What changed in this filing

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Item 9A. Controls and Procedures

2022-02-18 compared with 2021-02-22 · 244 added, 239 removed, 1282 unchanged (27% of the section changed)

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Evaluation of Disclosure Controls and Procedures

Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) were effective as of December 25, 2021 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) except ad described below that occurred during the fiscal year ended December 26, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

On July 30, 2020, we completed the acquisition of the probe card assets of Advantest Corporation ("Baldwin Park"), located in Baldwin Park, California, and on October 19, 2020, we acquired 100% of the shares of High Precision Devices, Inc.

located in Boulder, Colorado, and are integrating the acquired businesses into our overall internal control over financial reporting process.

Our management is in the process of assessing the internal control over financial reporting and is implementing or revising internal controls where necessary.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fourth quarter of fiscal 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management's Report on Internal Control over Financial Reporting

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We acquired Baldwin Park and HPD on July 30, 2020 and October 19, 2020, respectively, and have not yet completed the process of integrating the acquired business’ internal control over financial reporting into our overall internal control over financial reporting process.

Accordingly, excluded from our assessment of internal control over financial reporting as of December 26, 2020 are the internal controls of Baldwin Park and HPD.

Baldwin Park's total assets, including goodwill and identified intangibles, and total revenues represented approximately 4% and less than 1%, respectively, of the Consolidated Financial Statement amounts as of and for the year ended December 26, 2020.

HPD's total assets, including goodwill and identified intangibles, and total revenues represented approximately 3% and less than 1%, respectively, of the Consolidated Financial Statement amounts as of and for the year ended December 26, 2020.

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of December 25, 2021.

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Other Information

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Directors, Executive Officers and Corporate Governance

The information required by this item is incorporated by reference to the proxy statement for our 2021 Annual Meeting of Stockholders.

The information required by this item is incorporated by reference to the proxy statement for our 2022 Annual Meeting of Stockholders under the captions Corporate Governance, Executive Officers, and, if applicable, Delinquent Section 16 Reports.

Executive Compensation

The information required by this item is incorporated by reference to the proxy statement for our 2021 Annual Meeting of Stockholders under the caption Executive Compensation and Related Information.

The information required by this item is incorporated by reference to the proxy statement for our 2022 Annual Meeting of Stockholders under the captions Executive Compensation and Related Information, Compensation Committee Interlocks and Insider Participation and Report of the Compensation Committee.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated by reference to the proxy statement for our 2021 Annual Meeting of Stockholders under the caption Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item is incorporated by reference to the proxy statement for our 2022 Annual Meeting of Stockholders under the captions Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, and Equity Compensation Plans.

Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference to the proxy statement for our 2021 Annual Meeting of Stockholders under the caption Certain Relationships and Related Transactions.

The information required by this item is incorporated by reference to the proxy statement for our 2022 Annual Meeting of Stockholders under the captions Certain Relationships and Related Transactions and Independence of Directors.

Principal Accountant Fees and Services

Our independent registered public accounting firm is KPMG, LLP ;

Portland, Oregon ;

Auditor Firm ID:

The information required by this item is incorporated by reference to the proxy statement for our 2022 Annual Meeting of Stockholders under the caption Principal Auditor Fees and Services.

Exhibits, Financial Statement Schedules

Exhibits and Financial Statement Schedules

Financial Statements and Schedules

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Specimen Common Stock Certificate S-1/A 333-86738 5/28/2002 4.01

Description of Securities — — — — X

Description of Securities 10-K 000-50307 2/22/2021 4.2

Form of Indemnity Agreement S-1/A 333-86738 5/28/2002 10.01

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Employment Offer Letter, dated August 29, 2012 to Mike Slessor 10-K 000-50307 3/13/2013 10.19+

CEO Change of Control and Severance Agreement, dated April 28, 2016 by and between Mike Slessor and the Registrant 10-K 000-50307 3/15/2017 10.35

CEO Change of Control and Severance Agreement, dated June 19, 2019 by and between Mike Slessor and the Registrant — — — — X

Employment Offer Letter, dated February 15, 2018 to Shai Shahar 10-Q 000-50307 5/8/2018 10.1

Change of Control Severance Agreement, dated February 16, 2018 by and between Shai Shahar and the Registrant — — — — X

List of Registrant's subsidiaries — — — — X

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POWER OF ATTORNEY

KNOW BY ALL PERSONS BY THESE PRESENTS, that each of the undersigned whose signature appears below constitutes and appoints Shai Shahar and Jason Cohen, and each of them, the undersigned's true and lawful attorneys in-fact and agents with full power of substitution, for the undersigned and in the undersigned's name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and any other documents in connection therewith, and to file the same, with all exhibits thereto, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act requisite and necessary to be done with respect to this Annual Report on Form 10-K, including amendments, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

KNOW BY ALL PERSONS BY THESE PRESENTS, that each of the undersigned whose signature appears below constitutes and appoints Shai Shahar and Christy Robertson, and each of them, the undersigned's true and lawful attorneys in-fact and agents with full power of substitution, for the undersigned and in the undersigned's name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and any other documents in connection therewith, and to file the same, with all exhibits thereto, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act requisite and necessary to be done with respect to this Annual Report on Form 10-K, including amendments, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated below.

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/s/ MICHAEL D.

SLESSOR Chief Executive Officer and Director February 22, 2021

SLESSOR President, Chief Executive Officer and Director February 18, 2022

Principal Financial Officer and Principal

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/s/ LOTHAR MAIER Director February 18, 2022

/s/ EDWARD ROGAS, JR Director February 22, 2021

Edward Rogas, Jr

/s/ JORGE TITINGER Director February 18, 2022

Jorge Titinger

/s/ KELLEY STEVEN-WAISS Director February 18, 2022

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and subsidiaries (the Company) as of December 25, 2021 and December 26, 2020, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 25, 2021, and the related notes (collectively, the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of December 26, 2020, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited the Company’s internal control over financial reporting as of December 25, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 25, 2021 and December 26, 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 25, 2021, in conformity with U.S.

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 25, 2021 based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company acquired the probe card assets of Advantest Corporation (Baldwin Park) and 100% of the shares of High Precision Devices, Inc.

("HPD") during 2020, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 26, 2020, Baldwin Park’s and HPD’s internal control over financial reporting associated with total assets representing approximately 4% and 3% of consolidated assets as of December 26, 2020, respectively, and total revenues each representing less than 1% of consolidated revenues as of and for the year ended December 26, 2020.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Baldwin Park and HPD.

Change in Accounting Principle

As discussed in note 6 to the consolidated financial statements, the Company has changed its method of accounting for leases as of December 30, 2018 due to the adoption of Accounting Standards Update ("ASU") 2016-02, “Leases (Topic 842),” ASU 2018-10, “ Codification Improvements to Topic 842, Leases, ” ASU 2018-11, “ Leases (Topic 842):

Targeted Improvements ,” and ASU 2019-01, “ Leases (Topic 842):

Codification Improvements .”

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing under Item 9A.

Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

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The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment.

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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December 25, 2021 December 26, 2020

(In thousands, except share

and per share data)

(In thousands, except share and per share data)

Current assets:

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Interest expense ( 602 ) ( 864 ) ( 1,915 )

Other income (expense), net 750 602 ( 224 )

Other income, net 495 750 602

Income before income taxes 98,500 85,175 51,063

Provision (benefit) for income taxes 6,652 11,717 ( 70,109 )

Provision for income taxes 14,576 6,652 11,717

Net income $ 83,924 $ 78,523 $ 39,346

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Stock-based compensation — — 22,968 — — 22,968

ASU 2017-12 Adoption — — — — ( 50 ) ( 50 )

Other comprehensive loss — — — ( 1,439 ) — ( 1,439 )

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Stock-based compensation — — 23,459 — — 23,459

Other comprehensive loss — — — ( 1,439 ) — ( 1,439 )

Other comprehensive income — — — 6,545 — 6,545

Net income — — — — 78,523 78,523

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Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 946,325 1 ( 20,604 ) — — ( 20,603 )

Purchase and retirement of common stock ( 622,400 ) ( 1 ) ( 24,037 ) — — ( 24,038 )

Stock-based compensation — — 29,095 — — 29,095

Other comprehensive income — — — 6,545 — 6,545

Other comprehensive loss — — — ( 7,335 ) — ( 7,335 )

Net income — — — — 83,924 83,924

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Amortization 18,747 27,991 27,672

Accretion of discount on investments ( 2 ) ( 365 ) ( 10 )

Amortization (accretion) of discount on investments 403 ( 2 ) ( 365 )

Reduction in the carrying amount of right-of-use assets 7,172 5,955 5,269

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Loss on disposal of long-lived assets 449 451 486

Non-cash restructuring charges 1,646 — —

Gain on contingent consideration ( 95 ) ( 2,879 ) —

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Proceeds from sale of subsidiary — 82 132

Proceeds from sale of property and property, plant and equipment — — 23

Purchases of marketable securities ( 149,979 ) ( 51,224 ) ( 76,327 )

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Proceeds from issuances of common stock 10,653 10,010 8,093

Purchase of common stock through stock repurchase program ( 24,038 ) — —

Tax withholdings related to net share settlements of equity awards ( 20,604 ) ( 15,450 ) ( 8,025 )

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Payment of term loan issuance costs — ( 78 ) —

Payment of contingent consideration ( 3,873 ) — —

Net cash used in financing activities ( 47,199 ) ( 30,935 ) ( 6,578 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 3,180 ) 3,762 ( 727 )

Net increase in cash, cash equivalents and restricted cash 43,161 47,391 7,820

Net increase (decrease) in cash, cash equivalents and restricted cash ( 35,756 ) 43,161 47,391

Cash, cash equivalents and restricted cash, beginning of year 191,098 147,937 100,546

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Contingent consideration payable related to FRT acquisition — — 5,364

Change in accounts payable and accrued liabilities related to property, plant and equipment purchases 2,545 866 2,290

Increase in accounts payable and accrued liabilities related to property, plant and equipment purchases 2,711 2,545 866

Supplemental disclosure of cash flow information:

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Cash paid for interest 643 867 1,405

Operating cash outflows from operating leases 8,520 7,546 6,713

Reconciliation of cash, cash equivalents and restricted cash:

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was incorporated in Delaware on April 15, 1993 and is headquartered in Livermore, California.

We are a leading provider of test and measurement technologies.

We are a leading provider of essential test and measurement technologies along the full semiconductor product lifecycle - from characterization, modeling, reliability, and design de-bug, to qualification and production test.

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 complex next generation products.

We believe our technology leadership enables critical roadmap advances for our customers.

Design, development and manufacturing operations are located in Livermore, San Jose, Carlsbad, and Baldwin Park, California, Beaverton, Oregon and Boulder, Colorado, United States and Bergisch Gladbach, Munich and Thiendorf, Germany, and sales, service and support operations are located in the United States, Germany, France, South Korea, Japan, Taiwan, China and Singapore.

Customers use our products and services to accelerate profitability by optimizing device performance and advancing yield knowledge.

Our fiscal year ends on the last Saturday in December.

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All intercompany balances and transactions have been eliminated.

We completed the acquisitions of FRT GmbH ("FRT") on October 9, 2019, the probe card assets of Advantest Corporation ("Baldwin Park") on July 30, 2020, and High Precision Devises, Inc.

("HPD") on October 19, 2020.

Accordingly, our Consolidated Statements of Income include the results of operations of FRT, Baldwin Park, and HPD since those dates.

See Note 4, Acquisitions .

The functional currencies of certain of our foreign subsidiaries are the local currencies and, accordingly, all assets and liabilities of these foreign operations are translated to U.S.

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Revenues and costs in local currency are remeasured using average exchange rates for the period, except for costs related to those balance sheet items that are remeasured using historical exchange rates.

The resulting remeasurement gains and losses are included in the Consolidated Statements of Income as a component of Other income (expense), net as incurred.

The resulting remeasurement gains and losses are included in the Consolidated Statements of Income as a component of Other income, net as incurred.

Use of Estimates

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Estimates may change as new information is obtained.

We believe that the estimates, assumptions and judgments involved in revenue recognition, fair value of marketable securities, fair value of derivative financial instruments used to hedge both foreign currency and interest rate exposures, allowance for doubtful accounts, reserves for product warranty, valuation of obsolete and slow moving inventory, assets acquired and liabilities assumed in business combinations, legal contingencies, valuation of goodwill, the assessment of recoverability of long-lived assets, valuation and recognition of stock-based compensation, provision for income taxes and valuation of deferred tax assets have the greatest potential impact on our consolidated financial statements.

We believe that the estimates, assumptions and judgments involved in revenue recognition, fair value of marketable securities, fair value of derivative financial instruments used to hedge both foreign currency and interest rate exposures, allowance for credit losses, reserves for product warranty, valuation of obsolete and slow moving inventory, assets acquired and liabilities assumed in business combinations, legal contingencies, valuation of goodwill, the assessment of recoverability of long-lived assets, valuation and recognition of stock-based compensation, loss contingencies, provision for income taxes and valuation of deferred tax assets have the greatest potential impact on our consolidated financial statements.

Actual results could differ from those estimates.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Business Acquisitions

Our consolidated financial statements include the operations of acquired businesses after the completion of their respective acquisitions.

We account for acquired businesses using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date, and that the fair value of acquired intangibles be recorded on the balance sheet.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

that the fair value of acquired intangibles be recorded on the balance sheet.

Transaction costs are expensed as incurred.

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Marketable securities consist primarily of highly liquid investments with maturities of greater than 90 days when purchased.

We classify our marketable securities as available-for-sale and, accordingly, report them at fair value with the related unrealized gains and losses included in Accumulated other comprehensive income (loss) in our Consolidated Balance Sheets.

Any unrealized losses which are considered to be other-than-temporary are recorded in Other income (expense), net, in the Consolidated Statements of Income.

Realized gains and losses on the sale of marketable securities are determined using the specific-identification method and recorded in Other income (expense), net, in the Consolidated Statements of Income.

We classify our available-for-sale marketable securities as current assets because they represent investments of cash available for current operations.

As a result, the Company recorded all its marketable securities in short-term investments regardless of the contractual maturity date of the securities.

Furthermore, we report them at fair value with the related unrealized gains and losses included in Accumulated other comprehensive income (loss) in our Consolidated Balance Sheets.

Any unrealized losses which are considered to be other-than-temporary are recorded in Other income, net, in the Consolidated Statements of Income.

Realized gains and losses on the sale of marketable securities are determined using the specific-identification method and recorded in Other income, net, in the Consolidated Statements of Income.

All of our available-for-sale investments are subject to a periodic impairment review.

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Unrealized gains and losses not attributable to credit losses are included, net of tax, in Accumulated other comprehensive income (loss) in our Consolidated Balance Sheets.

We did not record an allowance for credit losses during fiscal 2020.

We did not record an allowance for credit losses related to our available-for-sale investments during fiscal 2021.

Foreign Exchange Management

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We enter into forward foreign exchange contracts in an effort to mitigate the risks associated with currency fluctuations on certain foreign currency balance sheet exposures and certain operational costs denominated in local currency impacting our statement of income.

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 Consolidated Balance Sheets with changes in fair value recorded within Other income (expense), net in our Consolidated Statements of Income for both realized and unrealized gains and losses.

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 Consolidated Balance Sheets with changes in fair value recorded within Other income, net in our Consolidated Statements 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 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 Consolidated Statements of Income as the impact of the hedge transaction.

We do not use derivative financial instruments for trading or speculative purposes.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts Receivable and Allowance for Credit Losses

The majority of our accounts receivable are derived from sales to large multinational semiconductor manufacturers throughout the world, are recorded at their invoiced amount and do not bear interest.

In order to monitor potential credit losses, we perform ongoing credit evaluations of our customers' financial condition.

An allowance for doubtful accounts is maintained based upon our assessment of the expected collectability of all accounts receivable.

The allowance for doubtful accounts is reviewed and assessed for adequacy on a quarterly basis.

An allowance for credit losses accounts is maintained based upon our assessment of the expected collectability of all accounts receivable.

The allowance for credit losses is reviewed and assessed for adequacy on a quarterly basis.

We take into consideration (1) any circumstances of which we are aware of a customer's inability to meet its financial obligations and (2) our judgments as to prevailing economic conditions in the industry and their impact on our customers.

If circumstances change, and the financial condition of our customers is adversely affected and they are unable to meet their financial obligations, we may need to take additional allowances, which would result in an increase in our operating expense.

Activity related to our allowance for doubtful accounts receivable was as follows (in thousands):

Activity related to our allowance for credit losses was as follows (in thousands):

Fiscal Year Ended

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Balance at end of year $ 195 $ 248 $ 222

We state our inventories at the lower of cost (principally standard cost which approximates actual cost on a first in, first out basis) or net realizable value.

We regularly assess the value of our inventory and will periodically write down its value for

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We state our inventories at the lower of cost (principally standard cost which approximates actual cost on a first in, first out basis) or net realizable value.

We continually assess the value of our inventory and will periodically write down its value for estimated excess inventory and product obsolescence based upon an analysis of existing inventory quantities compared to estimated future consumption.

estimated excess inventory and product obsolescence based upon an analysis of existing inventory quantities compared to estimated future consumption.

Future consumption is estimated based upon assumptions about how past consumption, recent purchases, backlog and other factors indicate future consumption.

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Property, plant and equipment is stated at cost less accumulated depreciation and amortization.

Depreciation is provided on a straight-line method.

Depreciation is recorded on a straight-line method.

Machinery and equipment, computer equipment and software, and furniture and fixtures are depreciated over 3 to 5 years.

Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related asset.

Building and building improvements are depreciated over 30 years.

Leasehold improvements are amortized over 7 years.

Construction-in-progress assets are not depreciated until the assets are placed in service.

Upon sale or retirement of assets, the cost and related accumulated depreciation or amortization are removed from the Consolidated Balance Sheets and the resulting gain or loss is reflected in Operating income in our Consolidated Statements of Income.

Upon sale or retirement of assets, the cost and related accumulated depreciation or amortization are removed from the Consolidated Balance Sheets and the resulting gain or loss, if any, is reflected in Operating income in our Consolidated Statements of Income.

The Company determines if an arrangement is a lease at its inception.

Right-of-use (“ROU”) assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

We uses our estimated incremental borrowing rate in determining the present value of lease payments considering the term of the lease, which is derived from information available at the lease commencement date.

We use our estimated incremental borrowing rate in determining the present value of lease payments considering the term of the lease, which is derived from information available at the lease commencement date.

The lease term includes renewal options when it is reasonably certain that the option will be exercised and excludes termination options.

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If the fair value of a reporting unit exceeds the carrying amount, goodwill of the reporting unit is not considered impaired.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We evaluate impairment by first assessing qualitative factors to determine whether it is necessary to perform a quantitative impairment test.

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Otherwise, no further testing is required.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We perform our annual goodwill impairment test in the fourth quarter of each year by assessing qualitative factors, including, but not limited to an assessment of our market capitalization, which was significantly higher than our book value.

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We market and sell our products to a relatively narrow base of customers and generally do not require collateral.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following customers represented 10% or more of our revenues:

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Intel Corporation 20.4 % 31.5 % 25.3 %

Samsung Electronics., LTD.

Samsung Electronics Co., LTD.

11.4 % * 11.5 %

* Less than 10% of revenues.

At December 25, 2021, one customer accounted for 13.8 % of gross accounts receivable.

At December 26, 2020, two customers accounted for 15.3 % and 13.7 % 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.

No other customers accounted for 10% or more of gross accounts receivable for these fiscal period ends.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We are exposed to non-performance risk by counterparties on our derivative instruments used in hedging activities.

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Generally, the performance obligations in a contract are considered distinct within the context of the contract and are accounted for as separate units of account.

Our products may be customized to our customers’ specifications, however, control of our product is typically transferred to the customer at the point in time the product is either shipped or delivered, depending on the terms of the arrangement, as the criteria for overtime recognition is not met.

In limited circumstances, substantive acceptance by the customer exists which results in the deferral of revenue until acceptance is formally received from the customer.

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We generally do not grant return privileges, except for defective products during the warranty period.

Sales incentives and other programs that we may make available to these customers are considered to be a form of variable consideration, which is estimated in determining the contract’s transaction price to be allocated to the performance obligations.

Sales incentives and other programs that we may make available to our customers are considered to be a form of variable consideration, which is estimated in determining the contract’s transaction price to be allocated to the performance obligations.

For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation based on its relative stand-alone selling price.

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Transaction price allocated to the remaining performance obligations:

On December 26, 2020, we had $ 7.9 million of remaining performance obligations, which were comprised of deferred service contracts and extended warranty contracts and

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

contracts with overtime revenue recognition that are not yet delivered.

On December 25, 2021, we had $ 7.8 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 79.5 % of our remaining performance obligations as revenue in fiscal 2022, approximately 16.2 % in fiscal 2023, and approximately 4.3 % in fiscal 2024 and thereafter.

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The timing of revenue recognition may differ from the timing of invoicing to customers.

Accounts receivable is recorded at the invoiced amount, net of an allowance for doubtful accounts.

Accounts receivable is recorded at the invoiced amount, net of an allowance for credit losses.

A receivable is recognized in the period we deliver goods or provide services or when our right to consideration is unconditional.

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.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contract assets as of December 25, 2021 and December 26, 2020 were $ 0.9 million and $ 3.7 million, respectively, and are reported on the Consolidated Balance Sheets as a component of Prepaid expenses and other current assets.

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Resolution of income tax treatments in individual jurisdictions may not be known for many years after completion of any fiscal year.

We are required to evaluate the realizability

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

of our deferred tax assets on an ongoing basis to determine whether there is a need for a valuation allowance with respect to such deferred tax assets.

We are required to evaluate the realizability of our deferred tax assets on an ongoing basis to determine whether there is a need for a valuation allowance with respect to such deferred tax assets.

A valuation allowance is recorded when it is more likely than not that some or all of the deferred tax assets will not be realized.

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We recognize and measure uncertain tax positions taken or expected to be taken in a tax return if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized are then measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement.

The tax benefits recognized are then measured based on the largest benefit that has a greater than 50 percent likelihood of being realized

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

upon ultimate settlement.

We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return.

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The fair value of stock options is measured using the Black-Scholes option pricing model, while the fair value for restricted stock units (“RSUs”) is measured based on the closing market price of our common stock on the date of grant.

The fair value of Performance RSUs ("PRSU") is based on certain market performance criteria and is measured using the Monte Carlo simulation pricing model.

See Notes 11, Stockholders' Equity , and 12, Stock-Based Compensation , for additional information.

The fair value of Performance RSUs (“PRSU”) is based on certain market performance criteria and is measured using a Monte Carlo simulation pricing model.

See Note 12, Stockholders' Equity , and Note 13, Stock-Based Compensation , for additional information.

Net Income Per Share

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Weighted-average shares used in computing basic and diluted net income per share 79,133 79,001 77,286

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accumulated Other Comprehensive Income (Loss)

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Translation adjustments and other ( 811 ) 5,184

Unrealized gains (losses) on derivative instruments 828 ( 360 )

Unrealized gains on derivative instruments 86 828

Accumulated other comprehensive income (loss) $ ( 1,449 ) $ 5,886

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3— Balance Sheet Components

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treasuries $ 39,128 $ — $ ( 143 ) $ 38,985

Commercial paper 32,174 — ( 13 ) 32,161

Corporate bonds 52,832 29 ( 151 ) 52,710

Certificate of deposit 1,200 1 ( 2 ) 1,199

Agency securities 575 — — 575

$ 125,334 $ 30 $ ( 309 ) $ 125,055

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treasuries $ 40,602 $ 124 $ — $ 40,726

Commercial paper 3,914 1 ( 4 ) 3,911

Corporate bond 24,156 176 ( 2 ) 24,330

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$ 67,493 $ 319 $ ( 2 ) $ 67,810

We classify our marketable securities as available-for-sale.

All marketable securities represent the investment of funds available for current operations, notwithstanding their contractual maturities.

Such marketable securities are recorded at fair value and unrealized gains and losses are recorded in Accumulated other comprehensive income (loss) until realized.

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

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As of December 25, 2021 and December 26, 2020, gross unrealized losses related to our marketable securities portfolio were not material.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The contractual maturities of marketable securities were as follows (in thousands):

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$ 111,548 $ 99,229

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Property, Plant and Equipment, net

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Land $ 4,751 $ 4,751

Building and building improvements 41,722 —

Machinery and equipment 252,632 226,185

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Accrued income and other taxes 8,086 6,976

Accrued restructuring charges 2,478 —

Accrued contingent consideration — 4,012

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High Precision Devises, 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 are not yet finalized.

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.

(“HPD”) Acquisition

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 brought 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.

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

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

Revenue in fiscal 2020 related to HPD subsequent to the acquisition date that was included in our 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.

As of the reporting date, we have not completed the valuation of assets acquired and liabilities assumed.

While the quantification of identifiable intangible assets is still in process, we expect certain amounts provisionally recorded as goodwill to be allocated to such assets as customer relationships, developed technologies, backlog and potentially other technology-related assets as we complete purchase accounting.

While we have recorded a provisional allocation of value based on the best estimates available at this time, we do not yet have a final allocation of value between amortizing and non-amortizing intangible assets.

The items pending include finalizing our evaluation of acquired tangible and financial assets, finalizing the working capital adjustment under the purchase agreement, and finalizing certain key assumptions used to value intangible assets.

We expect that some amount of intangible assets provisionally recorded as goodwill may ultimately be allocated to an amortizing intangible asset or vice versa, and similarly the relative values of intangible assets may change as the valuation is finalized.

We have recorded estimated amortization based on these provisional amounts from the acquisition date through December 26, 2020.

To the extent that upon finalization the required amortization changes, we will record an adjustment to appropriately reflect amortization of the related assets between the acquisition date and the date at which the amounts become estimable.

We have one year over which to finalize purchase accounting, and while we expect to complete purchasing accounting before that time, the impact of the potential changes to estimated amounts or related amortization to the financial statements as a whole is not expected to be material.

As described above, adjustments to fair value for intangible assets have not yet been finalized, however provisional amounts are included in the table below and in the 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 allocated to the underlying assets acquired and liabilities assumed based on the provisional amounts are as follows (in thousands):`

The fair values assigned to 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.

The purchase price allocated to the underlying assets acquired, including goodwill and intangibles, and liabilities assumed based on the final amounts are as follows (in thousands):`

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cash and cash equivalents $ 1,680

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Net assets acquired $ 18,560

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

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

Amount Weighted Average Useful Life (in years)

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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 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.

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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.

Developed technologies acquired primarily consist 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 technologies 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.

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

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

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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.

This acquisition brought 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.

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Our 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 Consolidated Statements of Income for fiscal 2020 was not material.

Revenue in fiscal 2020 related to Baldwin Park subsequent to the acquisition date that was included in our 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.

Our purchase accounting remains open as of the reporting date, subject to finalization of the fair value of certain acquired assets and liabilities.

The item pending includes finalizing certain key assumptions used to value intangible assets.

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

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

The purchase price allocated to the underlying assets acquired, including goodwill and intangibles, and liabilities assumed based on the final amounts are as follows (in thousands):

Accounts receivable $ 4,365

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Net assets acquired $ 35,000

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

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Amount Weighted Average Useful Life (in years)

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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 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.

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The key assumptions are described below.

Developed technology acquired consists of existing technology related to 3D NAND Flash probe cards and the value of cost savings expected to be derived from Low Temperature Co-fired Ceramic ("LTCC") technology.

Developed technologies acquired consists of existing technology related to 3D NAND Flash probe cards and the value of cost savings expected to be derived from Low Temperature Co-fired Ceramic (“LTCC”) technology.

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

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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.

In-process research and development 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 placed in developed technologies and amortized over its useful life.

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 placed in developed technologies and amortized over their useful lives.

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

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The fair value of the purchase consideration was comprised of a $ 22.2 million cash payment and $ 6.5 million of contingent consideration.

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.

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

The contingent consideration was 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.

We estimated the fair value of

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 9, Fair Value, for additional information .

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.

This acquisition strengthened 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.

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

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Total intangible assets $ 17,429 6.9

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 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.

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The key assumptions are described below.

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

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

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Developed technologies acquired primarily consist 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.

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

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

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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As of December 25, 2021, the balance outstanding pursuant to the FRT term loan was $ 7.9 million.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Building Term Loan

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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.

The interest rate swap included a 0 % floor that was effective for one year from the date of the swap.

As of December 25, 2021, the notional amount of the loan that is subject to this interest rate swap is $ 16.5 million.

See Note 8, Fair Value and Derivative Instruments , for additional information.

See Note 9, Fair Value , 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.

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(1) Represents our minimum interest payment commitments at 1.20 % per annum for the FRT Term Loan and 1.85 % per annum for the Building Term Loan.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 6— Leases

We adopted Accounting Standards Update ("ASU") 2016-02, “ Leases (Topic 842) ,” ASU 2018-10, “ Codification Improvements to Topic 842, Leases ,” ASU 2018-11, “ Leases (Topic 842):

Targeted Improvements ,” and ASU 2019-01, “ Leases (Topic 842):

Codification Improvements ," on December 30, 2018, the first day of fiscal 2019, using the modified transition approach.

The modified transition approach permitted a company to use its effective date as the date of initial application and to apply the standard to its leases, and, therefore, not restate comparative prior period financial information.

Consequently, prior period financial information is not updated, and the disclosures required under the new standard are not provided for the period before December 30, 2018.

Our operating lease, right-of-use assets relate to real estate space under non-cancelable operating lease agreements for commercial and industrial space, as well as for our corporate headquarters located in Livermore, California.

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The weighted-average remaining lease term for our operating leases was 5.4 years at December 25, 2021 and the weighted-average discount rate was 3.74 %.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Lease Expense

December 26, 2020 December 28, 2019

December 25, 2021 December 26, 2020 December 28, 2019

Operating lease expense $ 8,485 $ 7,468 $ 6,985

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$ 10,507 $ 9,178 $ 8,413

Operating lease expense for the year ended December 29, 2018 was $ 8.4 million.

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

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Total long-term operating lease liabilities $ 31,009

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, as part of these plans we are undertaking actions to adjust capacity for certain product offerings.

Contract termination costs include charges to satisfy contract obligations.

The amounts accrued are based on our best estimates, however it is reasonably possible that the final amount paid or incurred 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 $ 6.0 million to $ 9.0 million, estimated to be comprised primarily of $ 1.0 million to $ 2.0 million of severance and employee-related costs, $ 2.0 million to 3.0 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 $ 3.0 million to $ 4.5 million and $ 3.0 million to $ 4.5 million is expected within the Probe Cards segment and Systems segment, respectively.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Fiscal Year Ended

December 25, 2021

Probe Cards Systems Total

Cost of revenues $ 2,720 $ 485 $ 3,205

Research and development — 869 869

Selling, general and administrative — 50 50

$ 2,720 $ 1,404 $ 4,124

Changes to the restructuring accrual during December 25, 2021 were as follows (in thousands):

and Benefits Inventory

Impairments Property and Equipment Impairments Contract Termination Costs Total

December 26, 2020 $ — $ — $ — $ — $ —

Restructuring charges 1,175 1,376 270 2,800 5,621

Adjustment to restructuring charges ( 147 ) — — ( 1,350 ) ( 1,497 )

Non-cash settlement — ( 1,376 ) ( 270 ) — ( 1,646 )

December 25, 2021 $ 1,028 $ — $ — $ 1,450 $ 2,478

Note 8— Derivative Financial Instruments

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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 Consolidated Balance Sheets with changes in fair value recorded within Other income, net in our Consolidated Statements of Income for both realized and unrealized gains and losses.

At December 26, 2020, we expect to reclassify $ 0.9 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.

At December 25, 2021, we expect to reclassify $ 0.5 million of the amount accumulated in other comprehensive loss to earnings during the next 12 months, due to the recognition in earnings of the hedged forecasted transactions.

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

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Japanese Yen Sell 1,902,670 16,629

Korean Won Sell 2,309,079 2,093

Korean Won Buy ( 1,901,547 ) ( 1,603 )

Taiwan Dollar Sell 47,548 1,718

Total USD notional amount of outstanding foreign exchange contracts $ 11,845

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Derivatives Not Designated as Hedging Instruments December 25, 2021 December 26, 2020 December 28, 2019

Foreign exchange forward contracts Other income (expense), net $ ( 1,437 ) $ 248 $ 906

Foreign exchange forward contracts Other income, net $ 1,585 $ ( 1,437 ) $ 248

The location and amount of gains (losses) related to derivative instruments designated as cash flow hedges on our Consolidated Statements of Income was as follows (in thousands):

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Selling, general and administrative 25

Fiscal 2019 $ 93 Cost of revenues $ ( 526 )

Research and development ( 75 )

Selling, general and administrative ( 172 )

Interest Rate Swaps

Pursuant to our interest rate and risk management strategy, during fiscal 2016 we entered into an interest rate swap agreement with HSBC and other lenders to hedge the interest payments on the Term Loan for the notional amount of $ 95.6 million.

As future levels of LIBOR over the life of the loan are uncertain, we entered into these interest-rate swap agreements to hedge the exposure in interest rate risks associated with the movement in LIBOR rates.

Pursuant to our interest rate and risk management strategy, during fiscal 2016 we entered into an interest rate swap agreement with HSBC and other lenders to hedge the interest payments on the CMI Term Loan for the notional amount of $ 95.6 million.

As future levels of LIBOR over the life of the loan were uncertain, we entered into these interest-rate swap agreements to hedge the exposure in interest rate risks associated with the movement in LIBOR rates.

By entering into the agreements, we converted a floating rate interest at one-month LIBOR plus 2.00 % into a fixed rate interest at 2.94 %.

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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.

By entering into the agreement, we convert a floating rate interest at one-month LIBOR plus 1.75 % into a fixed

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

rate interest at 2.75 %.

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

As of December 25, 2021, the notional amount of the loan that is subject to this interest rate swap was $ 16.5 million.

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We evaluate hedge effectiveness at hedge inception and on an ongoing basis.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The fair value of our interest rate swap contracts is determined at the end of each reporting period based on valuation models that use interest rate yield curves as inputs.

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

The fair value of our interest rate swap contracts are determined at the end of each reporting period based on valuation models that use interest rate yield curves as inputs.

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

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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)

Fiscal 2020 $ ( 119 ) Other income (expense), net $ ( 64 )

Fiscal 2019 $ ( 86 ) Other income (expense), net $ 548

Fiscal 2018 $ 340 Other income (expense), net $ 721

Fiscal 2021 $ 451 Other income, net $ ( 154 )

Fiscal 2020 ( 119 ) Other income, net ( 64 )

Fiscal 2019 ( 86 ) Other income, net 548

What changed 10-K

Item 9A. Controls and Procedures