What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-02 compared with 2021-07-30 · 165 added, 201 removed, 536 unchanged (41% of the section changed)

3 unchanged sentences

(In thousands, except share and per share amounts)

September 25,

2021 December 26,

42 unchanged sentences

(In thousands, except per share amounts)

Three Months Ended Six Months Ended

2021 June 27,

2020 June 26,

2021 June 27,

Three Months Ended Nine Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Revenues $ 189,964 $ 177,996 $ 564,676 $ 496,573

10 unchanged sentences

Income before income taxes 23,281 22,392 66,300 63,729

Provision for income taxes 2,283 2,162 5,489 4,978

Provision (benefit) for income taxes 2,784 ( 499 ) 8,273 4,479

Net income $ 20,497 $ 22,891 $ 58,027 $ 59,250

9 unchanged sentences

(In thousands)

Three Months Ended Six Months Ended

2021 June 27,

2020 June 26,

2021 June 27,

Three Months Ended Nine Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Net income $ 20,497 $ 22,891 $ 58,027 $ 59,250

9 unchanged sentences

(In thousands, except shares)

Stock Shares of

Stock Treasury

Stock Additional

3 unchanged sentences

Deficit Total

Six Months Ended June 26, 2021

Nine Months Ended September 25, 2021

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

6 unchanged sentences

Net income — — — — 58,027 58,027

Balances, September 25, 2021 78,207,219 $ 78 $ 892,303 $ 1,700 $ ( 107,691 ) $ 786,390

Three Months Ended September 25, 2021

Balances, June 26, 2021 77,454,800 $ 77 $ 894,062 $ 3,596 $ ( 128,188 ) $ 769,547

Three Months Ended June 26, 2021

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

Issuance of common stock pursuant to exercise of options 50,000 — — — 422 — — 422

Issuance of common stock under the Employee Stock Purchase Plan 149,800 — 4,744 — — 4,744

Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 602,619 1 ( 14,341 ) — — ( 14,340 )

Purchase and retirement of common stock through repurchase program ( 620,200 ) ( 1 ) 136,402 5,738 ( 23,950 ) — — ( 18,213 )

Stock-based compensation — — 7,838 — — 7,838

Other comprehensive income — — — — — 446 — 446

Other comprehensive loss — — — ( 1,896 ) — ( 1,896 )

Net income — — — — 20,497 20,497

Balances, June 26, 2021 77,454,800 $ 77 — $ — $ 894,062 $ 3,596 $ ( 128,188 ) $ 769,547

Balances, September 25, 2021 78,207,219 $ 78 $ 892,303 $ 1,700 $ ( 107,691 ) $ 786,390

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

2 unchanged sentences

(In thousands, except shares)

Stock Shares of

Stock Treasury

Stock Additional

3 unchanged sentences

Deficit Total

Six Months Ended June 27, 2020

Nine Months Ended September 26, 2020

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

5 unchanged sentences

Net income — — — — 59,250 59,250

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

Three Months Ended September 26, 2020

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

Three Months Ended June 27, 2020

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

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

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

3 unchanged sentences

Net income — — — — 22,891 22,891

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

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.

2 unchanged sentences

(In thousands)

Six Months Ended

2021 June 27,

Nine Months Ended

September 25,

2021 September 26,

Cash flows from operating activities:

6 unchanged sentences

Provision for excess and obsolete inventories 11,621 9,763

Non-cash restructuring charges 1,592 —

Gain on contingent consideration ( 95 ) ( 3,771 )

13 unchanged sentences

Acquisition of property, plant and equipment ( 51,353 ) ( 41,887 )

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

Proceeds from sale of a subsidiary — 82

7 unchanged sentences

Payment of contingent consideration ( 3,873 ) —

Proceeds from term loan debt — 18,000

Proceeds from term loan — 18,000

Principal repayments on term loans ( 7,049 ) ( 41,098 )

9 unchanged sentences

(In thousands)

Six Months Ended

2021 June 27,

Nine Months Ended

September 25,

2021 September 26,

Non-cash investing and financing activities:

Increase (decrease) in accounts payable and accrued liabilities related to property, plant and equipment purchases $ 2,906 $ ( 2,274 )

Increase in accounts payable and accrued liabilities related to property, plant and equipment purchases $ 4,684 $ 3,041

Increase in accrued liabilities related to tax withholdings related to net share settlements of equity awards 6,952 —

Operating lease, right-of-use assets obtained in exchange for lease obligations 11,699 1,549

2 unchanged sentences

Cash paid for interest 496 683

Operating cash outflows from operating leases 6,420 5,566

Reconciliation of cash, cash equivalents and restricted cash:

14 unchanged sentences

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

Fiscal 2021 and 2020 each contain 52 weeks and the six months ended June 26, 2021 and June 27, 2020 each contained 26 weeks.

Fiscal 2021 and 2020 each contain 52 weeks and the nine months ended September 25, 2021 and September 26, 2020 each contained 39 weeks.

Fiscal 2021 will end on December 25, 2021.

Significant Accounting Policies

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

Our significant accounting policies have not changed during the nine months ended September 25, 2021 from those disclosed in our Annual Report on Form 10-K for the year ended December 26, 2020.

New Accounting Pronouncements

11 unchanged sentences

Each of the following customers accounted for 10% or more of our revenues for the periods indicated:

Three Months Ended Six Months Ended

2021 June 27,

2020 June 26,

2021 June 27,

Three Months Ended Nine Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Intel Corporation 20.8 % 25.6 % 21.7 % 32.4 %

Samsung Electronics., LTD.

Taiwan Semiconductor Manufacturing Co., LTD.

12.9 % 10.6 % 10.5 % *

Taiwan Semiconductor Manufacturing Co., LTD.

Micron Technology, Inc.

33.7 % 56.9 % 32.2 % 32.4 %

*Represents less than 10% of total revenues.

At June 26, 2021, one customer accounted for 20.6 % of gross accounts receivable.

At September 25, 2021, one customer accounted for 19.3 % of gross accounts receivable.

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

2 unchanged sentences

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

September 25,

2021 December 26,

3 unchanged sentences

$ 115,104 $ 99,229

Note 4 — Acquisition

Note 4 — Acquisitions

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 adjustment for changes in working capital.

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 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 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 June 26, 2021, subject to finalization of certain deferred tax items.

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

On October 19, 2020, we acquired HPD for total consideration of $ 16.9 million, net of cash acquired of $ 1.7 million, which included an adjustment for changes in working capital.

The acquisition was accounted for using the acquisition method of accounting.

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, including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets.

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

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 the changes

in identified intangible values and goodwill.

The final allocation of the assets acquired, including goodwill and intangibles, and liabilities assumed for the purchase is as follows (in thousands):

Cash and cash equivalents $ 1,680

13 unchanged sentences

Net Assets Acquired $ 18,560

The intangible assets as of the closing date of the acquisition included (in thousands):

The intangible assets as of the acquisition included (in thousands):

Amount Weighted Average Useful Life (in years)

4 unchanged sentences

Total intangible assets $ 11,520 8.2

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.

Identifiable Intangible Assets

Valuation of intangible assets involves multiple assumptions.

The key assumptions are described below.

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.

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.

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.

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.

This method is based on the application of a royalty rate to forecasted revenue under the trade name.

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 and commercializing semiconductor test products, none of which qualify for recognition as a separate intangible asset.

We do not expect any portion of 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 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 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.

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.

On July 30, 2020, we acquired the probe card assets of Advantest Corporation for total consideration of $ 35.0 million.

The acquisition was accounted for using the acquisition method of accounting.

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 including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets.

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

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

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

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

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

Accounts receivable $ 4,365

10 unchanged sentences

Net assets acquired $ 35,000

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

The intangible assets as of the acquisition date included (in thousands):

Amount Weighted Average Useful Life (in years)

3 unchanged sentences

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.

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.

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 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

10 unchanged sentences

Foreign currency translation — ( 1,074 ) ( 1,074 )

Goodwill, gross, as of July 26, 2021 $ 178,424 $ 36,124 $ 214,548

We have no t recorded goodwill impairments for the six months ended June 26, 2021.

Goodwill, gross, as of September 25, 2021 $ 178,424 $ 34,869 $ 213,293

We have no t recorded goodwill impairments for the nine months ended September 25, 2021.

Intangible assets were as follows (in thousands):

June 26, 2021 December 26, 2020

September 25, 2021 December 26, 2020

Intangible Assets Gross Accumulated

8 unchanged sentences

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

Three Months Ended Six Months Ended

2021 June 27,

2020 June 26,

2021 June 27,

Three Months Ended Nine Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Cost of revenues $ 858 $ 4,985 $ 11,453 $ 15,661

7 unchanged sentences

Accrued liabilities consisted of the following (in thousands):

September 25,

2021 December 26,

4 unchanged sentences

Accrued contingent consideration — 4,012

Accrued restructuring charges 3,675 —

Other accrued expenses 2,844 3,086

$ 54,625 $ 55,342

Note 7 — Restructuring Charges

On September 25, 2021, we adopted restructuring plans to improve our business effectiveness and streamline our operations by consolidating certain manufacturing facilities for both the Probe Cards segment and the Systems segment.

This includes plans to consolidate or relocate certain leased locations in the United States to other locations in the United States, Germany and Asia.

As a result of these changes to certain work locations, we have incurred, and expect to incur, personnel related costs to sever, relocate, or retain select employees.

Additionally, we are undertaking actions to adjust capacity for certain product offerings.

As a result of these adjustments, contract termination costs include charges to satisfy contract obligations.

The liability was recognized using our best estimate and it is reasonably possible that the final amount will differ from the amount estimated in the near term.

We expect the actions defined under these plans will be largely completed by the end of December 2022, except facilities charges which may extend beyond that time.

This plan is expected to result in FormFactor recording restructuring and other charges in the aggregate amount of approximately $ 8.0 million to $ 10.5 million, estimated to be comprised primarily of $ 1.0 million to $ 2.0 million of severance and employee-related costs, $ 3.5 million to 4.5 million in contract and lease termination costs, $ 1.0 million to $ 1.5 million in inventory impairments, and $ 2.0 million to $ 2.5 million of cost related to impairment of leasehold improvements, facility exits, and other costs.

Approximately $ 5.0 million to $ 6.0 million and $ 3.0 million to $ 4.5 million is expected within the Probe Cards segment and Systems segment, respectively.

Restructuring charges by reportable segment included in our Condensed Consolidated Statements of Income were as follows (in thousands):

Three Months Ended Nine Months Ended

September 25, 2021 September 25, 2021

Probe Cards Systems Total Probe Cards Systems Total

Cost of revenues $ 4,070 $ 252 $ 4,322 $ 4,070 $ 420 $ 4,490

Research and development — 289 289 — 694 694

Selling, general and administrative — 22 22 — 83 83

$ 4,070 $ 563 $ 4,633 $ 4,070 $ 1,197 $ 5,267

Changes to the restructuring accrual in the nine months ended September 25, 2021 were as follows (in thousands):

and Benefits Inventory

Impairments Property and Equipment Impairments Contract Termination Costs Total

December 26, 2020 $ — $ — $ — $ — $ —

Restructuring charges 875 1,322 270 2,800 5,267

Non-cash settlement — ( 1,322 ) ( 270 ) — ( 1,592 )

September 25, 2021 $ 875 $ — $ — $ 2,800 $ 3,675

Note 8 — Fair Value and Derivative Instruments

4 unchanged sentences

• Level 3 valuations utilize unobservable inputs to the valuation methodology and include our own data about assumptions market participants would use in pricing the asset or liability based on the best information available under the circumstances.

We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during the three and six months ended June 26, 2021 or the year ended December 26, 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 and nine months ended September 25, 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 six months of fiscal 2021.

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

June 26, 2021 Level 1 Level 2 Level 3 Total

September 25, 2021 Level 1 Level 2 Level 3 Total

Cash equivalents:

Money market funds $ 12,621 $ — $ — $ 12,621

treasuries 5,300 — — 5,300

17,921 — — 17,921

Marketable securities:

5 unchanged sentences

37,135 73,763 — 110,898

Foreign exchange derivative contracts (Designated) — 152 — 152

Interest rate swap derivative contracts — 548 — 548

22 unchanged sentences

We classify our marketable securities as available-for-sale and value them utilizing a market approach.

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

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.

1 unchanged sentence

In addition, all investments have a sufficient trading volume to demonstrate that the fair value is appropriate.

Unrealized gains and losses were immaterial and were recorded as a component of Accumulated other comprehensive income

in our Condensed Consolidated Balance Sheets.

Unrealized gains and losses were immaterial and were recorded as a component of Accumulated other comprehensive income in our Condensed Consolidated Balance Sheets.

We did not have any other-than-temporary unrealized gains or losses at either period end included in these financial statements.

Contingent Consideration

Contingent consideration, arising from the acquisition of FRT, was a cash amount equal to 1.5 x EBIT as defined in the purchase agreement, up to a maximum of € 10.3 million, payable subject to the performance of the acquired business in calendar 2020.

Contingent consideration, arising from the acquisition of FRT GmbH, was a cash amount equal to 1.5 x EBIT as defined in the purchase agreement, up to a maximum of € 10.3 million, payable subject to the performance of the acquired business in calendar 2020.

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

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.

We settled our contingent consideration in the current quarter for $ 3.9 million, resulting in a $ 0.1 million credit to Selling, general and administrative expense with the remaining change from December 26, 2020 resulting from foreign currency translation.

We settled our contingent consideration in the second quarter of fiscal 2021 for $ 3.9 million, resulting in a $ 0.1 million credit to Selling, general and administrative expense with the remaining change from December 26, 2020 resulting from foreign currency translation.

Interest Rate Swaps

1 unchanged sentence

For accounting purposes, our interest rate swap contracts qualify for, and are designated as, cash flow hedges.

The cash flows associated with the interest rate swaps are reported in Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows and the fair value of the interest rate swap contracts are recorded within Accrued liabilities and Other liabilities in our Condensed Consolidated Balance Sheets.

The impact of the interest rate swaps on our Condensed Consolidated Statements of Income was as follows (in thousands):

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

Three Months Ended June 26, 2021 $ ( 203 ) Interest expense $ ( 39 ) Interest expense $ —

Three Months Ended June 27, 2020 $ ( 174 ) Interest expense $ ( 10 ) Interest expense $ —

Six Months Ended June 26, 2021 $ 421 Interest expense $ ( 77 ) Interest expense $ —

Six Months Ended June 27, 2020 $ ( 270 ) Interest expense $ 12 Interest expense $ —

The cash flows associated with the interest rate swaps are reported in Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows and the fair value of the interest rate swap contracts are recorded within Accrued liabilities and Other assets in our Condensed Consolidated Balance Sheets.

Foreign Exchange Derivative Contracts

7 unchanged sentences

The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange rates and forward points.

All of our foreign exchange derivative contracts outstanding at June 26, 2021 will mature by the second quarter of fiscal 2022.

The following table provides information about our foreign currency forward contracts outstanding as of June 26, 2021 (in thousands):

All of our foreign exchange derivative contracts outstanding at September 25, 2021 will mature by the third quarter of fiscal 2022.

The following table provides information about our foreign currency forward contracts outstanding as of September 25, 2021 (in thousands):

Currency Contract Position Contract Amount

1 unchanged sentence

Euro Dollar Buy ( 11,900 ) $ ( 14,245 )

Euro Dollar Sell 2,520 2,953

Japanese Yen Sell 1,992,865 17,994

Korean Won Buy ( 2,513,139 ) ( 2,138 )

Taiwan Dollar Sell 7,440 269

Total USD notional amount of outstanding foreign exchange contracts $ 4,833

Our foreign currency contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing models that utilize observable market inputs.

The impact of foreign exchange derivative contracts not designated as cash flow hedges on our Condensed Consolidated Statements of Income was as follows (in thousands):

Amount of Gain (Loss) Recognized on Derivatives

Three Months Ended Six Months Ended

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

2021 June 27,

2020 June 26,

2021 June 27,

Foreign exchange forward contracts Other expense, net $ ( 69 ) $ 234 $ 1,220 $ 349

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 June 26, 2021 $ 278 Cost of revenues $ 134

Research and development 16

Selling, general and administrative 52

Three Months Ended June 27, 2020 $ 52 Cost of revenues $ ( 139 )

Research and development ( 17 )

Selling, general and administrative ( 35 )

Six Months Ended June 26, 2021 $ ( 248 ) Cost of revenues $ 384

Research and development 46

Selling, general and administrative 134

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

Research and development ( 35 )

Selling, general and administrative ( 79 )

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

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 , there were no assets or liabilities measured at fair value on a nonrecurring basis during the three and six months ended June 26, 2021 or June 27, 2020.

Other than as discussed in Note 4, Acquisition , and Note 7, Restructuring, there were no assets or liabilities measured at fair value on a nonrecurring basis during the three and nine months ended September 25, 2021 or September 26, 2020.

Note 9 — Warranty

7 unchanged sentences

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

Six Months Ended

2021 June 27,

Nine Months Ended

September 25,

2021 September 26,

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

4 unchanged sentences

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

September 25,

2021 December 26,

13 unchanged sentences

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

During the six months ended June 26, 2021, we repurchased and retired 620,200 shares of common stock for $ 24.0 million and, as of June 26, 2021, $ 26.0 million remained available for future repurchases.

During the nine months ended September 25, 2021, we repurchased and retired 620,200 shares of common stock for $ 24.0 million and, as of September 25, 2021, $ 26.0 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.

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Awards forfeited ( 38,128 ) 23.82

RSUs at June 26, 2021 2,405,918 20.80

RSUs at September 25, 2021 2,375,325 28.55

Performance Restricted Stock Units

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

There were no PRSUs granted during the six months ended June 26, 2021.

On August 2, 2021, we granted 197,128 PRSUs to certain senior executives for a total grant date fair value of $ 8.6 million, which will be recognized ratably over the requisite service period.

The performance criteria are based on Total Shareholder Returns ("TSR") for the period of July 1, 2021 - June 30, 2024, relative to the TSR of the companies identified as being part of the S&P semiconductor Select Industry Index (FormFactor peer companies) as of the grant date.

All 318,100 PRSUs granted in fiscal 2018 vested during the nine months ended September 25, 2021.

These shares achieved TSR performance that resulted in an additional 124,600 shares issued during the nine months ended September 25, 2021 related to the 2018 PRSU grant.

There were no other PRSUs granted during the nine months ended September 25, 2021.

PRSUs are included as part of the RSU activity above.

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Options exercised ( 100,000 ) 8.44

Outstanding at June 26, 2021 6,000 $ 6.93 1.11 $ 172

Vested and expected to vest at June 26, 2021 6,000 $ 6.93 1.11 $ 172

Exercisable at June 26, 2021 6,000 $ 6.93 1.11 $ 172

Outstanding at September 25, 2021 6,000 $ 6.93 0.86 $ 201

Vested and expected to vest at September 25, 2021 6,000 $ 6.93 0.86 $ 201

Exercisable at September 25, 2021 6,000 $ 6.93 0.86 $ 201

Employee Stock Purchase Plan

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

Six Months Ended

June 26, 2021

Nine Months Ended

September 25, 2021

Shares issued 378,584

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

Three Months Ended Six Months Ended

2021 June 27,

2020 June 26,

2021 June 27,

Three Months Ended Nine Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Cost of revenues $ 1,392 $ 962 $ 3,806 $ 2,800

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Unrecognized Compensation Costs

At June 26, 2021, the unrecognized stock-based compensation was as follows (dollars in thousands):

At September 25, 2021, the unrecognized stock-based compensation was as follows (dollars in thousands):

Unrecognized Expense Average Expected Recognition Period in Years

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The following table reconciles the shares used in calculating basic net income per share and diluted net income per share (in thousands):

Three Months Ended Six Months Ended

2021 June 27,

2020 June 26,

2021 June 27,

Three Months Ended Nine Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Weighted-average shares used in computing basic net income per share 77,869 77,029 77,643 76,436

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Contractual Obligations and Commitments

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

Our contractual obligations and commitments have not materially changed as of September 25, 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 June 26, 2021, and as of the filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings.

As of September 25, 2021, and as of the filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings.

Note 14 — Leases

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

The weighted-average remaining lease term for our operating leases was 6 years as of June 26, 2021 and the weighted-average discount rate was 3.70 %.

The weighted-average remaining lease term for our operating leases was 6 years as of September 25, 2021 and the weighted-average discount rate was 3.72 %.

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

Three Months Ended Six Months Ended

2021 June 27,

2020 June 26,

2021 June 27,

Three Months Ended Nine Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Lease expense:

3 unchanged sentences

$ 2,679 $ 2,222 $ 7,895 $ 6,789

Future minimum payments under our non-cancelable operating leases were as follows as of June 26, 2021 (in thousands):

Future minimum payments under our non-cancelable operating leases were as follows as of September 25, 2021 (in thousands):

Fiscal Year Amount

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Transaction price allocated to the remaining performance obligations:

On June 26, 2021, we had $ 10.7 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.

On September 25, 2021, we had $ 10.0 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 27.9 % of our remaining performance obligations as revenue in the remainder of fiscal 2021, approximately 55.8 % in fiscal 2022, and approximately 16.3 % in fiscal 2023 and thereafter.

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A contract asset is recorded when we have performed under the contract but our right to consideration is conditional on something other than the passage of time.

Contract assets as of June 26, 2021 and December 26, 2020 were $ 3.6 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 assets as of September 25, 2021 and December 26, 2020 were $ 2.4 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 June 26, 2021 and December 26, 2020 were $ 23.9 million and $ 22.2 million, respectively.

During the six months ended June 26, 2021, we recognized $ 12.8 million of revenue, that was included in contract liabilities as of December 26, 2020.

Contract liabilities as of September 25, 2021 and December 26, 2020 were $ 24.3 million and $ 22.2 million, respectively.

During the nine months ended September 25, 2021, we recognized $ 15.0 million of revenue, that was included in contract liabilities as of December 26, 2020.

Costs to obtain a contract:

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Our chief operating decision maker (“CODM”) is our Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company.

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

We operate in two reportable segments consisting

of the Probe Cards segment and the Systems segment.

The following table summarizes the operating results by reportable segment (dollars in thousands):

Three Months Ended

June 26, 2021 June 27, 2020

September 25, 2021 September 26, 2020

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

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Gross margin 45.1 % 50.0 % 42.2 % 46.2 % 49.8 % 43.1 %

Six Months Ended

June 26, 2021 June 27, 2020

Nine Months Ended

September 25, 2021 September 26, 2020

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

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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, inventory and fixed asset fair value adjustments due to acquisitions, share-based compensation, and other, which are not used in evaluating the results of, or in allocating resources to, our reportable segments.

Corporate and Other includes unallocated expenses relating to amortization of intangible assets, inventory and fixed asset fair value adjustments due to acquisitions, share-based compensation, and restructuring charges 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

June 26, 2021 June 27, 2020

September 25, 2021 September 26, 2020

Probe Cards Systems Total Probe Cards Systems Total

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Geographical region:

China $ 46,011 $ 5,036 $ 51,047 $ 24,851 $ 3,695 $ 28,546

Taiwan 34,100 7,474 41,574 33,351 3,584 36,935

1 unchanged sentence

United States 18,530 6,938 25,468 31,596 4,732 36,328

China 23,996 7,831 31,827 45,625 3,133 48,758

Asia-Pacific 1

18,566 1,315 19,881 5,505 3,449 8,954

Europe 6,466 5,544 12,010 8,767 5,365 14,132

Japan 5,767 4,961 10,728 12,288 4,857 17,145

Europe 3,595 6,891 10,486 11,679 5,300 16,979

Rest of the world 386 1,422 1,808 3,166 372 3,538

Total $ 154,850 $ 35,114 $ 189,964 $ 150,773 $ 27,223 $ 177,996

Six Months Ended

June 26, 2021 June 27, 2020

Nine Months Ended

September 25, 2021 September 26, 2020

Probe Cards Systems Total Probe Cards Systems Total

21 unchanged sentences

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