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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 July 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 August 2, 2023, 77,656,368 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 JULY 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)
 July 1,
2023
December 31,
2022
ASSETS 
Current assets:  
Cash and cash equivalents$97,981 $109,130 
Marketable securities138,943 129,006 
Accounts receivable, net of allowance for credit losses of $510 and $168
94,013 88,143 
Inventories, net120,298 123,157 
Restricted cash1,144 1,221 
Prepaid expenses and other current assets25,876 23,895 
Total current assets478,255 474,552 
Restricted cash2,265 2,631 
Operating lease, right-of-use-assets31,001 31,362 
Property, plant and equipment, net of accumulated depreciation204,577 189,848 
Goodwill211,929 211,444 
Intangibles, net22,149 26,751 
Deferred tax assets71,172 67,646 
Other assets3,790 3,994 
Total assets$1,025,138 $1,008,228 
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current liabilities: 
Accounts payable$63,770 $69,308 
Accrued liabilities31,413 42,115 
Current portion of term loan, net of unamortized issuance costs1,150 1,045 
Deferred revenue19,899 29,846 
Operating lease liabilities7,871 7,353 
Total current liabilities124,103 149,667 
Term loan, less current portion, net of unamortized issuance costs13,765 14,389 
Deferred tax liabilities2,704 2,732 
Long-term operating lease liabilities26,458 27,587 
Deferred grant18,000  
Other liabilities5,845 5,568 
Total liabilities190,875 199,943 
 
Stockholders’ equity: 
Common stock, $0.001 par value:
 
250,000,000 shares authorized; 77,184,012 and 76,914,590 shares issued and outstanding
77 77 
Additional paid-in capital867,517 844,842 
Accumulated other comprehensive loss(4,445)(5,578)
Accumulated deficit(28,886)(31,056)
Total stockholders’ equity834,263 808,285 
Total liabilities and stockholders’ equity$1,025,138 $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 EndedSix Months Ended
 July 1,
2023
June 25,
2022
July 1,
2023
June 25,
2022
Revenues$155,916 $203,907 $323,364 $401,081 
Cost of revenues95,633 109,538 202,003 212,488 
Gross profit60,283 94,369 121,361 188,593 
Operating expenses:    
Research and development28,340 28,317 56,585 55,451 
Selling, general and administrative33,255 33,406 65,997 66,312 
Total operating expenses61,595 61,723 122,582 121,763 
Operating income (loss)(1,312)32,646 (1,221)66,830 
Interest income, net1,482 181 2,758 127 
Other income, net450 551 473 743 
Income before income taxes620 33,378 2,010 67,700 
Provision (benefit) for income taxes(208)3,136 (160)7,586 
Net income$828 $30,242 $2,170 $60,114 
Net income per share: 
Basic $0.01 $0.39 $0.03 $0.77 
Diluted$0.01 $0.38 $0.03 $0.76 
Weighted-average number of shares used in per share calculations:   
Basic 77,159 77,897 77,112 78,071 
Diluted77,616 79,210 77,450 79,423 
 
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 EndedSix Months Ended
July 1,
2023
June 25,
2022
July 1,
2023
June 25,
2022
Net income $828 $30,242 $2,170 $60,114 
Other comprehensive income (loss), net of tax:
Translation adjustments(122)(3,856)710 (6,554)
Unrealized gains (losses) on available-for-sale marketable securities(85)(547)518 (1,751)
Unrealized gains (losses) on derivative instruments(52)(116)(95)758 
Other comprehensive income (loss), net of tax:(259)(4,519)1,133 (7,547)
Comprehensive income$569 $25,723 $3,303 $52,567 

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
Loss
Accumulated
Deficit
Total
Six Months Ended July 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 tax59,367 — (456)— — (456)
Stock-based compensation— — 18,107 — — 18,107 
Other comprehensive income— — — 1,133 — 1,133 
Net income— — — — 2,170 2,170 
Balances, July 1, 202377,184,012 $77 $867,517 $(4,445)$(28,886)$834,263 
Three Months Ended July 1, 2023
Balances, April 1, 202377,142,023 $77 $858,195 $(4,186)$(29,714)$824,372 
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax41,989  (69)— — (69)
Stock-based compensation— — 9,391 — — 9,391 
Other comprehensive loss— — — (259)— (259)
Net income— — — — 828 828 
Balances, July 1, 202377,184,012 $77 $867,517 $(4,445)$(28,886)$834,263 
Six Months Ended June 25, 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 tax234,076 — (4,243)— — (4,243)
Purchase and retirement of common stock through repurchase program(1,443,491)(1)(54,327)— — (54,328)
Stock-based compensation— — 14,522 — — 14,522 
Other comprehensive loss— — — (7,547)— (7,547)
Net income— — — — 60,114 60,114 
Balances, June 25, 202277,194,733 $77 $860,584 $(8,996)$(21,680)$829,985 
Three Months Ended June 25, 2022
Balances, March 26, 202278,166,212 $78 $902,994 $(4,477)$(51,922)$846,673 
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax231,464 — (4,171)— — (4,171)
Purchase and retirement of common stock through repurchase program(1,202,943)(1)(44,930)— — (44,931)
Stock-based compensation— — 6,691 — — 6,691 
Other comprehensive loss— — — (4,519)— (4,519)
Net income— — — — 30,242 30,242 
Balances, June 25, 202277,194,733 $77 $860,584 $(8,996)$(21,680)$829,985 

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)
 Six Months Ended
 July 1,
2023
June 25,
2022
Cash flows from operating activities:  
Net income $2,170 $60,114 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation15,121 14,146 
Amortization4,766 4,702 
Reduction in the carrying amount of right-of-use assets3,914 4,414 
Stock-based compensation expense18,494 13,878 
Deferred income tax benefit(3,639)(3,703)
Provision for excess and obsolete inventories8,628 4,726 
Other adjustments to reconcile net income to net cash provided by operating activities1,801 3,846 
Changes in assets and liabilities:
Accounts receivable(6,830)5,530 
Inventories(5,880)(32,268)
Prepaid expenses and other current assets(1,099)1,295 
Other assets(83)(40)
Accounts payable3,578 7,521 
Accrued liabilities(10,606)4,102 
Other liabilities456 73 
Deferred revenues(9,945)2,727 
Deferred grant18,000  
Operating lease liabilities(4,065)(4,262)
Net cash provided by operating activities34,781 86,801 
Cash flows from investing activities:  
Acquisition of property, plant and equipment(40,177)(30,116)
Acquisition of business (3,121)
Purchases of marketable securities(66,650)(52,344)
Purchase of promissory note receivable (1,000)
Proceeds from maturities and sales of marketable securities58,363 45,470 
Net cash used in investing activities(48,464)(41,111)
Cash flows from financing activities:  
Proceeds from issuances of common stock5,024 5,687 
Purchase of common stock through stock repurchase program (54,328)
Tax withholdings related to net share settlements of equity awards(456)(4,243)
Principal repayments on term loans(519)(4,379)
Net cash provided by (used in) financing activities4,049 (57,263)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(1,958)(3,470)
Net decrease in cash, cash equivalents and restricted cash(11,592)(15,043)
Cash, cash equivalents and restricted cash, beginning of period112,982 155,342 
Cash, cash equivalents and restricted cash, end of period$101,390 $140,299 

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)
Six Months Ended
July 1,
2023
June 25,
2022
Non-cash investing and financing activities:
Decrease in accounts payable and accrued liabilities related to property, plant and equipment purchases$9,187 $4,165 
Operating lease, right-of-use assets obtained in exchange for lease obligations3,635 3,438 
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net$9,427 $6,473 
Cash paid for interest212 294 
Operating cash outflows from operating leases4,514 4,379 
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$97,981 $136,395 
Restricted cash, current1,144 2,102 
Restricted cash, non-current2,265 1,802 
Total cash, cash equivalents and restricted cash$101,390 $140,299 

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 six months ended July 1, 2023 and June 25, 2022 each contained 26 weeks. Fiscal 2023 will end on December 30, 2023.

Significant Accounting Policies
Our significant accounting policies have not changed during the six months ended July 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 the Grant 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.

New Accounting Pronouncements
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Reference 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 GAAP 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 December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848,” extending the relief offered in Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the optional expedients in Topic 848.

In May 2023, the Company entered into a rate replacement amendment to its credit facility loan agreement to replace LIBOR with the Secured Overnight Financing Rate (“SOFR”) and concurrently signed an amendment to modify the floating rate option on its interest rate swap to match that of the debt. The Company applied practical expedients provided in Topic 848 allowing the modified instrument to be accounted for and presented in the same manner as the instrument existing before the modification. These modifications had no significant impact on our financial statements. Refer to Note 6, Debt for further information regarding the terms of the credit facility loan agreement and interest rate swap agreement.

Reclassifications
Certain immaterial reclassifications were made to the prior year financial statements to conform to the current year presentation.
9


Note 2 — Concentration of Credit and Other Risks

The following customer accounted for 10% or more of our revenues for the periods indicated:
Three Months EndedSix Months Ended
July 1,
2023
June 25,
2022
July 1,
2023
June 25,
2022
Intel Corporation14.2 %20.9 %17.2 %20.9 %

At July 1, 2023 and December 31, 2022, one customer accounted for 15.3% and 13.8% 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):
July 1,
2023
December 31,
2022
Raw materials$55,491 $55,726 
Work-in-progress44,549 46,067 
Finished goods20,258 21,364 
$120,298 $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 485 485 
Goodwill, as of July 1, 2023$178,424 $33,505 $211,929 

We have not recorded goodwill impairments for the six months ended July 1, 2023.

Intangible assets were as follows (in thousands):
July 1, 2023December 31, 2022
Intangible Assets GrossAccumulated
Amortization
NetGrossAccumulated
Amortization
Net
Existing developed technologies $171,896 $153,200 $18,696 $171,441 $151,212 $20,229 
Customer relationships51,036 48,085 2,951 50,912 45,003 5,909 
Trade name8,000 7,898 102 7,972 7,759 213 
In-process research and development400  400 400  400 
$231,332 $209,183 $22,149 $230,725 $203,974 $26,751 

10


Amortization expense was included in our Condensed Consolidated Statements of Income as follows (in thousands):
 Three Months EndedSix Months Ended
 July 1,
2023
June 25,
2022
July 1,
2023
June 25,
2022
Cost of revenues$838 $788 $1,669 $1,596 
Selling, general and administrative1,550 1,545 3,097 3,106 
$2,388 $2,333 $4,766 $4,702 

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$2,435 
20244,624 
20254,280 
20263,184 
20272,839 
Thereafter4,387 
$21,749 

Note 5 Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):
July 1,
2023
December 31,
2022
Accrued compensation and benefits$17,386 $15,864 
Employee stock purchase plan contributions withheld4,142 4,585 
Accrued income and other taxes3,944 12,817 
Accrued warranty3,506 4,199 
Accrued restructuring charges207 1,249 
Other accrued expenses2,228 3,401 
$31,413 $42,115 

Note 6 Debt

On June 22, 2020, we entered into an $18.0 million 15-year credit facility loan agreement (the “Building Term Loan”) with MUFG Union Bank, National Association (“Union Bank”). The proceeds of the Building Term Loan were used to purchase a building adjacent to our leased facilities in Livermore, California. On May 19, 2023, we amended the Building Term Loan, replacing the benchmark reference rate LIBOR with the term SOFR, with no change to the amount or timing of contractual cash flows.

The Building Term Loan bears interest at a rate equal to the applicable SOFR rate, plus 0.1148%, plus 1.75% per annum. Interest payments are payable in monthly installments over a fifteen-year period. The interest rate at July 1, 2023 was 5.17%.

On March 17, 2020, we entered into an interest rate swap agreement with Union Bank to hedge the interest payment on the Building Term Loan for the notional amount of $18.0 million. As future levels of LIBOR over the life of the loan were 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%. This agreement was amended on May 19, 2023 to replace the benchmark reference rate LIBOR with the term SOFR to match the Building Term Loan agreement (as amended). After the amendment, the interest rate swap continues to convert our floating-rate interest into a fixed-rate at 2.75%.

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Note 7 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 $13.3 million, with $10.1 million within the Probe Cards segment and $3.2 million within the Systems segment, which were comprised of $1.4 million of severance and employee-related costs, $2.0 million in contract and lease termination costs, $9.4 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
July 1, 2023June 25, 2022
Probe CardsSystemsTotalProbe CardsSystemsTotal
Cost of revenues$47 $285 $332 $227 $227 $454 
Research and development170 51 221  53 53 
Selling, general and administrative6 59 65  74 74 
$223 $395 $618 $227 $354 $581 
Six Months Ended
July 1, 2023June 25, 2022
Probe CardsSystemsTotalProbe CardsSystemsTotal
Cost of revenues$106 $251 $357 $266 $327 $593 
Research and development182 109 291  199 199 
Selling, general and administrative1,069 118 1,187 3 99 102 
$1,357 $478 $1,835 $269 $625 $894 
12



Changes to the restructuring accrual in the six months ended July 1, 2023 were as follows (in thousands):
Employee Severance
and Benefits
Stock-based CompensationInventory
Impairments &
Other Inventory
Related Costs
Contract
Termination &
Other Costs
Total
December 31, 2022$1,249 $ $ $ $1,249 
Restructuring charges917 295 390 233 1,835 
Cash payments(1,959) (89)(233)(2,281)
Non-cash settlement (295)(301) (596)
July 1, 2023$207 $ $ $ $207 

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 six months ended July 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 six months of fiscal 2023.

13


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): 
July 1, 2023Level 1Level 2Level 3Total
Assets:
Cash equivalents:
Money market funds$30,179 $ $ $30,179 
U.S. treasuries1,691   1,691 
31,870   31,870 
Marketable securities:
 U.S. treasuries46,803   46,803 
 Certificates of deposit 235  235 
 U.S. agency securities 14,733  14,733 
 Corporate bonds 53,097  53,097 
 Commercial paper 24,075  24,075 
46,803 92,140  138,943 
Foreign exchange derivative contracts 549  549 
Promissory note receivable  926 926 
Interest rate swap derivative contracts 2,263  2,263 
Total assets$78,673 $94,952 $926 $174,551 
Liabilities:
Foreign exchange derivative contracts$ $(60)$ $(60)
Total liabilities$ $(60)$ $(60)

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
14


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 July 1, 2023 will mature by the second quarter of fiscal 2024.

The following table provides information about our foreign currency forward contracts outstanding as of July 1, 2023 (in thousands):
CurrencyContract PositionContract Amount
(Local Currency)
Contract Amount
(U.S. Dollars)
Euro DollarBuy18,558 $19,903 
Euro DollarSell1,077 1,176 
Japanese YenSell3,104,537 21,583 
Korean WonBuy1,258,185 962 
Taiwan DollarSell31,197 1,001 

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
15


acquisition. Other than as discussed in Note 7, Restructuring Charges, there were no assets or liabilities measured at fair value on a nonrecurring basis during the three and six months ended July 1, 2023 or June 25, 2022.

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 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):
Six Months Ended
July 1,
2023
June 25,
2022
Balance at beginning of period$4,199 $2,805 
Accruals2,934 3,846 
Settlements(3,627)(2,673)
Balance at end of period$3,506 $3,978 

Note 10 — Property, Plant and Equipment, net

Property, plant and equipment, net consisted of the following (in thousands):
July 1,
2023
December 31,
2022
Land$17,136 $17,136 
Building and building improvements44,452 44,932 
Machinery and equipment 284,837 276,180 
Computer equipment and software46,774 45,813 
Furniture and fixtures 7,468 7,540 
Leasehold improvements 88,416 86,500 
Sub-total 489,083 478,101 
Less: Accumulated depreciation and amortization (349,123)(335,711)
Net, property, plant and equipment 139,960 142,390 
Construction-in-process64,617 47,458 
Total$204,577 $189,848 

Note 11 — Stockholders’ Equity and Stock-Based Compensation

Common Stock Repurchase Programs
On October 26, 2020, our Board of Directors authorized a two-year program to repurchase up to $50 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based compensation programs. During the six months ended June 25, 2022, we repurchased 676,408 shares of common stock for $26.0 million. We utilized the remaining funds available for repurchase under this program during fiscal 2022.

On May 20, 2022, our Board of Directors authorized an additional program to repurchase up to $75 million of outstanding common stock, also with the primary purpose to offset potential dilution from issuances of common stock under our stock-based compensation programs. The share repurchase program will expire on May 20, 2024. During the six months ended July 1, 2023, we did not repurchase any common stock. As of July 1, 2023, $18.6 million remained available for future repurchases.

16


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 31, 20222,227,081 $35.28 
Awards granted1,014,619 30.97 
Awards vested(75,144)37.76 
Awards forfeited(122,881)35.09 
RSUs at July 1, 20233,043,675 33.78 

Performance Restricted Stock Units
We may grant Performance RSUs (“PRSUs”) to certain executives, which vest based upon us achieving certain market performance criteria. There were no market based PRSUs granted during the six months ended July 1, 2023. PRSUs are included as part of the RSU activity above.

Employee Stock Purchase Plan
Information related to activity under our Employee Stock Purchase Plan (“ESPP”) was as follows:
 Six Months Ended
 July 1, 2023
Shares issued210,055 
Weighted average per share purchase price$23.92 
Weighted average per share discount from the fair value of our common stock on the date of issuance$(4.22)

Stock-Based Compensation
Stock-based compensation was included in our Condensed Consolidated Statements of Income as follows (in thousands):
Three Months EndedSix Months Ended
July 1,
2023
June 25,
2022
July 1,
2023
June 25,
2022
Cost of revenues$1,515 $734 $3,425 $1,812 
Research and development2,363 1,695 4,735 3,681 
Selling, general and administrative5,326 3,929 10,334 8,385 
Total stock-based compensation$9,204 $6,358 $