SECURITIES AND EXCHANGECOMMISSION

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. Yesý☒ 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). Yesý☒ 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):

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 October 31, ~~2018, 74,102,335~~2019, 75,699,945 shares of the registrant’s common stock, par value ~~$0.001~~$0.001 per share, were outstanding.

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 29, 2018			December 30, 2017			September 28, 2019			December 29, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	91,990		$	91,184		$	122,946		$	98,472
Marketable securities	50,109			48,988			77,025			50,531
Accounts receivable, net of allowance for doubtful accounts of $200 and $200	88,869			81,515
Accounts receivable, net of allowance for doubtful accounts of $194 and $185							84,750			95,333
Inventories, net	81,538			67,848			85,989			77,706
Restricted cash	129			372			765			849
Refundable income taxes	1,320			2,242			478			1,260
Prepaid expenses and other current assets	15,716			13,705			17,834			13,669
Total current assets	329,671			305,854			389,787			337,820
Restricted cash	1,034			1,170			1,029			1,225
Property, plant and equipment, net of accumulated depreciation of $260,607 and $255,755	52,857			46,754
Operating lease, right-of-use-assets							32,300			—
Property, plant and equipment, net of accumulated depreciation of $268,486 and $263,102							56,240			54,054
Goodwill	189,427			189,920			188,559			189,214
Intangibles, net	75,278			97,484			47,054			67,640
Deferred tax assets	3,042			3,133			77,274			77,301
Other assets	1,163			2,259			1,362			968
Total assets	$	652,472		$	646,574		$	793,605		$	728,222

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	49,668		$	35,046		$	50,968		$	40,006
Accrued liabilities	24,877			33,694			30,015			27,731
Current portion of term loan, net of unamortized issuance cost of $189 and $307	26,061			18,443
Current portion of term loan, net of unamortized issuance cost of $57 and $160							46,193			29,840
Deferred revenue	4,795			4,978			8,315			4,941
Operating lease liabilities							6,416			—
Total current liabilities	105,401			92,161			141,907			102,518
Term loan, less current portion, net of unamortized issuance cost of $57 and $272	46,193			87,228
Term loan, less current portion, net of unamortized issuance cost of $0 and $29							—			34,971
Deferred tax liabilities	3,290			3,379			2,244			2,355
Deferred rent and other liabilities	7,537			5,169
Long-term operating lease liabilities							30,074			—
Other liabilities							4,834			8,214
Total liabilities	162,421			187,937			179,059			148,058

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; 74,101,623 and 72,532,176 shares issued and outstanding	75			73
250,000,000 shares authorized; 75,696,234 and 74,139,712 shares issued and outstanding							76			74
Additional paid-in capital	857,505			843,116			879,527			862,897
Accumulated other comprehensive income	1,158			3,021
Accumulated other comprehensive income (loss)							(2,180		)	780
Accumulated deficit	(368,687		)	(387,573		)	(262,877		)	(283,587		)
Total stockholders’ equity	490,051			458,637			614,546			580,164
Total liabilities and stockholders’ equity	$	652,472		$	646,574		$	793,605		$	728,222

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)												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 29, 2018			September 30, 2017			September 29, 2018			September 30, 2017			September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
Revenues	$	134,989		$	143,735		$	388,788		$	416,540		$	140,604		$	134,989		$	410,835		$	388,788
Cost of revenues	82,019			86,105			234,471			249,572			85,286			82,019			247,644			234,471
Gross profit	52,970			57,630			154,317			166,968			55,318			52,970			163,191			154,317
Operating expenses:
Research and development	18,857			19,338			56,578			55,294			20,096			18,857			59,893			56,578
Selling, general and administrative	24,745			24,010			73,426			70,441			25,887			24,745			77,354			73,426
Restructuring	—			16			—			329
Total operating expenses	43,602			43,364			130,004			126,064			45,983			43,602			137,247			130,004
Operating income	9,368			14,266			24,313			40,904			9,335			9,368			25,944			24,313
Interest income	369			123			952			283			724			369			1,988			952
Interest expense	(777		)	(1,109		)	(2,654		)	(3,446		)	(422		)	(777		)	(1,539		)	(2,654		)
Other income (expense), net	121			311			(341		)	19			226			121			223			(341		)
Income before income taxes	9,081			13,591			22,270			37,760			9,863			9,081			26,616			22,270
Provision for income taxes	1,393			1,028			3,334			2,435			1,584			1,393			5,906			3,334
Net income	$	7,688		$	12,563		$	18,936		$	35,325		$	8,279		$	7,688		$	20,710		$	18,936
Net income per share:
Basic	$	0.10		$	0.17		$	0.26		$	0.49		$	0.11		$	0.10		$	0.28		$	0.26
Diluted	$	0.10		$	0.17		$	0.25		$	0.48		$	0.11		$	0.10		$	0.27		$	0.25

Weighted-average number of shares used in per share calculations:
Basic	73,837			72,651			73,273			72,103			75,280			73,837			74,749			73,273
Diluted	74,962			73,885			74,628			73,540			77,291			74,962			76,763			74,628

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 29, 2018			September 30, 2017			September 29, 2018			September 30, 2017			September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
Net income	$	7,688		$	12,563		$	18,936		$	35,325		$	8,279		$	7,688		$	20,710		$	18,936
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(449		)	1,540			(1,732		)	5,769
Other comprehensive loss, net of tax:
Translation adjustments and other													(1,814		)	(449		)	(2,042		)	(1,732		)
Unrealized gains (losses) on available-for-sale marketable securities	50			(15		)	(84		)	(37		)	11			50			304			(84		)
Unrealized gains (losses) on derivative instruments	(134		)	(36		)	(47		)	4
Other comprehensive income (loss), net of tax	(533		)	1,489			(1,863		)	5,736
Unrealized losses on derivative instruments													(536		)	(134		)	(1,222		)	(47		)
Other comprehensive loss, net of tax													(2,339		)	(533		)	(2,960		)	(1,863		)
Comprehensive income	$	7,155		$	14,052		$	17,073		$	41,061		$	5,940		$	7,155		$	17,750		$	17,073

FORMFACTOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In ~~thousands)~~thousands, except shares)

(Unaudited)

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)~~



	Shares	Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Total
	Nine Months Ended September 28, 2019
Balances, December 29, 2018	74,139,712	$	74	$	862,897		$	780		$	(283,587	)	$	580,164
Issuance of common stock under the Employee Stock Purchase Plan	544,271	—		6,806			—			—			6,806
Issuance of common stock pursuant to exercise of options for cash	112,956	—		754			—			—			754
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	899,295	2		(7,898		)	—			—			(7,896		)
Stock-based compensation	—	—		16,968			—			—			16,968
Other comprehensive loss	—	—		—			(2,960		)	—			(2,960		)
Net income	—	—		—			—			20,710			20,710
Balances, September 28, 2019	75,696,234	$	76	$	879,527		$	(2,180	)	$	(262,877	)	$	614,546

	Three Months Ended September 28, 2019
Balances, June 29, 2019	74,691,781	$	75	$	875,024		$	159		$	(271,156	)	$	604,102
Issuance of common stock under the Employee Stock Purchase Plan	242,774	—		3,136			—			—			3,136
Issuance of common stock pursuant to exercise of options for cash	93,749	—		664			—			—			664
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	667,930	1		(5,741		)	—			—			(5,740		)
Stock-based compensation	—	—		6,444			—			—			6,444
Other comprehensive income	—	—		—			(2,339		)	—			(2,339		)
Net income	—	—		—			—			8,279			8,279
Balances, September 28, 2019	75,696,234	$	76	$	879,527		$	(2,180	)	$	(262,877	)	$	614,546

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



	Nine Months Ended September 29, 2018
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, net of stock withheld for tax	853,540	1		(5,694		)	—			—			(5,693		)
Stock-based compensation	—	—		12,373			—			—			12,373
Adoption of ASU 2017-12	—	—		—			—			(50		)	(50		)
Other comprehensive loss	—	—		—			(1,863		)	—			(1,863		)
Net income	—	—		—			—			18,936			18,936
Balances, September 29, 2018	74,101,623	$	75	$	857,505		$	1,158		$	(368,687	)	$	490,051

	Three Months Ended September 29, 2018
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, net of stock withheld for tax	474,888	1		(3,241		)	—			—			(3,240		)
Stock-based compensation	—	—		4,511			—			—			4,511
Other comprehensive loss	—	—		—			(533		)	—			(533		)
Net income	—	—		—			—			7,688			7,688
Balances, September 29, 2018	74,101,623	$	75	$	857,505		$	1,158		$	(368,687	)	$	490,051

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

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

	Nine Months Ended						Nine Months Ended
	September 29, 2018			September 30, 2017			September 28, 2019			September 29, 2018
Cash flows from operating activities:
Net income	$	18,936		$	35,325		$	20,710		$	18,936
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	10,494			10,046			12,644			10,494
Amortization	21,876			23,509			20,248			21,876
Accretion of discount on investments	21			22
Amortization (accretion) of discount on investments							(291		)	21
Amortization of operating lease, right-of-use assets							3,921			—
Stock-based compensation expense	12,421			11,279			17,088			12,421
Amortization of debt issuance costs	333			482			132			333
Deferred income tax provision	70			122			38			70
Recovery of doubtful accounts receivable	—			(97		)
Provision for excess and obsolete inventories	7,414			6,899			8,046			7,414
Acquired inventory step-up amortization	—			484
Loss on disposal of long-lived assets	264			101			327			264
(Gain) loss on derivative instruments	—			(18		)
Foreign currency transaction losses (gains)	409			(1,957		)
Loss on derivative instruments							132			—
Foreign currency transaction (losses) gains							(186		)	409
Changes in assets and liabilities:
Accounts receivable	(7,569		)	(17,097		)	10,580			(7,569		)
Inventories	(21,806		)	(14,270		)	(17,246		)	(21,806		)
Prepaid expenses and other current assets	(1,874		)	1,140			(4,509		)	(1,874		)
Refundable income taxes	933			(440		)	782			933
Other assets	697			823			(595		)	697
Accounts payable	10,425			3,040			10,074			10,425
Accrued liabilities	(8,882		)	(1,048		)	(856		)	(8,882		)
Income tax payable	(248		)	(97		)
Deferred rent and other liabilities	2,445			101
Other liabilities							2,374			2,197
Deferred revenues	(221		)	1,517			3,625			(221		)
Operating lease liabilities							(3,660		)	—
Net cash provided by operating activities	46,138			59,866			83,378			46,138
Cash flows from investing activities:
Acquisition of property, plant and equipment	(12,326		)	(13,918		)	(14,242		)	(12,326		)
Proceeds from sale of a subsidiary	67			48			93			67
Proceeds from sale of property, plant and equipment	23			—			—			23
Purchases of marketable securities	(18,984		)	(27,373		)	(59,602		)	(18,984		)
Proceeds from maturities of marketable securities	17,757			3,000
Proceeds from maturities and sales of marketable securities							33,704			17,757
Net cash used in investing activities	(13,463		)	(38,243		)	(40,047		)	(13,463		)
Cash flows from financing activities:
Proceeds from issuances of common stock	7,712			19,108			7,672			7,712
Purchase and retirement of common stock	—			(10,963		)
Tax withholdings related to net share settlements of equity awards	(5,694		)	(6,617		)	(7,898		)	(5,694		)
Principal repayments on term loan	(33,750		)	(24,375		)	(18,750		)	(33,750		)
Net cash used in financing activities	(31,732		)	(22,847		)	(18,976		)	(31,732		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(516		)	2,481			(161		)	(516		)
Net increase in cash, cash equivalents and restricted cash	427			1,257			24,194			427
Cash, cash equivalents and restricted cash, beginning of period	92,726			102,596			100,546			92,726
Cash, cash equivalents and restricted cash, end of period	$	93,153		$	103,853		$	124,740		$	93,153

Non-cash investing and financing activities:
Change in accounts payable and accrued liabilities related to property, plant and equipment purchases	$	4,724		$	(283	)	$	1,062		$	4,724

Operating lease, right-of-use assets obtained in exchange for lease obligations							36,300			—
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net	$	2,513		$	2,847		$	2,875		$	2,513
Cash paid for interest	2,299			2,974			1,128			2,299

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 of FormFactor, Inc. is unaudited and has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission. 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 ~~30, 2017~~29, 2018 is derived from our ~~2017~~2018 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 ~~2017~~2018 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~~2019 and ~~2017~~2018 each contain 52 weeks and the nine months ended September ~~29, 2018~~28, 2019 and September ~~30, 2017~~29, 2018 each contained 39 weeks. Fiscal ~~2018~~2019 will end on December ~~29, 2018.~~28, 2019.

Reclassifications

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

Critical Accounting Policies

~~Except as described below, our~~Our critical accounting policies have not changed during the nine months ended September ~~29, 2018~~28, 2019 from those disclosed in our Annual Report on Form 10-K for the year ended December ~~30, 2017.~~29, 2018.

~~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 ~~2016-10, ASU 2015-14 and ASU 2014-09~~2018-15

In ~~May 2014,~~August 2018, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("ASU") ~~No. 2014-09,~~2018-15, "~~Revenue from Contracts with Customers,~~Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." ~~and, in August 2015, the FASB issued ASU 2015-14, “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 new 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 modified retrospective transition methods. In April 2016, the FASB issued ASU 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 underclarifies the accounting ~~standards~~for implementation costs 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.

cloud computing arrangements. 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 2017-122018-15 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.2019. Early adoption is ~~permitted for interim~~permitted. ASU 2018-15 should be applied either retrospectively or ~~annual goodwill impairment tests performed~~prospectively to all implementation costs incurred after ~~January 1, 2017.~~the date of adoption. We ~~early adopted ASU 2017-04 on July 1, 2018,~~have not yet determined the ~~first day~~impact of ~~the third quarter. The adoption did not have an effect~~this standard on our financial ~~position, results of operations or cash flows.~~statements.

~~ASU 2016-18~~

~~In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230) - Restricted Cash,~~" which requires that 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 should include amounts generally described as restricted cash or restricted cash equivalents within cash and 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 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 Condensed Consolidated Statements of Cash Flows to Cash, cash equivalents and restricted cash as currently reported in the 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, ASU 2018-11 and ASU ~~2018-11~~2019-01

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." and in March 2019 by ASU 2019-01, "Leases (Topic 842): Codification Improvements." ASU 2016-02 provides additional guidance on the measurement of the right-of-use assets and lease liabilities and ~~will require~~requires enhanced disclosures about our leasing arrangements. ~~Under current accounting standards, substantially~~We adopted Topic 842 and 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~~related amendments on December 30, 2018, ~~with early adoption permitted. As initially issued,~~ the ~~standard required a “modified retrospective” adoption, meaning~~first day of fiscal 2019, using 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~~modified transition ~~method that~~approach. The modified transition approach permits a company to use its effective date as the date of initial application to apply the standard to its leases, and, therefore, not restate comparative prior period financial information. ~~Upon adoption~~Consequently, prior period financial information is not updated, and the disclosures required under the new standard will not be provided for dates and periods before December 30, 2018. The standard provides several optional practical expedients in transition. We elected the ‘package of practical expedients,’ which permits us to not reassess, under the new standard, our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption. This means, for those leases that qualify, we will ~~use~~not recognize a right-of-use asset or lease liability, and this includes not recognizing right-of-use assets or lease liabilities for existing short-term leases of those assets in transition. We also elected the ~~modified transition method. We are currently assessing~~practical expedient to not separate lease and non-lease components for all our leases. The adoption of the ~~impact~~lease standard did not have any effect on our previously reported Condensed

Consolidated ~~Financial~~ Statements of Income and ~~expect that the primary impact upon adoption will be the recognition, on~~did not result in a ~~discounted basis, of our minimum commitments under noncancelable operating leases~~cumulative catch-up adjustment to ~~our Consolidated Balance Sheets resulting in the recording of right-of-use assets and lease liabilities.~~opening equity. See Note 12 for additional information.

Note 2 — Concentration of Credit and Other Risks

Each of the following customers accounted for 10% or more of our revenues for the periods indicated:



	Three Months Ended				Nine Months Ended
	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Intel Corporation	23.9	%	24.5	%	23.8	%	18.0	%
SK Hynix Inc.	13.5		*		10.6		10.2
Micron Technology, Inc.	11.9		12.0		*		10.1
Samsung Electronics., LTD.	*		*		10.0		*
	49.3	%	36.5	%	44.4	%	38.3	%

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 ~~29, 2018,~~28, 2019, two customers accounted for ~~25.4%~~18.8% and ~~10.2%~~17.4% of gross accounts receivable, respectively. At December ~~30, 2017,~~29, 2018, two customers accounted for ~~24.1%~~27.8% and ~~13.6%~~13.0% of gross accounts 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 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 28, 2019		December 29, 2018
Raw materials	$	39,395	$	43,380
Work-in-progress	31,486		20,431
Finished goods	15,108		13,895
	$	85,989	$	77,706

September 29,
2018 December 30,
2017
Raw materials $ 44,793
$ 33,101
Work-in-progress 21,922
20,134
Finished goods 14,823
14,613
$ 81,538
$ 67,848

Note 4— Goodwill and Intangible Assets

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



	Probe Cards		Systems			Total
Goodwill, gross, as of December 30, 2017	$	172,482	$	17,438		$	189,920
Foreign currency translation	—		(706		)	(706		)
Goodwill, gross, as of December 29, 2018	172,482		16,732			189,214
Foreign currency translation	—		(655		)	(655		)
Goodwill, gross, as of September 28, 2019	$	172,482	$	16,077		$	188,559

Probe Cards Systems Total
Goodwill, gross, as of December 31, 2016 $ 172,482
$ 15,528
$ 188,010
Foreign currency translation —
1,910
1,910
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~~0t recorded any goodwill impairments ~~as of~~in the nine months ended September ~~29, 2018.~~28, 2019.

Intangible assets were as follows (in thousands):



	September 28, 2019						December 29, 2018
Other Intangible Assets	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Existing developed technologies	$	142,890	$	110,943	$	31,947	$	143,408	$	97,111	$	46,297
Trade name	7,576		6,893		683		12,023		9,173		2,850
Customer relationships	39,990		25,566		14,424		40,146		21,653		18,493
	$	190,456	$	143,402	$	47,054	$	195,577	$	127,937	$	67,640

September 29, 2018 December 30, 2017
Other Intangible Assets Gross Accumulated Amortization Net Gross Accumulated Amortization Net
Existing developed technologies
$ 143,577
$ 92,074
$ 51,503
$ 143,966
$ 76,826
$ 67,140
Trade name 12,042
8,136
3,906
12,086
5,735
6,351
Customer relationships 40,196
20,327
19,869
40,313
16,320
23,993
Backlog —
—
—
15,811
15,811
—

$ 195,815
$ 120,537
$ 75,278
$ 212,176
$ 114,692
$ 97,484

In the current quarter we disposed of certain fully amortized trade names.

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



	Three Months Ended				Nine Months Ended
	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Cost of revenues	$	4,707	$	5,123	$	14,137	$	15,418
Selling, general and administrative	1,372		2,389		6,111		6,458
	$	6,079	$	7,512	$	20,248	$	21,876

Three Months Ended Nine Months Ended
September 29,
2018 September 30,
2017 September 29,
2018 September 30,
2017
Cost of revenues $ 5,123
$ 5,473
$ 15,418
$ 17,411
Selling, general and administrative 2,389
2,043
6,458
6,098
$ 7,512
$ 7,516
$ 21,876
$ 23,509

The estimated future amortization of intangible assets is as follows (in thousands):



Fiscal Year	Amount
Remainder of 2019	$	6,065
2020	23,243
2021	12,546
2022	3,467
2023	1,733
	$	47,054

Fiscal Year Amount
Remainder of 2018 $ 7,509
2019 26,432
2020 23,421
2021 12,655
2022 3,215
Thereafter 2,046
$ 75,278

Note 5— Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):



	September 28, 2019		December 29, 2018
Accrued compensation and benefits	$	15,640	$	15,600
Accrued employee stock purchase plan contributions withheld	1,431		3,174
Accrued warranty	1,793		2,102
Accrued income and other taxes	7,218		4,222
Other accrued expenses	3,933		2,633
	$	30,015	$	27,731

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~~in the first nine months of fiscal 2019 consisted of costs related to employee termination benefits, ~~as well as contract termination costs,~~cost of long-lived asset abandonment and ~~are included in Restructuring in the Consolidated Statements of Income.~~inventory write downs.

Restructuring charges were included in ~~the first three quarters~~our Condensed Consolidated Statement of ~~fiscal 2017 related to the consolidation of an acquired subsidiary into our operations.~~Income as follows (in thousands):

~~There were no restructuring charges in the first three quarters of fiscal 2018.~~



	Three Months Ended				Nine Months Ended
	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Cost of revenues	$	—	$	—	$	258	$	—
Selling, general and administrative	22		—		199		—
	$	22	$	—	$	457	$	—

Changes to the restructuring accrual in the nine months ended September ~~29, 2018~~28, 2019 were as follows (in thousands):



	Employee Severance and Benefits			Other Costs			Total Accrual
December 29, 2018	$	20		$	—		$	20
Restructuring charges	184			273			457
Cash payments	(128		)	—			(128		)
Non-cash settlement	—			(273		)	(273		)
September 28, 2019	$	76		$	—		$	76

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

Note 7 — Fair Value and Derivative Instruments

Whenever possible, the fair values of our financial assets and liabilities are determined using quoted market prices of identical securities or quoted market prices of similar securities from active markets. The three levels of inputs that may be used to measure fair value are as follows:

Level 1 valuations are obtained from real-time quotes for transactions in active exchange markets involving identical securities;

Level 2 valuations utilize significant observable inputs, such as quoted prices for similar assets or liabilities, quoted prices near the reporting date in markets that are less active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3 valuations utilize unobservable inputs to the valuation methodology and include our own data about assumptions market participants would use in pricing the asset or liability based on the best information available under the circumstances.

We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during the three and nine months ended September ~~29, 2018~~28, 2019 or the year ended December ~~30, 2017.~~29, 2018.

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

No changes were made to our valuation techniques during the first nine months of fiscal ~~2018.~~2019.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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


September 29, 2018	Level 1		Level 2		Total
September 28, 2019							Level 1		Level 2		Total
Assets:
Cash equivalents:
Money market funds	$	265	$	—	$	265	$	959	$	—	$	959
Commercial paper	—		999		999
Total cash equivalents	265		999		1,264
Marketable securities:
U.S. Treasuries	4,453		—		4,453
U.S. treasuries							31,832		—		31,832
Certificates of deposit	—		1,197		1,197		—		3,648		3,648
Agency securities	—		8,994		8,994
U.S. agency securities							—		3,088		3,088
Corporate bonds	—		32,186		32,186		—		33,737		33,737
Commercial paper	—		3,279		3,279		—		4,720		4,720
Total marketable securities	4,453		45,656		50,109
							31,832		45,193		77,025
Foreign exchange derivative contracts							—		93		93
Interest rate swap derivative contracts	—		951		951		—		86		86
Total assets	$	4,718	$	47,606	$	52,324	$	32,791	$	45,372	$	78,163
Liabilities:
Foreign exchange derivative contracts							$	—	$	739	$	739


December 30, 2017	Level 1		Level 2		Total
December 29, 2018							Level 1		Level 2		Total
Assets:
Cash equivalents:
Money market funds	$	1,064	$	—	$	1,064	$	1,184	$	—	$	1,184
Corporate bonds	—		774		774
Total cash equivalents	1,064		774		1,838
Marketable securities:
U.S. Treasuries	3,963		—		3,963
U.S. treasuries							7,997		—		7,997
Certificates of deposit	—		957		957		—		957		957
Agency securities	—		10,432		10,432
U.S. agency securities							—		8,608		8,608
Corporate bonds	—		30,636		30,636		—		30,674		30,674
Commercial paper	—		3,000		3,000		—		2,295		2,295
Total marketable securities	3,963		45,025		48,988
Foreign exchange derivative contracts	—		31		31
							7,997		42,534		50,531
Interest rate swap derivative contracts	—		1,043		1,043		—		871		871
Total assets	$	5,027	$	46,873	$	51,900	$	9,181	$	43,405	$	52,586

We did not have any liabilities measured at fair value on a recurring basis at ~~September~~December 29, ~~2018 or December 30, 2017.~~2018.

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

Interest Rate Swaps

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

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


	Amount of Gain or (Loss) Recognized in OCI on Derivative		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)	Amount of Gain or (Loss) Recognized in Accumulated 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)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion )
Three Months Ended September 28, 2019								$	12		Interest expense	$	113	Interest expense	$	—
Three Months Ended September 29, 2018	$	62	Interest expense	$	196		Interest expense	$	62		Interest expense	$	196	Interest expense	$	—
Three Months Ended September 30, 2017	$	18	Interest expense	$	54		Interest expense

Nine Months Ended September 28, 2019								$	(78	)	Interest expense	$	496	Interest expense	$	—
Nine Months Ended September 29, 2018	$	418	Interest expense	$	514		Interest expense	$	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, certain of our foreign currency forward contracts are not designated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded within Other income (expense), net in our Condensed Consolidated Statement of Income for both realized and unrealized gains and losses. Certain of our foreign currency forward contracts are designated as cash flow hedges, and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded as a component of accumulated other comprehensive income and reclassified into earnings in the same period in which the hedged transaction affects earnings, and in the same line item on the Condensed Consolidated Statements of Income as the impact of the hedge transaction. At September 28, 2019, we expect to reclassify $0.6 million of the amount accumulated in other comprehensive income (loss) to earnings during the next 12 months, due to the recognition in earnings of the hedged forecasted transactions.

The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange rates and forward points. All of our foreign exchange derivative contracts outstanding at September ~~29, 2018~~28, 2019 will mature inby the ~~third~~second quarter of fiscal ~~2018.~~2020.

The following table provides information about our foreign currency forward contracts outstanding as of September ~~29, 2018~~28, 2019 (in thousands):



Currency	Contract Position	Contract Amount (Local Currency)		Contract Amount (U.S. Dollars)
Euro Dollar	Buy	(924	)	$	(1,715	)
Japanese Yen	Sell	2,974,829		27,613
Korean Won	Sell	3,019,313		2,516
Total USD notional amount of outstanding foreign exchange contracts				$	28,414

Currency Contract Position Contract Amount (Local Currency) Contract Amount (U.S. Dollars)
Japanese Yen Sell (2,241,544 ) $ 19,783
Taiwan Dollar Buy 49,404
(1,626 )
Korean Won Buy 4,508,988
(4,082 )
Euro Dollar Sell (15,050 ) 17,574
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~~impact of ~~net income (loss) related to non-designated~~foreign exchange derivative ~~instruments in the~~contracts not designated as cash flow hedges on our Condensed Consolidated Statements of Income ~~were~~was as follows (in thousands):



		Amount of Gain (Loss) Recognized on Derivatives
		Three Months Ended					Nine Months Ended
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized on Derivatives	September 28, 2019			September 29, 2018		September 28, 2019		September 29, 2018
Foreign exchange forward contracts	Other income (expense), net	$	(76	)	$	706	$	198	$	923

Three Months Ended Nine Months Ended
Derivatives Not Designated as Hedging Instruments 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 $ 706
$ (556 ) $ 923
$ (2,364 )

The impact of foreign exchange derivative contracts designated as cash flow hedges on our Condensed Consolidated Statements of Income was as follows (in thousands):



	Amount of Loss Recognized in Accumulated OCI on Derivative		Location of Loss Reclassified from Accumulated OCI into Income	Amount of Loss Reclassified from Accumulated OCI into Income
Three Months Ended September 28, 2019	$	642	Cost of revenues	$	126
			Research and development	23
			Selling, general and administrative	58
				$	207

Three Months Ended September 29, 2018	$	—		$	—

Nine Months Ended September 28, 2019	$	1,096	Cost of revenues	$	297
			Research and development	42
			Selling, general and administrative	109
				$	448

Nine Months Ended September 29, 2018	$	—		$	—

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. There were no0 assets or liabilities measured at fair value on a nonrecurring basis during the three orand nine months ended September ~~29, 2018~~28, 2019 or September ~~30, 2017.~~29, 2018.

Note 8 — Warranty

We offer warranties on certain products and record a liability for the estimated future costs associated with warranty claims at the time revenue is recognized. The warranty liability is based upon historical experience and our estimate of the level of future costs. While we engage in product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service delivery ~~costs incurred in correcting a product failure.~~costs. We continuously monitor product returns for warranty and maintain a reserve for the related expenses based upon our historical experience and any specifically identified ~~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 were as follows (in thousands):



	Nine Months Ended
	September 28, 2019			September 29, 2018
Balance at beginning of period	$	2,102		$	3,662
Accruals	2,742			3,168
Settlements	(3,051		)	(4,373		)
Balance at end of period	$	1,793		$	2,457

Nine Months Ended
September 29,
2018 September 30,
2017
Balance at beginning of period $ 3,662
$ 2,972
Accruals 3,168
4,888
Settlements (4,373 ) (5,009 )
Balance at end of period $ 2,457
$ 2,851

Note 9 — 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 employee stock purchase plan and equity incentive plan. The share repurchase program will expire on February 1, 2020. Repurchased shares are retired upon the settlement of the related transactions with the excess of cost over par value charged to additional paid-in capital. All repurchases 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,~~28, 2019, we did not repurchase any shares. As of September ~~29, 2018,~~28, 2019, $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 29, 2018	3,102,226		$	12.79
Awards granted	1,487,200		15.01
Awards vested	(1,366,925	)	11.89
Awards forfeited	(130,677	)	13.35
RSUs at September 28, 2019	3,091,824		$	14.24

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~~28, 2019 was ~~$17.3~~$22.9 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,~~June 4, 2019, we granted a total of ~~318,100~~273,000 PRSUs to ~~nine~~certain senior executives for a total grant date fair value of ~~$4.7~~$4.4 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~~2019 to June 30, ~~2021,~~2022, 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.~~29, 2019.

There were no other PRSUs granted during the nine months ended September ~~29, 2018.~~28, 2019. PRSUs are included as part of the RSU activity above.

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
Outstanding at December 29, 2018	524,725		$	8.00
Options exercised	(112,956	)	6.67
Outstanding at September 28, 2019	411,769		$	8.36	2.40	$	4,167,393
Vested and expected to vest at September 28, 2019	411,769		$	8.36	2.40	$	4,167,393
Exercisable at September 28, 2019	411,769		$	8.36	2.40	$	4,167,393

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 28, 2019
Shares issued	544,271
Weighted average per share purchase price	$	12.51
Weighted average per share discount from the fair value of our common stock on the date of issuance	$	3.40

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 Income as follows (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017		September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Cost of revenues	$	832	$	894	$	2,565	$	2,540	$	1,117	$	832	$	3,031	$	2,565
Research and development	1,312		1,437		3,870		3,768		1,729		1,312		4,830		3,870
Selling, general and administrative	2,393		2,255		5,986		4,971		3,658		2,393		9,227		5,986
Total stock-based compensation	$	4,537	$	4,586	$	12,421	$	11,279	$	6,504	$	4,537	$	17,088	$	12,421

Unrecognized Compensation Costs

At September ~~29, 2018,~~28, 2019, the unrecognized stock-based compensation was as follows ~~(in~~(dollars in thousands):



	Unrecognized Expense		Average Expected Recognition Period in Years
Restricted stock units	$	27,942	2.11
Performance restricted stock units	7,597		2.17
Employee stock purchase plan	1,114		0.34
Total unrecognized stock-based compensation expense	$	36,653	2.07

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 per Share

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



	Three Months Ended		Nine Months Ended
	September 28, 2019	September 29, 2018	September 28, 2019	September 29, 2018
Weighted-average shares used in computing basic net income per share	75,280	73,837	74,749	73,273
Add potentially dilutive securities	2,011	1,125	2,014	1,355
Weighted-average shares used in computing diluted net income per share	77,291	74,962	76,763	74,628

Securities not included as they would have been antidilutive	—	5	23	21

Note 11 — Commitments and Contingencies

Contractual Commitments and Purchase Obligations

During the second quarter of 2018, we amended our lease 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 ~~29, 2018~~28, 2019 from those disclosed in our Annual Report on Form 10-K for the year ended December ~~30, 2017. Future minimum payments under our non-cancelable operating leases were as follows as of September~~ 29, ~~2018 (in thousands):~~2018.

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

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. As of September ~~29, 2018,~~28, 2019, and as of the filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings.

We lease real estate space under non-cancelable operating lease agreements for commercial and industrial space, as well as for our corporate headquarters located in Livermore, California. Our leases have remaining terms of 1 to 9 years, and some leases include options to extend up to 20 years. We also have operating leases for automobiles with remaining lease terms of 1 to 4 years. We did not include any of our renewal options in our lease terms for calculating our lease liability as the renewal options allow us to maintain operational flexibility and we are not reasonably certain we will exercise these options at this time. The weighted-average remaining lease term for our operating leases was 8 years at September 28, 2019 and the weighted-average discount rate was 4.7%.

The components of lease expense were as follows (in thousands):



	Three Months Ended				Nine Months Ended
	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Lease expense:
Operating lease expense	$	1,726	$	—	$	5,205	$	—
Short-term lease expense	53		—		101		—
Variable lease expense	252		—		920		—
	$	2,031	$	—	$	6,226	$	—

Future minimum payments under our non-cancelable operating leases were as follows as of September 28, 2019 (in thousands):



Fiscal Year	Amount
Remainder of 2019	$	1,753
2020	6,855
2021	5,984
2022	4,928
2023	4,430
Thereafter	20,403
	$	44,353

Transaction price allocated to the remaining performance obligations: On September 28, 2019, we had $4.1 million of remaining performance obligations, which were comprised of deferred service contracts and extended warranty contracts not yet delivered. We expect to recognize approximately 31% of our remaining performance obligations as revenue in the remainder of fiscal 2019, approximately 50% in fiscal 2020, and approximately 19% in fiscal 2021 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 28, 2019 and December 29, 2018 were $1.4 million and $0.3 million, respectively, and are reported on the Condensed Consolidated Balance Sheets as a component of Prepaid expenses and other current assets.

Contract liabilities include payments received in advance of performance under a contract and are satisfied as the associated revenue is recognized. Contract liabilities are reported on the Condensed Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period as a component of Deferred revenue and Other liabilities. Contract liabilities as of September 28, 2019 and December 29, 2018 were $9.3 million and $5.7 million, respectively. During the three and nine months ended September 28, 2019, we recognized $1.0 million and $3.9 million of revenue, respectively, that was included in contract liabilities as of December 29, 2018.

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 14 of Notes to Condensed Consolidated Financial Statements for further details.

Note 14 — 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~~2 reportable segments consisting of the Probe Cards segment and the Systems segment. The following table summarizes the operating results by reportable segment (dollars in thousands):

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



	Nine Months Ended
	September 28, 2019												September 29, 2018
	Probe Cards			Systems			Corporate and Other			Total			Probe Cards			Systems			Corporate and Other			Total
Revenues	$	338,187		$	72,648		$	—		$	410,835		$	318,120		$	70,668		$	—		$	388,788
Gross profit	$	141,913		$	38,703		$	(17,425	)	$	163,191		$	138,182		$	34,118		$	(17,983	)	$	154,317
Gross margin	42.0		%	53.3		%	—		%	39.7		%	43.4		%	48.3		%	—		%	39.7		%

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, ~~acquisition-related costs, including~~and restructuring charges, ~~related to inventory stepped up to fair value and other~~

~~costs,~~net, 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):

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

Note 15 — Subsequent Events

Acquisition of FRT GmbH

On October 9, 2019, subsequent to the balance sheet date, we acquired 100.0% of the shares of FRT GmbH, a Germany based company, for total consideration of €19.7 million subject to normal working capital adjustments. Up to €10.3 million of additional cash consideration may be payable subject to the performance of the acquired business in 2020. This acquisition strengthens our leadership in test and measurement by expanding our addressable market into 3D surface metrology and extending the optical applications scope of our existing Systems segment.

The transaction will be accounted for in accordance with the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date including acquired in-process research and development assets. Due to the limited time since the acquisition date, the initial purchase allocation for the business combination is incomplete at this time. Disclosures regarding amounts recognized for major classes of assets acquired and liabilities assumed will be provided once the initial accounting is completed. The acquired subsidiary is not expected to be material to the Company’s operations and overall financial position.

We expensed $0.2 million of costs relating to legal, financial and due diligence services performed in connection with this transaction, which are included in Selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Income for the three and nine months ended September 28, 2019.

Credit Facility Agreement

On October 25, 2019, FormFactor GmbH and ATT Advanced Temperature Test Systems GmbH, our wholly owned subsidiaries, entered into a credit facility agreement (the "Credit Facility Agreement") with HSBC Trinkaus & Burkhardt AG. The Credit Facility Agreement provides for a three-year loan in the amount of €21.0 million (the "Credit Facility"). The Credit Facility bears interest at a rate equal to the Euro Interbank Offered Rate ("EURIBOR") plus 1.75% per annum. The Credit Facility will be repaid in quarterly installments of €1.75 million plus interest beginning January 25, 2020.

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 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 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 ~~30, 2017~~29, 2018 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.~~technologies. We provide a broad range of high-performance probe cards, analytical probes, probe stations and thermal sub-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 research, to development tothrough production. Customers use our products and services to lower production costs, improve yields, and enable development of their complex next-generation ~~devices.~~products.

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

We generated net income of $20.7 million in the first nine months of fiscal 2019 as compared to $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.~~2018. The ~~decrease~~increase in net income was primarily due to ~~decreased revenue from our Probe Cards segment~~higher revenues, partially offset by higher operating expenses and ~~increased operating expenses.~~a higher effective income tax rate.

Critical Accounting Policies and the Use of Estimates

Management’s Discussion and Analysis and Note 2 to the Consolidated Financial Statements in our ~~2017~~2018 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 ~~29, 2018, other than the adoption of new revenue recognition guidance as described in Note 1,~~28, 2019, 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 ~~30, 2017,~~29, 2018, which was filed with the Securities and Exchange Commission on February ~~27, 2018.~~26, 2019.

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 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017		September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Revenues	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenues	60.8		59.9		60.3		59.9		60.7		60.8		60.3		60.3
Gross profit	39.2		40.1		39.7		40.1		39.3		39.2		39.7		39.7
Operating expenses:
Research and development	14.0		13.5		14.6		13.3		14.3		14.0		14.6		14.6
Selling, general and administrative	18.3		16.7		18.9		16.9		18.4		18.3		18.8		18.9
Restructuring	—		—		—		0.1
Total operating expenses	32.3		30.2		33.5		30.3		32.7		32.3		33.4		33.5
Operating income	6.9		9.9		6.2		9.8		6.6		6.9		6.3		6.2
Interest income	0.3		0.1		0.2		0.1		0.5		0.3		0.5		0.2
Interest expense	(0.6	)	(0.8	)	(0.7	)	(0.8	)	(0.3	)	(0.6	)	(0.4	)	(0.7	)
Other income (expense), net	0.2		0.2		(0.2	)	—		0.2		0.1		0.1		(0.2	)
Income before income taxes	6.7		9.6		5.5		9.1		7.0		6.7		6.5		5.5
Provision for income taxes	1.1		0.7		0.9		0.6		1.1		1.0		1.5		0.9
Net income	5.7	%	8.8	%	4.6	%	8.6	%	5.9	%	5.7	%	5.0	%	4.6	%

Revenues by Segment and Market


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017		September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
	(In thousands)								(In thousands)
Probe Cards	$	111,606	$	119,439	$	318,120	$	347,559	$	116,447	$	111,606	$	338,187	$	318,120
Systems	23,383		24,296		70,668		68,981		24,157		23,383		72,648		70,668
	$	134,989	$	143,735	$	388,788	$	416,540	$	140,604	$	134,989	$	410,835	$	388,788

The ~~decreases~~increases in Foundry & Logic product revenue for the three ~~and~~months ended September 28, 2019, compared to the three months ended September 29, 2018, was driven by market penetration with a large semiconductor foundry. The increase in Foundry & Logic product revenue for the nine months ended September 28, 2019, compared to the nine months ended September 29, 2018, ~~compared to the three and nine months ended September 30, 2017, were~~was primarily the result of lower demand in the prior year from one major ~~customer.~~customer as a result of delays in its node transitions. This major customer accounted for ~~24.5% and 18.0%, respectively,~~23.8% of total revenues for the ~~three and~~nine months ended September 28, 2019, compared to 18.0% for the nine months ended September 29, ~~2018, compared to 30.6% and 27.4%, respectively, for the comparable periods of 2017.~~2018.

The ~~increases~~decreases in ~~DRAM and~~ Flash product revenue for the three and nine months ended September ~~29, 2018,~~28, 2019, compared to the three and nine months ended September ~~30, 2017,~~29, 2018, were driven by ~~increased~~decreased unit sales as a result of ~~increased design wins and~~decreased customer demand.

The ~~decrease~~increases in Systems product revenue for the three and nine months ended September ~~29, 2018,~~28, 2019, compared to the three ~~months ended September 30, 2017, was driven by decreased unit sales of thermal sub-systems due to customer demand. The increase in Systems product revenue for the~~and nine months ended September 29, 2018, ~~compared to the nine months ended September 30, 2017, was~~were driven by increased ~~unit~~ sales of ~~thermal sub-systems due to increased customer demand,~~probe stations, which includes a new 200mm platform, partially offset by lower revenue from ~~probe stations due to changes in product sales mix which decreased the average selling price of units sold.~~thermal sub-systems.

Revenues by Geographic Region

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

Geographic revenue information is based on the location to which we ship the product. For example, if a certain South Korean customer purchases through their U.S. subsidiary and requests the products to be shipped to an address in South Korea, this sale will be reflected in the revenue for South Korea rather than the U.S.

Changes in revenue by geographic region for the three and nine months ended September ~~29, 2018~~28, 2019, compared to the three and nine months ended September ~~30, 2017~~29, 2018, were primarily attributable to changes in customer demand, shifts in customer regional manufacturing strategies, and product sales mix. The most significant change in revenue by geographic region for the three and nine months ended September 28, 2019, compared to the three and nine months ended September 29, 2018 was within China, which was attributable to shifts in customer regional manufacturing strategies with large multinationals.

Cost of Revenues and Gross Margins

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

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

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

For the three and nine months ended September 28, 2019, gross profit increased compared to the three and nine months ended September 29, 2018, ~~gross profit in the Probe Cards segment decreased~~primarily due to ~~decreased sales.~~increased sales and higher factory utilization, offset by less favorable product mix. Gross margins decreased due to ~~fluctuations in~~less favorable product ~~mix and factory utilization.~~mix.

For the three and nine months ended September ~~29, 2018,~~28, 2019, gross profit and gross margin inincreased compared to the ~~Systems segment decreased~~three and nine months ended September 29, 2018, due to ~~changes in~~increased sales and a favorable product ~~sales mix~~mix.

Corporate 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~~and restructuring charges, ~~related to inventory stepped up to fair value, and other costs,~~net, which are not used in evaluating the results of, or in allocating resources to, our reportable segments.

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 ~~29, 2018,~~28, 2019, compared to the three and nine months ended September ~~30, 2017,~~29, 2018, gross profit ~~decreased~~increased due to ~~lower revenue, and~~increased sales while gross margins ~~decreased due to unfavorable~~remained relatively consistent with fluctuations in product mix and ~~lower~~ factory ~~utilization, as well as changes in foreign currency exchange rates, partially offset by lower amortization.~~utilizations.

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

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



	Three Months Ended				Nine Months Ended
	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Stock-based compensation	$	1,117	$	832	$	3,031	$	2,565

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 that are below ~~cost.~~cost or because of a decrease in demand.

Research and Development

The ~~decrease~~increases in research and development expenses in the three ~~months ended September 29, 2018 when compared to corresponding period in prior year was primarily driven by a decrease in employee incentive compensation. The increase in the~~and nine months ended September ~~29, 2018~~28, 2019 when compared to the corresponding ~~period~~periods in the prior year ~~was~~were primarily ~~due to an increase in project material costs to support research~~driven by annual compensation and ~~development within our Probe Cards segment,~~benefit adjustments, 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.~~project material costs.

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

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

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



	Three Months Ended				Nine Months Ended
	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Stock-based compensation	$	1,729	$	1,312	$	4,830	$	3,870

Selling, General and Administrative

The increases in selling, general and administrative in the three and nine months ended September ~~29, 2018~~28, 2019 when compared to the corresponding periods in the prior year were primarily due to ~~increases in consulting fees~~higher stock-based compensation related to ~~information systems implementation~~the timing of annual grants, annual compensation and ~~stock-based compensation,~~benefit adjustments, and headcount, offset partially by a decrease in the amortization of intangible assets. The increase for the nine months ended September 28, 2019 when compared to the corresponding period in the prior year was offset partially by a reduction in ~~employee incentive compensation due to decreased profitability from lower revenues.~~ consulting fees.

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

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

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



	Three Months Ended				Nine Months Ended
	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Stock-based compensation	$	3,658	$	2,393	$	9,227	$	5,986

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 were related to the consolidation of Cascade Microtech into our operations and included costs related to employee termination benefits and contract termination costs.

Interest Income and Interest Expense

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

Interest expense $ (777 ) $ (1,109 ) $ (2,654 ) $ (3,446 )
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 %



	Three Months Ended						Nine Months Ended
	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
	(Dollars in thousands)
Interest Income	$	724		$	369		$	1,988		$	952
Weighted average balance of cash and investments	$	193,092		$	134,516		$	173,975		$	136,986
Weighted average yield on cash and investments	2.02		%	1.50		%	2.07		%	1.46		%

Interest Expense	$	422		$	777		$	1,539		$	2,654
Average debt outstanding	$	46,250		$	84,725		$	56,113		$	96,003
Weighted average interest rate on debt	4.26		%	4.09		%	4.42		%	3.88		%

Interest income is earned on our cash, cash equivalents, restricted cash and marketable securities. The increases in interest income for the three and nine months ended September ~~29, 2018~~28, 2019 compared with the corresponding periods of the prior year were attributable to higher investment yields, as well as higher average investment balances.

Interest expense primarily includes interest on our term loan and interest-rate swap derivative contracts, as well as term loan issuance costs amortization charges. The decreases in interest expense for the three and nine months ended September ~~29, 2018~~28, 2019 compared to the ~~three and nine months ended September 30, 2017~~same periods of the prior year were primarily due to lower outstanding debt balances as a result of principal payments made, partially offset by higher interest 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

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~~the U.S. and excess tax benefits from share based compensation plans. In the fourth quarter of fiscal 2018, we released our valuation allowance against ~~our~~certain U.S. ~~Federal and State~~ deferred tax ~~assets. The change~~assets as sufficient positive evidence existed to support the realization of such deferred tax assets, resulting in ~~provision for income taxes was driven by higher profits~~an increase in ~~foreign jurisdictions~~our effective tax rate for the three and nine months ended September ~~29, 2018,~~28, 2019 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

Our working capital was ~~$224.3~~$247.9 million at September ~~29, 2018, which did not change significantly~~28, 2019, compared to ~~$213.7~~$235.3 million at December ~~30, 2017.~~29, 2018.

Cash and cash equivalents primarily consist of deposits held at banks and money market ~~funds and commercial paper.~~funds. Marketable securities primarily consist of U.S. treasuries, U.S. agency securities and corporate bonds. We typically invest in highly-rated securities with low probabilities of default. Our investment policy requires investments to be rated single A or better, and limits the types of acceptable investments, issuer concentration and duration of the investment.

Our cash, cash equivalents and marketable securities totaled approximately ~~$142.1~~$200.0 million at September ~~29, 2018,~~28, 2019, compared to ~~$140.2~~$149.0 million at December ~~30, 2017.~~29, 2018. We believe that we will be able to satisfy our working capital requirements and scheduled term loan repayments for at least the next twelve months with the liquidity provided by our existing cash, cash equivalents, marketable securities and cash provided by operations. To the extent necessary, we may consider entering into short and ~~long-term~~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.

After the third quarter ended September 28, 2019, we entered into a loan agreement for €21.0 million; see Note 15 of Notes to Condensed Consolidated Financial Statements for additional information.

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 ~~2018.~~2019.

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 portion of our ~~foreign 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.

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

Operating Activities

Net cash provided by operating activities for the nine months ended September ~~29, 2018~~28, 2019 was primarily attributable to net income of ~~$18.9~~$20.7 million and ~~$53.3~~$62.1 million of net non-cash expenses, offset by changes in operating assets and ~~liabilities using $26.1 million of cash as discussed in more detail below.~~liabilities.

Accounts receivable, net, ~~increased $7.4~~decreased $10.6 million to ~~$88.9~~$84.8 million at September ~~29, 2018,~~28, 2019, compared to ~~$81.5~~$95.3 million at December ~~30, 2017,~~29, 2018, as a result of changes in customer sales mix, timing of customer shipments and timing of customer ~~shipments.~~payments.

Inventories, net, increased ~~$13.7~~$8.3 million to ~~$81.5~~$86.0 million at September ~~29, 2018,~~28, 2019, compared to ~~$67.8~~$77.7 million at December ~~30, 2017,~~29, 2018, as a result of increased inventory purchases to shorten lead time and improve pricing, and ~~in anticipation~~timing of customer demand.

Prepaid expenses and other current assets increased $2.0 million to $15.7 million at September 29, 2018, compared to $13.7 million at December 30, 2017, as a result of increases in unrealized gains on hedging and forward contracts, prepaid insurance and other services, and short-term deposits.

Accounts payable increased ~~$14.6~~$11.0 million to ~~$49.7~~$51.0 million at September ~~29, 2018,~~28, 2019, compared to ~~$35.0~~$40.0 million at December ~~30, 2017, as a result of 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.~~vendor payments.

Investing Activities

Net cash used in investing activities for the nine months ended September ~~29, 2018~~28, 2019 was primarily related to ~~$12.3~~$25.9 million of net purchases of marketable securities, as well as $14.2 million of cash used in the acquisition of property, plant and ~~equipment, as well as $1.2 million of net purchases of marketable securities.~~equipment.

Financing Activities

Net cash used in financing activities for the nine months ended September ~~29, 2018~~28, 2019 primarily related to ~~$33.8~~$18.8 million of principal payments made towards the repayment of our term loan and ~~$5.7~~$7.9 million related to tax withholdings associated with the net share settlements of our equity awards, partially offset by $7.7 million of proceeds received from issuances of common stock under our employee stock purchase plan and ~~exercise of~~ stock ~~options.~~option plans.

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 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~~28, 2019, the notional amount of the loan that is subject to this interest rate swap is ~~$60.0~~$33.8 million. See Note 7 of Notes to Condensed Consolidated Financial Statements for additional information.

The Term Loan amortizes in equal quarterly installments, which began June 30, 2016, in annual 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,~~28, 2019, 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,~~28, 2019, we ~~made~~did not make any prepayments ~~of $5.0 million and $15.0 million, respectively,~~ in addition to scheduled installments. We expect the scheduled installments per the Credit Agreement to pay the remaining debt in the next 12 months.

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 ~~29, 2018,~~28, 2019, the balance outstanding pursuant to the Term Loan was ~~$72.5~~$46.3 million at an interest rate of ~~4.25%~~4.1% and we were in compliance with all covenants under the Credit Agreement.

On October 25, 2019, FormFactor GmbH and ATT Advanced Temperature Test Systems GmbH, our wholly owned subsidiaries, entered into a credit facility agreement (the "Credit Facility Agreement") with HSBC Trinkaus & Burkhardt AG. The Credit Facility Agreement provides for a three-year loan in the amount of €21.0 million (the "credit facility"). The credit facility bears interest at a rate equal to the Euro Interbank Offered Rate ("EURIBOR") plus 1.75% per annum. The credit facility will be repaid in quarterly installments of €1.75 million plus interest beginning January 25, 2020.

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 ~~29, 2018,~~28, 2019, we did not repurchase any shares of common ~~stock. As~~stock and, as of September ~~29, 2018,~~28, 2019, $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

Other than our operating lease commitments as disclosed in Note 1112 of Notes to Condensed Consolidated Financial Statements, our contractual obligations and commitments have not materially changed as of September ~~29, 2018~~28, 2019 from those disclosed in our Annual Report on Form 10-K for the year ended December ~~30, 2017.~~29, 2018.

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 ~~29, 2018,~~28, 2019, 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 ~~30, 2017.~~29, 2018. Our exposure to market risk has not changed materially since December ~~30, 2017.~~29, 2018.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

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

Limitations on the Effectiveness of Controls

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

CEO and CFO Certifications

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

PART II - OTHER INFORMATION

Item 1A. Risk Factors

There have been no material changes during the nine months ended September ~~29, 2018~~28, 2019 to the risk factors discussed in our Annual Report on Form 10-K for the year ended December ~~30, 2017.~~29, 2018. 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 ~~30, 2017~~29, 2018 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 6. Exhibits

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

Exhibit

Incorporated by Reference

Filed

Incorporated by Reference

Filed

Number

Exhibit Description

Form

Date

Number

Herewith

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

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

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

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

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

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

______________________________________

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 ~~6, 2018~~5, 2019	By:	/s/ SHAI SHAHAR

			Shai Shahar
			Chief Financial Officer
			(Duly Authorized Officer, Principal Financial Officer, and Principal Accounting Officer)

3632



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



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Emerging ~~growth company~~ o Growth Company	☐

FORMFACTOR, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER ~~29, 2018~~28, 2019 INDEX

Part I.	Financial Information

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets as of September ~~29, 2018~~28, 2019 and December ~~30, 2017~~29, 2018	3

	Condensed Consolidated Statements of Income for the three and nine months ended September ~~29, 2018~~28, 2019 and September ~~30, 2017~~29, 2018	4

	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September ~~29, 2018~~28, 2019 and September ~~30, 2017~~29, 2018	5

	Condensed Consolidated Statement of Stockholders' Equity for the three and nine months ended September ~~29, 2018~~28, 2019 and September ~~30, 2017~~29, 2018	6

	Condensed Consolidated Statements of Cash Flows for the nine months ended September ~~29, 2018~~28, 2019 and September ~~30, 2017~~29, 2018	7

	Notes to Condensed Consolidated Financial Statements	8

	~~Notes to Condensed Consolidated Financial Statements~~Item 2.	9

~~Item 2.~~	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2321

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3330

Item 4.	Controls and Procedures	3430

Part II.	Other Information	3531

Item 1A.	Risk Factors	3531

Item 6.	Exhibits	3531

Signatures		3632


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


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



	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



	September 29, 2018		December 30, 2017
Raw materials	$	44,793	$	33,101
Work-in-progress	21,922		20,134
Finished goods	14,823		14,613
	$	81,538	$	67,848



Fiscal Year	Amount
Remainder of 2018	$	7,509
2019	26,432
2020	23,421
2021	12,655
2022	3,215
Thereafter	2,046
	$	75,278



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



	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


	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
							Three Months Ended September 28, 2019 compared to Three Months Ended September 29, 2018			Nine Months Ended September 28, 2019 compared to Nine Months Ended September 29, 2018
Employee compensation costs	$	(688	)	$	(627	)	$	1.1		$	2.5
Stock-based compensation	(125		)	102			0.4			1.0
Project material costs	153			1,104			(0.6		)	(1.1		)
Depreciation	85			287			0.1			0.4
Other general operations	94			418			0.2			0.5
	$	(481	)	$	1,284		$	1.2		$	3.3

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.001 par value

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