UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)


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

For the quarterly period ended ~~March 31,~~September 29, 2018


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

For the transition period from to

Commission file number: 000-50307

FormFactor, Inc.

(Exact name of registrant as specified in its charter)



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

7005 Southfront Road, Livermore, California 94551

(Address of principal executive offices, including zip code)

(925) 290-4000

(Registrant’s telephone number, including area code)

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

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

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



Large Accelerated filer x		Accelerated filer o

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

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

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

As of ~~May 3,~~October 31, 2018, ~~73,031,864~~74,102,335 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.

FORMFACTOR, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED ~~MARCH 31,~~SEPTEMBER 29, 2018 INDEX

Part I.	Financial Information

Item 1.	Financial Statements (Unaudited):

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

	Condensed Consolidated Statements of Income for the three and nine months ended ~~March 31,~~September 29, 2018 and ~~April 1,~~September 30, 2017	4

	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended ~~March 31,~~September 29, 2018 and ~~April 1,~~September 30, 2017	5

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

	Condensed Consolidated Statements of Cash Flows for the ~~three~~nine months ended ~~March 31,~~September 29, 2018 and ~~April 1,~~September 30, 2017	68

	Notes to Condensed Consolidated Financial Statements	79

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2733

Item 4.	Controls and Procedures	2734

Part II.	Other Information	2835

Item 1A.	Risk Factors	2835

Item 6.	Exhibits	2835

Signatures		2936

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)

	March 31, 2018			December 30, 2017			September 29, 2018			December 30, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	93,699		$	91,184		$	91,990		$	91,184
Marketable securities	48,370			48,988			50,109			48,988
Accounts receivable, net of allowance for doubtful accounts of $200 and $200	78,524			81,515			88,869			81,515
Inventories, net	73,780			67,848			81,538			67,848
Restricted cash	663			372			129			372
Refundable income taxes	2,307			2,242			1,320			2,242
Prepaid expenses and other current assets	14,452			13,705			15,716			13,705
Total current assets	311,795			305,854			329,671			305,854
Restricted cash	1,020			1,170			1,034			1,170
Property, plant and equipment, net of accumulated depreciation and amortization of $259,608 and $255,755	47,851			46,754
Property, plant and equipment, net of accumulated depreciation of $260,607 and $255,755							52,857			46,754
Goodwill	190,367			189,920			189,427			189,920
Intangibles, net	90,649			97,484			75,278			97,484
Deferred tax assets	3,145			3,133			3,042			3,133
Other assets	1,361			2,259			1,163			2,259
Total assets	$	646,188		$	646,574		$	652,472		$	646,574

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	38,889		$	35,046		$	49,668		$	35,046
Accrued liabilities	23,496			33,694			24,877			33,694
Current portion of term loan, net of unamortized issuance cost of $270 and $307	29,730			18,443
Current portion of term loan, net of unamortized issuance cost of $189 and $307							26,061			18,443
Deferred revenue	4,515			4,978			4,795			4,978
Total current liabilities	96,630			92,161			105,401			92,161
Term loan, less current portion, net of unamortized issuance cost of $185 and $272	67,315			87,228
Term loan, less current portion, net of unamortized issuance cost of $57 and $272							46,193			87,228
Deferred tax liabilities	3,487			3,379			3,290			3,379
Deferred rent and other liabilities	7,746			5,169			7,537			5,169
Total liabilities	175,178			187,937			162,421			187,937

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; 73,013,842 and 72,532,176 shares issued and outstanding	74			73
250,000,000 shares authorized; 74,101,623 and 72,532,176 shares issued and outstanding							75			73
Additional paid-in capital	851,249			843,116			857,505			843,116
Accumulated other comprehensive income	5,185			3,021			1,158			3,021
Accumulated deficit	(385,498		)	(387,573		)	(368,687		)	(387,573		)
Total stockholders’ equity	471,010			458,637			490,051			458,637
Total liabilities and stockholders’ equity	$	646,188		$	646,574		$	652,472		$	646,574

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

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						Three Months Ended						Nine Months Ended
	March 31, 2018			April 1, 2017			September 29, 2018			September 30, 2017			September 29, 2018			September 30, 2017
Revenues	$	118,290		$	128,829		$	134,989		$	143,735		$	388,788		$	416,540
Cost of revenues	73,161			81,258			82,019			86,105			234,471			249,572
Gross profit	45,129			47,571			52,970			57,630			154,317			166,968
Operating expenses:
Research and development	18,046			17,414			18,857			19,338			56,578			55,294
Selling, general and administrative	23,449			22,829			24,745			24,010			73,426			70,441
Restructuring and impairment charges	—			269
Restructuring							—			16			—			329
Total operating expenses	41,495			40,512			43,602			43,364			130,004			126,064
Operating income	3,634			7,059			9,368			14,266			24,313			40,904
Interest income	257			67			369			123			952			283
Interest expense	(967		)	(1,174		)	(777		)	(1,109		)	(2,654		)	(3,446		)
Other expense, net	(512		)	(400		)
Other income (expense), net							121			311			(341		)	19
Income before income taxes	2,412			5,552			9,081			13,591			22,270			37,760
Provision for income taxes	287			367			1,393			1,028			3,334			2,435
Net income	$	2,125		$	5,185		$	7,688		$	12,563		$	18,936		$	35,325
Net income per share:
Basic	$	0.03		$	0.07		$	0.10		$	0.17		$	0.26		$	0.49
Diluted	$	0.03		$	0.07		$	0.10		$	0.17		$	0.25		$	0.48

Weighted-average number of shares used in per share calculations:
Basic	72,826			71,423			73,837			72,651			73,273			72,103
Diluted	74,342			72,922			74,962			73,885			74,628			73,540

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

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

	Three Months Ended					Three Months Ended						Nine Months Ended
	March 31, 2018			April 1, 2017		September 29, 2018			September 30, 2017			September 29, 2018			September 30, 2017
Net income	$	2,125		$	5,185	$	7,688		$	12,563		$	18,936		$	35,325
Other comprehensive income, net of tax:
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	2,166			1,447		(449		)	1,540			(1,732		)	5,769
Unrealized losses on available-for-sale marketable securities	(174		)	—
Unrealized gains on derivative instruments	172			157
Other comprehensive income, net of tax	2,164			1,604
Unrealized gains (losses) on available-for-sale marketable securities						50			(15		)	(84		)	(37		)
Unrealized gains (losses) on derivative instruments						(134		)	(36		)	(47		)	4
Other comprehensive income (loss), net of tax						(533		)	1,489			(1,863		)	5,736
Comprehensive income	$	4,289		$	6,789	$	7,155		$	14,052		$	17,073		$	41,061

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

FORMFACTOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

(Unaudited)

FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
2018 April 1,
2017
Cash flows from operating activities:

Net income $ 2,125
$ 5,185
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation 3,525
3,162
Amortization 7,194
8,349
Accretion of discount on investments 23
—
Stock-based compensation expense 3,756
3,302
Amortization of debt issuance costs 123
171
Deferred income tax provision 59
81
Provision for excess and obsolete inventories 2,045
2,797
Acquired inventory step-up amortization —
190
Loss on disposal of long-lived assets 15
22
Gain on derivative instruments —
(65 )
Foreign currency transaction gains (561 ) (729 )
Changes in assets and liabilities:

Accounts receivable 3,354
(8,888 )
Inventories (7,408 ) (3,345 )
Prepaid expenses and other current assets (247 ) 3,068
Refundable income taxes (52 ) 286
Other assets 662
615
Accounts payable 2,988
7,220
Accrued liabilities (9,521 ) (4,780 )
Income tax payable (829 ) (419 )
Deferred rent and other liabilities 2,515
71
Deferred revenues (444 ) 1,510
Net Cash provided by operating activities 9,322
17,803
Cash flows from investing activities:

Acquisition of property, plant and equipment (3,831 ) (3,465 )
Proceeds from sale of a subsidiary 20
14
Purchases of marketable securities (3,587 ) —
Proceeds from maturities of marketable securities 4,007
—
Net cash used in investing activities (3,391 ) (3,451 )
Cash flows from financing activities:

Proceeds from issuances of common stock 4,754
7,437
Purchase and retirement of common stock —
(2,733 )
Tax withholdings related to net share settlements of equity awards (357 ) (480 )
Principal repayments on term loan (8,750 ) (6,875 )
Net cash used in financing activities (4,353 ) (2,651 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash 1,078
1,260
Net increase in cash, cash equivalents and restricted cash 2,656
12,961
Cash, cash equivalents and restricted cash, beginning of period 92,726
102,596
Cash, cash equivalents and restricted cash, end of period $ 95,382
$ 115,557

Non-cash investing and financing activities:

Change in accounts payable and accrued liabilities related to property, plant and equipment purchases $ 601
$ 2,035

Supplemental disclosure of cash flow information:
Cash paid for income taxes, net $ 771
$ 338
Cash paid for interest $ 826
$ 1,016



	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)



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

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

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

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

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

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

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

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

FORMFACTOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Basis of Presentation and New Accounting Pronouncements

Basis of Presentation

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

Fiscal Year

We operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December. Fiscal 2018 and 2017 each contain 52 weeks and the ~~three~~nine months ended ~~March 31,~~September 29, 2018 and ~~April 1,~~September 30, 2017 each contained 1339 weeks. Fiscal 2018 will end on December 29, 2018.

Reclassifications

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

Critical Accounting Policies

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

Revenue Recognition

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

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

Our products may be customized to our customers’ specifications, however, control of our ~~products are~~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 ~~are~~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 ~~ASC~~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 ~~March 31,~~September 29, 2018, we had ~~$3.6~~$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 ~~20.6%~~54.4% of our remaining performance obligations as revenue in fiscal 2019, and ~~additional 8.7%~~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 ~~March 31,~~September 29, 2018 and December 30, 2017 were ~~$1.5~~$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 ~~March 31,~~September 29, 2018 and December 30, 2017 were ~~$5.2~~$5.4 million and $5.7 ~~million, respectively.~~million. During the ~~period~~three and nine months ended ~~March 31,~~September 29, 2018, we recognized ~~$2.4~~$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

In May 2014, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers," 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 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 ~~Accounting Standards Codification (“ASC”)~~ASC 606, Revenue from Contracts with Customers and all related amendments (collectively “ASC 606”), on December 31, 2017, the first day of fiscal 2018, using the modified retrospective method. We applied ASC 606 to all contracts not completed as of the date of adoption in order to determine any adjustment to the opening balance of retained earnings. Under the modified retrospective adoption method, the comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods, ASC 605, "Revenue Recognition", which is also referred to herein as "legacy GAAP."

The adoption of ASC 606 did not have a material impact on our consolidated financial statements as of December 31, 2017. No adjustment was recorded to accumulated deficit as of the adoption date and reported revenue would not have been different under

legacy GAAP. Additionally, we do not expect the adoption of the revenue standard to have a material impact to our net income on an ongoing basis.

ASU 2017-12

In August 2017, the FASB issued ~~ASU2017-12,~~ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities," which changes the recognition and presentation requirements of hedge accounting, including eliminating the requirement to separately measure and report hedge ineffectiveness and changing the presentation to include all items that affect earnings in the same income statement line item as the hedged item. ASU 2017-12 also provides new alternatives for applying hedge accounting to additional hedging strategies, measuring the hedged item in fair value hedges of interest rate risk, reducing the cost and complexity of applying hedge accounting and reducing the risk of material error correction if a company applies the shortcut method inappropriately. ASU 2017-12 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2018, on a prospective basis. We early adopted ASU 2017-12 on December 31, 2017, the first day of fiscal 2018, resulting in an immaterial adjustment in our accumulated deficit on December 30, 2017. ~~The adjustment was reflected in our Condensed Consolidated Balance Sheets as of that date.~~

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 ~~March 31,~~September 29, 2018.

ASU 2017-04

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

ASU 2016-18

In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230) - Restricted Cash," which requires that 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 April 1, 2017 December 31, 2016
Cash, cash equivalents as previously reported in the Condensed Consolidated Statements of Cash Flows $ 91,184
$ 114,437
$ 101,408
Current assets - Restricted cash 372
4
106
Restricted cash 1,170
1,116
1,082
Cash, cash equivalents and restricted cash as currently reported in the Condensed Consolidated Statements of Cash Flows $ 92,726
$ 115,557
$ 102,596



	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 ~~March 31,~~September 29, 2018 and December 30, 2017, Restricted cash was comprised primarily of funds held by our foreign subsidiaries for employee obligations, office leases and customer deposits.

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

In February 2016, the FASB issued ASU 2016-02, ~~"Leases,~~"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. ~~The new standard also~~ASU 2016-02 was amended in July 2018 by both ASU 2018-10, "Codification Improvements to Topic 842, Leases," and ASU 2018-11, "Leases (Topic 842): Targeted Improvements." ASU 2016-02 provides additional guidance on the measurement of the right-of-use assets and lease liabilities and will require enhanced disclosures about ~~the Company’s~~our leasing arrangements. Under current accounting standards, substantially all of ~~the Company’s~~our leases are considered operating leases and, as such, are not recognized on the Consolidated Balance Sheet. This new standard is effective for ~~the Company~~us beginning on ~~January 1, 2019,~~December 30, 2018, with early adoption permitted. As initially issued, the standard required a “modified retrospective” adoption, meaning the standard is applied to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. ~~In March 2019,~~As amended, the ~~FASB approved~~standard allows an ~~amendment to Topic 842~~additional transition method that permits a company to use its effective date as the date of initial application, and therefore, not restate comparative prior period financial information. ~~The Company is~~Upon adoption we will use the modified transition method. We are currently assessing the impact ~~of the new standard~~ on ~~its~~our Consolidated Financial Statements and ~~has not yet determined its transition method.~~expect that the primary impact upon adoption will be the recognition, on a discounted basis, of our minimum commitments under noncancelable operating leases to our Consolidated Balance Sheets resulting in the recording of right-of-use assets and lease liabilities.

Note 2 — Concentration of Credit and Other Risks

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


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31, 2018		April 1, 2017		September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
Intel	14.0	%	26.7	%	24.5	%	30.6	%	18.0	%	27.4	%
Micron					12.0		*		10.1		*
SK Hynix	10.1		—		*		*		10.2		*
Samsung	—		10.3
Total revenues attributable to 10% or greater customers	24.1	%	37.0	%	36.5	%	30.6	%	38.3	%	27.4	%

*Represents less than 10% of total revenues.

At ~~March 31,~~September 29, 2018, ~~three~~two customers accounted for ~~13.7%, 12.7%~~25.4% and ~~10.4%~~10.2% of gross accounts receivable, respectively. At December 30, 2017, two customers accounted for 24.1% and 13.6% 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):


	March 31, 2018		December 30, 2017		September 29, 2018		December 30, 2017
Raw materials	$	37,156	$	33,101	$	44,793	$	33,101
Work-in-progress	21,719		20,134		21,922		20,134
Finished goods	14,905		14,613		14,823		14,613
	$	73,780	$	67,848	$	81,538	$	67,848

Note 4 — Goodwill and Intangible Assets

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


	Probe Cards		Systems		Total		Probe Cards		Systems			Total
Goodwill, gross, as of December 31, 2016	$	172,482	$	15,528	$	188,010	$	172,482	$	15,528		$	188,010
Foreign currency translation	—		1,910		1,910		—		1,910			1,910
Goodwill, gross, as of December 30, 2017	172,482		17,438		189,920		172,482		17,438			189,920
Foreign currency translation	—		447		447		—		(493		)	(493		)
Goodwill, gross, as of March 31, 2018	$	172,482	$	17,885	$	190,367
Goodwill, gross, as of September 29, 2018							$	172,482	$	16,945		$	189,427

We have not recorded any goodwill impairments as of ~~March 31,~~September 29, 2018.

Intangible assets were as follows (in thousands):


	March 31, 2018						December 30, 2017						September 29, 2018						December 30, 2017
Other Intangible Assets	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Existing developed technologies	$	144,319	$	82,091	$	62,228	$	143,966	$	76,826	$	67,140	$	143,577	$	92,074	$	51,503	$	143,966	$	76,826	$	67,140
Trade name	12,126		6,430		5,696		12,086		5,735		6,351		12,042		8,136		3,906		12,086		5,735		6,351
Customer relationships	40,419		17,694		22,725		40,313		16,320		23,993		40,196		20,327		19,869		40,313		16,320		23,993
Backlog	—		—		—		15,811		15,811		—		—		—		—		15,811		15,811		—
	$	196,864	$	106,215	$	90,649	$	212,176	$	114,692	$	97,484	$	195,815	$	120,537	$	75,278	$	212,176	$	114,692	$	97,484

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


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31, 2018		April 1, 2017		September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
Cost of revenues	$	5,157	$	6,324	$	5,123	$	5,473	$	15,418	$	17,411
Selling, general and administrative	2,037		2,025		2,389		2,043		6,458		6,098
	$	7,194	$	8,349	$	7,512	$	7,516	$	21,876	$	23,509

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


Fiscal Year	Amount		Amount
Remainder of 2018	$	21,590	$	7,509
2019	26,122		26,432
2020	24,052		23,421
2021	13,212		12,655
2022	3,602		3,215
Thereafter	2,071		2,046
	$	90,649	$	75,278

Note 5 — Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):


	March 31, 2018		December 30, 2017		September 29, 2018		December 30, 2017
Accrued compensation and benefits	$	11,344	$	18,141	$	14,002	$	18,141
Accrued warranty	2,839		3,662		2,457		3,662
Accrued withholding for employee stock purchase plan	1,298		3,279		1,430		3,279
Accrued income and other taxes	1,877		3,965		3,397		3,965
Other accrued expenses	6,138		4,647		3,591		4,647
	$	23,496	$	33,694	$	24,877	$	33,694

Note 6 — Restructuring Charges

Restructuring charges are comprised of costs related to employee termination benefits as well as contract termination costs, and are included in Restructuring ~~and impairment charges, net~~ in the Consolidated Statements of Income.

Restructuring charges ~~were $0.3 million~~ in the first ~~quarter~~three quarters of fiscal 2017 ~~and~~ related to the consolidation of an acquired subsidiary into our operations.

There were no restructuring charges in the first ~~quarter~~three quarters of fiscal 2018. Changes to the restructuring accrual in the ~~three~~nine months ended ~~March 31,~~September 29, 2018 were as follows (in thousands):

Employee Severance and Benefits Contract Termination and Other Costs Total
Accrual at December 30, 2017 $ 398
$ 1
$ 399
Cash payments (398 ) (1 ) (399 )
Accrual at March 31, 2018 $ —
$ —
$ —



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

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

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

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

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):


March 31, 2018	Level 1		Level 2			Total
September 29, 2018									Level 1		Level 2		Total
Assets:
Cash equivalents:
Money market funds	$	2,422	$	—		$	2,422		$	265	$	—	$	265
Commercial paper									—		999		999
Total cash equivalents									265		999		1,264
Marketable securities:
U.S. Treasuries	4,473		—			4,473			4,453		—		4,453
Certificates of deposit	—		955			955			—		1,197		1,197
Agency securities	—		9,901			9,901			—		8,994		8,994
Corporate bonds	—		31,544			31,544			—		32,186		32,186
Commercial paper	—		1,497			1,497			—		3,279		3,279
	4,473		43,897			48,370
Total marketable securities									4,453		45,656		50,109
Interest rate swap derivative contracts	—		1,170			1,170			—		951		951
Total assets	$	6,895	$	45,067		$	51,962		$	4,718	$	47,606	$	52,324
Liabilities:
Foreign exchange derivative contracts	$	—	$	(327	)	$	(327	)


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

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

Cash Equivalents

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

Marketable Securities

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

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

Unrealized gains and losses were immaterial and were recorded as a component of Accumulated other comprehensive income 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 inare 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
Three Months Ended March 31, 2018 $ 255
Interest expense $ 132
Three Months Ended April 1, 2017 $ 120
Interest expense $ (37 )



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

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

Foreign Exchange Derivative Contracts

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

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

The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange rates and forward points. All of our foreign exchange derivative contracts outstanding at ~~March 31,~~September 29, 2018 will mature in the ~~second~~third quarter of fiscal 2018.

The following table provides information about our foreign currency forward contracts outstanding as of ~~March 31,~~September 29, 2018 (in thousands):


Currency		Contract Position	Contract Amount (Local Currency)		Contract Amount (U.S. Dollars)			Contract Position	Contract Amount (Local Currency)		Contract Amount (U.S. Dollars)
Japanese Yen		Sell	983,753		$	9,268		Sell	(2,241,544	)	$	19,783
Taiwan Dollar		Buy	(11,683	)	(404		)	Buy	49,404		(1,626		)
Korean Won		Buy	(1,871,575	)	(1,772		)	Buy	4,508,988		(4,082		)
Euro Dollar		Sell	16,187		19,621			Sell	(15,050	)	17,574
Total USD notional amount of outstanding foreign exchange contracts	Total USD notional amount of outstanding foreign exchange contracts				$	26,713		Total USD notional amount of outstanding foreign exchange contracts			$	31,649

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

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


		Three Months Ended					Three Months Ended					Nine Months Ended
Derivatives Not Designated as Hedging Instruments	Location of Loss Recognized on Derivatives	March 31, 2018		April 1, 2017		Location of Loss Recognized on Derivatives	September 29, 2018		September 30, 2017			September 29, 2018		September 30, 2017
Foreign exchange forward contracts	Other expense, net	$	862	$	886	Other income (expense), net	$	706	$	(556	)	$	923	$	(2,364	)

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

We measure and report goodwill and intangible assets at fair value on a non-recurring basis if we determine these assets to be impaired or in the period when we make a business acquisition. There were no assets or liabilities measured at fair value on a nonrecurring basis during the three or nine months ended ~~March 31,~~September 29, 2018 or ~~April 1,~~September 30, 2017.

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. 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.

~~A reconciliation of the changes~~Changes in our warranty liability ~~was~~were as follows (in thousands):


	Three Months Ended						Nine Months Ended
	March 31, 2018			April 1, 2017			September 29, 2018			September 30, 2017
Balance at beginning of period	$	3,662		$	2,972		$	3,662		$	2,972
Accruals	1,025			1,127			3,168			4,888
Settlements	(1,848		)	(1,517		)	(4,373		)	(5,009		)
Balance at end of period	$	2,839		$	2,582		$	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 ~~three~~nine months ended ~~March 31,~~September 29, 2018, we did not repurchase any shares. As of ~~March 31,~~September 29, 2018, $6.0 million remained available for future repurchases.

Restricted Stock Units

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


	Units		Weighted Average Grant Date Fair Value		Units		Weighted Average Grant Date Fair Value
RSUs at December 30, 2017	3,148,061		$	11.22	3,148,061		$	11.22
Awards granted	46,500		14.95		1,551,770		13.79
Awards vested	(59,246	)	6.73		(1,271,132	)	10.45
Awards forfeited	(258,599	)	11.60		(293,969	)	11.60
RSUs at March 31, 2018	2,876,716		$	11.34
RSUs at September 29, 2018					3,134,730		$	12.77

The total fair value of RSUs vested during the ~~three~~nine months ended ~~March 31,~~September 29, 2018 was ~~$0.9~~$17.3 million.

Performance Restricted Stock Units

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

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

There were no other PRSUs granted during the ~~three~~nine months ended ~~March 31,~~September 29, 2018.

Stock Options

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


	Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value		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				659,334		$	8.12
Options exercised	(105,610	)	9.93					(105,610	)	9.93
Outstanding at March 31, 2018	553,724		$	7.77	4.06	$	3,253,558
Exercisable at March 31, 2018	429,270		$	7.66	4.04	$	2,572,312
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:


	Three Months Ended		Nine Months Ended
	March 31, 2018		September 29, 2018
Shares issued	341,670		610,297
Weighted average per share purchase price	$	10.84	$	12.84
Weighted average per share discount from the fair value of our common stock on the date of issuance	$	3.51	$	2.82

Stock-Based Compensation

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


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31, 2018		April 1, 2017		September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
Cost of revenues	$	920	$	854	$	832	$	894	$	2,565	$	2,540
Research and development	1,302		1,082		1,312		1,437		3,870		3,768
Selling, general and administrative	1,534		1,366		2,393		2,255		5,986		4,971
Total stock-based compensation	$	3,756	$	3,302	$	4,537	$	4,586	$	12,421	$	11,279

Unrecognized Compensation Costs

At ~~March 31,~~September 29, 2018, the unrecognized stock-based compensation was as follows (in thousands):


	Unrecognized Expense		Average Expected Recognition Period in Years	Unrecognized Expense		Average Expected Recognition Period in Years
Stock options	$	398	0.90	$	167	0.36
Restricted stock units	21,556		2.00	28,035		2.76
Performance restricted stock units				6,580		2.38
Employee stock purchase plan	691		0.30	974		0.34
Total unrecognized stock-based compensation expense	$	22,645	1.90	$	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		Three Months Ended		Nine Months Ended
	March 31, 2018	April 1, 2017	September 29, 2018	September 30, 2017	September 29, 2018	September 30, 2017
Weighted-average shares used in computing basic net income per share	72,826	71,423	73,837	72,651	73,273	72,103
Add potentially dilutive securities	1,516	1,499	1,125	1,234	1,355	1,437
Weighted-average shares used in computing diluted net income per share	74,342	72,922	74,962	73,885	74,628	73,540

Securities not included as they would have been antidilutive	19	126	5	—	21	77

Note 11 — Commitments and Contingencies

Contractual Commitments and Purchase Obligations

~~Our~~During the second quarter of 2018, we amended our lease ~~commitments,~~for our Beaverton, Oregon facility, which extended the lease through 2027. During the third quarter of 2018, we amended our lease for our Livermore, California facility, which extended the lease through 2028. Our purchase obligations and other contractual obligations have not materially changed as of ~~March 31,~~September 29, 2018 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):



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

Legal Matters

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. As of ~~March 31,~~September 29, 2018, and as of the filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings.

Note 12 — Operating Segments and Enterprise-Wide Information

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

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


	Three Months Ended																									Three Months Ended
	March 31, 2018													April 1, 2017												September 29, 2018												September 30, 2017
	Probe Cards				Systems			Corporate and Other			Total			Probe Cards			Systems			Corporate and Other			Total			Probe Cards			Systems			Corporate and Other			Total			Probe Cards			Systems			Corporate and Other			Total
Revenues	$	94,928			$	23,362		$	—		$	118,290		$	106,496		$	22,333		$	—		$	128,829		$	111,606		$	23,383		$	—		$	134,989		$	119,439		$	24,296		$	—		$	143,735
Gross profit	$	40,071			$	11,135		$	(6,077	)	$	45,129		$	42,820		$	12,090		$	(7,339	)	$	47,571		$	47,675		$	11,250		$	(5,955	)	$	52,970		$	51,438		$	12,571		$	(6,379	)	$	57,630
Gross margin	42.2		%		47.7		%	—		%	38.2		%	40.2		%	54.1		%	—		%	36.9		%	42.7		%	48.1		%	—		%	39.2		%	43.1		%	51.7		%	—		%	40.1		%
Operating income (loss)	$	18,832		—	$	4,283		$	(19,481	)	$	3,634		$	21,742		$	5,122		$	(19,805	)	$	7,059		$	25,609		$	4,228		$	(20,469	)	$	9,368		$	17,894		$	5,277		$	(8,905	)	$	14,266



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

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

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

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

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


	Three Months Ended												Three Months Ended
	March 31, 2018						April 1, 2017						September 29, 2018						September 30, 2017
	Probe Cards		Systems		Total		Probe Cards		Systems		Total		Probe Cards		Systems		Total		Probe Cards		Systems		Total
Type of good/ service:
Market:
Foundry & Logic	$	58,439	$	—	$	58,439	$	74,310	$	—	$	74,310	$	61,270	$	—	$	61,270	$	81,914	$	—	$	81,914
DRAM	30,266		—		30,266		28,956		—		28,956		37,359		—		37,359		32,373		—		32,373
Flash	6,223		—		6,223		3,230		—		3,230		12,977		—		12,977		5,151		—		5,151
Systems	—		23,362		23,362		—		22,333		22,333		—		23,383		23,383		—		24,297		24,297
	$	94,928	$	23,362	$	118,290	$	106,496	$	22,333	$	128,829
Total													$	111,606	$	23,383	$	134,989	$	119,438	$	24,297	$	143,735
Timing of revenue recognition:
Products transferred at a point in time	$	94,434	$	22,521	$	116,955	$	106,049	$	21,543	$	127,592	$	111,020	$	22,422	$	133,442	$	118,995	$	23,372	$	142,367
Services transferred over time	494		841		1,335		447		790		1,237		586		961		1,547		443		925		1,368
	$	94,928	$	23,362	$	118,290	$	106,496	$	22,333	$	128,829
Total													$	111,606	$	23,383	$	134,989	$	119,438	$	24,297	$	143,735
Geographical region:
United States	$	26,557	$	6,375	$	32,932	$	32,687	$	7,154	$	39,841	$	34,398	$	5,729	$	40,127	$	48,544	$	8,712	$	57,256
Taiwan	25,897		1,751		27,648		18,153		1,392		19,545		18,904		777		19,681		15,951		1,863		17,814
South Korea	14,285		1,074		15,359		18,154		583		18,737		19,664		1,437		21,101		21,217		545		21,762
Asia-Pacific¹	12,154		4,572		16,726		21,371		4,635		26,006		22,388		6,825		29,213		19,136		4,664		23,800
Europe	5,573		5,929		11,502		4,503		4,246		8,749		5,499		3,629		9,128		6,015		6,079		12,094
Japan	10,132		3,540		13,672		11,195		4,038		15,233		10,462		4,273		14,735		8,419		2,037		10,456
Rest of the world	330		121		451		433		285		718		291		713		1,004		156		397		553
	$	94,928	$	23,362	$	118,290	$	106,496	$	22,333	$	128,829
Total													$	111,606	$	23,383	$	134,989	$	119,438	$	24,297	$	143,735



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

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

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

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, which are subject to risks and uncertainties. The forward-looking statements include statements concerning, among other things, our business strategy, financial and operating results, gross margins, liquidity and capital expenditure requirements, impact of accounting standards 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 and in this Quarterly Report on Form 10-Q. You should carefully consider the numerous risks and uncertainties described under these sections.

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the accompanying notes contained in this Quarterly Report on Form 10-Q. Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us” and “FormFactor” refer to FormFactor, Inc. and its subsidiaries.

Overview

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

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,~~segment, while sales of our probe stations and thermal sub-systems are included in the Systems ~~Segment.~~segment.

We generated net income of ~~$2.1~~$18.9 million in the first ~~three~~nine months of fiscal 2018 as compared to ~~$5.2~~$35.3 million in the first ~~three~~nine months of fiscal 2017. The decrease in net income was primarily due to decreased revenue from our Probe Cards segment and increased operating ~~expenses, partially offset by improved gross margins.~~expenses.

Critical Accounting Policies and the Use of Estimates

Management’s Discussion and Analysis and Note 2 to the Consolidated Financial Statements in our 2017 Annual Report on Form 10-K describe the significant accounting estimates and critical accounting policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. During the ~~three~~nine months ended ~~March 31,~~September 29, 2018, other than the adoption of new revenue recognition guidance as described in Note 1, there were no significant changes in our critical accounting policies or estimates from those reported in our Annual Report on Form 10-K for the year ended December 30, 2017, which was filed with the Securities and Exchange Commission on February 27, 2018.

Results of Operations

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


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31, 2018		April 1, 2017		September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
Revenues	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenues	61.8		63.1		60.8		59.9		60.3		59.9
Gross profit	38.2		36.9		39.2		40.1		39.7		40.1
Operating expenses:
Research and development	15.3		13.5		14.0		13.5		14.6		13.3
Selling, general and administrative	19.8		17.7		18.3		16.7		18.9		16.9
Restructuring and impairment charges	—		0.2
Restructuring					—		—		—		0.1
Total operating expenses	35.1		31.4		32.3		30.2		33.5		30.3
Operating income	3.1		5.5		6.9		9.9		6.2		9.8
Interest income	0.2		—		0.3		0.1		0.2		0.1
Interest expense	(0.8	)	(0.9	)	(0.6	)	(0.8	)	(0.7	)	(0.8	)
Other expense, net	(0.5	)	(0.3	)
Other income (expense), net					0.2		0.2		(0.2	)	—
Income before income taxes	2.0		4.3		6.7		9.6		5.5		9.1
Provision for income taxes	0.2		0.3		1.1		0.7		0.9		0.6
Net income	1.8	%	4.0	%	5.7	%	8.8	%	4.6	%	8.6	%

Revenues by Segment and Market


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31, 2018		April 1, 2017		September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
	(In thousands)				(In thousands)
Probe Cards	$	94,928	$	106,496	$	111,606	$	119,439	$	318,120	$	347,559
Systems	23,362		22,333		23,383		24,296		70,668		68,981
	$	118,290	$	128,829	$	134,989	$	143,735	$	388,788	$	416,540



	Three Months Ended
	September 29, 2018		% of Revenues		September 30, 2017		% of Revenues		$ Change			% Change
	(Dollars in thousands)
Probe Cards Markets:
Foundry & Logic	$	61,270	45.4	%	$	81,914	57.0	%	$	(20,644	)	(25.2	)%
DRAM	37,359		27.7		32,373		22.5		4,986			15.4
Flash	12,977		9.6		5,151		3.6		7,826			151.9
Systems Market:
Systems	23,383		17.3		24,297		16.9		(914		)	(3.8	)
Total revenues	$	134,989	100.0	%	$	143,735	100.0	%	$	(8,746	)	(6.1	)%

	Nine Months Ended
	September 29, 2018		% of Revenues		September 30, 2017		% of Revenues		$ Change			% Change
	(Dollars in thousands)
Probe Cards Markets:
Foundry & Logic	$	181,819	46.7	%	$	244,952	58.8	%	$	(63,133	)	(25.8	)%
DRAM	105,716		27.2		92,798		22.3		12,918			13.9
Flash	30,585		7.9		9,809		2.4		20,776			211.8
Systems Market:
Systems	70,668		18.2		68,981		16.5		1,687			2.4
Total revenues	$	388,788	100.0	%	$	416,540	100.0	%	$	(27,752	)	(6.7	)%

The decreases in Foundry & Logic product revenue for the three and nine months ended September 29, 2018, compared to the three and nine months ended September 30, 2017, were primarily the result of lower demand from one major customer. This major customer accounted for 24.5% and 18.0%, respectively, of total revenues for the three and nine months ended September 29, 2018, compared to 30.6% and 27.4%, respectively, for the comparable periods of 2017.

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

The decrease in ~~Probe Cards Segment~~Systems product revenue for the three months ended ~~March 31,~~September 29, 2018, compared to the three months ended ~~April 1,~~September 30, 2017, was ~~primarily the result of~~driven by decreased unit sales ~~in the Foundry & Logic market, offset partially by increased unit sales in the DRAM and Flash markets.~~

of thermal sub-systems due to customer demand. The increase in Systems ~~Segment~~product revenue for the ~~three~~nine months ended ~~March 31,~~September 29, 2018, compared to the ~~three~~nine months ended ~~April 1,~~September 30, 2017, was driven by increased unit sales of thermal sub-systems due to increased customer demand, ~~offset~~ partially ~~by lower revenue from probe stations due to changes in product sales mix which decreased the average selling price of unit sold.~~

~~Revenues by Market~~

Three Months Ended March 31, 2018 % of Three Months Ended April 1, 2017 % of Change
Revenues Revenues $ %
(In thousands, except percentages)
Probe Cards Markets:
Foundry & Logic $ 58,439
49.4 % $ 74,310
57.7 % $ (15,871 ) (21.4 )%
DRAM 30,266
25.6
28,956
22.5
1,310
4.5
Flash 6,223
5.3
3,230
2.5
2,993
92.7
Systems Market:
Systems 23,362
19.7
22,333
17.3
1,029
4.6
Total revenues $ 118,290
100.0 % $ 128,829
100.0 % $ (10,539 ) (8.2 )%

The decrease in Foundry & Logic product revenue for the three months ended March 31, 2018, compared to the three months ended April 1, 2017 was primarily the result of lower demand from one major customer.

~~The increase in DRAM and Flash product revenue for the three months ended March 31, 2018, compared to the three months ended April 1, 2017 was the result of increased customer demand.~~

The increase in Systems product revenue for the three months ended March 31, 2018 compared to three months ended April 1, 2017 was driven by increased unit sales of thermal sub-systems due to increased customer demand, offset ~~partially~~ by lower revenue from probe stations due to changes in product sales mix which decreased the average selling price of units sold.

Revenues by Geographic Region


	Three Months Ended								Three Months Ended								Nine Months Ended
	March 31, 2018		% of Revenue		April 1, 2017		% of Revenue		September 29, 2018		% of Revenue		September 30, 2017		% of Revenue		September 29, 2018		% of Revenue		September 30, 2017		% of Revenue
	(Dollars in thousands)								(Dollars in thousands)
United States	$	32,932	27.8	%	$	39,841	30.9	%	$	40,127	29.7	%	$	57,256	39.8	%	$	106,821	27.5	%	$	147,494	35.4	%
Taiwan	27,648		23.4		19,545		15.2		19,681		14.6		17,814		12.4		76,980		19.8		67,161		16.1
South Korea	15,359		13.0		18,737		14.5		21,101		15.6		21,762		15.1		62,567		16.1		63,215		15.2
Asia-Pacific⁽¹⁾	16,726		14.1		26,006		20.2
Asia-Pacific¹									29,213		21.7		23,800		16.6		67,219		17.3		70,226		16.9
Europe	11,502		9.7		8,749		6.8		9,128		6.8		12,094		8.4		30,150		7.8		31,472		7.6
Japan	13,672		11.6		15,233		11.8		14,735		10.9		10,456		7.3		41,949		10.8		35,066		8.4
Rest of the world	451		0.4		718		0.6		1,004		0.7		553		0.4		3,102		0.8		1,906		0.5
Total revenues	$	118,290	100.0	%	$	128,829	100.0	%	$	134,989	100.0	%	$	143,735	100.0	%	$	388,788	100.0	%	$	416,540	100.0	%

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

Geographic revenue information is based on the location to which we ship the product. For example, if a certain South Korean customer purchases through their 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 U.S.

Changes in revenue by geographic region for the three and nine months ended ~~March 31,~~September 29, 2018 compared to the three and nine months ended ~~April 1,~~September 30, 2017 were primarily attributable to changes in customer demand and product sales ~~mix as previously described.~~mix.

Cost of Revenues and Gross Margins

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

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



	Three Months Ended
	September 29, 2018			September 30, 2017			$ Change			% Change
Gross profit	$	52,970		$	57,630		$	(4,660	)	(8.1	)%
Gross margin	39.2		%	40.1		%

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

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



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

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

Probe Cards

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

Systems

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

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

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

Three Months Ended
March 31, 2018 April 1, 2017 $ Change % Change
Gross profit $ 45,129
$ 47,571
$ (2,442 ) (5.1 )%
Gross margin 38.2 % 36.9 %

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

Three Months Ended
March 31, 2018 April 1, 2017
Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total
Gross profit $ 40,071
$ 11,135
$ (6,077 ) $ 45,129
$ 42,820
$ 12,090
$ (7,339 ) $ 47,571
Gross margin 42.2 % 47.7 % — % 38.2 % 40.2 % 54.1 % — % 36.9 %

~~Probe Cards~~

For the three months ended March 31, 2018, gross profit in the Probe Cards segment decreased due to decreased sales, while gross margins increased due to favorable product mix, lower amortization of intangibles and lower inventory reserves, offset partially by decreased factory utilization.

~~Systems~~

~~For the three months ended March 31, 2018, gross profit and gross margin in the Systems segment decreased due to changes in foreign currency exchange rates and changes in product sales mix.~~

Overall

Gross profit and gross margin fluctuate with revenue levels, product mix, selling prices, factory loading and material costs. For the three and nine months ended ~~March 31,~~September 29, 2018, compared to the three and nine months ended ~~April 1,~~September 30, 2017, gross profit decreased due to lower revenue, and gross margins ~~increased~~decreased due to ~~favorable~~unfavorable product mix and lower ~~amortization of intangibles.~~factory utilization, as well as changes in foreign currency exchange rates, partially offset by lower amortization.

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

Three Months Ended
March 31,
2018 April 1,
2017
Stock-based compensation $ 920
$ 854



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

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

Research and Development


	Three Months Ended										Three Months Ended
	March 31, 2018			April 1, 2017			$ Change		% Change		September 29, 2018			September 30, 2017			$ Change			% Change
	(Dollars in thousands)										(Dollars in thousands)
Research and development	$	18,046		$	17,414		$	632	3.6	%	$	18,857		$	19,338		$	(481	)	(2.5	)%
% of revenues	15.3		%	13.5		%					14.0		%	13.5		%

											Nine Months Ended
											September 29, 2018			September 30, 2017			$ Change			% Change
											(Dollars in thousands)
Research and development											$	56,578		$	55,294		$	1,284		2.3	%
% of revenues											14.6		%	13.3		%

The ~~increase~~decrease in research and development expenses in the three months ended ~~March 31,~~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 nine months ended September 29, 2018 when compared to corresponding period in prior year was primarily due to an increase in project ~~related costs.~~material costs to support research and development within our Probe Cards segment, partially offset by a decrease in employee incentive compensation. The lower employee incentive compensation in both periods was primarily due to decreased profitability from lower revenues.

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


	Three Months Ended March 31, 2018 compared to Three Months Ended April 1, 2017		Three Months Ended September 29, 2018 compared to Three Months Ended September 30, 2017			Nine Months Ended September 29, 2018 compared to Nine Months Ended September 30, 2017

Employee compensation costs			$	(688	)	$	(627	)
Stock-based compensation	$	220	(125		)	102
Project material costs	233		153			1,104
Depreciation	93		85			287
Employee compensation and other general operations	86
Other general operations			94			418
	$	632	$	(481	)	$	1,284

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

Three Months Ended
March 31,
2018 April 1,
2017
Stock-based compensation $ 1,302
$ 1,082



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

Selling, General and Administrative


	Three Months Ended										Three Months Ended
	March 31, 2018			April 1, 2017			$ Change		% Change		September 29, 2018			September 30, 2017			$ Change		% Change
	(Dollars in thousands)										(Dollars in thousands)
Selling, general and administrative	$	23,449		$	22,829		$	620	2.7	%	$	24,745		$	24,010		$	735	3.1	%
% of revenues	19.8		%	17.7		%					18.3		%	16.7		%

											Nine Months Ended
											September 29, 2018			September 30, 2017			$ Change		% Change
											(Dollars in thousands)
Selling, general and administrative											$	73,426		$	70,441		$	2,985	4.2%
% of revenues											18.9		%	16.9		%

The ~~increase~~increases in the three and nine months ended ~~March 31,~~September 29, 2018 when compared to the corresponding ~~period~~periods in the prior year ~~was~~were primarily due to ~~higher integration costs and~~increases in consulting fees related to information systems implementation and stock-based compensation, partially offset ~~partially~~ by a reduction in ~~travel related costs.~~employee incentive compensation due to decreased profitability from lower revenues. A detail of the changes is as follows (in thousands):


	Three Months Ended March 31, 2018 compared to Three Months Ended April 1, 2017			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

Integration related	$	428
General operating expenses				$	224		$	698
Consulting fees	279			164			1,441
Stock-based compensation	168			138			1,015
Travel related costs	(333		)	321			125
Employee compensation and other general operating costs	63
Depreciation and amortization	15
Employee compensation				(458		)	(654		)
Amortization of intangibles				346			360
	$	620		$	735		$	2,985

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

Three Months Ended
March 31,
2018 April 1,
2017
Stock-based compensation $ 1,534
$ 1,366



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

Restructuring Charges, net

Three Months Ended
March 31,
2018 April 1,
2017
Restructuring charges, net $ —
$ 269
% of revenues — % 0.2 %

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



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

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

Interest Income and Interest Expense


	Three Months Ended						Three Months Ended						Nine Months Ended
	March 31, 2018			April 1, 2017			September 29, 2018			September 30, 2017			September 29, 2018			September 30, 2017
	(Dollars in thousands)						(Dollars in thousands)
Interest income	$	257		$	67		$	369		$	123		$	952		$	283
Weighted average balance of cash and investments	$	133,634		$	111,808		$	134,516		$	125,675		$	136,986		$	120,134
Weighted average yield on cash and investments	1.50		%	0.48		%	1.50		%	0.91		%	1.46		%	0.72		%

Interest expense	$	967		$	1,174		$	(777	)	$	(1,109	)	$	(2,654	)	$	(3,446	)
Average debt outstanding	$	106,058		$	139,224
Weighted average interest rate on debt	3.61		%	2.78		%
Average term loan outstanding							$	84,725		$	123,558		$	96,003		$	131,696
Weighted average interest rate on term loan							4.09		%	3.23		%	3.88		%	3.01		%

Interest income is earned on our cash, cash equivalents, restricted cash and marketable securities. The ~~increase~~increases in interest income for the three and nine months ended ~~March 31,~~September 29, 2018 compared with corresponding ~~period~~periods of prior year iswere attributable to higher investment ~~yields.~~yields, as well as higher average investment balances.

Interest expense primarily includes interest on our term loan and interest-rate swap derivative contracts, ~~and~~as well as term loan issuance costs amortization charges. The ~~decrease~~decreases in interest expense for the three and nine months ended ~~March 31,~~September 29, 2018 compared to the three and nine months ended ~~April 1,~~September 30, 2017 ~~was~~were primarily due to a lower outstanding debt ~~balance~~balances as a result of principal payments ~~made.~~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


	Three Months Ended				Three Months Ended						Nine Months Ended
	March 31, 2018		April 1, 2017		September 29, 2018			September 30, 2017			September 29, 2018			September 30, 2017
	(Dollars in thousands)				(Dollars in thousands)
Provision for income taxes	287		367		$	1,393		$	1,028		$	3,334		$	2,435
Effective income tax rate	11.9	%	6.6	%	15.3		%	7.6		%	15.0		%	6.4		%

Provision for income taxes reflects the tax provision on our operations in foreign and U.S. jurisdictions, offset by tax benefits from lapsing of statute of limitations related to uncertain tax positions in foreign jurisdictions. We continue to maintain a full valuation allowance against our U.S. Federal and State deferred tax assets. The change in provision for income taxes ~~primarily relates to~~was driven by higher profits in foreign jurisdictions for the three and ~~an increase~~nine months ended September 29, 2018, compared to the three and nine months ended September 30, 2017.

We have reported U.S. pre-tax losses, compared to U.S. pre-tax income in ~~state~~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 ~~taxes due~~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 ~~utilized net operating losses in certain state jurisdictions.~~refundable under the Tax Act. We have completed the accounting for the tax effects of the Tax Act described above for fiscal year 2017 and there have been no material changes to estimated amounts.

Liquidity and Capital Resources

Capital Resources

Our working capital was ~~$215.2~~$224.3 million at ~~March 31,~~September 29, 2018, which did not change significantly ~~with~~compared to $213.7 million at December 30, 2017.

Cash and cash equivalents primarily consist of deposits held at banks, ~~and~~ money market ~~funds.~~funds and commercial paper. Marketable securities primarily consist of 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 million at ~~March 31,~~September 29, 2018, as compared to $140.2 million at December 30, 2017. We believe that we will be able to satisfy our working capital requirements and scheduled term loan repayments for at least the next twelve months with the liquidity provided by our existing cash, cash equivalents, marketable securities and cash provided by operations. To the extent necessary, we may consider entering into short and long-term debt obligations, raising cash through a stock issuance, or obtaining new financing facilities, which may not be available on terms favorable to us. Our future capital requirements may vary materially from those now planned.

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

We utilize a variety of tax planning and financing strategies in an effort to manage our worldwide cash and deploy funds to locations where they are needed. As part of these strategies, we indefinitely reinvest a ~~significant~~ portion of our foreign ~~earnings and our current plans do not demonstrate a need to repatriate these~~earnings. During the nine months ended September 29, 2018, we repatriated $16.5 million of foreign earnings. Should we require additional capital in the United States, we may elect to repatriate indefinitely-reinvested foreign funds or raise capital in the United States.

Cash Flows

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


	Three Months Ended						Nine Months Ended
	March 31, 2018			April 1, 2017			September 29, 2018			September 30, 2017
	(In thousands)						(In thousands)
Net Cash provided by operating activities	$	9,322		$	17,803
Net cash provided by operating activities							$	46,138		$	59,866
Net cash used in investing activities	$	(3,391	)	$	(3,451	)	(13,463		)	(38,243		)
Net cash used in financing activities	$	(4,353	)	$	(2,651	)	(31,732		)	(22,847		)

Operating Activities

Net cash provided by operating activities for the ~~three~~nine months ended ~~March 31,~~September 29, 2018 was primarily attributable to ~~our operations generating $18.3 million of cash (a~~ net income of ~~$2.1~~$18.9 million ~~which included $16.2~~and $53.3 million of net non-cash ~~expenses),~~expenses, offset by operating assets and liabilities using ~~$9.0~~$26.1 million of cash as discussed in more detail below.

Accounts receivable, net, ~~decreased $3.0~~increased $7.4 million to ~~$78.5~~$88.9 million at ~~March 31,~~September 29, 2018, compared to $81.5 million at December 30, 2017, as a result of ~~decreased revenues,~~changes in customer sales mix and timing of customer ~~shipments and contractual payment terms.~~shipments.

Inventories, net, increased ~~$5.9~~$13.7 million to ~~$73.8~~$81.5 million at ~~March 31,~~September 29, 2018, compared to $67.8 million at December 30, 2017, as a result of increased inventory ~~build~~purchases to shorten lead time and improve pricing, and in anticipation of ~~future revenue growth.~~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 ~~$3.8~~$14.6 million to ~~$38.9~~$49.7 million at ~~March 31,~~September 29, 2018, compared to $35.0 million at December 30, 2017, as a result of increased inventory and fixed asset purchases, and timing of vendor payments.

Accrued liabilities decreased ~~$10.2~~$8.8 million to ~~$23.5~~$24.9 million at ~~March 31,~~September 29, 2018, compared to $33.7 million at December 30, 2017, as a result of timing of employee payroll, decreases in ~~accruals for~~ employee stock purchase plan ~~salaries~~withholdings due to timing within the plan's withholding period, and ~~bonuses.~~decrease in accrued warranty.

Investing Activities

Net cash used in investing activities for the ~~three~~nine months ended ~~March 31,~~September 29, 2018 was primarily related to ~~$3.8~~$12.3 million of cash used in the acquisition of property, plant and equipment, ~~partially offset by $0.4~~as well as $1.2 million of net ~~maturities~~purchases of marketable securities.

Financing Activities

Net cash used in financing activities for the ~~three~~nine months ended ~~March 31,~~September 29, 2018 primarily related to ~~$8.8~~$33.8 million of principal payments made towards the repayment of our term loan and ~~$0.4~~$5.7 million related to tax withholdings associated with the net share settlements of our equity awards, partially offset by ~~$4.8~~$7.7 million of proceeds received from issuances of common stock under our employee stock purchase plan and exercise of stock options.

Debt Facility

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

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

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

~~period.~~ 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, we have made prepayments of $40.0 million in addition to scheduled installments per the Credit Agreement. For the three and nine months ended September 29, 2018, we made prepayments of $5.0 million and $15.0 million, respectively, in addition to scheduled installments.

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

The Credit Agreement contains negative covenants customary for financing of this type, as well as certain financial maintenance covenants. As of ~~March 31,~~September 29, 2018, the balance outstanding pursuant to the ~~term loan~~Term Loan was ~~$97.5~~$72.5 million at an interest rate of ~~3.65%~~4.25% and we were in compliance with all covenants under the Credit Agreement.

The Credit Agreement allows voluntary prepayment to be made at any time and from time to time to prepay the Term Loan in whole or in part without penalty or premium. As of March 31, 2018, we have made prepayments of $30.0 million in addition to scheduled installments per the Credit Agreement. For the three months ended March 31, 2018, we made prepayment of $5.0 million in addition to scheduled installment.

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 ~~three~~nine months ended ~~March 31,~~September 29, 2018, we did not repurchase any shares of common stock. As of ~~March 31,~~September 29, 2018, $6.0 million remained available for future repurchases.

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

Contractual Obligations and Commitments

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

Off-Balance Sheet Arrangements

Historically, we have not participated in transactions that have generated relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of ~~March 31,~~September 29, 2018, we were not involved in any such off-balance sheet arrangements.

Recent Accounting Pronouncements

See Note 1 of Notes to Condensed Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

For financial market risks related to changes in interest rates and foreign currency exchange rates, reference is made to Item 7A “Quantitative and Qualitative Disclosures about Market Risk” contained in Part II of our Annual Report on Form 10-K for the fiscal year ended December 30, 2017. Our exposure to market risk has not changed materially since December 30, 2017.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

~~Beginning December 31, 2017, we implemented ASC 606, "Revenue from Contracts with Customers", which required~~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 ~~implementation of~~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 controls to ensure we adequately evaluated our contracts and properly assessed the impact on the new accounting standard. In addition, although the new revenue standard is expected to have an immaterial impact on our ongoing revenue or net income, we implemented changes to our policies and internal controls related to revenue recognition.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 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 ~~three~~nine months ended ~~March 31,~~September 29, 2018 to the risk factors discussed in our Annual Report on Form 10-K for the year ended December 30, 2017. If any of the identified risks actually occur, our business, financial condition and results of operations could suffer. The trading price of our common stock could decline and you may lose all or part of your investment in our common stock. The risks and uncertainties described in our Annual Report on Form 10-K for the year ended December 30, 2017 are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business operations.

Item 6. Exhibits

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



~~Exhibit~~		~~Incorporated by Reference~~			~~Filed~~
~~Number~~	~~Exhibit Description~~	~~Form~~	~~Date~~	~~Number~~	~~Herewith~~
~~10.01+~~	~~Employment Offer Letter, dated February 15, 2018 to Shai Shahar~~				X
~~31.01~~	~~Certification of Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~				X
~~31.02~~	~~Certification of Chief Financial Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~				X
~~32.01~~	~~Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~				*
~~101.INS~~	~~XBRL Instance Document~~				X
~~101.SCH~~	~~XBRL Taxonomy Extension Schema Document~~				X
~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document~~				X
~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase Document~~				X
~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document~~				X
~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document~~				X



Exhibit		Incorporated by Reference			Filed
Number	Exhibit Description	Form	Date	Number	Herewith
3.1	Amended and Restated Certificate of Incorporation of the Registrant as filed with the Delaware Secretary of State on June 17, 2003	S-1	October 20, 2003	3.01
3.2	Amended and Restated Bylaws of the Registrant	8-K	July 22, 2016	3.2
10.01	Third Amendment, dated October 1, 2018, between FormFactor, Inc. and MOHR PCC, LP, to Pacific Corporate Center Lease, dated October 5, 2004, by and between Greenville Investors, L.P. and FormFactor, Inc.	8-K	October 2, 2018	10.01
10.02	Fourth Amendment, dated October 1, 2018, between FormFactor, Inc. and MOHR PCC, LP, to Pacific Corporate Center Lease, dated May 3, 2001, by and between Greenville Investors, L.P. and FormFactor, Inc.	8-K	October 2, 2018	10.02
31.01	Certification of Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
31.02	Certification of Chief Financial Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
32.01	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				*
101.INS	XBRL Instance Document				X
101.SCH	XBRL Taxonomy Extension Schema Document				X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document				X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document				X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document				X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document				X

______________________________________

This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

~~+ Indicates a management contract or compensatory plan or arrangement.~~

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:	~~May 8,~~November 6, 2018	By:	/s/ SHAI SHAHAR

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

2936



	Employee Severance and Benefits			Contract Termination and Other Costs			Total
Accrual at December 30, 2017	$	398		$	1		$	399
Cash payments	(398		)	(1		)	(399		)
Accrual at March 31, 2018	$	—		$	—		$	—



	Three Months Ended March 31, 2018		% of		Three Months Ended April 1, 2017		% of		Change
	Three Months Ended March 31, 2018		Revenues		Three Months Ended April 1, 2017		Revenues		$			%
	(In thousands, except percentages)
Probe Cards Markets:
Foundry & Logic	$	58,439	49.4	%	$	74,310	57.7	%	$	(15,871	)	(21.4	)%
DRAM	30,266		25.6		28,956		22.5		1,310			4.5
Flash	6,223		5.3		3,230		2.5		2,993			92.7
Systems Market:
Systems	23,362		19.7		22,333		17.3		1,029			4.6
Total revenues	$	118,290	100.0	%	$	128,829	100.0	%	$	(10,539	)	(8.2	)%