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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 Form 10-Q
 
(Mark one)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 2021
Or 
    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)

Securities registered pursuant to Section12(b) of the Act:
Title of each classTrading Symbol(s) Name of each exchange on which registered
Common stock, $0.001 par valueFORM Nasdaq Global Market
 ______________________________________
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   No 
 
Indicate by check mark whether the registrant submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes   No
 
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 FilerAccelerated Filer
Non-accelerated FilerSmaller Reporting Company
Emerging Growth Company
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.     

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

As of April 30, 2021, 77,622,717 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 MARCH 27, 2021
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)
 March 27,
2021
December 26,
2020
ASSETS 
Current assets:  
Cash and cash equivalents$173,616 $187,225 
Marketable securities94,093 67,810 
Accounts receivable, net of allowance for doubtful accounts of $232 and $248
103,500 107,603 
Inventories, net104,727 99,229 
Restricted cash2,798 1,904 
Prepaid expenses and other current assets19,371 23,303 
Total current assets498,105 487,074 
Restricted cash1,894 1,969 
Operating lease, right-of-use-assets37,208 30,756 
Property, plant and equipment, net of accumulated depreciation112,312 104,103 
Goodwill214,218 212,761 
Intangibles, net48,786 59,147 
Deferred tax assets65,821 66,242 
Other assets1,867 1,165 
Total assets$980,211 $963,217 
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current liabilities: 
Accounts payable$67,720 $62,045 
Accrued liabilities43,468 55,342 
Current portion of term loans, net of unamortized issuance costs9,260 9,516 
Deferred revenue18,644 20,964 
Operating lease liabilities7,557 6,704 
Total current liabilities146,649 154,571 
Term loans, less current portion, net of unamortized issuance costs22,390 24,978 
Deferred tax liabilities4,965 5,346 
Long-term operating lease liabilities33,485 27,996 
Other liabilities6,189 6,242 
Total liabilities213,678 219,133 
 
Stockholders’ equity: 
Common stock, $0.001 par value:
 
250,000,000 shares authorized; 77,758,530 and 77,437,997 shares issued and outstanding
78 78 
Treasury stock, at cost, 136,402 and shares
(5,738) 
Additional paid-in capital915,136 903,838 
Accumulated other comprehensive income3,150 5,886 
Accumulated deficit(146,093)(165,718)
Total stockholders’ equity766,533 744,084 
Total liabilities and stockholders’ equity$980,211 $963,217 
 
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
 March 27,
2021
March 28,
2020
Revenues$186,636 $160,753 
Cost of revenues109,930 93,363 
Gross profit76,706 67,390 
Operating expenses:  
Research and development24,046 21,267 
Selling, general and administrative30,015 27,693 
Total operating expenses54,061 48,960 
Operating income22,645 18,430 
Interest income194 685 
Interest expense(180)(318)
Other income (expense), net172 (91)
Income before income taxes22,831 18,706 
Provision for income taxes3,206 2,816 
Net income$19,625 $15,890 
Net income per share: 
Basic $0.25 $0.21 
Diluted$0.25 $0.20 
Weighted-average number of shares used in per share calculations:  
Basic 77,598 76,005 
Diluted79,988 78,510 
 
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
March 27,
2021
March 28,
2020
Net income $19,625 $15,890 
Other comprehensive loss, net of tax:
Translation adjustments and other(2,379)(399)
Unrealized losses on available-for-sale marketable securities(131)(27)
Unrealized gains (losses) on derivative instruments(226)176 
Other comprehensive loss, net of tax(2,736)(250)
Comprehensive income$16,889 $15,640 

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

5


FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except shares)
(Unaudited)
 Shares of
Common
Stock
Common
Stock
Shares of
Treasury
Stock
Treasury
Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
 Income (Loss)
Accumulated
Deficit
Total
Three Months Ended March 27, 2021
Balances, December 26, 202077,437,997 $78  $ $903,838 $5,886 $(165,718)$744,084 
Issuance of common stock under the Employee Stock Purchase Plan228,784 — — — 5,065 — — 5,065 
Issuance of common stock pursuant to exercise of options50,000  — — 422 — — 422 
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax41,749  — — (1,141)— — (1,141)
Purchase of common stock through repurchase program— — (136,402)(5,738)— — — (5,738)
Stock-based compensation— — — — 6,952 — — 6,952 
Other comprehensive loss— — — — — (2,736)— (2,736)
Net income— — — — — — 19,625 19,625 
Balances, March 27, 202177,758,530 $78 (136,402)$(5,738)$915,136 $3,150 $(146,093)$766,533 


Shares of
Common
Stock
Common
Stock
Shares of
Treasury
Stock
Treasury
Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Three Months Ended March 28, 2020
Balances, December 28, 201975,764,990 $76  $ $885,821 $(659)$(244,241)$640,997 
Issuance of common stock under the Employee Stock Purchase Plan311,591 — — — 4,066 — — 4,066 
Issuance of common stock pursuant to exercise of options55,769 1 — — 446 — — 447 
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax25,901  — — (385)— — (385)
Stock-based compensation— — — — 5,652 — — 5,652 
Other comprehensive loss— — — — — (250)— (250)
Net income— — — — — — 15,890 15,890 
Balances, March 28, 202076,158,251 $77   $895,600 $(909)$(228,351)$666,417 

The accompanying notes are an integral part of these condensed consolidated financial statements.
6



FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Three Months Ended
 March 27,
2021
March 28,
2020
Cash flows from operating activities:  
Net income $19,625 $15,890 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation6,130 4,561 
Amortization6,805 7,263 
Reduction in the carrying amount of right-of-use assets1,811 1,511 
Stock-based compensation expense7,077 5,623 
Provision for excess and obsolete inventories3,394 3,287 
Other adjustments to reconcile net income to net cash provided by operating activities2,140 407 
Changes in assets and liabilities:
Accounts receivable3,576 7,803 
Inventories(9,911)928 
Prepaid expenses and other current assets3,011 (240)
Other assets(50)194 
Accounts payable5,722 763 
Accrued liabilities(12,732)(6,970)
Other liabilities114 33 
Deferred revenues(2,411)(123)
Operating lease liabilities(1,945)(1,591)
Net cash provided by operating activities32,356 39,339 
Cash flows from investing activities:  
Acquisition of property, plant and equipment(13,470)(12,050)
Proceeds from sale of a subsidiary 40 
Purchases of marketable securities(41,062)(16,441)
Proceeds from maturities and sales of marketable securities14,610 23,009 
Net cash used in investing activities(39,922)(5,442)
Cash flows from financing activities:  
Proceeds from issuances of common stock5,487 4,513 
Purchase of common stock through stock repurchase program(5,738) 
Tax withholdings related to net share settlements of equity awards(1,141)(385)
Principal repayments on term loans(2,376)(13,199)
Net cash used in financing activities(3,768)(9,071)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(1,456)312 
Net increase (decrease) in cash, cash equivalents and restricted cash(12,790)25,138 
Cash, cash equivalents and restricted cash, beginning of period191,098 147,937 
Cash, cash equivalents and restricted cash, end of period$178,308 $173,075 

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)
Three Months Ended
March 27,
2021
March 28,
2020
Non-cash investing and financing activities:
Change in accounts payable and accrued liabilities related to property, plant and equipment purchases$1,087 $(2,116)
Operating lease, right-of-use assets obtained in exchange for lease obligations8,572 6,307 
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net$1,034 $2,419 
Cash paid for interest173 291 
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$173,616 $169,607 
Restricted cash, current2,798 2,107 
Restricted cash1,894 1,361 
Total cash, cash equivalents and restricted cash$178,308 $173,075 

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 (“SEC”). 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 condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2020 Annual Report on Form 10-K filed with the SEC on February 22, 2021. 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 2021 and 2020 each contain 52 weeks and the three months ended March 27, 2021 and March 28, 2020 each contained 13 weeks. Fiscal 2021 will end on December 25, 2021.

Significant Accounting Policies
Our significant accounting policies have not changed during the three months ended March 27, 2021 from those disclosed in our Annual Report on Form 10-K for the year ended December 26, 2020.

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

New Accounting Pronouncements
ASU 2019-12
In December 2019, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740),” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. We adopted ASU 2019-12 on a prospective basis on December 27, 2020, the first day of fiscal 2021. The adoption did not have a material effect on our consolidated financial position, results of operations or cash flows.

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

9


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
March 27,
2021
March 28,
2020
Intel Corporation28.1 %36.2 %
Taiwan Semiconductor Manufacturing Co., LTD.11.5 %*
39.6 %36.2 %
*Represents less than 10% of total revenues.

At March 27, 2021, one customer accounted for 22.8% of gross accounts receivable. At December 26, 2020, two customers accounted for 15.3% and 13.7% of gross accounts receivable, respectively.

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):
March 27,
2021
December 26,
2020
Raw materials$52,320 $48,122 
Work-in-progress35,466 30,806 
Finished goods16,941 20,301 
$104,727 $99,229 

Note 4 Acquisition

High Precision Devices, Inc. Acquisition
On October 19, 2020, we acquired 100% of the shares of HPD for total consideration of $16.9 million, net of cash acquired of $1.7 million, which included an estimated adjustment for changes in working capital, which is not yet finalized. This acquisition brings highly specialized skills and know-how to address the unique test challenges within the emerging quantum computing, superconducting computing, and ultra-sensitive sensor markets which operate at temperatures as low as 30 millikelvin.

The acquisition was accounted for using the acquisition method of accounting, with FormFactor treated as the acquirer. The acquired assets and liabilities of HPD 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 Condensed Consolidated Statements of Income include the financial results of HPD subsequent to the acquisition date of October 19, 2020. Revenue in fiscal 2020 related to HPD subsequent to the acquisition date that was included in our Condensed Consolidated Statements of Income was not material.

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.

We estimated the acquisition price and the allocation of fair value to assets acquired and liabilities assumed as of the acquisition date, October 19, 2020. We subsequently made certain immaterial adjustments within the measurement period to the preliminary acquisition price allocation. See Note 5, Goodwill and Intangible Assets, for changes in identified intangible values and goodwill. Our purchase accounting remains open at March 27, 2021, subject to finalization of the fair value of
10


consideration and certain deferred tax items. The estimated fair value of assets acquired, including goodwill and intangibles, and liabilities assumed is as follows (in thousands):
Amount
Cash and cash equivalents$1,680 
Accounts receivable1,017 
Inventory3,047 
Property, plant and equipment669 
Operating lease, right of use assets2,554 
Prepaid expenses and other current assets599 
Tangible assets acquired9,566 
Deferred revenue(2,529)
Accounts payable and accrued liabilities(1,268)
Operating lease liabilities(2,554)
Deferred tax liabilities(2,840)
Total tangible assets acquired and liabilities assumed375 
Intangible assets11,520 
Goodwill6,665 
Net Assets Acquired$18,560 

The intangible assets as of the closing date of the acquisition included (in thousands):
AmountWeighted Average Useful Life (in years)
Developed technologies$7,500 10.0
Customer relationships3,600 5.0
Order backlog200 0.5
Trade names220 5.0
Total intangible assets$11,520 8.2

The fair value of the intangible assets acquired in connection with the acquisition was 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.

Developed technology acquired primarily consists of existing technology related to cryogenic probe stations, Adiabatic Demagnetization Refrigerator (“ADR”), and continuous ADR cryostats and similar tools, and technology related to other cryogenic applications. We valued the developed technology 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.

The value of customer relationships represents the fair value of future projected revenues that will be derived from the sale of products to HPD's existing customers. 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. 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 the value of future sales under existing contracts as of the acquisition date. 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.

11


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

Goodwill
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 HPD reporting unit within the Systems reportable segment.

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

Baldwin Park Acquisition
On July 30, 2020, we acquired the probe card assets of Advantest Corporation for total cash consideration of $35.0 million. This acquisition brings important enabling technologies and capabilities for designing and manufacturing advanced probe cards, and adds a complementary 3D-NAND Flash probe-card product that is qualified and in production at one of the world's leading NAND Flash manufacturers.

The acquisition was accounted for using the acquisition method of accounting, with FormFactor treated as the acquirer. The acquired assets and liabilities of Baldwin Park 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 Condensed Consolidated Statements of Income include the financial results of Baldwin Park subsequent to the acquisition date of July 30, 2020. Revenue related to Baldwin Park since the acquisition date that was included in our Condensed Consolidated Statements of Income for fiscal 2020 was not material.

We estimated the acquisition price and the allocation of fair value to assets acquired and liabilities assumed as of the acquisition date, July 30, 2020. We subsequently made certain immaterial adjustments within the measurement period to the acquisition price allocation as a result of finalization of our valuation of identifiable assets and liabilities. See Note 5, Goodwill and Intangible Assets, for changes in identified intangible values and goodwill. In the current quarter ended March 27, 2021, we finalized our allocation of the assets acquired, including goodwill and intangibles, and liabilities assumed for the purchase as follows (in thousands):
Amount
Accounts receivable$4,365 
Inventory2,727 
Property, plant and equipment9,053 
Operating lease, right of use assets519 
Prepaid expenses and other current assets56 
Tangible assets acquired16,720 
Accounts payable and accrued liabilities(743)
Operating lease liabilities(519)
Total net tangible assets acquired and liabilities assumed15,458 
Intangible assets13,600 
Goodwill5,942 
Net assets acquired$35,000 

12


The intangible assets as of July 30, 2020 included (in thousands):
AmountWeighted Average Useful Life (in years)
Developed technologies$8,800 10.0
Customer relationships4,400 3.0
In-process research and development400 N/A
Total intangible assets$13,600 7.7

Indications of 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.

Developed technology acquired consists of existing technology related to 3D NAND Flash probe cards and the value expected to be derived from interconnect technology. We valued the developed technology related to 3D NAND Flash 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. We valued the interconnect developed technology asset using the incremental cash flow method. This method estimates value based on the incremental cash flow afforded by having the interconnect capability in place on the acquisition date versus having no capability in place and needing to replicate or replace that capability. The incremental cash flows are then discounted to a present value to arrive at an estimate of fair value for this asset class.

In-process research and development (“IPR&D”) acquired primarily consists of research and development projects that were in process at the time of acquisition related to technologies used in DRAM probe cards. Once these projects are complete they will be amortized over their useful life. We valued the IPR&D 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.

The value of customer relationships represents the fair value of future projected revenues that will be derived from the sale of products to Baldwin Park's existing customers. 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. The incremental cash flows are then discounted to a present value to arrive at an estimate of fair value for this asset class.

Goodwill
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, none of which qualify for recognition as a separate intangible asset. We expect 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 Probe Cards reporting unit within the Probe Cards reportable segment.

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.



13


Note 5 Goodwill and Intangible Assets

Goodwill by reportable segment was as follows (in thousands):
Probe CardsSystemsTotal
Goodwill, gross, as of December 28, 2019$172,482 $26,714 $199,196 
Addition - FRT GmbH Acquisition 975 975 
Addition - Baldwin Park Acquisition5,590  5,590 
Addition - HPD Acquisition 4,654 4,654 
Foreign currency translation 2,346 2,346 
Goodwill, gross, as of December 26, 2020178,072 34,689 212,761 
Addition - Baldwin Park Acquisition352 352 
Addition - HPD Acquisition 2,011 2,011 
Foreign currency translation (906)(906)
Goodwill, gross, as of March 27, 2021$178,424 $35,794 $214,218 

We have not recorded goodwill impairments for the three months ended March 27, 2021.

Intangible assets were as follows (in thousands):
March 27, 2021December 26, 2020
Intangible Assets GrossAccumulated
Amortization
NetGrossAccumulated
Amortization
Net
Developed technologies $173,318 $142,344 $30,974 $176,265 $137,754 $38,511 
Trade names8,100 7,418 682 8,162 7,363 799 
Customer relationships51,557 34,899 16,658 52,488 33,378 19,110 
Backlog1,969 1,897 72 2,227 1,900 327 
In-process research and development400  400 400  400 
$235,344 $186,558 $48,786 $239,542 $180,395 $59,147 

Amortization expense was included in our Condensed Consolidated Statements of Income as follows (in thousands):
 Three Months Ended
 March 27,
2021
March 28,
2020
Cost of revenues$5,090 $5,750 
Selling, general and administrative1,715 1,513 
$6,805 $7,263 

The estimated future amortization of definite-lived intangible assets, excluding in-process research and development, is as follows (in thousands):
Fiscal YearAmount
Remainder of 2021$11,933 
20229,591 
20237,240 
20244,625 
20254,364 
Thereafter10,633 
$48,386 

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Note 6 Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):
March 27,
2021
December 26,
2020
Accrued compensation and benefits$28,092 $33,110 
Accrued income and other taxes3,008 6,976 
Accrued warranty3,719 3,918 
Employee stock purchase plan contributions withheld2,109 4,240 
Accrued contingent consideration 3,884 4,012 
Other accrued expenses2,656 3,086 
$43,468 $55,342 

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 three months ended March 27, 2021 or the year ended December 26, 2020.

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

No changes were made to our valuation techniques during the first three months of fiscal 2021.

15


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): 
March 27, 2021Level 1Level 2Level 3Total
Assets:
Cash equivalents:
Money market funds$34,254 $ $ $34,254 
Commercial paper5,500   5,500 
39,754   39,754 
Marketable securities:
 U.S. treasuries32,669   32,669 
 Certificates of deposit 1,212  1,212 
 U.S. agency securities 575  575 
 Corporate bonds 44,146  44,146 
 Commercial paper 15,491  15,491 
32,669 61,424  94,093 
Foreign exchange derivative contracts (Designated) 144  144 
Interest rate swap derivative contracts 745  745 
Total assets$72,423 $62,313 $ $134,736 
Liabilities:
Foreign exchange derivative contracts (Designated)$ $(100)$ $(100)
Interest rate swap derivative contracts (113) (113)
Contingent consideration  (3,884)(3,884)
Total liabilities$ $(213)$(3,884)$(4,097)

December 26, 2020Level 1Level 2Level 3Total
Assets:
Cash equivalents:
Money market funds$43,019 $ $ $43,019 
Marketable securities:
U.S. treasuries40,726   40,726 
Certificates of deposit 2,179  2,179 
U.S. agency securities 575  575 
Corporate bonds 24,330  24,330 
40,726 27,084  67,810 
Foreign exchange derivative contracts 1,057  1,057 
Interest rate swap derivative contracts 57  57 
Total assets$83,745 $28,198 $ $111,943 
Liabilities:
Interest rate swap derivative contracts$ $(87)$ $(87)
Contingent consideration  (4,012)(4,012)
Total liabilities$ $(87)$(4,012)$(4,099)
 
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 mainly when a quoted price is not available, the investment is not priced by our pricing vendors or when a broker price
16


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 investments have a sufficient 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.

Contingent Consideration
Contingent consideration, arising from the acquisition of FRT, is a cash amount equal to 1.5x EBIT as defined in the purchase agreement, up to a maximum of €10.3 million, payable subject to the performance of the acquired business in calendar 2020. We estimated the fair value of contingent consideration using a probability weighted approach. Key assumptions in determining the fair value of contingent consideration included estimating EBIT levels that we believed as of the acquisition date were likely to be achieved during the performance period and discounting at an appropriate discount rate. Contingent consideration as of March 27, 2021 was estimated to be $3.9 million, with the change from December 26, 2020 resulting from foreign currency translation.

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 Accrued liabilities and Other liabilities 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 (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)Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
Three Months Ended March 27, 2021