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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 September 25, 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 October 28, 2021, 78,207,417 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 25, 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)
 September 25,
2021
December 26,
2020
ASSETS 
Current assets:  
Cash and cash equivalents$153,781 $187,225 
Marketable securities110,898 67,810 
Accounts receivable, net of allowance for doubtful accounts of $214 and $248
105,807 107,603 
Inventories, net115,104 99,229 
Restricted cash2,019 1,904 
Prepaid expenses and other current assets18,892 23,303 
Total current assets506,501 487,074 
Restricted cash1,674 1,969 
Operating lease, right-of-use-assets36,669 30,756 
Property, plant and equipment, net of accumulated depreciation140,098 104,103 
Goodwill213,293 212,761 
Intangibles, net39,195 59,147 
Deferred tax assets67,231 66,242 
Other assets1,930 1,165 
Total assets$1,006,591 $963,217 
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current liabilities: 
Accounts payable$64,925 $62,045 
Accrued liabilities54,625 55,342 
Current portion of term loans, net of unamortized issuance costs9,213 9,516 
Deferred revenue23,275 20,964 
Operating lease liabilities7,962 6,704 
Total current liabilities160,000 154,571 
Term loans, less current portion, net of unamortized issuance costs17,742 24,978 
Deferred tax liabilities4,264 5,346 
Long-term operating lease liabilities32,401 27,996 
Other liabilities5,794 6,242 
Total liabilities220,201 219,133 
 
Stockholders’ equity: 
Common stock, $0.001 par value:
 
250,000,000 shares authorized; 78,207,219 and 77,437,997 shares issued and outstanding
78 78 
Additional paid-in capital892,303 903,838 
Accumulated other comprehensive income1,700 5,886 
Accumulated deficit(107,691)(165,718)
Total stockholders’ equity786,390 744,084 
Total liabilities and stockholders’ equity$1,006,591 $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 EndedNine Months Ended
 September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
Revenues$189,964 $177,996 $564,676 $496,573 
Cost of revenues109,745 101,247 331,468 286,267 
Gross profit80,219 76,749 233,208 210,306 
Operating expenses:    
Research and development26,026 22,878 75,526 65,064 
Selling, general and administrative30,940 31,834 91,434 82,282 
Total operating expenses56,966 54,712 166,960 147,346 
Operating income23,253 22,037 66,248 62,960 
Interest income121 249 463 1,310 
Interest expense(151)(193)(447)(682)
Other expense, net58 299 36 141 
Income before income taxes23,281 22,392 66,300 63,729 
Provision (benefit) for income taxes2,784 (499)8,273 4,479 
Net income$20,497 $22,891 $58,027 $59,250 
Net income per share: 
Basic $0.26 $0.30 $0.75 $0.78 
Diluted$0.26 $0.29 $0.73 $0.75 
Weighted-average number of shares used in per share calculations:   
Basic 77,869 77,029 77,643 76,436 
Diluted79,029 78,809 79,190 78,534 
 
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 EndedNine Months Ended
September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
Net income $20,497 $22,891 $58,027 $59,250 
Other comprehensive income (loss), net of tax:
Translation adjustments and other(1,511)1,867 (3,258)2,231 
Unrealized gains (losses) on available-for-sale marketable securities(62)(148)(290)349 
Unrealized gains (losses) on derivative instruments(323)302 (638)558 
Other comprehensive income (loss), net of tax(1,896)2,021 (4,186)3,138 
Comprehensive income$18,601 $24,912 $53,841 $62,388 

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
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
 Income (Loss)
Accumulated
Deficit
Total
Nine Months Ended September 25, 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 Plan378,584 — 9,809 — — 9,809 
Issuance of common stock pursuant to exercise of options100,000 — 844 — — 844 
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax910,838 1 (19,602)— — (19,601)
Purchase and retirement of common stock through repurchase program(620,200)(1)(23,950)— — (23,951)
Stock-based compensation— — 21,364 — — 21,364 
Other comprehensive loss— — — (4,186)— (4,186)
Net income— — — — 58,027 58,027 
Balances, September 25, 202178,207,219 $78 $892,303 $1,700 $(107,691)$786,390 
Three Months Ended September 25, 2021
Balances, June 26, 202177,454,800 $77 $894,062 $3,596 $(128,188)$769,547 
Issuance of common stock under the Employee Stock Purchase Plan149,800 — 4,744 — — 4,744 
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax602,619 1 (14,341)— — (14,340)
Stock-based compensation— — 7,838 — — 7,838 
Other comprehensive loss— — — (1,896)— (1,896)
Net income— — — — 20,497 20,497 
Balances, September 25, 202178,207,219 $78 $892,303 $1,700 $(107,691)$786,390 

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


















6


FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except shares)
(Unaudited)
Shares of
Common
Stock
Common
Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
 Income (Loss)
Accumulated
Deficit
Total
Nine Months Ended September 26, 2020
Balances, December 28, 201975,764,990 $76 $885,821 $(659)$(244,241)$640,997 
Issuance of common stock under the Employee Stock Purchase Plan485,566 — 7,875 — — 7,875 
Issuance of common stock pursuant to exercise of options205,769 1 1,712 — — 1,713 
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax927,169 1 (15,383)— — (15,382)
Stock-based compensation— — 16,551 — — 16,551 
Other comprehensive income— — — 3,138 — 3,138 
Net income— — — — 59,250 59,250 
Balances, September 26, 202077,383,494 $78 $896,576 $2,479 $(184,991)$714,142 
Three Months Ended September 26, 2020
Balances, June 27, 202076,501,459 $77 $898,069 $458 $(207,882)$690,722 
Issuance of common stock under the Employee Stock Purchase Plan173,975  3,809 — — 3,809 
Issuance of common stock pursuant to exercise of options100,000 — 844 — — 844 
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax608,060 1 (11,583)— — (11,582)
Stock-based compensation— — 5,437 — — 5,437 
Other comprehensive income— — — 2,021 — 2,021 
Net income— — — — 22,891 22,891 
Balances, September 26, 202077,383,494 $78 $896,576 $2,479 $(184,991)$714,142 

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 25,
2021
September 26,
2020
Cash flows from operating activities:  
Net income $58,027 $59,250 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation19,256 14,491 
Amortization16,362 20,249 
Reduction in the carrying amount of right-of-use assets5,412 4,294 
Stock-based compensation expense21,585 16,774 
Provision for excess and obsolete inventories11,621 9,763 
Non-cash restructuring charges1,592  
Gain on contingent consideration(95)(3,771)
Other adjustments to reconcile net income to net cash provided by operating activities1,627 (977)
Changes in assets and liabilities:
Accounts receivable1,157 5,712 
Inventories(30,335)(18,566)
Prepaid expenses and other current assets3,631 (5,619)
Other assets(333)219 
Accounts payable1,488 18,054 
Accrued liabilities(6,951)4,754 
Other liabilities47 272 
Deferred revenues2,000 3,806 
Operating lease liabilities(5,654)(4,496)
Net cash provided by operating activities100,437 124,209 
Cash flows from investing activities:  
Acquisition of property, plant and equipment(51,353)(41,887)
Acquisition of business, net of cash acquired (34,999)
Proceeds from sale of a subsidiary 82 
Purchases of marketable securities(114,898)(29,721)
Proceeds from maturities and sales of marketable securities71,275 50,330 
Net cash used in investing activities(94,976)(56,195)
Cash flows from financing activities:  
Proceeds from issuances of common stock10,647 9,588 
Purchase of common stock through stock repurchase program(23,951) 
Tax withholdings related to net share settlements of equity awards(12,643)(15,382)
Payment of contingent consideration(3,873) 
Proceeds from term loan 18,000 
Principal repayments on term loans(7,049)(41,098)
Payment of term loan debt issuance costs (78)
Net cash used in financing activities(36,869)(28,970)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(2,216)1,262 
Net increase (decrease) in cash, cash equivalents and restricted cash(33,624)40,306 
Cash, cash equivalents and restricted cash, beginning of period191,098 147,937 
Cash, cash equivalents and restricted cash, end of period$157,474 $188,243 

The accompanying notes are an integral part of these condensed consolidated financial statements.
8



FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 25,
2021
September 26,
2020
Non-cash investing and financing activities:
Increase in accounts payable and accrued liabilities related to property, plant and equipment purchases$4,684 $3,041 
Increase in accrued liabilities related to tax withholdings related to net share settlements of equity awards6,952  
Operating lease, right-of-use assets obtained in exchange for lease obligations11,699 1,549 
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net$6,795 $7,475 
Cash paid for interest496 683 
Operating cash outflows from operating leases6,420 5,566 
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$153,781 $185,368 
Restricted cash, current2,019 1,477 
Restricted cash, non-current1,674 1,398 
Total cash, cash equivalents and restricted cash$157,474 $188,243 

The accompanying notes are an integral part of these condensed consolidated financial statements.
9


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 nine months ended September 25, 2021 and September 26, 2020 each contained 39 weeks. Fiscal 2021 will end on December 25, 2021.

Significant Accounting Policies
Our significant accounting policies have not changed during the nine months ended September 25, 2021 from those disclosed in our Annual Report on Form 10-K for the year ended December 26, 2020.

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.

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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 EndedNine Months Ended
September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
Intel Corporation20.8 %25.6 %21.7 %32.4 %
Samsung Electronics., LTD.12.9 %10.6 %10.5 %*
Taiwan Semiconductor Manufacturing Co., LTD.*10.6 %**
Micron Technology, Inc.*10.1 %**
33.7 %56.9 %32.2 %32.4 %
*Represents less than 10% of total revenues.

At September 25, 2021, one customer accounted for 19.3% 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):
September 25,
2021
December 26,
2020
Raw materials$55,352 $48,122 
Work-in-progress41,638 30,806 
Finished goods18,114 20,301 
$115,104 $99,229 

Note 4 Acquisitions

High Precision Devices, Inc. Acquisition
On October 19, 2020, we acquired HPD for total consideration of $16.9 million, net of cash acquired of $1.7 million, which included an adjustment for changes in working capital. The acquisition was accounted for using the acquisition method of accounting. 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, including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets. The fair values assigned to the assets acquired and liabilities assumed were based on management’s assumptions as of the acquisition date. We subsequently made certain immaterial adjustments within the measurement period to the acquisition price allocation as a result of finalization of our valuation of identifiable assets and liabilities. See Note 5, Goodwill and Intangible Assets, for the changes
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in identified intangible values and goodwill. The final allocation of the assets acquired, including goodwill and intangibles, and liabilities assumed for the purchase is as follows (in thousands):
Amount
Cash and cash equivalents$1,680 
Accounts receivable1,017 
Inventories3,047 
Property, plant and equipment669 
Operating lease, right of use assets2,554 
Prepaid expenses and other current assets916 
Tangible assets acquired9,883 
Deferred revenue(2,529)
Accounts payable and accrued liabilities(1,268)
Operating lease liabilities(2,554)
Deferred tax liabilities(2,400)
Total tangible assets acquired and liabilities assumed1,132 
Intangible assets11,520 
Goodwill5,908 
Net Assets Acquired$18,560 

The intangible assets as 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

Baldwin Park Acquisition
On July 30, 2020, we acquired the probe card assets of Advantest Corporation for total consideration of $35.0 million. The acquisition was accounted for using the acquisition method of accounting. 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 including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets. The fair values assigned to assets acquired and liabilities assumed were based on management's assumptions as of the acquisition date. We subsequently made certain immaterial adjustments within the measurement period to the acquisition price allocation as a result of finalization of our valuation of identifiable assets and liabilities. See Note 5, Goodwill and Intangible Assets, for the changes in identified intangible values and goodwill. The final
12


allocation of the assets acquired, including goodwill and intangibles, and liabilities assumed for the purchase as follows (in thousands):
Amount
Accounts receivable$4,365 
Inventories2,727 
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 tangible assets acquired and liabilities assumed15,458 
Intangible assets13,600 
Goodwill5,942 
Net assets acquired$35,000 

The intangible assets as of the acquisition date 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

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 1,254 1,254 
Foreign currency translation (1,074)(1,074)
Goodwill, gross, as of September 25, 2021$178,424 $34,869 $213,293 

We have not recorded goodwill impairments for the nine months ended September 25, 2021.
13



Intangible assets were as follows (in thousands):
September 25, 2021December 26, 2020
Intangible Assets GrossAccumulated
Amortization
NetGrossAccumulated
Amortization
Net
Developed technologies $173,160 $148,518 $24,642 $176,265 $137,754 $38,511 
Customer relationships51,514 37,885 13,629 52,488 33,378 19,110 
Trade names8,110 7,586 524 8,162 7,363 799 
Order backlog1,958 1,958  2,227 1,900 327 
In-process research and development400  400 400  400 
$235,142 $195,947 $39,195 $239,542 $180,395 $59,147 

Amortization expense was included in our Condensed Consolidated Statements of Income as follows (in thousands):
 Three Months EndedNine Months Ended
 September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
Cost of revenues$858 $4,985 $11,453 $15,661 
Selling, general and administrative1,604 1,547 4,909 4,588 
$2,462 $6,532 $16,362 $20,249 

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$2,401 
20229,592 
20237,224 
20244,611 
20254,351 
Thereafter10,616 
$38,795 

Note 6 Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):
September 25,
2021
December 26,
2020
Accrued compensation and benefits$37,913 $33,110 
Accrued income and other taxes5,466 6,976 
Accrued warranty2,803 3,918 
Employee stock purchase plan contributions withheld1,924 4,240 
Accrued contingent consideration  4,012 
Accrued restructuring charges3,675  
Other accrued expenses2,844 3,086 
$54,625 $55,342 

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Note 7 Restructuring Charges

On September 25, 2021, we adopted restructuring plans to improve our business effectiveness and streamline our operations by consolidating certain manufacturing facilities for both the Probe Cards segment and the Systems segment. This includes plans to consolidate or relocate certain leased locations in the United States to other locations in the United States, Germany and Asia. As a result of these changes to certain work locations, we have incurred, and expect to incur, personnel related costs to sever, relocate, or retain select employees. Additionally, we are undertaking actions to adjust capacity for certain product offerings. As a result of these adjustments, contract termination costs include charges to satisfy contract obligations. The liability was recognized using our best estimate and it is reasonably possible that the final amount will differ from the amount estimated in the near term. We expect the actions defined under these plans will be largely completed by the end of December 2022, except facilities charges which may extend beyond that time.

This plan is expected to result in FormFactor recording restructuring and other charges in the aggregate amount of approximately $8.0 million to $10.5 million, estimated to be comprised primarily of $1.0 million to $2.0 million of severance and employee-related costs, $3.5 million to 4.5 million in contract and lease termination costs, $1.0 million to $1.5 million in inventory impairments, and $2.0 million to $2.5 million of cost related to impairment of leasehold improvements, facility exits, and other costs. Approximately $5.0 million to $6.0 million and $3.0 million to $4.5 million is expected within the Probe Cards segment and Systems segment, respectively.

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

Three Months EndedNine Months Ended
September 25, 2021September 25, 2021
Probe CardsSystemsTotalProbe CardsSystemsTotal
Cost of revenues$4,070 $252 $4,322 $4,070 $420 $4,490 
Research and development 289 289  694 694 
Selling, general and administrative 22 22  83 83 
$4,070 $563 $4,633 $4,070 $1,197 $5,267 

Changes to the restructuring accrual in the nine months ended September 25, 2021 were as follows (in thousands):
Employee
Severance
and Benefits
Inventory
Impairments
Property and Equipment ImpairmentsContract Termination CostsTotal
December 26, 2020$ $ $ $ $ 
Restructuring charges875 1,322 270 2,800 5,267 
Non-cash settlement (1,322)(270) (1,592)
September 25, 2021$875 $ $ $2,800 $3,675 

Note 8 — 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 and nine months ended September 25, 2021 or the year ended December 26, 2020.

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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 nine months of fiscal 2021.

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 25, 2021Level 1Level 2Level 3Total
Assets:
Cash equivalents:
Money market funds$12,621 $ $ $12,621 
U.S. treasuries5,300   5,300 
17,921   17,921 
Marketable securities:
 U.S. treasuries37,135   37,135 
 Certificates of deposit 723  723 
 U.S. agency securities 575  575 
 Corporate bonds 27,336  27,336 
 Commercial paper 45,129  45,129 
37,135 73,763  110,898 
Interest rate swap derivative contracts 548  548 
Total assets$55,056 $74,311 $ $129,367 
Liabilities:
Foreign exchange derivative contracts (Designated)$ $(258)$ $(258)
Interest rate swap derivative contracts (100) (100)
Total liabilities$ $(358)$ $(358)
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
16


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 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 GmbH, was 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. We settled our contingent consideration in the second quarter of fiscal 2021 for $3.9 million, resulting in a $0.1 million credit to Selling, general and administrative expense with the remaining change from December 26, 2020 resulting from foreign currency translation.

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 assets in our Condensed Consolidated Balance Sheets.

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, certain of our foreign currency forward contracts are not designated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded within Other expense, net in our Condensed Consolidated Statement of Income for both realized and unrealized gains and losses. Certain of our foreign currency forward contracts are designated as cash flow hedges, and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded as a component of Accumulated other comprehensive income and reclassified into earnings in the same period in which the hedged transaction affects earnings, and in the same line item on the Condensed Consolidated Statements of Income as the impact of the hedge transaction.

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 25, 2021 will mature by the third quarter of fiscal 2022.

17


The following table provides information about our foreign currency forward contracts outstanding as of September 25, 2021 (in thousands):
CurrencyContract PositionContract Amount
(Local Currency)
Contract Amount
(U.S. Dollars)
Euro DollarBuy(11,900)$(14,245)
Euro DollarSell2,520 2,953 
Japanese YenSell1,992,865 17,994 
Korean WonBuy(2,513,139)(2,138)
Taiwan DollarSell7,440 269 
Total USD notional amount of outstanding foreign exchange contracts$4,833 

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.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
We measure and report our non-financial assets such as Property, plant and equipment, 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. Other than as discussed in Note 4, Acquisition, and Note 7, Restructuring, there were no assets or liabilities measured at fair value on a nonrecurring basis during the three and nine months ended September 25, 2021 or September 26, 2020.

Note 9 — 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. We continuously monitor product returns for warranty and maintain a reserve for the related expenses based upon our historical experience and any specifically identified 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 25,
2021
September 26,
2020
Balance at beginning of period$3,918 $1,942 
Accruals4,688 2,771 
Settlements(5,803)(2,838)
Balance at end of period$2,803 $1,875 

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Note 10 — Property, Plant and Equipment, net

Property, plant and equipment, net consisted of the following (in thousands):
September 25,
2021
December 26,
2020
Land$4,751 $4,751 
Machinery and equipment 243,729 226,185 
Computer equipment and software44,241 36,361 
Furniture and fixtures 6,930 6,894 
Leasehold improvements 82,072 79,144 
Sub-total 381,723 353,335 
Less: Accumulated depreciation and amortization (309,592)(294,468)
Net, property, plant and equipment 72,131 58,867 
Construction-in-process67,967 45,236 
Total$140,098 $104,103 

Note 11 — Stockholders’ Equity and Stock-Based Compensation

Common Stock Repurchase Program
On October 26, 2020, our Board of Directors authorized a program to repurchase up to $50 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based compensation plans. The share repurchase program will expire on October 28, 2022. During the nine months ended September 25, 2021, we repurchased and retired 620,200 shares of common stock for $24.0 million and, as of September 25, 2021, $26.0 million remained available for future repurchases.

Our policy related to repurchases of our common stock is to charge the excess of cost over par value to additional paid-in capital once the shares are retired. All repurchases were made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.

Restricted Stock Units
Restricted stock unit (“RSU”) activity under our equity incentive plan was as follows:
UnitsWeighted Average Grant Date Fair Value
RSUs at December 26, 20202,840,922 $19.80 
Awards granted1,030,085 36.09 
Awards vested(1,457,554)16.95 
Awards forfeited(38,128)23.82 
RSUs at September 25, 20212,375,325 28.55 

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 2, 2021, we granted 197,128 PRSUs to certain senior executives for a total grant date fair value of $8.6 million, which will be recognized ratably over the requisite service period. The performance criteria are based on Total Shareholder Returns ("TSR") for the period of July 1, 2021 - June 30, 2024, relative to the TSR of the companies identified as being part of the S&P semiconductor Select Industry Index (FormFactor peer companies) as of the grant date.

All 318,100 PRSUs granted in fiscal 2018 vested during the nine months ended September 25, 2021. These shares achieved TSR performance that resulted in an additional 124,600 shares issued during the nine months ended September 25, 2021 related to the 2018 PRSU grant.

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There were no other PRSUs granted during the nine months ended September 25, 2021. PRSUs are included as part of the RSU activity above.

Stock Options
Stock option activity under our equity incentive plan was as follows:
Options OutstandingWeighted Average Exercise PriceWeighted Average Remaining Contractual Life in YearsAggregate Intrinsic Value
(in thousands)
Outstanding at December 26, 2020106,000 $8.35 
Options exercised(100,000)8.44 
Outstanding at September 25, 20216,000 $6.93 0.86$201 
Vested and expected to vest at September 25, 20216,000 $6.93 0.86$201 
Exercisable at September 25, 20216,000 $6.93 0.86$201 

Employee Stock Purchase Plan
Information related to activity under our Employee Stock Purchase Plan (“ESPP”) was as follows:
 Nine Months Ended
 September 25, 2021
Shares issued378,584 
Weighted average per share purchase price$25.91 
Weighted average per share discount from the fair value of our common stock on the date of issuance$(13.53)

Stock-Based Compensation
Stock-based compensation was included in our Condensed Consolidated Statements of Income as follows (in thousands):
Three Months EndedNine Months Ended
September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
Cost of revenues$1,392 $962 $3,806 $2,800 
Research and development2,010 1,326 5,362 4,154 
Selling, general and administrative4,518 3,221 12,417 9,820 
Total stock-based compensation$7,920 $5,509 $21,585 $16,774 
 
Unrecognized Compensation Costs
At September 25, 2021, the unrecognized stock-based compensation was as follows (dollars in thousands): 
Unrecognized ExpenseAverage Expected Recognition Period in Years
Restricted stock units$43,364 2.33
Performance restricted stock units13,523 2.28
Employee stock purchase plan1,806 0.36
Total unrecognized stock-based compensation expense$58,693 2.26

20


Note 12 — 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 EndedNine Months Ended
September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
Weighted-average shares used in computing basic net income per share77,869 77,029 77,643 76,436 
Add potentially dilutive securities1,160 1,780 1,547 2,098 
Weighted-average shares used in computing diluted net income per share79,029 78,809 79,190 78,534 
Securities not included as they would have been antidilutive121 264 109 354 

Note 13 — Commitments and Contingencies

Leases
See Note 14, Leases.

Contractual Obligations and Commitments
Our contractual obligations and commitments have not materially changed as of September 25, 2021 from those disclosed in our Annual Report on Form 10-K for the year ended December 26, 2020.

Legal Matters
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. As of September 25, 2021, and as of the filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings.

Note 14 — Leases

We lease real estate space under non-cancelable operating lease agreements for commercial and industrial space, as well as for our corporate headquarters located in Livermore, California. Our leases have remaining terms of 1 to 7 years, and some leases include options to extend up to 20 years. We also have operating leases for automobiles with remaining lease terms of 1 to 4 years. We did not include any of our renewal options in our lease terms for calculating our lease liability as the renewal options allow us to maintain operational flexibility and we are not reasonably certain we will exercise these options at this time. The weighted-average remaining lease term for our operating leases was 6 years as of September 25, 2021 and the weighted-average discount rate was 3.72%.

The components of lease expense were as follows (in thousands):
Three Months EndedNine Months Ended
September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
Lease expense:
Operating lease expense$2,167 $1,818 $6,338 $5,536 
Short-term lease expense51 32 133 94 
Variable lease expense461 372 1,424 1,159 
$2,679 $2,222 $7,895 $6,789 


21


Future minimum payments under our non-cancelable operating leases were as follows as of September 25, 2021 (in thousands):
Fiscal YearAmount
Remainder of 2021$2,116 
20228,536 
20237,167 
20246,744 
20256,726 
Thereafter14,815 
  Total minimum lease payments46,104 
Less: interest(5,741)
  Present value of net minimum lease payments40,363 
Less: current portion(7,962)
  Total long-term operating lease liabilities$32,401 

Note 15 — Revenue

Transaction price allocated to the remaining performance obligations: On September 25, 2021, we had $10.0 million of remaining performance obligations, which were comprised of deferred service contracts and extended warranty contracts and contracts with overtime revenue recognition that are not yet delivered. We expect to recognize approximately 27.9% of our remaining performance obligations as revenue in the remainder of fiscal 2021, approximately 55.8% in fiscal 2022, and approximately 16.3% in fiscal 2023 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 25, 2021 and December 26, 2020 were $2.4 million and $3.7 million, respectively, and are reported on the Condensed Consolidated Balance Sheets 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 at the end of each reporting period as a component of Deferred revenue and Other liabilities. Contract liabilities as of September 25, 2021 and December 26, 2020 were $24.3 million and $22.2 million, respectively. During the nine months ended September 25, 2021, we recognized $15.0 million of revenue, that was included in contract liabilities as of December 26, 2020.

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 16, Operating Segments and Enterprise-Wide Information, for further details.

Note 16 — 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
22


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 25, 2021September 26, 2020
Probe CardsSystemsCorporate and OtherTotalProbe CardsSystemsCorporate and OtherTotal
Revenues$154,850 $35,114 $ $189,964 $150,773 $27,223 $ $177,996 
Gross profit $69,868 $17,553 $(7,202)$80,219 $69,641 $13,565 $(6,457)$76,749 
Gross margin45.1 %50.0 %42.2 %46.2 %49.8 %43.1 %
Nine Months Ended
September 25, 2021September 26, 2020
Probe CardsSystemsCorporate and OtherTotalProbe CardsSystemsCorporate and OtherTotal
Revenues$467,389 $97,287 $ $564,676 $419,272 $77,301 $ $496,573 
Gross profit $206,783 $48,059 $(21,634)$233,208 $191,907 $37,618 $(19,219)$210,306 
Gross margin44.2 %49.4 %41.3 %45.8 %48.7 %42.4 %

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

Certain revenue category information by reportable segment was as follows (in thousands):
Three Months Ended
September 25, 2021September 26, 2020
Probe CardsSystemsTotalProbe CardsSystemsTotal
Market:
Foundry & Logic$104,640 $ $104,640 $108,411 $ $108,411 
DRAM39,816  39,816 31,379  31,379 
Flash10,394  10,394 10,983  10,983 
Systems 35,114 35,114  27,223 27,223 
Total$154,850 $35,114 $189,964 $150,773 $27,223 $177,996 
Timing of revenue recognition:
Products transferred at a point in time$154,217 $33,564 $187,781 $150,252 $25,987 $176,239 
Products and services transferred over time633 1,550 2,183 521 1,236 1,757 
Total$154,850 $35,114 $189,964 $150,773 $27,223 $177,996 
Geographical region:
China$46,011 $5,036 $51,047 $24,851 $3,695 $28,546 
Taiwan34,100 7,474 41,574 33,351 3,584 36,935 
South Korea27,895 1,077 28,972 28,337 1,234 29,571 
United States18,530 6,938 25,468 31,596 4,732 36,328 
Asia-Pacific1
18,566 1,315 19,881 5,505 3,449 8,954 
Japan5,767 4,961 10,728 12,288 4,857 17,145 
Europe3,595 6,891 10,486 11,679 5,300 16,979 
Rest of the world386 1,422 1,808 3,166 372 3,538 
Total$154,850 $35,114 $189,964 $150,773 $27,223 $177,996 
23


Nine Months Ended
September 25, 2021September 26, 2020
Probe CardsSystemsTotalProbe CardsSystemsTotal
Market:
Foundry & Logic$321,776 $ $321,776 $323,503 $ $323,503 
DRAM115,802  115,802 75,127  75,127 
Flash29,811  29,811 20,642  20,642 
Systems 97,287 97,287  77,301 77,301 
Total$467,389 $97,287 $564,676 $419,272 $77,301 $496,573 
Timing of revenue recognition:
Products transferred at a point in time$465,822 $89,119 $554,941 $417,529 $73,393 $490,922 
Products and services transferred over time1,567 8,168 9,735 1,743 3,908 5,651 
Total$467,389 $97,287 $564,676 $419,272 $77,301 $496,573 
Geographical region:
Taiwan$125,571 $13,467 $139,038 $93,596 $8,290 $101,886 
China107,838 17,661 125,499 107,756 13,190 120,946 
United States64,012 23,592 87,604 79,575 16,790 96,365 
South Korea81,322 2,912 84,234 56,278 2,494 58,772 
Asia-Pacific1
59,013 4,114 63,127 14,307 9,010 23,317 
Europe12,894 19,601 32,495 36,656 15,498 52,154 
Japan14,493 13,260 27,753 24,502 11,072 35,574 
Rest of the world2,246 2,680 4,926 6,602 957 7,559 
Total$467,389 $97,287 $564,676 $419,272 $77,301 $496,573 

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Cautionary Statement Regarding Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, which are subject to risks and uncertainties. The forward-looking statements include statements concerning, among other things, our business strategy, financial and operating results, gross margins, liquidity and capital expenditure requirements and impact of accounting standards. In some cases, you can identify these statements by forward-looking words, such as “may,” “might,” “will,” “could,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend” and “continue,” the negative or plural of these words and other comparable terminology.

The forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements. We have no obligation to update any of these statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements, including risks related to general market trends, the benefits of acquisitions and investments, our supply chain, uncertainties related to COVID-19 and the impact of our responses to it, the interpretation and impacts of changes in export controls and other trade barriers, our ability to execute our business strategy and other risks discussed in the section titled “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 26, 2020 and in this Quarterly Report on Form 10-Q. You should carefully consider the numerous risks and uncertainties described under these sections.
 
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the accompanying notes contained in this Quarterly Report on Form 10-Q. Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us” and “FormFactor” refer to FormFactor, Inc. and its subsidiaries.

24


Overview

FormFactor, Inc., headquartered in Livermore, California, is a leading provider of test and measurement technologies. We provide a broad range of high-performance probe cards, analytical probes, probe stations, metrology systems, thermal systems and cryogenic systems to both semiconductor companies and scientific institutions. Our products provide electrical and physical information from a variety of semiconductor and electro-optical devices and integrated circuits from early research, through development, to high-volume production. Customers use our products and services to lower production costs, improve yields, and enable development of their complex next-generation products.

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

We generated net income of $58.0 million in the first nine months of fiscal 2021 as compared to $59.3 million in the first nine months of fiscal 2020. The small decrease in net income was primarily due to increased revenues, partially offset by slightly lower margins on a lower mix of Foundry & Logic probe card sales and higher taxes on higher taxable income and a higher tax rate due to significant one-time tax benefits during 2020.

Impact of COVID-19

The COVID-19 pandemic continues to cause serious illness and death in many of the regions that we, our customers and our suppliers operate. The COVID-19 pandemic has resulted in significant governmental actions designed to control the spread of the virus, including the imposition of safety requirements and other orders in locations where we have manufacturing and other activities.

We currently continue to operate in all of our manufacturing sites at production levels comparable to those prior to the pandemic, albeit subject to certain safety and related constraints. Our other operations are similarly continuing with substantial work-from-home activities.

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

While to date the disruptions in our operations, supply chain and customer demand as a result of the COVID-19 pandemic have been somewhat limited, we believe that the COVID-19 pandemic represents a sustained threat that may give rise to a variety of more significant adverse impacts on our business and financial results. For a further description of the uncertainties and business risks associated with the COVID-19 pandemic, see the risk factors discussed in our Annual Report on Form 10-K for the year ended December 26, 2020.

Significant Accounting Policies and the Use of Estimates

Management’s Discussion and Analysis and Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K describe the significant accounting estimates and significant accounting policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. During the nine months ended September 25, 2021, there were no significant changes in our significant accounting policies or estimates from those reported in our Annual Report on Form 10-K for the year ended December 26, 2020, which was filed with the Securities and Exchange Commission on February 22, 2021.

25


Results of Operations
 
The following table sets forth our operating results as a percentage of revenues for the periods indicated:
 Three Months EndedNine Months Ended
 September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
Revenues100.0 %100.0 %100.0 %100.0 %
Cost of revenues57.8 56.9 58.7 57.6 
Gross profit42.2 43.1 41.3 42.4 
Operating expenses:    
Research and development13.7 12.9 13.4 13.1 
Selling, general and administrative16.3 17.9 16.2 16.6 
Total operating expenses30.0 30.8 29.6 29.7 
Operating income12.2 12.3 11.7 12.7 
Interest income0.1 0.1 0.1 0.3 
Interest expense(0.1)(0.1)(0.1)(0.1)
Other expense, net0.1 0.2 — — 
Income before income taxes12.3 12.5 11.7 12.9 
Provision (benefit) for income taxes1.5 (0.3)1.4 0.9 
Net income10.8 %12.8 %10.3 %12.0 %

Revenues by Segment and Market
 Three Months EndedNine Months Ended
 September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
 (In thousands)
Probe Cards$154,850 $150,773 $467,389 $419,272 
Systems35,114 27,223 97,287 77,301 
$189,964 $177,996 $564,676 $496,573 
26


Three Months Ended
September 25,
2021
% of RevenuesSeptember 26,
2020
% of Revenues$ Change% Change
(Dollars in thousands)
Probe Cards Markets:
Foundry & Logic$104,640 55.1 %$108,411 60.9 %$(3,771)(3.5)%
DRAM39,816 20.9 31,379 17.6 8,437 26.9 
Flash10,394 5.5 10,983 6.2 (589)(5.4)
Systems Market:
Systems35,114 18.5 27,223 15.3 7,891 29.0 
Total revenues$189,964 100.0 %$177,996 100.0 %$11,968 6.7 %
Nine Months Ended
September 25,
2021
% of RevenuesSeptember 26,
2020
% of Revenues$ Change% Change
(Dollars in thousands)
Probe Cards Markets:
Foundry & Logic$321,776 57.0 %$323,503 65.1 %$(1,727)(0.5)%
DRAM115,802 20.5 75,127 15.1 40,675 54.1 
Flash29,811 5.3 20,642 4.2 9,169 44.4 
Systems Market:
Systems97,287 17.2 77,301 15.6 19,986 25.9 
Total revenues$564,676 100.0 %$496,573 100.0 %$68,103 13.7 %

The decrease in Foundry & Logic product revenue for the three months ended September 25, 2021, compared to the three months ended September 26, 2020, was driven by lower demand from two major customers, partially offset by increased unit sales to other large semiconductor foundries and integrated device manufacturers. The decrease for the nine months ended September 25, 2021, compared to the nine months ended September 26, 2020, was driven by lower demand from one major customer, partially offset by increased unit sales to other large semiconductor foundries and integrated device manufacturers. The relative stability of our overall revenue, despite these fluctuations, is the result of our long-term customer and market diversification initiatives.

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

Flash product revenue was down slightly for the three months ended September 25, 2021, compared to the three months ended September 26, 2020, with shifts between customers that are typical as our revenue in this market continues to be highly variable. The increase in Flash product revenue for the nine months ended September 25, 2021, compared to the nine months ended September 26, 2020, was driven by increased sales resulting from the acquisition of Baldwin Park offset by decreased sales as a result of decreased customer demand for our existing products.

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

27


Revenues by Geographic Region
Three Months EndedNine Months Ended
September 25,
2021
% of
Revenue
September 26,
2020
% of
Revenue
September 25,
2021
% of
Revenue
September 26,
2020
% of
Revenue
 (Dollars in thousands)
Taiwan$41,574 21.9 %$36,935 20.8 %$139,038 24.6 %$101,886 20.5 %
China51,047 26.8 28,546 16.0 125,499 22.2 120,946 24.4 
United States25,468 13.4 36,328 20.4 87,604 15.5 96,365 19.4 
South Korea28,972 15.3 29,571 16.6 84,234 14.9 58,772 11.8 
Asia-Pacific1
19,881 10.5 8,954 5.0 63,127 11.2 23,317 4.7 
Europe10,486 5.5 16,979 9.5 32,495 5.8 52,154 10.5 
Japan10,728 5.6 17,145 9.6 27,753 4.9 35,574 7.2 
Rest of the world1,808 1.0 3,538 2.1 4,926 0.9 7,559 1.5 
Total revenues$189,964 100.0 %$177,996 100.0 %$564,676 100.0 %$496,573 100.0 %

1 Asia-Pacific includes all countries in the region except China, Japan, South Korea and Taiwan, which are disclosed separately.
 
Geographic revenue information is based on the location to which we ship the product. For example, if a certain South Korean customer purchases through their U.S. subsidiary and requests the products to be shipped to an address in South Korea, this sale will be reflected in the revenue for South Korea rather than the U.S.

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

Cost of Revenues and Gross Margins

Cost of revenues consists primarily of manufacturing materials, compensation and benefits, shipping and handling costs, manufacturing-related overhead and amortization of certain intangible assets. Our manufacturing operations rely on a limited number of suppliers to provide key components and materials for our products, some of which are a sole source. We order materials and supplies based on backlog and forecasted customer orders. Tooling and setup costs related to changing manufacturing lots at our suppliers are also included in the cost of revenues. We expense all warranty costs, inventory provisions and amortization of certain intangible assets as cost of revenues.

Our gross profit and gross margin were as follows (dollars in thousands):
 Three Months Ended
 September 25,
2021
September 26,
2020
$ Change% Change
Gross profit$80,219 $76,749 $3,470 4.5 %
Gross margin42.2 %43.1 %
Nine Months Ended
September 25,
2021
September 26,
2020
$ Change% Change
Gross profit$233,208 $210,306 $22,902 10.9 %
Gross margin41.3 %42.4 %

28


Our gross profit and gross margin by segment were as follows (dollars in thousands):
Three Months Ended
September 25, 2021September 26, 2020
Probe CardsSystemsCorporate and OtherTotalProbe CardsSystemsCorporate and OtherTotal
Gross profit $69,868 $17,553 $(7,202)$80,219 $69,641 $13,565 $(6,457)$76,749 
Gross margin45.1 %50.0 %42.2 %46.2 %49.8 %43.1 %
Nine Months Ended
September 25, 2021September 26, 2020
Probe CardsSystemsCorporate and OtherTotalProbe CardsSystemsCorporate and OtherTotal
Gross profit$206,783$48,059 $(21,634)$233,208 $191,907$37,618 $(19,219)$210,306 
Gross margin44.2 %49.4 %41.3 %45.8 %48.7 %42.4 %

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

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

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

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

Cost of revenues included stock-based compensation expense as follows (in thousands):
Three Months EndedNine Months Ended
September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
Stock-based compensation$1,392 $962 $3,806 $2,800 

29


Research and Development
Three Months Ended
September 25,
2021
September 26,
2020
$ Change% Change
(Dollars in thousands)
Research and development$26,026 $22,878 $3,148 13.8 %
% of revenues13.7 %12.9 %
Nine Months Ended
September 25,
2021
September 26,
2020
$ Change% Change
(Dollars in thousands)
Research and development$75,526 $65,064 $10,462 16.1 %
% of revenues13.4 %13.1 %

The increase in research and development expenses in the three and nine months ended September 25, 2021 when compared to the corresponding period in the prior year was primarily driven by our recent acquisitions of Baldwin Park and HPD, which increased headcount and general operational costs. Annual salary increases, higher stock-based compensation, and restructuring charges also contributed to the increase.

A detail of the changes is as follows (in thousands):
Three Months Ended September 25, 2021 compared to Three Months Ended September 26, 2020Nine Months Ended September 25, 2021 compared to Nine Months Ended September 26, 2020
Employee compensation costs$1,330 $5,354 
Stock-based compensation684 1,208 
Restructuring charges289 694 
Project material costs(129)381 
Depreciation(21)239 
Other general operations995 2,586 
$3,148 $10,462 

Research and development included stock-based compensation expense as follows (in thousands):
Three Months EndedNine Months Ended
September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
Stock-based compensation$2,010 $1,326 $5,362 $4,154 

30


Selling, General and Administrative
Three Months Ended
September 25,
2021
September 26,
2020
$ Change% Change
(Dollars in thousands)
Selling, general and administrative$30,940 $31,834 $(894)(2.8)%
% of revenues16.3 %17.9 %
Nine Months Ended
September 25,
2021
September 26,
2020
$ Change% Change
(Dollars in thousands)
Selling, general and administrative$91,434 $82,282 $9,152 11.1 %
% of revenues16.2 %16.6 %

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

The increase in selling, general and administrative expenses in the nine months ended September 25, 2021 when compared to the corresponding period in the prior year was primarily driven by our recent acquisitions of Baldwin Park and HPD, which increased headcount and general operational costs. Annual salary increases and higher stock-based compensation also contributed to the increases. These increases were partially offset by the benefit in the prior year related to adjustments to contingent consideration for the acquisition of FRT GmbH ("FRT") and information technology security remediation costs that both did not repeat.

A detail of the changes is as follows (in thousands):
Three Months Ended September 25, 2021 compared to Three Months Ended September 26, 2020Nine Months Ended September 25, 2021 compared to Nine Months Ended September 26, 2020
Employee compensation costs$331 $5,235 
Gain on contingent consideration71 3,676 
Consulting fees(3,368)(3,402)
Stock-based compensation1,297 2,597 
General operating expenses562 1,066 
Travel related costs156 (341)
Amortization of intangibles57 321 
$(894)$9,152 

Selling, general and administrative included stock-based compensation expense as follows (in thousands):
Three Months EndedNine Months Ended
September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
Stock-based compensation$4,518 $3,221 $12,417 $9,820 

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Interest Income and Interest Expense
 Three Months EndedNine Months Ended
 September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
 (Dollars in thousands)
Interest Income$121 $249 $463 $1,310 
Weighted average balance of cash and investments$257,851 $243,615 $262,475 $230,098 
Weighted average yield on cash and investments0.26 %0.57 %0.32 %1.03 %
Interest Expense$151 $193 $447 $682 
Average debt outstanding$27,810 $37,295 $30,214 $38,327 
Weighted average interest rate on debt1.59 %1.65 %1.58 %2.05 %
 
Interest income is earned on our cash, cash equivalents, restricted cash and marketable securities. The decrease in interest income for the three and nine months ended September 25, 2021 compared with the corresponding period of the prior year was attributable to lower investment yields due to the low interest rate environment, despite higher invested balances.

Interest expense primarily includes interest on our term loans, interest rate swap derivative contracts, and term loan issuance costs amortization charges. The decrease in interest expense for the three and nine months ended September 25, 2021 compared to the same period of the prior year was primarily due to lower outstanding debt balances due to the June 30, 2020 pay-off of the term loan originated to acquire Cascade Microtech, Inc, partially offset by the Building Term Loan originated in the second quarter of 2020. Interest expense was also lower due to lower average interest rates on the outstanding debt.

Other Income (Expense), Net
Other income (expense), net, primarily includes the effects of foreign currency impact and various other gains and losses.

Provision for Income Taxes
 Three Months EndedNine Months Ended
 September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
 (In thousands, except percentages)
Provision (benefit) for income taxes$2,784 $(499)$8,273 $4,479 
Effective tax rate12.0 %(2.2)%12.5 %7.0 %

Provision for income taxes reflects the tax provision on our operations in foreign and U.S. jurisdictions, offset by tax benefits from tax credits and the foreign-derived intangible income (“FDII”) deduction. Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuation allowance, changes to U.S. federal, state or foreign tax laws, changes in ASC 718 stock-based compensation expense/benefit, future expansion into areas with varying country, state, and local income tax rates, and deductibility of certain costs and expenses by jurisdiction. We have utilized our previous net operating loss carryforwards, and expect the FDII deduction and corresponding benefit to be available, resulting in a decrease from the U.S. statutory rate and included in our worldwide effective tax rate for the year ending December 25, 2021.

The increase in the effective tax rate in the nine months ended September 25, 2021 when compared to the corresponding period in the prior year was primarily driven by the cumulative effect of adjustments made related to final and proposed Treasury regulations during the third quarter ended September 26, 2020. The regulations under Sections 951A and 954 provided final global intangible low-taxed income (GILTI) high-tax exclusion and proposed changes to the existing subpart F income high-tax exception, respectively. The impact of those adjustments provided a significant one time tax benefit during 2020.


Liquidity and Capital Resources

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

Cash and cash equivalents primarily consist of deposits held at banks, money market funds, and U.S. treasuries. Marketable securities primarily consist of U.S. treasuries, corporate bonds, and commercial paper. We typically invest in highly-rated
32


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

Our cash, cash equivalents and marketable securities totaled approximately $264.7 million at September 25, 2021, compared to $255.0 million at December 26, 2020. We believe that we will be able to satisfy our working capital requirements and scheduled term loan repayments for at least the next twelve months with the liquidity provided by our existing cash, cash equivalents, marketable securities and cash provided by operations. To the extent necessary, we may consider entering into short and long-term debt obligations, raising cash through a stock issuance, or obtaining new financing facilities, which may not be available on terms favorable to us. Our future capital requirements may vary materially from those now planned.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition.

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

We utilize a variety of tax planning and financing strategies to manage our worldwide cash and deploy funds to locations where needed. As part of these strategies, we indefinitely reinvest a portion of our foreign earnings. Should we require additional capital in the United States, we may elect to repatriate indefinitely-reinvested foreign funds or raise capital in the United States.

Cash Flows
The following table sets forth our net cash flows from operating, investing and financing activities:
Nine Months Ended
September 25,
2021
September 26,
2020
(In thousands)
Net cash provided by operating activities$100,437 $124,209 
Net cash used in investing activities$(94,976)$(56,195)
Net cash used in financing activities$(36,869)$(28,970)

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

Inventories, net, increased $15.9 million to $115.1 million at September 25, 2021, compared to $99.2 million at December 26, 2020, as a result of anticipated projected customer demand. Due to provisions for excess and obsolete inventories of $11.6 million and non-cash restructuring charges to record inventory impairments of $1.3 million, the change in Inventories, net, was further impacted.

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

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

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

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Debt

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

The FRT Term Loan bears interest at a rate equal to the Euro Interbank Offered Rate (“EURIBOR”) plus 1.75% per annum and will be repaid in quarterly installments of approximately $2.0 million plus interest. The interest rate at September 25, 2021 was 1.20%. As of September 25, 2021, the balance outstanding pursuant to the FRT term loan was $10.3 million.

Building Term Loan
On June 22, 2020, we entered into an $18.0 million 15-year credit facility loan agreement (the “Building Term Loan”). The proceeds of the Building Term Loan were used to finance the purchase a building adjacent to our leased facilities in Livermore, California.

The Building Term Loan bears interest at a rate equal to the applicable LIBOR rate plus 1.75% per annum. Interest payments are payable in monthly installments over a fifteen-year period. The interest rate at September 25, 2021 was 1.84%. As of September 25, 2021, the balance outstanding pursuant to the Building Term Loan was $16.8 million.

On March 17, 2020, we entered into a forward starting interest rate swap agreement to hedge the interest payments on the Building Term Loan for the notional amount of $18.0 million, and an amortization period that matches the debt. As future levels of LIBOR over the life of the loan are uncertain, we entered into this interest-rate swap agreement to hedge the exposure in interest rate risks associated with movement in LIBOR rates. By entering into the agreement, we converted a floating rate interest at one-month LIBOR plus 1.75% into a fixed rate interest at 2.75%. As of September 25, 2021, the notional amount of the loan that is subject to this interest rate swap is $16.8 million.

Stock Repurchase Program

In October 2020, our Board of Directors authorized a program to repurchase up to $50.0 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based compensation plans. The share repurchase program will expire on October 28, 2022. During the nine months ended September 25, 2021, we repurchased 620,200 shares of common stock for $24.0 million and, as of September 25, 2021, $26.0 million remained available for future repurchases.

Contractual Obligations and Commitments

The following table summarizes our significant contractual commitments to make future payments in cash under contractual obligations as of September 25, 2021:
Payments Due In Fiscal Year
Remainder 20212022202320242025ThereafterTotal
Operating leases$2,116 $8,536 $7,167 $6,744 $6,726 $14,815 $46,104 
Term loans - principal payments2,302 9,225 1,050 1,080 1,111 12,258 27,026 
Term loans - interest payments (1)
109 361 280 261 239 1,142 2,392 
Total$4,527 $18,122 $8,497 $8,085 $8,076 $28,215 $75,522 

(1) Represents our minimum interest payment commitments at 1.84% per annum for the Building Term Loan and 1.20% per annum for the FRT Term Loan. This also excludes any amounts related to our interest rate swap.

Off-Balance Sheet Arrangements
 
Historically, we have not participated in transactions that have generated relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of September 25, 2021, we were not involved in any such off-balance sheet arrangements.

34


Recent Accounting Pronouncements

See Note 1, Basis of Presentation and New Accounting Pronouncements, of Notes to Condensed Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
For financial market risks related to changes in interest rates and foreign currency exchange rates, reference is made to Item 7A “Quantitative and Qualitative Disclosures about Market Risk” contained in Part II of our Annual Report on Form 10-K for the fiscal year ended December 26, 2020. Our exposure to market risk has not changed materially since December 26, 2020.

Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting
 
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls
 
Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems’ objectives are being met. Further, the design of any control systems must reflect the fact that there are resource constraints, and the benefits of all controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake. Control systems can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based, in part, on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

CEO and CFO Certifications
 
We have attached as exhibits to this Quarterly Report on Form 10-Q the certifications of our Chief Executive Officer and Chief Financial Officer, which are required in accordance with the Exchange Act. We recommend that this Item 4 be read in conjunction with the certifications for a more complete understanding of the subject matter presented. 

PART II - OTHER INFORMATION
 
Item 1A. Risk Factors

There have been no material changes during the nine months ended September 25, 2021 to the risk factors discussed in our Annual Report on Form 10-K for the year ended December 26, 2020. If any of the identified risks actually occur, our business, financial condition and results of operations could suffer. The trading price of our common stock could decline and you may lose all or part of your investment in our common stock. The risks and uncertainties described in our Annual Report on Form 10-K for the year ended December 26, 2020 are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business operations.
35



Item 6. Exhibits

The following exhibits are filed herewith and this list constitutes the exhibit index.
Exhibit Incorporated by Reference Filed
NumberExhibit DescriptionFormDate Number Herewith
3.1

S-1October 20, 20033.01
3.2

8-KJuly 22, 20163.2
31.01     X
31.02     X
32.01     *
101
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 25, 2021, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags
X
101.INSXBRL Instance Document     X
101.SCHXBRL Taxonomy Extension Schema Document     X
101.CALXBRL Taxonomy Extension Calculation Linkbase Document     X
101.DEFXBRL Taxonomy Extension Definition Linkbase Document     X
101.LABXBRL Taxonomy Extension Label Linkbase Document     X
101.PREXBRL Taxonomy Extension Presentation Linkbase Document     X
104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 25, 2021, formatted in Inline XBRL (included as Exhibit 101)
X
 ______________________________________
*    This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

36


SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 FormFactor, Inc.
   
Date:November 2, 2021By:/s/ SHAI SHAHAR
   
  Shai Shahar
  Chief Financial Officer
  (Duly Authorized Officer, Principal Financial Officer, and Principal Accounting Officer)

37
Document

Exhibit 31.01

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 15 U.S.C. SECTION 7241, AS
ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, Michael D. Slessor, certify that:
 
1.I have reviewed the quarterly report on Form 10-Q of FormFactor, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in the quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
 
5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:November 2, 2021/s/ MICHAEL D. SLESSOR
Michael D. Slessor
Chief Executive Officer
(Principal Executive Officer and Director)


Document

Exhibit 31.02

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 15 U.S.C. SECTION 7241,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Shai Shahar, certify that:
 
1.I have reviewed the quarterly report on Form 10-Q of FormFactor, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in the quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
 
5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:November 2, 2021/s/ SHAI SHAHAR
Shai Shahar
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)


Document

Exhibit 32.01


CERTIFICATION OF
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of FormFactor, Inc., a Delaware corporation, for the period ended September 25, 2021, as filed with the Securities and Exchange Commission, each of the undersigned officers of FormFactor, Inc. certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his respective knowledge:
 
1.The quarterly report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of FormFactor, Inc. for the periods presented therein.
Date:November 2, 2021/s/ MICHAEL D. SLESSOR
Michael D. Slessor
Chief Executive Officer
(Principal Executive Officer and Director)
Date:November 2, 2021/s/ SHAI SHAHAR
Shai Shahar
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)