What changed in this filing

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Item 9A. Controls and Procedures

2023-02-24 compared with 2022-02-18 · 212 added, 283 removed, 1243 unchanged (28% of the section changed)

59 unchanged sentences

First Filing Exhibit

Amended and Restated Certificate of Incorporation of the Registrant as filed with the Delaware Secretary of State on June 17, 2003 S-1 333-109815 10/20/2003 3.01

Amended and Restated Bylaws of the Registrant 8-K 000-50307 7/22/2016 3.2

Certificate of Amendment of Amended and Restated Certificate of Incorporation of FormFactor, Inc.

8-K 000-50307 6/3/2022 3.1

Restated Certificate of Incorporation of FormFactor, Inc.

8-K 000-50307 6/3/2022 3.2

Amended and Restated By-laws of FormFactor, Inc.

8-K 000-50307 6/3/2022 3.3

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

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Employee Incentive Plan, as amended and restated effective October 1, 2019 10-K 000-50307 2/21/2020 10.9

Equity Incentive Plan, as amended and restated effective May 15, 2020 DEF 14A 000-50307 4/3/2020 Appendix A

Equity Incentive Plan, as amended and restated effective May 27, 2022 DEF 14A 000-50307 4/13/2022 Appendix B

Employee Stock Purchase Plan, as amended and restated May 18, 2018 DEF 14A 000-50307 4/3/2018 Appendix A

First Amendment to FormFactor, Inc.

Employee Stock Purchase Plan 10-Q 000-50307 8/2/2022 10.1

Pacific Corporate Center Lease (Building 1) by and between Greenville Holding Company LLC (successor to Greenville Investors, L.P.) (“Greenville”) and the Registrant dated May 3, 2001 S-1/A 333-86738 6/10/2003 10.18

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10-Q 000-51072 5/9/2014 10.1

Incorporated by Reference

Number Exhibit Description Form File No Date of

First Filing Exhibit

Second Amendment to Lease dated February 25, 2013, between Nimbus Center LLC and Cascade Microtech, Inc.

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10-K 000-51072 3/72016 10.23

Seventh Amendment to Lease dated June 5, 2018, between Nimbus Center LLC and FormFactor Beaverton, Inc.

Eighth Amendment to Lease dated December 14, 2022, between Nimbus Center LLC and FormFactor, Inc.

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

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

CEO Change of Control and Severance Agreement, dated July 20, 2022 by and between Mike Slessor and the Registrant 8-K 000-50307 7/26/2022 10.3

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

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

Change of Control Severance Agreement, dated July 20, 2022 by and between Shai Shahar and the Registrant 8-K 000-50307 7/26/2022 10.2

List of Registrant's subsidiaries — — — — X

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** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

*** The schedules, exhibits, and annexes to this exhibit have been omitted in reliance on Item 601(b)(2) of Regulation S-K and will be furnished supplementally to the SEC upon request.

+ Indicates a management contract or compensatory plan or arrangement.

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Additional Directors:

/s/ LOTHAR MAIER Director February 18, 2022

/s/ JORGE TITINGER Director February 18, 2022

Jorge Titinger

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

Kelley Steven-Waiss

/s/ SHERI RHODES Director February 18, 2022

/s/ THOMAS ST.

DENNIS Director February 24, 2023

/s/ RAYMOND LINK Director February 24, 2023

/s/ LOTHAR MAIER Director February 24, 2023

/s/ REBECA OBREGON-JIMENEZ Director February 24, 2023

Rebeca Obregon-Jimenez

/s/ THOMAS ST.

DENNIS Director February 18, 2022

/s/ SHERI RHODES Director February 24, 2023

/s/ KELLEY STEVEN-WAISS Director February 24, 2023

Kelley Steven-Waiss

/s/ JORGE TITINGER Director February 24, 2023

Jorge Titinger

/s/ BRIAN WHITE Director February 24, 2023

Report of Independent Registered Public Accounting Firm

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generally accepted accounting principles.

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

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

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We identified the evaluation of inventory excess and obsolescence as a critical audit matter.

Complex auditor judgment was required to evaluate that past consumption, recent purchases, or backlog accurately indicate future consumption and thus meet the accounting objective of recording inventory at the lower of its cost or net realizable value.

Complex auditor judgment was required to evaluate certain assumptions used to estimate future consumption of inventory in the Company's model, specifically qualitative other factors that have a high degree of subjectivity and are based on the outcome of uncertain future events.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter.

This included controls related to the Company’s process to develop the assumptions used to predict future consumption of inventory.

We assessed the Company’s assumptions about how past consumption, recent purchases, or backlog indicate future consumption by:

(1) Evaluating historical cumulative write down trends and relevant changes to the overall business environment, including key customers and product lines in order to evaluate the Company’s methodology that actual past consumption history, recent purchases, or backlog are relevant as predictors of future inventory consumption, and (2) Selecting a sample of products within inventory and for each sample selection (a) evaluating how past consumption, recent purchases, or backlog indicate future consumption of the specific sampled inventory product, and (b) recalculating the Company’s estimate of the cumulative inventory write-downs based on the actual quantity of product on hand compared to the estimate of future consumption.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company's process to estimate inventory excess and obsolescence.

This included controls related to the development of certain assumptions used to estimate future consumption of inventory, including qualitative other factors.

We assessed the Company’s assumptions used to estimate future consumption of inventory, including qualitative other factors by:

• evaluating historical cumulative write down trends and relevant changes to the overall business environment, including key customers and product lines

• evaluating the Company’s ability to accurately estimate future consumption by comparing certain assumptions made in prior year to actual results in the subsequent period

• performing inquiries with nonfinancial personnel, including sales and production employees, for a selection of products within inventory for which the Company recorded an adjustment to the cost basis based on qualitative other factors

• selecting a sample of products within inventory for which the Company recorded an adjustment to the cost basis based on qualitative other factors and for each sample selection, we inspected internal and/or external information underlying the qualitative other factors and recalculated the Company’s estimate of the cumulative inventory write-downs based on the actual quantity of product on hand compared to the estimate of future consumption.

We have served as the Company’s auditor since 2013.

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Additional paid-in capital 844,842 898,945

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

Accumulated other comprehensive loss ( 5,578 ) ( 1,449 )

Accumulated deficit ( 31,056 ) ( 81,794 )

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Other comprehensive income (loss), net of tax:

Translation adjustments and other ( 5,995 ) 5,131 ( 1,028 )

Translation adjustments ( 4,864 ) ( 5,995 ) 5,131

Unrealized gains (losses) on available-for-sale marketable securities ( 2,025 ) ( 598 ) 226

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

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

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

Net income — — — — 78,523 78,523

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

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

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

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

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

Net income — — — — 83,924 83,924

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Stock-based compensation expense 31,337 29,384 23,830

Amortization of debt issuance costs 5 32 160

Deferred income tax provision (benefit) ( 6,343 ) 3,869 ( 562 )

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Proceeds from sale of subsidiary — — 82

Purchase of promissory note receivable ( 1,000 ) — —

Purchases of marketable securities ( 101,894 ) ( 149,979 ) ( 51,224 )

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Operating lease, right-of-use assets obtained in exchange for lease obligations $ 4,975 $ 12,254 $ 1,912

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

Increase in accounts payable and accrued liabilities related to property, plant and equipment purchases 7,469 2,711 2,545

1 unchanged sentence

Income taxes paid, net $ 10,917 $ 7,957 $ 9,150

Cash paid for interest 643 867 1,405

Cash paid for interest, net 535 643 867

Operating cash outflows from operating leases 8,913 8,520 7,546

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

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

Design, development and manufacturing operations are located in Livermore, Carlsbad, and Baldwin Park, California;

Beaverton, Oregon;

Boulder, Colorado;

and Woburn, Massachusetts, all in the United States;

Bergisch Gladbach, Munich and Thiendorf, Germany, and sales, service and support operations are located in the United States, Germany, France, Italy, South Korea, Japan, Taiwan, China and Singapore.

Our fiscal year ends on the last Saturday in December.

The fiscal years ended on December 25, 2021, December 26, 2020 and December 28, 2019, each consisted of 52 weeks, respectively.

The fiscal years ended on December 31, 2022, December 25, 2021 and December 26, 2020 consisted of 53 weeks, 52 weeks and 52 weeks, respectively.

The first three fiscal quarters in our fiscal year ended December 31, 2022 contained 13 weeks, and the fourth fiscal quarter contained 14 weeks.

Note 2— Summary of Significant Accounting Policies

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Dollars using average exchange rates in effect during the period.

The gains and losses from the foreign currency translation of these subsidiaries' financial statements are included as a separate component of stockholders' equity on our Consolidated Balance Sheets under Accumulated other comprehensive income (loss).

Certain other of our foreign subsidiaries use the U.S.

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

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

We account for acquired businesses using the acquisition method of accounting, which requires, among other

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date, and that the fair value of acquired intangibles be recorded on the balance sheet.

Transaction costs are expensed as incurred.

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

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

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

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

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If an available-for-sale debt security’s fair value is less than its amortized cost basis, then we evaluate whether the decline is the result of a credit loss, in which case an impairment is recorded through an allowance for credit losses.

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

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

We did not record an allowance for credit losses related to our available-for-sale investments during fiscal 2022.

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

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

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

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

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

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

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

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

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Balance at end of year $ 168 $ 195 $ 248

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

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

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

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

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

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

On a quarterly basis, we review existing inventory quantities in comparison to our past consumption, recent purchases, backlog and other factors to determine what inventory quantities, if any, may not be sellable.

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

Building and building improvements are depreciated over 30 years.

Leasehold improvements are amortized over 7 years.

Building and building improvements are depreciated over 30 years.

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

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

If we determine, as a result of the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative impairment test is required.

Otherwise, no further testing is required.

If we determine, as a result of the qualitative assessment, that it is more likely than not that the fair value of a

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

reporting unit is less than its carrying amount, then the quantitative impairment test is required.

Otherwise, no further testing is required.

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

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Samsung Electronics Co., LTD.

11.4 % * 11.5 %

* Less than 10% of revenues.

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

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

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

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

At December 31, 2022, one customer accounted for 13.8 % of gross accounts receivable.

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

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

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

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An arrangement may include some or all of the following products and services:

probe cards, systems, accessories, installation services, service contracts and extended warranty contracts.

probe cards, systems, accessories, engineering services, installation services, service contracts and extended warranty contracts.

We sell our products and services direct to customers and to partners in two distribution channels:

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

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

Our products may be customized to our customers’ specifications;

however, control of our product is typically transferred to the customer at the point in time the product is either shipped or delivered, depending on the terms of the arrangement, as the criteria for over time recognition is not met.

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

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Installation services are routinely provided to customers purchasing our systems.

Installation services are a distinct performance obligation apart from the systems and recognized in the period they are performed.

Service contracts, which include repair and maintenance service contracts, and extended warranty contracts are also distinct performance obligations and recognized over the contractual service period, which ranges from one to three years .

For these service contracts recognized over time, we use an input measure, days elapsed, to measure progress.

Installation services are a distinct performance obligation apart from the systems and are recognized in the period they are performed.

Service contracts, which include repair and maintenance service contracts, and extended warranty contracts are also distinct performance obligations and are recognized over the contractual service period, which ranges from one to three years .

For these service contracts recognized over time, we use the input measure of days elapsed to measure progress.

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

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Transaction price allocated to the remaining performance obligations:

On December 25, 2021, we had $ 7.8 million of remaining performance obligations, which were comprised of deferred service contracts and extended warranty contracts and contracts with overtime revenue recognition that are not yet delivered.

On December 31, 2022, we had $ 7.5 million of remaining performance obligations, which were comprised of deferred service contracts, extended warranty contracts, and contracts with over time revenue recognition that are not yet delivered.

We expect to recognize approximately 85.7 % of our remaining performance obligations as revenue in fiscal 2023, approximately 9.6 % in fiscal 2024, and approximately 4.7 % in fiscal 2025 and thereafter.

The foregoing excludes the value of remaining performance obligations that have original durations of one year or less, and also excludes information about variable consideration allocated entirely to a wholly unsatisfied performance obligation.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contract balances:

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

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contract assets as of December 31, 2022 and December 25, 2021 were $ 1.9 million and $ 0.9 million, respectively, and are reported on the Consolidated Balance Sheets as a component of Prepaid expenses and other current assets.

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In evaluating the ability to recover deferred tax assets, we consider all available positive and negative evidence giving greater weight to our recent cumulative income, our historical ability to utilize net operating losses in recent years, and our forecast of future taxable income, including the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies.

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

upon ultimate settlement.

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

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

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To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made.

The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest.

The provision for income taxes includes the impact of reserve provisions and changes to reserves, as well as the related net interest.

We recognize interest and penalties related to unrecognized tax benefits within the income tax provision.

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The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service periods in our Consolidated Statements of Income.

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

The fair value of restricted stock units (“RSUs”) is measured based on the closing market price of our common stock on the date of grant.

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

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Weighted-average shares used in computing basic and diluted net income per share 78,201 79,133 79,001

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) (“OCI”) includes the following items, the impact of which has been excluded from earnings and reflected as components of stockholders' equity as shown below (in thousands):

Accumulated other comprehensive loss

Accumulated other comprehensive loss (“OCI/L”) includes the following items, the impact of which has been excluded from earnings and reflected as components of stockholders' equity as shown below (in thousands):

December 31, 2022 December 25, 2021

Unrealized losses on available-for-sale marketable securities $ ( 724 ) $ ( 126 )

Translation adjustments and other ( 811 ) 5,184

Unrealized losses on available-for-sale marketable securities and other investments $ ( 2,749 ) $ ( 724 )

Translation adjustments ( 5,675 ) ( 811 )

Unrealized gains on derivative instruments 2,846 86

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

Accumulated other comprehensive loss $ ( 5,578 ) $ ( 1,449 )

FORMFACTOR, INC.

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Certificate of deposit 720 — ( 14 ) 706

agency securities 11,295 — ( 250 ) 11,045

$ 131,251 $ — $ ( 2,245 ) $ 129,006

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

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

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

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

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

agency securities 575 — — 575

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

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Accordingly, we believe that the unrealized losses are not as a result of a credit loss.

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

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

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Accrued compensation and benefits $ 15,864 $ 29,706

Accrued income and other taxes 12,817 8,086

Accrued employee stock purchase plan contributions withheld 4,585 4,693

Accrued warranty 4,199 2,805

Accrued income and other taxes 8,086 6,976

Accrued restructuring charges 1,249 2,478

Accrued contingent consideration — 4,012

Other accrued expenses 3,401 3,068

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Note 4— Acquisitions

Woburn Acquisition

On June 9, 2022 we acquired the assets of the dilution refrigerator product line of American ULT Cryogenics, formerly d/b/a JanisULT (“Woburn”), for total consideration of $ 3.4 million.

This acquisition adds cryogen-free dilution refrigerators capable of cooling to sub-10 millikelvin to our product portfolio, which is required for operation of superconducting quantum computers.

The acquisition price was allocated to the tangible and identified intangible assets acquired and liabilities assumed as of the closing date of the acquisition based upon their respective fair values.

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

Goodwill represents the excess of purchase price over the fair value assigned to the assets acquired and liabilities assumed and is allocated to the HPD reporting unit within the Systems reportable segment.

The identified intangible asset, developed technology, has a useful life of three years .

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Accounts receivable 178

Inventories 7,041

Property, plant and equipment 479

Prepaid expenses and other assets 117

Other asset 28

Tangible assets acquired 7,843

Deferred revenue ( 5,513 )

Accounts payable and accrued liabilities ( 30 )

Total net tangible assets acquired and liabilities assumed 2,300

Intangible assets 500

Net assets acquired $ 3,350

High Precision Devises, Inc.

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

We subsequently made certain immaterial adjustments within the measurement period to the acquisition price allocation as a result of finalization of our valuation of identifiable assets and liabilities.

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

We subsequently made certain immaterial adjustments within the measurement period to the acquisition price allocation as a result of finalization of our valuation of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

identifiable assets and liabilities.

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

Cash and cash equivalents $ 1,680

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We valued customer relationships using the incremental cash flow method.

This method estimates value based on the incremental cash flow afforded by having the customers relationships in place on the acquisition date versus having no relationships in place and needing to replicate or replace those relationships.

This method estimates value based on the incremental cash flow afforded by having the customer relationships in place on the acquisition date versus having no relationships in place and needing to replicate or replace those relationships.

The incremental cash flows are then discounted to a present value to arrive at an estimate of fair value for this asset class.

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Expected cash flow from order backlog was valued on a discounted direct cash flow basis, net of returns on contributory assets such as working capital, property and equipment, trade name and assembled workforce.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The identified trade names intangibles relate to the estimated fair value of future cash flows related to the HPD brand.

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

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The excess of purchase price over the fair value assigned to the assets acquired and liabilities assumed represents the amount of goodwill resulting from the acquisition.

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We valued customer relationships using the incremental cash flow method.

The incremental cash flows are then discounted to a present value to arrive at an estimate of fair value for this asset class.

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We have not presented unaudited combined pro forma financial information as the Baldwin Park acquisition was not significant to our consolidated results of operations and financial position.

FRT GmbH Acquisition

On October 9, 2019, we acquired 100 % of the shares of FRT, a German-based company, for total consideration of $ 26.9 million, net of cash acquired of $ 1.7 million.

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

The contingent consideration was a cash amount equal to 1.5 x Earnings Before Interest and Tax (“EBIT”) as defined in the purchase agreement, from a minimum of zero up to a maximum of € 10.3 million, payable subject to the performance of the acquired business in calendar 2020.

We estimated the fair value of

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

contingent consideration using a probability weighted approach.

Key assumptions in determining the fair value of contingent consideration include estimating the probability of achieving certain EBIT levels and discounting at an appropriate discount rate.

See Note 9, Fair Value, for additional information .

This acquisition strengthened our leadership in test and measurement by expanding our addressable market into 3D hybrid surface metrology and extending the optical applications scope of our existing Systems segment.

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

The acquired assets and liabilities of FRT were recorded at their respective fair values including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets.

Our Consolidated Statements of Income include the financial results of FRT subsequent to the acquisition date of October 9, 2019.

Revenue in fiscal 2019 related to FRT subsequent to the acquisition date that was included in our Consolidated Statements of Income was not material.

Separate from the purchase agreement, we entered into a term loan agreement with a lender for an aggregate amount of $ 23.4 million to finance the acquisition.

See Note 5, Debt , for additional information.

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

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

Cash and cash equivalents $ 1,687

Accounts receivable 3,079

Inventory 2,643

Property, plant and equipment 696

Operating lease, right-of-use-assets 335

Prepaid expenses and other assets 838

Tangible assets acquired 9,278

Customer deposits ( 1,933 )

Accounts payable and accrued liabilities ( 1,182 )

Operating lease liabilities ( 335 )

Deferred tax liabilities ( 5,757 )

Total net tangible assets acquired and liabilities assumed 71

Intangible assets 17,429

Goodwill 11,123

Net assets acquired $ 28,623

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

Amount Weighted Average Useful Life (in years)

Developed technologies $ 12,505 8.0

Customer relationships 3,071 6.0

Order backlog 1,645 0.5

Trade names 208 2.0

Total intangible assets $ 17,429 6.9

The fair value of the intangible assets acquired in connection with the acquisition were determined using either the income, market or replacement cost methodologies.

The intangible assets are being amortized over periods which reflect the pattern in which economic benefits of the assets are expected to be realized.

Identifiable Intangible Assets

Valuation of intangible assets involves multiple assumptions.

The key assumptions are described below.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

Using this approach, the estimated fair values were calculated using expected future cash flows from specific products discounted to their net present values at an appropriate risk-adjusted rate of return.

Customer relationships represent the fair value of future projected revenues that will be derived from the sale of products to FRT's existing customers.

We valued customer relationships using the incremental cash flow method.

The incremental cash flows are then discounted to a present value to arrive at an estimate of fair value for this asset class.

Order backlog represents business under existing contractual obligations.

Expected cash flow from order backlog was valued on a direct cash flow basis.

The identified trade names intangibles relate to the estimated fair value of future cash flows related to the FRT brand.

We valued trade names by applying the relief-from-royalty method under the income approach.

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

The excess of purchase price over the fair value assigned to the assets acquired and liabilities assumed represents the amount of goodwill resulting from the acquisition.

We believe the factors that contributed to goodwill include synergies that are specific to our consolidated business, such as cost savings and operational efficiencies, and the acquisition of a talented workforce that expands our expertise in business development and commercializing semiconductor test products, none of which qualify for recognition as a separate intangible asset.

We do not expect any portion of this goodwill to be deductible for tax purposes.

The goodwill attributable to the acquisition was recorded as a non-current asset and is not amortized, but is subject to an annual review for impairment.

The goodwill arising from the acquisition was allocated to the FRT reporting unit within the Systems reportable segment.

We have not presented unaudited combined pro forma financial information as the FRT acquisition was not significant to our consolidated results of operations and financial position.

Our debt consisted of the following (in thousands):

3 unchanged sentences

Term loans less issuance costs $ 15,434 $ 24,365

CMI Term Loan

On June 24, 2016, we entered into a Credit Agreement (the “Credit Agreement”) with HSBC Bank USA, National Association (“HSBC”), as administrative agent, co-lead arranger, sole bookrunner and syndication agent, other lenders that may from time-to-time be a party to the Credit Agreement, and certain guarantors.

Pursuant to the Credit Agreement, the lenders provided us with a senior secured term loan facility of $ 150 million (the “CMI Term Loan”).

The proceeds of the CMI Term Loan were used to finance a portion of the purchase price paid in connection with the Cascade Microtech acquisition in fiscal 2016 and to pay related bank fees and expenses.

The CMI Term Loan bore interest at a rate equal to, at our option, (i) the applicable London Interbank Offered Rate (“LIBOR”) rate plus 2.00 % per annum or (ii) Base Rate (as defined in the Credit Agreement) plus 1.00 % per annum.

We elected to pay interest at 2.00 % over the one-month LIBOR rate.

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

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

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

We are no longer subject to the terms of the Credit Agreement.

FRT Term Loan

On October 25, 2019, we entered into a euro denominated $ 23.4 million three-year credit facility loan agreement (the “FRT Term Loan”) with HSBC Trinkaus & Burkhardt AG, Germany, to fund the acquisition of FRT GmbH, which we acquired on October 9, 2019.

See Note 4, Acquisitions , for further details of the acquisition.

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 December 25, 2021 was 1.20 %.

The obligations under the FRT Term Loan are fully and unconditionally guaranteed by FormFactor, Inc.

The FRT Term Loan contains negative covenants customary for financing of this type, including covenants that place limitations on the incurrence of additional indebtedness, the creation of liens, the payment of dividends;

dispositions;

fundamental changes, including mergers and acquisitions;

loans and investments;

sale leasebacks;

negative pledges;

transactions with affiliates;

changes in fiscal year;

sanctions and anti-bribery laws and regulations, and modifications to charter documents in a manner materially adverse to the Lenders.

The FRT Term Loan also contains affirmative covenants and representations and warranties customary for financing of this type.

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

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

We made the final payment on the FRT Term Loan on October 25, 2022.

We are no longer subject to the terms of the FRT Term Loan.

Building Term Loan

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The obligations under the Building Term Loan are guaranteed by a deed of trust covering certain real property and improvements and certain personal property used in connection therewith.

The deed of trust creates a first priority lien or encumbrance on the property with only such exceptions as may be approved by the Union Bank in writing.

The Credit Agreement contains covenants customary for financing of this type.

The deed of trust creates a first priority lien or encumbrance on the property with only such exceptions as may be approved by Union Bank in writing.

The Building Term Loan contains covenants customary for financing of this type.

As of December 31, 2022, the balance outstanding pursuant to the Building Term Loan was $ 15.5 million.

6 unchanged sentences

$ 1,944 $ 1,915 $ 1,874 $ 1,841 $ 1,805 $ 12,265 $ 21,644

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

(1) Represents our minimum interest payment commitment at 5.87 % per annum for the Building Term Loan, excluding the interest rate swap described above.

FORMFACTOR, INC.

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Note 7— Restructuring Charges

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

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

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

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

Contract termination costs include charges to satisfy contract obligations.

The amounts accrued are based on our best estimates, however it is reasonably possible that the final amount paid or incurred will differ from the amount estimated in the near term.

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

This plan is expected to result in FormFactor recording restructuring and other charges in the aggregate amount of approximately $ 6.0 million to $ 9.0 million, estimated to be comprised primarily of $ 1.0 million to $ 2.0 million of severance and employee-related costs, $ 2.0 million to 3.0 million in contract and lease termination costs, $ 1.0 million to $ 1.5 million in inventory impairments, and $ 2.0 million to $ 2.5 million of cost related to impairment of leasehold improvements, facility exits, and other costs.

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

2022 Restructuring Plan

On October 25, 2022, we adopted a restructuring plan (“2022 restructuring plan”) to align our cost structure with reduced demand levels, by streamlining and improving the efficiency and business effectiveness of our operations.

This plan has included lowering headcount by approximately 13 % of our workforce, which has resulted in recognizing restructuring charges of approximately $ 7.0 million for the year ended December 31, 2022, consisting of severance and employee-related costs with $ 6.0 million within the Probe Cards segment, $ 0.5 million within the Systems segment, and $ 0.5 million within Corporate.

We expect total restructuring charges of $ 8.5 million to $ 9.5 million.

2021 Restructuring Plan

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

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

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

Additionally, as part of these plans we have undertaken actions to adjust capacity for certain product offerings, which included contract termination costs to satisfy contract obligations.

Restructuring charges for the year ended December 31, 2022 were $ 8.5 million, consisting of $ 0.3 million of severance and employee-related costs, $ 0.4 million in contract and lease termination costs, $ 7.6 million in inventory impairments and other inventory related costs, and $ 0.2 million of cost related to impairment of leasehold improvements, facility exits and fixed asset related costs.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Total restructuring charges for the plans are $ 12.6 million, with $ 9.9 million within the Probe Cards segment and $ 2.7 million within the Systems segment, and were comprised of $ 1.3 million of severance and employee-related costs, $ 1.8 million in contract and lease termination costs, $ 9.0 million in inventory impairments and other inventory related costs, and $ 0.5 million of cost related to impairment of leasehold improvements, facility exits and other costs.

We do not expect to incur additional material costs related to the 2021 Restructuring Plans.

Total restructuring charges included in our Consolidated Statements of Income for both the 2022 and 2021 Restructuring Plans were as follows (in thousands):

Fiscal Year Ended

December 25, 2021

Probe Cards Systems Total

December 31, 2022 December 25, 2021

Cost of revenues $ 11,775 $ 3,205

2 unchanged sentences

$ 15,439 $ 4,124

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

Changes to the restructuring accrual during the years ended December 25, 2021 and December 31, 2022 were as follows (in thousands):

and Benefits Inventory

Impairments Property and Equipment Impairments Contract Termination Costs Total

Impairments &

Other Inventory

Related Costs Property and

Impairments &

Related Costs Contract

Termination &

Other Costs Total

December 26, 2020 $ — $ — $ — $ — $ —

3 unchanged sentences

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

Restructuring charges 7,269 7,629 186 502 15,586

Cash payments ( 7,048 ) ( 1,112 ) ( 112 ) ( 1,719 ) ( 9,991 )

Adjustment to restructuring charges — — — ( 147 ) ( 147 )

Non-cash settlement — ( 6,517 ) ( 74 ) ( 86 ) ( 6,677 )

December 31, 2022 $ 1,249 $ — $ — $ — $ 1,249

Note 8— Derivative Financial Instruments

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

At December 31, 2022, we expect to reclassify $ 0.5 million of the amount accumulated in other comprehensive loss to earnings during the next 12 months, due to the recognition in earnings of the hedged forecasted transactions.

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

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

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 December 31, 2022 will mature by the fourth quarter of fiscal 2023.

The following table provides information about our foreign currency forward contracts outstanding as of December 31, 2022 (in thousands):

5 unchanged sentences

Taiwan Dollar Sell 42,826 1,397

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

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

4 unchanged sentences

Foreign exchange forward contracts Other income, net $ 2,439 $ 1,585 $ ( 1,437 )

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

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

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

Amount of Gain or (Loss) Recognized in Accumulated OCI/L on Derivative Location of Gain or (Loss) Reclassified from Accumulated OCI/L into Income Amount of Gain or (Loss) Reclassified from Accumulated OCI/L into Income

Fiscal 2022 $ ( 1,688 ) Cost of revenues $ ( 1,816 )

8 unchanged sentences

Interest Rate Swaps

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

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

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

The interest rate swap agreement ended as of March 28, 2020.

During fiscal 2020 we entered into an interest rate swap agreement with Union Bank to hedge the interest payments on the Building Term Loan for the notional amount of $ 18.0 million.

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

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

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

rate interest at 2.75 %.

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

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

1 unchanged sentence

See Note 5, Debt , for additional information.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

2 unchanged sentences

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

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

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

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

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

Fiscal 2022 $ 1,906 Other income, net $ 106

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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 fiscal 2022, 2021 or 2020.

The carrying values of Cash, Accounts receivable, net, Restricted cash, Prepaid expenses and other current assets, Accounts payable, Accrued liabilities, and Current portion of term loans, net of unamortized issuance costs approximate fair value due to their short maturities.

The carrying values of Cash, Accounts receivable, net, Restricted cash, Prepaid expenses and other current assets, Accounts payable, and Accrued liabilities approximate fair value due to their short maturities.

No changes were made to our valuation techniques during fiscal 2022.

9 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contingent Consideration

Contingent consideration, arising from the acquisition of FRT (see Note 4, Acquisitions ), 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, discounted to present value at an appropriate discount rate.

In the second quarter of fiscal 2021, we paid $ 3.9 million in contingent consideration in satisfaction of our obligation under the purchase agreement, 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.

Assets and liabilities Measured at Fair Value on a Recurring Basis

3 unchanged sentences

Money market funds $ 21,279 $ — $ — $ 21,279

treasuries 2,500 — — 2,500

Commercial paper — 4,969 — 4,969

4 unchanged sentences

Certificates of deposit — 706 — 706

agency securities — 11,045 — 11,045

Corporate bonds — 67,396 — 67,396

1 unchanged sentence

25,019 103,987 — 129,006

Foreign exchange derivative contracts — 664 — 664

Promissory note receivable — — 943 943

Interest rate swap derivative contracts — 2,374 — 2,374

1 unchanged sentence

Foreign exchange derivative contracts $ — $ ( 193 ) $ — $ ( 193 )

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

Total liabilities $ — $ ( 193 ) $ — $ ( 193 )

2 unchanged sentences

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 contract — 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 )

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

1 unchanged sentence

Other than as discussed in Note 4, Acquisitions and Note 7, Restructuring Charges, there were no assets or liabilities measured at fair value on a non-recurring basis during fiscal 2022, 2021 or 2020.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10— Goodwill and Intangible Assets

2 unchanged sentences

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

Addition - FRT acquisition — 975 975

Addition - Baldwin Park acquisition 352 — 352

2 unchanged sentences

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

Addition - Baldwin Park acquisition 352 — 352

Addition - HPD acquisition — 1,254 1,254

Addition - Woburn acquisition — 550 550

Foreign currency translation — ( 1,405 ) ( 1,405 )

17 unchanged sentences

$ 9,391 $ 18,747 $ 27,991

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The estimated future amortization of definite-lived intangible assets, excluding in-process research and development, is as follows (in thousands):

5 unchanged sentences

See Note 6, Leases .

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Environmental Matters

1 unchanged sentence

federal, state, local, and foreign governmental laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes, the clean-up of contaminated sites and the maintenance of a safe workplace.

We believe that we comply in all material respects with the environmental laws and regulations that apply to us.

We did not receive any notices of violations of environmental laws and regulations in fiscal 2021, 2020 or 2019.

We believe that we comply in all material respects with the environmental laws and regulations that apply to us as of December 31, 2022.

There are no matters pending that we currently believe are reasonably possible of having a material impact to our business, consolidated financial condition, results of operations or cash flows.

In the future, we may receive notices of violations of environmental regulations, or otherwise learn of such violations.

3 unchanged sentences

Under these contractual arrangements, we have agreed to defend, indemnify and/or hold the third party harmless from and against certain liabilities.

These arrangements include indemnities in favor of customers in the event that our products or services infringe a third party's intellectual property or cause property or other indemnities in favor of our lessors in connection with facility leasehold liabilities that we may cause.

These arrangements include indemnities in favor of customers in the event that our products or services infringe a third party's intellectual property, or cause property damage or other indemnities in favor of our lessors in connection with facility leasehold liabilities that we may cause.

In addition, we have entered into indemnification agreements with our directors and certain of our officers, and our bylaws contain indemnification obligations in favor of our directors, officers and agents.

11 unchanged sentences

The results of legal proceedings are difficult to predict, and the costs incurred in litigation can be substantial, regardless of outcome.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 12— Stockholders' Equity

1 unchanged sentence

We have authorized 10,000,000 shares of undesignated preferred stock, $ 0.001 par value, none of which is issued and outstanding.

Our Board of Directors shall determine the rights, preferences, privileges and restrictions of the preferred stock, including dividends rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of any series.

Our Board of Directors shall determine the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of any series.

Each share of common stock has the right to one vote.

1 unchanged sentence

No dividends have been declared or paid as of December 31, 2022.

Common Stock Repurchase Program

On October 26, 2020, our Board of Directors authorized a program to repurchase up to $ 50 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based incentive plans.

The share repurchase program will expire October 28, 2022.

This repurchase program replaced the previous repurchase program that expired in February 2020 to purchase up to $ 25.0 million of outstanding common stock.

Common 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 2020, we did not repurchase any shares.

During fiscal 2021 we repurchased and retired 622,400 shares of common stock for $ 24.0 million, and as of December 31, 2022 we had utilized the remaining funds available for repurchase under this program after repurchasing 676,408 shares of common stock for $ 26.0 million during fiscal 2022.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 issuance of common stock under our stock-based compensation programs.

This share repurchase program will expire on May 20, 2024.

During fiscal 2022, we repurchased and retired 1,700,893 shares of common stock for $ 56.4 million and as of December 31, 2022 $ 18.6 million remained available for future repurchases.

During fiscal 2020 and 2019, we did not repurchase any shares.

Equity Incentive Plan

1 unchanged sentence

As amended, the 2012 Plan has authorized for issuance a total of 27.4 million shares, 6.5 million of which were available for grant as of December 31, 2022.

RSUs granted under the 2012 Plan generally vest over three years in annual tranches, though we have granted, and will continue to grant, such awards that vest over a shorter term for employee retention purposes.

The 2012 Plan provides that incentive stock options may be granted to our employees and nonqualified stock options, and all awards other than incentive stock options, may be granted to employees, directors and consultants.

The exercise price of incentive stock options must be at least equal to the fair market value of our common stock on the date of grant.

All restricted stock units and options granted under the 2012 Plan generally vest over three years and options expire after seven years , unless otherwise determined by the Compensation Committee of the Board of Directors.

Stock Options

Stock option activity was as follows:

Outstanding Options

Shares Weighted

Exercise Price Weighted

Life in Years Aggregate

Outstanding at December 26, 2020 106,000 $ 8.35

Options exercised ( 100,000 ) 8.44

Outstanding at December 25, 2021 6,000 $ 6.93 0.6 $ 225,480

Vested and expected to vest at December 25, 2021 6,000 $ 6.93 0.6 $ 225,480

Exercisable at December 25, 2021 6,000 $ 6.93 0.6 $ 225,480

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Restricted Stock Units

Restricted stock units (“RSUs”) granted under the 2012 Plan generally vest over three years in annual tranches, though we have granted, and will continue to grant, such awards that vest over a shorter term for employee retention purposes.

RSUs, including Performance Restricted Stock Units (“PRSUs”) are converted into shares of our common stock upon vesting on a one-for-one basis.

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The performance criteria are based on a metric called Total Shareholder Return (“TSR”) for the performance period of three years , relative to the TSR of the companies identified as being part of the S&P Semiconductor Select Industry Index (FormFactor peer companies) as of a specific date.

All 318,100 PRSUs granted in fiscal 2018 vested in fiscal 2021.

These shares achieved TSR performance that resulted in an additional 124,600 shares issued during fiscal 2021 related to the 2018 PRSU grant.

Of the 273,000 PRSUs granted in fiscal 2019, 36,000 shares were forfeited, resulting in 237,000 shares vesting in fiscal 2022.

These shares achieved 147 % TSR performance, which resulted in an additional 110,605 shares issued during fiscal 2022 related to the 2019 PRSU grant.

PRSU grant activity was as follows:

1 unchanged sentence

December 31, 2022 December 25, 2021 December 26, 2020

Grant Date August 2, 2021 August 27, 2020 June 4, 2019

Grant Date August 1, 2022 August 2, 2021 August 27, 2020

Performance period July 1, 2022 - June 30, 2025 July 1, 2021 - June 30, 2024 July 1, 2020 - June 30, 2023

Number of shares 204,903 197,128 258,000

TSR as-of date August 2, 2021 August 27, 2020 June 4, 2019

TSR as-of date August 1, 2022 August 2, 2021 August 27, 2020

Stock-based compensation $ 8.6 million $ 8.6 million $ 6.9 million

5 unchanged sentences

We have treated the 2012 ESPP as a compensatory plan.

During fiscal 2021, employees purchased 378,584 shares under this program at a weighted average exercise price of $ 25.91 per share, which represented a weighted average discount of $ 13.53 per share from the fair value of the stock purchased.

As of December 25, 2021, 1,793,072 shares remained available for issuance.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During fiscal 2022, employees purchased 316,861 shares under this program at a weighted average exercise price of $ 33.00 per share, which represented a weighted average discount of $ 6.13 per share from the fair value of the stock purchased.

As of December 31, 2022, 1,476,211 shares remained available for issuance.

Note 13— Stock-Based Compensation

22 unchanged sentences

Total unrecognized stock-based compensation expense $ 58,366 2.1

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Valuation Assumptions

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Expected life (in years) 2.9 2.9 2.8

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following assumptions were used in estimating the fair value of shares under the Employee Stock Purchase Plan:

49 unchanged sentences

Change in valuation allowance 2,597 2,231 1,862

Tax contingencies, net of reversals 3,124 2,812 2,712

Other 1,063 ( 535 ) ( 2,081 )

9 unchanged sentences

Lease liability 6,024 6,717

Depreciation and amortization 17,912 20,961

Research and development expenditures capitalization 36,821 19,553

Net operating loss carryforwards 18,173 18,395

2 unchanged sentences

Total deferred tax assets 74,724 70,668

Right of use asset ( 5,910 ) ( 6,074 )

Right-of-use assets ( 5,219 ) ( 5,910 )

Acquired intangibles and fixed assets ( 4,342 ) ( 6,163 )

50 unchanged sentences

The plan is designed to provide employees with an accumulation of funds for retirement on a tax-deferred basis and provide for annual discretionary employer contributions.

The total charge to net income under the 401(k) plan for fiscal 2021, 2020 and 2019 aggregated $ 2.7 million, $ 2.2 million and $ 2.1 million, respectively.

The total charge to net income under the 401(k) plan for fiscal 2022, 2021 and 2020 aggregated to $ 2.7 million, $ 2.7 million and $ 2.2 million, respectively.

Note 16— Segments and Geographic Information

25 unchanged sentences

China 21.5 21.2 25.2

South Korea 16.0 12.5 19.8

United States 17.1 15.9 18.4

Asia-Pacific (1)

South Korea 14.9 16.0 12.5

Malaysia 6.7 6.4 1.6

Singapore 5.3 4.7 2.4

Europe 5.2 5.7 9.5

2 unchanged sentences

Total Revenues 100.0 % 100.0 % 100.0 %

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

The following table summarizes revenue by market (in thousands):

8 unchanged sentences

Fiscal Year Ended

2021 December 26,

2020 December 28,

December 31, 2022 December 25, 2021 December 26, 2020

Probe Cards Systems Total Probe Cards Systems Total Probe Cards Systems Total

9 unchanged sentences

Note 17— 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

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 LIBOR or another reference rate expected to be discontinued.

In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848),” which permits entities to apply optional expedients in Topic 848 to derivative instruments modified because of discounting transition resulting from reference rate reform.

ASU 2020-04 became effective upon issuance and may be applied prospectively to contract modifications made on or before December 31, 2022.

ASU 2021-01 became effective upon issuance and may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or prospectively for contract modifications made on or before December 31, 2022.

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 Customer s.

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.

FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

elected to early adopt on a prospective basis during the second quarter of fiscal 2022.

The adoption did not have a material effect on the Company's Consolidated Financial Statements.

Note 18- Subsequent Events

In January 2023.

we received $ 18.0 million in cash from a California competes grant (the “Grant”) awarded from the California Governor’s Office of Business and Economic Development.

The Grant requires FormFactor to create and maintain full-time jobs and make significant infrastructure investments within California over a 5-year term.

If we do not meet the requirements of the Grant, we will be required to repay all or a portion of the Grant.

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-K

Item 9A. Controls and Procedures