Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark one)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2018
 
Or 

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            
 
Commission file number: 000-50307
 
FormFactor, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
13-3711155
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
7005 Southfront Road, Livermore, California 94551
(Address of principal executive offices, including zip code)
 
(925) 290-4000
(Registrant’s telephone number, including area code)
 ______________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ý  No o
 
Indicate by check mark whether the registrant submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of the Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ý  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
Emerging growth company o
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No ý 

As of October 31, 2018, 74,102,335 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.
 



FORMFACTOR, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 2018
INDEX

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2



PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
FORMFACTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 
September 29,
2018
 
December 30, 2017
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
91,990

 
$
91,184

Marketable securities
50,109

 
48,988

Accounts receivable, net of allowance for doubtful accounts of $200 and $200
88,869

 
81,515

Inventories, net
81,538

 
67,848

Restricted cash
129

 
372

Refundable income taxes
1,320

 
2,242

Prepaid expenses and other current assets
15,716

 
13,705

Total current assets
329,671

 
305,854

Restricted cash
1,034

 
1,170

Property, plant and equipment, net of accumulated depreciation of $260,607 and $255,755
52,857

 
46,754

Goodwill
189,427

 
189,920

Intangibles, net
75,278

 
97,484

Deferred tax assets
3,042

 
3,133

Other assets
1,163

 
2,259

Total assets
$
652,472

 
$
646,574

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 


Current liabilities:
 

 


Accounts payable
$
49,668

 
$
35,046

Accrued liabilities
24,877

 
33,694

Current portion of term loan, net of unamortized issuance cost of $189 and $307
26,061

 
18,443

Deferred revenue
4,795

 
4,978

Total current liabilities
105,401

 
92,161

Term loan, less current portion, net of unamortized issuance cost of $57 and $272
46,193

 
87,228

Deferred tax liabilities
3,290

 
3,379

Deferred rent and other liabilities
7,537

 
5,169

Total liabilities
162,421

 
187,937




 


Stockholders’ equity:
 

 
 
Preferred stock, $0.001 par value:
 

 
 
10,000,000 shares authorized; no shares issued and outstanding

 

Common stock, $0.001 par value:
 

 


250,000,000 shares authorized; 74,101,623 and 72,532,176 shares issued and outstanding
75

 
73

Additional paid-in capital
857,505

 
843,116

Accumulated other comprehensive income
1,158

 
3,021

Accumulated deficit
(368,687
)
 
(387,573
)
Total stockholders’ equity
490,051

 
458,637

Total liabilities and stockholders’ equity
$
652,472

 
$
646,574

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

3



FORMFACTOR, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Revenues
$
134,989

 
$
143,735

 
$
388,788

 
$
416,540

Cost of revenues
82,019

 
86,105

 
234,471

 
249,572

Gross profit
52,970

 
57,630

 
154,317

 
166,968

Operating expenses:
 

 
 

 
 

 
 

Research and development
18,857

 
19,338

 
56,578

 
55,294

Selling, general and administrative
24,745

 
24,010

 
73,426

 
70,441

Restructuring

 
16

 

 
329

Total operating expenses
43,602

 
43,364

 
130,004

 
126,064

Operating income
9,368

 
14,266

 
24,313

 
40,904

Interest income
369

 
123

 
952

 
283

Interest expense
(777
)
 
(1,109
)
 
(2,654
)
 
(3,446
)
Other income (expense), net
121

 
311

 
(341
)
 
19

Income before income taxes
9,081

 
13,591

 
22,270

 
37,760

Provision for income taxes
1,393

 
1,028

 
3,334

 
2,435

Net income
$
7,688

 
$
12,563

 
$
18,936

 
$
35,325

Net income per share:
 

 
 

 
 
 
 

Basic
$
0.10

 
$
0.17

 
$
0.26

 
$
0.49

Diluted
$
0.10

 
$
0.17

 
$
0.25

 
$
0.48

 
 
 
 
 
 
 
 
Weighted-average number of shares used in per share calculations:
 

 
 

 
 
 
 

Basic
73,837

 
72,651

 
73,273

 
72,103

  Diluted
74,962

 
73,885

 
74,628

 
73,540

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

4



FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Net income
$
7,688

 
$
12,563

 
$
18,936

 
$
35,325

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(449
)
 
1,540

 
(1,732
)
 
5,769

Unrealized gains (losses) on available-for-sale marketable securities
50

 
(15
)
 
(84
)
 
(37
)
Unrealized gains (losses) on derivative instruments
(134
)
 
(36
)
 
(47
)
 
4

Other comprehensive income (loss), net of tax
(533
)
 
1,489

 
(1,863
)
 
5,736

Comprehensive income
$
7,155

 
$
14,052

 
$
17,073

 
$
41,061


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


5



FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
 
Nine-Month Period Ended September 29, 2018
 
Shares
 
Common Stock
 
Additional Paid-in Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated Deficit
 
Total
Balances, December 30, 2017
72,532,176

 
73

 
843,116

 
3,021

 
(387,573
)
 
458,637

Issuance of common stock under the Employee Stock Purchase Plan
610,297

 
1

 
6,661

 

 

 
6,662

Issuance of common stock pursuant to exercise of options for cash
105,610

 

 
1,049

 

 

 
1,049

Issuance of common stock pursuant to vesting of restricted stock units
853,540

 
1

 
(5,694
)
 

 

 
(5,693
)
Stock-based compensation

 

 
12,373

 

 

 
12,373

ASU2017-12 Adoption

 

 

 

 
(50
)
 
(50
)
Components of other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Unrealized loss on marketable securities, net of tax

 

 

 
(84
)
 

 
(84
)
Currency translation adjustments

 

 

 
(1,732
)
 
 
 
(1,732
)
Unrealized gain on derivative instruments, net of tax

 

 

 
(47
)
 

 
(47
)
Net income

 

 

 

 
18,936

 
18,936

Balances, September 29, 2018
74,101,623

 
75

 
857,505

 
1,158

 
(368,687
)
 
490,051

 
 
 
 
 
 
 
 
 
 
 
 
 
Three-Month Period Ended September 29, 2018
 
Shares
 
Common Stock
 
Additional Paid-in Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated Deficit
 
Total
Balances, June 30, 2018
73,358,108

 
74

 
853,278

 
1,691

 
(376,375
)
 
478,668

Issuance of common stock under the Employee Stock Purchase Plan
268,627

 

 
2,957

 

 

 
2,957

Issuance of common stock pursuant to vesting of restricted stock units
474,888

 
1

 
(3,241
)
 

 

 
(3,240
)
Stock-based compensation

 

 
4,511

 

 

 
4,511

Components of other comprehensive income (loss):


 


 


 


 


 

Unrealized gain on marketable securities, net of tax

 

 

 
50

 

 
50

Currency translation adjustments

 

 

 
(449
)
 

 
(449
)
Unrealized loss on derivative instruments, net of tax

 

 

 
(134
)
 

 
(134
)
Net income

 

 

 

 
7,688

 
7,688

Balances, September 29, 2018
74,101,623

 
$
75

 
$
857,505

 
$
1,158

 
$
(368,687
)
 
$
490,051









6



FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
 
Nine-Month Period Ended September 30, 2017
 
Shares
 
Common Stock
 
Additional Paid-in Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated Deficit
 
Total
Balances, December 31, 2016
70,907,847

 
71

 
833,341

 
(3,740
)
 
(428,616
)
 
401,056

Issuance of common stock under the Employee Stock Purchase Plan
655,961

 
1

 
5,694

 

 

 
5,695

Issuance of common stock pursuant to exercise of options for cash
1,431,767

 
1

 
13,412

 

 

 
13,413

Issuance of common stock pursuant to vesting of restricted stock units
845,063

 
1

 
(6,619
)
 

 

 
(6,618
)
Purchase and retirement of common stock
(867,620
)
 
(1
)
 
(10,963
)
 

 

 
(10,964
)
Stock-based compensation

 

 
11,207

 

 

 
11,207

ASU2016-09 Adoption

 

 
(130
)
 

 
130

 

Components of other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Unrealized loss on marketable securities, net of tax

 

 

 
(37
)
 

 
(37
)
Currency translation adjustments

 

 

 
5,769

 
 
 
5,769

Unrealized gain on derivative instruments, net of tax

 

 

 
4

 

 
4

Net income

 

 

 

 
35,325

 
35,325

Balances, September 30, 2017
72,973,018

 
73

 
845,942

 
1,996

 
(393,161
)
 
454,850

 
 
 
 
 
 
 
 
 
 
 
 
 
Three-Month Period Ended September 30, 2017
 
Shares
 
Common Stock
 
Additional Paid-in Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated Deficit
 
Total
Balances, July 1, 2017
72,346,116

 
73

 
839,751

 
507

 
(405,724
)
 
434,607

Issuance of common stock under the Employee Stock Purchase Plan
258,937

 

 
2,795

 

 

 
2,795

Issuance of common stock pursuant to exercise of options for cash
178,250

 

 
1,827

 

 

 
1,827

Issuance of common stock pursuant to vesting of restricted stock units
257,015

 

 
(2,156
)
 

 

 
(2,156
)
Purchase and retirement of common stock
(67,300
)
 

 
(831
)
 

 

 
(831
)
Stock-based compensation

 

 
4,556

 

 

 
4,556

Components of other comprehensive income (loss):


 


 


 


 


 

Unrealized loss on marketable securities, net of tax

 

 

 
(15
)
 

 
(15
)
Currency translation adjustments

 

 

 
1,540

 

 
1,540

Unrealized loss on derivative instruments, net of tax

 

 

 
(36
)
 

 
(36
)
Net income

 

 

 

 
12,563

 
12,563

Balances, September 30, 2017
72,973,018

 
$
73

 
$
845,942

 
$
1,996

 
$
(393,161
)
 
$
454,850


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

7



FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
Cash flows from operating activities:
 

 
 

Net income
$
18,936

 
$
35,325

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation
10,494

 
10,046

Amortization
21,876

 
23,509

Accretion of discount on investments
21

 
22

Stock-based compensation expense
12,421

 
11,279

Amortization of debt issuance costs
333

 
482

Deferred income tax provision
70

 
122

Recovery of doubtful accounts receivable

 
(97
)
Provision for excess and obsolete inventories
7,414

 
6,899

Acquired inventory step-up amortization

 
484

Loss on disposal of long-lived assets
264

 
101

(Gain) loss on derivative instruments

 
(18
)
Foreign currency transaction losses (gains)
409

 
(1,957
)
Changes in assets and liabilities:
 

 
 

Accounts receivable
(7,569
)
 
(17,097
)
Inventories
(21,806
)
 
(14,270
)
Prepaid expenses and other current assets
(1,874
)
 
1,140

Refundable income taxes
933

 
(440
)
Other assets
697

 
823

Accounts payable
10,425

 
3,040

Accrued liabilities
(8,882
)
 
(1,048
)
Income tax payable
(248
)
 
(97
)
Deferred rent and other liabilities
2,445

 
101

Deferred revenues
(221
)
 
1,517

Net cash provided by operating activities
46,138

 
59,866

Cash flows from investing activities:
 

 
 

Acquisition of property, plant and equipment
(12,326
)
 
(13,918
)
Proceeds from sale of a subsidiary
67

 
48

Proceeds from sale of property, plant and equipment
23

 

Purchases of marketable securities
(18,984
)
 
(27,373
)
Proceeds from maturities of marketable securities
17,757

 
3,000

Net cash used in investing activities
(13,463
)
 
(38,243
)
Cash flows from financing activities:
 

 
 

Proceeds from issuances of common stock
7,712

 
19,108

Purchase and retirement of common stock

 
(10,963
)
Tax withholdings related to net share settlements of equity awards
(5,694
)
 
(6,617
)
Principal repayments on term loan
(33,750
)
 
(24,375
)
Net cash used in financing activities
(31,732
)
 
(22,847
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(516
)
 
2,481

Net increase in cash, cash equivalents and restricted cash
427

 
1,257

Cash, cash equivalents and restricted cash, beginning of period
92,726

 
102,596

Cash, cash equivalents and restricted cash, end of period
$
93,153

 
$
103,853

 
 
 
 
Non-cash investing and financing activities:
 

 
 

Change in accounts payable and accrued liabilities related to property, plant and equipment purchases
$
4,724

 
$
(283
)
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for income taxes, net
$
2,513

 
$
2,847

Cash paid for interest
2,299

 
2,974

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

8



FORMFACTOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 — Basis of Presentation and New Accounting Pronouncements
 
Basis of Presentation
The accompanying condensed consolidated financial information of FormFactor, Inc. is unaudited and has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission. However, such information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial information as of December 30, 2017 is derived from our 2017 Annual Report on Form 10-K. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2017 Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.
 
Fiscal Year 
We operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December. Fiscal 2018 and 2017 each contain 52 weeks and the nine months ended September 29, 2018 and September 30, 2017 each contained 39 weeks. Fiscal 2018 will end on December 29, 2018.

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

Critical Accounting Policies
Except as described below, our critical accounting policies have not changed during the nine months ended September 29, 2018 from those disclosed in our Annual Report on Form 10-K for the year ended December 30, 2017.

Revenue Recognition

Revenue is recognized upon transferring control of products and services, and the amounts recognized reflect the consideration we expect to be entitled to receive in exchange for these products and services. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. 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. We sell our products and services direct to customers and to partners in two distribution channels: global direct sales force and through a combination of manufacturers’ representatives and distributors.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. In contracts with multiple performance obligations, we identify each performance obligation and evaluate whether the performance obligation is distinct within the context of the contract at contract inception. Performance obligations that are not distinct at contract inception are combined and accounted for as one unit of account. Generally, the performance obligations in a contract are considered distinct within the context of the contract and are accounted for as separate units of account.

Our products may be customized to our customers’ specifications, however, control of our product is typically transferred to the customer at the point in time the product is either shipped or delivered, depending on the terms of the arrangement, as the criteria for overtime recognition is not met. In limited circumstances, substantive acceptance by the customer exists which results in the deferral of revenue until acceptance is formally received from the customer. Judgment may be required in determining if the acceptance clause is substantive.

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 as our performance obligations are satisfied. This is typically the contractual service period, which ranges from one to two years. For these service contracts recognized over time, we use an input measure, 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. In determining the transaction price, we evaluate whether the price is subject to refund or adjustment to determine the net consideration to which we expect to be entitled. We generally do not grant return privileges, except

9



for defective products during the warranty period. Sales incentives and other programs that we may make available to these customers are considered to be a form of variable consideration, which is estimated in determining the contract’s transaction price to be allocated to the performance obligations. We have elected the practical expedient under Accounting Standards Codification (“ASC”) 606-10-32-18 to not assess whether a contract has a significant financing component as our standard payment terms are less than one year.

For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation based on its relative standalone selling price. The stand-alone selling prices are determined based on the prices at which we separately sell these products. For items that are not sold separately, we estimate the stand-alone selling prices using our best estimate of selling price.

Transaction price allocated to the remaining performance obligations: On September 29, 2018, we had $3.5 million of remaining performance obligations, which were comprised of deferred service contracts and extended warranty contracts not yet delivered. We expect to recognize approximately 54.4% of our remaining performance obligations as revenue in fiscal 2019, and approximately 13.2% in fiscal 2020 and thereafter. The foregoing excludes the value of other remaining performance obligations as they have original durations of one year or less, and also excludes information about variable consideration allocated entirely to a wholly unsatisfied performance obligation.

Contract balances: The timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable is recorded at the invoiced amount, net of an allowance for doubtful accounts. A receivable is recognized in the period we deliver goods or provide services or when our right to consideration is unconditional. A contract asset is recorded when we have performed under the contract but our right to consideration is conditional on something other than the passage of time. Contract assets as of September 29, 2018 and December 30, 2017 were $1.4 million and $1.6 million, respectively, and are reported on the Condensed Consolidated Balance Sheet as a component of Prepaid expenses and other current assets.

Contract liabilities include payments received in advance of performance under a contract and are satisfied as the associated revenue is recognized. Contract liabilities are reported on the Condensed Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period as a component of Deferred revenue and Deferred rent and other liabilities. Contract liabilities as of September 29, 2018 and December 30, 2017 were $5.4 million and $5.7 million. During the three and nine months ended September 29, 2018, we recognized $0.2 million and $3.9 million of revenue, respectively, that was included in contract liabilities as of December 30, 2017.

Costs to obtain a contract: We generally expense sales commissions when incurred as a component of Selling, general and administrative expense as the amortization period is typically less than one year.

Revenue by Category: Refer to Note 12 of Notes to Consolidated Financial Statements for further details.

New Accounting Pronouncements

ASU 2016-10, ASU 2015-14 and ASU 2014-09
In May 2014, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers," and, in August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which defers the effective date of ASU 2014-09 by one year. ASU 2014-09 requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The standard permits the use of either the retrospective or modified retrospective transition methods. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” which was issued to clarify ASC Topic 606, “Revenue from Contracts with Customers” related to (i) identifying performance obligations; and (ii) the licensing implementation guidance. We adopted ASC 606, Revenue from Contracts with Customers and all related amendments (collectively “ASC 606”), on December 31, 2017, the first day of fiscal 2018, using the modified retrospective method. We applied ASC 606 to all contracts not completed as of the date of adoption in order to determine any adjustment to the opening balance of retained earnings. Under the modified retrospective adoption method, the comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods, ASC 605, "Revenue Recognition", which is also referred to herein as "legacy GAAP."


10



The adoption of ASC 606 did not have a material impact on our consolidated financial statements as of December 31, 2017. No adjustment was recorded to accumulated deficit as of the adoption date and reported revenue would not have been different under legacy GAAP. Additionally, we do not expect the adoption of the revenue standard to have a material impact to our net income on an ongoing basis.

ASU 2017-12
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities," which changes the recognition and presentation requirements of hedge accounting, including eliminating the requirement to separately measure and report hedge ineffectiveness and changing the presentation to include all items that affect earnings in the same income statement line item as the hedged item. ASU 2017-12 also provides new alternatives for applying hedge accounting to additional hedging strategies, measuring the hedged item in fair value hedges of interest rate risk, reducing the cost and complexity of applying hedge accounting and reducing the risk of material error correction if a company applies the shortcut method inappropriately. ASU 2017-12 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2018, on a prospective basis. We early adopted ASU 2017-12 on December 31, 2017, the first day of fiscal 2018, resulting in an immaterial adjustment in our accumulated deficit on December 30, 2017.

ASU 2017-09
In May 2017, the FASB issued ASU 2017-09, "Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting," which provides clarity and reduces both diversity in practice and the cost and complexity when accounting for a change to the terms of a stock-based award. ASU 2017-09 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2017, on a prospective basis. We adopted ASU 2017-09 on December 31, 2017, the first day of fiscal 2018. There were no modifications to any stock-based awards during the three or nine months ended September 29, 2018.

ASU 2017-04
In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment," which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. An entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, if applicable. The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The same impairment test also applies to any reporting unit with a zero or negative carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019, on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. We early adopted ASU 2017-04 on July 1, 2018, the first day of the third quarter. The adoption did not have an effect on our financial position, results of operations or cash flows.

ASU 2016-18
In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230) - Restricted Cash," which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, an entity should include amounts generally described as restricted cash or restricted cash equivalents within cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Prior to this ASU, there was no guidance to address how to classify and present changes in restricted cash or restricted cash equivalents. The updated guidance is effective for interim and annual periods beginning after December 15, 2017. We adopted ASU 2016-18 as of December 31, 2017, the first day of fiscal 2018 and retrospectively applied such guidance to our Condensed Consolidated Statements of Cash Flows.

The following table provides a reconciliation of Cash and cash equivalents as previously reported within the Condensed Consolidated Statements of Cash Flows to Cash, cash equivalents and restricted cash as currently reported in the Condensed Consolidated Statements of Cash Flows (in thousands):

11



 
December 30, 2017
 
September 30, 2017
 
December 31, 2016
Cash and cash equivalents as previously reported in the Condensed Consolidated Statements of Cash Flows
$
91,184

 
$
103,083

 
$
101,408

Current assets - Restricted cash
372

 
4

 
106

Restricted cash
1,170

 
766

 
1,082

Cash, cash equivalents and restricted cash as currently reported in the Condensed Consolidated Statements of Cash Flows
$
92,726

 
$
103,853

 
$
102,596


As of September 29, 2018 and December 30, 2017, Restricted cash was comprised primarily of funds held by our foreign subsidiaries for employee obligations, office leases and customer deposits.

ASU 2016-02, ASU 2018-10 and ASU 2018-11
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which requires the recognition of right-of-use assets and lease liabilities for all long-term leases, including operating leases, on the balance sheet. ASU 2016-02 was amended in July 2018 by both ASU 2018-10, "Codification Improvements to Topic 842, Leases," and ASU 2018-11, "Leases (Topic 842): Targeted Improvements." ASU 2016-02 provides additional guidance on the measurement of the right-of-use assets and lease liabilities and will require enhanced disclosures about our leasing arrangements. Under current accounting standards, substantially all of our leases are considered operating leases and, as such, are not recognized on the Consolidated Balance Sheet. This new standard is effective for us beginning on December 30, 2018, with early adoption permitted. As initially issued, the standard required a “modified retrospective” adoption, meaning the standard is applied to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. As amended, the standard allows an additional transition method that permits a company to use its effective date as the date of initial application, and therefore, not restate comparative prior period financial information. Upon adoption we will use the modified transition method. We are currently assessing the impact on our Consolidated Financial Statements and expect that the primary impact upon adoption will be the recognition, on a discounted basis, of our minimum commitments under noncancelable operating leases to our Consolidated Balance Sheets resulting in the recording of right-of-use assets and lease liabilities.

Note 2 — Concentration of Credit and Other Risks

Each of the following customers accounted for 10% or more of our revenues for the periods indicated:
 
Three Months Ended
 
Nine Months Ended
 
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
Intel
24.5
%
 
30.6
%
 
18.0
%
 
27.4
%
Micron
12.0

 
*

 
10.1

 
*

SK Hynix
*

 
*

 
10.2

 
*

Total revenues attributable to 10% or greater customers
36.5
%
 
30.6
%
 
38.3
%
 
27.4
%
*Represents less than 10% of total revenues.

At September 29, 2018, two customers accounted for 25.4% and 10.2% of gross accounts receivable, respectively. At December 30, 2017, two customers accounted for 24.1% and 13.6% of gross accounts receivable, respectively. No other customers accounted for 10% or more of gross accounts receivable at either of these fiscal period ends.


12



Note 3 — Inventories, net

Inventories are stated at the lower of cost (principally standard cost, which approximates actual cost on a first in, first out basis) or net realizable value.
 
Inventories, net, consisted of the following (in thousands):
 
September 29,
2018
 
December 30,
2017
Raw materials
$
44,793

 
$
33,101

Work-in-progress
21,922

 
20,134

Finished goods
14,823

 
14,613

 
$
81,538

 
$
67,848


Note 4 — Goodwill and Intangible Assets

Goodwill by reportable segment was as follows (in thousands):
 
Probe Cards
 
Systems
 
Total
Goodwill, gross, as of December 31, 2016
$
172,482

 
$
15,528

 
$
188,010

Foreign currency translation

 
1,910

 
1,910

Goodwill, gross, as of December 30, 2017
172,482

 
17,438

 
189,920

Foreign currency translation

 
(493
)
 
(493
)
Goodwill, gross, as of September 29, 2018
$
172,482

 
$
16,945

 
$
189,427


We have not recorded any goodwill impairments as of September 29, 2018.

Intangible assets were as follows (in thousands):
 
 
September 29, 2018
 
December 30, 2017
Other Intangible Assets
 
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Existing developed technologies 
 
$
143,577

 
$
92,074

 
$
51,503

 
$
143,966

 
$
76,826

 
$
67,140

Trade name
 
12,042

 
8,136

 
3,906

 
12,086

 
5,735

 
6,351

Customer relationships
 
40,196

 
20,327

 
19,869

 
40,313

 
16,320

 
23,993

Backlog
 

 

 

 
15,811

 
15,811

 


 
$
195,815

 
$
120,537

 
$
75,278

 
$
212,176

 
$
114,692

 
$
97,484


Amortization expense was included in our Condensed Consolidated Statements of Income as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Cost of revenues
$
5,123

 
$
5,473

 
$
15,418

 
$
17,411

Selling, general and administrative
2,389

 
2,043

 
6,458

 
6,098

 
$
7,512

 
$
7,516

 
$
21,876

 
$
23,509



13



The estimated future amortization of intangible assets is as follows (in thousands):
Fiscal Year
Amount
Remainder of 2018
$
7,509

2019
26,432

2020
23,421

2021
12,655

2022
3,215

Thereafter
2,046

 
$
75,278


Note 5 — Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):
 
September 29, 2018
 
December 30, 2017
Accrued compensation and benefits
$
14,002

 
$
18,141

Accrued warranty
2,457

 
3,662

Accrued withholding for employee stock purchase plan
1,430

 
3,279

Accrued income and other taxes
3,397

 
3,965

Other accrued expenses
3,591

 
4,647

 
$
24,877

 
$
33,694


Note 6 — Restructuring Charges
 
Restructuring charges are comprised of costs related to employee termination benefits as well as contract termination costs, and are included in Restructuring in the Consolidated Statements of Income.

Restructuring charges in the first three quarters of fiscal 2017 related to the consolidation of an acquired subsidiary into our operations.

There were no restructuring charges in the first three quarters of fiscal 2018. Changes to the restructuring accrual in the nine months ended September 29, 2018 were as follows (in thousands):
 
Accrual
December 30, 2017
$
399

Cash payments
(399
)
September 29, 2018
$


Note 7 — Fair Value and Derivative Instruments

Whenever possible, the fair values of our financial assets and liabilities are determined using quoted market prices of identical securities or quoted market prices of similar securities from active markets. The three levels of inputs that may be used to measure fair value are as follows:
Level 1 valuations are obtained from real-time quotes for transactions in active exchange markets involving identical securities;
Level 2 valuations utilize significant observable inputs, such as quoted prices for similar assets or liabilities, quoted prices near the reporting date in markets that are less active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 valuations utilize unobservable inputs to the valuation methodology and include our own data about assumptions market participants would use in pricing the asset or liability based on the best information available under the circumstances.

We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during the nine months ended September 29, 2018 or the year ended December 30, 2017.

14




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 the first nine months of fiscal 2018.

Assets and Liabilities Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis were as follows (in thousands): 
September 29, 2018
 
Level 1
 
Level 2
 
Total
Assets:
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
Money market funds
 
$
265

 
$

 
$
265

Commercial paper
 

 
999

 
999

Total cash equivalents
 
265

 
999

 
1,264

Marketable securities:
 
 
 
 
 
 
 U.S. Treasuries
 
4,453

 

 
4,453

 Certificates of deposit
 

 
1,197

 
1,197

 Agency securities
 

 
8,994

 
8,994

 Corporate bonds
 

 
32,186

 
32,186

 Commercial paper
 

 
3,279

 
3,279

Total marketable securities
 
4,453

 
45,656

 
50,109

Interest rate swap derivative contracts
 

 
951

 
951

Total assets
 
$
4,718

 
$
47,606

 
$
52,324


December 30, 2017
 
Level 1
 
Level 2
 
Total
Assets:
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
Money market funds
 
$
1,064

 
$

 
$
1,064

   Corporate bonds
 

 
774

 
774

Total cash equivalents
 
1,064

 
774

 
1,838

Marketable securities:
 
 
 
 
 
 
U.S. Treasuries
 
3,963

 

 
3,963

Certificates of deposit
 

 
957

 
957

Agency securities
 

 
10,432

 
10,432

Corporate bonds
 

 
30,636

 
30,636

Commercial paper
 

 
3,000

 
3,000

Total marketable securities
 
3,963

 
45,025

 
48,988

Foreign exchange derivative contracts
 

 
31

 
31

Interest rate swap derivative contracts
 

 
1,043

 
1,043

Total assets
 
$
5,027

 
$
46,873

 
$
51,900

 

We did not have any liabilities measured at fair value on a recurring basis at September 29, 2018 or December 30, 2017.

Cash Equivalents
The fair value of our cash equivalents is determined based on quoted market prices for similar or identical securities.

Marketable Securities
We classify our marketable securities as available-for-sale and value them utilizing a market approach. Our investments are priced by pricing vendors who provide observable inputs for their pricing without applying significant judgment. Broker pricing is used

15



mainly when a quoted price is not available, the investment is not priced by our pricing vendors or when a broker price is more reflective of fair value. Our broker-priced investments are categorized as Level 2 investments because fair value is based on similar assets without applying significant judgments. In addition, all of our investments have a sufficient level of trading volume to demonstrate that the fair value is appropriate.

Unrealized gains and losses were immaterial and were recorded as a component of Accumulated other comprehensive income in our Condensed Consolidated Balance Sheets. We did not have any other-than-temporary unrealized gains or losses at either period end included in these financial statements.

Interest Rate Swaps
The fair value of our interest rate swap contracts is determined at the end of each reporting period based on valuation models that use interest rate yield curves as inputs. For accounting purposes, our interest rate swap contracts qualify for, and are designated as, cash flow hedges. The cash flows associated with the interest rate swaps are reported in Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows and the fair value of the interest rate swap contracts are recorded within Prepaid expenses and other current assets and Other assets in our Condensed Consolidated Balance Sheets.

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

Amount of Gain or (Loss) Recognized in 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
 
Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
Three Months Ended September 29, 2018
$
62

 
Interest expense
 
$
196

 
Interest expense
Three Months Ended September 30, 2017
$
18

 
Interest expense
 
$
54

 
Interest expense
 
 
 
 
 
 
 
 
Nine Months Ended September 29, 2018
$
418

 
Interest expense
 
$
514

 
Interest expense
Nine Months Ended September 30, 2017
$
8

 
Interest expense
 
$
(32
)
 
Interest expense

Foreign Exchange Derivative Contracts
We operate and sell our products in various global markets. As a result, we are exposed to changes in foreign currency exchange rates. We utilize foreign currency forward contracts to hedge against future movements in foreign exchange rates that affect certain existing foreign currency denominated assets and liabilities and forecasted foreign currency revenue and expense transactions. Under this program, our strategy is to have increases or decreases in our foreign currency exposures mitigated by gains or losses on the foreign currency forward contracts in order to mitigate the risks and volatility associated with foreign currency transaction gains or losses.

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

The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange rates and forward points. All of our foreign exchange derivative contracts outstanding at September 29, 2018 will mature in the third quarter of fiscal 2018.


16



The following table provides information about our foreign currency forward contracts outstanding as of September 29, 2018 (in thousands):
Currency
Contract Position
 
Contract Amount (Local Currency)
 
Contract Amount (U.S. Dollars)
Japanese Yen
Sell
 
(2,241,544
)
 
$
19,783

Taiwan Dollar
Buy
 
49,404

 
(1,626
)
Korean Won
Buy
 
4,508,988

 
(4,082
)
Euro Dollar
Sell
 
(15,050
)
 
17,574

Total USD notional amount of outstanding foreign exchange contracts
 
$
31,649


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.

The location and amount of net income (loss) related to non-designated derivative instruments in the Condensed Consolidated Statements of Income were as follows (in thousands):
 
 
 
 
Three Months Ended
 
Nine Months Ended
Derivatives Not Designated as Hedging Instruments
 
Location of Loss Recognized on Derivatives
 
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
Foreign exchange forward contracts
 
Other income (expense), net
 
$
706

 
$
(556
)
 
$
923

 
$
(2,364
)

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
We measure and report goodwill and intangible assets at fair value on a non-recurring basis if we determine these assets to be impaired or in the period when we make a business acquisition. There were no assets or liabilities measured at fair value on a nonrecurring basis during the three or nine months ended September 29, 2018 or September 30, 2017.

Note 8 — Warranty
 
We offer warranties on certain products and record a liability for the estimated future costs associated with warranty claims at the time revenue is recognized. The warranty liability is based upon historical experience and our estimate of the level of future costs. While we engage in product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. We continuously monitor product returns for warranty and maintain a reserve for the related expenses based upon our historical experience and any specifically identified field failures. As we sell new products to our customers, we must exercise considerable judgment in estimating the expected failure rates. This estimating process is based on historical experience of similar products, as well as various other assumptions that we believe to be reasonable under the circumstances.

We provide for the estimated cost of product warranties at the time revenue is recognized as a component of Cost of revenues in our Condensed Consolidated Statement of Income.

Changes in our warranty liability were as follows (in thousands):
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
Balance at beginning of period
$
3,662

 
$
2,972

Accruals
3,168

 
4,888

Settlements
(4,373
)
 
(5,009
)
Balance at end of period
$
2,457

 
$
2,851



17



Note 9 — Stockholders’ Equity and Stock-Based Compensation
 
Common Stock Repurchase Program
In February 2017, our Board of Directors authorized a program to repurchase up to $25 million of outstanding common stock to offset potential dilution from issuances of common stock under our employee stock purchase plan and equity incentive plan. The share repurchase program will expire on February 1, 2020. Repurchased shares are retired upon the settlement of the related transactions with the excess of cost over par value charged to additional paid-in capital. All repurchases are made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.

During the nine months ended September 29, 2018, we did not repurchase any shares. As of September 29, 2018, $6.0 million remained available for future repurchases.

Restricted Stock Units
Restricted stock unit ("RSU") activity under our equity incentive plan was as follows:
 
 
Units
 
Weighted Average Grant Date Fair Value
RSUs at December 30, 2017
3,148,061

 
$
11.22

Awards granted
1,551,770

 
13.79

Awards vested
(1,271,132
)
 
10.45

Awards forfeited
(293,969
)
 
11.60

RSUs at September 29, 2018
3,134,730

 
$
12.77


The total fair value of RSUs vested during the nine months ended September 29, 2018 was $17.3 million.

Performance Restricted Stock Units
We may grant Performance RSUs ("PRSUs") to certain executives, which vest based upon us achieving certain market performance criteria.

On August 16, 2018, we granted a total of 318,100 PRSUs to nine senior executives for a total grant date fair value of $4.7 million, which will be recognized ratably over the requisite service period. The performance criteria are based on a metric called Total Shareholder Return ("TSR") for the period from July 1, 2018 to June 30, 2021, relative to the TSR of the companies identified as being part of the S&P Semiconductor Select Industry Index (FormFactor peer companies) as of June 30, 2018.

There were no other PRSUs granted during the nine months ended September 29, 2018.

Stock Options
Stock option activity under our equity incentive plan was as follows:
 
Options Outstanding
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Life in Years
 
Aggregate Intrinsic Value
Outstanding at December 30, 2017
659,334

 
$
8.12

 
 
 
 
Options exercised
(105,610
)
 
9.93

 
 
 
 
Outstanding at September 29, 2018
553,724
 
$
7.77

 
3.56
 
$
3,308,931

Exercisable at September 29, 2018
430,104

 
$
7.67

 
3.54
 
$
2,620,928



18



Employee Stock Purchase Plan
Information related to activity under our Employee Stock Purchase Plan ("ESPP") was as follows:
 
Nine Months Ended
 
September 29, 2018
Shares issued
610,297

Weighted average per share purchase price
$
12.84

Weighted average per share discount from the fair value of our common stock on the date of issuance
$
2.82


Stock-Based Compensation
Stock-based compensation was included in our Condensed Consolidated Statements of Income as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Cost of revenues
$
832

 
$
894

 
$
2,565

 
$
2,540

Research and development
1,312

 
1,437

 
3,870

 
3,768

Selling, general and administrative
2,393

 
2,255

 
5,986

 
4,971

Total stock-based compensation
$
4,537

 
$
4,586

 
$
12,421

 
$
11,279

 

Unrecognized Compensation Costs
At September 29, 2018, the unrecognized stock-based compensation was as follows (in thousands): 
 
Unrecognized Expense
 
Average Expected Recognition Period in Years
Stock options
$
167

 
0.36
Restricted stock units
28,035

 
2.76
Performance restricted stock units
6,580

 
2.38
Employee stock purchase plan
974

 
0.34
Total unrecognized stock-based compensation expense
$
35,756

 
1.76

Note 10 — Net Income per Share

The following table reconciles the shares used in calculating basic net income per share and diluted net income per share (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Weighted-average shares used in computing basic net income per share
73,837

 
72,651

 
73,273

 
72,103

Add potentially dilutive securities
1,125

 
1,234

 
1,355

 
1,437

Weighted-average shares used in computing diluted net income per share
74,962

 
73,885

 
74,628

 
73,540

 


 


 

 


Securities not included as they would have been antidilutive
5

 

 
21

 
77



19



Note 11 — Commitments and Contingencies

Contractual Commitments and Purchase Obligations
During the second quarter of 2018, we amended our lease for our Beaverton, Oregon facility, which extended the lease through 2027. During the third quarter of 2018, we amended our lease for our Livermore, California facility, which extended the lease through 2028. Our purchase obligations and other contractual obligations have not materially changed as of September 29, 2018 from those disclosed in our Annual Report on Form 10-K for the year ended December 30, 2017. Future minimum payments under our non-cancelable operating leases were as follows as of September 29, 2018 (in thousands):
Fiscal Year
 
Amount
Remainder of 2018
 
$
1,698

2019
 
5,944

2020
 
5,861

2021
 
5,663

2022
 
4,784

Thereafter
 
24,737

Total
 
$
48,687


Legal Matters
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. As of September 29, 2018, and as of the filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings.

Note 12 — Operating Segments and Enterprise-Wide Information

Our chief operating decision maker ("CODM") is our Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company. We operate in two reportable segments consisting of the Probe Cards segment and the Systems segment. The following table summarizes the operating results by reportable segment (dollars in thousands):
 
Three Months Ended

September 29, 2018
 
September 30, 2017

Probe Cards
 
Systems
 
Corporate and Other
 
Total
 
Probe Cards
 
Systems
 
Corporate and Other
 
Total
Revenues
$
111,606

 
$
23,383

 
$

 
$
134,989

 
$
119,439

 
$
24,296

 
$

 
$
143,735

Gross profit
$
47,675

 
$
11,250

 
$
(5,955
)
 
$
52,970

 
$
51,438

 
$
12,571

 
$
(6,379
)
 
$
57,630

Gross margin
42.7
%
 
48.1
%
 
%
 
39.2
%
 
43.1
%
 
51.7
%
 
%
 
40.1
%
Operating income (loss)
$
25,609

 
$
4,228

 
$
(20,469
)
 
$
9,368

 
$
17,894

 
$
5,277

 
$
(8,905
)
 
$
14,266


 
Nine Months Ended
 
September 29, 2018
 
September 30, 2017
 
Probe Cards
 
Systems
 
Corporate and Other
 
Total
 
Probe Cards
 
Systems
 
Corporate and Other
 
Total
Revenues
$
318,120

 
$
70,668

 
$

 
$
388,788

 
$
347,559

 
$
68,981

 
$

 
$
416,540

Gross profit
$
138,182

 
$
34,118

 
$
(17,983
)
 
$
154,317

 
$
151,204

 
$
36,176

 
$
(20,412
)
 
$
166,968

Gross margin
43.4
%
 
48.3
%
 
%
 
39.7
%
 
43.5
%
 
52.4
%
 
%
 
40.1
%
Operating income (loss)
$
71,326

 
$
12,634

 
$
(59,647
)
 
$
24,313

 
$
54,289

 
$
14,363

 
$
(27,748
)
 
$
40,904


Operating results provide useful information to our management for assessment of our performance and results of operations. Certain components of our operating results are utilized to determine executive compensation along with other measures.

Corporate and Other includes unallocated expenses relating to general and administrative costs, amortization of intangible assets, share-based compensation, acquisition-related costs, including charges related to inventory stepped up to fair value and other

20



costs, which are not used in evaluating the results of, or in allocating resources to, our reportable segments. Acquisition-related costs include transaction costs and any costs directly related to the acquisition and integration of acquired businesses.

Certain revenue category information by reportable segment was as follows (in thousands):
 
Three Months Ended
 
September 29, 2018
 
September 30, 2017
 
Probe Cards
 
Systems
 
Total
 
Probe Cards
 
Systems
 
Total
Market:
 
 
 
 
 
 
 
 
 
 
 
    Foundry & Logic
$
61,270

 
$

 
$
61,270

 
$
81,914

 
$

 
$
81,914

    DRAM
37,359

 

 
37,359

 
32,373

 

 
32,373

    Flash
12,977

 

 
12,977

 
5,151

 

 
5,151

    Systems

 
23,383

 
23,383

 

 
24,297

 
24,297

Total
$
111,606

 
$
23,383

 
$
134,989

 
$
119,438

 
$
24,297

 
$
143,735

Timing of revenue recognition:
 
 
 
 
 
 
 
 
 
 
 
    Products transferred at a point in time
$
111,020

 
$
22,422

 
$
133,442

 
$
118,995

 
$
23,372

 
$
142,367

    Services transferred over time
586

 
961

 
1,547

 
443

 
925

 
1,368

Total
$
111,606

 
$
23,383

 
$
134,989

 
$
119,438

 
$
24,297

 
$
143,735

Geographical region:
 
 
 
 
 
 
 
 
 
 
 
    United States
$
34,398

 
$
5,729

 
$
40,127

 
$
48,544

 
$
8,712

 
$
57,256

    Taiwan
18,904

 
777

 
19,681

 
15,951

 
1,863

 
17,814

    South Korea
19,664

 
1,437

 
21,101

 
21,217

 
545

 
21,762

    Asia-Pacific1
22,388

 
6,825

 
29,213

 
19,136

 
4,664

 
23,800

    Europe
5,499

 
3,629

 
9,128

 
6,015

 
6,079

 
12,094

    Japan
10,462

 
4,273

 
14,735

 
8,419

 
2,037

 
10,456

    Rest of the world
291

 
713

 
1,004

 
156

 
397

 
553

Total
$
111,606

 
$
23,383

 
$
134,989

 
$
119,438

 
$
24,297

 
$
143,735



21




Nine Months Ended

September 29, 2018
 
September 30, 2017

Probe Cards
 
Systems
 
Total
 
Probe Cards
 
Systems
 
Total
Market:

 

 

 

 

 

    Foundry & Logic
$
181,819

 
$

 
$
181,819

 
$
244,952

 
$

 
$
244,952

    DRAM
105,716

 

 
105,716

 
92,798

 

 
92,798

    Flash
30,585

 

 
30,585

 
9,809