UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)


ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September ~~30, 2017~~29, 2018


o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-50307

FormFactor, Inc.

(Exact name of registrant as specified in its charter)



Delaware		13-3711155
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7005 Southfront Road, Livermore, California 94551

(Address of principal executive offices, including zip code)

(925) 290-4000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of the Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):



Large Accelerated filer ox		Accelerated filer xo

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

As of ~~November 2, 2017,~~ ~~72,984,347~~October 31, 2018, 74,102,335 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.

FORMFACTOR, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER ~~30, 2017~~29, 2018 INDEX

Part I.	Financial Information

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets as of September ~~30, 2017~~29, 2018 and December ~~31, 2016~~30, 2017	3

	Condensed Consolidated Statements of ~~Operations~~Income for the three and nine months ended September ~~30, 2017~~29, 2018 and September ~~24, 2016~~30, 2017	4

	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September ~~30, 2017~~29, 2018 and September ~~24, 2016~~30, 2017	5

	Condensed Consolidated Statement of Stockholders' Equity for the three and nine months ended September 29, 2018 and September 30, 2017	6

	Condensed Consolidated Statements of Cash Flows for the nine months ended September ~~30, 2017~~29, 2018 and September ~~24, 2016~~30, 2017	68

	Notes to Condensed Consolidated Financial Statements	89

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1923

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2833

Item 4.	Controls and Procedures	2934

Part II.	Other Information	30

~~Item 1.~~	~~Legal Proceedings~~	3035

Item 1A.	Risk Factors	30

~~Item 2.~~	~~Unregistered Sales of Equity Securities and use of proceeds~~	3035

Item 6.	Exhibits	3135

Signatures		3236

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

FORMFACTOR, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) (Unaudited)	FORMFACTOR, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) (Unaudited)						FORMFACTOR, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) (Unaudited)

	September 30, 2017			December 31, 2016			September 29, 2018			December 30, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	103,083		$	101,408		$	91,990		$	91,184
Marketable securities	31,809			7,497			50,109			48,988
Accounts receivable, net of allowances for doubtful accounts of $202 and $298	87,950			70,225
Accounts receivable, net of allowance for doubtful accounts of $200 and $200							88,869			81,515
Inventories, net	68,667			59,806			81,538			67,848
Restricted cash	4			106			129			372
Refundable income taxes	1,837			1,391			1,320			2,242
Prepaid expenses and other current assets	13,385			14,276			15,716			13,705
Total current assets	306,735			254,709			329,671			305,854
Restricted cash	766			1,082			1,034			1,170
Property, plant and equipment, net of accumulated depreciation and amortization of $251,940 and $241,943	46,555			42,663
Property, plant and equipment, net of accumulated depreciation of $260,607 and $255,755							52,857			46,754
Goodwill	189,704			188,010			189,427			189,920
Intangibles, net	104,740			126,608			75,278			97,484
Deferred tax assets	3,299			3,310			3,042			3,133
Other assets	1,755			2,600			1,163			2,259
Total assets	$	653,554		$	618,982		$	652,472		$	646,574

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	37,103		$	34,075		$	49,668		$	35,046
Accrued liabilities	30,747			30,184			24,877			33,694
Current portion of term loan	22,160			12,701
Income taxes payable	589			442
Current portion of term loan, net of unamortized issuance cost of $189 and $307							26,061			18,443
Deferred revenue	6,590			5,305			4,795			4,978
Total current liabilities	97,189			82,707			105,401			92,161
Long-term income taxes payable	1,076			1,315
Term loan, less current portion	92,123			125,475
Term loan, less current portion, net of unamortized issuance cost of $57 and $272							46,193			87,228
Deferred tax liabilities	4,231			3,703			3,290			3,379
Deferred rent and other liabilities	4,085			4,726			7,537			5,169
Total liabilities	198,704			217,926			162,421			187,937
Commitments and contingencies (Note 11)

Stockholders’ equity:
Preferred stock, $0.001 par value:
10,000,000 shares authorized; no shares issued and outstanding	—			—			—			—
Common stock, $0.001 par value:
250,000,000 shares authorized; 72,973,018 and 70,907,847 shares issued and outstanding	73			71
250,000,000 shares authorized; 74,101,623 and 72,532,176 shares issued and outstanding							75			73
Additional paid-in capital	845,942			833,341			857,505			843,116
Accumulated other comprehensive income (loss)	1,996			(3,740		)
Accumulated other comprehensive income							1,158			3,021
Accumulated deficit	(393,161		)	(428,616		)	(368,687		)	(387,573		)
Total stockholders’ equity	454,850			401,056			490,051			458,637
Total liabilities and stockholders’ equity	$	653,554		$	618,982		$	652,472		$	646,574

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

FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited)													FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited)

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30, 2017			September 24, 2016			September 30, 2017			September 24, 2016			September 29, 2018			September 30, 2017			September 29, 2018			September 30, 2017
Revenues	$	143,735		$	123,299		$	416,540		$	259,993		$	134,989		$	143,735		$	388,788		$	416,540
Cost of revenues	86,105			96,111			249,572			197,586			82,019			86,105			234,471			249,572
Gross profit	57,630			27,188			166,968			62,407			52,970			57,630			154,317			166,968
Operating expenses:
Research and development	19,338			17,253			55,294			39,235			18,857			19,338			56,578			55,294
Selling, general and administrative	24,010			23,008			70,441			49,553			24,745			24,010			73,426			70,441
Restructuring and impairment charges, net	16			85			329			6,995
Restructuring													—			16			—			329
Total operating expenses	43,364			40,346			126,064			95,783			43,602			43,364			130,004			126,064
Operating income (loss)	14,266			(13,158		)	40,904			(33,376		)
Operating income													9,368			14,266			24,313			40,904
Interest income	123			52			283			267			369			123			952			283
Interest expense	(1,109		)	(1,125		)	(3,446		)	(1,136		)	(777		)	(1,109		)	(2,654		)	(3,446		)
Other income (expense), net	311			83			19			(533		)	121			311			(341		)	19
Income (loss) before income taxes	13,591			(14,148		)	37,760			(34,778		)
Provision (benefit) for income taxes	1,028			50			2,435			(43,665		)
Net income (loss)	$	12,563		$	(14,198	)	$	35,325		$	8,887
Net income (loss) per share:
Income before income taxes													9,081			13,591			22,270			37,760
Provision for income taxes													1,393			1,028			3,334			2,435
Net income													$	7,688		$	12,563		$	18,936		$	35,325
Net income per share:
Basic	$	0.17		$	(0.20	)	$	0.49		$	0.14		$	0.10		$	0.17		$	0.26		$	0.49
Diluted	$	0.17		$	(0.20	)	$	0.48		$	0.14		$	0.10		$	0.17		$	0.25		$	0.48

Weighted-average number of shares used in per share calculations:
Basic	72,651			70,502			72,103			62,835			73,837			72,651			73,273			72,103
Diluted	73,885			70,502			73,540			63,662			74,962			73,885			74,628			73,540

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

FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited)	FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited)												FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited)

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30, 2017			September 24, 2016			September 30, 2017			September 24, 2016			September 29, 2018			September 30, 2017			September 29, 2018			September 30, 2017
Net income (loss)	$	12,563		$	(14,198	)	$	35,325		$	8,887
Other comprehensive income, net of tax:
Net income													$	7,688		$	12,563		$	18,936		$	35,325
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	1,540			989			5,769			2,508			(449		)	1,540			(1,732		)	5,769
Unrealized gains (losses) on available-for-sale marketable securities	(15		)	17			(38		)	58			50			(15		)	(84		)	(37		)
Unrealized gains (losses) on derivative instruments	(36		)	(233		)	4			(233		)	(134		)	(36		)	(47		)	4
Other comprehensive income, net of tax	1,489			773			5,735			2,333
Comprehensive income (loss)	$	14,052		$	(13,425	)	$	41,060		$	11,220
Other comprehensive income (loss), net of tax													(533		)	1,489			(1,863		)	5,736
Comprehensive income													$	7,155		$	14,052		$	17,073		$	41,061

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

FORMFACTOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

(Unaudited)

FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
2017 September 24,
2016
Cash flows from operating activities:

Net income $ 35,325
$ 8,887
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation 10,046
8,219
Amortization 23,509
25,355
Accretion of discount on investments 22
(31 )
Stock-based compensation expense 11,279
7,477
Amortization of debt issuance costs 482
116
Deferred income tax provision 122
(43,751 )
Provision (recovery) of doubtful accounts receivable (97 ) 23
Provision for excess and obsolete inventories 6,899
4,437
Acquired inventory step-up amortization 484
7,036
Loss on sale of long-lived assets 101
117
Gain on derivative instruments (18 ) —
Non-cash restructuring —
964
Foreign currency transaction gains (1,955 ) (1,818 )
Changes in assets and liabilities:

Accounts receivable (17,097 ) (12,963 )
Inventories (14,270 ) (8,733 )
Prepaid expenses and other current assets 1,140
(1,310 )
Refundable income taxes (440 ) 126
Other assets 823
(256 )
Accounts payable 3,040
10,881
Accrued liabilities (1,048 ) (492 )
Income tax payable (97 ) (1,553 )
Deferred rent and other liabilities 101
293
Deferred revenues 1,517
(536 )
Net cash provided by operating activities 59,868
2,488
Cash flows from investing activities:

Acquisition of property, plant and equipment (13,918 ) (8,217 )
Acquisition of Cascade Microtech, net of cash acquired —
(228,031 )
Proceeds from sale of subsidiary 48
33
Proceeds from sale of property, plant and equipment —
53
Purchases of marketable securities (27,373 ) (10,587 )
Proceeds from maturities of marketable securities 3,000
44,500
Change in restricted cash 451
(112 )
Net cash used in investing activities (37,792 ) (202,361 )
Cash flows from financing activities:

Proceeds from issuances of common stock 19,108
4,005
Purchase and retirement of common stock (10,963 ) —
Tax withholdings related to net share settlements of equity awards (6,617 ) —
Proceeds from term loan debt —
150,000
Payments on term loan debt (24,375 ) (1,875 )
Payment of term loan debt issuance costs —
(1,506 )
Net cash (used in) provided by financing activities (22,847 ) 150,624
Effect of exchange rate changes on cash and cash equivalents 2,446
2,893
Net increase (decrease) in cash and cash equivalents 1,675
(46,356 )
Cash and cash equivalents, beginning of period 101,408
146,264
Cash and cash equivalents, end of period $ 103,083
$ 99,908



	Nine-Month Period Ended September 29, 2018
	Shares	Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
Balances, December 30, 2017	72,532,176	73		843,116			3,021			(387,573		)	458,637
Issuance of common stock under the Employee Stock Purchase Plan	610,297	1		6,661			—			—			6,662
Issuance of common stock pursuant to exercise of options for cash	105,610	—		1,049			—			—			1,049
Issuance of common stock pursuant to vesting of restricted stock units	853,540	1		(5,694		)	—			—			(5,693		)
Stock-based compensation	—	—		12,373			—			—			12,373
ASU2017-12 Adoption	—	—		—			—			(50		)	(50		)
Components of other comprehensive income (loss):
Unrealized loss on marketable securities, net of tax	—	—		—			(84		)	—			(84		)
Currency translation adjustments	—	—		—			(1,732		)				(1,732		)
Unrealized gain on derivative instruments, net of tax	—	—		—			(47		)	—			(47		)
Net income	—	—		—			—			18,936			18,936
Balances, September 29, 2018	74,101,623	75		857,505			1,158			(368,687		)	490,051

	Three-Month Period Ended September 29, 2018
	Shares	Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
Balances, June 30, 2018	73,358,108	74		853,278			1,691			(376,375		)	478,668
Issuance of common stock under the Employee Stock Purchase Plan	268,627	—		2,957			—			—			2,957
Issuance of common stock pursuant to vesting of restricted stock units	474,888	1		(3,241		)	—			—			(3,240		)
Stock-based compensation	—	—		4,511			—			—			4,511
Components of other comprehensive income (loss):
Unrealized gain on marketable securities, net of tax	—	—		—			50			—			50
Currency translation adjustments	—	—		—			(449		)	—			(449		)
Unrealized loss on derivative instruments, net of tax	—	—		—			(134		)	—			(134		)
Net income	—	—		—			—			7,688			7,688
Balances, September 29, 2018	74,101,623	$	75	$	857,505		$	1,158		$	(368,687	)	$	490,051

FORMFACTOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

(Unaudited)

FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Non-cash investing and financing activities:

Fair value of stock issued in connection with the acquisition of Cascade Microtech $ —
$ 93,216
Fair value of stock options and restricted stock-based awards assumed in connection with acquisition of Cascade Microtech —
7,776
Fair value of vested stock options and restricted stock-based awards paid in cash in connection with the acquisition of Cascade Microtech —
12,815
Change in accounts payable and accrued liabilities related to property, plant and equipment purchases (283 ) (987 )

Supplemental disclosure of cash flow information:
Cash paid for income taxes, net $ 2,847
$ 1,492
Cash paid for interest 2,974
355



	Nine-Month Period Ended September 30, 2017
	Shares		Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
Balances, December 31, 2016	70,907,847		71			833,341			(3,740		)	(428,616		)	401,056
Issuance of common stock under the Employee Stock Purchase Plan	655,961		1			5,694			—			—			5,695
Issuance of common stock pursuant to exercise of options for cash	1,431,767		1			13,412			—			—			13,413
Issuance of common stock pursuant to vesting of restricted stock units	845,063		1			(6,619		)	—			—			(6,618		)
Purchase and retirement of common stock	(867,620	)	(1		)	(10,963		)	—			—			(10,964		)
Stock-based compensation	—		—			11,207			—			—			11,207
ASU2016-09 Adoption	—		—			(130		)	—			130			—
Components of other comprehensive income (loss):
Unrealized loss on marketable securities, net of tax	—		—			—			(37		)	—			(37		)
Currency translation adjustments	—		—			—			5,769						5,769
Unrealized gain on derivative instruments, net of tax	—		—			—			4			—			4
Net income	—		—			—			—			35,325			35,325
Balances, September 30, 2017	72,973,018		73			845,942			1,996			(393,161		)	454,850

	Three-Month Period Ended September 30, 2017
	Shares		Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
Balances, July 1, 2017	72,346,116		73			839,751			507			(405,724		)	434,607
Issuance of common stock under the Employee Stock Purchase Plan	258,937		—			2,795			—			—			2,795
Issuance of common stock pursuant to exercise of options for cash	178,250		—			1,827			—			—			1,827
Issuance of common stock pursuant to vesting of restricted stock units	257,015		—			(2,156		)	—			—			(2,156		)
Purchase and retirement of common stock	(67,300	)	—			(831		)	—			—			(831		)
Stock-based compensation	—		—			4,556			—			—			4,556
Components of other comprehensive income (loss):
Unrealized loss on marketable securities, net of tax	—		—			—			(15		)	—			(15		)
Currency translation adjustments	—		—			—			1,540			—			1,540
Unrealized loss on derivative instruments, net of tax	—		—			—			(36		)	—			(36		)
Net income	—		—			—			—			12,563			12,563
Balances, September 30, 2017	72,973,018		$	73		$	845,942		$	1,996		$	(393,161	)	$	454,850

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

FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)

	Nine Months Ended
	September 29, 2018			September 30, 2017
Cash flows from operating activities:
Net income	$	18,936		$	35,325
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	10,494			10,046
Amortization	21,876			23,509
Accretion of discount on investments	21			22
Stock-based compensation expense	12,421			11,279
Amortization of debt issuance costs	333			482
Deferred income tax provision	70			122
Recovery of doubtful accounts receivable	—			(97		)
Provision for excess and obsolete inventories	7,414			6,899
Acquired inventory step-up amortization	—			484
Loss on disposal of long-lived assets	264			101
(Gain) loss on derivative instruments	—			(18		)
Foreign currency transaction losses (gains)	409			(1,957		)
Changes in assets and liabilities:
Accounts receivable	(7,569		)	(17,097		)
Inventories	(21,806		)	(14,270		)
Prepaid expenses and other current assets	(1,874		)	1,140
Refundable income taxes	933			(440		)
Other assets	697			823
Accounts payable	10,425			3,040
Accrued liabilities	(8,882		)	(1,048		)
Income tax payable	(248		)	(97		)
Deferred rent and other liabilities	2,445			101
Deferred revenues	(221		)	1,517
Net cash provided by operating activities	46,138			59,866
Cash flows from investing activities:
Acquisition of property, plant and equipment	(12,326		)	(13,918		)
Proceeds from sale of a subsidiary	67			48
Proceeds from sale of property, plant and equipment	23			—
Purchases of marketable securities	(18,984		)	(27,373		)
Proceeds from maturities of marketable securities	17,757			3,000
Net cash used in investing activities	(13,463		)	(38,243		)
Cash flows from financing activities:
Proceeds from issuances of common stock	7,712			19,108
Purchase and retirement of common stock	—			(10,963		)
Tax withholdings related to net share settlements of equity awards	(5,694		)	(6,617		)
Principal repayments on term loan	(33,750		)	(24,375		)
Net cash used in financing activities	(31,732		)	(22,847		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(516		)	2,481
Net increase in cash, cash equivalents and restricted cash	427			1,257
Cash, cash equivalents and restricted cash, beginning of period	92,726			102,596
Cash, cash equivalents and restricted cash, end of period	$	93,153		$	103,853

Non-cash investing and financing activities:
Change in accounts payable and accrued liabilities related to property, plant and equipment purchases	$	4,724		$	(283	)

Supplemental disclosure of cash flow information:
Cash paid for income taxes, net	$	2,513		$	2,847
Cash paid for interest	2,299			2,974

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

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 ~~included herein~~of FormFactor, Inc. is unaudited and has been prepared ~~by FormFactor, Inc. without audit,~~ 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”).~~Commission. However, such information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial information as of December ~~31, 2016~~30, 2017 is derived from our ~~2016~~2017 Annual Report on Form 10-K. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in our ~~2016~~2017 Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

Fiscal Year

We operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December. Fiscal 2018 and 2017 ~~and 2016~~each contain 52 weeks ~~and 53 weeks, respectively~~ and the nine months ended September 29, 2018 and September 30, 2017 ~~and September 24, 2016~~ each contained 1339 weeks. Fiscal ~~2017~~2018 will end on December ~~30, 2017.~~29, 2018.

Reclassifications

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

~~Business Acquisition~~

Critical Accounting Policies

~~Our~~Except as described below, our critical accounting policies have not changed during the nine months ended September ~~30, 2017~~29, 2018 from those disclosed in our Annual Report on Form 10-K for the year ended December ~~31, 2016.~~30, 2017.

Revenue Recognition

Revenue is recognized upon transferring control of products and services, and the amounts recognized reflect the consideration we expect to be entitled to receive in exchange for these products and services. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. An arrangement may include some or all of the following products and services: probe cards, systems, accessories, installation services, service contracts and extended warranty contracts. We sell our products and services direct to customers and to partners in two distribution channels: global direct sales force and through a combination of manufacturers’ representatives and distributors.

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

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

Installation services are routinely provided to customers purchasing our systems. Installation services are a distinct performance obligation apart from the systems and recognized in the period they are performed. Service contracts, which include repair and maintenance service contracts, and extended warranty contracts are also distinct performance obligations and recognized as our performance obligations are satisfied. This is typically the contractual service period, which ranges from one to two years. For these service contracts recognized over time, we use an input measure, days elapsed, to measure progress.

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. In determining the transaction price, we evaluate whether the price is subject to refund or adjustment to determine the net consideration to which we expect to be entitled. We generally do not grant return privileges, except

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

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

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

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

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

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

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

New Accounting Pronouncements

~~ASU 2017-12~~

In August 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities," which changes the recognition and presentation requirements of hedge accounting, including eliminating the requirement to separately measure and report hedge ineffectiveness and changing the presentation to include all items that affect earning in the same income statement line item as the hedged item. ASU 2017-12 also provides new alternatives for applying hedge accounting to additional hedging strategies; measuring the hedged item in fair value hedges of interest rate risk; reducing the cost and complexity of applying hedge accounting; and reducing the risk of material error correction if a company applies the shortcut method inappropriately. ASU 2017-12 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2018, on a prospective basis. Early adoption is permitted. We are currently evaluating the impact of ASU 2017-12 on our consolidated financial statements.

~~ASU 2017-09~~

In May 2017, the FASB issued ASU 2017-09, "Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting," which provides clarity and reduces both diversity in practice and the cost and complexity when accounting for a change to the terms of a stock-based award. ASU 2017-09 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2017, on a prospective basis. Early adoption is permitted. We do not expect the adoption of ASU 2017-09 to have a material effect on our financial position, results of operations or cash flows.

~~ASU 2017-04~~

fair value, if applicable. The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The same impairment test also applies to any reporting unit with a zero or negative carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019, on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. We do not expect the adoption of ASU 2017-04 to have a material effect on our financial position, results of operations or cash flows.

~~ASU 2016-09~~

In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," which amends Accounting Standards Codification ("ASC") Topic 718, "Compensation - Stock Compensation." The ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements including:

1) that excess tax benefits and tax deficiencies relating to share based payment awards will be recognized as income tax benefit or expense in the reporting period in which they occur (previously such amounts were recognized in additional paid-in capital);

~~2) that excess tax benefits will be classified as an operating activity in the statement of cash flows; and~~

~~3) companies have the option to elect to estimate forfeitures or to account for them when they occur.~~

We adopted ASU 2016-09 as of January 1, 2017, which is the first day of our fiscal 2017 and made an accounting policy election to account for forfeitures as incurred, resulting in a decrease of $0.1 million in our accumulated deficit on January 1, 2017. The adjustment was reflected in our Condensed Consolidated Balance Sheets as of this date.

Additionally, we determined that there was no other cumulative effect on accumulated deficit or other components of equity or net assets as of the beginning of the period of adoption of this guidance as the impact of recording cumulative excess tax benefits in income taxes in our Condensed Consolidated Statements of Operations was fully offset by a valuation allowance as of the date of adoption. Finally, we will follow the prospective transition method for the recognition of windfalls and shortfalls associated with excess tax benefits and tax deficiencies relating to share-based payment awards.

ASU 2016-10, ASU 2015-14 and ASU 2014-09

In ~~April 2016,~~May 2014, the ~~FASB~~Financial Accounting Standard Board ("FASB") issued ~~ASU 2016-10, “Revenue~~Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers, (Topic 606): Identifying Performance Obligations and Licensing” and which was issued to clarify ASC Topic 606, “Revenue from Contracts with Customers” related to (i) identifying performance obligations; and (ii) the licensing implementation guidance. The effective date and transition of ASU 2016-10 is the same as the effective date and transition of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),”as discussed below.

~~In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers,~~" and, in August 2015, the FASB issued ASU 2015-14, ~~“Revenue~~“Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which defers the effective date of ASU 2014-09 by one year. ASU 2014-09 requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The standard permits the use of either the retrospective or ~~cumulative effect~~modified retrospective transition methods. This guidance will replace most existing revenue recognition guidance in United States GAAP when it becomes effective, which for us will be at the beginning of the first quarter of fiscal year 2018 using one of the two prescribed transition methods. Early adoption of one year prior to the required effective date is permitted.

We do not plan to early adopt the guidance. We are currently evaluating the impact of these ASUs. Depending on the results of our review, there could be changes to the timing of recognition of revenues. We expect to complete our assessment process, including selecting a transition method for adoption, in the fourth quarter of fiscal 2017, along with our implementation process prior to the adoption of these ASUs effective at the beginning of fiscal year 2018.

~~ASU 2016-02~~

In ~~February~~April 2016, the FASB issued ASU ~~2016-02, "Leases,~~2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” which was issued to clarify ASC Topic 606, “Revenue from Contracts with Customers” related to (i) identifying performance obligations; and (ii) the licensing implementation guidance. We adopted ASC 606, Revenue from Contracts with Customers and all related amendments (collectively “ASC 606”), on December 31, 2017, the first day of fiscal 2018, using the modified retrospective method. We applied ASC 606 to all contracts not completed as of the date of adoption in order to determine any adjustment to the opening balance of retained earnings. Under the modified retrospective adoption method, the comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods, ASC 605, "Revenue Recognition", which is also referred to herein as "legacy GAAP."

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

ASU 2017-12

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

ASU 2017-09

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

ASU 2017-04

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

ASU 2016-18

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

The following table provides a reconciliation of Cash and cash equivalents as previously reported within the ~~impact~~Condensed Consolidated Statements of Cash Flows to Cash, cash equivalents and restricted cash as currently reported in the ~~updated guidance on our consolidated financial statements.~~Condensed Consolidated Statements of Cash Flows (in thousands):



	December 30, 2017		September 30, 2017		December 31, 2016
Cash and cash equivalents as previously reported in the Condensed Consolidated Statements of Cash Flows	$	91,184	$	103,083	$	101,408
Current assets - Restricted cash	372		4		106
Restricted cash	1,170		766		1,082
Cash, cash equivalents and restricted cash as currently reported in the Condensed Consolidated Statements of Cash Flows	$	92,726	$	103,853	$	102,596

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

ASU 2016-02, ASU 2018-10 and ASU 2018-11

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

Note 2 — Concentration of Credit and Other Risks

~~We market and sell our products to a narrow base of customers and generally do not require collateral.~~ Each of the following customers accounted for 10% or more ~~than 10%~~ of our revenues for the periods indicated:

Three Months Ended Nine Months Ended
September 30, 2017 September 24, 2016 September 30, 2017 September 24, 2016
Intel 30.6 % 28.9 % 27.4 % 34.8 %



	Three Months Ended				Nine Months Ended
	September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
Intel	24.5	%	30.6	%	18.0	%	27.4	%
Micron	12.0		*		10.1		*
SK Hynix	*		*		10.2		*
Total revenues attributable to 10% or greater customers	36.5	%	30.6	%	38.3	%	27.4	%

*Represents less than 10% of total revenues.

At September ~~30, 2017, one customer~~29, 2018, two customers accounted for ~~35.7%~~25.4% and 10.2% of gross accounts ~~receivable.~~receivable, respectively. At December ~~31, 2016, one customer~~30, 2017, two customers accounted for ~~approximately 21%~~24.1% and 13.6% of gross accounts ~~receivable.~~receivable, respectively. No other customers accounted for 10% or more of gross accounts receivable at either of these fiscal period ends.

Note 3 — Inventories, net

Inventories are ~~valued~~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 30, 2017		December 31, 2016		September 29, 2018		December 30, 2017
Raw materials	$	32,378	$	27,402	$	44,793	$	33,101
Work-in-progress	22,474		20,390		21,922		20,134
Finished goods	13,815		12,014		14,823		14,613
	$	68,667	$	59,806	$	81,538	$	67,848

Note 4 — Goodwill and Intangible Assets

Goodwill by reportable segment was as follows (in thousands):


	Probe Cards		Systems			Total			Probe Cards		Systems			Total
Goodwill, gross, as of December 26, 2015	$	30,731	$	—		$	30,731
Additions - Cascade Microtech acquisition	141,751		16,390			158,141
Foreign currency translation	—		(862		)	(862		)
Goodwill, gross, as of December 31, 2016	172,482		15,528			188,010			$	172,482	$	15,528		$	188,010
Foreign currency translation	—		1,694			1,694			—		1,910			1,910
Goodwill, gross, as of September 30, 2017	$	172,482	$	17,222		$	189,704
Goodwill, gross, as of December 30, 2017									172,482		17,438			189,920
Foreign currency translation									—		(493		)	(493		)
Goodwill, gross, as of September 29, 2018									$	172,482	$	16,945		$	189,427

We have not recorded any goodwill impairments as of September ~~30, 2017.~~29, 2018.

Intangible assets were as follows (in thousands):


	September 30, 2017						December 31, 2016						September 29, 2018						December 30, 2017
Other Intangible Assets	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Existing developed technologies	$	143,995	$	71,786	$	72,209	$	142,701	$	56,131	$	86,570	$	143,577	$	92,074	$	51,503	$	143,966	$	76,826	$	67,140
Trade name	12,066		5,047		7,019		11,921		2,989		8,932		12,042		8,136		3,906		12,086		5,735		6,351
Customer relationships	40,262		14,950		25,312		39,869		10,854		29,015		40,196		20,327		19,869		40,313		16,320		23,993
Backlog	15,769		15,569		200		15,581		13,489		2,092		—		—		—		15,811		15,811		—
	$	212,092	$	107,352	$	104,740	$	210,072	$	83,463	$	126,609	$	195,815	$	120,537	$	75,278	$	212,176	$	114,692	$	97,484

Amortization expense was included in our Condensed Consolidated Statements of ~~Operations~~Income as follows (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30, 2017		September 24, 2016		September 30, 2017		September 24, 2016		September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
Cost of revenues	$	5,473	$	17,846	$	17,411	$	22,003	$	5,123	$	5,473	$	15,418	$	17,411
Selling, general and administrative	2,043		2,050		6,098		3,352		2,389		2,043		6,458		6,098
	$	7,516	$	19,896	$	23,509	$	25,355	$	7,512	$	7,516	$	21,876	$	23,509

The estimated future amortization of intangible assets ~~over the next five years~~ is as follows (in thousands):


Fiscal Year	Amount		Amount
Remainder of 2017	$	7,432
2018	28,650
Remainder of 2018			$	7,509
2019	25,986		26,432
2020	23,917		23,421
2021	13,128		12,655
2022			3,215
Thereafter	5,627		2,046
	$	104,740	$	75,278

Note 5— Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):



	September 29, 2018		December 30, 2017
Accrued compensation and benefits	$	14,002	$	18,141
Accrued warranty	2,457		3,662
Accrued withholding for employee stock purchase plan	1,430		3,279
Accrued income and other taxes	3,397		3,965
Other accrued expenses	3,591		4,647
	$	24,877	$	33,694

Note 6 — Restructuring Charges

Restructuring charges are comprised of costs related to employee termination benefits ~~including stock-based compensation, cost of long-lived assets abandoned or impaired,~~ as well as contract termination ~~costs.~~costs, and are included in Restructuring in the Consolidated Statements of Income.

Restructuring charges in the first three quarters of fiscal 2017 ~~and fiscal 2016 periods were~~ related to the consolidation of ~~Cascade Microtech~~an acquired subsidiary into our operations. ~~Restructuring~~

There were no restructuring charges in the first three quarters of fiscal ~~2016 periods also included costs related~~2018. Changes to ~~the consolidation of our sales operations.~~

~~The activities in~~ the restructuring accrual ~~for~~in the nine months ended September ~~30, 2017~~29, 2018 were as follows (in thousands):

Employee Severance and Benefits Contract Termination and Other Costs Total
Accrual at December 31, 2016 $ 330
$ 104
$ 434
Restructuring charges 318
11
329
Cash payments (681 ) (94 ) (775 )
Adjustment to restructuring charges 33
(5 ) 28
Accrual at September 30, 2017 $ —
$ 16
$ 16



	Accrual
December 30, 2017	$	399
Cash payments	(399		)
September 29, 2018	$	—

~~The cash payments associated with these restructuring activities are expected to be completed by the end of fiscal 2017.~~

Note 67 — 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 ~~ricing~~pricing the asset or liability based on the best information available under the circumstances.

We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during the nine months ended September ~~30, 2017~~29, 2018 or the year ended December ~~31, 2016.~~30, 2017.

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

No changes were made to our valuation techniques during the first nine months of fiscal ~~2017.~~2018.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and ~~(liabilities)~~liabilities measured at fair value on a recurring basis were as follows (in thousands):


September 30, 2017	Level 1		Level 2			Total
September 29, 2018									Level 1		Level 2		Total
Assets:
Cash equivalents:
Money market funds	$	9,067	$	—		$	9,067		$	265	$	—	$	265
Commercial paper									—		999		999
Total cash equivalents									265		999		1,264
Marketable securities:
U.S. Treasuries									4,453		—		4,453
Certificates of deposit	—		958			958			—		1,197		1,197
Agency securities	—		9,495			9,495			—		8,994		8,994
Corporate bonds	—		19,355			19,355			—		32,186		32,186
Commercial paper	—		2,001			2,001			—		3,279		3,279
	—		31,809			31,809
Total marketable securities									4,453		45,656		50,109
Interest rate swap derivative contracts	—		848			848			—		951		951
Total assets	$	9,067	$	32,657		$	41,724		$	4,718	$	47,606	$	52,324
Liabilities:
Foreign exchange derivative contracts	$	—	$	(656	)	$	(656	)


December 31, 2016	Level 1		Level 2		Total
December 30, 2017							Level 1		Level 2		Total
Assets:
Cash equivalents:
Money market funds	$	19,350	$	—	$	19,350	$	1,064	$	—	$	1,064
Corporate bonds							—		774		774
Total cash equivalents							1,064		774		1,838
Marketable securities:
U.S. Treasuries	—		7,497		7,497		3,963		—		3,963
Certificates of deposit							—		957		957
Agency securities							—		10,432		10,432
Corporate bonds							—		30,636		30,636
Commercial paper							—		3,000		3,000
Total marketable securities							3,963		45,025		48,988
Foreign exchange derivative contracts	—		1,137		1,137		—		31		31
Interest rate swap derivative contracts	—		838		838		—		1,043		1,043
Total	$	19,350	$	9,472	$	28,822
Total assets							$	5,027	$	46,873	$	51,900

We did not have any liabilities measured at fair value on a recurring basis at September 29, 2018 or December ~~31, 2016.~~

30, 2017.

Cash Equivalents

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

Marketable Securities

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

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

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

~~The estimated~~Flows and the fair value of the interest rate ~~swaps as of September 30, 2017 and December 31, 2016 was reported as a derivative asset of approximately $0.8 million and $0.8 million, respectively,~~swap contracts are recorded within Prepaid expenses and other current assets and Other assets in our Condensed Consolidated Balance Sheets.

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

Three Months Ended
Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion ) Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion )

Derivatives in Cash Flow Hedging Relationships

September 30, 2017 September 24, 2016 September 30, 2017 September 24, 2016 September 30, 2017 September 24, 2016
Interest rate swap contracts $ 18
$ 233
Interest expense $ 54
$ —
Interest expense $ 4
$ —

Nine Months Ended
Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion ) Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion )

Derivatives in Cash Flow Hedging Relationships

September 30, 2017 September 24, 2016 September 30, 2017 September 24, 2016 September 30, 2017 September 24, 2016
Interest rate swap contracts $ 27
$ 233
Interest expense $ 23
$ —
Interest expense $ 27
$ —



	Amount of Gain or (Loss) Recognized in OCI on Derivative		Location of Gain or (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income			Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
Three Months Ended September 29, 2018	$	62	Interest expense	$	196		Interest expense
Three Months Ended September 30, 2017	$	18	Interest expense	$	54		Interest expense

Nine Months Ended September 29, 2018	$	418	Interest expense	$	514		Interest expense
Nine Months Ended September 30, 2017	$	8	Interest expense	$	(32	)	Interest expense

Foreign Exchange Derivative Contracts

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

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

The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange rates and forward points. ~~We recorded the net unrealized gain or loss in our Condensed Consolidated Statements of Operations as a component of Other income (expense), net each period as incurred.~~ All of our foreign exchange derivative contracts outstanding at September ~~30, 2017~~29, 2018 will mature in the ~~fourth~~third quarter of fiscal ~~2017.~~2018.

The following table provides information about our foreign currency forward contracts outstanding as of September ~~30, 2017~~29, 2018 (in thousands):


Currency		Contract Position	Contract Amount (Local Currency)		Contract Amount (U.S. Dollars)			Contract Position	Contract Amount (Local Currency)		Contract Amount (U.S. Dollars)
Japanese Yen		Sell	1,396,398		$	12,408		Sell	(2,241,544	)	$	19,783
Taiwan Dollar		Buy	(47,111	)	(1,555		)	Buy	49,404		(1,626		)
Korean Won		Buy	(3,076,638	)	(2,717		)	Buy	4,508,988		(4,082		)
Euro Dollar		Sell	17,617		20,156			Sell	(15,050	)	17,574
Total USD notional amount of outstanding foreign exchange contracts	Total USD notional amount of outstanding foreign exchange contracts				$	28,292		Total USD notional amount of outstanding foreign exchange contracts			$	31,649

Our foreign currency contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing models that utilize observable market inputs.

The location and amount of ~~gains and losses~~net income (loss) related to non-designated derivative instruments ~~that matured~~in the Condensed Consolidated Statements of Income were as follows (in thousands):


		Amount of Gain (Loss) Recognized on Derivatives
		Three Months Ended						Nine Months Ended								Three Months Ended					Nine Months Ended
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized on Derivatives	September 30, 2017			September 24, 2016				September 30, 2017			September 24, 2016			Location of Loss Recognized on Derivatives	September 29, 2018		September 30, 2017			September 29, 2018		September 30, 2017
Foreign exchange forward contracts	Other income (expense), net	$	(933	)	$	(224	)		$	(571	)	$	(1,927	)	Other income (expense), net	$	706	$	(556	)	$	923	$	(2,364	)

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

We measure and report goodwill and intangible assets at fair value on a non-recurring basis if we determine these assets to be impaired or in the period when we make a business acquisition. ~~Refer to Note 4 to the Condensed Consolidated Financial Statements-Goodwill and Intangible Assets, for further details.~~ There were no assets or liabilities measured at fair value on a nonrecurring basis during the three or nine months ended September 29, 2018 or September 30, ~~2017 and September 24, 2016.~~2017.

Note 78 — Warranty

~~A reconciliation~~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 ~~changes~~level of future costs. While we engage in product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. We continuously monitor product returns for warranty and maintain a reserve for the related expenses based upon our historical experience and any specifically identified field failures. As we sell new products to our customers, we must exercise considerable judgment in estimating the expected failure rates. This estimating process is based on historical experience of similar products, as well as various other assumptions that we believe to be reasonable under the circumstances.

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

Changes in our warranty liability iswere as follows (in thousands):


	Nine Months Ended						Nine Months Ended
	September 30, 2017			September 24, 2016			September 29, 2018			September 30, 2017
Balance at beginning of period	$	2,972		$	1,116		$	3,662		$	2,972
Warranty reserve from acquisition of Cascade Microtech	—			795
Accruals	4,888			3,106			3,168			4,888
Settlements	(5,009		)	(2,730		)	(4,373		)	(5,009		)
Balance at end of period	$	2,851		$	2,287		$	2,457		$	2,851

Note 89 — Stockholders’ Equity and Stock-Based Compensation

Common Stock Repurchase Program

In February 2017, our Board of Directors authorized a program to repurchase up to $25 million of outstanding common stock to offset potential dilution from issuances of common stock under our ~~stock-based compensation plans.~~employee stock purchase plan and equity incentive plan. The share repurchase program will expire on February 1, 2020. During the nine months ended September 30, 2017, we repurchased and retired 867,620 shares of common stock for $11.0 million and, as of September 30, 2017, $14.0 million remained available for future repurchases.

Repurchased shares are retired upon the settlement of the related ~~trade~~ transactions with the excess of cost over par value charged to additional paid-in capital. All repurchases ~~were~~are made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.

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

Restricted Stock Units

Restricted stock unit ("RSU") activity under our equity incentive plan was as follows:

Units Weighted Average Grant Date Fair Value
RSUs at December 31, 2016 3,108,560
$ 8.61
Awards granted 1,615,982
13.19
Awards vested (1,331,116 ) 7.94
Awards canceled (203,653 ) 8.91
RSUs at September 30, 2017 3,189,773
$ 11.15



	Units		Weighted Average Grant Date Fair Value
RSUs at December 30, 2017	3,148,061		$	11.22
Awards granted	1,551,770		13.79
Awards vested	(1,271,132	)	10.45
Awards forfeited	(293,969	)	11.60
RSUs at September 29, 2018	3,134,730		$	12.77

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

Performance Restricted Stock Units

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

On August 16, 2018, we granted a total of 318,100 PRSUs to nine senior executives for a total grant date fair value of $4.7 million, which will be recognized ratably over the requisite service period. The performance criteria are based on a metric called Total Shareholder Return ("TSR") for the period from July 1, 2018 to June 30, ~~2017 was $17.8 million.~~2021, relative to the TSR of the companies identified as being part of the S&P Semiconductor Select Industry Index (FormFactor peer companies) as of June 30, 2018.

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

Stock Options

Stock option activity under our equity incentive plan was as follows:

Options Outstanding Weighted Average Exercise Price Weighted Average Remaining Contractual Life in Years Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2016 2,198,031
$ 9.13

Options exercised (1,431,767 ) 9.37

Options canceled (65,308 ) 13.60

Outstanding at September 30, 2017 700,956 $ 8.21
3.85 $ 6,056
Vested and expected to vest at September 30, 2017 700,956
$ 8.21
3.85 $ 6,056
Exercisable at September 30, 2017 420,022
$ 8.52
3.17 $ 3,497



	Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value
Outstanding at December 30, 2017	659,334		$	8.12
Options exercised	(105,610	)	9.93
Outstanding at September 29, 2018	553,724		$	7.77	3.56	$	3,308,931
Exercisable at September 29, 2018	430,104		$	7.67	3.54	$	2,620,928

Employee Stock Purchase Plan

Information related to activity under our Employee Stock Purchase Plan ("ESPP") was as follows:



	Nine Months Ended
	September 29, 2018
Shares issued	610,297
Weighted average per share purchase price	$	12.84
Weighted average per share discount from the fair value of our common stock on the date of issuance	$	2.82

Stock-Based Compensation

Stock-based compensation was included in our Condensed Consolidated Statements of ~~Operations~~Income as follows (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30, 2017		September 24, 2016		September 30, 2017		September 24, 2016		September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
Cost of revenues	$	894	$	674	$	2,540	$	1,712	$	832	$	894	$	2,565	$	2,540
Research and development	1,437		913		3,768		2,251		1,312		1,437		3,870		3,768
Selling, general and administrative	2,255		1,615		4,971		3,514		2,393		2,255		5,986		4,971
Total stock-based compensation	$	4,586	$	3,202	$	11,279	$	7,477	$	4,537	$	4,586	$	12,421	$	11,279

~~Employee Stock Purchase Plan ("ESPP")~~

~~Information related to activity under our ESPP was as follows:~~

Nine Months Ended
September 30, 2017
Shares issued 655,961
Weighted average per share purchase price $ 8.68
Weighted average per share discount from the fair value of our common stock on the date of issuance $ 4.03

Unrecognized Compensation Costs

At September ~~30, 2017,~~29, 2018, the unrecognized stock-based compensation was as follows (in thousands):

Unrecognized Expense Average Expected Recognition Period in Years
Stock options $ 667
1.33
Restricted stock units 30,975
2.30
Employee stock purchase plan 1,105
0.34
Total unrecognized stock-based compensation expense $ 32,747
2.21

~~Note 9 — Income Taxes~~

~~Information regarding our income tax provision (benefit) was as follows (dollars in thousands):~~

Three Months Ended Nine Months Ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
Provision (benefit) for income taxes $ 1,028
$ 50
$ 2,435
$ (43,665 )
Effective income tax rate 7.6 % (0.4 )% 6.4 % 125.6 %

Income tax provision (benefit) reflects the tax provision on our operations in foreign and U.S. jurisdictions, offset by tax benefits from lapsing of statute of limitations related to uncertain tax positions in foreign jurisdictions. We continue to maintain a full valuation allowance against our U.S. Federal and State deferred tax assets. The change in provision for taxes primarily relates to higher profits in foreign jurisdictions.

The income tax benefit in nine month period ended September 24, 2016 was primarily due to the release of valuation allowance on our deferred tax assets ("DTAs") in connection with our acquisition of Cascade Microtech as a result of the establishment of deferred tax liabilities ("DTLs") on the acquired identifiable intangible assets. These DTLs exceeded the acquired DTAs by approximately $43.9 million and created additional sources of income to realize a tax benefit for our previously-existing DTAs. Accordingly, the valuation allowance on a portion of our DTAs was released and resulted in an income tax benefit of approximately $43.9 million during the nine months ended September 24, 2016.



	Unrecognized Expense		Average Expected Recognition Period in Years
Stock options	$	167	0.36
Restricted stock units	28,035		2.76
Performance restricted stock units	6,580		2.38
Employee stock purchase plan	974		0.34
Total unrecognized stock-based compensation expense	$	35,756	1.76

Note 10 — Net Income ~~(Loss)~~ per Share

The following table reconciles the shares used in calculating basic net income ~~(loss)~~ per share and diluted net income ~~(loss)~~ per share (in thousands):


	Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended
	September 30, 2017	September 24, 2016	September 30, 2017	September 24, 2016	September 29, 2018	September 30, 2017	September 29, 2018	September 30, 2017
Weighted-average shares used in computing basic net income (loss) per share	72,651	70,502	72,103	62,835
Weighted-average shares used in computing basic net income per share					73,837	72,651	73,273	72,103
Add potentially dilutive securities	1,234	—	1,437	827	1,125	1,234	1,355	1,437
Weighted-average shares used in computing basic and diluted net income (loss) per share	73,885	70,502	73,540	63,662
Weighted-average shares used in computing diluted net income per share					74,962	73,885	74,628	73,540

Securities not included as they would have been antidilutive	—	5,504	77	1,959	5	—	21	77

Note 11 — Commitments and Contingencies

Contractual Commitments and Purchase Obligations

~~Our~~During the second quarter of 2018, we amended our lease ~~commitments,~~for our Beaverton, Oregon facility, which extended the lease through 2027. During the third quarter of 2018, we amended our lease for our Livermore, California facility, which extended the lease through 2028. Our purchase obligations and other contractual obligations have not materially changed as of September ~~30, 2017~~29, 2018 from those disclosed in our Annual Report on Form 10-K for the year ended December ~~31, 2016.~~

~~Indemnification Arrangements~~

~~We have entered, and may, from time to time in the ordinary course of~~30, 2017. Future minimum payments under our business, enter, into contractual arrangements with third parties that include indemnification obligations. We have not recorded any liabilities for these indemnification arrangements on our Condensed Consolidated Balance Sheetnon-cancelable operating leases were as follows as of September ~~30, 2017 or December 31, 2016.~~29, 2018 (in thousands):



Fiscal Year	Amount
Remainder of 2018	$	1,698
2019	5,944
2020	5,861
2021	5,663
2022	4,784
Thereafter	24,737
Total	$	48,687

Legal Matters

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. As of September ~~30, 2017,~~29, 2018, and as of the filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings other than the proceedings summarized below. In the future, we may become a party to additional legal proceedings that may require us to spend significant resources. Litigation can be expensive and disruptive to normal business operations. The results of legal proceedings are difficult to predict, and the costs incurred in litigation can be substantial, regardless of outcome.proceedings.

In August 2013, a former employee filed a class action lawsuit against us in the Superior Court of California for the County of Alameda alleging violations of California’s wage and hour laws and other claims on behalf of himself and all similarly situated current and former employees at our Livermore facilities. On August 25, 2017, the court granted final approval of the parties’ agreement to settle the lawsuit. The settlement provides for payment by us of $1.5 million in settlement of the lawsuit. As of September 30, 2017, we had paid to the settlement administrator $1.5 million in accordance with the settlement agreement.

Note 12 — Operating Segments and Enterprise-Wide Information

Our chief operating decision maker ("CODM") is our Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company. We operate in two reportable segments consisting of the Probe Cards ~~Segment~~segment and the Systems ~~Segment.~~

segment. The following table summarizes the operating results by reportable segment (dollars in thousands):


	Three Months Ended																								Three Months Ended
	September 30, 2017												September 24, 2016												September 29, 2018												September 30, 2017
	Probe Cards			Systems			Corporate and Other			Total			Probe Cards			Systems			Corporate and Other			Total			Probe Cards			Systems			Corporate and Other			Total			Probe Cards			Systems			Corporate and Other			Total
Revenues	$	119,439		$	24,296		$	—		$	143,735		$	102,670		$	20,629		$	—		$	123,299		$	111,606		$	23,383		$	—		$	134,989		$	119,439		$	24,296		$	—		$	143,735
Gross profit	$	51,438		$	12,571		$	(6,379	)	$	57,630		$	41,653		$	11,090		$	(25,555	)	$	27,188		$	47,675		$	11,250		$	(5,955	)	$	52,970		$	51,438		$	12,571		$	(6,379	)	$	57,630
Gross margin	43.1		%	51.7		%	—		%	40.1		%	40.6		%	53.8		%	—		%	22.1		%	42.7		%	48.1		%	—		%	39.2		%	43.1		%	51.7		%	—		%	40.1		%
Operating income (loss)	$	17,894		$	5,277		$	(8,905	)	$	14,266		$	20,805		$	3,988		$	(37,951	)	$	(13,158	)	$	25,609		$	4,228		$	(20,469	)	$	9,368		$	17,894		$	5,277		$	(8,905	)	$	14,266

	Nine Months Ended
	September 30, 2017												September 24, 2016
	Probe Cards			Systems			Corporate and Other			Total			Probe Cards			Systems			Corporate and Other			Total
Revenues	$	347,559		$	68,981		$	—		$	416,540		$	239,364		$	20,629		$	—		$	259,993
Gross profit	$	151,204		$	36,176		$	(20,412	)	$	166,968		$	82,138		$	11,090		$	(30,821	)	$	62,407
Gross margin	43.5		%	52.4		%	—		%	40.1		%	34.3		%	53.8		%	—		%	24.0		%
Operating income (loss)	$	54,289		$	14,363		$	(27,748	)	$	40,904		$	31,411		$	3,988		$	(68,775	)	$	(33,376	)



	Nine Months Ended
	September 29, 2018												September 30, 2017
	Probe Cards			Systems			Corporate and Other			Total			Probe Cards			Systems			Corporate and Other			Total
Revenues	$	318,120		$	70,668		$	—		$	388,788		$	347,559		$	68,981		$	—		$	416,540
Gross profit	$	138,182		$	34,118		$	(17,983	)	$	154,317		$	151,204		$	36,176		$	(20,412	)	$	166,968
Gross margin	43.4		%	48.3		%	—		%	39.7		%	43.5		%	52.4		%	—		%	40.1		%
Operating income (loss)	$	71,326		$	12,634		$	(59,647	)	$	24,313		$	54,289		$	14,363		$	(27,748	)	$	40,904

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

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

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

Certain revenue category information by reportable segment was as follows (in thousands):

~~Note 13 — Acquisition~~



	Three Months Ended
	September 29, 2018						September 30, 2017
	Probe Cards		Systems		Total		Probe Cards		Systems		Total
Market:
Foundry & Logic	$	61,270	$	—	$	61,270	$	81,914	$	—	$	81,914
DRAM	37,359		—		37,359		32,373		—		32,373
Flash	12,977		—		12,977		5,151		—		5,151
Systems	—		23,383		23,383		—		24,297		24,297
Total	$	111,606	$	23,383	$	134,989	$	119,438	$	24,297	$	143,735
Timing of revenue recognition:
Products transferred at a point in time	$	111,020	$	22,422	$	133,442	$	118,995	$	23,372	$	142,367
Services transferred over time	586		961		1,547		443		925		1,368
Total	$	111,606	$	23,383	$	134,989	$	119,438	$	24,297	$	143,735
Geographical region:
United States	$	34,398	$	5,729	$	40,127	$	48,544	$	8,712	$	57,256
Taiwan	18,904		777		19,681		15,951		1,863		17,814
South Korea	19,664		1,437		21,101		21,217		545		21,762
Asia-Pacific¹	22,388		6,825		29,213		19,136		4,664		23,800
Europe	5,499		3,629		9,128		6,015		6,079		12,094
Japan	10,462		4,273		14,735		8,419		2,037		10,456
Rest of the world	291		713		1,004		156		397		553
Total	$	111,606	$	23,383	$	134,989	$	119,438	$	24,297	$	143,735

~~On June 24, 2016, we acquired Cascade Microtech,~~



	Nine Months Ended
	September 29, 2018						September 30, 2017
	Probe Cards		Systems		Total		Probe Cards		Systems		Total
Market:
Foundry & Logic	$	181,819	$	—	$	181,819	$	244,952	$	—	$	244,952
DRAM	105,716		—		105,716		92,798		—		92,798
Flash	30,585		—		30,585		9,809		—		9,809
Systems	—		70,668		70,668		—		68,981		68,981
Total	$	318,120	$	70,668	$	388,788	$	347,559	$	68,981	$	416,540
Timing of revenue recognition:
Products transferred at a point in time	$	316,495	$	67,794	$	384,289	$	346,191	$	66,388	$	412,579
Services transferred over time	1,625		2,874		4,499		1,368		2,593		3,961
Total	$	318,120	$	70,668	$	388,788	$	347,559	$	68,981	$	416,540
Geographical region:
United States	$	89,960	$	16,861	$	106,821	$	126,110	$	21,384	$	147,494
Taiwan	71,300		5,680		76,980		61,568		5,593		67,161
South Korea	58,250		4,317		62,567		60,306		2,909		63,215
Asia-Pacific¹	50,956		16,263		67,219		53,620		16,606		70,226
Europe	15,181		14,969		30,150		17,664		13,808		31,472
Japan	31,426		10,523		41,949		27,219		7,847		35,066
Rest of the world	1,047		2,055		3,102		1,072		834		1,906
Total	$	318,120	$	70,668	$	388,788	$	347,559	$	68,981	$	416,540

¹ Asia-Pacific includes all countries in the region except Taiwan, South Korea, and Japan, which was accounted for using the acquisition method of accounting. The acquired assets and liabilities of Cascade Microtech were recorded at their respective fair values including an amount for goodwill, representing the difference between the acquisition consideration and the fair value of the identifiable net assets. During the second quarter of 2017, we finalized our purchase price allocation, with no changes made to our allocation as of December 31, 2016.

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, impact of accounting standards ~~integration of Cascade Microtech~~ and our share repurchase plan. 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, our ability to execute our business strategy ~~our ability to integrate Cascade Microtech~~ 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 ~~31, 2016~~30, 2017 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.

Overview

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

On June 24, 2016, we completed the acquisition of Cascade Microtech, Inc. ("Cascade Microtech"), headquartered in Beaverton, Oregon and, accordingly, our Condensed Consolidated Statements of Operations include the results of operations of Cascade Microtech since that date. Therefore, our condensed consolidated financial results for the three and nine months ended September 30, 2017 may not be directly comparable to our condensed consolidated financial results for the three and nine months ended September 24, 2016.

We operate in two reportable segments consisting of the Probe Cards ~~Segment~~segment and the Systems ~~Segment.~~segment. Sales of our probe cards and analytical probes are included in the Probe Cards ~~Segment~~segment, while sales of our probe stations and thermal sub-systems ~~and reliability test systems~~ are included in the Systems ~~Segment.~~segment.

We generated net income of $18.9 million in the first nine months of fiscal 2018 as compared to $35.3 million in the first nine months of fiscal ~~2017 as compared to $8.9 million in the first nine months of fiscal 2016.~~2017. The ~~increase~~decrease in net income was primarily due to ~~increased revenues generated by the acquisition of Cascade Microtech at the end of the second quarter of fiscal 2016, as well as strong demand across~~decreased revenue from our ~~legacy products,~~Probe Cards segment and ~~lower restructuring charges, partially offset by~~ increased operating expenses and a $43.7 million income tax benefit recognized in the first nine months of fiscal 2016 related to the release of valuation allowances on our deferred tax assets in connection with our acquisition of Cascade Microtech.expenses.

Critical Accounting Policies and the Use of Estimates

Management’s Discussion and Analysis and Note 12 to the Consolidated Financial Statements in our ~~2016~~2017 Annual Report on Form 10-K describe the significant accounting estimates and critical 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 ~~30, 2017,~~29, 2018, other than the adoption of new revenue recognition guidance as described in Note 1, there were no significant changes in our critical accounting policies or estimates from those reported in our Annual Report on Form 10-K for the year ended December ~~31, 2016,~~30, 2017, which was filed with the Securities and Exchange Commission on ~~March 15, 2017.~~February 27, 2018.

Results of Operations

The following table sets forth our operating results as a percentage of revenues for the periods indicated:


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30, 2017		September 24, 2016		September 30, 2017		September 24, 2016		September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
Revenues	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenues	59.9		77.9		59.9		76.0		60.8		59.9		60.3		59.9
Gross profit	40.1		22.1		40.1		24.0		39.2		40.1		39.7		40.1
Operating expenses:
Research and development	13.5		14.0		13.3		15.1		14.0		13.5		14.6		13.3
Selling, general and administrative	16.7		18.7		16.9		19.1		18.3		16.7		18.9		16.9
Restructuring and impairment charges, net	—		0.1		0.1		2.7
Restructuring									—		—		—		0.1
Total operating expenses	30.2		32.8		30.3		36.9		32.3		30.2		33.5		30.3
Operating income (loss)	9.9		(10.7	)	9.8		(12.9	)
Operating income									6.9		9.9		6.2		9.8
Interest income	0.1		—		0.1		0.1		0.3		0.1		0.2		0.1
Interest expense	(0.8	)	(0.9	)	(0.8	)	(0.4	)	(0.6	)	(0.8	)	(0.7	)	(0.8	)
Other income (expense), net	0.2		0.1		—		(0.2	)	0.2		0.2		(0.2	)	—
Income (loss) before income taxes	9.4		(11.5	)	9.1		(13.4	)
Provision (benefit) for income taxes	0.7		—		0.6		(16.8	)
Net income (loss)	8.7	%	(11.5	)%	8.5	%	3.4	%
Income before income taxes									6.7		9.6		5.5		9.1
Provision for income taxes									1.1		0.7		0.9		0.6
Net income									5.7	%	8.8	%	4.6	%	8.6	%

Revenues by Segment and Market

Three Months Ended Nine Months Ended
September 30, 2017 September 24, 2016 September 30, 2017 September 24, 2016
(In thousands)
Probe Cards $ 119,439
$ 102,670
$ 347,559
$ 239,364
Systems 24,296
20,629
68,981
20,629
$ 143,735
$ 123,299
$ 416,540
$ 259,993

The increases in Probe Cards Segment revenue for the three and nine months ended September 30, 2017, compared to the three and nine months ended September 24, 2016 were the result of increases in unit sales, driven by higher demand for both of our Foundry & Logic and DRAM products. The increase for the nine months ended September 30, 2017 compared to the corresponding period of 2016 was also due to acquisition of Cascade Microtech.

The increase in Systems Segment revenue for the three months ended September 30, 2017 compared to the three months ended September 24, 2016 was the result of increases in both volume of station sales and service revenues. The increase for the nine months ended September 30, 2017 compared to the nine months ended September 24, 2016 was the result of the acquisition of Cascade Microtech at the end of June 2016, as well as the increases in fiscal 2017 Systems Segment revenue as discussed. Prior to the acquisition, we did not operate in the Systems Segment.



	Three Months Ended				Nine Months Ended
	September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
	(In thousands)
Probe Cards	$	111,606	$	119,439	$	318,120	$	347,559
Systems	23,383		24,296		70,668		68,981
	$	134,989	$	143,735	$	388,788	$	416,540

~~Revenues by Market~~


	Three Months Ended									Three Months Ended
	September 30, 2017		September 24, 2016		$ Change			% Change		September 29, 2018		% of Revenues		September 30, 2017		% of Revenues		$ Change			% Change
	(Dollars in thousands)									(Dollars in thousands)
Probe Cards Markets:
Foundry & Logic	$	81,914	$	75,114	$	6,800		9.1	%	$	61,270	45.4	%	$	81,914	57.0	%	$	(20,644	)	(25.2	)%
DRAM	32,373		22,278		10,095			45.3		37,359		27.7		32,373		22.5		4,986			15.4
Flash	5,151		5,278		(127		)	(2.4	)	12,977		9.6		5,151		3.6		7,826			151.9
Systems Market:
Systems	24,297		20,629		3,668			17.8	%	23,383		17.3		24,297		16.9		(914		)	(3.8	)
Total revenues	$	143,735	$	123,299	$	20,436		16.6	%	$	134,989	100.0	%	$	143,735	100.0	%	$	(8,746	)	(6.1	)%

	Nine Months Ended									Nine Months Ended
	September 30, 2017		September 24, 2016		$ Change			% Change		September 29, 2018		% of Revenues		September 30, 2017		% of Revenues		$ Change			% Change
	(Dollars in thousands)									(Dollars in thousands)
Probe Cards Markets:
Foundry & Logic	$	244,952	$	169,137	$	75,815		44.8	%	$	181,819	46.7	%	$	244,952	58.8	%	$	(63,133	)	(25.8	)%
DRAM	92,798		62,788		30,010			47.8		105,716		27.2		92,798		22.3		12,918			13.9
Flash	9,809		7,439		2,370			31.9		30,585		7.9		9,809		2.4		20,776			211.8
Systems Market:
Systems	68,981		20,629		48,352			234.4	%	70,668		18.2		68,981		16.5		1,687			2.4
Total revenues	$	416,540	$	259,993	$	156,547		60.2	%	$	388,788	100.0	%	$	416,540	100.0	%	$	(27,752	)	(6.7	)%

The ~~increases~~decreases in Foundry & Logic product revenue for the three and nine months ended September ~~30, 2017,~~29, 2018, compared to the three and nine months ended September ~~24, 2016~~30, 2017, were primarily the result of ~~strong~~lower demand from one major customer. This major customer ~~demand across all end markets, including data center, mobile~~accounted for 24.5% and ~~automotive. The increase~~18.0%, respectively, of total revenues for the three and nine ~~month period was also due~~months ended September 29, 2018, compared to 30.6% and 27.4%, respectively, for the ~~2016 acquisition~~comparable periods of ~~Cascade Microtech.~~2017.

The increases in DRAM and Flash product revenue for the three and nine months ended September ~~30, 2017,~~29, 2018, compared to the three and nine months ended September ~~24, 2016,~~30, 2017, were ~~the~~driven by increased unit sales as a result of increased design wins and customer ~~demand in the DRAM market, as DRAM manufacturers continue their technology node transitions and new design releases.~~ demand.

~~Flash~~The decrease in Systems product revenue for the three months ended September ~~30, 2017 is consistent when~~29, 2018, compared ~~with corresponding period in prior year. The increase in Flash revenue for nine~~to the three months ended September 30, 2017, ~~compared~~was driven by decreased unit sales of thermal sub-systems due to ~~nine months ended September 24, 2016 was the result of design wins.~~

customer demand. The ~~increases~~increase in Systems product revenue for the three and nine months ended September 30, 2017 compared to three and nine months ended September 24, 2016 were driven by increased unit sales, including new 200mm and 300mm platforms. The increase in revenue for the nine months ended September ~~30, 2017,~~29, 2018, compared to the nine months ended September ~~24, 2016~~30, 2017, was ~~also~~driven by increased unit sales of thermal sub-systems due to increased customer demand, partially offset by lower revenue from probe stations due to changes in product sales mix which decreased the ~~result~~average selling price of ~~the acquisition of Cascade Microtech at the end of June 2016. Prior to the acquisition, we did not operate in the Systems market.~~units sold.

Revenues by Geographic Region


	Three Months Ended								Nine Months Ended								Three Months Ended								Nine Months Ended
	September 30, 2017		% of Revenue		September 24, 2016		% of Revenue		September 30, 2017		% of Revenue		September 24, 2016		% of Revenue		September 29, 2018		% of Revenue		September 30, 2017		% of Revenue		September 29, 2018		% of Revenue		September 30, 2017		% of Revenue
	(Dollars in thousands)																(Dollars in thousands)
United States	$	57,256	39.8	%	$	39,625	32.1	%	$	147,494	35.4	%	$	88,779	34.1	%	$	40,127	29.7	%	$	57,256	39.8	%	$	106,821	27.5	%	$	147,494	35.4	%
Taiwan	17,814		12.4		17,714		14.4		67,161		16.1		43,264		16.6		19,681		14.6		17,814		12.4		76,980		19.8		67,161		16.1
South Korea	21,762		15.1		17,584		14.3		63,215		15.2		44,042		16.9		21,101		15.6		21,762		15.1		62,567		16.1		63,215		15.2
Asia-Pacific⁽¹⁾	23,800		16.6		17,501		14.2		70,226		16.9		25,479		9.8
Asia-Pacific¹																	29,213		21.7		23,800		16.6		67,219		17.3		70,226		16.9
Europe	12,094		8.4		16,499		13.4		31,472		7.6		36,384		14.0		9,128		6.8		12,094		8.4		30,150		7.8		31,472		7.6
Japan	10,456		7.3		14,057		11.4		35,066		8.4		21,726		8.4		14,735		10.9		10,456		7.3		41,949		10.8		35,066		8.4
Rest of the world	553		0.4		319		0.3		1,906		0.5		319		0.1		1,004		0.7		553		0.4		3,102		0.8		1,906		0.5
Total revenues	$	143,735	100.0	%	$	123,299	100.0	%	$	416,540	100.0	%	$	259,993	100.0	%	$	134,989	100.0	%	$	143,735	100.0	%	$	388,788	100.0	%	$	416,540	100.0	%

⁽¹⁾¹Asia-Pacific includes all countries in the region except Taiwan, South Korea and Japan, 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 ~~North American~~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 ~~North America.~~U.S.

~~The increases~~Changes in geographical revenues across the regions were primarily attributable to additional revenues generated as a result of our acquisition of Cascade Microtech and strong demand for our legacy products across the board. The decrease in Japanrevenue by geographic region for the three and nine months ended September 29, 2018 compared to the three and nine months ended September 30, 2017 ~~compared~~were primarily attributable to ~~corresponding period of fiscal 2016 was due to a reduction~~changes in customer demand and product sales to one customer. The decreases in Europe were driven by decreases in legacy product revenue at our three main European customers, partially offset by increases throughout Europe in sales of products related to our Cascade Microtech acquisition.mix.

Cost of Revenues and Gross Margins

Cost of revenues consists primarily of manufacturing materials, ~~payroll,~~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 29, 2018			September 30, 2017			$ Change			% Change
Gross profit	$	52,970		$	57,630		$	(4,660	)	(8.1	)%
Gross margin	39.2		%	40.1		%

	Nine Months Ended
	September 29, 2018			September 30, 2017			$ Change			% Change
Gross profit	$	154,317		$	166,968		$	(12,651	)	(7.6	)%
Gross margin	39.7		%	40.1		%

Our gross profit and gross margin by segment were as follows (dollars in thousands):



	Three Months Ended
	September 29, 2018												September 30, 2017
	Probe Cards			Systems			Corporate and Other			Total			Probe Cards			Systems			Corporate and Other			Total
Gross profit	$	47,675		$	11,250		$	(5,955	)	$	52,970		$	51,438		$	12,571		$	(6,379	)	$	57,630
Gross margin	42.7		%	48.1		%	—		%	39.2		%	43.1		%	51.7		%	—		%	40.1		%

	Nine Months Ended
	September 29, 2018												September 30, 2017
	Probe Cards			Systems			Corporate and Other			Total			Probe Cards			Systems			Corporate and Other			Total
Gross profit	$138,182			$	34,118		$	(17,983	)	$	154,317		$151,204			$	36,176		$	(20,412	)	$	166,968
Gross margin	43.4		%	48.3		%	—		%	39.7		%	43.5		%	52.4		%	—		%	40.1		%

Probe Cards

For the three and nine months ended September 29, 2018, gross profit in the Probe Cards segment decreased due to decreased sales. Gross margins decreased due to fluctuations in product mix and factory utilization.

Systems

For the three and nine months ended September 29, 2018, gross profit and gross margin in the Systems segment decreased due to changes in product sales mix and changes in foreign currency exchange rates.

Corporate and Other includes unallocated expenses relating to amortization of intangible assets, share-based compensation expense, acquisition-related costs, including charges related to inventory stepped up to fair value, and other costs, which are not used in evaluating the results of, or in allocating resources to, our reportable segments. ~~Acquisition-related costs include transaction costs and any costs directly related to the acquisition and integration of acquired businesses.~~

~~Our gross profit and gross margin were as follows (dollars in thousands):~~

Three Months Ended
September 30, 2017 September 24, 2016 $ Change % Change
(Dollars in thousands)
Gross profit $ 57,630
$ 27,188
$ 30,442
112.0 %
Gross margin 40.1 % 22.1 %
Nine Months Ended
September 30, 2017 September 24, 2016 $ Change % Change
(Dollars in thousands)
Gross profit $ 166,968
$ 62,407
$ 104,561
167.5 %
Gross margin 40.1 % 24.0 %

~~Our gross profit and gross margin by segment were as follows (dollars in thousands):~~

Three Months Ended
September 30, 2017 September 24, 2016
Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total
Gross profit $ 51,438
$ 12,571
$ (6,379 ) $ 57,630
$ 41,653
$ 11,090
$ (25,555 ) $ 27,188
Gross margin 43.1 % 51.7 % — % 40.1 % 40.6 % 53.8 % — % 22.1 %

Nine Months Ended
September 30, 2017 September 24, 2016
Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total
Gross profit $151,204 $ 36,176
$ (20,412 ) $ 166,968
$82,138 $ 11,090
$ (30,821 ) $ 62,407
Gross margin 43.5 % 52.4 % — % 40.1 % 34.3 % 53.8 % — % 24.0 %

~~Probe Cards~~

For the three and nine months ended September 30, 2017, gross margins in the Probe Cards Segment increased as a result of increased sales to several major customers, favorable product mix, higher factory utilization and improved manufacturing efficiency.

~~Systems~~

For the three and nine months ended September 30, 2017, decreases in gross margins in the Systems Segment was attributed to changes in foreign currency exchange rates and unfavorable product mix. For the nine months ended September 30, 2017, increase in gross profit was due to inclusion of the results of operations of Cascade Microtech for three months in 2016. Prior to the acquisition, we operated in the Probe Cards Segment only and did not generate any Systems Segment revenue.

Overall

Gross profit and gross margin fluctuate with revenue levels, product mix, selling prices, factory loading and material costs. For the three and nine months ended September ~~30, 2017~~29, 2018, compared to the three and nine months ended September ~~24, 2016,~~30, 2017, gross profit decreased due to lower revenue, and gross margins ~~increased~~decreased due to ~~strong revenues, favorable~~unfavorable product mix and ~~higher factor~~lower factory utilization, as well as changes in ~~our DRAM and Foundry & Logic products. The increases in gross margin were also driven~~foreign currency exchange rates, partially offset by ~~improved manufacturing efficiency. The three and nine month 2016 gross margin also included the impact of higher amortization of backlog and inventory step up which reduced gross margin.~~lower amortization.

Cost of revenues included stock-based compensation expense as follows (in thousands):

Three Months Ended Nine Months Ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
Stock-based compensation $ 894
$ 674
$ 2,540
$ 1,712



	Three Months Ended				Nine Months Ended
	September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
Stock-based compensation	$	832	$	894	$	2,565	$	2,540

Future gross margins may be adversely impacted by lower revenues, unfavorable product mix and lower factory utilization even though we have taken significant steps to reduce our operating cost structure. Our gross margins may also be adversely affected if we are required to record additional inventory write-downs for estimated average selling prices ~~of products held in finished goods and work in process inventories~~ that are below ~~the manufacturing cost of those products.~~cost.

Research and Development


	Three Months Ended										Three Months Ended
	September 30, 2017			September 24, 2016			$ Change		% Change		September 29, 2018			September 30, 2017			$ Change			% Change
	(Dollars in thousands)										(Dollars in thousands)
Research and development	$	19,338		$	17,253		$	2,085	12.1	%	$	18,857		$	19,338		$	(481	)	(2.5	)%
% of revenues	13.5		%	14.0		%					14.0		%	13.5		%

	Nine Months Ended										Nine Months Ended
	September 30, 2017			September 24, 2016			$ Change		% Change		September 29, 2018			September 30, 2017			$ Change			% Change
	(Dollars in thousands)										(Dollars in thousands)
Research and development	$	55,294		$	39,235		$	16,059	40.9	%	$	56,578		$	55,294		$	1,284		2.3	%
% of revenues	13.3		%	15.1		%					14.6		%	13.3		%

The ~~increase~~decrease in research and development expenses in the three months ended September ~~30, 2017~~29, 2018 when compared to corresponding period in ~~the~~ prior year was primarily ~~due to higher bonus payments as~~driven by a ~~result of improved performance.~~decrease in employee incentive compensation. The increase in the nine months ended September ~~30, 2017~~29, 2018 when compared to ~~the~~ corresponding period in ~~the~~ prior year was primarily due to an increase in project material costs to support research and development within our ~~acquisition of Cascade Microtech.~~ Probe Cards segment, partially offset by a decrease in employee incentive compensation. The lower employee incentive compensation in both periods was primarily due to decreased profitability from lower revenues.

A detail of the changes is as follows (in ~~millions)~~thousands):


	Three Months Ended September 30, 2017 compared to Three Months Ended September 24, 2016			Nine Months Ended September 30, 2017 compared to Nine Months Ended September 24, 2016		Three Months Ended September 29, 2018 compared to Three Months Ended September 30, 2017			Nine Months Ended September 29, 2018 compared to Nine Months Ended September 30, 2017

Employee compensation costs	$	2.0		$	11.9	$	(688	)	$	(627	)
Stock-based compensation	0.5			1.5		(125		)	102
Project material costs	(0.3		)	0.4		153			1,104
General operating expenses	(0.2		)	1.6
Depreciation	0.1			0.6		85			287
Other general operations						94			418
	$	2.1		$	16.0	$	(481	)	$	1,284

Research and development included stock-based compensation expense as follows (in thousands):

Three Months Ended Nine Months Ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
Stock-based compensation $ 1,437
$ 913
$ 3,768
$ 2,251



	Three Months Ended				Nine Months Ended
	September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
Stock-based compensation	$	1,312	$	1,437	$	3,870	$	3,768

Selling, General and Administrative


	Three Months Ended										Three Months Ended
	September 30, 2017			September 24, 2016			$ Change		% Change		September 29, 2018			September 30, 2017			$ Change		% Change
	(Dollars in thousands)										(Dollars in thousands)
Selling, general and administrative	$	24,010		$	23,008		$	1,002	4.4	%	$	24,745		$	24,010		$	735	3.1	%
% of revenues	16.7		%	18.7		%					18.3		%	16.7		%

	Nine Months Ended										Nine Months Ended
	September 30, 2017			September 24, 2016			$ Change		% Change		September 29, 2018			September 30, 2017			$ Change		% Change
	(Dollars in thousands)										(Dollars in thousands)
Selling, general and administrative	$	70,526		$	49,553		$	20,973	42.3	%	$	73,426		$	70,441		$	2,985	4.2%
% of revenues	16.9		%	19.1		%					18.9		%	16.9		%

The ~~increase~~increases in the three and nine months ended September ~~30, 2017~~29, 2018 when compared to the corresponding ~~period~~periods in the prior year ~~was~~were primarily due to ~~higher bonus payments as~~increases in consulting fees related to information systems implementation and stock-based compensation, partially offset by a ~~result of improved performance. The increase~~reduction in ~~the nine months ended September 30, 2017 when compared to the corresponding period in the prior year was primarily~~employee incentive compensation due to ~~our acquisition of Cascade Microtech.~~decreased profitability from lower revenues. A detail of the changes is as follows (in ~~millions)~~thousands):

Three Months Ended September 30, 2017 compared to Three Months Ended September 24, 2016 Nine Months Ended September 30, 2017 compared to Nine Months Ended September 24, 2016

Employee compensation costs $ 1.0
$ 14.4
Consulting fees (0.2 ) 3.0
Depreciation and amortization —
2.7
Travel related costs (0.1 ) 2.0
General operating costs (0.1 ) 2.5
Stock-based compensation 0.6
1.5
Acquisition related (0.2 ) (5.1 )
$ 1.0
$ 21.0



	Three Months Ended September 29, 2018 compared to Three Months Ended September 30, 2017			Nine Months Ended September 29, 2018 compared to Nine Months Ended September 30, 2017

General operating expenses	$	224		$	698
Consulting fees	164			1,441
Stock-based compensation	138			1,015
Travel related costs	321			125
Employee compensation	(458		)	(654		)
Amortization of intangibles	346			360
	$	735		$	2,985

Selling, general and administrative included stock-based compensation expense as follows (in thousands):

Three Months Ended Nine Months Ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
Stock-based compensation $ 2,255
$ 1,615
$ 4,971
$ 3,514



	Three Months Ended				Nine Months Ended
	September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
Stock-based compensation	$	2,393	$	2,255	$	5,986	$	4,971

Restructuring Charges, net

Three Months Ended Nine Months Ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
(Dollars in thousands)
Restructuring charges, net $ 16
$ 85
$ 329
$ 6,995
% of revenues — % 0.1 % 0.1 % 2.7 %

~~Restructuring charges are comprised of costs related to employee termination benefits, cost of long-lived assets abandoned or impaired, as well as contract termination costs.~~



	Three Months Ended						Nine Months Ended
	September 29, 2018			September 30, 2017			September 29, 2018			September 30, 2017
Restructuring charges, net	$	—		$	16		$	—		$	329
% of revenues	—		%	—		%	—		%	0.1		%

Restructuring charges in the first nine months of fiscal 2017 ~~and fiscal 2016 periods~~ were related to the consolidation of Cascade Microtech into our ~~operations. Restructuring charges in the fiscal 2016 periods also~~operations and included costs related to ~~the consolidation of our sales operations.~~employee termination benefits and contract termination costs.

Interest Income and Interest Expense


	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30, 2017			September 24, 2016			September 30, 2017			September 24, 2016			September 29, 2018			September 30, 2017			September 29, 2018			September 30, 2017
	(Dollars in thousands)												(Dollars in thousands)
Interest income	$	123		$	52		$	283		$	267		$	369		$	123		$	952		$	283
Weighted average balance of cash and investments	$	125,675		$	87,119		$	120,134		$	142,404		$	134,516		$	125,675		$	136,986		$	120,134
Weighted average yield on cash and investments	0.91		%	0.31		%	0.72		%	0.30		%	1.50		%	0.91		%	1.46		%	0.72		%

Interest expense	$	(1,109	)	$	(1,125	)	$	(3,446	)	$	(1,136	)	$	(777	)	$	(1,109	)	$	(2,654	)	$	(3,446	)
Average debt outstanding	123,655			148,247			131,813			50,702
Weighted average interest rate on debt	3.23		%	2.31		%	3.01		%	0.79		%
Average term loan outstanding													$	84,725		$	123,558		$	96,003		$	131,696
Weighted average interest rate on term loan													4.09		%	3.23		%	3.88		%	3.01		%

Interest income is earned on our cash, cash equivalents, restricted cash and marketable securities. The ~~increase~~increases in interest income for the three and nine months ended September ~~30, 2017~~29, 2018 compared with corresponding ~~period~~periods of prior year iswere attributable to ~~increase in investment securities and~~ higher investment ~~yields.~~yields, as well as higher average investment balances.

Interest expense primarily includes interest on our term loan and interest-rate swap derivative contracts, ~~and~~as well as term loan issuance costs amortization charges. The ~~decrease~~decreases in interest expense for the three and nine months ended September 29, 2018 compared to the three and nine months ended September 30, 2017 ~~compared to three months ended September 24, 2016 was~~were primarily due to a lower outstanding debt ~~balance~~balances as a result of principal payments made, ~~and income from~~partially offset by higher interest rate swap contracts as the interest rate goes up. The increase in interest expense for the nine months ended September 30, 2017 when compared to the corresponding period in the prior year was primarily due to the fact that our term loan was entered into at the end of June 2016 in connection with our acquisition of Cascade Microtech and, accordingly, was not outstanding for the first six months of fiscal 2016.rates.

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 Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30, 2017			September 24, 2016			September 30, 2017			September 24, 2016			September 29, 2018			September 30, 2017			September 29, 2018			September 30, 2017
	(Dollars in thousands)												(Dollars in thousands)
Provision (benefit) for income taxes	$	1,028		$	50		$	2,435		$	(43,665	)
Provision for income taxes													$	1,393		$	1,028		$	3,334		$	2,435
Effective income tax rate	7.6		%	(0.4		)%	6.4		%	125.6		%	15.3		%	7.6		%	15.0		%	6.4		%

~~Income tax provision (benefit)~~Provision for income taxes reflects the tax provision on our operations in foreign and U.S. jurisdictions, offset by tax benefits from lapsing of statute of limitations related to uncertain tax positions in foreign jurisdictions. We continue to maintain a full valuation allowance against our U.S. Federal and State deferred tax assets. The change in provision for income taxes ~~primarily relates to~~was driven by higher profits in foreign ~~jurisdictions.~~

~~The income tax benefit in nine month period ended September 24, 2016 was primarily due to~~jurisdictions for the release of valuation allowance on our deferred tax assets ("DTAs") in connection with our acquisition of Cascade Microtech as a result of the establishment of deferred tax liabilities ("DTLs") on the acquired identifiable intangible assets. These DTLs exceeded the acquired DTAs by approximately $43.9 millionthree and created additional sources of income to realize a tax benefit for our previously-existing DTAs. Accordingly, the valuation allowance on a portion of our DTAs was released and resulted in an income tax benefit of approximately $43.9 million during the nine months ended September ~~24, 2016.~~29, 2018, compared to the three and nine months ended September 30, 2017.

We have reported U.S. pre-tax losses, compared to U.S. pre-tax income in seven of the last nine fiscal years. We have not yet been able to establish a sustained level of profitability in the U.S. or other sufficient significant positive evidence to conclude that our U.S. deferred tax assets are more likely than not to be realized. Therefore, we continue to maintain a valuation allowance against most of our U.S. deferred tax assets. It is reasonably possible that by the end of fiscal year 2018, we will establish a sustained level of profitability in the U.S. As a result, in the fourth quarter of fiscal year 2018, we may reverse a significant portion of the valuation allowance recorded against our U.S. deferred tax assets, which was $109.8 million at December 30, 2017. The reversal would result in a noncash income tax benefit for the three and twelve months ended December 29, 2018.

New tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), was enacted on December 22, 2017. In connection with our initial analysis of the impact of the Tax Act, the Tax Act did not have a material impact on the fiscal 2017 tax provision. With the reduction in the U.S. corporate income tax rate, we revalued our ending U.S. deferred tax assets at December 30, 2017, which was offset by a corresponding change in the U.S. valuation allowance. We also released the valuation allowance against $0.8 million of AMT tax credits at December 30, 2017 which became fully refundable under the Tax Act. We have completed the accounting for the tax effects of the Tax Act described above for fiscal year 2017 and there have been no material changes to estimated amounts.

Liquidity and Capital Resources

Capital Resources

Our working capital was ~~$209.5~~$224.3 million at September ~~30, 2017 and $172.0~~29, 2018, which did not change significantly compared to $213.7 million at December ~~31, 2016. The increase~~30, 2017.

Cash and cash equivalents primarily consist of deposits held at banks, money market funds and commercial paper. Marketable securities primarily consist of U.S. agency securities and corporate bonds. We typically invest in ~~working capital in~~highly-rated securities with low probabilities of default. Our investment policy requires investments to be rated single A or better, and limits the ~~nine months ended September 30, 2017 was primarily due to cash generated from operations as a result~~types of ~~higher revenues.~~acceptable investments, issuer concentration and duration of the investment.

Our cash, cash equivalents and marketable securities totaled approximately ~~$134.9~~$142.1 million at September ~~30, 2017, as~~29, 2018, compared to ~~$108.9~~$140.2 million at December ~~31, 2016. Cash and cash equivalents and marketable securities included $24.7 million held by our foreign subsidiaries as of September~~ 30, 2017. 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 ~~marketable securities.~~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.

If we are unsuccessful in maintaining or growing our revenues, maintaining or reducing our cost structure (in response to an industry demand downturn or other event), or increasing our available cash through debt or equity financings, our cash, cash equivalents and marketable securities may decline in fiscal ~~2017.~~2018.

We utilize a variety of tax planning and financing strategies in an effort to manage our worldwide cash and deploy funds to locations where they are needed. As part of these strategies, we indefinitely reinvest a ~~significant~~ portion of our foreign ~~earnings and our current plans do not demonstrate a need to repatriate these~~earnings. During the nine months ended September 29, 2018, we repatriated $16.5 million of 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. ~~If we were to repatriate indefinitely-reinvested foreign funds, we would be required to accrue and pay additional United States taxes, less applicable foreign tax credits.~~

Cash Flows

The following table sets forth our net cash flows from operating, investing and financing activities:


	Nine Months Ended						Nine Months Ended
	September 30, 2017			September 24, 2016			September 29, 2018			September 30, 2017
	(In thousands)						(In thousands)
Net cash provided by operating activities	$	59,868		$	2,488		$	46,138		$	59,866
Net cash used in investing activities	(37,792		)	(202,361		)	(13,463		)	(38,243		)
Net cash (used in) provided by financing activities	(22,847		)	150,624
Net cash used in financing activities							(31,732		)	(22,847		)

Operating Activities

Net cash provided by operating activities for the nine months ended September ~~30, 2017~~29, 2018 was primarily attributable to ~~our operations generating $86.2 million of cash (a~~ net income of ~~$35.3~~$18.9 million ~~which included $50.9~~and $53.3 million of net non-cash ~~expenses),~~expenses, offset by operating assets and liabilities using ~~$26.3~~$26.1 million of cash as discussed in more detail below.

Accounts receivable, net, increased ~~$17.7~~$7.4 million to ~~$88.0~~$88.9 million at September ~~30, 2017~~29, 2018, compared to ~~$70.2~~$81.5 million at December ~~31, 2016~~30, 2017, as a result of changes in customer sales mix and timing of customer shipments.

Inventories, net, increased $13.7 million to $81.5 million at September 29, 2018, compared to $67.8 million at December 30, 2017, as a result of increased ~~revenues, timing~~inventory purchases to shorten lead time and improve pricing, and in anticipation of customer ~~shipments and contractual payment terms.~~demand.

~~Inventories, net~~Prepaid expenses and other current assets increased ~~$8.9~~$2.0 million to ~~$68.7~~$15.7 million at September ~~30, 2017~~29, 2018, compared to ~~$59.8~~$13.7 million at December ~~31, 2016~~30, 2017, as a result of ~~inventory build, partially offset by higher revenues~~increases in unrealized gains on hedging and ~~a $6.9 million increase to our inventory valuation allowance.~~forward contracts, prepaid insurance and other services, and short-term deposits.

Accounts payable increased ~~$3.0~~$14.6 million to ~~$37.1~~$49.7 million at September ~~30, 2017~~29, 2018, compared to ~~$34.1~~$35.0 million at December ~~31, 2016~~30, 2017, as a result of ~~an increase in operating expenses,~~increased inventory and fixed asset purchases, and timing of vendor payments.

Accrued liabilities decreased $8.8 million to $24.9 million at September 29, 2018, compared to $33.7 million at December 30, 2017, as a result of timing of employee payroll, decreases in employee stock purchase plan withholdings due to timing within the plan's withholding period, and decrease in accrued warranty.

Investing Activities

Net cash used in investing activities for the nine months ended September ~~30, 2017~~29, 2018 was primarily related to ~~$13.9~~$12.3 million of cash used in the acquisition of property, plant and equipment, ~~and $24.4~~as well as $1.2 million ~~used for the purchase~~of net purchases of marketable securities.

Financing Activities

Net cash used in financing activities for the nine months ended September ~~30, 2017~~29, 2018 primarily related to ~~$24.4~~$33.8 million of principal payments made towards the repayment of our term loan ~~$11.0 million related to the repurchase of our common stock~~ and ~~$6.6~~

$5.7 million related to tax withholdings associated with the net share settlements of our equity awards, partially offset by ~~$19.1~~$7.7 million of proceeds received from issuances of common stock under our employee stock ~~incentive plans.~~purchase plan and exercise of stock options.

Debt Facility

On June 24, 2016, we entered into a credit agreement (the “Credit Agreement”) with HSBC Bank USA, National Association ("HSBC"). Pursuant to the Credit Agreement, the lenders provided us with a senior secured term loan facility of $150 million (the “Term Loan”). The proceeds of the Term Loan were used to finance a portion of the purchase price paid in connection with the acquisition of Cascade Microtech.

The Term Loan bears interest at a rate equal to, at our option, (i) the applicable London Interbank Offered Rate ("LIBOR") rate plus 2.00% per annum or (ii) Base Rate (as defined in the Credit Agreement) plus 1.00% per annum. We have currently elected to pay interest at 2.00% over the one-month LIBOR rate. Interest payments are payable in ~~quarterly~~monthly installments over a five-year period.

On July 25, 2016 we entered into an interest rate swap agreement with HSBC and other lenders to hedge the interest payments on the Term Loan for the notional amount of $95.6 million. As future levels of LIBOR over the life of the loan are uncertain, we entered into these interest-rate swap agreements to hedge the exposure in interest rate risks associated with movement in LIBOR rates. By entering into the agreements, we convert a floating rate interest at one-month LIBOR plus 2% into a fixed rate interest at 2.939%. As of September 29, 2018 the notional amount of the loan that is subject to this interest rate swap is $60.0 million. See Note 7 of Notes to Condensed Consolidated Financial Statements for additional information.

The Term Loan ~~will amortize~~amortizes in equal quarterly installments, ~~beginning~~which began June 30, 2016, in an annual ~~amount~~amounts equal to 5% for year one, 10% for year two, 20% for year three, 30% for year four and 35% for year five. The Credit Agreement allows voluntary prepayment to be made at any time to prepay the Term Loan in whole or in part without penalty or premium. As of September 29, 2018, we have made prepayments of $40.0 million in addition to scheduled installments per the Credit Agreement. For the three and nine months ended September 29, 2018, we made prepayments of $5.0 million and $15.0 million, respectively, in addition to scheduled installments.

The obligations under the Term Loan are guaranteed by substantially all of our assets and the assets of our domestic subsidiaries, subject to certain customary exceptions.

The Credit Agreement contains negative covenants customary for financing of this type, as well as certain financial maintenance covenants. As of September ~~30, 2017,~~29, 2018, the balance outstanding pursuant to the ~~term loan~~Term Loan was ~~$115.0~~$72.5 million at an interest rate of ~~3.23%~~4.25% and we were in compliance with all covenants under the Credit Agreement.

Stock Repurchase Program

In February 2017, our Board of Directors authorized a program to repurchase up to $25 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based compensation plans. The share repurchase program will expire on February 1, 2020. During the nine months ended September ~~30, 2017,~~29, 2018, we ~~repurchased and retired 867,620~~did not repurchase any shares of common ~~stock for $11.0 million and, as~~stock. As of September ~~30, 2017, $14.0~~29, 2018, $6.0 million remained available for future repurchases.

Repurchased shares are retired upon the settlement of the related trade transactions with the excess of cost over par value charged to additional paid-in capital. All repurchases were made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.

Contractual Obligations and Commitments

~~Our~~Other than our operating lease commitments as disclosed in Note 11 of Notes to Condensed Consolidated Financial Statements, our contractual obligations and commitments have not materially changed as of September ~~30, 2017~~29, 2018 from those disclosed in our Annual Report on Form 10-K for the year ended December ~~31, 2016.~~30, 2017.

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 ~~30, 2017,~~29, 2018, we were not involved in any such off-balance sheet arrangements.

Recent Accounting Pronouncements

See Note 1 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 ~~31, 2016.~~30, 2017. Our exposure to market risk has not changed materially since December ~~31, 2016.~~30, 2017.

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)~~, except as described below,~~ 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.

On June 24, 2016, we completed the acquisition of Cascade Microtech, headquartered in Beaverton, Oregon, and are integrating the acquired business into our overall internal control over financial reporting process. As of September 30, 2017, we have updated our internal control over financial reporting as necessary and are currently testing its effectiveness.

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 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 1.~~ ~~Legal Proceedings~~

~~The information relating to “Legal Matters” set forth under Note 11 -~~ ~~Commitments and Contingencies~~ ~~of the Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q is incorporated herein by reference.~~

Item 1A. Risk Factors

There have been no material changes during the nine months ended September ~~30, 2017~~29, 2018 to the risk factors discussed in our Annual Report on Form 10-K for the year ended December ~~31, 2016.~~30, 2017. 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 ~~31, 2016~~30, 2017 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.

~~Item 2.~~ ~~Unregistered Sales of Equity Securities and Use of Proceeds~~

~~Repurchase of Common Stock~~

~~The following table summarizes our repurchases of outstanding common stock for the three months ended September 30, 2017:~~

Period (fiscal months) Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Amount that May Yet Be Purchased Under the Plans or Programs(1)
July 2, 2017-July 31, 2017 67,300
$ 12.33
67,300
$ 14,037,043
August 1, 2017-August 31, 2017 —
—
—
$ 14,037,043
September 1, 2017-September 30, 2017 —
—
—
$ 14,037,043
67,300
$ 12.33
67,300

(1) In February 2017, our Board of Directors authorized a program to repurchase up to $25.0 million of outstanding common stock to offset potential dilution from issuances of our common stock under our stock-based compensation plans. Under the authorized stock repurchase program, we may repurchase shares from time to time on the open market. The pace of repurchase activity will depend on levels of cash generation, current stock price and other factors. The program may be modified or discontinued at any time. The share repurchase program will expire on February 1, 2020.

Item 6. Exhibits

The following exhibits are filed herewith and this list constitutes the exhibit index.



~~Exhibit~~		~~Incorporated by Reference~~			~~Filed~~
~~Number~~	~~Exhibit Description~~	~~Form~~	~~Date~~	~~Number~~	~~Herewith~~
~~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~~				X
~~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~~				X
~~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~~				*
~~101.INS~~	~~XBRL Instance Document~~				X
~~101.SCH~~	~~XBRL Taxonomy Extension Schema Document~~				X
~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document~~				X
~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase Document~~				X
~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document~~				X
~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document~~				X



Exhibit		Incorporated by Reference			Filed
Number	Exhibit Description	Form	Date	Number	Herewith
3.1	Amended and Restated Certificate of Incorporation of the Registrant as filed with the Delaware Secretary of State on June 17, 2003	S-1	October 20, 2003	3.01
3.2	Amended and Restated Bylaws of the Registrant	8-K	July 22, 2016	3.2
10.01	Third Amendment, dated October 1, 2018, between FormFactor, Inc. and MOHR PCC, LP, to Pacific Corporate Center Lease, dated October 5, 2004, by and between Greenville Investors, L.P. and FormFactor, Inc.	8-K	October 2, 2018	10.01
10.02	Fourth Amendment, dated October 1, 2018, between FormFactor, Inc. and MOHR PCC, LP, to Pacific Corporate Center Lease, dated May 3, 2001, by and between Greenville Investors, L.P. and FormFactor, Inc.	8-K	October 2, 2018	10.02
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				X
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				X
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				*
101.INS	XBRL Instance Document				X
101.SCH	XBRL Taxonomy Extension Schema Document				X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document				X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document				X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document				X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document				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.

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 ~~7, 2017~~6, 2018	By:	/s/ ~~Michael M. Ludwig~~SHAI SHAHAR

			~~Michael M. Ludwig~~Shai Shahar
			Chief Financial Officer
			(Duly Authorized Officer, Principal Financial Officer, and Principal Accounting Officer)

3236

FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)

Non-cash investing and financing activities:
Fair value of stock issued in connection with the acquisition of Cascade Microtech	$	—		$	93,216
Fair value of stock options and restricted stock-based awards assumed in connection with acquisition of Cascade Microtech	—			7,776
Fair value of vested stock options and restricted stock-based awards paid in cash in connection with the acquisition of Cascade Microtech	—			12,815
Change in accounts payable and accrued liabilities related to property, plant and equipment purchases	(283		)	(987		)

Supplemental disclosure of cash flow information:
Cash paid for income taxes, net	$	2,847		$	1,492
Cash paid for interest	2,974			355



	Employee Severance and Benefits			Contract Termination and Other Costs			Total
Accrual at December 31, 2016	$	330		$	104		$	434
Restructuring charges	318			11			329
Cash payments	(681		)	(94		)	(775		)
Adjustment to restructuring charges	33			(5		)	28
Accrual at September 30, 2017	$	—		$	16		$	16



	Units		Weighted Average Grant Date Fair Value
RSUs at December 31, 2016	3,108,560		$	8.61
Awards granted	1,615,982		13.19
Awards vested	(1,331,116	)	7.94
Awards canceled	(203,653	)	8.91
RSUs at September 30, 2017	3,189,773		$	11.15



Period (fiscal months)	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Amount that May Yet Be Purchased Under the Plans or Programs(1)
July 2, 2017-July 31, 2017	67,300	$	12.33	67,300	$	14,037,043
August 1, 2017-August 31, 2017	—	—		—	$	14,037,043
September 1, 2017-September 30, 2017	—	—		—	$	14,037,043
	67,300	$	12.33	67,300