UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark one)
ýQUARTERLY 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
 
Or 

oTRANSITION 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, 73,031,86474,102,335 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
 
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, 2017September 29,
2018
 December 30, 2017
ASSETS 
  
 
  
Current assets: 
  
 
  
Cash and cash equivalents$93,699
 $91,184
$91,990
 $91,184
Marketable securities48,370
 48,988
50,109
 48,988
Accounts receivable, net of allowance for doubtful accounts of $200 and $20078,524
 81,515
88,869
 81,515
Inventories, net73,780
 67,848
81,538
 67,848
Restricted cash663
 372
129
 372
Refundable income taxes2,307
 2,242
1,320
 2,242
Prepaid expenses and other current assets14,452
 13,705
15,716
 13,705
Total current assets311,795
 305,854
329,671
 305,854
Restricted cash1,020
 1,170
1,034
 1,170
Property, plant and equipment, net of accumulated depreciation and amortization of $259,608 and $255,75547,851
 46,754
Property, plant and equipment, net of accumulated depreciation of $260,607 and $255,75552,857
 46,754
Goodwill190,367
 189,920
189,427
 189,920
Intangibles, net90,649
 97,484
75,278
 97,484
Deferred tax assets3,145
 3,133
3,042
 3,133
Other assets1,361
 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 liabilities23,496
 33,694
24,877
 33,694
Current portion of term loan, net of unamortized issuance cost of $270 and $30729,730
 18,443
Current portion of term loan, net of unamortized issuance cost of $189 and $30726,061
 18,443
Deferred revenue4,515
 4,978
4,795
 4,978
Total current liabilities96,630
 92,161
105,401
 92,161
Term loan, less current portion, net of unamortized issuance cost of $185 and $27267,315
 87,228
Term loan, less current portion, net of unamortized issuance cost of $57 and $27246,193
 87,228
Deferred tax liabilities3,487
 3,379
3,290
 3,379
Deferred rent and other liabilities7,746
 5,169
7,537
 5,169
Total liabilities175,178
 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 outstanding74
 73
250,000,000 shares authorized; 74,101,623 and 72,532,176 shares issued and outstanding75
 73
Additional paid-in capital851,249
 843,116
857,505
 843,116
Accumulated other comprehensive income5,185
 3,021
1,158
 3,021
Accumulated deficit(385,498) (387,573)(368,687) (387,573)
Total stockholders’ equity471,010
 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 EndedThree 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 revenues73,161
 81,258
82,019
 86,105
 234,471
 249,572
Gross profit45,129
 47,571
52,970
 57,630
 154,317
 166,968
Operating expenses: 
  
 
  
  
  
Research and development18,046
 17,414
18,857
 19,338
 56,578
 55,294
Selling, general and administrative23,449
 22,829
24,745
 24,010
 73,426
 70,441
Restructuring and impairment charges
 269
Restructuring
 16
 
 329
Total operating expenses41,495
 40,512
43,602
 43,364
 130,004
 126,064
Operating income3,634
 7,059
9,368
 14,266
 24,313
 40,904
Interest income257
 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), net121
 311
 (341) 19
Income before income taxes2,412
 5,552
9,081
 13,591
 22,270
 37,760
Provision for income taxes287
 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:   
 
  
    
Basic72,826
 71,423
73,837
 72,651
 73,273
 72,103
Diluted74,342
 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 EndedThree 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 adjustments2,166
 1,447
(449) 1,540
 (1,732) 5,769
Unrealized losses on available-for-sale marketable securities(174) 
Unrealized gains on derivative instruments172
 157
Other comprehensive income, net of tax2,164
 1,604
Unrealized gains (losses) on available-for-sale marketable securities50
 (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: 
  
Depreciation3,525
 3,162
Amortization7,194
 8,349
Accretion of discount on investments23
 
Stock-based compensation expense3,756
 3,302
Amortization of debt issuance costs123
 171
Deferred income tax provision59
 81
Provision for excess and obsolete inventories2,045
 2,797
Acquired inventory step-up amortization
 190
Loss on disposal of long-lived assets15
 22
Gain on derivative instruments
 (65)
Foreign currency transaction gains(561) (729)
Changes in assets and liabilities: 
  
Accounts receivable3,354
 (8,888)
Inventories(7,408) (3,345)
Prepaid expenses and other current assets(247) 3,068
Refundable income taxes(52) 286
Other assets662
 615
Accounts payable2,988
 7,220
Accrued liabilities(9,521) (4,780)
Income tax payable(829) (419)
Deferred rent and other liabilities2,515
 71
Deferred revenues(444) 1,510
Net Cash provided by operating activities9,322
 17,803
Cash flows from investing activities: 
  
Acquisition of property, plant and equipment(3,831) (3,465)
Proceeds from sale of a subsidiary20
 14
Purchases of marketable securities(3,587) 
Proceeds from maturities of marketable securities4,007
 
Net cash used in investing activities(3,391) (3,451)
Cash flows from financing activities: 
  
Proceeds from issuances of common stock4,754
 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 cash1,078
 1,260
Net increase in cash, cash equivalents and restricted cash2,656
 12,961
Cash, cash equivalents and restricted cash, beginning of period92,726
 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, 201772,532,176
 73
 843,116
 3,021
 (387,573) 458,637
Issuance of common stock under the Employee Stock Purchase Plan610,297
 1
 6,661
 
 
 6,662
Issuance of common stock pursuant to exercise of options for cash105,610
 
 1,049
 
 
 1,049
Issuance of common stock pursuant to vesting of restricted stock units853,540
 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, 201874,101,623
 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, 201873,358,108
 74
 853,278
 1,691
 (376,375) 478,668
Issuance of common stock under the Employee Stock Purchase Plan268,627
 
 2,957
 
 
 2,957
Issuance of common stock pursuant to vesting of restricted stock units474,888
 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, 201874,101,623
 $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, 201670,907,847
 71
 833,341
 (3,740) (428,616) 401,056
Issuance of common stock under the Employee Stock Purchase Plan655,961
 1
 5,694
 
 
 5,695
Issuance of common stock pursuant to exercise of options for cash1,431,767
 1
 13,412
 
 
 13,413
Issuance of common stock pursuant to vesting of restricted stock units845,063
 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, 201772,973,018
 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, 201772,346,116
 73
 839,751
 507
 (405,724) 434,607
Issuance of common stock under the Employee Stock Purchase Plan258,937
 
 2,795
 
 
 2,795
Issuance of common stock pursuant to exercise of options for cash178,250
 
 1,827
 
 
 1,827
Issuance of common stock pursuant to vesting of restricted stock units257,015
 
 (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, 201772,973,018
 $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: 
  
Depreciation10,494
 10,046
Amortization21,876
 23,509
Accretion of discount on investments21
 22
Stock-based compensation expense12,421
 11,279
Amortization of debt issuance costs333
 482
Deferred income tax provision70
 122
Recovery of doubtful accounts receivable
 (97)
Provision for excess and obsolete inventories7,414
 6,899
Acquired inventory step-up amortization
 484
Loss on disposal of long-lived assets264
 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 taxes933
 (440)
Other assets697
 823
Accounts payable10,425
 3,040
Accrued liabilities(8,882) (1,048)
Income tax payable(248) (97)
Deferred rent and other liabilities2,445
 101
Deferred revenues(221) 1,517
Net cash provided by operating activities46,138
 59,866
Cash flows from investing activities: 
  
Acquisition of property, plant and equipment(12,326) (13,918)
Proceeds from sale of a subsidiary67
 48
Proceeds from sale of property, plant and equipment23
 
Purchases of marketable securities(18,984) (27,373)
Proceeds from maturities of marketable securities17,757
 3,000
Net cash used in investing activities(13,463) (38,243)
Cash flows from financing activities: 
  
Proceeds from issuances of common stock7,712
 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 cash427
 1,257
Cash, cash equivalents and restricted cash, beginning of period92,726
 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 interest2,299
 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 hereinof 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 threenine 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
OurExcept as described below, our critical accounting policies have not changed during the threenine 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 areproduct 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 areis 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 ASCAccounting 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 periodthree 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 ofearly adopted ASU 2017-04 toon July 1, 2018, the first day of the third quarter. The adoption did not have a materialan 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 cash372
 4
 106
Restricted cash1,170
 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 cash372
 4
 106
Restricted cash1,170
 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 alsoASU 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’sour leasing arrangements. Under current accounting standards, substantially all of the Company’sour leases are considered operating leases and, as such, are not recognized on the Consolidated Balance Sheet. This new standard is effective for the Companyus 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 approvedstandard allows an amendment to Topic 842additional 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 isUpon adoption we will use the modified transition method. We are currently assessing the impact of the new standard on itsour 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 EndedThree Months Ended Nine Months Ended
March 31, 2018 April 1, 2017September 29, 2018 September 30, 2017 September 29, 2018 September 30, 2017
Intel14.0% 26.7%24.5% 30.6% 18.0% 27.4%
Micron12.0
 *
 10.1
 *
SK Hynix10.1
 
*
 *
 10.2
 *
Samsung
 10.3
Total revenues attributable to 10% or greater customers24.1% 37.0%36.5% 30.6% 38.3% 27.4%
*Represents less than 10% of total revenues.

At March 31,September 29, 2018, threetwo 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-progress21,719
 20,134
21,922
 20,134
Finished goods14,905
 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 TotalProbe 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 EndedThree 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 administrative2,037
 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 AmountAmount
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, 2017September 29, 2018 December 30, 2017
Accrued compensation and benefits$11,344
 $18,141
$14,002
 $18,141
Accrued warranty2,839
 3,662
2,457
 3,662
Accrued withholding for employee stock purchase plan1,298
 3,279
1,430
 3,279
Accrued income and other taxes1,877
 3,965
3,397
 3,965
Other accrued expenses6,138
 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 quarterthree quarters of fiscal 2017 and related to the consolidation of an acquired subsidiary into our operations.

There were no restructuring charges in the first quarterthree quarters of fiscal 2018. Changes to the restructuring accrual in the threenine 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 ricingpricing 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 threenine 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 threenine 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 secondthird 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 contractsTotal 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 lossincome (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 changesChanges in our warranty liability waswere as follows (in thousands):
Three Months EndedNine 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
Accruals1,025
 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 threenine 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 ValueUnits Weighted Average Grant Date Fair Value
RSUs at December 30, 20173,148,061
 $11.22
3,148,061
 $11.22
Awards granted46,500
 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, 20182,876,716
 $11.34
RSUs at September 29, 20183,134,730
 $12.77

The total fair value of RSUs vested during the threenine 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 threenine 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 ValueOptions 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, 2018553,724 $7.77
 3.56 $3,308,931
Exercisable at September 29, 2018430,104
 $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 EndedNine Months Ended
 March 31, 2018September 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 EndedThree 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 development1,302
 1,082
1,312
 1,437
 3,870
 3,768
Selling, general and administrative1,534
 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 YearsUnrecognized Expense Average Expected Recognition Period in Years
Stock options$398
 0.90$167
 0.36
Restricted stock units21,556
 2.0028,035
 2.76
Performance restricted stock units6,580
 2.38
Employee stock purchase plan691
 0.30974
 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 EndedThree 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 share72,826
 71,423
73,837
 72,651
 73,273
 72,103
Add potentially dilutive securities1,516
 1,499
1,125
 1,234
 1,355
 1,437
Weighted-average shares used in computing diluted net income per share74,342
 72,922
74,962
 73,885
 74,628
 73,540
   

 

 
 

Securities not included as they would have been antidilutive19
 126
5
 
 21
 77



Note 11 — Commitments and Contingencies

Contractual Commitments and Purchase Obligations
OurDuring 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 Segmentsegment and the Systems Segment.

segment. The following table summarizes the operating results by reportable segment (dollars in thousands):
Three Months EndedThree Months Ended
March 31, 2018 April 1, 2017September 29, 2018 September 30, 2017
Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other TotalProbe 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 margin42.2% 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 margin43.4% 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 EndedThree Months Ended
March 31, 2018 April 1, 2017September 29, 2018 September 30, 2017
Probe Cards Systems Total Probe Cards Systems TotalProbe 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
DRAM30,266
 
 30,266
 28,956
 
 28,956
37,359
 
 37,359
 32,373
 
 32,373
Flash6,223
 
 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 time494
 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
Taiwan25,897
 1,751
 27,648
 18,153
 1,392
 19,545
18,904
 777
 19,681
 15,951
 1,863
 17,814
South Korea14,285
 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
Europe5,573
 5,929
 11,502
 4,503
 4,246
 8,749
5,499
 3,629
 9,128
 6,015
 6,079
 12,094
Japan10,132
 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 world330
 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
    DRAM105,716
 
 105,716
 92,798
 
 92,798
    Flash30,585
 
 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 time1,625
 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
    Taiwan71,300
 5,680
 76,980
 61,568
 5,593
 67,161
    South Korea58,250
 4,317
 62,567
 60,306
 2,909
 63,215
    Asia-Pacific1
50,956
 16,263
 67,219
 53,620
 16,606
 70,226
    Europe15,181
 14,969
 30,150
 17,664
 13,808
 31,472
    Japan31,426
 10,523
 41,949
 27,219
 7,847
 35,066
    Rest of the world1,047
 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 threenine months of fiscal 2018 as compared to $5.2$35.3 million in the first threenine 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 threenine 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 EndedThree Months Ended Nine Months Ended
March 31,
2018
 April 1,
2017
September 29,
2018
 September 30,
2017
 September 29,
2018
 September 30,
2017
Revenues100.0 % 100.0 %100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenues61.8
 63.1
60.8
 59.9
 60.3
 59.9
Gross profit38.2
 36.9
39.2
 40.1
 39.7
 40.1
Operating expenses:          
Research and development15.3
 13.5
14.0
 13.5
 14.6
 13.3
Selling, general and administrative19.8
 17.7
18.3
 16.7
 18.9
 16.9
Restructuring and impairment charges
 0.2
Restructuring
 
 
 0.1
Total operating expenses35.1
 31.4
32.3
 30.2
 33.5
 30.3
Operating income3.1
 5.5
6.9
 9.9
 6.2
 9.8
Interest income0.2
 
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), net0.2
 0.2
 (0.2) 
Income before income taxes2.0
 4.3
6.7
 9.6
 5.5
 9.1
Provision for income taxes0.2
 0.3
1.1
 0.7
 0.9
 0.6
Net income1.8 % 4.0 %5.7 % 8.8 % 4.6 % 8.6 %

Revenues by Segment and Market
Three Months EndedThree Months Ended Nine Months Ended
March 31, 2018 April 1, 2017September 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
Systems23,362
 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)%
DRAM37,359
 27.7
 32,373
 22.5
 4,986
 15.4
Flash12,977
 9.6
 5,151
 3.6
 7,826
 151.9
Systems Market:           
Systems23,383
 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)%
DRAM105,716
 27.2
 92,798
 22.3
 12,918
 13.9
Flash30,585
 7.9
 9,809
 2.4
 20,776
 211.8
Systems Market:           
Systems70,668
 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 SegmentSystems 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 ofdriven 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 Segmentproduct revenue for the threenine months ended March 31,September 29, 2018, compared to the threenine 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)%
DRAM30,266
 25.6
 28,956
 22.5
 1,310
 4.5
Flash6,223
 5.3
 3,230
 2.5
 2,993
 92.7
Systems Market:           
Systems23,362
 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 EndedThree 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%
Taiwan27,648
 23.4
 19,545
 15.2
19,681
 14.6
 17,814
 12.4
 76,980
 19.8
 67,161
 16.1
South Korea15,359
 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
Europe11,502
 9.7
 8,749
 6.8
9,128
 6.8
 12,094
 8.4
 30,150
 7.8
 31,472
 7.6
Japan13,672
 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 world451
 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 margin39.2% 40.1%    
        
 Nine Months Ended
 September 29, 2018 September 30, 2017 $ Change % Change
Gross profit$154,317
 $166,968
 $(12,651) (7.6)%
Gross margin39.7% 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 margin42.7% 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 margin43.4% 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 margin38.2% 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 margin42.2% 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 increaseddecreased due to favorableunfavorable 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 EndedThree Months Ended
March 31, 2018 April 1, 2017 $ Change % ChangeSeptember 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 revenues15.3% 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 revenues14.6% 13.3%    

The increasedecrease 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, 2017Three 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 costs233
153
 1,104
Depreciation93
85
 287
Employee compensation and other general operations86
Other general operations94
 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 EndedThree Months Ended
March 31, 2018 April 1, 2017 $ Change % ChangeSeptember 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 revenues19.8% 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 revenues18.9% 16.9% 
 

The increaseincreases in the three and nine months ended March 31,September 29, 2018 when compared to the corresponding periodperiods in the prior year waswere primarily due to higher integration costs andincreases 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, 2017Three 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 fees279
164
 1,441
Stock-based compensation168
138
 1,015
Travel related costs(333)321
 125
Employee compensation and other general operating costs63
Depreciation and amortization15
Employee compensation(458) (654)
Amortization of intangibles346
 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 quarternine 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 EndedThree 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 investments1.50% 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 debt3.61% 2.78%
Average term loan outstanding$84,725
 $123,558
 $96,003
 $131,696
Weighted average interest rate on term loan4.09% 3.23% 3.88% 3.01%
 
Interest income is earned on our cash, cash equivalents, restricted cash and marketable securities. The increaseincreases in interest income for the three and nine months ended March 31,September 29, 2018 compared with corresponding periodperiods 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, andas well as term loan issuance costs amortization charges. The decreasedecreases 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 waswere primarily due to a lower outstanding debt balancebalances 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 EndedThree 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 taxes287
 367
$1,393
 $1,028
 $3,334
 $2,435
Effective income tax rate11.9% 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 towas driven by higher profits in foreign jurisdictions for the three and an increasenine 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 stateseven 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 duetax 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 withcompared 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 theseearnings. 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 EndedNine Months Ended
March 31, 2018 April 1, 2017September 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 threenine 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 $16.2and $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 $3.0increased $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 buildpurchases 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 salarieswithholdings 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 threenine 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 $0.4as well as $1.2 million of net maturitiespurchases of marketable securities.

Financing Activities
Net cash used in financing activities for the threenine 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 quarterlymonthly 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 loanTerm 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 threenine 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

OurOther 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 requiredThere 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 ofExchange 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 threenine 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.
ExhibitIncorporated by ReferenceFiled
NumberExhibit DescriptionFormDateNumberHerewith
10.01+X
31.01X
31.02X
32.01*
101.INSXBRL Instance DocumentX
101.SCHXBRL Taxonomy Extension Schema DocumentX
101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentX
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentX
101.LABXBRL Taxonomy Extension Label Linkbase DocumentX
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentX
Exhibit   Incorporated by Reference Filed
Number Exhibit Description Form Date Number Herewith
3.1 

 S-1 October 20, 2003 3.01  
3.2 

 8-K July 22, 2016 3.2  
10.01 

 8-K October 2, 2018 10.01  
10.02 

 8-K October 2, 2018 10.02  
31.01        X
31.02        X
32.01        *
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, 2018By:/s/ SHAI SHAHAR
    
   Shai Shahar
   Chief Financial Officer
   (Duly Authorized Officer, Principal Financial Officer, and Principal Accounting Officer)


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