FORMFACTOR INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, which are subject to risks and uncertainties. The forward-looking statements include statements concerning, among other things, our business strategy, financial and operating results, gross margins, liquidity and capital expenditure requirements and impact of accounting standards. In some cases, you can identify these statements by forward-looking words, such as “may,” “might,” “will,” “could,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend” and “continue,” the negative or plural of these words and other comparable terminology. The forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements. 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 other global, regional or national public health-related crises and the impact of our responses to them, the interpretation and impacts of changes in export controls and other trade barriers, military conflicts, political volatility and similar factors, 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 22 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. The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the accompanying notes contained in this Quarterly Report on Form 10-Q. Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us” and “FormFactor” refer to FormFactor, Inc. and its subsidiaries. Overview 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 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, thermal systems and cryogenic systems are included in the Systems segment. We generated net income of $64.5 million in the first nine months of fiscal 2022 as compared to $58.0 million in the first nine months of fiscal 2021. The increase in net income was primarily due to increased revenue with improved gross margins from a reduction in the amortization of intangibles due to significant intangibles becoming fully amortized, partially offset by higher operating expenses. The first half of fiscal 2022 was strong, realizing $60.1 million of the $64.5 million net income in the first nine months of fiscal 2022 with $401.1 million in revenue and 47.0% gross margins. For the third quarter of fiscal 2022, we generated net income of $4.4 million with $180.9 million in revenue and 34.4% gross margins, which was a significant decline in results after a strong first half. In October 2022, the United States government imposed new controls, including expanded export license requirements that significantly impact trade with China for advanced U.S. semiconductor technology sold in China. The impact of this on our business is still being evaluated and updated guidance is being provided by the U.S. Government on an ongoing basis and subject to change. We expect these regulatory conditions, on top of the slowing business environment seen in the third quarter of fiscal 2022, to negatively impact our financial results over the next few quarters. Given the rapidly evolving situation, the impacts beyond that time frame are uncertain. Significant Accounting Policies and the Use of Estimates Management’s Discussion and Analysis and Note 2, Summary of Significant Accounting Policies , to the Consolidated Financial Statements in our 2021 Annual Report on Form 10-K describe the significant accounting estimates and significant accounting policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. During the nine months ended September 24, 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. 23 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 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 Revenues 100.0 % 100.0 % 100.0 % 100.0 % Cost of revenues 65.6 57.8 56.9 58.7 Gross profit 34.4 42.2 43.1 41.3 Operating expenses: Research and development 14.7 13.7 14.1 13.4 Selling, general and administrative 17.5 16.3 16.8 16.2 Total operating expenses 32.2 30.0 30.9 29.6 Operating income 2.2 12.2 12.2 11.7 Interest income 0.4 0.1 0.2 0.1 Interest expense (0.1) (0.1) (0.1) (0.1) Other income, net 0.6 0.1 0.3 — Income before income taxes 3.1 12.3 12.6 11.7 Provision for income taxes 0.7 1.5 1.5 1.4 Net income 2.4 % 10.8 % 11.1 % 10.3 % Revenues by Segment and Market Three Months Ended Nine Months Ended September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 (In thousands) Probe Cards $ 139,365 $ 154,850 $ 467,056 $ 467,389 Systems 41,504 35,114 114,894 97,287 $ 180,869 $ 189,964 $ 581,950 $ 564,676 24 Three Months Ended September 24, 2022 % of Revenues September 25, 2021 % of Revenues $ Change % Change (Dollars in thousands) Probe Cards Markets: Foundry & Logic $ 90,605 50.1 % $ 104,640 55.1 % $ (14,035) (13.4) % DRAM 34,922 19.3 39,816 20.9 (4,894) (12.3) Flash 13,838 7.7 10,394 5.5 3,444 33.1 Systems Market: Systems 41,504 22.9 35,114 18.5 6,390 18.2 Total revenues $ 180,869 100.0 % $ 189,964 100.0 % $ (9,095) (4.8) % Nine Months Ended September 24, 2022 % of Revenues September 25, 2021 % of Revenues $ Change % Change (Dollars in thousands) Probe Cards Markets: Foundry & Logic $ 327,106 56.3 % $ 321,776 57.0 % $ 5,330 1.7 % DRAM 106,202 18.2 115,802 20.5 (9,600) (8.3) Flash 33,748 5.8 29,811 5.3 3,937 13.2 Systems Market: Systems 114,894 19.7 97,287 17.2 17,607 18.1 Total revenues $ 581,950 100.0 % $ 564,676 100.0 % $ 17,274 3.1 % Foundry & Logic The decrease in Foundry & Logic product revenue for the three months ended September 24, 2022, compared to the three months ended September 25, 2021, was driven principally by softening demand for the second half of fiscal 2022 causing decreased unit sales to integrated device manufacturers, offset slightly by increased demand at large semiconductor foundries. Foundry & Logic product revenue increased slightly for the nine months ended September 24, 2022, compared to the nine months ended September 25, 2021. Although a slight increase year-over-year, demand has weakened from the slowdown in the semiconductor industry for the second half of fiscal 2022, and as previously described within the Overview. DRAM The decrease in DRAM product revenue for the three and nine months ended September 24, 2022, compared to the three and nine months ended September 25, 2021, was driven by decreased design wins and customer demand. Flash The increase in Flash product revenue for the three and nine months ended September 24, 2022, compared to the three and nine months ended September 25, 2021, was driven by increased customer demand. Systems The increase in Systems market revenue for the three months ended September 24, 2022, compared to the three months ended September 25, 2021, was driven by increased sales of our 200 and 300 millimeter probe stations and cryogenic systems. The increase in Systems market revenue for the nine months ended September 24, 2022, compared to the nine months ended September 25, 2021, was driven by increased sales of our 200 and 300 millimeter probe stations and metrology systems. 25 Revenues by Geographic Region Three Months Ended Nine Months Ended September 24, 2022 % of Revenue September 25, 2021 % of Revenue September 24, 2022 % of Revenue September 25, 2021 % of Revenue (Dollars in thousands) Taiwan $ 36,838 20.4 % $ 41,574 21.9 % $ 139,927 24.0 % $ 139,038 24.6 % China 36,728 20.3 51,047 26.8 124,862 21.5 125,499 22.2 United States 38,089 21.1 25,468 13.4 94,978 16.3 87,604 15.5 South Korea 28,937 16.0 28,972 15.3 85,193 14.6 84,234 14.9 Malaysia 6,509 3.6 11,633 6.1 44,952 7.7 34,758 6.2 Singapore 10,357 5.7 7,552 4.0 28,361 4.9 26,072 4.6 Europe 11,798 6.5 10,486 5.5 28,284 4.9 32,495 5.8 Japan 7,692 4.3 10,728 5.6 27,011 4.6 27,753 4.9 Rest of the world 3,921 2.1 2,504 1.4 8,382 1.5 7,223 1.3 Total revenues $ 180,869 100.0 % $ 189,964 100.0 % $ 581,950 100.0 % $ 564,676 100.0 % Geographic revenue information is based on the location to which we ship the product. For example, if a certain South Korean customer purchases through their U.S. 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 24, 2022, compared to the three and nine months ended September 25, 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. More specifically, the increase in revenues for the United States, and decreases in revenues for China and Malaysia were driven principally by a single large U.S.-based company with operations in these regions. The decrease in China mentioned previously was partially offset by increased demand from a large Chinese DRAM integrated device manufacturer. Cost of Revenues and Gross Margins Cost of revenues consists primarily of manufacturing materials, compensation and benefits, shipping and handling costs, manufacturing-related overhead and amortization of certain intangible assets. Our manufacturing operations rely on a limited number of suppliers to provide key components and materials for our products, some of which are a sole source. We order materials and supplies based on backlog and forecasted customer orders. Tooling and setup costs related to changing manufacturing lots at our suppliers are also included in the cost of revenues. We expense all warranty costs, inventory provisions and amortization of certain intangible assets as cost of revenues. Our gross profit and gross margin were as follows (dollars in thousands): Three Months Ended September 24, 2022 September 25, 2021 $ Change % Change Gross profit $ 62,213 $ 80,219 $ (18,006) (22.4) % Gross margin 34.4 % 42.2 % Nine Months Ended September 24, 2022 September 25, 2021 $ Change % Change Gross profit $ 250,806 $ 233,208 $ 17,598 7.5 % Gross margin 43.1 % 41.3 % 26 Our gross profit and gross margin by segment were as follows (dollars in thousands): Three Months Ended September 24, 2022 September 25, 2021 Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total Gross profit $ 48,252 $ 22,284 $ (8,323) $ 62,213 $ 69,868 $ 17,553 $ (7,202) $ 80,219 Gross margin 34.6 % 53.7 % 34.4 % 45.1 % 50.0 % 42.2 % Nine Months Ended September 24, 2022 September 25, 2021 Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total Gross profit $ 203,874 $ 59,967 $ (13,035) $ 250,806 $ 206,783 $ 48,059 $ (21,634) $ 233,208 Gross margin 43.7 % 52.2 % 43.1 % 44.2 % 49.4 % 41.3 % Probe Cards For the three months ended September 24, 2022, gross margins decreased compared to the three months ended September 25, 2021, primarily due to greater inventory excess and obsolescence reserves, higher net manufacturing spending driven by higher labor and overhead costs, and lower standard margins related to a less favorable product mix. For the nine months ended September 24, 2022, gross margins decreased compared to the nine months ended September 25, 2021, primarily due to higher net manufacturing spending driven by higher labor and overhead costs, partially offset by improved standard margins related to a more favorable product mix. Systems For the three and nine months ended September 24, 2022, gross margins increased compared to the three and nine months ended September 25, 2021, primarily as a result of a more favorable product mix and improved leverage on fixed costs at higher revenues. 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 increase in Corporate and Other for the three months ended September 24, 2022 compared to the three months ended September 25, 2021 is primarily due to increased restructuring charges arising from a change in estimate of excess and obsolete inventories related to our third quarter of fiscal 2021 plan to adjust capacity for certain product offerings, partially offset by a reduction in the amortization of intangibles resulting from significant intangibles becoming fully amortized. The decrease in Corporate and Other for the nine months ended September 24, 2022 compared to the nine months ended September 25, 2021 is primarily due to a reduction in the amortization of intangibles resulting from significant intangibles becoming fully amortized, partially offset by increased restructuring charges in the third quarter of fiscal 2022 arising from a change in estimate of excess and obsolete inventories related to our fiscal 2021 plan to adjust capacity for certain product offerings. Overall Gross profit and gross margins fluctuate with revenue levels, product mix, selling prices, factory loading, labor costs, and material costs. For the three months ended September 24, 2022, compared to the three months ended September 25, 2021, gross profit and gross margins have decreased on lower revenue levels, a less favorable Probe Cards segment product mix, increased labor, overhead, and inventory excess and obsolescence reserves, and less amortization of intangibles. For the nine months ended September 24, 2022, compared to the nine months ended September 25, 2021, gross profit and gross margins have increased on higher revenue levels, improved product mix, and less amortization of intangibles, partially offset by higher labor and overhead costs. 27 Cost of revenues included stock-based compensation expense as follows (in thousands): Three Months Ended Nine Months Ended September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 Stock-based compensation $ 1,022 $ 1,392 $ 2,834 $ 3,806 Research and Development Three Months Ended September 24, 2022 September 25, 2021 $ Change % Change (Dollars in thousands) Research and development $ 26,549 $ 26,026 $ 523 2.0 % % of revenues 14.7 % 13.7 % Nine Months Ended September 24, 2022 September 25, 2021 $ Change % Change (Dollars in thousands) Research and development $ 82,000 $ 75,526 $ 6,474 8.6 % % of revenues 14.1 % 13.4 % Research and development expenses in the three months ended September 24, 2022 increased slightly when compared to the corresponding period in the prior year primarily due to an increase in headcount, which increased allocated costs within Other general operations. This increase was partially offset by a net decrease in employee compensation due to a decrease in performance based compensation, net of an increase in employee compensation due to annual salary adjustments. For the nine months ended September 24, 2022 when compared to the corresponding period in the prior year there was an increase in research and development expenses primarily driven by an increase in headcount which is to support our continued investment in technology leadership. 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 24, 2022 compared to Three Months Ended September 25, 2021 Nine Months Ended September 24, 2022 compared to Nine Months Ended September 25, 2021 Other general operations $ 1,700 $ 4,168 Project material costs 249 850 Depreciation 70 (9) Stock-based compensation 17 346 Restructuring charges (222) (428) Employee compensation costs (1,291) 1,547 $ 523 $ 6,474 Research and development included stock-based compensation expense as follows (in thousands): Three Months Ended Nine Months Ended September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 Stock-based compensation $ 2,027 $ 2,010 $ 5,708 $ 5,362 28 Selling, General and Administrative Three Months Ended September 24, 2022 September 25, 2021 $ Change % Change (Dollars in thousands) Selling, general and administrative $ 31,637 $ 30,940 $ 697 2.3 % % of revenues 17.5 % 16.3 % Nine Months Ended September 24, 2022 September 25, 2021 $ Change % Change (Dollars in thousands) Selling, general and administrative $ 97,949 $ 91,434 $ 6,515 7.1 % % of revenues 16.8 % 16.2 % Selling, general and administrative expenses increased in the three and nine months ended September 24, 2022 when compared to the corresponding period in the prior year, primarily driven by increased headcount, annual salary adjustments, increased travel related costs as restrictions related to COVID-19 relaxed, and higher stock-based compensation. Furthermore, the increase for the three months ended September 24, 2022 when compared to the corresponding period in the prior year was partially offset by lower performance based compensation. A detail of the changes is as follows (in thousands): Three Months Ended September 24, 2022 compared to Three Months Ended September 25, 2021 Nine Months Ended September 24, 2022 compared to Nine Months Ended September 25, 2021 Travel related costs $ 583 $ 2,257 General operating expenses 576 2,046 Stock-based compensation 428 914 Restructure 25 66 Consulting fees 19 (319) Amortization of intangibles (73) (273) Employee compensation costs (861) 1,824 $ 697 $ 6,515 Selling, general and administrative included stock-based compensation expense as follows (in thousands): Three Months Ended Nine Months Ended September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 Stock-based compensation $ 4,946 $ 4,518 $ 13,331 $ 12,417 Interest Income and Interest Expense Interest income is earned on our cash, cash equivalents, restricted cash and marketable securities. The increase in interest income for the three and nine months ended September 24, 2022 compared with the corresponding period of the prior year was attributable to an increase in investment yields due to the higher interest rate environment. Interest expense primarily includes interest on our term loans, interest rate swap derivative contracts, and term loan issuance costs amortization charges. The interest expense for the three and nine months ended September 24, 2022 compared to the same period of the prior year remained consistent despite a lower outstanding debt due to increased average interest rates on the outstanding debt. 29 Other Income, Net Other income, net, primarily includes the effects of foreign currency impact and various other gains and losses. We partially mitigate our risks from currency movements by hedging certain balance sheet exposures, which minimizes the impacts during periods of foreign exchange volatility. Provision for Income Taxes Three Months Ended Nine Months Ended September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 (In thousands, except percentages) Provision for income taxes $ 1,274 $ 2,784 $ 8,860 $ 8,273 Effective tax rate 22.6 % 12.0 % 12.1 % 12.5 % Provision for income taxes reflects the tax provision on our operations in foreign and U.S. jurisdictions, offset by tax benefits from tax credits and the foreign-derived intangible income (“FDII”) deduction. Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuation allowance, changes to U.S. federal, state or foreign tax laws, changes in ASC 718 stock-based compensation expense/benefit, future expansion into areas with varying country, state, and local income tax rates, and deductibility of certain costs and expenses by jurisdiction. We have utilized our previous net operating loss carryforwards, and expect the FDII deduction and corresponding benefit to be available, resulting in a decrease from the U.S. statutory rate for the year ending December 31, 2022. The increase in the effective tax rate in the three months ended September 24, 2022 when compared to the corresponding period in the prior year was primarily driven by a change within the third quarter of fiscal 2022 to the estimated annual taxable income, including by jurisdiction, and lower discrete benefits from stock-based compensation. 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 $352.6 million at September 24, 2022, compared to $375.3 million at December 25, 2021. Cash and cash equivalents primarily consist of deposits held at banks, money market funds, corporate bonds, 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. 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 $251.6 million at September 24, 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. 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, or increasing our available cash through debt or equity financings, our cash, cash equivalents and marketable securities may decline. 30 We utilize a variety of tax planning and financing strategies to manage our worldwide cash and deploy funds to locations where needed. As part of these strategies, we indefinitely reinvest a portion of our foreign earnings. Should we require additional capital in the United States, we may elect to repatriate indefinitely-reinvested foreign funds or raise capital in the United States. Cash Flows The following table sets forth our net cash flows from operating, investing and financing activities: Nine Months Ended September 24, 2022 September 25, 2021 (In thousands) Net cash provided by operating activities $ 111,048 $ 100,437 Net cash used in investing activities $ (52,013) $ (94,976) Net cash used in financing activities $ (84,964) $ (36,869) Operating Activities Net cash provided by operating activities for the nine months ended September 24, 2022 was primarily attributable to net income of $64.5 million and net non-cash expenses of $69.3 million, which includes depreciation, amortization, stock-based compensation, and the provision for excess and obsolete inventories. This was partially offset by an increase in net working capital of $22.7 million, primarily related to cash paid for inventories of $33.0 million and a decrease in accrued liabilities for $5.0 million, partially offset by cash provided by an increase in accounts payable of $17.6 million. Investing Activities Net cash used in investing activities for the nine months ended September 24, 2022 was primarily related to $39.0 million property, plant and equipment purchases, $8.6 million of net cash used to purchase marketable securities, and $3.4 million used for acquisition of a business. Financing Activities Net cash used in financing activities for the nine months ended September 24, 2022 primarily related to $73.5 million used to purchase common stock under our stock repurchase programs, $6.4 million of principal payments made towards the repayment of our term loans, and $15.6 million related to tax withholdings associated with the net share settlements of our equity awards, partially offset by $10.5 million of proceeds received from issuances of common stock under our employee stock purchase plan. Debt FRT Term Loan On October 25, 2019, we entered into a $23.4 million three-year credit facility loan agreement (the “FRT Term Loan”), to fund the acquisition of FRT GmbH, which we acquired on October 9, 2019. 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 $1.8 million plus interest. The interest rate at September 24, 2022 was 1.90%. As of September 24, 2022, the balance outstanding pursuant to the FRT term loan was $1.7 million. The FRT Term Loan was 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 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 24, 2022 was 4.31%. As of September 24, 2022, the balance outstanding pursuant to the Building Term Loan was $15.8 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. 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 converted a floating interest 31 rate of one-month LIBOR plus 1.75% into a fixed interest rate of 2.75%. As of September 24, 2022, the notional amount of the loan that is subject to this interest rate swap is $15.8 million. Stock Repurchase Programs On October 26, 2020, our Board of Directors authorized a two-year program to repurchase up to $50 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based compensation programs. During fiscal 2021 we repurchased and retired 622,400 shares of common stock for $24.0 million. During the nine months ended September 24, 2022, we repurchased and retired 676,408 shares of common stock for $26.0 million, utilizing the remaining funds available for repurchase. On May 20, 2022, our Board of Directors authorized an additional program to repurchase up to $75 million of outstanding common stock, also with the primary purpose of offsetting potential dilution from issuances of common stock under our stock-based compensation programs. The share repurchase program will expire on May 20, 2024. During the nine months ended September 24, 2022, we repurchased and retired 1,335,414 shares of common stock for $47.5 million under this program. As of September 24, 2022, $27.5 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 24, 2022: Payments Due In Fiscal Year Remainder 2022 2023 2024 2025 2026 Thereafter Total Operating leases $ 4,275 $ 7,545 $ 7,236 $ 7,170 $ 6,450 $ 9,042 $ 41,718 Term loans - principal payments 1,953 1,050 1,080 1,111 1,142 11,116 17,452 Term loans - interest payments (1) 179 657 614 561 513 2,170 4,694 Total $ 6,407 $ 9,252 $ 8,930 $ 8,842 $ 8,105 $ 22,328 $ 63,864 (1) Represents our minimum interest payment commitments at 4.31% per annum for the Building Term Loan and 1.90% per annum for the FRT Term Loan. This excludes any amounts related to our interest rate swap. Off-Balance Sheet Arrangements Historically, we have not participated in transactions that have generated relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of September 24, 2022, we were not involved in any such off-balance sheet arrangements. Recent Accounting Pronouncements See Note 1, Basis of Presentation and New Accounting Pronouncements , of Notes to Condensed Consolidated Financial Statements.