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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 April 1, 2023
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 FilerNon-accelerated Filer
Smaller Reporting CompanyEmerging 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 May 3, 2023, 77,144,094 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 APRIL 1, 2023
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)
 April 1,
2023
December 31,
2022
ASSETS 
Current assets:  
Cash and cash equivalents$112,360 $109,130 
Marketable securities123,891 129,006 
Accounts receivable, net of allowance for credit losses of $169 and $168
103,969 88,143 
Inventories, net116,553 123,157 
Restricted cash1,207 1,221 
Prepaid expenses and other current assets22,941 23,895 
Total current assets480,921 474,552 
Restricted cash2,287 2,631 
Operating lease, right-of-use-assets30,420 31,362 
Property, plant and equipment, net of accumulated depreciation198,232 189,848 
Goodwill211,773 211,444 
Intangibles, net24,486 26,751 
Deferred tax assets67,951 67,646 
Other assets3,686 3,994 
Total assets$1,019,756 $1,008,228 
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current liabilities: 
Accounts payable$63,756 $69,308 
Accrued liabilities31,981 42,115 
Current portion of term loan, net of unamortized issuance costs1,142 1,045 
Deferred revenue23,779 29,846 
Operating lease liabilities7,512 7,353 
Total current liabilities128,170 149,667 
Term loan, less current portion, net of unamortized issuance costs14,034 14,389 
Deferred tax liabilities2,905 2,732 
Long-term operating lease liabilities26,407 27,587 
Deferred grant18,000  
Other liabilities5,868 5,568 
Total liabilities195,384 199,943 
 
Stockholders’ equity: 
Common stock, $0.001 par value:
 
250,000,000 shares authorized; 77,142,023 and 76,914,590 shares issued and outstanding
77 77 
Additional paid-in capital858,195 844,842 
Accumulated other comprehensive loss(4,186)(5,578)
Accumulated deficit(29,714)(31,056)
Total stockholders’ equity824,372 808,285 
Total liabilities and stockholders’ equity$1,019,756 $1,008,228 
 
The accompanying notes are an integral part of these condensed consolidated financial statements. 
3


FORMFACTOR, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 Three Months Ended
 April 1,
2023
March 26,
2022
Revenues$167,448 $197,174 
Cost of revenues106,370 102,950 
Gross profit61,078 94,224 
Operating expenses:  
Research and development28,245 27,134 
Selling, general and administrative32,742 32,906 
Total operating expenses60,987 60,040 
Operating income91 34,184 
Interest income (expense), net1,276 (54)
Other income, net23 192 
Income before income taxes1,390 34,322 
Provision for income taxes48 4,450 
Net income$1,342 $29,872 
Net income per share: 
Basic $0.02 $0.38 
Diluted$0.02 $0.38 
Weighted-average number of shares used in per share calculations:  
Basic 77,066 78,246 
Diluted77,255 79,468 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4


FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months Ended
April 1,
2023
March 26,
2022
Net income $1,342 $29,872 
Other comprehensive income (loss), net of tax:
Translation adjustments832 (2,698)
Unrealized gains (losses) on available-for-sale marketable securities603 (1,204)
Unrealized gains (losses) on derivative instruments(43)874 
Other comprehensive income (loss), net of tax:1,392 (3,028)
Comprehensive income$2,734 $26,844 

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
Three Months Ended April 1, 2023
Balances, December 31, 202276,914,590 $77 $844,842 $(5,578)$(31,056)$808,285 
Issuance of common stock under the Employee Stock Purchase Plan210,055 — 5,024 — — 5,024 
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax17,378 — (387)— — (387)
Stock-based compensation— — 8,716 — — 8,716 
Other comprehensive income— — — 1,392 — 1,392 
Net income— — — — 1,342 1,342 
Balances, April 1, 202377,142,023 $77 $858,195 $(4,186)$(29,714)$824,372 
Three Months Ended March 26, 2022
Balances, December 25, 202178,240,506 $78 $898,945 $(1,449)$(81,794)$815,780 
Issuance of common stock under the Employee Stock Purchase Plan157,642 — 5,645 — — 5,645 
Issuance of common stock pursuant to exercise of options6,000 — 42 — — 42 
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax2,612 — (72)— — (72)
Purchase and retirement of common stock through repurchase program(240,548)— (9,397)— — (9,397)
Stock-based compensation— — 7,831 — — 7,831 
Other comprehensive loss— — — (3,028)— (3,028)
Net income— — — — 29,872 29,872 
Balances, March 26, 202278,166,212 $78 $902,994 $(4,477)$(51,922)$846,673 

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


FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Three Months Ended
 April 1,
2023
March 26,
2022
Cash flows from operating activities:  
Net income $1,342 $29,872 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation7,576 6,960 
Amortization2,378 2,369 
Reduction in the carrying amount of right-of-use assets1,690 2,492 
Stock-based compensation expense9,290 7,520 
Provision for excess and obsolete inventories4,973 2,501 
Other adjustments to reconcile net income to net cash provided by operating activities133 182 
Changes in assets and liabilities:
Accounts receivable(15,926)966 
Inventories1,375 (17,080)
Prepaid expenses and other current assets1,009 (144)
Other assets(55)(73)
Accounts payable(1,819)10,150 
Accrued liabilities(10,209)(3,120)
Other liabilities319 87 
Deferred revenues(6,046)3,908 
Deferred grant18,000  
Operating lease liabilities(1,721)(2,435)
Net cash provided by operating activities12,309 44,155 
Cash flows from investing activities:  
Acquisition of property, plant and equipment(19,701)(15,606)
Purchases of marketable securities(27,311)(23,462)
Proceeds from maturities and sales of marketable securities33,473 17,990 
Net cash used in investing activities(13,539)(21,078)
Cash flows from financing activities:  
Proceeds from issuances of common stock5,024 5,687 
Purchase of common stock through stock repurchase program (9,397)
Tax withholdings related to net share settlements of equity awards(387)(72)
Principal repayments on term loans(259)(2,234)
Net cash provided by (used) in financing activities4,378 (6,016)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(276)(1,142)
Net increase in cash, cash equivalents and restricted cash2,872 15,919 
Cash, cash equivalents and restricted cash, beginning of period112,982 155,342 
Cash, cash equivalents and restricted cash, end of period$115,854 $171,261 

The accompanying notes are an integral part of these condensed consolidated financial statements.
7



FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
April 1,
2023
March 26,
2022
Non-cash investing and financing activities:
Decrease in accounts payable and accrued liabilities related to property, plant and equipment purchases$3,755 $2,524 
Operating lease, right-of-use assets obtained in exchange for lease obligations727 3,359 
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net$7,391 $890 
Cash paid for interest106 163 
Operating cash outflows from operating leases2,191 2,094 
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$112,360 $167,182 
Restricted cash, current1,207 2,026 
Restricted cash, non-current2,287 2,053 
Total cash, cash equivalents and restricted cash$115,854 $171,261 

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


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


Note 1 — Basis of Presentation and Significant Accounting Policies
 
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 2022 Annual Report on Form 10-K filed with the SEC on February 24, 2023. 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 2023 and 2022 contain 52 weeks and 53 weeks, respectively, and the three months ended April 1, 2023 and March 26, 2022 each contained 13 weeks. Fiscal 2023 will end on December 30, 2023.

Significant Accounting Policies
Our significant accounting policies have not changed during the three months ended April 1, 2023 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, except for:

Government Assistance
In January 2023, we received $18.0 million in cash from a California Competes Grant (the “Grant”) awarded from the California Governor’s Office of Business and Economic Development. The Grant requires FormFactor to create and maintain full-time jobs and make significant infrastructure investments within California over a 5-year term. If we do not meet the requirements of the Grant, we will be required to repay all or a portion of the Grant.

The Grant is included in our Condensed Consolidated Balance Sheets within Deferred grant and we have elected to recognize when earned as an offset to Cost of revenues and Operating expenses within our Condensed Consolidated Statements of Income. We have elected to present the proceeds from the Grant as cash provided by operating activities within our Condensed Consolidated Statements of Cash Flows as the grant is to offset operations.

Note 2 — Concentration of Credit and Other Risks

Each of the following customers accounted for 10% or more of our revenues for the periods indicated:
Three Months Ended
April 1,
2023
March 26,
2022
Intel Corporation20.0 %20.8 %
Taiwan Semiconductor Manufacturing Co., LTD.*10.7 %
20.0 %31.5 %

At April 1, 2023, two customers accounted for 17.9% and 15.9% of gross accounts receivable, respectively. At December 31, 2022, one customer accounted for 13.8% of gross accounts receivable.

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.
 
9


Inventories, net, consisted of the following (in thousands):
April 1,
2023
December 31,
2022
Raw materials$57,748 $55,726 
Work-in-progress39,376 46,067 
Finished goods19,429 21,364 
$116,553 $123,157 

Note 4 Goodwill and Intangible Assets

Goodwill by reportable segment was as follows (in thousands):
Probe CardsSystemsTotal
Goodwill, as of December 25, 2021$178,424 $33,875 $212,299 
Addition - Woburn Acquisition 550 550 
Foreign currency translation (1,405)(1,405)
Goodwill, as of December 31, 2022178,424 33,020 211,444 
Foreign currency translation 329 329 
Goodwill, as of April 1, 2023$178,424 $33,349 $211,773 

We have not recorded goodwill impairments for the three months ended April 1, 2023.

Intangible assets were as follows (in thousands):
April 1, 2023December 31, 2022
Intangible Assets GrossAccumulated
Amortization
NetGrossAccumulated
Amortization
Net
Existing developed technologies $171,750 $152,260 $19,490 $171,441 $151,212 $20,229 
Customer relationships50,996 46,559 4,437 50,912 45,003 5,909 
Trade name7,992 7,833 159 7,972 7,759 213 
In-process research and development400  400 400  400 
$231,138 $206,652 $24,486 $230,725 $203,974 $26,751 

Amortization expense was included in our Condensed Consolidated Statements of Income as follows (in thousands):
 Three Months Ended
 April 1,
2023
March 26,
2022
Cost of revenues$831 $808 
Selling, general and administrative1,547 1,561 
$2,378 $2,369 

The estimated future amortization of definite-lived intangible assets, excluding in-process research and development, is as follows (in thousands):
Fiscal YearAmount
Remainder of 2023$4,813 
20244,611 
20254,268 
20263,175 
20272,832 
Thereafter4,387 
$24,086 

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Note 5 Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):
April 1,
2023
December 31,
2022
Accrued compensation and benefits$20,028 $15,864 
Accrued income and other taxes3,241 12,817 
Accrued warranty3,872 4,199 
Employee stock purchase plan contributions withheld1,533 4,585 
Accrued restructuring charges376 1,249 
Other accrued expenses2,931 3,401 
$31,981 $42,115 

Note 6 Restructuring Charges

2022 Restructuring Plan
On October 25, 2022, we adopted a restructuring plan (“2022 restructuring plan”) to align our cost structure with reduced demand levels, by streamlining and improving the efficiency and business effectiveness of our operations. This plan included lowering headcount by approximately 13% of our workforce.

The Company has recognized 2022 restructuring plan charges of approximately $8.1 million for severance and employee-related costs, including $0.3 million for stock-based compensation, with $7.1 million within the Probe Cards segment, $0.5 million within the Systems segment, and $0.5 million within Corporate. We do not expect to incur additional material costs related to the 2022 restructuring plan.

2021 Restructuring Plan
On September 25, 2021, we adopted restructuring plans (“2021 restructuring plans”) to improve our business effectiveness and streamline our operations by consolidating certain manufacturing facilities for both the Probe Cards segment and the Systems segment. This included plans to consolidate or relocate certain leased locations in the United States to other locations in the United States, Germany and Asia. As a result of these changes to certain work locations, we have incurred personnel related costs to sever, relocate, or retain select employees. Additionally, as part of these plans we have undertaken actions to adjust capacity for certain product offerings, which included contract termination costs to satisfy contract obligations.

The Company has recognized 2021 restructuring plans charges of approximately $12.7 million, with $9.9 million within the Probe Cards segment and $2.8 million within the Systems segment, and were comprised of $1.3 million of severance and employee-related costs, $1.8 million in contract and lease termination costs, $9.1 million in inventory impairments and other inventory related costs, and $0.5 million of cost related to impairment of leasehold improvements, facility exits and fixed asset related costs. We do not expect additional material costs related to the 2021 restructuring plan.

Total restructuring charges for both the 2022 and 2021 restructuring plans included in our Condensed Consolidated Statements of Income were as follows (in thousands):
Three Months Ended
April 1, 2023March 26, 2022
Probe CardsSystemsTotalProbe CardsSystemsTotal
Cost of revenues$70 $(45)$25 $39 $100 $139 
Research and development4 66 70  146 146 
Selling, general and administrative1,060 62 1,122 3 25 28 
$1,134 $83 $1,217 $42 $271 $313 
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Changes to the restructuring accrual in the three months ended April 1, 2023 were as follows (in thousands):
Employee Severance
and Benefits
Stock-based CompensationInventory
Impairments &
Other Inventory
Related Costs
Total
December 31, 2022$1,249 $ $ $1,249 
Restructuring charges842 295 80 1,217 
Cash payments(1,715) (63)(1,778)
Non-cash settlement (295)(17)(312)
April 1, 2023$376 $ $ $376 

Note 7 — Fair Value and Derivative Instruments

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

We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during the three months ended April 1, 2023 or the year ended December 31, 2022.

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

No changes were made to our valuation techniques during the first three months of fiscal 2023.

12


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): 
April 1, 2023Level 1Level 2Level 3Total
Assets:
Cash equivalents:
Money market funds$44,777 $ $ $44,777 
Commercial paper 4,475  4,475 
44,777 4,475  49,252 
Marketable securities:
 U.S. treasuries25,144   25,144 
 Certificates of deposit 471  471 
 U.S. agency securities 13,062  13,062 
 Corporate bonds 53,899  53,899 
 Commercial paper 31,315  31,315 
25,144 98,747  123,891 
Foreign exchange derivative contracts 763  763 
Promissory note receivable  943 943 
Interest rate swap derivative contracts 2,041  2,041 
Total assets$69,921 $106,026 $943 $176,890 
Liabilities:
Interest rate swap derivative contracts$ $(2)$ $(2)
Total liabilities$ $(2)$ $(2)

December 31, 2022Level 1Level 2Level 3Total
Assets:
Cash equivalents:
Money market funds$21,279 $ $ $21,279 
Commercial paper 4,969  4,969 
U.S. agency securities 996  996 
21,279 5,965  27,244 
Marketable securities:
U.S. treasuries25,019   25,019 
Certificates of deposit 706  706 
U.S. agency securities 11,045  11,045 
Corporate bonds 67,396  67,396 
Commercial paper 24,840  24,840 
25,019 103,987  129,006 
Foreign exchange derivative contracts 664  664 
Promissory note receivable  943 943 
Interest rate swap derivative contracts 2,374  2,374 
Total assets$46,298 $112,990 $943 $160,231 
Liabilities:
Foreign exchange derivative contracts$ $(193)$ $(193)
Total liabilities$ $(193)$ $(193)
 
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
13


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 loss in our Condensed Consolidated Balance Sheets. We did not have any other-than-temporary unrealized gains or losses at either period end included in these financial statements.

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

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 income, 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 loss 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 April 1, 2023 will mature by the first quarter of fiscal 2024.

The following table provides information about our foreign currency forward contracts outstanding as of April 1, 2023 (in thousands):
CurrencyContract PositionContract Amount
(Local Currency)
Contract Amount
(U.S. Dollars)
Euro DollarBuy23,004 $24,250 
Euro DollarSell2,356 2,472 
Japanese YenSell3,227,282 24,377 
Korean WonBuy1,751,490 1,355 
Taiwan DollarSell43,413 1,435 

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
14


acquisition. Other than as discussed in Note 6, Restructuring Charges, there were no assets or liabilities measured at fair value on a nonrecurring basis during the three months ended April 1, 2023 or March 26, 2022.

Note 8 — Warranty
We offer warranties on certain products and record a liability for the estimated future costs associated with warranty claims at the time revenue is recognized. The warranty liability is based upon historical experience and our estimate of the level of future costs. While we engage in product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service delivery costs. We regularly 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):