What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-05-03 compared with 2021-11-02 · 116 added, 267 removed, 434 unchanged (47% of the section changed)

3 unchanged sentences

(In thousands, except share and per share amounts)

September 25,

2022 December 25,

2 unchanged sentences

Marketable securities 129,174 125,055

Accounts receivable, net of allowance for doubtful accounts of $ 214 and $ 248

Accounts receivable, net of allowance for credit losses of $ 194 and $ 195

113,505 115,541

29 unchanged sentences

Additional paid-in capital 902,994 898,945

Accumulated other comprehensive income 1,700 5,886

Accumulated other comprehensive loss ( 4,477 ) ( 1,449 )

Accumulated deficit ( 51,922 ) ( 81,794 )

5 unchanged sentences

(In thousands, except per share amounts)

Three Months Ended Nine Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Three Months Ended

2022 March 27,

Revenues $ 197,174 $ 186,636

8 unchanged sentences

Interest expense ( 192 ) ( 180 )

Other expense, net 58 299 36 141

Other income, net 192 172

Income before income taxes 34,322 22,831

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

Provision for income taxes 4,450 3,206

Net income $ 29,872 $ 19,625

9 unchanged sentences

(In thousands)

Three Months Ended Nine Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Three Months Ended

2022 March 27,

Net income $ 29,872 $ 19,625

Other comprehensive income (loss), net of tax:

Other comprehensive loss, net of tax:

Translation adjustments and other ( 2,698 ) ( 2,379 )

Unrealized gains (losses) on available-for-sale marketable securities ( 62 ) ( 148 ) ( 290 ) 349

Unrealized losses on available-for-sale marketable securities ( 1,204 ) ( 131 )

Unrealized gains (losses) on derivative instruments 874 ( 226 )

Other comprehensive income (loss), net of tax ( 1,896 ) 2,021 ( 4,186 ) 3,138

Other comprehensive loss, net of tax ( 3,028 ) ( 2,736 )

Comprehensive income $ 26,844 $ 16,889

3 unchanged sentences

(In thousands, except shares)

Stock Shares of

Stock Treasury

Stock Additional

3 unchanged sentences

Deficit Total

Nine Months Ended September 25, 2021

Three Months Ended March 26, 2022

Balances, December 25, 2021 78,240,506 $ 78 — $ — $ 898,945 $ ( 1,449 ) $ ( 81,794 ) $ 815,780

6 unchanged sentences

Net income — — — — — — 29,872 29,872

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

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 )

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

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

Net income — — — — 20,497 20,497

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.

FORMFACTOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except shares)

Balances, March 26, 2022 78,166,212 $ 78 — $ — $ 902,994 $ ( 4,477 ) $ ( 51,922 ) $ 846,673

Stock Shares of

Stock Treasury

Stock Additional

3 unchanged sentences

Deficit Total

Nine Months Ended September 26, 2020

Three Months Ended March 27, 2021

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

2 unchanged sentences

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

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

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

Net income — — — — 59,250 59,250

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

Three Months Ended September 26, 2020

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

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

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

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

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

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

1 unchanged sentence

Net income — — — — — — 19,625 19,625

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

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

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

2 unchanged sentences

(In thousands)

Nine Months Ended

September 25,

2021 September 26,

Three Months Ended

2022 March 27,

Cash flows from operating activities:

7 unchanged sentences

Non-cash restructuring charges 150 —

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

Other adjustments to reconcile net income to net cash provided by operating activities 32 2,140

12 unchanged sentences

Acquisition of property, plant and equipment ( 15,606 ) ( 13,470 )

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

Proceeds from sale of a subsidiary — 82

Purchases of marketable securities ( 23,462 ) ( 41,062 )

5 unchanged sentences

Tax withholdings related to net share settlements of equity awards ( 72 ) ( 1,141 )

Payment of contingent consideration ( 3,873 ) —

Proceeds from term loan — 18,000

Principal repayments on term loans ( 2,234 ) ( 2,376 )

Payment of term loan debt issuance costs — ( 78 )

Net cash used in financing activities ( 6,016 ) ( 3,768 )

7 unchanged sentences

(In thousands)

Nine Months Ended

September 25,

2021 September 26,

Three Months Ended

2022 March 27,

Non-cash investing and financing activities:

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 —

Increase (decrease) in accounts payable and accrued liabilities related to property, plant and equipment purchases $ ( 2,524 ) $ 1,087

Operating lease, right-of-use assets obtained in exchange for lease obligations 3,359 8,572

19 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 nine months ended September 25, 2021 and September 26, 2020 each contained 39 weeks.

Fiscal 2022 and 2021 contain 53 weeks and 52 weeks, respectively, and the three months ended March 26, 2022 and March 27, 2021 each contained 13 weeks.

Fiscal 2022 will end on December 31, 2022.

Significant Accounting Policies

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.

Our significant accounting policies have not changed during the three months ended March 26, 2022 from those disclosed in our Annual Report on Form 10-K for the year ended December 25, 2021.

Reclassifications

Certain immaterial reclassifications were made to the prior year financial statements to conform to the current year presentation.

New Accounting Pronouncements

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

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

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

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

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

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

3 unchanged sentences

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

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers, as if it had originated the contracts.

This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted.

The adoption impact of the new standard will depend on the magnitude of future acquisitions.

The standard will not impact acquired contract assets or liabilities from business combinations occurring prior to the adoption date.

Note 2 — Concentration of Credit and Other Risks

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

Three Months Ended Nine Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Three Months Ended

2022 March 27,

Intel Corporation 20.8 % 28.1 %

Samsung Electronics., LTD.

12.9 % 10.6 % 10.5 % *

Taiwan Semiconductor Manufacturing Co., LTD.

Micron Technology, Inc.

10.7 % 11.5 %

*Represents less than 10% of total revenues.

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.

31.5 % 39.6 %

At March 26, 2022, one customer accounted for 22.8 % of gross accounts receivable.

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

Note 3 — Inventories, net

1 unchanged sentence

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

September 25,

2022 December 25,

3 unchanged sentences

$ 125,590 $ 111,548

Note 4 — Acquisitions

High Precision Devices, Inc.

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

Accounts receivable 1,017

Inventories 3,047

Property, plant and equipment 669

Operating lease, right of use assets 2,554

Prepaid expenses and other current assets 916

Tangible assets acquired 9,883

Deferred revenue ( 2,529 )

Accounts payable and accrued liabilities ( 1,268 )

Operating lease liabilities ( 2,554 )

Deferred tax liabilities ( 2,400 )

Total tangible assets acquired and liabilities assumed 1,132

Intangible assets 11,520

Goodwill 5,908

Net Assets Acquired $ 18,560

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

Amount Weighted Average Useful Life (in years)

Developed technologies $ 7,500 10.0

Customer relationships 3,600 5.0

Order backlog 200 0.5

Trade names 220 5.0

Total intangible assets $ 11,520 8.2

Baldwin Park Acquisition

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 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

Inventories 2,727

Property, plant and equipment 9,053

Operating lease, right of use assets 519

Prepaid expenses and other current assets 56

Tangible assets acquired 16,720

Accounts payable and accrued liabilities ( 743 )

Operating lease liabilities ( 519 )

Total tangible assets acquired and liabilities assumed 15,458

Intangible assets 13,600

Goodwill 5,942

Net assets acquired $ 35,000

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

Amount Weighted Average Useful Life (in years)

Developed technologies $ 8,800 10.0

Customer relationships 4,400 3.0

In-process research and development 400 N/A

Total intangible assets $ 13,600 7.7

Note 4 — Goodwill and Intangible Assets

1 unchanged sentence

Probe Cards Systems Total

Goodwill, gross, as of December 28, 2019 $ 172,482 $ 26,714 $ 199,196

Addition - FRT GmbH Acquisition — 975 975

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

Addition - Baldwin Park Acquisition 352 — 352

1 unchanged sentence

Foreign currency translation — ( 2,068 ) ( 2,068 )

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

Addition - Baldwin Park Acquisition 352 — 352

Addition - HPD Acquisition — 1,254 1,254

Goodwill, as of December 25, 2021 178,424 33,875 212,299

Foreign currency translation — ( 746 ) ( 746 )

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.

Goodwill, as of March 26, 2022 $ 178,424 $ 33,129 $ 211,553

We have no t recorded goodwill impairments for the three months ended March 26, 2022.

Intangible assets were as follows (in thousands):

September 25, 2021 December 26, 2020

March 26, 2022 December 25, 2021

Intangible Assets Gross Accumulated

1 unchanged sentence

Amortization Net

Developed technologies $ 173,160 $ 148,518 $ 24,642 $ 176,265 $ 137,754 $ 38,511

Existing developed technologies $ 171,560 $ 149,149 $ 22,411 $ 172,259 $ 148,784 $ 23,475

Customer relationships 51,080 40,638 10,442 51,270 39,254 12,016

Trade names 8,110 7,586 524 8,162 7,363 799

Order backlog 1,958 1,958 — 2,227 1,900 327

Trade name 8,010 7,625 385 8,054 7,603 451

Backlog — — — 1,896 1,896 —

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

1 unchanged sentence

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

Three Months Ended Nine Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Three Months Ended

2022 March 27,

Cost of revenues $ 808 $ 5,090

7 unchanged sentences

Accrued liabilities consisted of the following (in thousands):

September 25,

2022 December 25,

3 unchanged sentences

Employee stock purchase plan contributions withheld 2,027 4,693

Accrued contingent consideration — 4,012

Accrued restructuring charges 890 2,478

9 unchanged sentences

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.

These plans are 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.

The Company has recognized to date restructuring and other charges in the aggregate amount of $ 4.4 million, comprised of $ 1.2 million of severance and employee-related costs, $ 1.5 million in contract and lease termination costs, $ 1.5 million in inventory impairments, and $ 0.3 million of cost related to impairment of leasehold improvements, facility exits and other costs.

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

Three Months Ended

March 26, 2022

Probe Cards Systems Total

Cost of revenues $ 39 $ 100 $ 139

2 unchanged sentences

$ 42 $ 271 $ 313

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

Changes to the restructuring accrual in the three months ended March 26, 2022 were as follows (in thousands):

Employee Severance

and Benefits Inventory

Impairments Property and Equipment Impairments Contract Termination Costs Total

Impairments Contract

Termination Costs Total

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

Restructuring charges 163 150 — 313

Cash payments ( 301 ) — ( 1,450 ) ( 1,751 )

Non-cash settlement — ( 150 ) — ( 150 )

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

March 26, 2022 $ 890 $ — $ — $ 890

Note 7 — 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 nine months ended September 25, 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 months ended March 26, 2022 or the year ended December 25, 2021.

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 nine months of fiscal 2021.

No changes were made to our valuation techniques during the first three months of fiscal 2022.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):

September 25, 2021 Level 1 Level 2 Level 3 Total

March 26, 2022 Level 1 Level 2 Total

Cash equivalents:

Money market funds $ 25,172 $ — $ 25,172

Commercial paper — 7,132 7,132

treasuries 6,000 — 6,000

9 unchanged sentences

Total assets $ 71,211 $ 97,804 $ 169,015

Foreign exchange derivative contracts (Designated) $ — $ ( 258 ) $ — $ ( 258 )

Interest rate swap derivative contracts — ( 100 ) — ( 100 )

Total liabilities $ — $ ( 358 ) $ — $ ( 358 )

December 26, 2020 Level 1 Level 2 Level 3 Total

Foreign exchange derivative contracts $ — $ ( 577 ) $ ( 577 )

December 25, 2021 Level 1 Level 2 Total

Cash equivalents:

Money market funds $ 9,526 $ — $ 9,526

treasuries 2,500 — 2,500

Commercial paper — 1,000 1,000

agency securities — 5,556 5,556

12,026 6,556 18,582

Marketable securities:

1 unchanged sentence

Certificates of deposit — 1,199 1,199

agency securities — 575 — 575

Corporate bonds — 52,709 52,709

Commercial paper — 32,162 32,162

38,985 86,070 125,055

Foreign exchange derivative contracts — 1,057 — 1,057

Interest rate swap derivative contracts — 629 629

Total assets $ 51,011 $ 93,255 $ 144,266

Foreign exchange derivative contracts $ — $ ( 489 ) $ ( 489 )

Interest rate swap derivative contracts — ( 55 ) ( 55 )

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

Total liabilities $ — $ ( 544 ) $ ( 544 )

3 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.

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

Our broker-priced investments are categorized as Level 2 investments because fair value is

based on similar assets without applying significant judgments.

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

1 unchanged sentence

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 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 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 assets in our Condensed Consolidated Balance Sheets.

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 Prepaid expenses and other current assets and Other assets in our Condensed Consolidated Balance Sheets.

Foreign Exchange Derivative Contracts

4 unchanged sentences

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

For accounting purposes, certain of our foreign currency forward contracts are not designated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded within Other expense, net in our Condensed Consolidated Statement of Income for both realized and unrealized gains and losses.

Certain of our foreign currency forward contracts are designated as cash flow hedges, and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded as a component of Accumulated other comprehensive income and reclassified into earnings in the same period in which the hedged transaction affects earnings, and in the same line item on the Condensed Consolidated Statements of Income as the impact of the hedge transaction.

For accounting purposes, certain of our foreign currency forward contracts are not designated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded within Other income, net in our Condensed Consolidated Statement of Income for both realized and unrealized gains and losses.

Certain of our foreign currency forward contracts are designated as cash flow hedges, and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded as a component of Accumulated other comprehensive loss and reclassified into earnings in the same period in which the hedged transaction affects earnings, and in the same line item on the Condensed Consolidated Statements of Income as the impact of the hedge transaction.

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

All of our foreign exchange derivative contracts outstanding at September 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):

All of our foreign exchange derivative contracts outstanding at March 26, 2022 will mature by the first quarter of fiscal 2023.

The following table provides information about our foreign currency forward contracts outstanding as of March 26, 2022 (in thousands):

Currency Contract Position Contract Amount

9 unchanged sentences

We measure and report our non-financial assets such as Property, plant and equipment, Goodwill and Intangible assets at fair value on a non-recurring basis if we determine these assets to be impaired or in the period when we make a business acquisition.

Other than as discussed in Note 4, Acquisition , 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.

Other than as discussed in Note 6, Restructuring Charges, there were no assets or liabilities measured at fair value on a nonrecurring basis during the three months ended March 26, 2022 or March 27, 2021.

Note 8 — Warranty

2 unchanged sentences

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

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

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

As we sell new products to our customers, we must exercise considerable judgment in estimating the expected failure rates.

2 unchanged sentences

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

Nine Months Ended

September 25,

2021 September 26,

Three Months Ended

2022 March 27,

Balance at beginning of period $ 2,805 $ 3,918

4 unchanged sentences

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

September 25,

2022 December 25,

Land $ 4,751 $ 4,751

Building and building improvements 44,123 41,722

Machinery and equipment 258,783 252,632

11 unchanged sentences

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

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.

During the three months ended March 26, 2022, we repurchased and retired 240,548 shares of common stock for $ 9.4 million.

During fiscal 2021 we repurchased and retired 622,400 shares of common stock for $ 24.0 million.

As of March 26, 2022, $ 16.6 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.

7 unchanged sentences

Awards forfeited ( 19,511 ) 28.18

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

RSUs at March 26, 2022 2,155,618 28.69

Performance Restricted Stock Units

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

On August 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.

There were no PRSUs granted during the three months ended March 26, 2022.

PRSUs are included as part of the RSU activity above.

Stock Options

Stock option activity under our equity incentive plan was as follows:

Options Outstanding Weighted Average Exercise Price Weighted Average Remaining Contractual Life in Years Aggregate Intrinsic Value

(in thousands)

Outstanding at December 26, 2020 106,000 $ 8.35

Options exercised ( 100,000 ) 8.44

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:

Nine Months Ended

September 25, 2021

Three Months Ended

March 26, 2022

Shares issued 157,642

3 unchanged sentences

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

Three Months Ended Nine Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Three Months Ended

2022 March 27,

Cost of revenues $ 1,078 $ 1,335

3 unchanged sentences

Unrecognized Compensation Costs

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

At March 26, 2022, the unrecognized stock-based compensation was as follows (dollars in thousands):

Unrecognized Expense Average Expected Recognition Period in Years

5 unchanged sentences

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

Three Months Ended Nine Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Three Months Ended

2022 March 27,

Weighted-average shares used in computing basic net income per share 78,246 77,598

5 unchanged sentences

Contractual Obligations and Commitments

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.

Our contractual obligations and commitments have not materially changed as of March 26, 2022 from those disclosed in our Annual Report on Form 10-K for the year ended December 25, 2021.

Legal Matters

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

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.

As of March 26, 2022, and as of the filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings.

Note 13 — Leases

3 unchanged sentences

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

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

The weighted-average remaining lease term for our operating leases was 6 years as of March 26, 2022 and the weighted-average discount rate was 3.67 %.

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

Three Months Ended Nine Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Three Months Ended

2022 March 27,

Lease expense:

3 unchanged sentences

$ 2,719 $ 2,697

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

Future minimum payments under our non-cancelable operating leases were as follows as of March 26, 2022 (in thousands):

Fiscal Year Amount

8 unchanged sentences

Transaction price allocated to the remaining performance obligations:

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.

On March 26, 2022, we had $ 7.7 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.

We expect to recognize approximately 75.6 % of our remaining performance obligations as revenue in the remainder of fiscal 2022, approximately 18.4 % in fiscal 2023, and approximately 6.0 % in fiscal 2024 and thereafter.

2 unchanged sentences

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.

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 assets as of March 26, 2022 and December 25, 2021 were $ 0.9 million and $ 0.9 million, respectively, and are reported on the Condensed Consolidated Balance Sheets as a component of Prepaid expenses and other current assets.

Contract liabilities include payments received and payments due in advance of performance under a contract and are satisfied as the associated revenue is recognized.

Contract liabilities are reported on the Condensed Consolidated Balance Sheets at the end of each reporting period as a component of Deferred revenue and Other liabilities.

Contract liabilities as of September 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.

Contract liabilities as of March 26, 2022 and December 25, 2021 were $ 28.0 million and $ 24.2 million, respectively.

During the three months ended March 26, 2022, we recognized $ 11.0 million of revenue that was included in contract liabilities as of December 25, 2021.

Costs to obtain a contract:

8 unchanged sentences

Three Months Ended

September 25, 2021 September 26, 2020

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

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

Gross profit $ 69,868 $ 17,553 $ ( 7,202 ) $ 80,219 $ 69,641 $ 13,565 $ ( 6,457 ) $ 76,749

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

Nine Months Ended

September 25, 2021 September 26, 2020

March 26, 2022 March 27, 2021

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

7 unchanged sentences

Three Months Ended

September 25, 2021 September 26, 2020

March 26, 2022 March 27, 2021

Probe Cards Systems Total Probe Cards Systems Total

9 unchanged sentences

Geographical region:

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

Taiwan $ 42,522 $ 10,547 $ 53,069 $ 44,734 $ 846 $ 45,580

China 32,791 5,608 38,399 37,831 4,794 42,625

South Korea 24,881 2,620 27,501 18,001 1,084 19,085

Malaysia 21,517 682 22,199 19,888 42 19,930

United States 19,976 5,671 25,647 21,308 8,178 29,486

Asia-Pacific 1

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

Singapore 10,284 612 10,896 7,627 931 8,558

Japan 4,785 4,597 9,382 5,249 4,072 9,321

2 unchanged sentences

Total $ 159,983 $ 37,191 $ 197,174 $ 158,898 $ 27,738 $ 186,636

Nine Months Ended

September 25, 2021 September 26, 2020

Probe Cards Systems Total Probe Cards Systems Total

Foundry & Logic $ 321,776 $ — $ 321,776 $ 323,503 $ — $ 323,503

DRAM 115,802 — 115,802 75,127 — 75,127

Flash 29,811 — 29,811 20,642 — 20,642

Systems — 97,287 97,287 — 77,301 77,301

Total $ 467,389 $ 97,287 $ 564,676 $ 419,272 $ 77,301 $ 496,573

Timing of revenue recognition:

Products transferred at a point in time $ 465,822 $ 89,119 $ 554,941 $ 417,529 $ 73,393 $ 490,922

Products and services transferred over time 1,567 8,168 9,735 1,743 3,908 5,651

Total $ 467,389 $ 97,287 $ 564,676 $ 419,272 $ 77,301 $ 496,573

Geographical region:

Taiwan $ 125,571 $ 13,467 $ 139,038 $ 93,596 $ 8,290 $ 101,886

China 107,838 17,661 125,499 107,756 13,190 120,946

United States 64,012 23,592 87,604 79,575 16,790 96,365

South Korea 81,322 2,912 84,234 56,278 2,494 58,772

Asia-Pacific 1

59,013 4,114 63,127 14,307 9,010 23,317

Europe 12,894 19,601 32,495 36,656 15,498 52,154

Japan 14,493 13,260 27,753 24,502 11,072 35,574

Rest of the world 2,246 2,680 4,926 6,602 957 7,559

Total $ 467,389 $ 97,287 $ 564,676 $ 419,272 $ 77,301 $ 496,573

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

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