present value to arrive at an estimate of fair value for this asset class.

The excess of purchase price over the fair value assigned to the assets acquired and liabilities assumed represents the amount of goodwill resulting from the acquisition.

We believe the factors that contributed to goodwill include synergies that are specific to our consolidated business, such as cost savings and operational efficiencies, and the acquisition of a talented workforce that expands our expertise in business development, none of which qualify for recognition as a separate intangible asset.

We expect this goodwill to be deductible for tax purposes.

The goodwill attributable to the acquisition was recorded as a non-current asset and is not amortized, but is subject to an annual review for impairment.

The goodwill arising from the acquisition was allocated to the Probe Cards reporting unit within the Probe Cards reportable segment.

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

Note 5 — Goodwill and Intangible Assets

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Addition - FRT GmbH Acquisition — 975 975

Addition - Baldwin Park Acquisition 5,590 — 5,590

Addition - HPD Acquisition — 4,654 4,654

Foreign currency translation — 2,346 2,346

Goodwill, gross, as of December 26, 2020 178,072 34,689 212,761

Addition - FRT GmbH Acquisition — 975 975

Addition - Baldwin Park Acquisition 352 352

Addition - HPD Acquisition — 2,011 2,011

Foreign currency translation — ( 906 ) ( 906 )

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.

Goodwill, gross, as of March 27, 2021 $ 178,424 $ 35,794 $ 214,218

We have no t recorded goodwill impairments for the three months ended March 27, 2021.

Intangible assets were as follows (in thousands):

September 26, 2020 December 28, 2019

Intangible Assets Gross Accumulated Amortization Net Gross Accumulated Amortization Net

March 27, 2021 December 26, 2020

Intangible Assets Gross Accumulated

Amortization Net Gross Accumulated

Amortization Net

Developed technologies $ 173,318 $ 142,344 $ 30,974 $ 176,265 $ 137,754 $ 38,511

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Backlog 1,969 1,897 72 2,227 1,900 327

In-process research and development 400 — 400 400 — 400

$ 235,344 $ 186,558 $ 48,786 $ 239,542 $ 180,395 $ 59,147

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

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Three Months Ended

2021 March 28,

Cost of revenues $ 5,090 $ 5,750

1 unchanged sentence

$ 6,805 $ 7,263

The estimated future amortization of intangible assets is as follows (in thousands):

The estimated future amortization of definite-lived intangible assets, excluding in-process research and development, is as follows (in thousands):

Fiscal Year Amount

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Thereafter 10,633

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,

Term loans $ 36,070 $ 58,514

Less unamortized issuance costs ( 76 ) ( 29 )

Term loans less issuance costs $ 35,994 $ 58,485

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

Remainder 2020 2021 2022 2023 2024 Thereafter Total

Term loans - principal payments $ 2,278 $ 9,133 $ 9,161 $ 1,050 $ 1,080 $ 13,368 $ 36,070

Term loans - interest payments (1)

145 503 377 290 271 1,433 3,019

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

(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, 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 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

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

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

The FRT Term Loan bears interest at a rate equal to the Euro Interbank Offered Rate ("EURIBOR") plus 1.75 % per annum and will be repaid in quarterly installments of approximately $ 2.0 million plus interest.

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.

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 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

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 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.

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 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.

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 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 6 — Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

September 26,

2021 December 26,

2 unchanged sentences

Accrued warranty 3,719 3,918

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

Employee stock purchase plan contributions withheld 2,109 4,240

Accrued contingent consideration 3,884 4,012

7 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 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 nine months of fiscal 2020.

We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during the three months ended March 27, 2021 or the year ended December 26, 2020.

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

No changes were made to our valuation techniques during the first three months of fiscal 2021.

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):

September 26, 2020 Level 1 Level 2 Level 3 Total

March 27, 2021 Level 1 Level 2 Level 3 Total

Cash equivalents:

Money market funds $ 34,254 $ — $ — $ 34,254

Commercial paper 5,500 — — 5,500

39,754 — — 39,754

Marketable securities:

3 unchanged sentences

Corporate bonds — 44,146 — 44,146

Commercial paper — 15,491 — 15,491

32,669 61,424 — 94,093

Foreign exchange derivative contracts — 470 — 470

Foreign exchange derivative contracts (Designated) — 144 — 144

Interest rate swap derivative contracts — 745 — 745

Total assets $ 72,423 $ 62,313 $ — $ 134,736

Foreign exchange derivative contracts (Designated) $ — $ ( 100 ) $ — $ ( 100 )

Interest rate swap derivative contracts — ( 113 ) — ( 113 )

9 unchanged sentences

Corporate bonds — 24,330 — 24,330

Commercial paper — 3,911 — 3,911

40,726 27,084 — 67,810

2 unchanged sentences

Total assets $ 83,745 $ 28,198 $ — $ 111,943

Foreign exchange derivative contracts $ — $ ( 240 ) $ — $ ( 240 )

Interest rate swap derivative contracts $ — $ ( 87 ) $ — $ ( 87 )

Contingent consideration — — ( 4,012 ) ( 4,012 )

5 unchanged sentences

Our investments are priced by pricing vendors who provide observable inputs for their pricing without applying significant judgment.

Broker pricing is used mainly when a quoted price is not available, the investment is not priced by our pricing vendors or when a broker price is more reflective of fair value.

Broker pricing is used mainly when a quoted price is not available, the investment is not priced by our pricing vendors or when a broker price

is more reflective of fair value.

Our broker-priced investments are categorized as Level 2 investments because fair value is based on similar assets without applying significant judgments.

5 unchanged sentences

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

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

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.

Key assumptions in determining the fair value of contingent consideration included estimating EBIT levels that we believed as of the acquisition date were likely to be achieved during the performance period and discounting at an appropriate discount rate.

Contingent consideration as of March 27, 2021 was estimated to be $ 3.9 million, with the change from December 26, 2020 resulting from 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 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 $ —

Three Months Ended March 27, 2021 $ 624 Interest expense $ ( 38 ) Interest expense $ —

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

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 (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 income 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.

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 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):

All of our foreign exchange derivative contracts outstanding at March 27, 2021 will mature by the first quarter of fiscal 2022.

The following table provides information about our foreign currency forward contracts outstanding as of March 27, 2021 (in thousands):

Currency Contract Position Contract Amount

3 unchanged sentences

Euro Dollar Sell 11,043 13,026

Japanese Yen Sell 2,119,658 20,070

Korean Won Buy ( 3,259,002 ) ( 2,785 )

Japanese Yen Buy ( 1,971,765 ) ( 17,977 )

Korean Won Sell 3,129,743 2,767

Taiwan Dollar Sell 7,972 279

Total USD notional amount of outstanding foreign exchange contracts $ ( 13,930 )

2 unchanged sentences

Amount of Gain (Loss) Recognized on Derivatives

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

Three Months Ended

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

2021 March 28,

Foreign exchange forward contracts Other income (expense), net $ 1,288 $ ( 115 )

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

Research and development ( 23 )

Selling, general and administrative ( 58 )

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

Three Months Ended March 27, 2021 $ ( 526 ) Cost of revenues $ 250

Research and development 30

Selling, general and administrative 82

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

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

Research and development ( 18 )

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

Other than as discussed in Note 4, Acquisition , there were no assets or liabilities measured at fair value on a nonrecurring basis during the three months ended March 27, 2021 or March 28, 2020.

Note 8 — Warranty

1 unchanged sentence

The warranty liability is based upon historical experience and our estimate of the level of future costs.

While we engage in product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service delivery costs.

While we engage in product quality programs and processes, our warranty obligation is affected by product failure rates,

material usage and service delivery costs.

We continuously monitor product returns for warranty and maintain a reserve for the related expenses based upon our historical experience and any specifically identified failures.

3 unchanged sentences

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

Nine Months Ended

September 26,

2020 September 28,

Three Months Ended

2021 March 28,

Balance at beginning of period $ 3,918 $ 1,942

4 unchanged sentences

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

September 26,

2021 December 26,

10 unchanged sentences

Note 10 — Stockholders’ Equity and Stock-Based Compensation

Common Stock Repurchase Program

On October 26, 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 compensation plans.

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

During the three months ended March 27, 2021, we repurchased 136,402 shares of common stock for $ 5.7 million and, as of March 27, 2021, $ 44.3 million remained available for future repurchases.

Our policy related to repurchases of our common stock is to charge the excess of cost over par value to additional paid-in capital once the shares are retired.

All repurchases were made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.

Restricted Stock Units

5 unchanged sentences

Awards forfeited ( 11,140 ) 21.21

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

RSUs at March 27, 2021 2,770,912 19.96

Performance Restricted Stock Units

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

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.

There were no PRSUs granted during the three months ended March 27, 2021.

PRSUs are included as part of the RSU activity above.

4 unchanged sentences

Options exercised ( 50,000 ) 8.44

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

Outstanding at March 27, 2021 56,000 $ 8.28 0.92 $ 2,078,820

Vested and expected to vest at March 27, 2021 56,000 $ 8.28 0.92 $ 2,078,820

Exercisable at March 27, 2021 56,000 $ 8.28 0.92 $ 2,078,820

Employee Stock Purchase Plan

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

Nine Months Ended

September 26, 2020

Three Months Ended

March 27, 2021

Shares issued 228,784

3 unchanged sentences

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

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Three Months Ended

2021 March 28,

Cost of revenues $ 1,335 $ 937

3 unchanged sentences

Unrecognized Compensation Costs

At September 26, 2020, the unrecognized stock-based compensation was as follows (dollars in thousands):

At March 27, 2021, the unrecognized stock-based compensation was as follows (dollars in thousands):

Unrecognized Expense Average Expected Recognition Period in Years

5 unchanged sentences

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 Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Three Months Ended

2021 March 28,

Weighted-average shares used in computing basic net income per share 77,598 76,005

5 unchanged sentences

Contractual Obligations and Commitments

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.

Our contractual obligations and commitments have not materially changed as of March 27, 2021 from those disclosed in our Annual Report on Form 10-K for the year ended December 26, 2020.

Legal Matters

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

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.

As of March 27, 2021, and as of the filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings.

Note 13 — Leases

3 unchanged sentences

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

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

The weighted-average remaining lease term for our operating leases was 6 years as of March 27, 2021 and the weighted-average discount rate was 3.85 %.

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

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Three Months Ended

2021 March 28,

Lease expense:

3 unchanged sentences

$ 2,697 $ 2,347

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

Future minimum payments under our non-cancelable operating leases were as follows as of March 27, 2021 (in thousands):

Fiscal Year Amount

8 unchanged sentences

Transaction price allocated to the remaining performance obligations:

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.

On March 27, 2021, we had $ 6.3 million of remaining performance obligations, which were comprised of deferred service contracts and extended warranty contracts and contracts with overtime revenue recognition that are not yet delivered.

We expect to recognize approximately 74.5 % of our remaining performance obligations as revenue in the remainder of fiscal 2021, approximately 16.6 % in fiscal 2022, and approximately 8.9 % in fiscal 2023 and thereafter.

5 unchanged sentences

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 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 assets as of March 27, 2021 and December 26, 2020 were $ 4.8 million and $ 3.7 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 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.

Contract liabilities as of March 27, 2021 and December 26, 2020 were $ 19.9 million and $ 22.2 million, respectively.

During the three months ended March 27, 2021, we recognized $ 9.3 million of revenue, that was included in contract liabilities as of December 26, 2020.

Costs to obtain a contract:

7 unchanged sentences

Three Months Ended

September 26, 2020 September 28, 2019

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

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

Gross profit $ 69,641 $ 13,565 $ ( 6,457 ) $ 76,749 $ 48,127 $ 13,015 $ ( 5,824 ) $ 55,318

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

Nine Months Ended

September 26, 2020 September 28, 2019

March 27, 2021 March 28, 2020

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

4 unchanged sentences

Certain components of our operating results are utilized to determine executive compensation along with other measures.

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

Certain revenue category information by reportable segment was as follows (in thousands):

Three Months Ended

September 26, 2020 September 28, 2019

March 27, 2021 March 28, 2020

Probe Cards Systems Total Probe Cards Systems Total

6 unchanged sentences

Products transferred at a point in time $ 158,476 $ 24,671 $ 183,147 $ 134,069 $ 24,858 $ 158,927

Services transferred over time 521 1,236 1,757 1,123 596 1,719

Products and services transferred over time 422 3,067 3,489 646 1,180 1,826

Total $ 158,898 $ 27,738 $ 186,636 $ 134,715 $ 26,038 $ 160,753

1 unchanged sentence

Taiwan $ 44,734 $ 846 $ 45,580 $ 30,439 $ 1,341 $ 31,780

United States 31,596 4,732 36,328 28,400 5,265 33,665

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

China 37,831 4,794 42,625 37,280 6,362 43,642

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

United States 21,308 8,178 29,486 25,611 6,305 31,916

Asia-Pacific 1

27,878 1,080 28,958 4,455 3,408 7,863

Rest of the world 3,166 372 3,538 1,418 144 1,562

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

Nine Months Ended

September 26, 2020 September 28, 2019

Probe Cards Systems Total Probe Cards Systems Total

Foundry & Logic $ 323,503 $ — $ 323,503 $ 213,453 $ — $ 213,453

DRAM 75,127 — 75,127 104,355 — 104,355

Flash 20,642 — 20,642 20,379 — 20,379

Systems — 77,301 77,301 — 72,648 72,648

Total $ 419,272 $ 77,301 $ 496,573 $ 338,187 $ 72,648 $ 410,835

Timing of revenue recognition:

Products transferred at a point in time $ 417,529 $ 73,393 $ 490,922 $ 335,054 $ 70,831 $ 405,885

Services transferred over time 1,743 3,908 5,651 3,133 1,817 4,950

Total $ 419,272 $ 77,301 $ 496,573 $ 338,187 $ 72,648 $ 410,835

Geographical region:

China $ 107,756 $ 13,190 $ 120,946 $ 58,882 $ 14,699 $ 73,581

Taiwan 93,596 8,290 101,886 50,596 4,918 55,514

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

South Korea 18,001 1,084 19,085 13,692 396 14,088

1 unchanged sentence

Japan 5,249 4,072 9,321 5,535 2,835 8,370

Asia-Pacific 1

14,307 9,010 23,317 12,568 4,043 16,611

Rest of the world 1,064 518 1,582 1,493 558 2,051

1 unchanged sentence

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

Note 17 — Subsequent Events

On 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.

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

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

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

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

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

What changed 10-Q

Item 1. Financial Statements