SECURITIES AND EXCHANGECOMMISSION

Securities registered pursuant to Section12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.001 par value

FORM

Nasdaq Global Market

______________________________________

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

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

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

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 May ~~1, 2019, 74,581,339~~4, 2020, 76,161,842 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 28, 2020

~~FORMFACTOR, INC.~~Part I.

~~FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 30, 2019~~Financial Information

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

FORMFACTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
March 30,
2019 December 29, 2018
ASSETS

Current assets:

Cash and cash equivalents $ 105,759
$ 98,472
Marketable securities 54,086
50,531
Accounts receivable, net of allowance for doubtful accounts of $185 and $185 81,492
95,333
Inventories, net 83,216
77,706
Restricted cash 824
849
Refundable income taxes 1,261
1,260
Prepaid expenses and other current assets 11,747
13,669
Total current assets 338,385
337,820
Restricted cash 1,130
1,225
Operating lease, right-of-use-assets 34,397
—
Property, plant and equipment, net of accumulated depreciation of $266,274 and $263,102 54,697
54,054
Goodwill 188,925
189,214
Intangibles, net 60,385
67,640
Deferred tax assets 77,293
77,301
Other assets 1,409
968
Total assets $ 756,621
$ 728,222

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable $ 31,555
$ 40,006
Accrued liabilities 22,559
27,731
Current portion of term loan, net of unamortized issuance cost of $128 and $160 33,622
29,840
Deferred revenue 6,885
4,941
Operating lease liabilities 6,022
—
Total current liabilities 100,643
102,518
Term loan, less current portion, net of unamortized issuance cost of $10 and $29 23,740
34,971
Deferred tax liabilities 2,306
2,355
Long-term operating lease liabilities 32,239
—
Other liabilities 4,705
8,214
Total liabilities 163,633
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; 74,488,498 and 74,139,712 shares issued and outstanding 74
74
Additional paid-in capital 871,617
862,897
Accumulated other comprehensive income (loss) (599 ) 780
Accumulated deficit (278,104 ) (283,587 )
Total stockholders’ equity 592,988
580,164
Total liabilities and stockholders’ equity $ 756,621
$ 728,222
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)


	March 28, 2020		December 28, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	169,607	$	144,545
Marketable securities	69,759		76,327
Accounts receivable, net of allowance for doubtful accounts of $222 and $222	90,100		97,868
Inventories, net	78,983		83,258
Restricted cash	2,107		1,981

Prepaid expenses and other current assets	15,699		15,064
Total current assets	426,255		419,043
Restricted cash	1,361		1,411
Operating lease, right-of-use-assets	36,212		31,420
Property, plant and equipment, net of accumulated depreciation of $277,017 and $273,001	63,745		58,747
Goodwill	200,378		199,196
Intangibles, net	50,139		57,610
Deferred tax assets	70,273		71,252
Other assets	1,016		1,203
Total assets	$	849,379	$	839,882

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	40,139	$	40,914
Accrued liabilities	29,175		36,439
Current portion of term loans, net of unamortized issuance costs	31,535		42,846

Deferred revenue	9,830		9,810
Operating lease liabilities	6,815		6,551
Total current liabilities	117,494		136,560
Term loan, less current portion, net of unamortized issuance costs	13,642		15,639

Deferred tax liabilities	6,095		6,986
Long-term operating lease liabilities	34,028		29,088
Other liabilities	11,703		10,612
Total liabilities	182,962		198,885

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; 76,158,251 and 75,764,990 shares issued and outstanding	77		76
Additional paid-in capital	895,600		885,821
Accumulated other comprehensive loss	(909)		(659)
Accumulated deficit	(228,351)		(244,241)
Total stockholders’ equity	666,417		640,997
Total liabilities and stockholders’ equity	$	849,379	$	839,882

FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 30,
2019 March 31,
2018
Revenues $ 132,213
$ 118,290
Cost of revenues 79,692
73,161
Gross profit 52,521
45,129
Operating expenses:

Research and development 19,723
18,046
Selling, general and administrative 25,184
23,449
Total operating expenses 44,907
41,495
Operating income 7,614
3,634
Interest income 580
257
Interest expense (595 ) (967 )
Other expense, net (84 ) (512 )
Income before income taxes 7,515
2,412
Provision for income taxes 2,032
287
Net income $ 5,483
$ 2,125
Net income per share:
Basic $ 0.07
$ 0.03
Diluted $ 0.07
$ 0.03
Weighted-average number of shares used in per share calculations:
Basic 74,362
72,826
Diluted 76,009
74,342

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)


	Three Months Ended
	March 28, 2020		March 30, 2019
Revenues	$	160,753	$	132,213
Cost of revenues	93,363		79,692
Gross profit	67,390		52,521
Operating expenses:
Research and development	21,267		19,723
Selling, general and administrative	27,693		25,184
Total operating expenses	48,960		44,907
Operating income	18,430		7,614
Interest income	685		580
Interest expense	(318)		(595)
Other expense, net	(91)		(84)
Income before income taxes	18,706		7,515
Provision for income taxes	2,816		2,032
Net income	$	15,890	$	5,483
Net income per share:
Basic	$	0.21	$	0.07
Diluted	$	0.20	$	0.07
Weighted-average number of shares used in per share calculations:
Basic	76,005		74,362
Diluted	78,510		76,009

FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months Ended
March 30,
2019 March 31,
2018
Net income $ 5,483
$ 2,125
Other comprehensive income (loss), net of tax:
Translation adjustments and other (917 ) 2,166
Unrealized gains (losses) on available-for-sale marketable securities 151
(174 )
Unrealized gains (losses) on derivative instruments (613 ) 172
Other comprehensive income (loss), net of tax (1,379 ) 2,164
Comprehensive income $ 4,104
$ 4,289

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended
	March 28, 2020		March 30, 2019
Net income	$	15,890	$	5,483
Other comprehensive loss, net of tax:
Translation adjustments and other	(399)		(917)
Unrealized gains (losses) on available-for-sale marketable securities	(27)		151
Unrealized gains (losses) on derivative instruments	176		(613)
Other comprehensive loss, net of tax	(250)		(1,379)
Comprehensive income	$	15,640	$	4,104

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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


	Shares	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total
	Three Months Ended March 28, 2020
Balances, December 28, 2019	75,764,990	$	76	$	885,821	$	(659)	$	(244,241)	$	640,997
Issuance of common stock under the Employee Stock Purchase Plan	311,591	—		4,066		—		—		4,066
Issuance of common stock pursuant to exercise of options	55,769	1		446		—		—		447
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	25,901	—		(385)		—		—		(385)

Stock-based compensation	—	—		5,652		—		—		5,652
Other comprehensive loss	—	—		—		(250)		—		(250)
Net income	—	—		—		—		15,890		15,890
Balances, March 28, 2020	76,158,251	$	77	$	895,600	$	(909)	$	(228,351)	$	666,417

Shares Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated Deficit Total
Three Months Ended March 30, 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 301,497
—
3,670
—
—
3,670
Issuance of common stock pursuant to exercise of options for cash 19,207
—
90
—
—
90
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 28,082
—
(302 ) —
—
(302 )
Stock-based compensation —
—
5,262
—
—
5,262
Other comprehensive loss —
—
—
(1,379 ) —
(1,379 )
Net income —
—
—
—
5,483
5,483
Balances, March 30, 2019 74,488,498
$ 74
$ 871,617
$ (599 ) $ (278,104 ) $ 592,988


	Shares	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total
	Three Months Ended March 30, 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	301,497	—		3,670		—		—		3,670
Issuance of common stock pursuant to exercise of options for cash	19,207	—		90		—		—		90
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	28,082	—		(302)		—		—		(302)

Stock-based compensation	—	—		5,262		—		—		5,262

Other comprehensive loss	—	—		—		(1,379)		—		(1,379)
Net income	—	—		—		—		5,483		5,483
Balances, March 30, 2019	74,488,498	$	74	$	871,617	$	(599)	$	(278,104)	$	592,988

Three Months Ended March 31, 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 341,670
1
3,704
—
—
3,705
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 34,386
—
(357 ) —
—
(357 )
Stock-based compensation —
—
3,737
—
—
3,737
Adoption of ASU 2017-12 —
—
—
—
(50 ) (50 )
Other comprehensive income —
—
—
2,164
—
2,164
Net income —
—
—
—
2,125
2,125
Balances, March 31, 2018 73,013,842
$ 74
$ 851,249
$ 5,185
$ (385,498 ) $ 471,010

FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 30, 2019 March 31, 2018
Cash flows from operating activities:

Net income $ 5,483
$ 2,125
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 3,947
3,525
Amortization 7,090
7,194
Amortization (accretion) of discount on investments (71 ) 23
Amortization of operating lease, right-of-use assets 1,277
—
Stock-based compensation expense 5,295
3,756
Amortization of debt issuance costs 51
123
Deferred income tax provision —
59
Provision for excess and obsolete inventories 2,725
2,045
Loss on disposal of long-lived assets 118
15
Loss on derivative instruments 59
—
Foreign currency transaction losses (gains) 121
(561 )
Changes in assets and liabilities:
Accounts receivable 13,805
3,354
Inventories (8,658 ) (7,408 )
Prepaid expenses and other current assets 2,167
(247 )
Refundable income taxes (1 ) (52 )
Other assets (564 ) 662
Accounts payable (7,148 ) 2,988
Accrued liabilities (6,275 ) (9,521 )
Income tax payable 943
(829 )
Other liabilities 33
2,515
Deferred revenues 1,931
(444 )
Operating lease liabilities (1,690 ) —
Net cash provided by operating activities 20,638
9,322
Cash flows from investing activities:

Acquisition of property, plant and equipment (6,028 ) (3,831 )
Proceeds from sale of a subsidiary 28
20
Purchases of marketable securities (12,382 ) (3,587 )
Proceeds from maturities of marketable securities 9,050
4,007
Net cash used in investing activities (9,332 ) (3,391 )
Cash flows from financing activities:

Proceeds from issuances of common stock 3,870
4,754
Tax withholdings related to net share settlements of equity awards (302 ) (357 )
Principal repayments on term loan (7,500 ) (8,750 )
Net cash used in financing activities (3,932 ) (4,353 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash (207 ) 1,078
Net increase in cash, cash equivalents and restricted cash 7,167
2,656
Cash, cash equivalents and restricted cash, beginning of period 100,546
92,726
Cash, cash equivalents and restricted cash, end of period $ 107,713
$ 95,382
Non-cash investing and financing activities:

Change in accounts payable and accrued liabilities related to property, plant and equipment purchases $ (1,253 ) $ 601
Operating lease, right-of-use assets obtained in exchange for lease obligations 35,713
—
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net $ 1,082
$ 771
Cash paid for interest 302
826

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended
	March 28, 2020		March 30, 2019
Cash flows from operating activities:
Net income	$	15,890	$	5,483
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	4,561		3,947
Amortization	7,263		7,090
Accretion of discount on investments	(28)		(71)
Reduction in the carrying amount of right-of-use assets	1,511		1,277
Stock-based compensation expense	5,623		5,295
Amortization of debt issuance costs	19		51
Deferred income tax benefit	(198)		—
Provision for excess and obsolete inventories	3,287		2,725
Loss on disposal of long-lived assets	204		118

Loss on derivative instruments	676		59
Foreign currency transaction (losses) gains	(266)		121
Changes in assets and liabilities:
Accounts receivable	7,803		13,805
Inventories	928		(8,658)
Prepaid expenses and other current assets	(240)		2,167

Other assets	194		(564)
Accounts payable	763		(7,148)
Accrued liabilities	(6,970)		(6,275)

Other liabilities	33		32
Deferred revenues	(123)		1,931
Operating lease liabilities	(1,591)		(1,690)

Net cash provided by operating activities	39,339		20,638
Cash flows from investing activities:
Acquisition of property, plant and equipment	(12,050)		(6,028)
Proceeds from sale of a subsidiary	40		28

Purchases of marketable securities	(16,441)		(12,382)
Proceeds from maturities and sales of marketable securities	23,009		9,050

Net cash used in investing activities	(5,442)		(9,332)
Cash flows from financing activities:
Proceeds from issuances of common stock	4,513		3,870

Tax withholdings related to net share settlements of equity awards	(385)		(302)

Principal repayments on term loans	(13,199)		(7,500)

Net cash used in financing activities	(9,071)		(3,932)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	312		(207)
Net increase in cash, cash equivalents and restricted cash	25,138		7,167
Cash, cash equivalents and restricted cash, beginning of period	147,937		100,546
Cash, cash equivalents and restricted cash, end of period	$	173,075	$	107,713
Non-cash investing and financing activities:



Change in accounts payable and accrued liabilities related to property, plant and equipment purchases	$	2,116	$	(1,253)
Operating lease, right-of-use assets obtained in exchange for lease obligations	6,307		35,713
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net	$	2,419	$	1,082
Cash paid for interest	291		302

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.~~Commission ("SEC"). However, such information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial information as of December ~~29, 2018~~28, 2019 is derived from our ~~2018~~2019 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 ~~2018~~2019 Annual Report on Form ~~10-K.~~10-K filed with the SEC on February 21, 2020. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

We operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December. Fiscal ~~2019~~2020 and ~~2018~~2019 each contain 52 weeks and the three months ended March ~~30, 2019~~28, 2020 and March ~~31, 2018~~30, 2019 each contained 13 weeks. Fiscal ~~2019~~2020 will end on December ~~28, 2019.~~26, 2020.

~~Reclassifications~~

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

Critical Accounting Policies

Our critical accounting policies have not changed during the three months ended March ~~30, 2019~~28, 2020 from those disclosed in our Annual Report on Form 10-K for the year ended December ~~29, 2018.~~28, 2019.

New Accounting Pronouncements

In ~~August 2018,~~June 2016, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, "Measurement of Credit Losses on Financial Instruments (Topic 326)." The provisions of this standard require financial assets measured at amortized cost to be presented at the net amount expected to be collected. An allowance account would be established to present the net carrying value at the amount expected to be collected. ASU 2016-13 also provides that credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. The guidance was amended through various ASU's subsequent to ASU 2016-13, all of which was effective for us beginning fiscal 2020. We adopted ASU 2016-13 on a prospective basis on December 29, 2019, the first day of fiscal 2020. The adoption did not have a material effect on our financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU 2018-15, "~~Intangibles-Goodwill~~"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." The new guidance clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018-15 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019. We adopted ASU 2018-15 on a prospective basis on December 29, 2019, the first day of fiscal 2020. The adoption did not have a material effect on our financial position, results of operations or cash flows.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740),” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is ~~permitted. ASU 2018-15 should~~permitted, including adoption in any interim period for which financial statements have not yet been issued. Depending on the amendment, adoption may be applied ~~either retrospectively~~on the retrospective, modified retrospective or ~~prospectively to all implementation costs incurred after the date of adoption.~~prospective basis. We have not yet determined the impact of this standard on our financial ~~statements.~~position, results of operations or cash flows.

~~ASU 2016-02, ASU 2018-10, ASU 2018-11 and ASU 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 requires enhanced disclosures about our leasing arrangements. We adopted Topic 842 and all related amendments on December 30, 2018, the first day of fiscal 2019, using the modified transition 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. 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 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 practical expedient to not separate lease and non-lease components for all our leases. The adoption of the lease standard did not have any effect on our previously reported Condensed

~~Consolidated Statements of Operations and did not result in a cumulative catch-up adjustment to 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					Three Months Ended
	March 30, 2019		March 31, 2018			March 28, 2020		March 30, 2019
Intel Corporation	21.3	%	14.0	%	Intel Corporation	36.2	%	21.3	%
SK Hynix Inc.	*		10.1

Samsung Electronics., LTD.	13.8		*		Samsung Electronics., LTD.	*		13.8
	35.1	%	24.1	%
						36.2	%	35.1	%

*Represents less than 10% of total revenues.

At March ~~30, 2019,~~28, 2020, two customers accounted for ~~16.7%~~27.7% and ~~10.7%~~15.3% of gross accounts receivable, respectively. At December ~~29, 2018, two~~28, 2019, three customers accounted for ~~27.8%~~25.7%, 15.1% and ~~13.0%~~11.5% of gross accounts receivable, respectively.

Note 3 — Inventories, net

Inventories are stated at the lower of cost (principally standard cost, which approximates actual cost on a first in, first out basis) or net realizable value.

Inventories, net, consisted of the following (in thousands):


	March 28, 2020		December 28, 2019
Raw materials	$	36,468	$	38,528
Work-in-progress	27,927		29,720
Finished goods	14,588		15,010
	$	78,983	$	83,258

March 30,
2019 December 29,
2018
Raw materials $ 44,627
$ 43,380
Work-in-progress 22,356
20,431
Finished goods 16,233
13,895
$ 83,216
$ 77,706

On October 9, 2019, we acquired 100% of the shares of FRT GmbH ("FRT"), a German-based company, for total consideration of $26.9 million, net of cash acquired of $1.7 million. The fair value of the purchase consideration was comprised of a $22.2 million cash payment and $6.5 million of contingent consideration.

We estimated the acquisition price and the allocation of fair value to assets acquired and liabilities assumed as of the acquisition date, October 9, 2019. We subsequently made certain immaterial adjustments to the acquisition price allocation related to acquired assets and assumed liabilities, including to intangibles assets. Our purchase accounting remains open at March 28, 2020, subject to finalization of the fair value of certain acquired assets and liabilities. The estimated fair value of assets acquired, including goodwill and intangibles, and liabilities assumed is as follows (in thousands):


	Amount
Cash and cash equivalents	$	1,683
Accounts receivable	3,057
Inventory	2,643
Property, plant and equipment	696
Operating lease, right of use assets	335
Prepaid expenses and other current assets	838
Tangible assets acquired	9,252
Customer deposits	(2,093)
Accounts payable and accrued liabilities	(1,179)
Operating lease liabilities	(335)
Deferred tax liabilities	(5,843)
Total tangible assets acquired and liabilities assumed	(198)
Intangible assets	17,429
Goodwill	11,392
Net Assets Acquired	$	28,623


	Amount		Weighted Average Useful Life (in years)
Developed technologies	$	12,505	8.0
Customer relationships	3,071		6.0
Backlog	1,645		0.5
Trade names	208		2.0
Total intangible assets	$	17,429	7.0

Indications of fair value of the intangible assets acquired in connection with the acquisition were determined using either the income, market or replacement cost methodologies. The intangible assets are being amortized over periods which reflect the pattern in which economic benefits of the assets are expected to be realized.

The contingent consideration is a cash amount equal to 1.5x Earnings Before Interest and Tax ("EBIT") as defined in the purchase agreement, from a minimum of 0 up to a maximum of €10.3 million, payable subject to the performance of the acquired business in calendar 2020. We estimated the fair value of contingent consideration using a probability weighted approach. Key assumptions in determining the fair value of contingent consideration include estimating the probability of achieving certain EBIT levels and discounting at an appropriate discount rate.

This acquisition strengthens our leadership in test and measurement by expanding our addressable market into 3D hybrid surface metrology and extending the optical applications scope of our existing Systems segment.

Separate from the purchase agreement, on October 25, 2019, we entered into a term loan agreement with a lender for an aggregate amount of $23.4 million to finance the acquisition. The term loan agreement has not changed during the three months ended March 28, 2020 from that disclosed in our Annual Report on Form 10-K for the year ended December 28, 2019.

Identifiable Intangible Assets

Developed technologies acquired primarily consists of existing technology related to hybrid 3D surface metrology measurement equipment. We valued the developed technologies using the multi-period excess earnings method under the income approach. Using this approach, the estimated fair values were calculated using expected future cash flows from specific products discounted to their net present values at an appropriate risk-adjusted rate of return.

Customer relationships represent the fair value of future projected revenues that will be derived from the sale of products to FRT's existing customers. We valued customer relationships using the incremental cash flow method. This method estimates value based on the incremental cash flow afforded by having the customers relationships in place on the acquisition date versus having no relationships in place and needing to replicate or replace those relationships. The incremental cash flows are then discounted to a present value to arrive at an estimate of fair value for this asset class.

Backlog represents business under existing contractual obligations. Expected cash flow from backlog was valued on a direct cash flow basis.

The identified trade names intangibles relate to the estimated fair value of future cash flows related to the FRT brand. We valued trade names by applying the relief-from-royalty method under the income approach. This method is based on the application of a royalty rate to forecasted revenue under the trade name.

The excess of purchase price over the fair value assigned to the assets acquired and liabilities assumed represents the amount of goodwill resulting from the acquisition. We believe the factors that contributed to goodwill include synergies that are specific to our consolidated business, such as cost savings and operational efficiencies, and the acquisition of a talented workforce that expands our expertise in business development and commercializing semiconductor test products, none of which qualify for recognition as a separate intangible asset. We do not expect any portion of this goodwill to be deductible for tax purposes. The goodwill attributable to the acquisition was recorded as a non-current asset and is not amortized, but is subject to an annual review for impairment.

The goodwill arising from the acquisition was allocated to the FRT reporting unit within the Systems reportable segment.

We have not presented unaudited combined pro forma financial information as the FRT acquisition was not significant to our consolidated results of operations and financial position.

Note 5— Goodwill and Intangible Assets

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 —
(289 ) (289 )
Goodwill, gross, as of March 30, 2019 $ 172,482
$ 16,443
$ 188,925

~~We have not recorded any~~No goodwill impairments have been recorded as of March ~~30,~~28, 2020 and December 28, 2019.

Intangible assets were as follows (in thousands):

March 30, 2019 December 29, 2018
Other Intangible Assets Gross Accumulated Amortization Net Gross Accumulated Amortization Net
Existing developed technologies
$ 143,179
$ 101,708
$ 41,471
$ 143,408
$ 97,111
$ 46,297
Trade name 11,997
10,206
1,791
12,023
9,173
2,850
Customer relationships 40,077
22,954
17,123
40,146
21,653
18,493
$ 195,253
$ 134,868
$ 60,385
$ 195,577
$ 127,937
$ 67,640

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


	Three Months Ended
	March 28, 2020		March 30, 2019
Cost of revenues	$	5,750	$	4,719
Selling, general and administrative	1,513		2,371
	$	7,263	$	7,090

Three Months Ended
March 30,
2019 March 31,
2018
Cost of revenues $ 4,719
$ 5,157
Selling, general and administrative 2,371
2,037
$ 7,090
$ 7,194

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


Fiscal Year	Amount
Remainder of 2020	$	19,021
2021	14,767
2022	5,585
2023	3,846
2024	2,107
Thereafter	4,813
	$	50,139

Fiscal Year Amount
Remainder of 2019 $ 19,249
2020 23,318
2021 12,592
2022 3,484
2023 1,742
$ 60,385


	March 28, 2020		December 28, 2019
Accrued compensation and benefits	$	18,435	$	21,329
Accrued income and other taxes	4,519		6,846
Accrued warranty	1,918		1,942
Accrued employee stock purchase plan contributions withheld	1,585		3,331
Other accrued expenses	2,718		2,991
	$	29,175	$	36,439

March 30, 2019 December 29, 2018
Accrued compensation and benefits $ 13,135
$ 15,600
Accrued employee stock purchase plan contributions withheld 1,475
3,174
Accrued warranty 2,021
2,102
Accrued income and other taxes 2,906
4,222
Other accrued expenses 3,022
2,633
$ 22,559
$ 27,731

~~Restructuring charges in the first quarter of fiscal 2019 compromised of costs related to employee termination benefits, cost of long-lived asset abandonment, as well as inventory write downs.~~

~~Restructuring charges were included in our Consolidated Statement of Operations as follows (in thousands):~~

Three Months Ended
March 30, 2019 March 31, 2018
Cost of revenues $ 120
$ —
Selling, general, and administrative 89
—
$ 209
$ —

~~Changes to the restructuring accrual in the three months ended March 30, 2019 were as follows (in thousands):~~

Employee Severance and Benefits Other Costs Total Accrual
December 29, 2018 $ 20
$ —
$ 20
Restructuring charges 75
134
209
Non-cash settlement —
(134 ) (134 )
March 30, 2019 $ 95
$ —
$ 95

Note 7 — Fair Value and Derivative Instruments

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

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

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

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

We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during the three months ended March ~~30, 2019~~28, 2020 or the year ended December ~~29, 2018.~~28, 2019.

The carrying values of Cash, Accounts receivable, net, Restricted cash, Prepaid expenses and other current assets, Accounts payable, ~~and~~ Accrued liabilities, and Current portion of term loans, net of unamortized issuance costs approximate fair value due to their short maturities.

No changes were made to our valuation techniques during the first three months of fiscal ~~2019.~~2020.

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):

December 29, 2018 Level 1 Level 2 Total
Assets:
Cash equivalents:
Money market funds $ 1,184
$ —
$ 1,184
Marketable securities:
U.S. Treasuries 7,997
—
7,997
Certificates of deposit —
957
957
Agency securities —
8,608
8,608
Corporate bonds —
30,674
30,674
Commercial paper —
2,295
2,295
7,997
42,534
50,531
Interest rate swap derivative contracts —
871
871
Total assets $ 9,181
$ 43,405
$ 52,586

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

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.

Contingent Consideration

Contingent consideration, arising from the acquisition of FRT (see Note 4), is a cash amount equal to 1.5x EBIT as defined in the purchase agreement, up to a maximum of €10.3 million, payable subject to the performance of the acquired business in calendar 2020. We estimated the fair value of contingent consideration using a probability weighted approach. Key assumptions in determining the fair value of contingent consideration include estimating the probability of achieving certain EBIT levels and discounting at an appropriate discount rate. Contingent consideration as of March 28, 2020 was $6.5 million and which increased by $1.1 million from $5.4 million as of December 28, 2019 as a result of subsequent immaterial adjustments.

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):

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),~~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~~Accumulated other comprehensive ~~income~~loss and reclassified into earnings in the same period in which the hedged transaction affects earnings, and in the same line item on the Condensed Consolidated Statements of Income as the impact of the hedge transaction. At March ~~30, 2019,~~28, 2020, we expect to reclassify ~~$0.4~~$0.2 million of the amount accumulated in ~~other~~Other comprehensive ~~income (loss)~~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 March ~~30, 2019~~28, 2020 will mature inby the ~~fourth~~second quarter of fiscal ~~2019.~~2021.

Currency Contract Position Contract Amount (Local Currency) Contract Amount (U.S. Dollars)
Euro Dollar Buy (2,511 ) $ (3,320 )
Japanese Yen Buy (324,310 ) (2,932 )
Korean Won Buy (2,982,606 ) (2,651 )
Total USD notional amount of outstanding foreign exchange contracts $ (8,903 )

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 impact of foreign exchange derivative contracts not designated as cash flow hedges on our Condensed Consolidated Statements of Income was as follows (in thousands):

Amount of Gain (Loss) Recognized on Derivatives

Three Months Ended

Derivatives Not Designated as Hedging Instruments

Location of Gain (Loss) Recognized on Derivatives

March 28, 2020

March 30, 2019

Foreign exchange forward contracts

Other expense, net

(115)

314

Amount of Gain Recognized on Derivatives
Three Months Ended
Derivatives Not Designated as Hedging Instruments Location of Gain Recognized on Derivatives March 30, 2019 March 31, 2018
Foreign exchange forward contracts Other expense, net $ 314
$ 862

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 March 28, 2020	$	(3)	Cost of revenues	$	(120)
			Research and development	(18)
			Selling, general and administrative	(43)
				$	(181)

Three Months Ended March 30, 2019	$	(435)	Cost of revenues	$	(32)
			Research and development	(19)
			Selling, general and administrative	(7)
				$	(58)

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 March 30, 2019 $ (435 ) Cost of revenues $ (32 )
Research and development (19 )
Selling, general and administrative (7 )
$ (58 )

Three Months Ended March 31, 2018 $ —

$ —

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

We measure and report ~~goodwill~~our non-financial assets such as Property, plant and ~~intangible~~equipment, Goodwill and Intangible assets at fair value on a non-recurring basis if we determine these assets to be impaired or in the period when we make a business acquisition. ~~There~~Other than as discussed in Note 4, there were no0 assets or liabilities measured at fair value on a nonrecurring basis during the three months ended March ~~30, 2019~~28, 2020 or March ~~31, 2018.~~30, 2019.

We offer warranties on certain products and record a liability for the estimated future costs associated with warranty claims at the time revenue is recognized. The warranty liability is based upon historical experience and our estimate of the level of future costs. While we engage in product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service delivery costs. We continuously monitor product returns for warranty and maintain a reserve for the related expenses based upon our historical experience and any specifically identified failures. As we sell new products to our customers, we must exercise considerable judgment in estimating the expected failure rates. This estimating process is based on historical experience of similar products, as well as various other assumptions that we believe to be reasonable under the circumstances.

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

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


	Three Months Ended
	March 28, 2020		March 30, 2019
Balance at beginning of period	$	1,942	$	2,102
Accruals	660		889
Settlements	(684)		(970)
Balance at end of period	$	1,918	$	2,021

Three Months Ended
March 30,
2019 March 31,
2018
Balance at beginning of period $ 2,102
$ 3,662
Accruals 889
1,025
Settlements (970 ) (1,848 )
Balance at end of period $ 2,021
$ 2,839

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 three months ended March 30, 2019, we did not repurchase any shares. As of March 30, 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:

Performance Restricted Stock Units

We may grant Performance RSUs ("PRSUs") to certain executives, which vest based upon us achieving certain market performance criteria. There were no PRSUs granted during the ~~first quarter of fiscal 2019.~~three months ended March 28, 2020. PRSUs are included as part of the RSU activity above.


	Options Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value
Outstanding at December 28, 2019	361,769	$	8.35

Options exercised	(55,769)	8.01

Outstanding at March 28, 2020	306,000	$	8.41	1.88	$	3,607,620
Vested and expected to vest at March 28, 2020	306,000	$	8.41	1.88	$	3,607,620
Exercisable at March 28, 2020	306,000	$	8.41	1.88	$	3,607,620

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 (19,207 ) 4.69

Outstanding at March 30, 2019 505,518 $ 8.12
2.88 $ 4,028,192
Vested and expected to vest at March 30, 2019 505,518
$ 8.12
2.88 $ 4,028,192
Exercisable at March 30, 2019 505,518
$ 8.12
2.88 $ 4,028,192

Employee Stock Purchase Plan


	Three Months Ended
	March 28, 2020
Shares issued	311,591
Weighted average per share purchase price	$	13.05
Weighted average per share discount from the fair value of our common stock on the date of issuance	$	12.26

Three Months Ended
March 30, 2019
Shares issued 301,497
Weighted average per share purchase price $ 12.18
Weighted average per share discount from the fair value of our common stock on the date of issuance $ 4.85

Stock-Based Compensation

Three Months Ended
March 30,
2019 March 31,
2018
Cost of revenues $ 950
$ 920
Research and development 1,519
1,302
Selling, general and administrative 2,826
1,534
Total stock-based compensation $ 5,295
$ 3,756

Unrecognized Compensation Costs


	Unrecognized Expense		Average Expected Recognition Period in Years

Restricted stock units	$	20,158	1.79
Performance restricted stock units	5,544		1.79
Employee stock purchase plan	662		0.85
Total unrecognized stock-based compensation expense	$	26,364	1.77

Unrecognized Expense Average Expected Recognition Period in Years
Restricted stock units $ 20,178
1.87
Performance restricted stock units 4,991
1.99
Employee stock purchase plan 975
0.84
Total unrecognized stock-based compensation expense $ 26,144

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
	March 28, 2020	March 30, 2019



Weighted-average shares used in computing basic net income per share	76,005	74,362
Add potentially dilutive securities	2,505	1,647
Weighted-average shares used in computing diluted net income per share	78,510	76,009

Securities not included as they would have been antidilutive	9	38

Three Months Ended
March 30,
2019 March 31,
2018
Weighted-average shares used in computing basic net income per share 74,362
72,826
Add potentially dilutive securities 1,647
1,516
Weighted-average shares used in computing diluted net income per share 76,009
74,342

Securities not included as they would have been antidilutive 38
19

Note 11 — Commitments and Contingencies

Contractual ~~Commitments~~Obligations and ~~Purchase Obligations~~Commitments

Our ~~purchase~~contractual obligations and ~~other contractual obligations~~commitments have not materially changed as of March ~~30, 2019~~28, 2020 from those disclosed in our Annual Report on Form 10-K for the year ended December ~~29, 2018.~~28, 2019.

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. As of March ~~30, 2019,~~28, 2020, 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 1015 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 atas of March ~~30, 2019~~28, 2020 and the weighted-average discount rate was ~~4.7%~~4.40%.

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


	Three Months Ended
	March 28, 2020		March 30, 2019
Lease expense:
Operating lease expense	$	1,924	$	1,745
Short-term lease expense	40		17
Variable lease expense	383		419
	$	2,347	$	2,181

Three Months Ended
March 30,
2019
Lease expense:
Operating lease expense $ 1,745
Short-term lease expense 17
Variable lease expense 419

$ 2,181

Fiscal Year Amount
Remainder of 2019 $ 4,950
2020 6,698
2021 5,819
2022 4,890
2023 4,432
Thereafter 20,406
$ 47,195

Transaction price allocated to the remaining performance obligations: On March ~~30, 2019,~~28, 2020, we had ~~$3.9~~$4.0 million of remaining performance obligations, which were comprised of deferred service contracts and extended warranty contracts not yet delivered. We expect to recognize approximately ~~74%~~70% of our remaining performance obligations as revenue in the remainder of fiscal ~~2019,~~2020, approximately 19% in fiscal 2021, and approximately ~~26%~~11% in fiscal ~~2020~~2022 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 March ~~30, 2019~~28, 2020 and December ~~29, 2018~~28, 2019 were ~~$0.6~~$2.6 million and ~~$0.3~~$0.9 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 March ~~30, 2019~~28, 2020 and December ~~29, 2018~~28, 2019 were ~~$7.6~~$10.7 million and ~~$5.7~~$10.8 million, respectively. During the three months ended March ~~30, 2019,~~28, 2020, we recognized ~~$1.4~~$5.8 million of revenue, that was included in contract liabilities as of December ~~29, 2018.~~28, 2019.

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):

Three Months Ended
March 30, 2019 March 31, 2018
Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total
Revenues $ 108,103
$ 24,110
$ —
$ 132,213
$ 94,928
$ 23,362
$ —
$ 118,290
Gross profit $ 45,294
$ 13,016
$ (5,789 ) $ 52,521
$ 40,071
$ 11,135
$ (6,077 ) $ 45,129
Gross margin 41.9 % 54.0 % — % 39.7 % 42.2 % 47.7 % — % 38.2 %

Corporate and Other includes unallocated expenses relating to amortization of intangible assets, share-based compensation, and restructuring charges, net, which are not used in evaluating the results of, or in allocating resources to, our reportable segments.

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

Three Months Ended
March 30, 2019 March 31, 2018
Probe Cards Systems Total Probe Cards Systems Total
Market:
    Foundry & Logic $ 71,580
$ —
$ 71,580
$ 58,439
$ —
$ 58,439
    DRAM 28,886
—
28,886
30,266
—
30,266
    Flash 7,637
—
7,637
6,223
—
6,223
    Systems —
24,110
24,110
—
23,362
23,362
Total $ 108,103
$ 24,110
$ 132,213
$ 94,928
$ 23,362
$ 118,290
Timing of revenue recognition:
    Products transferred at a point in time $ 107,491
$ 23,142
$ 130,633
$ 94,434
$ 22,521
$ 116,955
    Services transferred over time 612
968
1,580
494
841
1,335
Total $ 108,103
$ 24,110
$ 132,213
$ 94,928
$ 23,362
$ 118,290
Geographical region:
    United States $ 27,655
$ 6,608
$ 34,263
$ 26,488
$ 6,375
$ 32,863
    South Korea 25,018
1,705
26,723
13,916
1,074
14,990
    Taiwan 21,257
1,130
22,387
25,971
1,751
27,722
    China 18,151
3,692
21,843
9,027
3,247
12,274
    Japan 5,300
5,132
10,432
10,132
3,540
13,672
    Europe 5,373
4,120
9,493
5,573
5,929
11,502
    Asia-Pacific¹
2,790
473
3,263
3,490
1,325
4,815
    Rest of the world 2,559
1,250
3,809
331
121
452
Total $ 108,103
$ 24,110
$ 132,213
$ 94,928
$ 23,362
$ 118,290

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

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

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, which are subject to risks and uncertainties. The forward-looking statements include statements concerning, among other things, our business strategy, financial and operating results, gross margins, liquidity and capital expenditure requirements and impact of accounting ~~standards and our share repurchase plan.~~standards. In some cases, you can identify these statements by forward-looking words, such as "may," "might," "will," "could," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "intend" and "continue," the negative or plural of these words and other comparable terminology.

The forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements. We have no obligation to update any of these statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements, including risks related to general market trends, uncertainties related to COVID-19 and the impact of our responses to it, the interpretation and impacts of changes in export controls and other trade barriers, our ability to execute our business strategy and other risks discussed in the section titled “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December ~~29, 2018~~28, 2019 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.

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

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

We generated net income of $15.9 million in the first three months of fiscal 2020 as compared to $5.5 million in the first three months of fiscal ~~2019 as compared to $2.1 million in the first three months of fiscal 2018.~~2019. The increase in net income was primarily due to ~~increased revenue from our Probe Cards segment,~~higher revenues, partially offset by higher operating expenses, both generated by higher operating levels.

An outbreak of an illness caused by a novel coronavirus in 2019 (“COVID-19”) has resulted in millions of infections and ~~higher provision~~well over one hundred thousand deaths worldwide as of the date of filing this Quarterly Report. COVID-19 continues to spread in many of the regions that we, our customers and our suppliers operate. The COVID-19 pandemic has resulted in significant governmental measures being implemented to control the spread of the virus, including the imposition of stay-at-home and other orders in locations where we have manufacturing and other activities. We experienced a significant disruption to our operations as a result of the COVID-19 pandemic during the last two weeks of our first fiscal quarter of 2020 which continues, although currently to a lessening extent.

We believe that we operate in a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. This reduces the current and anticipated impacts of the COVID-19 pandemic on our major customers and suppliers, and upon our operations, as compared to companies that are not part of the critical infrastructure. After a temporary suspension of manufacturing to implement safety measures in our California and Oregon locations, consistent with federal guidelines and state and local orders, we recommenced manufacturing. We currently continue to operate in all of our manufacturing sites

subject to certain safety and related constraints. Our other operations are similarly continuing with substantial work-from-home activities.

If the provisions of governmental health orders or other safety requirements continue for ~~income taxes.~~an extended period of time, or if we have occurrences of COVID-19 in any of our facilities, we may experience further disruptions or delays in manufacturing, product design, product development, customer support, manufacturing and sales, and an overall loss of productivity and efficiency. The progression of the COVID-19 pandemic could also negatively impact our business or results of operations through new restrictions at our operating locations or at those of our customers or suppliers.

Even with our continued operations, COVID-19 has had, and may have further, negative impacts on our supply chain, workforce and customers. As the COVID-19 pandemic is a widespread public health crisis, it is also adversely affecting major economies and financial markets world-wide. A resulting economic downturn can be expected to eventually negatively affect the demand for our products, and contribute to volatile demand and supply conditions affecting the markets for our products.

Governments in several countries where we operate, including the United States, have enacted stabilization and stimulus measures in an effort to counteract some of the impacts of COVID-19. We may benefit from some of these measures, although we do not believe those benefits will have a material effect upon our financial results or financial condition.

While to date the disruptions in our operations, supply chain and customer demand as a result of the COVID-19 pandemic have been somewhat limited, we believe that the COVID-19 pandemic represents a sustained threat that may eventually give rise to a variety of more significant adverse impacts on our business and financial results. We consider this as a near or longer term trend, although we cannot identify or quantify the specific impacts given current levels of uncertainty and the broad variety of effects that may arise from a pandemic of this magnitude. For a further description of the uncertainties and business risks associated with the COVID-19 pandemic, see the section entitled “Risk Factors” in this Quarterly Report.

Critical Accounting Policies and the Use of Estimates

Management’s Discussion and Analysis and Note 2 to the Consolidated Financial Statements in our ~~2018~~2019 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 three months ended March ~~30, 2019,~~28, 2020, 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 ~~29, 2018,~~28, 2019, which was filed with the Securities and Exchange Commission on February ~~26, 2019.~~21, 2020.

Results of Operations



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


~~FORMFACTOR, INC.~~Part I.			~~FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 30, 2019~~Financial Information

~~INDEX~~Item 1.			Financial Statements (Unaudited):

			Condensed Consolidated Balance Sheets as of March 28, 20 20 and December 2 8 , 201 9	3

~~Part I.~~			~~Financial Information~~

~~Item 1.~~	~~Financial Statements (Unaudited):~~

	~~Condensed Consolidated Balance Sheets as of March 30, 2019 and December 29, 2018~~	3

	Condensed Consolidated Statements of Income for the three months ended March ~~30, 2019~~ 28, 20 20 and March ~~31, 2018~~30 , 201 9	4

			Condensed Consolidated Statements of Comprehensive Income for the three months ended March ~~30, 2019~~ 28, 20 20 and March ~~31, 2018~~30 , 201 9	5

			Condensed Consolidated Statement of Stockholders' Equity for the three months ended March ~~30, 2019~~ 28, 20 20 and March ~~31, 2018~~30 , 201 9	6

			Condensed Consolidated Statements of Cash Flows for the three months ended March ~~30, 2019~~ 28, 20 20 and March ~~31, 2018~~30 , 201 9	7

			Notes to Condensed Consolidated Financial Statements	8

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	1920

Item 3.			Quantitative and Qualitative Disclosures About Market Risk	2730

Item 4.			Controls and Procedures	2730

Part II.			Other Information	2830



Item 1A.			Risk Factors	2830









Item 6.			Exhibits	2832

Signatures				2933


	March 28, 2020										December 28, 2019
Intangible Assets	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Developed technologies	$	155,792	$	121,091	$	34,701	$	154,951	$	116,138	$	38,813
Trade names	7,809		7,046		763		7,816		6,976		840
Customer relationships	43,170		28,495		14,675		44,229		27,057		17,172
Backlog	1,670		1,670		—		1,676		891		785
	$	208,441	$	158,302	$	50,139	$	208,672	$	151,062	$	57,610


						Units	Weighted Average Grant Date Fair Value
	Units		Weighted Average Grant Date Fair Value
RSUs at December 29, 2018	3,102,226		$	12.79
RSUs at December 28, 2019					RSUs at December 28, 2019	3,069,000	$	14.30
Awards granted					Awards granted	16,000	26.05
Awards vested	(47,696	)	10.17		Awards vested	(43,604)	12.70
Awards forfeited	(17,501	)	12.77		Awards forfeited	(20,291)	14.25
RSUs at March 30, 2019	3,037,029		12.83
RSUs at March 28, 2020					RSUs at March 28, 2020	3,021,105	$	14.39


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~~

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

	March 30, 2019			December 29, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	105,759		$	98,472
Marketable securities	54,086			50,531
Accounts receivable, net of allowance for doubtful accounts of $185 and $185	81,492			95,333
Inventories, net	83,216			77,706
Restricted cash	824			849
Refundable income taxes	1,261			1,260
Prepaid expenses and other current assets	11,747			13,669
Total current assets	338,385			337,820
Restricted cash	1,130			1,225
Operating lease, right-of-use-assets	34,397			—
Property, plant and equipment, net of accumulated depreciation of $266,274 and $263,102	54,697			54,054
Goodwill	188,925			189,214
Intangibles, net	60,385			67,640
Deferred tax assets	77,293			77,301
Other assets	1,409			968
Total assets	$	756,621		$	728,222

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	31,555		$	40,006
Accrued liabilities	22,559			27,731
Current portion of term loan, net of unamortized issuance cost of $128 and $160	33,622			29,840
Deferred revenue	6,885			4,941
Operating lease liabilities	6,022			—
Total current liabilities	100,643			102,518
Term loan, less current portion, net of unamortized issuance cost of $10 and $29	23,740			34,971
Deferred tax liabilities	2,306			2,355
Long-term operating lease liabilities	32,239			—
Other liabilities	4,705			8,214
Total liabilities	163,633			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; 74,488,498 and 74,139,712 shares issued and outstanding	74			74
Additional paid-in capital	871,617			862,897
Accumulated other comprehensive income (loss)	(599		)	780
Accumulated deficit	(278,104		)	(283,587		)
Total stockholders’ equity	592,988			580,164
Total liabilities and stockholders’ equity	$	756,621		$	728,222



	Three Months Ended March 31, 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	341,670	1		3,704			—		—			3,705
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	34,386	—		(357		)	—		—			(357		)
Stock-based compensation	—	—		3,737			—		—			3,737
Adoption of ASU 2017-12	—	—		—			—		(50		)	(50		)
Other comprehensive income	—	—		—			2,164		—			2,164
Net income	—	—		—			—		2,125			2,125
Balances, March 31, 2018	73,013,842	$	74	$	851,249		$	5,185	$	(385,498	)	$	471,010



	March 30, 2019		December 29, 2018
Raw materials	$	44,627	$	43,380
Work-in-progress	22,356		20,431
Finished goods	16,233		13,895
	$	83,216	$	77,706


	Probe Cards		Systems		Total
Goodwill, gross, as of December 29, 2018	$	172,482	$	16,732	$	189,214
Addition - FRT GmbH Acquisition	—		10,148		10,148
Foreign currency translation	—		(166)		(166)
Goodwill, gross, as of December 28, 2019	172,482		26,714		199,196
Addition - FRT GmbH Acquisition	—		1,264		1,264
Foreign currency translation	—		(82)		(82)
Goodwill, gross, as of March 28, 2020	$	172,482	$	27,896	$	200,378



	March 30, 2019						December 29, 2018
Other Intangible Assets	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Existing developed technologies	$	143,179	$	101,708	$	41,471	$	143,408	$	97,111	$	46,297
Trade name	11,997		10,206		1,791		12,023		9,173		2,850
Customer relationships	40,077		22,954		17,123		40,146		21,653		18,493
	$	195,253	$	134,868	$	60,385	$	195,577	$	127,937	$	67,640



	Three Months Ended
	March 30, 2019		March 31, 2018
Cost of revenues	$	4,719	$	5,157
Selling, general and administrative	2,371		2,037
	$	7,090	$	7,194



Fiscal Year	Amount
Remainder of 2019	$	19,249
2020	23,318
2021	12,592
2022	3,484
2023	1,742
	$	60,385



	Employee Severance and Benefits		Other Costs			Total Accrual
December 29, 2018	$	20	$	—		$	20
Restructuring charges	75		134			209
Non-cash settlement	—		(134		)	(134		)
March 30, 2019	$	95	$	—		$	95


March 28, 2020	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	74,992	$	—	$	—	$	74,992



Marketable securities:
U.S. treasuries	30,873		—		—		30,873
Certificates of deposit	—		3,841		—		3,841
U.S. agency securities	—		3,751		—		3,751
Corporate bonds	—		28,657		—		28,657
Commercial paper	—		2,637		—		2,637
	30,873		38,886		—		69,759
Foreign exchange derivative contracts	—		4		—		4

Total assets	$	105,865	$	38,890	$	—	$	144,755
Liabilities:
Foreign exchange derivative contracts	$	—	$	(154)	$	—	$	(154)
Interest rate swap derivative contracts	—		(93)		—		(93)
Contingent consideration	—		—		(6,515)		(6,515)
Total liabilities	$	—	$	(247)	$	(6,515)	$	(6,762)


												Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)		Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)		Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
Three Months Ended March 28, 2020											Three Months Ended March 28, 2020	$	(96)	Interest expense, net	$	22	Interest expense, net	$	—
Three Months Ended March 30, 2019											Three Months Ended March 30, 2019	$	(28)	Interest expense, net	$	(208)	Interest expense, net	$	—

	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 March 30, 2019	$	(28	)	Interest expense	$	(208	)	Interest expense	$	—
Three Months Ended March 31, 2018	$	255		Interest expense	$	132		Interest expense	$	—


Currency	Contract Position	Contract Amount (Local Currency)	Contract Amount (U.S. Dollars)
Euro Dollar	Buy	(3,061)	$	(3,557)
Japanese Yen	Sell	1,346,506	12,503
Korean Won	Buy	(2,526,325)	(2,088)


Total USD notional amount of outstanding foreign exchange contracts			$	6,858



Currency	Contract Position	Contract Amount (Local Currency)		Contract Amount (U.S. Dollars)
Euro Dollar	Buy	(2,511	)	$	(3,320	)
Japanese Yen	Buy	(324,310	)	(2,932		)
Korean Won	Buy	(2,982,606	)	(2,651		)
Total USD notional amount of outstanding foreign exchange contracts				$	(8,903	)


	Three Months Ended
	March 28, 2020		% of Revenues		March 30, 2019		% of Revenues		$ Change		% Change
	(Dollars in thousands)
Probe Cards Markets:
Foundry & Logic	$	105,745	65.8	%	$	71,580	54.1	%	$	34,165	47.7	%
DRAM	24,696		15.4		28,886		21.9		(4,190)		(14.5)
Flash	4,274		2.7		7,637		5.8		(3,363)		(44.0)
Systems Market:
Systems	26,038		16.1		24,110		18.2		1,928		8.0
Total revenues	$	160,753	100.0	%	$	132,213	100.0	%	$	28,540	21.6	%


	Three Months Ended
	March 28, 2020		% of Revenue		March 30, 2019		% of Revenue
	(Dollars in thousands)
China	$	43,642	27.1	%	$	21,843	16.5	%
United States	31,916		19.9	%	34,263		25.9	%
Taiwan	31,780		19.8	%	22,387		16.9	%
Europe	21,043		13.1	%	9,493		7.2	%
South Korea	14,088		8.8	%	26,723		20.2	%
Japan	8,370		5.2	%	10,432		7.9	%
Asia-Pacific¹	7,863		4.9	%	3,263		2.5	%
Rest of the world	2,051		1.2	%	3,809		2.9	%
Total revenues	$	160,753	100.0	%	$	132,213	100.0	%


	Three Months Ended March 28, 2020 compared to Three Months Ended March 30, 2019
Employee compensation costs	$	1,649
Depreciation	88
Stock-based compensation	(80)
Project material costs	(65)
Other general operations	(48)
	$	1,544



	Three Months Ended March 30, 2019 compared to Three Months Ended March 31, 2018

Employee compensation costs	$	1.3
Stock-based compensation	0.2
Other general operations	0.2
	$	1.7


	Three Months Ended March 28, 2020 compared to Three Months Ended March 30, 2019
Employee compensation	1,942
Amortization of intangibles	(858)
Consulting fees	566
Stock-based compensation	421
General operating expenses	438
	$	2,509



	Three Months Ended March 30, 2019 compared to Three Months Ended March 31, 2018

Consulting fees	$	(1.0	)
Stock-based compensation	1.3
Employee compensation	1.1
Amortization of intangibles	0.3
	$	1.7