What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-04 compared with 2020-11-03 · 86 added, 181 removed, 189 unchanged (59% of the section changed)

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

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

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

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

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

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and its subsidiaries.

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

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

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

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

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 physical information from a variety of semiconductor and electro-optical devices and integrated circuits from early research, through development, to high-volume 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, metrology systems and thermal sub-systems are included in the Systems segment.

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

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

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

We generated net income of $19.6 million in the first three months of fiscal 2021 as compared to $15.9 million in the first three months of fiscal 2020.

The increase in net income was primarily due to increased revenues, partially offset by higher operating expenses.

Impact of COVID-19

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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 the section entitled “Risk Factors” in this Quarterly Report.

For a further description of the uncertainties and business risks associated with the COVID-19 pandemic, see the risk factors discussed in our Annual Report on Form 10-K for the year ended December 26, 2020.

Significant Accounting Policies and the Use of Estimates

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

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

During the three months ended March 27, 2021, there were no significant changes in our significant accounting policies or estimates from those reported in our Annual Report on Form 10-K for the year ended December 26, 2020, which was filed with the Securities and Exchange Commission on February 22, 2021.

Results of Operations

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

Revenues 100.0 % 100.0 %

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Interest expense (0.1) (0.2)

Other income, net 0.2 0.2 — 0.1

Other income (expense), net 0.1 (0.1)

Income before income taxes 12.2 11.6

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

Provision for income taxes 1.7 1.8

Net income 10.5 % 9.8 %

Revenues by Segment and Market

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Three Months Ended

2021 March 28,

(In thousands)

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Three Months Ended

September 26,

2020 % of Revenues September 28,

2019 % of Revenues $ Change % Change

(Dollars in thousands)

Probe Cards Markets:

Foundry & Logic $ 108,411 60.9 % $ 68,431 48.7 % $ 39,980 58.4 %

DRAM 31,379 17.6 39,425 28.0 (8,046) (20.4)

Flash 10,983 6.2 8,591 6.1 2,392 27.8

Systems Market:

Systems 27,223 15.3 24,157 17.2 3,066 12.7

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

Nine Months Ended

September 26,

2020 % of Revenues September 28,

2021 % of Revenues March 28,

2020 % of Revenues $ Change % Change

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Total revenues $ 186,636 100.0 % $ 160,753 100.0 % $ 25,883 16.1 %

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

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

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

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

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

The increase in Foundry & Logic product revenue for the three months ended March 27, 2021, compared to the three months ended March 28, 2020, 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 components and chipsets for 5G handsets, work and study from home infrastructure spending, and adoption of advanced packaging architectures like heterogeneous integration and high-bandwidth memory (“HBM”).

The relative increase in DRAM product revenue for the three months ended March 27, 2021, compared to the three months ended March 28, 2020, was driven by a decreased customer demand for the three months ended March 28, 2020 as a result of the absorption of large purchases in fiscal 2019, that did not recur in the three months ended March 27, 2021.

The increase in Flash product revenue for the three months ended March 27, 2021, compared to the three months ended March 28, 2020, was driven by increased sales as a result of increased customer demand for our legacy products and increased sales resulting from the acquisition of Baldwin Park.

Our revenue in this market continues to be highly variable.

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

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

The increase in Systems product revenue for the three months ended March 27, 2021, compared to the three months ended March 28, 2020, was driven by increased sales of cryogenic systems due to the acquisition of High Precision Devices, Inc.

(“HPD”) and increased sales of thermal sub-systems, partially offset by lower 300mm station sales.

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

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

The plant shutdowns we experienced in the first fiscal quarter of 2020 did not recur in the first fiscal quarter of 2021, which presumably drove some of the increased sales in the first fiscal quarter of 2021 over the first fiscal quarter of 2020, particularly in the Probe Cards segment where the plant shutdowns in 2020 were longer in duration than the shutdowns for the Systems segment.

Revenues by Geographic Region

Three Months Ended Nine Months Ended

September 26,

Revenue September 28,

Revenue September 26,

Revenue September 28,

Three Months Ended

Revenue March 28,

(Dollars in thousands)

China $ 28,546 16.0 % $ 31,383 22.3 % $ 120,946 24.4 % $ 73,581 17.9 %

Taiwan $ 45,580 24.4 % $ 31,780 19.8 %

China 42,625 22.8 % 43,642 27.1 %

United States 29,486 15.8 % 31,916 19.9 %

Asia-Pacific 1

28,958 15.5 % 7,863 4.9 %

South Korea 19,085 10.2 % 14,088 8.8 %

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Japan 9,321 5.0 % 8,370 5.2 %

Asia-Pacific 1

8,954 5.0 % 5,665 4.0 % 23,317 4.7 % 16,611 4.0 %

Rest of the world 1,582 0.9 % 2,051 1.2 %

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

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

Changes in revenue by geographic region for the three months ended March 27, 2021, compared to the three months ended March 28, 2020, were primarily attributable to changes in customer demand, shifts in customer regional manufacturing strategies, particularly with our large multinational customers, and product sales mix.

Cost of Revenues and Gross Margins

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Three Months Ended

September 26,

2020 September 28,

2019 $ Change % Change

Gross profit $ 76,749 $ 55,318 $ 21,431 38.7 %

Gross margin 43.1 % 39.3 %

Nine Months Ended

September 26,

2020 September 28,

2021 March 28,

2020 $ Change % Change

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Three Months Ended

September 26, 2020 September 28, 2019

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

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

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Gross margin 44.3 % 49.0 % — % 41.1 % 45.1 % 51.2 % — % 41.9 %

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

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

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

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

For the three months ended March 27, 2021, gross profit and gross margins decreased compared to the three months ended March 28, 2020, primarily due to less favorable absorption of costs from the mix of volumes through production sites and due

to product mix on a less favorable mix of higher gross margin Foundry & Logic probe card sales combined with higher sales of lower gross margin Flash probe cards.

For the three months ended March 27, 2021, gross margins decreased compared to the three months ended March 28, 2020, primarily as a result of less favorable product mix, largely related to lower sales of stations and related accessories at somewhat reduced gross margins on the lower volumes, partially offset by higher gross margins on higher sales of thermal sub-systems and additional contribution from HPD, which was acquired in the fourth fiscal quarter of 2020.

Corporate and Other

Corporate and Other includes unallocated expenses relating to amortization of intangible assets, share-based compensation, restructuring charges, net, and charges related to inventory stepped up to fair value due to acquisitions 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 the three and nine months ended September 26, 2020, compared to the three and nine months ended September 28, 2019, gross profit and gross margins have improved, primarily on higher sales and product mix.

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

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

For the three months ended March 27, 2021, compared to the three months ended March 28, 2020, gross profit and gross margins have decreased, primarily on product mix.

Cost of revenues included stock-based compensation expense 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,

Stock-based compensation $ 1,335 $ 937

Future gross margins may be adversely impacted by lower revenues, unfavorable product mix and lower factory utilization.

Our gross margins may also be adversely affected if we are required to record additional inventory write-downs for estimated average selling prices that are below cost or because of a decrease in demand.

Research and Development

Three Months Ended

September 26,

2020 September 28,

2019 $ Change % Change

(Dollars in thousands)

Research and development $ 22,878 $ 20,096 $ 2,782 13.8 %

% of revenues 12.9 % 14.4 %

Nine Months Ended

September 26,

2020 September 28,

2021 March 28,

2020 $ Change % Change

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% of revenues 12.9 % 13.2 %

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

The increase in research and development expenses in the three months ended March 27, 2021 when compared to the corresponding period in the prior year was primarily driven by increased headcount, increased facilities costs in other general operations, higher project material costs, higher stock-based compensation and higher depreciation expense.

These increases are primarily related to our recent acquisitions of Baldwin Park and HPD.

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

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

Three Months Ended March 27, 2021 compared to Three Months Ended March 27, 2020

Employee compensation costs $ 1,436

Project material costs 304

Depreciation 40 190

Stock-based compensation 250

Depreciation 114

Other general operations 675

$ 2,782 $ 5,171

Research and development included stock-based compensation expense 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,

Stock-based compensation $ 1,689 $ 1,439

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Three Months Ended

September 26,

2020 September 28,

2019 $ Change % Change

(Dollars in thousands)

Selling, general and administrative $ 31,834 $ 25,887 $ 5,947 23.0 %

% of revenues 17.9 % 18.4 %

Nine Months Ended

September 26,

2020 September 28,

2021 March 28,

2020 $ Change % Change

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% of revenues 16.1 % 17.2 %

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

The increase in selling, general and administrative in the three months ended March 27, 2021 when compared to the corresponding period in the prior year was primarily due to an increase in headcount, higher stock-based compensation, and increase in amortization of intangibles.

These increases are primarily related to the acquisitions of Baldwin Park and HPD, partially offset by decreased travel due to travel restrictions.

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

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

Three Months Ended March 27, 2021 compared to Three Months Ended March 27, 2020

Employee compensation $ 2,072

Stock-based compensation 806

Consulting fees 3,048 3,676

Amortization of intangibles 202

Gain on contingent consideration (71) (3,771)

Travel related costs (598)

Consulting fees (178)

General operating expenses 18

$ 5,947 $ 4,928

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

Stock-based compensation $ 4,053 $ 3,247

Interest Income and Interest Expense

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Three Months Ended

2021 March 28,

(Dollars in thousands)

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

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

The decrease in interest income for the three months ended March 27, 2021 compared with the corresponding period of the prior year 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 for the three and nine months ended September 26, 2020 compared to the same period of the prior year was primarily due to lower outstanding debt balances due to the pay-off of the CMI Term Loan on June 30, 2020, partially offset by the FRT Term Loan originated in the fourth quarter of 2019 and the Building Term Loan originated in the second quarter of 2020.

Other Expense, Net

Other expense, net, primarily includes the effects of foreign currency impact and various other gains and losses.

The decrease in interest expense for the three months ended March 27, 2021 compared to the same period of the prior year was primarily due to lower outstanding debt balances due to the pay-off of the CMI Term Loan on June 30, 2020, partially offset by the Building Term Loan that originated in the second quarter of 2020.

Interest expense was also lower due to lower average interest rates on the outstanding debt.

Other Income (Expense), Net

Other income (expense), net, primarily includes the effects of foreign currency impact and various other gains and losses.

Provision for Income Taxes

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Three Months Ended

2021 March 28,

(In thousands, except percentages)

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

Provision for income taxes $ 3,206 $ 2,816

Effective tax rate 14.0 % 15.1 %

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

Provision 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.

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

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

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

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

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

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

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

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

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

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

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

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

statutory rate and included in our worldwide effective tax rate for the year ending December 25, 2021.

Liquidity and Capital Resources

Capital Resources

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

Our working capital was $351.5 million at March 27, 2021, compared to $332.5 million at December 26, 2020.

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

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

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

Our cash, cash equivalents and marketable securities totaled approximately $267.7 million at March 27, 2021, compared to $255.0 million at December 26, 2020.

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

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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.

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

Nine Months Ended

September 26,

2020 September 28,

Three Months Ended

2021 March 28,

(In thousands)

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Operating Activities

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

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

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

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

Net cash provided by operating activities for the three months ended March 27, 2021 was primarily attributable to net income of $19.6 million and net non-cash expenses of $27.4 million, further impacted by changes in operating assets and liabilities, as explained below.

Accounts receivable, net, decreased $4.1 million to $103.5 million at March 27, 2021, compared to $107.6 million at December 26, 2020, as a result of lower revenue for the three months ended March 27, 2021, compared to the revenue for the three months ended December 26, 2020.

Inventories, net, increased $5.5 million to $104.7 million at March 27, 2021, compared to $99.2 million at December 26, 2020, as a result of anticipated projected customer demand.

Accounts payable increased $5.7 million to $67.7 million at March 27, 2021, compared to $62.0 million at December 26, 2020, as a result of timing of payments to vendors.

Accrued liabilities decreased $11.8 million to $43.5 million at March 27, 2021, compared to $55.3 million at December 26, 2020, as a result of timing of payments for accrued taxes payable, a decrease in accrued variable compensation, decrease in employee compensation accrual, and decrease in employee stock purchase plan accrual from the issuance of common stock to employees under our employee stock purchase plan.

Investing Activities

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

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

Net cash used in investing activities for the three months ended March 27, 2021 was primarily related to $13.5 million of acquisition of property, plant and equipment and $26.5 million of net cash used to purchase marketable securities.

Financing Activities

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

CMI Term Loan

On June 24, 2016, we entered into a senior secured term loan facility of $150 million (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 plus 1.00% per annum.

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

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

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

The final payment on the CMI Term Loan was June 30, 2020.

Net cash used in financing activities for the three months ended March 27, 2021 primarily related to $2.4 million of principal payments made towards the repayment of our term loans, $1.1 million related to tax withholding associated with the net share settlements of our equity awards, and $5.7 million used to purchase common stock under our stock repurchase program, partially offset by $5.5 million of proceeds received from issuances of common stock under our employee stock purchase plan and stock option plans.

FRT Term Loan

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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%.

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

The interest rate at March 27, 2021 was 1.21%.

As of March 27, 2021, the balance outstanding pursuant to the FRT term loan was $14.4 million.

Building Term Loan

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

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

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

The interest rate at March 27, 2021 was 1.87%.

As of March 27, 2021, the balance outstanding pursuant to the Building Term Loan was $17.3 million.

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

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

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

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

As of March 27, 2021, the notional amount of the loan that is subject to this interest rate swap is $17.3 million.

Stock Repurchase Program

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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.

Contractual Obligations and Commitments

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

The following table summarizes our significant contractual commitments to make future payments in cash under contractual obligations as of March 27, 2021:

Payments Due In Fiscal Year

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

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

Off-Balance Sheet Arrangements

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

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

As of March 27, 2021, we were not involved in any such off-balance sheet arrangements.

Recent Accounting Pronouncements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis