What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-03 compared with 2021-11-02 · 93 added, 175 removed, 167 unchanged (62% of the section changed)

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We have no obligation to update any of these statements.

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements, including risks related to general market trends, the benefits of acquisitions and investments, our supply chain, uncertainties related to COVID-19 and the impact of our responses to it, the interpretation and impacts of changes in export controls and other trade barriers, our ability to execute our business strategy and other risks discussed in the section titled “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 26, 2020 and in this Quarterly Report on Form 10-Q.

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements, including risks related to general market trends, the benefits of acquisitions and investments, our supply chain, uncertainties related to COVID-19 and the impact of our responses to it, the interpretation and impacts of changes in export controls and other trade barriers, military conflicts, political volatility and similar factors (including developments related to Ukraine and Russia), our ability to execute our business strategy and other risks discussed in the section titled “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 25, 2021 and in this Quarterly Report on Form 10-Q.

You should carefully consider the numerous risks and uncertainties described under these sections.

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and its subsidiaries.

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

FormFactor, Inc., headquartered in Livermore, California, is 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 their complex next-generation products.

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

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

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

We generated net income of $58.0 million in the first nine months of fiscal 2021 as compared to $59.3 million in the first nine months of fiscal 2020.

The small decrease in net income was primarily due to increased revenues, partially offset by slightly lower margins on a lower mix of Foundry & Logic probe card sales and higher taxes on higher taxable income and a higher tax rate due to significant one-time tax benefits during 2020.

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

We generated net income of $29.9 million in the first three months of fiscal 2022 as compared to $19.6 million in the first three months of fiscal 2021.

The increase in net income was primarily due to increased revenue with improved gross margins from a change in product mix and a reduction in the amortization of intangibles from significant intangibles becoming fully amortized, partially offset by higher operating expenses.

Impact of COVID-19

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The COVID-19 pandemic has resulted in significant governmental actions designed to control the spread of the virus, including the imposition of safety requirements and other orders in locations where we have manufacturing and other activities.

We currently continue to operate in all of our manufacturing sites at production levels comparable to those prior to the pandemic, albeit subject to certain safety and related constraints.

Our other operations are similarly continuing with substantial work-from-home activities.

We continue to operate our manufacturing sites at production levels greater than those prior to the pandemic, albeit subject to certain safety and related constraints.

Our other operations are continuing with substantial work-from-home activities.

If the provisions of governmental health orders or other safety requirements applicable to us or our customers or suppliers become more restrictive for an extended period of time, or if we have repeated occurrences of COVID-19 in any of our facilities, we may experience disruptions or delays in manufacturing, product design, product development, customer support, manufacturing and sales, and an overall loss of productivity and efficiency.

While to date the disruptions in our operations, supply chain and customer demand as a result of the COVID-19 pandemic have been somewhat limited, we believe that the COVID-19 pandemic represents a sustained threat that may give rise to a variety of more significant adverse impacts on our business and financial results.

While the disruptions in our operations, supply chain and customer demand as a result of the COVID-19 pandemic have been somewhat limited, we continue to see impacts on elements in the supply chain and believe that the COVID-19 pandemic represents a sustained threat that may give rise to a variety of more significant adverse impacts on our business and financial results.

The semiconductor industry is experiencing various supply constraints due to the pandemic.

While we are working with our global supply chain partners to mitigate this risk, the duration and extent of the supply chain disruptions remain uncertain.

For a further description of the uncertainties and business risks associated with the COVID-19 pandemic, see the risk factors discussed in our Annual Report on Form 10-K for the year ended December 25, 2021.

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

During the nine months ended September 25, 2021, there were no significant changes in our significant accounting policies or estimates from those reported in our Annual Report on Form 10-K for the year ended December 26, 2020, which was filed with the Securities and Exchange Commission on February 22, 2021.

During the three months ended March 26, 2022, there were no significant changes in our significant accounting policies or estimates from those reported in our Annual Report on Form 10-K for the year ended December 25, 2021, which was filed with the Securities and Exchange Commission on February 18, 2022.

Results of Operations

The following table sets forth our operating results as a percentage of revenues for the periods indicated:

Three Months Ended Nine Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Three Months Ended

2022 March 27,

Revenues 100.0 % 100.0 %

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Interest expense (0.1) (0.1)

Other expense, net 0.1 0.2 — —

Other income, net 0.1 0.1

Income before income taxes 17.4 12.2

Provision (benefit) for income taxes 1.5 (0.3) 1.4 0.9

Provision for income taxes 2.2 1.7

Net income 15.2 % 10.5 %

Revenues by Segment and Market

Three Months Ended Nine Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Three Months Ended

2022 March 27,

(In thousands)

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Three Months Ended

September 25,

2021 % of Revenues September 26,

2020 % of Revenues $ Change % Change

(Dollars in thousands)

Probe Cards Markets:

Foundry & Logic $ 104,640 55.1 % $ 108,411 60.9 % $ (3,771) (3.5) %

DRAM 39,816 20.9 31,379 17.6 8,437 26.9

Flash 10,394 5.5 10,983 6.2 (589) (5.4)

Systems Market:

Systems 35,114 18.5 27,223 15.3 7,891 29.0

Total revenues $ 189,964 100.0 % $ 177,996 100.0 % $ 11,968 6.7 %

Nine Months Ended

September 25,

2021 % of Revenues September 26,

2022 % of Revenues March 27,

2021 % of Revenues $ Change % Change

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Total revenues $ 197,174 100.0 % $ 186,636 100.0 % $ 10,538 5.6 %

The decrease in Foundry & Logic product revenue for the three months ended September 25, 2021, compared to the three months ended September 26, 2020, was driven by lower demand from two major customers, partially offset by increased unit sales to other large semiconductor foundries and integrated device manufacturers.

The decrease for the nine months ended September 25, 2021, compared to the nine months ended September 26, 2020, was driven by lower demand from one major customer, partially offset by increased unit sales to other large semiconductor foundries and integrated device manufacturers.

The relative stability of our overall revenue, despite these fluctuations, is the result of our long-term customer and market diversification initiatives.

The increase in DRAM product revenue for the three and nine months ended September 25, 2021, compared to the three and nine months ended September 26, 2020, was driven by increased sales to several customers and strong market-based demand for DRAM products through the first three quarters of fiscal 2021.

Flash product revenue was down slightly for the three months ended September 25, 2021, compared to the three months ended September 26, 2020, with shifts between customers that are typical as our revenue in this market continues to be highly variable.

The increase in Flash product revenue for the nine months ended September 25, 2021, compared to the nine months ended September 26, 2020, was driven by increased sales resulting from the acquisition of Baldwin Park offset by decreased sales as a result of decreased customer demand for our existing products.

The increase in Systems product revenue for the three and nine months ended September 25, 2021, compared to the three and nine months ended September 26, 2020, was driven by increased sales of cryogenic systems due to the acquisition of High Precision Devices, Inc.

(“HPD”) and increased sales of thermal sub-systems and metrology systems.

Our Probe Cards markets for the three months ended March 26, 2022, improved slightly in total compared to the three months ended March 27, 2021, despite a decline within our top two customers in these periods.

Our ability to maintain and grow our revenues, despite product mix changes between our top customers, is the result of our long-term customer and market diversification initiatives.

The increase in Systems market revenue for the three months ended March 26, 2022, compared to the three months ended March 27, 2021, was driven by increased sales of metrology systems and our 200 and 300 millimeter probe stations.

Revenues by Geographic Region

Three Months Ended Nine Months Ended

September 25,

Revenue September 26,

Revenue September 25,

Revenue September 26,

Three Months Ended

Revenue March 27,

(Dollars in thousands)

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China 38,399 19.5 42,625 22.8

United States 25,468 13.4 36,328 20.4 87,604 15.5 96,365 19.4

South Korea 27,501 13.9 19,085 10.2

Asia-Pacific 1

19,881 10.5 8,954 5.0 63,127 11.2 23,317 4.7

Europe 10,486 5.5 16,979 9.5 32,495 5.8 52,154 10.5

United States 25,647 13.0 29,486 15.8

Malaysia 22,199 11.3 19,930 10.7

Singapore 10,896 5.5 8,558 4.6

Japan 9,382 4.8 9,321 5.0

Europe 8,395 4.3 9,999 5.4

Rest of the world 1,686 0.8 2,052 1.1

Total revenues $ 197,174 100.0 % $ 186,636 100.0 %

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

Geographic revenue information is based on the location to which we ship the product.

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

Changes in revenue by geographic region for the three and nine months ended September 25, 2021, compared to the three and nine months ended September 26, 2020, were primarily attributable to changes in customer demand, shifts in customer regional manufacturing strategies, particularly with our large multinational customers, and product sales mix.

Changes in revenue by geographic region for the three months ended March 26, 2022, compared to the three months ended March 27, 2021, were primarily attributable to changes in customer demand, shifts in customer regional manufacturing strategies, particularly with our large multinational customers, and product sales mix.

Cost of Revenues and Gross Margins

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Three Months Ended

September 25,

2021 September 26,

2020 $ Change % Change

Gross profit $ 80,219 $ 76,749 $ 3,470 4.5 %

Gross margin 42.2 % 43.1 %

Nine Months Ended

September 25,

2021 September 26,

2022 March 27,

2021 $ Change % Change

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Three Months Ended

September 25, 2021 September 26, 2020

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

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

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Gross margin 48.3 % 52.2 % 47.8 % 44.3 % 49.0 % 41.1 %

For the three and nine months ended September 25, 2021, gross margins decreased compared to the three and nine months ended September 26, 2020, primarily due to higher material costs driven by fluctuations in commodity costs, somewhat offset by higher standard margins on Foundry & Logic sales.

For the three and nine months ended September 25, 2021, gross margins increased compared to the three and nine months ended September 26, 2020, primarily as a result of favorable product mix, largely related to increased sales of metrology systems and thermal sub-systems.

For the three months ended March 26, 2022, gross margins increased compared to the three months ended March 27, 2021, primarily due to improved standard margins due to change in product mix, favorable absorption of costs on higher production volumes, and favorable capitalization, partially offset by higher manufacturing spending driven by higher material costs from fluctuations in commodity costs.

For the three months ended March 26, 2022, gross margins increased compared to the three months ended March 27, 2021, primarily as a result of favorable product mix, largely related to increased sales of metrology systems and improved leverage on fixed costs at these higher volumes.

Corporate and Other

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

The reduction in Corporate and Other for the three months ended March 26, 2022 compared to the three months ended March 27, 2021 is primarily due to a reduction in the amortization of intangibles from significant intangibles becoming fully amortized.

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

For the three and nine months ended September 25, 2021, compared to the three and nine months ended September 26, 2020, gross profit has increased on greater revenue levels while gross margins have decreased, primarily on higher material costs, partially offset by a more favorable product mix.

For the three months ended March 26, 2022, compared to the three months ended March 27, 2021, gross profit and gross margins have increased on greater revenue levels, a favorable product mix, and less amortization of intangibles.

Cost of revenues included stock-based compensation expense 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,

Stock-based compensation $ 1,078 $ 1,335

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Three Months Ended

September 25,

2021 September 26,

2020 $ Change % Change

(Dollars in thousands)

Research and development $ 26,026 $ 22,878 $ 3,148 13.8 %

% of revenues 13.7 % 12.9 %

Nine Months Ended

September 25,

2021 September 26,

2022 March 27,

2021 $ Change % Change

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% of revenues 13.8 % 12.9 %

The increase in research and development expenses in the three and nine months ended September 25, 2021 when compared to the corresponding period in the prior year was primarily driven by our recent acquisitions of Baldwin Park and HPD, which increased headcount and general operational costs.

Annual salary increases, higher stock-based compensation, and restructuring charges also contributed to the increase.

The increase in research and development expenses in the three months ended March 26, 2022 when compared to the corresponding period in the prior year was primarily driven by an increase in headcount to support current operating levels.

Increased general operational costs, annual salary adjustments, project material costs, and stock-based compensation also contributed to the increase.

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

Three Months Ended September 25, 2021 compared to Three Months Ended September 26, 2020 Nine Months Ended September 25, 2021 compared to Nine Months Ended September 26, 2020

Three Months Ended March 26, 2022 compared to Three Months Ended March 27, 2021

Employee compensation costs $ 1,606

Other general operations 967

Stock-based compensation 297

Restructuring charges 289 694

Project material costs 218

Depreciation (21) 239

Other general operations 995 2,586

$ 3,148 $ 10,462

Research and development included stock-based compensation expense 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,

Stock-based compensation $ 1,986 $ 1,689

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Three Months Ended

September 25,

2021 September 26,

2020 $ Change % Change

(Dollars in thousands)

Selling, general and administrative $ 30,940 $ 31,834 $ (894) (2.8) %

% of revenues 16.3 % 17.9 %

Nine Months Ended

September 25,

2021 September 26,

2022 March 27,

2021 $ Change % Change

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% of revenues 16.7 % 16.1 %

The decrease in selling, general and administrative expenses in the three months ended September 25, 2021 when compared to the corresponding period in the prior year was primarily driven by decreased information technology security remediation costs that were incurred during the three months ended September 26, 2020 that did not repeat.

This decrease was partially offset by higher stock-based compensation.

The increase in selling, general and administrative expenses in the nine months ended September 25, 2021 when compared to the corresponding period in the prior year was primarily driven by our recent acquisitions of Baldwin Park and HPD, which increased headcount and general operational costs.

Annual salary increases and higher stock-based compensation also contributed to the increases.

These increases were partially offset by the benefit in the prior year related to adjustments to contingent consideration for the acquisition of FRT GmbH ("FRT") and information technology security remediation costs that both did not repeat.

The increase in selling, general and administrative expenses in the three months ended March 26, 2022 when compared to the corresponding period in the prior year was primarily driven by increased headcount, annual salary adjustments, increased travel related costs as restrictions related to COVID-19 relaxed, and higher stock-based compensation.

We expect travel costs to continue to return to previous levels assuming travel restrictions continue to ease.

These increases were partially offset by lower amortization of intangibles.

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

Three Months Ended September 25, 2021 compared to Three Months Ended September 26, 2020 Nine Months Ended September 25, 2021 compared to Nine Months Ended September 26, 2020

Three Months Ended March 26, 2022 compared to Three Months Ended March 27, 2021

Employee compensation costs $ 1,385

Gain on contingent consideration 71 3,676

Consulting fees (3,368) (3,402)

Stock-based compensation 1,297 2,597

General operating expenses 602

Travel related costs 656

Stock-based compensation 403

Amortization of intangibles (155)

$ (894) $ 9,152

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

Stock-based compensation $ 4,456 $ 4,053

Interest Income and Interest Expense

Three Months Ended Nine Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

(Dollars in thousands)

Interest Income $ 121 $ 249 $ 463 $ 1,310

Weighted average balance of cash and investments $ 257,851 $ 243,615 $ 262,475 $ 230,098

Weighted average yield on cash and investments 0.26 % 0.57 % 0.32 % 1.03 %

Interest Expense $ 151 $ 193 $ 447 $ 682

Average debt outstanding $ 27,810 $ 37,295 $ 30,214 $ 38,327

Weighted average interest rate on debt 1.59 % 1.65 % 1.58 % 2.05 %

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

The decrease in interest income for the three and nine months ended September 25, 2021 compared with the corresponding period of the prior year was attributable to lower investment yields due to the low interest rate environment, despite higher invested balances.

The decrease in interest income for the three months ended March 26, 2022 compared with the corresponding period of the prior year was attributable to lower investment yields due to the low interest rate environment, despite higher invested balances.

Interest expense primarily includes interest on our term loans, interest rate swap derivative contracts, and term loan issuance costs amortization charges.

The decrease in interest expense for the three and nine months ended September 25, 2021 compared to the same period of the prior year was primarily due to lower outstanding debt balances due to the June 30, 2020 pay-off of the term loan originated to acquire Cascade Microtech, Inc, partially offset by the Building Term Loan originated in the second quarter of 2020.

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

The interest expense for the three months ended March 26, 2022 compared to the same period of the prior year increased slightly primarily due to increased average interest rates on the outstanding debt.

Other Income (Expense), Net

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Provision for Income Taxes

Three Months Ended Nine Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Three Months Ended

2022 March 27,

(In thousands, except percentages)

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

Provision for income taxes $ 4,450 $ 3,206

Effective tax rate 13.0 % 14.0 %

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statutory rate and included in our worldwide effective tax rate for the year ending December 31, 2022.

The increase in the effective tax rate in the nine months ended September 25, 2021 when compared to the corresponding period in the prior year was primarily driven by the cumulative effect of adjustments made related to final and proposed Treasury regulations during the third quarter ended September 26, 2020.

The regulations under Sections 951A and 954 provided final global intangible low-taxed income (GILTI) high-tax exclusion and proposed changes to the existing subpart F income high-tax exception, respectively.

The impact of those adjustments provided a significant one time tax benefit during 2020.

The decrease in the effective tax rate in the three months ended March 26, 2022 when compared to the corresponding period in the prior year was primarily driven by an increased tax deduction from foreign derived intangible income, offset by a reduction in stock-based compensation tax benefits.

As of January 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and experimental expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years in the U.S.

and fifteen years in foreign jurisdictions.

While it is possible that Congress may defer, modify, or repeal this provision, potentially with retroactive effect, we have no assurance that this provision will be deferred, modified, or repealed.

If this provision is not deferred, modified, or repealed with retroactive effect to January 1, 2022, we expect our cash taxes to slowly increase over the next few years until we have fully utilized our Federal research and development credits to offset our Federal tax liability to the extent allowed by law.

Liquidity and Capital Resources

Capital Resources

Our working capital was $346.5 million at September 25, 2021, compared to $332.5 million at December 26, 2020.

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

Our working capital was $401.5 million at March 26, 2022, compared to $375.3 million at December 25, 2021.

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

treasuries and commercial paper.

Marketable securities primarily consist of U.S.

treasuries, corporate bonds, and commercial paper.

We typically invest in highly-rated

securities with low probabilities of default.

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

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

Our cash, cash equivalents and marketable securities totaled approximately $264.7 million at September 25, 2021, compared to $255.0 million at December 26, 2020.

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

Our cash, cash equivalents and marketable securities totaled approximately $296.4 million at March 26, 2022, compared to $276.1 million at December 25, 2021.

Based on our historical results of operations, we expect that our cash, cash equivalents, and marketable securities on hand, and the cash we expect to generate from operations, will be sufficient to fund our short-term and long-term liquidity requirements primarily arising from:

research and development, capital expenditures, working capital, outstanding commitments, and other liquidity requirements associated with existing operations.

However, we cannot be certain that our cash, cash equivalents, and marketable securities on hand, and cash generated from operations, will be available in the

future to fund all of our capital and operating requirements.

In addition, any future strategic investments and significant acquisitions may require additional cash and capital resources.

To the extent necessary, we may consider entering into short and long-term debt obligations, raising cash through a stock issuance, or obtaining new financing facilities, which may not be available on terms favorable to us.

Our future capital requirements may vary materially from those now planned.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets.

An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition.

If we are unsuccessful in maintaining or growing our revenues, maintaining or reducing our cost structure (in response to a potential reduction in demand due to an industry downturn, COVID-19, or other event), or increasing our available cash through debt or equity financings, our cash, cash equivalents and marketable securities may decline.

If we are unable to obtain sufficient cash or capital to meet our needs on a timely basis and on favorable terms, our business and operations could be materially and adversely affected.

If we are unsuccessful in maintaining or growing our revenues, maintaining or reducing our cost structure (in response to a potential reduction in demand due to an industry downturn, COVID-19, developments related to Ukraine and Russia, or other event), or increasing our available cash through debt or equity financings, our cash, cash equivalents and marketable securities may decline.

We utilize a variety of tax planning and financing strategies to manage our worldwide cash and deploy funds to locations where needed.

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

Nine Months Ended

September 25,

2021 September 26,

Three Months Ended

2022 March 27,

(In thousands)

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Operating Activities

Net cash provided by operating activities for the nine months ended September 25, 2021 was primarily attributable to net income of $58.0 million and net non-cash expenses of $77.4 million, further impacted by changes in operating assets and liabilities, as explained below.

Inventories, net, increased $15.9 million to $115.1 million at September 25, 2021, compared to $99.2 million at December 26, 2020, as a result of anticipated projected customer demand.

Due to provisions for excess and obsolete inventories of $11.6 million and non-cash restructuring charges to record inventory impairments of $1.3 million, the change in Inventories, net, was further impacted.

Operating lease liabilities increased $5.7 million to $40.4 million at September 25, 2021, compared to $34.7 million at December 26, 2020 as a result of additional right-of-use assets obtained in exchange for lease obligations of $11.7 million offset by lease payments.

Net cash provided by operating activities for the three months ended March 26, 2022 was primarily attributable to net income of $29.9 million and net non-cash expenses of $22.0 million, which includes depreciation, amortization, stock-based compensation, and the provision for excess and obsolete inventories.

These inflows were partially offset by net changes in working capital of $7.7 million primarily related to cash paid for inventories of $17.1 million, partially offset by cash provided by an increase in accounts payable for $10.2 million.

Investing Activities

Net cash used in investing activities for the nine months ended September 25, 2021 was primarily related to $51.4 million property, plant and equipment acquisitions, and $43.6 million net cash used to purchase marketable securities.

Net cash used in investing activities for the three months ended March 26, 2022 was primarily related to $15.6 million property, plant and equipment acquisitions and $5.5 million net cash used to purchase marketable securities.

Financing Activities

Net cash used in financing activities for the nine months ended September 25, 2021 primarily related to $24.0 million used to purchase common stock under our stock repurchase program, $12.6 million related to tax withholding associated with the net share settlements of our equity awards, $7.0 million of principal payments made towards the repayment of our term loans, and $3.9 million paid to settle the contingent consideration from the acquisition of FRT, partially offset by $10.6 million of proceeds received from issuances of common stock under our employee stock purchase plan and stock option plans.

Net cash used in financing activities for the three months ended March 26, 2022 primarily related to $9.4 million used to purchase common stock under our stock repurchase program and $2.2 million of principal payments made towards the repayment of our term loans, partially offset by $5.7 million of proceeds received from issuances of common stock under our employee stock purchase plan and stock option plans.

FRT Term Loan

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

The interest rate at September 25, 2021 was 1.20%.

As of September 25, 2021, the balance outstanding pursuant to the FRT term loan was $10.3 million.

The interest rate at March 26, 2022 was 1.20%.

As of March 26, 2022, the balance outstanding pursuant to the FRT term loan was $5.8 million.

The FRT Term Loan is expected to be fully paid as of October 25, 2022.

Building Term Loan

On June 22, 2020, we entered into an $18.0 million 15-year credit facility loan agreement (the “Building Term Loan”).

The proceeds of the Building Term Loan were used to finance the purchase a building adjacent to our leased facilities in Livermore, California.

The proceeds of the Building Term Loan were used to finance the purchase of a building adjacent to our leased facilities in Livermore, California.

The Building Term Loan bears interest at a rate equal to the applicable LIBOR rate plus 1.75% per annum.

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

The interest rate at September 25, 2021 was 1.84%.

As of September 25, 2021, the balance outstanding pursuant to the Building Term Loan was $16.8 million.

The interest rate at March 26, 2022 was 1.98%.

As of March 26, 2022, the balance outstanding pursuant to the Building Term Loan was $16.3 million.

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

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By entering into the agreement, we converted a floating rate interest at one-month LIBOR plus 1.75% into a fixed rate interest at 2.75%.

As of September 25, 2021, the notional amount of the loan that is subject to this interest rate swap is $16.8 million.

As of March 26, 2022, the notional amount of the loan that is subject to this interest rate swap is $16.3 million.

Stock Repurchase Program

1 unchanged sentence

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

During the nine months ended September 25, 2021, we repurchased 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 240,548 shares of common stock for $9.4 million.

During 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.

Contractual Obligations and Commitments

The following table summarizes our significant contractual commitments to make future payments in cash under contractual obligations as of September 25, 2021:

The following table summarizes our significant contractual commitments to make future payments in cash under contractual obligations as of March 26, 2022:

Payments Due In Fiscal Year

Remainder 2021 2022 2023 2024 2025 Thereafter Total

2022 2023 2024 2025 2026 Thereafter Total

Operating leases $ 6,589 $ 7,680 $ 7,317 $ 7,270 $ 6,532 $ 9,195 $ 44,583

7 unchanged sentences

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

As of September 25, 2021, we were not involved in any such off-balance sheet arrangements.

As of March 26, 2022, we were not involved in any such off-balance sheet arrangements.

Recent Accounting Pronouncements

1 unchanged sentence

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis