FormFactor Annual Report 2016

Plain-text annual report

FORMFACTOR INC FORM 10-K (Annual Report) Filed 03/15/17 for the Period Ending 12/31/16 Address Telephone CIK Symbol SIC Code Industry Sector Fiscal Year 7005 SOUTHFRONT ROAD LIVERMORE, CA 94551 9252433522 0001039399 FORM 3674 - Semiconductors and Related Devices Semiconductor Equipment & Testing Technology 12/26 http://www.edgar-online.com © Copyright 2017, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K(Mark One)ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Oro TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission file number: 000-50307 FormFactor, Inc.(Exact name of registrant as specified in its charter)Delaware(State or other jurisdiction ofincorporation or organization) 13-3711155(I.R.S. EmployerIdentification 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) Securities registered pursuant to Section 12(b) of the Act: Common StockName of each exchange on which registered: NASDAQ Global MarketSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ýIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No ýIndicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for suchshorter 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 oIndicate 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 postedpursuant to Rule 405 of the Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge,in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ýIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "largeaccelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act:Large accelerated filer o Accelerated filer ý Non-accelerated filer o(Do not check if a smallerreporting company) Smaller reporting company oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ýAggregate market value of registrant's common stock held by non-affiliates of the registrant, based upon the closing price of a share of the registrant's common stock on June 24, 2016(the last business day of the registrant's most recently completed second quarter) as reported by NASDAQ Global Market on that date: $456,272,004 . Shares of the registrant's common stockheld by each executive officer, director and person who owns 5% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemed to beaffiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.The number of shares of the registrant's common stock, par value $0.001 per share, outstanding as of March 13, 2017 was 71,652,152 shares.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant's definitive Proxy Statement for the 2017 Annual Meeting of Stockholders, which will be filed within 120 days of the end of the registrant's fiscal year endedDecember 31, 2016 , are incorporated by reference in Part III hereof. Except with respect to information specifically incorporated by reference in this Annual Report on Form 10-K, the ProxyStatement is not deemed to be filed as a part of this Annual Report on Form 10-K. FORMFACTOR, INC.Form 10-K for the Fiscal Year Ended December 31, 2016Index PagePart IItem 1:Business4Item 1A:Risk Factors9Item 1B:Unresolved Staff Comments18Item 2:Properties19Item 3:Legal Proceedings19Item 4:Mine Safety Disclosures20Part IIItem 5:Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities21Item 6:Selected Financial Data22Item 7:Management's Discussion and Analysis of Financial Condition and Results of Operations24Item 7A:Quantitative and Qualitative Disclosures about Market Risk41Item 8:Financial Statements and Supplementary Data41Item 9:Changes in and Disagreements with Accountants on Accounting and Financial Disclosure41Item 9A:Controls and Procedures42Item 9B:Other Information43Part IIIItem 10:Directors, Executive Officers, and Corporate Governance44Item 11:Executive Compensation44Item 12:Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters44Item 13:Certain Relationships and Related Transactions, and Director Independence44Item 14:Principal Accounting Fees and Services44Part IVItem 15:Exhibits, Financial Statement Schedules44Item 16:Form 10-K Summary47Signatures48Consolidated Financial Statements50FormFactor, the FormFactor logo and its product and technology names are trademarks or registered trademarks of FormFactor, Inc. or its subsidiaries in theUnited States and other countries. All other trademarks, trade names or service marks appearing in this Annual Report on Form 10-K are the property of theirrespective owners.Throughout this Annual Report on Form 10-K, we refer to FormFactor, Inc. and its consolidated subsidiaries as "the Company", "FormFactor," "we," "us,"and "our". Our fiscal year ends on the last Saturday in December. Our last three fiscal years ended on December 31, 2016 , December 26, 2015 and December 27,2014 .2NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of1933, which are subject to known and unknown risks and uncertainties. The forward-looking statements include statements concerning, among other things, ourbusiness strategy (including the influence of anticipated trends and developments in our business and the markets in which we operate), financial results, operatingresults, revenues, gross margin, operating expenses, products, projected costs and capital expenditures, research and development programs, sales and marketinginitiatives and competition. In some cases, you can identify these statements by our use of 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 comparableterminology. Forward-looking statements are based on information available to us as of the filing date of this Annual Report on Form 10-K and our currentexpectations about future events, which are inherently subject to change and involve known and unknown risks and uncertainties. You should not place unduereliance on these forward-looking statements. We have no obligation to update any of these statements, and we assume no obligation to do so. Actual events orresults may differ materially from those expressed or implied by these statements due to various factors, including but not limited to the matters discussed below inthe section entitled "Item 1A: Risk Factors", and elsewhere in this Annual Report on Form 10-K.Our operating results have fluctuated in the past and are likely to continue to fluctuate. You should not rely on period-to-period comparisons of our financialresults as indicators of our future performance. Some of the important factors that could cause our revenues, operating results and outlook to fluctuate from periodto period include:•customer demand for and adoption of our products;•market and competitive conditions in our industry, the semiconductor industry and the economy as a whole;•the timing and success of new technologies and product introductions by our competitors and by us;•our ability to work efficiently with our customers on their qualification of our new technologies and products;•our ability to deliver reliable, cost-effective products that meet our customers’ testing requirements in a timely manner;•our ability to transition to new product architectures to solve next-generation semiconductor test and measurement challenges, and to bring new productsinto volume production on time and at acceptable yields and cost;•our ability to implement measures for enabling efficiencies and supporting growth in our design, applications, manufacturing and other operationalactivities;•the reduction, rescheduling or cancellation of orders by our customers;•our ability to collect accounts receivables owed by our customers;•our product and customer sales mix and geographical sales mix;•a reduction in the price or the profitability of our products due to competitive pressures or other factors;•the timely availability or the cost of components and materials utilized in our products;•our ability to efficiently optimize manufacturing capacity and production yields as necessary to meet customer demand and ramp variable productionvolumes at our manufacturing facilities;•our ability to protect our intellectual property against infringement and continue our investment in research and development and design activities;•any disruption in the operation of our manufacturing facilities; and•the timing of and return on our investments in research and development.3PART IItem 1: BusinessGeneralFormFactor, Inc., headquartered in Livermore, California, is a leading provider of test and measurement solutions. We provide a broad range of high-performance probe cards, analytical probes, probe stations, thermal sub-systems and reliability test systems to both semiconductor companies and scientificinstitutions. Our products provide electrical information from a variety of semiconductor and electro-optical devices and integrated circuits (devices) fromdevelopment to production. Customers use our products and services to lower production costs, improve yields, and enable development of complex nextgeneration devices. We believe our technology leadership enables critical roadmap advances for our customers.FormFactor, Inc. was incorporated in 1993 and we introduced our first product in 1995. For much of our history, sales of probe cards for testing DynamicRandom Access Memory, or DRAM, devices made up the majority of our revenues. In October 2012, we completed the acquisition of Astria SemiconductorHoldings, Inc., including its subsidiary Micro-Probe Incorporated (together "MicroProbe"). The majority of MicroProbe's sales consisted of probe cards for testingfoundry and logic devices. The acquisition of Microprobe diversified and broadened our customer and revenue base, and enabled us to realize operational and costefficiencies in the combined companies’ technology, resources, assets, and teams. In June 2016, we acquired Cascade Microtech Inc. ("Cascade Microtech"), aleading manufacturer of advanced wafer probe cards, sub-systems, thermal probe stations and reliability test systems. The acquisition of Cascade Microtechtransformed our business into a broader test and measurement market leader with greater scale, diversification and market opportunities.As of December 31, 2016, we operate in two reportable segments consisting of the Probe Cards Segment and Systems Segment. Sales of our probe cardsand analytical probes are included in the Probe Cards Segment while sales of our probe stations, thermal sub-systems and reliability test systems are included in theSystems Segment.ProductsWe design, manufacture and sell multiple product lines, including probe cards, analytical probes, probe stations, integrated measurement systems, thermalsub-systems, reliability test systems, and related services.Probe cards. Our probe cards utilize a variety of technologies and product architectures, including micro-electromechanical systems (MEMS) technologies.We use advanced design and automation technologies to enable our rapid and cost-effective manufacturing of resilient multi-material composite spring-likeelectrically-conductive contact elements with characteristic length scales of a few microns. These contact elements are designed to optimize the relative amounts offorce on, and across, a chip’s bond pad, solder bump, or copper pillar during the test process and maintain their shape and position over a range of compression. Inaddition, while maintaining these mechanical characteristics, the contact elements must achieve reliable and high-fidelity electrical contact through wafer surfacesthat are generally oxidized or otherwise contaminated, and must maintain these attributes over hundreds of thousands, and even millions, of compression cycles.Our range of capabilities enable us to rapidly produce customer-design specific probe cards that deliver leading precision, reliability, and electro-mechanicalperformance.Our probe cards are customized for our customers’ unique wafer and chip designs by modifying and adapting our standard product architectures to meet anindividual customer’s design layout and electrical test requirements. We offer probe cards to test a variety of semiconductor device types, including “system on achip” products, mobile application processors, microprocessors, microcontrollers, graphic processors, radio frequency, analog, mixed signal, image sensors,electro-optical, DRAM, NAND flash memory and NOR flash memory devices.For many advanced applications, our products must maintain tens of thousands of simultaneous high-fidelity low-impedance electrical contacts with thecorresponding chip contacts on the wafer. Our present technologies enable probe cards with over 100,000 contact elements with spacings as small as 40 micronsover geometries as large as 300mm. In addition, for high signal-fidelity devices such as wireless radio frequency transceivers and automotive radar chips, our probecard technologies are capable of testing in the GHz range, up to 81GHz.We have invested, and intend to continue to invest, considerable resources in proprietary probe card design tools and processes. These tools and processesare intended to enable the rapid and accurate customization of products required to meet customer requirements, including automated routing and trace lengthadjustment within our probe cards, to rapidly design complex structures.In addition, some of our customers test certain chips over a large range of operating temperatures. We design probe cards to provide for a precise match withthe thermal expansion characteristics of the wafer under test across the range of test4operating temperatures. For many of our products, our customers can use the same probe card for both low and high temperature testing. We also design probecards for customers that require extreme positional accuracy at a specific temperature.Through on-going investments in both our technology and operations, we continue to innovate and improve so that our products will meet customers’ futuretechnical roadmap performance, quality, and commercial requirements. We also focus upon leveraging these ongoing investments across all advanced probe cardmarkets to realize synergies and economies of scale to benefit our competitiveness, time-to-market and overall profitability.Analytical Probes. We offer over 50 different analytical probe models for engineering and production testing. Analytical probes are used for a diverse set ofapplications, including device characterization, electrical simulation model development, failure analysis, and prototype design debugging. Our customers foranalytical probes include universities, research institutions, semiconductor integrated device manufacturers, semiconductor foundries, and fabless semiconductorcompanies. We continue to add new models of analytical probes that address measurements with higher complexities and at higher frequencies up to 1 THz.Probe Stations. Probing systems are required in the development of new generations of semiconductor processes and designs. Probe stations are highlyconfigurable for the required measurements, the size and type of wafer under test, the characteristics of the device design to be tested, and the temperatures atwhich testing is to be performed. Process development and design complexities have continually increased with each new generation of semiconductor technologyto accommodate smaller design geometries, new materials and more layers. Probing systems are a fundamental tool for characterizing and verifying electricalperformance and reliability to enable new semiconductor technologies. We design our probing systems for semiconductor design engineers to capture and analyzemore accurate data in a shorter amount of time.We build upon our probe stations to create integrated measurement systems that provide complete solutions for our customers’ complex measurementrequirements. These systems include test instrumentation, probe, cabling configurations, and software to enable fast, accurate, on-wafer data collection for complexapplication and measurement needs. We offer pre-configured and customized measurement systems for production testing, power device characterization, vacuumprobing, cryogenic probing, high-pressure probing, and a variety of other specific applications.Thermal Subsystems. Our thermal subsystems produce thermal chucks and other test systems used in probe stations. Thermal chuck systems enable thetesting of devices at precise temperatures or across a range of temperatures.Reliability Test Systems. Our reliability test systems enable customers to develop products that are less susceptible to a variety of phenomenon that candegrade semiconductor device performance, such as electro-migration, stress migration, time dependent dielectric breakdown, stress induced leakage current, hotcarrier injection and bias temperature instability.Services and Support. In addition to routine installation services at the time of sale, we offer services to enable our customers to maintain and moreeffectively utilize our products and to enhance our customer relationships. In addition to traditional maintenance services, our applications engineers assist ourcustomers in test methodologies to make advanced measurements during process and product development, and during mass production.CustomersOur customers include companies that design or make semiconductor products in the foundry & logic, DRAM and Flash markets. Our customers use ourproducts to test nearly all semiconductor device types, notably mobile application processors, microprocessors, microcontrollers, graphic processors, radiofrequency, analog, mixed signal, image sensors, opto-electrical, DRAM, NAND flash memory and NOR flash memory devices.Fabless semiconductor suppliers do not manufacture their own semiconductors, but they purchase our analytical probes and probe stations for research anddevelopment, and device characterization. They also purchase, or direct their foundries or wafer test facilities to purchase, our probe cards to test wafersmanufactured for them.We believe our customers consider timely service and support to be an important aspect of our relationship. Our probe stations are installed at customer siteseither by us, our manufacturers’ representatives or our distributors, depending on the complexity of the installation and the customer’s geographic location. Weassist our customers in the selection, integration and use of our products through application engineering support. We also provide worldwide on-site probe cardmaintenance and service training, seminars and telephone support. Our manufacturers’ representatives and distributors provide additional service and support.5One customer accounted for 30.1% of our revenues in fiscal 2016 , 4 customers accounted for 60.2% of our revenues in fiscal 2015 and 3 customersaccounted for 51.6% of our revenues in fiscal 2014 , as follows: Fiscal 2016 Fiscal 2015 Fiscal 2014Intel30.1% 19.6% 19.7%Samsung* 14.6 *SK hynix* 14.3 16.9Micron* 11.7 15.0Total revenues attributable to customers greaterthan 10%30.1% 60.2% 51.6%*Less than 10% of revenues.Information concerning revenue by geographic region and by country based upon ship-to location appears under Item 7: Management's Discussion andAnalysis of Financial Condition and Results of Operations - Revenues - Revenues by Geographic Region and Note 16 - Operating Segments and GeographicInformation of the Notes to Consolidated Financial Statements, that are included in this Annual Report on Form 10-K.Segment and Enterprise-Wide DisclosuresSee Note 16- Operating Segments and Geographic Information of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form10-K for certain financial information related to our segments and our enterprise-wide disclosures.BacklogWe manufacture our products based on order backlog and customer commitments. Backlog includes only orders with written authorizations and shipmentdates within 12 months. Backlog also includes revenue for existing product service agreements to be earned within the next 12 months. Customers may delaydelivery of products or cancel orders prior to shipment, subject to possible cancellation penalties. Due to possible changes in delivery schedules and cancellationsof orders, our backlog on any particular date is not necessarily indicative of actual sales for any succeeding period. Delays in delivery schedules or a reduction inbacklog during any particular period could have a material adverse effect on our business and results of operations.ManufacturingOur probe cards are designed for each of our customers' unique wafer designs, by modifying and adapting our product architectures to meet an individualcustomer’s design layout and test requirements. Our proprietary manufacturing processes for our probe cards include: a complex interconnection system-leveldesign process; a front-end process, which may include wire bonding, photolithography, plating and metallurgical processes, dry and electro-deposition, pick andplace assembly; and a back-end process, which includes general assembly and test. Critical steps in our manufacturing process are performed in a variety of cleanroom environments, including as stringent as a Class 100 environment, depending on the requirements of the specific manufacturing processes.Our probe and system products design and manufacturing process activities emphasize accurate electrical measurements, precise and reliable mechanicalcomponents and assemblies, and compliance with industry and governmental safety requirements. We prototype and test our new standard product designs andcomponents to ensure high electrical signal integrity, mechanical accuracy and safety. We also monitor our product quality throughout the various stages of ourmanufacturing processes using a variety of process control methods and tests.We depend on suppliers for materials and some critical components of our manufacturing processes, including ceramic and organic substrates and complexprinted circuit boards. We also rely on suppliers to provide certain contact elements and interconnects incorporated into our products. Some of these componentsand materials are supplied by a single vendor, and some are subject to certain minimum order quantities. Generally, we rely on purchase orders rather than long-term contracts with our suppliers, which subjects us to risks, including price increases, manufacturing capacity constraints issues and component shortages. Wecontinually assess and evaluate alternative sources of supply for all components and materials.Our primary manufacturing facilities are located in Livermore, San Jose and Carlsbad, California, Beaverton, Oregon, United States, and in Thiendorf,Germany. We also perform manufacturing operations in our facilities in Munich, Germany, Suzhou, China and Yokohama, Japan.6We maintain repair and service capabilities in Livermore, San Jose, and Carlsbad, California and Beaverton, Oregon, United States; Thiendorf and Munich,Germany; Bundang, South Korea; Yokohama City and Hiroshima, Japan; Suzhou, China; Hsinchu, Taiwan; and Singapore.Research, Development and EngineeringThe semiconductor industry is subject to rapid technological change and new product introductions and enhancements. We believe that our continuedcommitment to research and development and our timely introduction of new and enhanced products and technologies are integral to maintaining and enhancingour competitive position. We allocate significant resources to these efforts, and prioritize those resources to prepare for our customers’ next generation wafer testchallenges. We also increasingly seek to deploy our resources to solve fundamental challenges that are both common to, and provide competitive advantage across,our probe card and system product offerings and roadmaps.Research and development expenses were $57.5 million for fiscal 2016 , $44.2 million for fiscal 2015 and $42.7 million for fiscal 2014 .Sales and MarketingWe sell our products worldwide through a global direct sales force and through a combination of manufacturers’ representatives and distributors.Our direct sales and marketing staff are located in the United States, China, Germany, Italy, Japan, Singapore, South Korea, and Taiwan. They work closelywith customers in the effort to understand their businesses, anticipate trends and define products that will provide significant technical and economic advantages toour customers. We utilize a highly skilled team of application and customer support engineers that support our customers as they integrate our products into theirresearch, development and manufacturing processes. Through these customer relationships, we seek to develop a close understanding of customer and productrequirements to align our capabilities with our customers’ roadmaps and production ramps.We also have a network of representatives and distributors across the globe to broader our reach. We engage sales representatives to act as independent thirdparties that agree to promote our products, at our prices and on terms set by us, in return for a commission based on sales. We typically use sales representatives inareas that we believe require greater levels of customer support than we can deliver from our own sales offices and where local language capabilities can offer anadvantage. Our distributors purchase our products and resell them at prices and upon terms set by the particular distributor. We typically use distributors inparticular geographies due to local regulations or business customs.Environmental MattersWe are subject to U.S. Federal, State, local, and foreign governmental laws and regulations relating to the protection of the environment, including thosegoverning the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes, the clean-up of contaminated sitesand the maintenance of a safe workplace. We believe that we comply in all material respects with the environmental laws and regulations that apply to us. We didnot receive any notices of violations of environmental laws and regulations in fiscal 2016 , 2015 or 2014 . In the future, we may receive notices of violations ofenvironmental regulations, or otherwise learn of such violations. Environmental contamination or violations may negatively impact our business.CompetitionThe markets for our products are highly competitive and we anticipate that these markets will continually evolve and be subject to rapid technologicalchange. Our current and potential competitors are as below:Probe Card market. The probe card market comprises many domestic and foreign companies, and has historically been fragmented with many localsuppliers servicing individual customers in often differentiated applications. Our primary competitors are Advantest Corporation, AMST Co., Ltd., FeinmetallGmbH, Japan Electronic Materials Corporation, Korea Instrument Co., Ltd., M2N Co., Ltd., Microfriend Inc., Micronics Japan Co., Ltd., MPI Corporation, MicroSquare Technology Inc., NHK Spring Co., Ltd., Soulbrain Engineering, SV Probe, Inc., Synergie CAD, Technoprobe S.p.A, TSE Co., Ltd., WentworthLaboratories Inc., WILL-Technology Co., Ltd., and Yokowo, among others. In addition to the ability to address probe card performance and capabilityrequirements in differing applications, the primary competitive factors in the markets in which we compete include product quality and reliability, price, total costof ownership, design and manufacturing lead times, service capability, geographic proximity, field applications support and timeliness of delivery.Probe card vendors such as Japan Electronic Materials Corporation, Micronics Japan Company, Ltd. and Technoprobe, offer probe cards built using types oflithographic patterning as do we. The high capital investment and other costs associated7with the development of lithographically defined probe cards and the time and high cost of the customer evaluation process represent a significant barrier to entryfor this type of technology.We believe that the primary competitive factors in the production probe card market depend upon the type of integrated circuit being tested, but also includecustomer service, knowledge of measurement techniques, delivery time, price, probe card lifetime, chip damage prevention, probe tip touch-down accuracy, speedand frequency of the probe card, number of chips contacted in parallel, number of probe tips and their layout, signal integrity, and frequency and effectiveness ofany required cleaning. As a result of our relative strengths in these areas, we believe that we compete favorably in the advanced probe card market, and in probecards for parallel testing of chips with densely-packed bond pads, bumps or pillars, and in high signal integrity testing of wireless radio frequency transceivers,microwave, and millimeter wave.Analytical Probes. Our primary competitor in the analytical probe market is GGB Industries Inc. Regional competitors include Yokowo and TechnoProbeCo Ltd in Japan, and MPI/Allstron in Taiwan. We believe that the primary competitive factors in this market are breadth of probe types, probe frequency andelectrical signal integrity, contact integrity and the related cleaning required, knowledge of measurement techniques, calibration support, delivery time and price.We believe that we compete favorably with respect to these factors.Probe Stations. Our primary competitors in the probe station market are Vector Semiconductor Co. Ltd., Signatone Corporation, MPI Corporation, TokyoSeimitsu Co., LTD/Accretech, Tokyo Electron (“TEL”), The Micromanipulator Company Inc., HiSOL, Inc., and Wentworth Laboratories Inc. We believe that theprimary competitive factors in the probe station market are measurement accuracy and versatility, measurement speed, automation features, knowledge ofmeasurement techniques, completeness of the measurement solutions, delivery time and price. We believe that we compete favorably with respect to these factors.Thermal Subsystems. In the market for thermal subsystems, we compete principally against ERS Electronic, GmbH, Temptronic Corporation, and EspecCorp. In addition, many of our probe station competitors develop and produce their own thermal subsystems for use in their products. We believe the primarycompetitive factors in this market are thermal performance, reliability, flexibility and completeness of product offerings. We believe that we compete favorablywith respect to these factors.Reliability Test Systems. Our reliability test products compete against a number of competitors including Qualitau, Inc., STAr Technologies, Inc., ReedholmInstruments Co. and Chiron Technology Pte. Ltd. We believe the primary competitive factors in this market involve build quality, scalability and the ability toproperly correlate results between package level and wafer level reliability. We believe our solutions and systems compete favorably with respect to these factors.Some of our competitors are also suppliers of other types of test equipment or other semiconductor equipment and may have greater financial and otherresources than we do. We expect our competitors may enhance their current products and may introduce new products that will be competitive with ours. Inaddition, it is possible that new competitors, including test equipment manufacturers, may offer new technologies that reduce the value of one or more of ourproducts.Semiconductor manufacturers may implement chip designs that include capabilities or use other methodologies that increase test throughput and reduce testcontent, that may reduce or eliminating some or all of our current products’ advantages. Semiconductor manufacturer may also increase their use of test strategiesthat include low performance semiconductor testers, less complex probe cards, or test procedures that do not involve our products. Our ability to compete favorablymay also be adversely affected the long-standing relationships between our competitors and certain semiconductor manufacturers.Intellectual PropertyOur success depends in part upon our ability to continue to innovate and invest in research and development to meet the testing requirements of ourcustomers, to maintain and protect our proprietary technology, and to conduct our business without infringing on the proprietary rights of others. We rely on acombination of patents, trade secrets, trademarks and contractual restrictions on disclosure to protect our intellectual property rights. We have filed actions toenforce those rights against third parties, and may pursue such actions in the future.We have generated, and continue to generate and maintain, patents and other intellectual property rights covering innovations that are intended to create acompetitive advantage, and to support the protection of our investments in research and development. We believe that we possess one of the most substantial patentportfolios relevant to probe card products. Many of our issued patents cover features of our products.Although we believe that our patents and other intellectual property rights have significant value, we do not believe that maintaining or growing ourbusiness is materially dependent on any single patent. Due to the rapid pace of innovation within8the markets that we serve, it is possible that our protection through patents may be less important than factors such as our technological expertise, continuingdevelopment of new products and technologies, protection of trade secrets, market penetration, customer relationships, and our ability to provide comprehensivesupport and service to customers worldwide.No assurance can be given that any patents will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide us with asustained competitive advantage. In addition, there can be no assurance that we will be able to protect our technology, or that competitors will not be able toindependently develop similar or functionally competitive technologies, design around our patents, or attempt to manufacture and sell infringing products incountries that do not strongly enforce intellectual property rights.EmployeesAs of December 31, 2016 , we had 1,571 regular full-time employees, including 910 in operations, 293 in research and development, 231 in sales andmarketing and 137 in general and administrative functions. By region, 1,104 of our employees were in North America, 287 in Asia and 180 in Europe. Noemployees are currently covered by a collective bargaining agreement. However, certain employees at our manufacturing facility in Thiendorf, Germany, arerepresented by a works council. We believe that, overall, our relations with our employees are good.Available InformationWe maintain a website at http://www.formfactor.com . We make available free of charge on our website our Annual Reports on Form 10-K, QuarterlyReports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, assoon as reasonably practicable after we electronically file such material with, or furnish it to, the United State Securities and Exchange Commission, or SEC. Thereference to our website does not constitute incorporation by reference of the information contained at the site.The public may also read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street N.E., Washington, D.C.20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains anInternet website that contains reports and other information regarding issuers, such as FormFactor, that file electronically with the SEC. The SEC's Internet websiteis located at http://www.sec.gov .Directors and Executive OfficersThe information required by this item is incorporated by reference to the proxy statement for our 2017 Annual Meeting of Stockholders.Item 1A: Risk FactorsIn addition to the other information in this Annual Report on Form 10-K, you should carefully consider the risk factors discussed in this Annual Report onForm 10-K in evaluating FormFactor and our business. If any of the identified risks actually occur, our business, financial condition and results of operations couldbe materially adversely affected, the trading price of our common stock could decline and you may lose all or part of your investment in our common stock. Therisks and uncertainties described in this Annual Report on Form 10-K are not the only ones we face. Additional risks that we currently do not know about, or thatwe currently believe to be sufficiently important to describe here, may also impair our business operations or the trading price of our common stock.Risks Relating to the Nature and Operations of Our BusinessThe markets in which we participate are competitive, and if we do not compete effectively, our operating results could be harmed.We have experienced increased competition in the markets in which we operate, and we expect competition to intensify in the future. Increased competitionhas resulted in, and in the future is likely to result in, price reductions, reduced gross margins or loss of market share. Competitors might introduce newcompetitive products for the same markets that our products currently serve. These products may have better performance, lower prices, shorter delivery times orbroader acceptance than our products.In addition, it is possible that new competitors, including test equipment manufacturers, may offer new technologies that reduce the value of our products.Also, semiconductor manufacturers may implement chip designs or methodologies that increase test throughput, reduce test content, or change their testprocedures, thereby eliminating some or all of our current product advantages.9Our current or potential competitors may have larger customer bases, more established customer relationships or greater financial, technical, manufacturing,marketing and other resources than we do. As a result, they might be able to respond more quickly to new or emerging technologies and changes in customerrequirements, devote greater resources to the development, promotion, sale and support of their products, and reduce prices to increase market share.If we do not innovate and keep pace with technological developments in the semiconductor industry, our products might not be competitive and our revenuesand operating results could suffer.We must continue to innovate and to invest in research and development to improve our competitive position and to meet the testing requirements of ourcustomers. Our future growth depends, in significant part, upon our ability to work effectively with and anticipate the testing needs of our customers and to developand support new products and product enhancements to meet these needs on a timely and cost-effective basis. Our customers’ testing needs are becoming morechallenging as the semiconductor industry continues to experience rapid technological change driven by the demand for complex circuits that are shrinking in size,are increasing in speed and functionality, and also becoming less expensive to produce.Successful product design, development and introduction on a timely basis require that we:•collaborate with customers to understand their future requirements;•design innovative and performance-enhancing product architectures, technologies and features that differentiate our products from those of ourcompetitors;•in some cases engage with third parties who have particular expertise in order to complete one or more aspects of the design and manufacturing process;•qualify with the customer(s) the new product, or an existing product incorporating new technology;•transition our products to new manufacturing technologies;•offer our products for sale at competitive price levels while maintaining our gross-margins within our financial model;•identify emerging technological trends in our target markets;•maintain effective marketing strategies;•respond effectively to technological changes or product announcements by others; and•adjust to changing market conditions quickly and cost-effectively.Not only do we need the technical expertise to implement the changes necessary to keep our technologies current, but we must also rely heavily on thejudgment of our management to anticipate future market trends. If we are unable to timely predict industry changes or industry trends, or if we are unable tomodify our products or design, manufacture and deliver new products on a timely basis, or if a third party with which we engage does not timely deliver acomponent or service for one of our product modifications or new products, we might lose customers or market share. In addition, we might not be able to recoverour research and development expenditures, which could harm our operating results.We depend upon the sale of our probes cards products for the substantial majority of our revenues.Although our acquisition of Cascade Microtech has expanded our product offerings, we have historically derived the majority of our revenues from the saleof our probe cards products, primarily to manufacturers of microprocessor, foundry & logic and memory devices. We anticipate that sales of probe cards willrepresent a substantial majority of our revenues for the foreseeable future. Our success depends in large part upon the continued acceptance of our products on thebasis of a variety of factors including performance, quality, timely delivery and price, and depends upon our ability to continue to develop and introduce newproducts that meet our customers’ requirements. The degree to which we depend upon the sales of our probes cards products for our revenues may increase oursusceptibility to failures to satisfy the customers for such products, which may adversely affect our revenues and our ability to grow our business.We derive a substantial portion of our revenues from a small number of customers.A relatively small number of customers account for a significant portion of our revenues. One customer represented 30% of total revenues in fiscal 2016 ,four customers represented 60% of total revenues in fiscal 2015 and three customers represented 52% of total revenues in fiscal 2014 . We anticipate that sales ofour products to a relatively small number of customers will continue to account for a significant portion of our revenues. Consolidation in the semiconductorindustry may10increase this concentration. In the future, the loss of any of these customers, or cancellation, reduction or deferral of even a small number of purchases of ourproducts by these customers could significantly reduce our revenues. Cancellations, reductions, deferrals or non-payment of invoices, could result from anotherdownturn in the semiconductor industry, manufacturing delays, quality or reliability issues with our products, or from interruptions to our customers’ operationsdue to fire, natural disasters or other events, or other issues with the financial stability of our customers. Furthermore, because our probe cards are custom productsdesigned for our customers’ unique wafer designs, any cancellations, reductions or delays can result in significant, non-recoverable costs. In some situations, ourcustomers might be able to cancel or reduce orders without a significant penalty.If our relationships with our customers deteriorate, our product development activities could be harmed.The success of our product development efforts depends upon our ability to anticipate market trends and to collaborate closely with our customers. Ourrelationships with these customers provide us with access to valuable information regarding manufacturing and process technology trends in the semiconductorindustry, which enables us to better plan our product development activities. These relationships also provide us with opportunities to understand the performanceand functionality requirements of our customers, which improves our ability to customize our products to fulfill their needs. Our relationships with our customerscould deteriorate as a result of a variety of factors, such as if they become concerned about our ability to deliver quality products on a timely basis or to protecttheir intellectual property. Many of our customers are large companies that place significant orders with us, and the consequences of deterioration in ourrelationship with any of these companies could be significant due to the competitiveness of our industry and the significant influence that these companies exert inour market.Consolidation in the semiconductor industry and within the semiconductor test equipment market could adversely affect the market for our products andnegatively impact our ability to compete.Consolidation in the semiconductor industry may reduce our customer base and could adversely affect the market for our products, which could cause adecline in our revenues. With consolidation, the number of actual and potential customers for our products has decreased in recent years. Consolidation may lead torelatively fewer opportunities to sell our products if we are not chosen as a supplier by any given prospective customer, and may lead to increased pricing pressuresfrom customers that have greater volume purchasing power.There has also been a recent move toward consolidation within the semiconductor test equipment market. This consolidation trend could change ourinteractions and relationships with semiconductor tester and prober companies and negatively impact our revenue and operating results.Changes in customers’ test strategies, equipment and processes could decrease customer demand for our products.The demand for our products depends in large part upon the number of semiconductor designs, the pace of technology and architecture transitions in chipdesigns and overall semiconductor unit volume. The number of probe cards involved in a customer’s wafer testing can depend upon the number of devices beingtested, the complexity of these devices, the test software program, the test equipment itself, and the utilization of chip designs featuring design-for-testabilitycapabilities. Customers may demand fewer probe cards or probing systems if they use test strategies that reduce the technical requirements on test equipment,improve available data on device performance earlier in the manufacturing process, or test devices later in the manufacturing process. Changes in the effectivenessof test technologies and test strategies used by customers may cause us to lose sales and revenues.We may also lose sales if new semiconductor technologies or designs are implemented which cannot be efficiently tested using the products that we offer,or if semiconductor manufacturers reduce the amount or degree of testing that they perform. We may also incur significant research and development expenses inorder to introduce new product architectures and platforms to serve the testing needs of new semiconductor technologies.Cyclicality in the semiconductor industry may adversely impact our sales.The semiconductor industry has historically been cyclical and is characterized by wide fluctuations in product supply and demand. From time to time, thisindustry has experienced significant downturns, often in connection with, or in anticipation of, maturing product and technology cycles, excess inventories anddeclines in general economic conditions. The global economic and semiconductor downturns have caused and may in the future cause our operating results todecline dramatically from one period to the next. Our business depends heavily upon the development and manufacture of new semiconductors, the rate at whichsemiconductor manufacturers make transitions to smaller nanometer technology nodes and implement tooling cycles, the volume of production by semiconductormanufacturers and the overall financial strength of our customers, which, in turn, depend upon the current and anticipated market demand for semiconductors andproducts, such as servers, personal computers, automobiles and cell phones, that use semiconductors. During industry downturns, semiconductor11manufacturers sharply curtail their spending, including their spending on our products, which may adversely impact our revenues, gross margins and results ofoperations. Further, a protracted downturn could cause one or more of our customers to become insolvent, resulting in a loss of revenue and impacting our abilityto collect on accounts receivable. The timing, length and severity of these cyclical downturns are difficult to predict and our business depends on our ability to planfor and react to these cyclical changes.Because we generally do not have a sufficient backlog of unfilled orders to meet our quarterly revenue targets, revenues in any quarter are substantiallydependent upon customer orders received and fulfilled in that quarter.Our revenues are difficult to forecast because we generally do not have sufficient backlog of unfilled orders to meet our quarterly revenue targets at thebeginning of a quarter. Rather, a substantial percentage of our revenues in any quarter depend upon customer orders for our products that we receive and fulfill inthat quarter. Because our expense levels are based in part on our expectations as to future revenues and to a large extent are fixed in the short term, we might beunable to adjust spending in time to compensate for any unexpected shortfall in revenues. Accordingly, any significant shortfall of revenues in relation to ourexpectations could hurt our operating results.If our ability to forecast demand for our products or the predictability of our manufacturing yields deteriorates, we could incur high inventory losses.Each semiconductor chip design requires a custom probe card. Because our products are design-specific, demand for our products is difficult to forecast.Due to our customers’ short delivery time requirements, we often design and procure materials and, at times, produce our products in anticipation of demand forour products rather than in response to an order. Our manufacturing yields and inventory requirements, particularly for new probe card products or when we areoperating at high output levels, have at times been unpredictable. If we do not obtain orders as we anticipate, if we suffer manufacturing errors, or if we buildadditional inventory to compensate for unpredictable manufacturing yields, we could have excess or obsolete inventory that we may not be able to sell, whichwould likely result in inventory write-offs or material charges for scrap.If we are unable to efficiently manufacture our existing and new products, our business may be materially adversely affected.We must continuously improve our manufacturing processes in an effort to increase yields and product performance, lower our costs and reduce the timerequired for us to design, manufacture and deliver our products in volume. If we cannot do these things, both our existing products and our new products may notbe commercially successful, our revenues may be adversely affected, our customer relationships and our reputation may be harmed and our business may bematerially adversely affected.To improve our manufacturing processes, we have incurred, and may incur in the future, substantial costs in an effort to optimize capacity and yields,implement new manufacturing technologies, methods and processes, purchase new equipment, upgrade existing equipment and train technical personnel. We haveexperienced, and may experience in the future, manufacturing delays and other inefficiencies in connection with implementation of these improvements andcustomer qualifications of new processes, which have caused and could cause in the future, our operating results to decline.We have also experienced, and may experience in the future, difficulties in manufacturing our complex products in volume on time, and at acceptable yieldsand cost and installation issues in the field due to the complexity of customer design requirements, including integration of probe cards with varying customer testcell environments and testing of semiconductor devices over a wide temperature range.If we are unable to continue to reduce the time it takes for us to design and produce products, our growth could be impeded.Our customers continuously seek to reduce the time it takes them to introduce new products to market. The cyclicality of the semiconductor industry,coupled with changing demands for semiconductor products, requires our customers to be flexible and highly adaptable to changes in the design, volume and mixof products they must produce. We may be unable to design and produce our products within the short cycle times required to respond to such rapid changes. Wehave lost sales in the past where we were unable to meet a customer’s required delivery schedules. If we are unable to continue to reduce the time it takes for us todesign, manufacture and ship our products in response to the needs of our customers, our competitive position could be harmed and we could lose sales.Products that do not meet specifications or that contain defects could damage our reputation, decrease market acceptance of our technology, cause us to losecustomers and revenues, and result in liability to us.The complexity and ongoing development of our product designs and manufacturing processes could lead to design or manufacturing problems. Problemsmight result from a number of factors, including design defects, materials failure, failure of components manufactured by our suppliers to meet our specifications,contamination in the manufacturing environment,12impurities in the materials used, and unknown sensitivities to process conditions such as temperature and humidity, and equipment failures. Any errors or defectscould:•cause lower than anticipated yields and lengthen delivery schedules;•cause delays in product shipments;•cause delays in new product introductions;•cause us to incur warranty expenses;•result in increased costs and diversion of development resources;•cause us to incur increased charges due to unusable inventory;•require design modifications; or•decrease market acceptance or customer satisfaction with these products.The occurrence of any one or more of these events could adversely affect our business, reputation and operating results.As part of our sales process, we could incur substantial sales and engineering expenses that do not result in revenues.Our customers generally expend significant efforts evaluating and qualifying our products prior to placing an order. While our customers are evaluating ourproducts, we might incur substantial sales, marketing, and research and development expenses. For example, we typically expend significant resources educatingour prospective customers regarding the uses and benefits of our probe cards and developing probe cards customized to the potential customer’s needs, for whichwe might not be reimbursed. Although we commit substantial resources to our sales efforts, we might never receive any revenues from a customer. For example,many semiconductor chip designs never reach production, including designs for which we may have expended design effort and expense. In addition, prospectivecustomers might decide not to use our products or use our products for a relatively small percentage of their requirements after we have expended significant effortand expense toward product design, development, and/or manufacture.We obtain some of the components and materials we use in our products from a sole source or a limited group of suppliers, and the partial or complete loss ofone of these suppliers could cause production delays.We obtain some of the components and materials used in our products, such as printed circuit board assemblies, plating materials and ceramic substrates,from a sole source or a limited group of suppliers, and in some cases alternative sources are not currently available. Because we rely on purchase orders rather thanlong-term contracts with the majority of our suppliers, we cannot guarantee our ability to obtain components and materials in the long term. A sole or limitedsource supplier could increase prices, which could lead to a decline in our gross profit. Our dependence upon sole or limited source suppliers exposes us to severalother risks, including inability to obtain an adequate supply of materials, late deliveries, poor component quality, and business disruptions while we seek to identifyand qualify alternative suppliers. The occurrence of any of these risks could adversely impact our business, results of operations and financial condition.The use of cash and incurrence of substantial indebtedness in connection with the financing of our acquisition of Cascade Microtech may have an adverseimpact on our liquidity, limit our flexibility in responding to other business opportunities and increase our vulnerability to adverse economic and industryconditions.Our acquisition of Cascade Microtech was financed in part by the use of cash on hand and the incurrence of a significant amount of indebtedness. A s ofDecember 31, 2016 , we had approximately $101.4 million of cash and cash equivalents, approximately $7.5 million of short-term investments and $138.2 millionterm loan debt outstanding, net of debt-related issuance costs. In connection with our acquisition of Cascade Microtech, we entered into a new senior secured termloan facility with an aggregate principal amount of $150 million to finance part of the cash portion of the transaction consideration. Our use of cash on hand andindebtedness to finance the cash portion of the transaction consideration reduced our liquidity. We must generate cash from operations to pay principal and intereston our debt, thereby reducing the availability of cash flow for working capital and capital expenditure needs or to pursue other initiatives. The senior secured termloan facility contains financial covenants requiring us to maintain a certain leverage ratio of consolidated total indebtedness to EBITDA and a fixed chargecoverage ratio. In addition, it also imposes limitations on our ability to incur liens and indebtedness or to pay dividends, make certain investments, or dispose ofassets (in each case, subject to customary exceptions). Our ability to comply with these financial and restrictive covenants can be affected by events beyond ourcontrol. The indebtedness and restrictive covenants will also have the effect, among other things, of limiting our ability to obtain additional financing, if needed,which may limit our flexibility in the conduct of our business and makes us more vulnerable to economic downturns and adverse competitive13and industry conditions. In addition, a breach of the financial or restrictive covenants, among other things, could result in an event of default with respect to thesenior secured term loan facility, which, if not cured or waived, could result in the obligations under the facility becoming immediately due and payable.Because we conduct most of our business internationally, we are subject to operational, economic, financial and political risks abroad.Sales of our products to customers outside North America have accounted for a significant part of our revenues. Our international sales as a percentage ofour revenues were 67% , 77% and 72% for fiscal 2016 , 2015 and 2014 , respectively. Additionally, certain of our South Korean customers purchase through theirNorth American subsidiaries. In the future, we expect international sales, particularly in Japan, South Korea and Taiwan, to continue to account for a significantpercentage of our revenues. Accordingly, we will be subject to risks and challenges that we would not otherwise face if we conducted our business solely in NorthAmerica.These risks and challenges include:•compliance with a wide variety of foreign laws and regulations;•legal uncertainties regarding taxes, tariffs, quotas, export controls, export licenses and other trade barriers;•political and economic instability or foreign conflicts that involve or affect the countries of our customers;•difficulties in collecting accounts receivable and longer accounts receivable payment cycles;•difficulties in staffing and managing personnel, distributors and representatives;•reduced protection for intellectual property rights in some countries;•currency exchange rate fluctuations, which could affect the value of our assets denominated in local currency, as well as the price of our products relativeto locally produced products;•seasonal fluctuations in purchasing patterns in other countries; and•fluctuations in freight rates and transportation disruptions.Any of these factors could harm our existing international operations, impair our ability to continue expanding into international markets or materiallyadversely affect our operating results. Additionally, we are required to comply with foreign import and export requirements, customs and value added taxstandards. Our failure to meet these requirements and standards could negatively impact our business operations.Our increased foreign operations expose us to additional risks relating to currency fluctuations.Our international operations are significant to our revenues and net income, and we plan to continue to grow internationally. We acquired significantbusiness operations located in Germany as part of our acquisition of Cascade Microtech and generate a substantial portion of our revenues outside of the UnitedStates. Since we incur certain costs in currencies other than U.S. dollars, and have certain foreign currency denominated assets and liabilities, but report ourfinancial results in U.S. dollars, we face exposure to fluctuations in currency exchange rates. Although we hedge a portion of our international currency exposure,significant fluctuations in exchange rates between the U.S. dollar and foreign currencies may adversely affect our revenues and earnings. Additionally, hedgingprograms are inherently risky and could expose us to additional risks that could adversely affect our financial condition and results of operations.If we fail to protect our proprietary rights, our competitors might gain access to our technology, which could adversely affect our ability to competesuccessfully in our markets.If we choose not to protect our proprietary rights or fail in our efforts to protect our proprietary rights, our competitors might gain access to our technology.Unauthorized parties might attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Others might independentlydevelop similar or competing technologies or methods or design around our patents. In addition, the laws of many foreign countries in which we or our customersdo business do not protect our intellectual property rights to the same extent as the laws of the United States. As a result, our proprietary rights could becompromised, our competitors might offer products similar to ours and we might not be able to compete successfully. We also cannot assure that:•our means of protecting our proprietary rights will be adequate;14•patents will be issued from our pending or future applications;•our existing or future patents will be sufficient in scope or strength to provide any meaningful protection or commercial advantage to us;•our patents or other intellectual property will not be invalidated, circumvented or successfully challenged in the United States or foreign countries; or•others will not misappropriate our proprietary technologies or independently develop similar technologies, duplicate our products or design around any ofour patents or other intellectual property, or attempt to manufacture and sell infringing products in countries that do not strongly enforce intellectualproperty rights.We have spent and may be required to spend in the future, significant resources to monitor and protect our intellectual property rights. Any litigation, whetheror not resolved in our favor, and whether initiated by us or by a third party, could result in significant and possibly material expense to us and divert the efforts ofour management and technical personnel.We might be subject to claims of infringement of other parties’ proprietary rights.In the future, as we have in the past, we might receive claims that we are infringing intellectual property rights of others and inquiries about our interest in alicense or assertions that we need a license to such intellectual property. The semiconductor industry is characterized by uncertain and conflicting intellectualproperty claims and vigorous protection and pursuit of these rights. The resolution of any claims of this nature, with or without merit, could be time consuming,result in costly litigation or cause product shipment delays. In the event of an adverse ruling or settlement, we might be required to pay substantial damages, ceasethe use or sale of infringing products, spend significant resources to develop non-infringing technology, discontinue the use of certain technology and/or enter intolicense agreements. License agreements, if required, might not be available on terms acceptable to us or at all. The loss of access to any of our intellectual propertyor the ability to use any of our technology could harm our business. Finally, certain of our customer contracts contain provisions that require us to defend orindemnify our customers for third party intellectual property infringement claims, which would increase the cost to us of an adverse ruling or settlement.We have recorded significant restructuring, inventory write-offs and asset impairment charges in the past and may do so again in the future, which could havea material negative impact on our business.We recorded restructuring charges in fiscal 2016 , 2015 and 2014 , and impairment charges related to our long-lived assets in fiscal 2016 and fiscal 2014 .We may implement restructuring plans in the future, which would require us to take additional, potentially material, restructuring charges related to employeeterminations, asset disposal or exit costs. We may also be required to write off additional inventory if our product build plans or usage of inventory experiencedeclines, and such additional write-offs could constitute material charges. In addition, significant adverse changes in market conditions could require us to takeadditional material impairment charges related to our long-lived assets if the changes impact the critical assumptions or estimates that we use in our assessment ofthe recoverability of our long-lived assets. Any such additional charges, whether related to restructuring, asset impairment or factory underutilization may have amaterial negative impact on our operating results and related financial statements.We rely on the security and integrity of our electronic data systems and our business could be damaged by a disruption, security breach or other compromise ofthese systems.We rely on electronic data systems to operate and manage our business and to process, maintain, and safeguard information, including informationbelonging to our customers, partners, and personnel. These systems may be subject to failures or disruptions as a result of, among other things, natural disasters,accidents, power disruptions, telecommunications failures, new system implementations, acts of terrorism or war, physical security breaches, computer viruses, orother cyber security attacks. Such system failures or disruptions could subject us to downtimes and delays, compromise or loss of sensitive or confidentialinformation or intellectual property, destruction or corruption of data, financial losses from remedial actions, liabilities to customers or other third parties, ordamage to our reputation or customer relationships. Any of the foregoing could have a material adverse effect on our business, operating results and financialcondition.We may not be able to recruit or retain qualified personnel.We believe our ability to manage successfully and grow our business and to develop new products depends, in large part, on our ability to recruit and retainqualified employees, particularly highly skilled technical, sales, management, and key staff personnel. Competition for qualified resources is intense and othercompanies may have greater resources available to provide substantial inducements to lure key personnel away from us or to offer more competitive compensationpackages to individuals we are trying to hire. Our employees may also experience uncertainty about the effect of our acquisition of Cascade Microtech on theirfuture roles within the combined business, which may impair our ability to retain and motivate certain valuable15personnel during the integration process. While we implement programs to attract employees, and we may grant additional equity compensation to certainemployees outside of our annual equity grant program for retention purposes or implement retention bonus programs for certain employees, there can be noassurance that we will be able to successfully recruit and retain the qualified personnel we require.Our failure to comply with environmental laws and regulations could subject us to significant fines and liabilities, and new laws and regulations or changes inregulatory interpretation or enforcement could make compliance more difficult and costly.We are subject to various U.S. Federal, state and local, and foreign governmental laws and regulations relating to the protection of the environment,including those governing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes, the cleanup ofcontaminated sites and the maintenance of a safe workplace. We could incur substantial costs, including cleanup costs, civil or criminal fines or sanctions andthird-party claims for property damage or personal injury, as a result of violations of or liabilities under environmental laws and regulations or non-compliancewith the environmental permits required at our facilities.These laws, regulations and permits also could require the installation of costly pollution control equipment or operational changes to limit pollutionemissions or decrease the likelihood of accidental releases of hazardous substances. In addition, changing laws and regulations, new laws and regulations, stricterenforcement of existing laws and regulations, the discovery of previously unknown contamination at our or others’ sites or the imposition of new cleanuprequirements could require us to curtail our operations, restrict our future expansion, subject us to liability and cause us to incur future costs that could harm ouroperations, thereby adversely impacting our operating results and cash flow.Natural and manmade disasters may negatively impact our business.Our business is vulnerable to the direct and indirect impact of natural and manmade disasters, such as floods, earthquakes, volcanic eruptions, nuclearaccidents, and acts of terrorism. Material parts of our manufacturing and research and development operations are located in areas of California that are prone toearthquakes and could be substantially disrupted in the event of an earthquake. It is also possible that future natural and manmade disasters could negatively impactthe sales of our products as a result of impacts upon our customer’s ability to make or sell their products, or impacts upon our suppliers’ ability to supplycomponents to us on a timely basis.Risks Relating to Our AcquisitionsWe may fail to realize the anticipated benefits and cost savings from our acquisition of Cascade Microtech.The success of our acquisition of Cascade Microtech will depend, in part, on our ability to realize the anticipated benefits and cost savings from combiningthat business with ours. Our ability to realize these anticipated benefits and cost savings is subject to certain risks including:•whether the combined businesses will perform as expected;•the possibility that we paid more for the acquisition of Cascade Microtech than the value we will derive from the acquisition; and•the reduction of our cash available for operations and other uses and the incurrence of indebtedness to finance the acquisition.Issues that must be addressed to successfully integrate the operations of Cascade Microtech with our operations include combining the companies’ sales,manufacturing, marketing, distribution, purchasing, operations and research and development functions; integrating the companies’ technologies, products andservices; identifying and eliminating redundant or underperforming operations and assets; consolidating the companies’ corporate, administrative and informationtechnology infrastructure and multiple enterprise resource planning systems; coordinating sales, distribution and marketing efforts; and coordinating the combinedorganization across dispersed geographic locations. In addition, at times, the attention of certain members of our management and resources may be focused on theintegration of the businesses of the two companies and diverted from day-to-day business operations or other strategic planning, which may be detrimental to ourongoing business.We may make additional acquisitions and investments in the future, which could put a strain on our resources, cause ownership dilution to our stockholdersand adversely affect our financial results.We may in the future make other acquisitions or investments, which may subject us to new or heightened risks. Integrating any newly acquired businesses,products or technologies into our company could put a strain on our resources, could be expensive and time consuming, could substantially reduce our cashreserves, could cause delays in product delivery16and might not be successful. Future acquisitions and investments could divert management’s attention from other business concerns and expose our business tounforeseen liabilities or risks associated with entering new markets. In addition, we might lose key employees while integrating new organizations. We might notbe successful in integrating any acquired businesses, products or technologies, and might not achieve anticipated revenues and cost benefits. Investments that wemake may not result in a return consistent with our projections upon which such investments are made, or may require additional investment that we did notoriginally anticipate. In addition, future acquisitions could result in customer dissatisfaction, performance problems with an acquired company, potentially dilutiveissuances of equity securities or the incurrence of debt and restrictive debt covenants, contingent liabilities, possible impairment charges related to goodwill orother intangible assets or other unanticipated events or circumstances. If any of these risks were to come about, our business, financial results and stock price couldbe materially and adversely affected.If goodwill or other intangible assets that we recorded in connection with the Cascade Microtech and/or MicroProbe acquisition become impaired, we could berequired to take significant charges against earnings.In connection with the accounting for the Cascade Microtech and MicroProbe acquisitions, we have recorded a significant amount of goodwill and otherintangible assets. Under U.S. generally accepted accounting principles, or GAAP, we must assess, at least annually and potentially more frequently, whether thevalue of goodwill and other indefinite-lived intangible assets have been impaired. Finite-lived intangible assets will be assessed for impairment in the event of animpairment indicator. Any reduction or impairment of the value of goodwill or other intangible assets will result in a charge against earnings, which couldmaterially adversely affect our results of operations and stockholders’ equity in future periods. Refer to note 10 to Notes to Consolidated Financial Statements -Goodwill and Intangible Assets for further details relating to our annual goodwill impairment assessment.Risks Relating to Owning Our StockIf we fail to maintain an effective system of internal and disclosure controls and procedures, we may not be able to accurately report our financial results orprevent fraud.Effective internal and disclosure controls and procedures are necessary for us to provide reliable financial reports, to prevent fraud and to operatesuccessfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our business and reputation may be harmed. We regularly reviewand assess our internal controls over financial reporting and our disclosure controls and procedures. As part of that process, we may discover material weaknessesor significant deficiencies in our internal controls. If we fail to maintain effective controls or timely effect any necessary improvement of our internal anddisclosure controls, we may not have accurate information to make management decisions, our operating results could be harmed or we may fail to meet ourreporting obligations. Ineffective internal and disclosure controls could also cause stockholders to lose confidence in our reported financial information and ourability to manage our business, which would likely have a negative effect on the trading price of our securities.The trading price of our common stock has been and is likely to continue to be volatile, and you might not be able to sell your shares at or above the price thatyou paid for them.The trading prices of the securities of technology companies have been highly volatile, and from January 1, 2017 , the first business day of our fiscal 2017 ,through March 13, 2017 , our stock price (NASDAQ Global Market close price) has ranged from $10.65 a share to $12.70 a share. The trading price of ourcommon stock is likely to continue to be subject to wide fluctuations. Factors affecting the trading price of our common stock could include:•variations in our operating results;•our forecasts and financial guidance for future periods;•announcements of technological innovations, new products or product enhancements, new product adoptions at semiconductor customers or significantagreements by us or by our competitors;•reports regarding our ability to bring new products into volume production efficiently;•the gain or loss of significant orders or customers;•changes in the estimates of our operating results or changes in recommendations by any securities analysts that elect to follow our common stock;•rulings on litigations and proceedings;•seasonality, principally due to our customers' purchasing cycles;17•market and competitive conditions in our industry, the entire semiconductor industry and the economy as a whole;•recruitment or departure of key personnel; and•announcements of mergers and acquisition transactions and the ability to successfully integrate the business activities of the acquired/merged company.In addition, if the market for technology stocks or the stock market in general experiences loss of investor confidence, the trading price of our commonstock could decline for reasons unrelated to our business, operating results or financial condition. The trading price of our common stock also might decline inreaction to events that affect other companies in our industry even if these events do not directly affect us.Provisions of our certificate of incorporation and bylaws or Delaware law might discourage, delay or prevent a change of control of our company or changesin our management and, therefore, depress the trading price of our common stock.Delaware corporate law and our certificate of incorporation and bylaws contain provisions that could discourage, delay or prevent a change in control of ourcompany or changes in our management that the stockholders of our company may deem advantageous. These provisions:•establish a classified board of directors so that not all members of our board are elected at one time;•provide that directors may only be removed “for cause” and only with the approval of 66.7% of our stockholders;•require super-majority voting to amend some provisions in our certificate of incorporation and bylaws;•authorize the issuance of “blank check” preferred stock that our board could issue to increase the number of outstanding shares and to discourage atakeover attempt;•limit the ability of our stockholders to call special meetings of stockholders;•prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;•provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; and•establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders atstockholder meetings.In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control of our company. In addition, eachof our named executive officers and certain other officers of the company have entered into change of control severance agreements, which were approved by ourCompensation Committee, which could increase the costs associated with a change of control and thus, potentially deter such a transaction.Item 1B: Unresolved Staff CommentsNone.18Item 2: PropertiesOur corporate headquarters, which includes sales, marketing, administration, manufacturing, engineering, and research and development facilities, is locatedin Livermore, California, United States. Our corporate headquarters comprises a campus of four buildings totaling approximately 169,000 square feet. Wepresently lease those four buildings. In addition, we lease office, repair and service, manufacturing and/or research and development space both inside and outsideof the United States. The leases expire at various times through 2027. We believe that our existing and planned facilities are suitable for our current needs.Information concerning our properties as of December 31, 2016 is set forth below:Location Principal Use SquareFootage OwnershipLivermore,California,United States Corporate headquarters, sales, marketing, administration,product design, manufacturing, service and repair, distribution,research and development 168,636 LeasedBeaverton,Oregon, UnitedStates Sales, marketing, administration, product design,manufacturing, service and repair, distribution, research anddevelopment 98,946 LeasedCarlsbad,California,United States Product design, administration, manufacturing, service andrepair, distribution, research and development 30,876 LeasedSan Jose,California,United States Administration, product design, manufacturing, service andrepair, distribution, research and development 23,680 LeasedSt. Paul,Minnesota,United States Marketing and design 9,122 LeasedThiendorf,Germany Sales, marketing, manufacturing, administration, service andrepair, distribution, sales, research and development 44,713 LeasedMunich,Germany Manufacturing, service and repair, distribution, sales, researchand development 10,656 LeasedSingapore Sales, administration, product design, service, and field service 30,088 LeasedJubei City,Hsinchu,Taiwan Sales office, administration, product design, field service andrepair center 20,430 LeasedBundang,South Korea Sales office, administration, product design, field service, andrepair center 15,310 LeasedYokohamaCity, Japan Sales office, administration, marketing, product design, researchand development, field service, and repair center, manufacturingand distribution 15,210 LeasedTokyo, Japan Sales and service 1,862 LeasedHiroshima,Japan Repair center 1,615 LeasedSuzhou, China Sales, marketing, administration, manufacturing, productdesign, service and repair, distribution, research anddevelopment 15,177 LeasedShanghai,China Sales and service 1,865 LeasedItem 3: Legal ProceedingsFrom time to time, we may be subject to legal proceedings and claims in the ordinary course of business. As of December 31, 2016 and as of the filing ofthis Annual Report on Form 10-K, we were not involved in any material legal proceedings other than the proceeding summarized below. In the future, we maybecome a party to additional legal proceedings that may require us to spend significant resources, including proceedings designed to protect our intellectualproperty rights. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings are difficult to predict, and thecosts incurred in litigation can be substantial, regardless of outcome.On April 8, 2016, an individual plaintiff filed a putative class action lawsuit on behalf of Cascade Microtech’s shareholders against Cascade Microtech, itsdirectors, FormFactor and Cascade Merger Sub, in connection with the acquisition19of Cascade Microtech by the Company. The lawsuit, captioned Solak v. Cascade Microtech, Inc., et al. , No. 16CV11809, was filed in Multnomah County CircuitCourt in the State of Oregon.The Solak lawsuit alleges that the individual members of Cascade Microtech’s board of directors breached their fiduciary duties owed to CascadeMicrotech’s shareholders by approving the proposed merger for inadequate consideration; approving the merger to obtain unique benefits not shared equally withCascade Microtech’s other shareholders; failing to take steps to maximize the value paid to Cascade Microtech shareholders; failing to take steps to ensure a fairprocess leading up to the proposed merger; and agreeing to preclusive deal protection devices in the merger agreement. The lawsuit also alleges claims againstFormFactor and one of its subsidiaries for aiding and abetting the alleged breaches of fiduciary duties by the individual members of Cascade Microtech’s board ofdirectors.Under a memorandum of understanding signed by the parties and filed with the court in the Solak case, Cascade Microtech and the Company agreed withthe plaintiff’s counsel to supplement the disclosures made in connection with the merger. The supplemental disclosures were made on June 14, 2016. The court inthe Solak lawsuit has granted preliminary approval of a stipulated settlement, including an award of the plaintiffs’ attorneys’ fees and expenses. The finalresolution of the proceedings under the stipulation of settlement is subject to customary conditions, including final court approval of the class settlement followingnotice to Cascade Microtech’s former shareholders within the proposed class.There can be no assurance that the court will approve the final settlement. In such event, the proposed settlement may be terminated.In August 2013, a former employee filed a class action lawsuit against the Company in the Superior Court of California, alleging violations of California’swage and hour laws and other claims on behalf of himself and all other similarly situated current and former employees at the Company’s Livermore facilities fromAugust 21, 2009, to the present. On January 4, 2016, the court certified the plaintiff class. The parties have signed a stipulation dated March 3, 2017, regarding thesettlement of the class action under which the parties have agreed to settle the lawsuit, subject court approvals and other conditions. The stipulation provides forpayment by the Company of $1.5 million in settlement of the lawsuit.Item 4: Mine Safety DisclosuresNot applicable.20PART IIItem 5: Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesPrice Range of Common StockOur common stock is listed on the NASDAQ Global Market under the symbol "FORM". The following table sets forth the range of high and low closingsales prices per share as reported on the Nasdaq Global Market for the periods indicated.Fiscal 2016High LowFirst Quarter$9.33 $6.34Second Quarter9.09 6.51Third Quarter10.86 8.72Fourth Quarter$11.95 $8.65Fiscal 2015High LowFirst Quarter$10.26 $7.55Second Quarter9.51 7.97Third Quarter9.20 5.93Fourth Quarter$9.13 $6.49The closing sales price of our common stock on the NASDAQ Global Market was $10.95 per share on March 13, 2017 . As of March 13, 2017 , there were205 registered holders of record of our common stock.Repurchase of Common StockOn April 16, 2015, our Board of Directors authorized a program to repurchase up to $25.0 million of outstanding common stock which expired on April 15,2016. During fiscal 2016, we did not repurchase any shares under this program.In February 2017, our Board of Directors authorized a new program to repurchase up to $25 million of outstanding common stock to offset potentialdilution from sales of common stock under our employee stock purchase plan and exercises of stock options. The share repurchase program will expire onFebruary 1, 2020.Dividend PolicyWe have never declared or paid cash dividends on our common stock and we do not currently anticipate declaring or paying cash dividends on our commonstock.Stock Price Performance GraphThe following graph shows the total stockholder return of an investment of $100 in cash on December 31, 2011 through December 31, 2016 , for (1) ourcommon stock, (2) the S&P 500 Index and (3) the RDG Semiconductor Composite Index. All values assume reinvestment of the full amount of all dividends. Nocash dividends have been declared on shares of our common stock. Stockholder returns over the indicated period are based on historical data and are notnecessarily indicative of future stockholder returns.21COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among FormFactor, Inc., the S&P 500 Index, and the RDG Semiconductor Composite Index*$100 invested on 12/31/11 in stock or index, including reinvestment of dividends.Fiscal year ended December 31. Cumulative Total Return December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 31, 2016FormFactor, Inc.$100.00 $90.12 $118.77 $169.96 $177.87 $221.34S&P 500100.00 116.00 153.58 174.60 177.01 198.18RDG SemiconductorComposite100.00 101.55 137.33 170.90 153.05 206.30Item 6: Selected Financial DataThe following selected consolidated financial data is derived from our consolidated financial statements. This data should be read in conjunction with ourconsolidated financial statements and the related notes, and "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations"contained elsewhere in this Annual Report on Form 10-K.22 Fiscal 2016 (1)(2)(7)(8) Fiscal 2015 (3) Fiscal 2014 (1)(2) Fiscal 2013 (1)(2)(4) Fiscal 2012 (1)(2)(5)(6) (in thousands, except per share data)Consolidated Statements of OperationsData: Revenues$383,881 $282,358 $268,530 $231,533 $178,535Gross profit102,682 85,738 77,439 42,284 25,331Net loss(6,557) (1,523) (19,185) (57,683) (35,546)Basic and diluted net loss per share$(0.10) $(0.03) $(0.34) $(1.06) $(0.7)Consolidated Balance Sheets Data: Cash, cash equivalents and marketablesecurities$108,905 $187,589 $163,837 $151,091 $165,788Working capital172,002 214,437 196,412 173,881 194,125Total assets618,982 342,723 344,243 340,708 395,682Term loan, net of current portion125,475 — — — —Capital leases, net of current portion— — — — 340Total stockholders' equity$401,056 $294,681 $289,436 $294,086 $339,258Number of employees1,571 958 907 961 1,021(1)Fiscal 2016, 2015, 2014, 2013 and 2012 net losses include restructuring charges, net of $7.3 million , $0.6 million, $2.7 million, $4.7 million and$2.9 million, respectively, relating to our global restructuring and reorganization actions. See Note 6— Restructuring Charges of the Notes tothe Consolidated Financial Statements.(2)Fiscal 2016, 2014, 2013 and 2012 net losses include impairment charges of $12.4 million , $1.2 million, $0.8 million and $0.4 million,respectively. See Note 7— Impairment of Long-lived Assets of the Notes to the Consolidated Financial Statements.(3)Fiscal 2015 includes the following: a) a $1.5 million gain from a business interruption insurance claim relating to a factory fire at a customer.See Note-18, Business Interruption Insurance Claim Recovery of the Notes to the Consolidated Financial Statements, and b) a $1.0 million netgain from the sale of intellectual property.(4)Fiscal 2013 net loss includes $0.3 million attributable to loss on sale of a subsidiary.(5)Fiscal 2012 includes a $25.5 million tax benefit from the release of deferred tax asset valuation allowances due to deferred tax liabilitiesestablished on the acquired identifiable intangible assets from our acquisition of MicroProbe.(6)Fiscal 2012 includes the following as a result of the MicroProbe acquisition: $19.8 million in revenue, $5.4 million in the amortization ofintangibles expense, $2.6 million release of pre-existing backlog, $0.2 million charge for step-up depreciation on the fair value of fixed assets,resulting in a $6.4 million net loss. As part of the MicroProbe Acquisition, a patent lawsuit was settled with a benefit of $3.3 million.(7)Fiscal 2016 includes a $44.0 million tax benefit from the release of deferred tax asset valuation allowances due to deferred tax liabilitiesestablished on the acquired identifiable intangible assets from our acquisition of Cascade Microtech. See Note 14— Income Taxes of the Notesto the Consolidated Financial Statements.(8)Fiscal 2016 includes the following as a result of the Cascade Microtech acquisition: $82.6 million in revenue, $27.8 million in the amortizationof intangibles expense and $7.6 million charge for inventory-related step-up amortization, resulting in a $36.4 million loss.23Item 7: Management's Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financialstatements and the related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the followingdiscussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions as described under the "Note Regarding Forward-Looking Statements" that appears earlier in this Annual Report on Form 10-K. Our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors, including those discussed under "Item 1A: Risk Factors" and elsewhere in this Annual Report on Form 10-K.OverviewOn June 24, 2016, we acquired Cascade Microtech, Inc., a leading provider of advanced wafer probing, thermal and reliability solutions. Our consolidatedfinancial statements as of December 31, 2016 included the consolidated balance sheet of Cascade Microtech as of December 31, 2016 whereas our consolidatedstatements of operations for the fiscal year ended December 31, 2016 included the financial results of Cascade Microtech only for the third and fourth quarters offiscal 2016 . We excluded the financial results of Cascade Microtech for the second quarter of fiscal 2016 as the one-day stub period between the acquisition ofCascade Microtech on June 24, 2016 and the end of our second quarter of fiscal 2016 on June 25, 2016 was immaterial. See Note 4 to the Notes to ConsolidatedFinancial Statements - Acquisition , for further details. Therefore, our consolidated financial results for the twelve months ended December 31, 2016 may not be directly comparable to our consolidated financialresults for the twelve months ended December 26, 2015 due to the exclusion of Cascade Microtech’s pre-acquisition financial results for fiscal 2015 and half (firstand second quarter) of fiscal 2016.To finance a portion of the Cascade Microtech acquisition consideration, we entered into a senior secured term loan facility in an aggregate amount of $150million. We also entered into an interest-rate swap agreement to hedge the interest payments on our term loan. See Note 5 to the Consolidated Financial Statements- Debt , for further details. Also, see Contractual Obligations and Commitments in this section of the Management’s Discussion and Analysis of FinancialCondition and Results of Operations for further details of our contractual commitments as of December 31, 2016 .During fiscal 2016 , revenues increased by $101.5 million or 36% to $383.9 million from $282.4 million in 2015 . Our net loss increased by $5.0 million or331% to $6.6 million from $1.5 million in 2015 . The net loss for fiscal 2016 included acquisition-related amortization charges of $45.5 million , restructuring andimpairment charges of $19.7 million including the write-off of our intangible in-process research and development asset of $12.4 million and acquisition andintegration costs related to our acquisition activities of $7.5 million . This was partially offset by the release the of valuation allowance on a portion of our deferredtax assets as a result of the acquisition of Cascade Microtech resulting in an income tax benefit of approximately $44.0 million, as well as additional post-acquisition revenues and associated net income generated from Cascade Microtech's operations during fiscal 2016 . The net loss for fiscal 2015 includedrestructuring charges of $0.6 million, gain from a business interruption insurance claim of $1.5 million and a net gain from sale of intellectual property of $1.0million.Our cash and cash equivalents, marketable securities and restricted cash totaled $110.1 million as of December 31, 2016 , as compared to $188.0 million atDecember 26, 2015 . The decrease was primarily due to the cash consideration paid for the acquisition of Cascade Microtech of $228 million (net of cash acquired)partially offset by the $150 million term loan used to fund the acquisition. We believe we will meet our working capital requirements for at least the next twelvemonths with the liquidity provided by our existing cash and cash equivalents and marketable securities. If we are unsuccessful in maintaining or growing ourrevenues, or maintaining or reducing our cost structure in an industry downturn, or increasing our available cash through financing, our cash and cash equivalentsand marketable securities could decline in future periods.Summary of Segments and ProductsSubsequent to the acquisition of Cascade Microtech, we determined that we now operate in two reportable segments consisting of Probe Cards Segment andSystems Segment.Probe Cards SegmentOur Probe Cards Segment consists of probe card products and analytical probes. Probe cards are used in the semiconductor manufacturing industry toperform wafer test, which is the testing of the semiconductor die, or chips, while those die are still constituted on the semiconductor wafer. Wafer test enablessemiconductor manufacturers to determine24whether chips will meet specifications and be saleable before the wafer is diced, and the die are singulated and individually packaged. Analytical probes are used insemiconductor engineering device characterization.Our probe products are used to test a variety of semiconductor device types, including “system on a chip” products, mobile application processors,microprocessors, microcontrollers, graphic processors, radio frequency, analog, mixed signal, image sensors, electro-optical, DRAM, NAND flash memory andNOR flash memory devices. In both engineering and production use, the analytical probes and probe cards serve as the critical electrical and mechanical interfacebetween the chip(s) being tested and the test instrument that generates the electrical signal used to evaluate the device performance.Systems SegmentOur Systems Segment consists of advanced wafer probing, thermal and reliability products to enable precision on-wafer measurement of integrated circuits.Our Systems products are often used in the early phases of the development and characterization of semiconductor processes where the accuracy and repeatabilityof measurements is critical to achieving yield from advanced process nodes or new device types such as magnetic memory or silicon photonic chips. Many of ourSystems products are also used in production applications to test semiconductor devices prior to completion of the manufacturing process and include probestations, thermal subsystems. and reliability test systems.Use of Estimates and Fiscal YearPreparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities,revenues and expenses. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under thecircumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from othersources. Actual results may differ from these estimates under different assumptions or conditions.Fiscal Year. W e operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December. The fiscal years ended December 31, 2016, December 26, 2015 and December 27, 2014 included 53 weeks (with an extra week falling in the fourth quarter), 52 weeks and 52 weeks, respectively.Critical Accounting Policies and EstimatesOur discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have beenprepared in accordance with generally accepted accounting principles (GAAP). The preparation of these financial statements requires us to make estimates andassumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses inthe reporting period. Our accounting policies are fundamental to understanding our financial condition and results of operations reported in our financial statementsand related disclosures. We have identified the following accounting policies as being critical because they require our management to make particularly difficult,subjective and/or complex judgments about the effect of matters that are inherently uncertain. We evaluate our estimates and assumptions on an ongoing basis andwe base these estimates and assumptions on current facts, historical experiences and various other factors and assumptions that are believed to be reasonable underthe circumstances. Actual results may differ materially and adversely from our estimates. Our management has discussed the development, selection, applicationand disclosure of these critical accounting policies with the Audit Committee of our Board of Directors.Revenue Recognition: We recognize revenue when persuasive evidence of an arrangement exists, title and risk of loss has transferred to the customer, theselling price is fixed or determinable and collection of the related receivable is reasonably assured. In instances where final acceptance of the deliverable isspecified by the customer, revenue is deferred until all acceptance criteria have been met. Revenues from the licensing of our design and manufacturingtechnology, which have not been material to date, are recognized over the term of the license agreement or when the significant contractual obligations have beenfulfilled.Our transactions may involve the sale of systems and services under multiple element arrangements. Revenue under multiple element arrangements isallocated based on the fair value of each element. A typical multiple element arrangement may include some or all of the following components: products,accessories, installation services and extended warranty contracts. The total sales price is allocated based on the relative fair value of each component. Historically,most of our products are delivered complete and the impact of the relative fair value by component has not been significant. We record deferred revenue for servicecontracts, extended warranties and customer deposits. Deferred revenue related to service contracts25and extended warranties is recognized over the life of the contract based on the stated contractual price, typically one to two years.We account for tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction (i.e., sales, use, value added) on a net(excluded from revenue) basis.Goodwill: Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed. For fiscal 2015, wedetermined that our reporting unit, for purposes of our goodwill impairment analysis, was comprised of one entity-wide reporting unit associated with the design,development, manufacture, sale and support of precision, high performance advanced semiconductor wafer probe card products and solutions. Upon the acquisitionof Cascade Microtech on June 24, 2016, we determined that we now operate in two reportable segments consisting of the Probe Cards Segment and SystemsSegment, and three operating segments consisting of FormFactor Probes, Cascade Microtech Probes and Systems. We further determined that for purposes of ourgoodwill impairment analysis, we now have four reporting units consisting of FormFactor Probes, Cascade Microtech Probes, Systems, and ATT.We first assess qualitative factors to determine whether it is necessary to perform a two-step quantitative goodwill impairment test. If an entity determines asa result of the qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitativeimpairment test is required. Otherwise, no further testing is required.The performance of the quantitative impairment test involves a two-step process. The first step of the impairment test involves comparing the fair value ofthe applicable reporting unit with its aggregate carrying value, including goodwill. We generally determine the fair value of our reporting unit using a combinationof the income approach (that includes the use of the discounted cash flow method) and the market approach (guideline company approach) valuationmethodologies. If the carrying amount of a reporting unit exceeds the fair value of that reporting unit, we perform the second step of the quantitative impairmenttest to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the affectedreporting unit's goodwill with the carrying value of that goodwill.During the fourth quarter of fiscal 2016 , we performed our annual goodwill impairment test by assessing qualitative factors and we concluded that ourgoodwill was not impaired as of December 31, 2016 . Our qualitative review included, among other factors, an assessment of our market capitalization which wassignificantly higher than our book value. The evaluation of goodwill for impairment requires the exercise of significant judgment. In the event of future changes inbusiness conditions, we will be required to reassess and update our forecasts and estimates used in future impairment analyses. If the results of these analyses arelower than current estimates, a material impairment charge may result at that time. Refer to note 10 to Notes to Consolidated Financial Statements - Goodwill andIntangible Assets for further details.When we acquire businesses, we allocate the purchase price to the tangible assets, liabilities and identifiable intangible assets acquired. Any residualpurchase price is recorded as goodwill. The allocation of the purchase price requires management to make significant estimates in determining the fair value ofacquired assets and assumed liabilities, especially with respect to intangible assets. These estimates are based on information obtained from management of theacquired companies, market participant data and historical experience. These estimates can include, but are not limited to: the time and expenses that would benecessary to recreate the asset; the profit margin a market participant would receive; cash flows that an asset is expected to generate in the future; and discountrates.These estimates are inherently uncertain and unpredictable. A change in these estimates could impact our allocation of purchase price to the acquired assetsand assumed liabilities. During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assetsacquired and liabilities assumed, with the corresponding offset to goodwill based on updated estimate information or facts and circumstances existing as of theacquisition date. Following the earlier of 1) receipt of all necessary information to determine the fair value of assets acquired and liabilities assumed, or 2) one yearfrom the acquisition date, any subsequent adjustments are recorded to earnings.Impairment of Long-Lived Assets: We test long-lived assets or asset groups such as property, plant and equipment and intangibles for recoverability whenevents or changes in circumstances indicate that their carrying amounts may not be recoverable. Circumstances that could trigger a review include, but are notlimited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costssignificantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined witha history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold ordisposed of significantly before the end of its estimated useful life.26Recoverability is assessed based on the carrying amounts of the asset or asset group and the sum of the undiscounted cash flows expected to result from theuse and the eventual disposal of the asset. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.Significant judgments and assumptions are required in the forecast of future operating results used in the preparation of the estimated future cash flows,including profit margins, long-term forecasts of the amounts and timing of overall market growth and our percentage of that market, groupings of assets, discountrates and terminal growth rates. In addition, significant estimates and assumptions are required in the determination of the fair value of our intangible assets andtangible long-lived assets, including replacement cost, economic obsolescence, and the value that could be realized in an orderly liquidation. Changes in theseestimates could have a material adverse effect on the assessment of our long-lived assets, thereby requiring us to write down the assets.Restructuring Charges: Restructuring charges include costs related to employee termination benefits, long-lived assets impaired or abandoned, andcontract termination costs. The determination of when we accrue for employee termination benefits depends on whether the termination benefits are providedunder a one-time benefit arrangement or under an on-going benefit arrangement. For restructuring charges recorded as an on-going benefit arrangement, a liabilityfor post-employment benefits is recorded when payment is probable, the amount is reasonably estimable, and the obligation relates to rights that have vested oraccumulated. For restructuring charges recorded as a one-time benefit arrangement, we recognize a liability for employee termination benefits when a plan oftermination, approved by management and establishing the terms of the benefit arrangement, has been communicated to employees. The timing of the recognitionof one-time employee termination benefits is dependent upon the period of time the employees are required to render service after communication. If employeesare not required to render service in order to receive the termination benefits or if employees will not be retained to render service beyond the minimum legalnotification period, a liability for the termination benefits is recognized at the communication date. In instances where employees will be retained to render servicebeyond the minimum legal notification period, the liability for employee termination benefits is measured initially at the communication date based on the fairvalue of the liability as of the termination date and is recognized ratably over the future service period. We continually evaluate the adequacy of the remainingliabilities under our restructuring initiatives.We record charges related to long-lived assets to be abandoned when the assets cease to be used. When we cease using a building or other asset withremaining non-cancelable lease payments continuing beyond our use period, we record a liability for remaining payments under lease arrangements, as well as forcontract termination costs, that will continue to be incurred under a contract for its remaining term without economic benefit to us at the cease-use date. Given thesignificance of, and the timing of the execution of such activities, this process is complex and involves periodic reassessments of estimates made at the time theoriginal decisions were made, including evaluating real estate market conditions for expected vacancy periods and sub-lease rents. Although we believe that theseestimates accurately reflect the costs of our restructuring plans, actual results may differ, thereby requiring us to record additional provisions or reverse a portion ofsuch provisions.Inventory Valuation: We state our inventories at the lower of cost (principally standard cost which approximates actual cost on a first in, first out basis) ormarket value. We continually assess the value of our inventory and will periodically write down its value for estimated excess inventory and product obsolescencebased upon assumptions about forecasted future sales, past usage, and market conditions. On a quarterly basis, we review inventory quantities on hand and on orderunder non-cancelable purchase commitments in comparison to our past usage and estimated forecast of product demand for the next six to twelve months todetermine what inventory quantities, if any, may not be sellable. Based on this analysis, we write down the affected inventory value for estimated excess andobsolescence charges. At the point of loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstancesdo not result in the restoration or increase in that newly established cost basis. Market conditions are subject to change, and demand for our products can fluctuatesignificantly. Actual consumption of inventories could differ from forecasted demand and this difference could have a material impact on our gross profit andinventory balances based on additional provisions for excess or obsolete inventories or a benefit from the sale of inventories previously written down.27Results of OperationsThe following table sets forth our operating results as a percentage of revenues: Fiscal 2016 Fiscal 2015 Fiscal 2014Revenues100.0 % 100.0 % 100.0 %Cost of revenues73.3 69.6 71.2Gross profit26.7 30.4 28.8Operating expenses: Research and development15.0 15.6 15.9Selling, general and administrative19.1 16.0 19.0Restructuring and impairment charges, net5.1 0.2 1.5Total operating expenses39.2 31.8 36.4Operating loss(12.5) (1.4) (7.6)Interest income, net0.1 0.1 0.1Other income (expense), net(0.7) 0.9 0.1Loss before income taxes(13.1) (0.4) (7.4)Provision (benefit) from income taxes(11.4) 0.1 (0.3)Net loss(1.7)% (0.5)% (7.1)%Fiscal Years Ended December 31, 2016 and December 26, 2015Revenues by Segment Fiscal 2016 Fiscal 2015 (In thousands)Probe Cards$337,970 $282,358Systems45,911 —Total$383,881 $282,358The increase in Probe Cards Segment and Systems Segment revenues for fiscal 2016 was primarily due to additional revenues generated during the secondhalf of fiscal 2016 from sale of probe cards (approximately $36.7 million) and probe stations, services and thermal sub-systems (approximately $45.9 million)products as a result of our acquisition of Cascade Microtech on June 24, 2016, and strong demand for our Foundry & Logic products. Prior to the acquisition ofCascade Microtech, we only operated in the Probe Cards Segment and did not generate any Systems Segment revenue. Further, fiscal year 2016 consisted of 53weeks compared to 52 weeks in fiscal year 2015.Revenues by MarketOur product revenues by market was as follows for the periods indicated: Fiscal % of Fiscal % of Change 2016 Revenues 2015 Revenues $ % (In thousands, except percentages)Probe Cards Markets: Foundry & Logic$237,591 61.9% $145,839 51.7% $91,752 62.9 %DRAM86,910 22.6 125,512 44.4 (38,602) (30.8)Flash13,469 3.5 11,007 3.9 2,462 22.4Systems Market: Systems45,911 12.0 — — 45,911 100.0Total revenues$383,881 100.0% $282,358 100.0% $101,523 36.0 %28During fiscal 2016 , our Foundry & Logic products experienced strong demand across all our applications including radio-frequency, mobile, industrial andautomotive and microprocessors, where our significant microprocessor customer doubled its demand compared to fiscal 2015. In addition, the overall increase inFoundry & Logic revenues in Fiscal 2016 was also due to additional revenues generated during the second half of fiscal 2016 as a result of our acquisition ofCascade Microtech. All of Cascade Microtech's probe card revenues are included in our Foundry and Logic revenues.The decrease in our DRAM revenues in fiscal 2016 was due to lower probe card demand driven by a volatile DRAM market as DRAM manufacturerscontinued their technology node transitions. The overall increase in Flash memory revenues was due to several 3-D NAND design wins on our Vector andTouchMatrix product architectures.The increase in Systems Segment revenues in fiscal 2016 was due to the acquisition of Cascade Microtech on June 24, 2016. Prior to the acquisition, weonly operated in the Probe Cards Segment and did not generate any Systems Segment revenue.Revenues by Geographic RegionThe following table sets forth our revenues by geographic region for the periods indicated: Fiscal2016 % ofRevenues Fiscal2015 % ofRevenues (In thousands, except percentages)United States$127,641 33.3% $66,051 23.4%South Korea65,508 17.1 71,120 25.2Taiwan57,331 14.9 61,711 21.9Europe49,445 12.9 25,542 9.0Asia-Pacific (1)43,659 11.4 31,389 11.1Japan38,650 10.0 26,418 9.4Rest of the world1,647 0.4 127 —Total Revenues$383,881 100.0% $282,358 100.0%(1)Asia-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 throughtheir North American subsidiary and requests the products to be shipped to an address in South Korea, this sale will be reflected in the revenue for South Korearather than North America.The overall increase in geographical revenues across the regions except for South Korea and Taiwan was primarily attributable to additional revenuesgenerated in the second half of fiscal 2016 as a result of our acquisition of Cascade Microtech. In addition, North America revenues benefitted from the increaseddemand from our significant microprocessor customer. South Korea and Taiwan revenues decreased primarily due to the reduced demand for our DRAM products. Cost of Revenues and Gross MarginsCost of revenues consists primarily of manufacturing materials, payroll, shipping and handling costs, manufacturing-related overhead and amortization ofcertain intangible assets. Our manufacturing operations rely on a limited number of suppliers to provide key components and materials for our products, some ofwhich are a sole source. We order materials and supplies based on backlog and forecasted customer orders. Tooling and setup costs related to changingmanufacturing lots at our suppliers are also included in the cost of revenues. We expense all warranty costs, inventory provisions and amortization of certainintangible assets as cost of revenues. Cost of revenues was affected primarily by our Cascade Microtech acquisition and additional factors as discussed below.Corporate and other includes unallocated expenses relating to amortization of intangible assets, share-based compensation expense, acquisition-relatedcosts, 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.29Our gross profit and gross margin by segment for fiscal 2016 and 2015 is as below (in thousands, except percentages): Fiscal 2016 Probe Cards Systems Corporate andOther TotalGross profit$121,407 $23,925 $(42,650) $102,682Gross margin35.9% 52.1% —% 26.7% Fiscal 2015 Probe Cards Systems Corporate andOther TotalGross profit$99,199 $— $(13,461) $85,738Gross margin35.1% —% —% 30.4%Probe CardsFor fiscal 2016 , gross profit and gross margin in the Probe Cards Segment increased due to the inclusion of the Cascade Microtech acquisition for itsproduct sales, and improvements in overall gross margin were driven by a more favorable product mix and improved manufacturing efficiency in our Foundry &Logic factories. These benefits to gross profit and gross margin were partially offset by investments made in additional production capacity in our San Jose factory,late delivery fees on probe cards that missed our customer's required delivery date in the first quarter of fiscal 2016 and lower DRAM factory utilization in the firsthalf of fiscal 2016.SystemsFiscal 2016 was the first year we recorded gross profit and gross margin in the Systems Segment as a result of our acquisition of Cascade Microtech on June24, 2016. Prior to the acquisition, we operated in the Probe Cards Segment only.OverallThe overall gross profit and gross margin for fiscal 2016 and 2015 is as below: Fiscal2016 Fiscal2015 (In thousands, except percentages)Gross profit$102,682 $85,738Gross margin26.7% 30.4%Gross profit and margin fluctuates with revenue levels, product mix, selling prices, factory loading and material costs. For fiscal 2016 , gross marginsdecreased when compared to the corresponding period in the prior year primarily due to the impact of lower factory utilization in certain of our factories andinclusion of the intangible asset amortization expenses from our Cascade Microtech acquisition. In addition, we made investments in additional productioncapacity in our San Jose factory in the first half of fiscal 2016 to support a sales increase of our Foundry & Logic probe cards to our most significantmicroprocessor customer. We also incurred late delivery fees on probe cards that missed our customer's required delivery date in the first quarter of fiscal 2016.This impact was partially offset by strong sales and gross margin in the second half of fiscal 2016 resulting from our acquisition of Cascade Microtech.Stock-based compensation expense included in gross margin for fiscal 2016 and 2015 was $2.5 million and $2.7 million , respectively. Future gross margins may be adversely impacted by lower levels of revenues and lower factory utilization even though we have taken significant steps toreduce our operating cost structure. Our gross margins may also be adversely affected if we are required to record additional inventory provision charges andinventory write-downs if estimated average selling prices of products held in finished goods and work in process inventories are below the manufacturing cost ofthose products.30Research and Development Fiscal2016 Fiscal2015 (In thousands, except percentages)Research and development$57,453 $44,184% of revenues15.0% 15.6%The increase in research and development expenses for fiscal 2016 when compared to fiscal 2015 was primarily due to our Cascade Microtech acquisition.Including the impact of the acquisition, we experienced an increase of $8.3 million in employee compensation costs, $3.1 million in project material and servicescosts and $1.6 million in general operating expenses. Stock-based compensation expense included within research and development expenses was $3.3 million and$3.5 million , respectively, for fiscal 2016 and 2015 .Selling, General and Administrative Fiscal2016 Fiscal2015 (In thousands, except percentages)Selling, general and administrative$73,444 $45,090% of revenues19.1% 16.0%The increase in selling, general and administrative expenses for fiscal 2016 when compared to fiscal 2015 was primarily due to our Cascade Microtechacquisition. Including the impact of the acquisition, we experienced an increase of $12.4 million in employee compensation costs, $7.3 million in acquisition andintegration costs, $2.7 million in depreciation and amortization charges, $2.1 million in general operating costs, $2.0 million in travel related costs and $1.8 millionin consulting fees. Stock-based compensation expense included within selling, general and administrative expenses was $4.9 million and $5.4 million , respectivelyfor fiscal 2016 and 2015 .Restructuring and Impairment Charges, net Fiscal2016 Fiscal2015 (In thousands, except percentages)Restructuring and impairment charges, net$19,692 $567% of revenues5.1% 0.2%Restructuring and impairment charges, net increased $19.1 million in fiscal 2016 from fiscal 2015 .Restructuring ChargesThe restructuring plans we implemented in fiscal 2016 and 2015 are discussed below.2016 Restructuring ActivitiesDuring fiscal 2016 , we recorded;• approximately $0.8 million of severance charges and $0.3 million of stock-based compensation expense relating to the modification of certainequity-based awards as a result of the consolidation of our operations;• approximately $5.4 million of severance charges and $0.7 million of stock-based compensation expense relating to the acceleration of certainequity-based awards of certain executives of Cascade Microtech who were terminated upon our acquisition of Cascade Microtech and in accordance withtheir contractual change of control agreements; and• approximately $0.1 million of cease use charges relating to abandoned facilities no longer to be used in our operations.31The cash payments associated with the restructuring activities are expected to be completed by the end of the second quarter of fiscal 2017.2015 Restructuring ActivitiesDuring fiscal 2015, we recorded restructuring charges of approximately $0.6 million which included stock-based compensation expense of approximately$0.5 million relating to the modification of an equity-based award.Impairment of Long-Lived AssetsWe test long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amounts may not berecoverable. In fiscal 2016 , we recorded an impairment charge of $12.4 million relating to an in-process research and development intangible asset acquired aspart of our acquisition of Cascade Microtech. During the fourth quarter of fiscal 2016 and subsequent to the Cascade Microtech acquisition, we were informed by acustomer that they had abandoned their project for which this intangible asset was being developed for, and therefore we fully impaired this intangible asset as ithad no alternative future use to us. Long-lived asset impairment charges recorded in fiscal 2015 were insignificant.Interest Income and Other Income (Expense), Net Fiscal2016 Fiscal2015 (In thousands, except percentages)Interest income, net$327 $285% of revenues0.1 % 0.1% Other income (expense), net$(2,615) $2,547% of revenues(0.7)% 0.9%Interest income is primarily earned on our cash, cash equivalents and marketable securities. The increase in interest income for fiscal 2016 as compared tofiscal 2015 was primarily the result of higher yields on our cash balances. The weighted-average yield on our cash and cash equivalents and marketable securitiesfor fiscal 2016 and 2015 was 0.31% and 0.12%, respectively. Cash and cash equivalents, restricted cash and marketable securities were $110.1 million atDecember 31, 2016 compared to $188.0 million at December 26, 2015 .Other income (expense), net is comprised primarily of interest expense on our Term Loan and interest-rate swap derivative contracts, term loan issuancecosts amortization charges, foreign currency impact and various other gains and losses. The decrease in other income (expense), net for fiscal 2016 as compared tofiscal 2015 was primarily due to approximately $2.4 million of charges related to interest payments on our term loan and interest-rate swap derivative contracts andterm loan issuance cost amortization charges, which was partially offset by the receipt of $0.4 million of proceeds from the sale of intellectual property.During fiscal 2015 , we received $1.5 million as a result of a payment from our insurer arising from a business interruption insurance claim related to afactory fire at a customer during the second half of fiscal 2013. In addition, we recognized a net gain of $1.0 million from the sale of intellectual property.Provision (Benefit) From Income Taxes Fiscal2016 Fiscal2015 (In thousands, except percentages)Provision (benefit) from income taxes$(43,638) $252Effective tax rate86.9% (19.8)%We recorded an income tax benefit of $43.6 million and a provision of $0.3 million for fiscal 2016 and 2015 , respectively. Income tax provisions reflect thetax on our operations in the US and foreign jurisdictions and the tax benefit from the lapsing of the statute of limitations in foreign jurisdictions.32The income tax benefit for fiscal 2016 was primarily due to the release of valuation allowance on a portion of our deferred tax assets ("DTAs"). Inconnection with our acquisition of Cascade Microtech on June 24, 2016, deferred tax liabilities ("DTLs") were established on the acquired identifiable intangibleassets. These DTLs exceeded the acquired DTAs by approximately $44.0 million and created additional sources of income to realize a tax benefit for a portion ofour DTAs. As such, authoritative guidance under United States GAAP requires the impact on the acquiring company's deferred tax assets and liabilities caused byan acquisition be recorded in the acquiring company's financial statements outside of acquisition accounting. Accordingly, the valuation allowance on a portion ofour DTAs was released and resulted in a fiscal 2016 income tax benefit of approximately $43.6 million.We recognize interest (benefit) charges and penalties related to uncertain tax positions as part of the income tax provision. We recognized interest (benefit)charges and penalties of $22 thousand, $50 thousand and $(0.1) million in fiscal 2016, 2015, and 2014, respectively. As of December 31, 2016 and December 26,2015, we had accrued total interest charges and penalties of $0.2 million and $0.2 million, respectively, related to uncertain tax positions.We anticipate that we will continue to record a valuation allowance against our U.S. deferred tax assets. We expect our future tax provisions, during thetime such valuation allowances are recorded, will consist primarily of the tax provision of our profitable non-U.S. jurisdictions and state minimum tax. AtDecember 31, 2016, we had Federal research and development tax credit, net operating loss, and foreign tax credit carryforwards of $22.5 million, $298.7 millionand $2.2 million, respectively, which will expire at various dates from 2017 through 2036. We had alternative minimum tax credits of $2.4 million which do notexpire. We had California and Oregon research credits of $29.9 million and $0.6 million, respectively. The California research credit can be carried forwardindefinitely while Oregon research credits expire at various dates from 2017 through 2022. We had state net operating loss carryforwards of approximately $271.7million, which will expire at various dates from 2017 through 2036. We had Singapore net operating loss carryforwards of approximately $9.7 million, which canbe carried forward indefinitely.Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuationallowance, changes to U.S. Federal, state or foreign tax laws, future expansion into areas with varying country, state, and local income tax rates, deductibility ofcertain costs and expenses by jurisdiction.Fiscal Years Ended December 26, 2015 and December 27, 2014Revenues Fiscal % of Fiscal % of Change 2015 Revenues 2014 Revenues $ % (In thousands, except percentages)Revenues by Market: Foundry and Logic$145,839 51.7% $142,360 53.0% $3,479 2.4 %DRAM125,512 44.4 110,800 41.3 14,712 13.3Flash11,007 3.9 15,370 5.7 (4,363) (28.4)Total revenues$282,358 100.0% $268,530 100.0% $13,828 5.1 %Overall, our revenues increased by 5.1%, or $13.8 million, in fiscal 2015 as compared to fiscal 2014. Our revenues increased 2.4% year-over-year in theFoundry and Logic market, increased 13.3% in DRAM and decreased 28.4% in Flash memory.The increase in DRAM revenue was primarily driven by market share increases at a major South Korean memory producer, based on the adoption of ourSmartMatrix product. The increase in Foundry and Logic revenue was primarily due to higher mobile processor demand and market share gains for our CMOSImage Sensor testing products at a European customer. The decrease in Flash memory revenue was primarily due to a weakening NOR Flash memory market,which was partially offset by increased demand for our TouchMatrix product to test NAND Flash devices at a South Korean memory producer.33Revenues by Geographic RegionThe following table sets forth our revenues by geographic region for the periods indicated: Fiscal2015 % ofRevenues Fiscal2014 % ofRevenues (In thousands, except percentages)South Korea$71,120 25.2% $52,677 19.6%North America66,178 23.4 75,393 28.1Taiwan61,711 21.9 49,395 18.4Asia-Pacific (1)31,389 11.1 34,705 12.9Japan26,418 9.4 25,683 9.6Europe25,542 9.0 30,677 11.4Total Revenues$282,358 100.0% $268,530 100.0%(1)Asia-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 customer product. For example, if a certain South Korean customer purchasesthrough their North American subsidiary and requests the products to be shipped to an address in Asia-Pacific, this sale will be reflected in the revenue for Asia-Pacific rather than North America.The change in revenues from our geographical regions for fiscal 2015, when compared to fiscal 2014, were primarily driven by the following factors:•South Korea revenues increased driven primarily by a combination of market share increases at a major South Korean customer based on the adoption ofour SmartMatrix product for DRAM applications and increased Foundry and Logic product shipments related to mobile processor demand;•North America revenues decreased driven primarily by a shift of Foundry and Logic product shipments for personal computer processors to customers’test facilities in Europe;•Taiwan revenues increased driven primarily by a combination of increased Foundry and Logic product shipments and an increase in commodity orpersonal computer DRAM demand;•Asia-Pacific revenues decreased driven primarily by reduced sales of our SmartMatrix DRAM products;•Europe revenues decreased driven primarily due to reduced mobile processor related product demand, partially offset by a shift of Foundry and Logicproduct shipments for personal computer processors to customers’ test facilities in Europe; and•Japan revenues were relatively flat year over year.Gross Profit Fiscal2015 Fiscal2014 (In thousands, except percentages)Gross profit$85,738 $77,439Gross margin30.4% 28.8%Gross margin fluctuates with revenue levels, product mix, selling prices, factory loading and material costs. For fiscal 2015, gross profit increased $8.3million when compared to fiscal 2014, primarily due to higher production volume driven by higher sales. Factory utilization, execution and operating efficiencyimproved. We also increased production yields and reduced obsolete inventory charges and acquisition-related intangible amortization expense. This was offset byprice reductions due to competition at several customers.34Our net inventory provision charges declined by $0.6 million in fiscal 2015 compared to fiscal 2014 due to increased demand levels. The value ofpreviously reserved materials that were used in manufacturing and shipped for fiscal 2015 and 2014 was $2.5 million and $2.4 million, respectively.Gross margin included intangible asset amortization expense of $10.8 million and $15.8 million in fiscal 2015 and 2014, respectively, related to theMicroProbe Acquisition. Stock-based compensation expense included in gross margin for fiscal 2015 and 2014 was $2.7 million and $2.4 million, respectively. Future gross margins may be adversely impacted by lower levels of product revenues, even though we have taken significant steps to reduce our operatingcost structure. Our gross margins may also be adversely affected if we are required to record additional inventory write-downs if estimated average selling prices ofproducts held in finished goods and work in process inventories are below the manufacturing cost of those products.Research and Development Fiscal2015 Fiscal2014 (In thousands, except percentages)Research and development$44,184 $42,725% of revenues15.6% 15.9%Research and development expenses for fiscal 2015 increased $1.5 million, or 3%, compared to the prior year and was primarily due to an increase of $1.2million in project and material costs, $0.4 million in incentive compensation and $0.3 million in personnel-related costs offset by a reduction of $0.4 million inoverall general operating expenses. Stock-based compensation expense included within research and development expenses was $3.5 million and $3.5 million,respectively, for fiscal 2015 and 2014.Our research and development expenses fluctuate as projects transition from development to manufacturing, depending on the stage of completion and levelof effort related to each project undertaken. We are continuing our strategic investments in research and development, including investments in new springtechnologies, substrate architectures and new process technologies. We remain committed to product development in new and emerging technologies.Selling, General and Administrative Fiscal2015 Fiscal2014 (In thousands, except percentages)Selling, general and administrative$45,090 $51,385% of revenues16.0% 19.0%Selling, general and administrative expenses decreased $6.3 million, or 12%, in fiscal 2015 compared to the prior year and was primarily due to decreases of$2.1 million in personnel-related costs, $1.9 million in stock compensation expense, $1.2 million in legal expenses, $0.9 million in overall general operatingexpenses and $0.3 million in travel costs which was partially offset by an increase of $0.2 million in consulting costs to support strategic corporate initiatives.Stock-based compensation expense included within selling, general and administrative expenses was $5.4 million and $7.3 million, respectively for fiscal 2015 and2014.Restructuring and Impairment Charges, net Fiscal2015 Fiscal2014 (In thousands, except percentages)Restructuring and impairment charges, net$567 $3,887% of revenues0.2% 1.5%Restructuring charges decreased $2.1 million, or 79%, in fiscal 2015 from fiscal 2014. The restructuring plans we implemented in fiscal 2015 and 2014 arediscussed below.352015 Restructuring ActivitiesDuring fiscal 2015, we recorded restructuring charges of approximately $0.6 million which included stock-based compensation expense of approximately$0.5 million relating to the modification of an equity-based award. All other restructuring charges recorded in fiscal 2015 were insignificant.2014 Restructuring ActivitiesOn January 27, 2014, we announced a global organizational restructuring and cost reduction plan. As part of the plan, we eliminated 52 full-time employees.In addition, we reduced our temporary workforce by 9 positions. We recorded $2.0 million of restructuring charges during the first quarter of fiscal 2014, whichwas comprised of $1.4 million in severance and related benefits and $0.6 million in impairment charges for certain equipment that would no longer be utilized.During the remainder of fiscal 2014, we further eliminated an additional 5 full-time positions and recorded $0.7 million in severance charges. The activitiescomprising these restructuring activities were substantially completed in fiscal 2014 and the remaining cash payments associated with these activities were paid infiscal 2015.Impairment of Long-Lived AssetsWe test long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amounts may not berecoverable. In fiscal 2015, long-lived asset impairment charges recorded were insignificant. In fiscal 2014, we recorded impairment charges of $1.2 millionrelated to manufacturing assets we no longer utilize.Interest Income and Other Income (Expense), Net Fiscal2015 Fiscal2014 (In thousands, except percentages)Interest income, net$285 $302% of revenues0.1% 0.1% Other income (expense), net$2,547 $161% of revenues0.9% 0.1%Interest income is primarily earned on our cash, cash equivalents and marketable securities. The decrease in interest income for fiscal 2015 as compared tofiscal 2014 was primarily the result of lower yields. Cash, cash equivalents, restricted cash and marketable securities were $188.0 million at December 26, 2015compared to $164.3 million at December 27, 2014. The weighted-average yield on our cash, cash equivalents and marketable securities for fiscal 2015 and 2014was 0.12% and 0.16%, respectively.The increase in other income (expense), net, in fiscal 2015 as compared to fiscal 2014 was primarily due to approximately $1.0 million net gain recognizedfrom the sale of intellectual property to MarTek pursuant to a settlement agreement and approximately $1.5 million cash received as a result of a payment from ourinsurer arising from a business interruption insurance claim related to a factory fire at a customer during the second half of fiscal 2013.Provision (Benefit) From Income Taxes Fiscal2015 Fiscal2014 (In thousands, except percentages)Provision (benefit) from income taxes$252 $(910)Effective tax rate(19.8)% 4.5%We recorded an income tax provision of $0.3 million and a benefit of $0.9 million for fiscal 2015 and 2014, respectively. Income tax provisions reflect thetax on our operations in the US and foreign jurisdictions and the tax benefit from the lapsing of the statute of limitations in foreign jurisdictions.We recognize interest (benefit) charges and penalties related to uncertain tax positions as part of the income tax provision. We recognized interest (benefit)charges and penalties of $50 thousand, $(0.1) million and $(0.2) million in fiscal362015, 2014, and 2013, respectively. As of December 26, 2015 and December 27, 2014, we had accrued total interest charges and penalties of $0.2 million and $0.1million, respectively, related to uncertain tax positions.We anticipate that we will continue to record a valuation allowance against our U.S. deferred tax assets. We expect our future tax provisions, during thetime such valuation allowances are recorded, will consist primarily of the tax provision of our profitable non-U.S. jurisdictions and state minimum tax. AtDecember 26, 2015, we had Federal research and development tax credit, net operating loss, and foreign tax credit carryforwards of $21.0 million, $298.7 millionand $2.0 million, respectively, which will expire at various dates from 2016 through 2035. We had alternative minimum tax credits of $2.4 million which do notexpire. We had California research credit and net operating loss carryforwards of $28.4 million and $270.7 million, respectively. The California research credit canbe carried forward indefinitely while California net operating loss carryforwards will expire at various dates from 2016 through 2035. We had Japan and Singaporenet operating loss carryforwards of approximately $0.3 million and $10.0 million, respectively. Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuationallowance, changes to U.S. Federal, state or foreign tax laws, future expansion into areas with varying country, state, and local income tax rates, deductibility ofcertain costs and expenses by jurisdiction.Liquidity and Capital ResourcesCapital Resources: Our working capital was $172.0 million at December 31, 2016 and $214.4 million at December 26, 2015 . The decrease in workingcapital in fiscal 2016 was primarily due to the acquisition of Cascade Microtech. We reduced cash and cash equivalents and marketable securities and increasedour current liabilities for the current portion of term loan as part of the consideration paid for Cascade Microtech. See Note 4 to the Notes to Consolidated FinancialStatements - Acquisition, for further details. Cash and cash equivalents consist of deposits held at banks, money market funds and U.S. government agency securities that at the time of purchase hadmaturities of 90 days or less. Marketable securities consist of U.S. government and agency securities. We typically invest in highly-rated securities with lowprobabilities of default. Our investment policy requires investments to be rated single-A or better, and limits the types of acceptable investments, issuerconcentration and duration of the investment.Our cash and cash equivalents and marketable securities totaled $108.9 million at December 31, 2016 compared to $187.6 million at December 26, 2015 .Cash and cash equivalents and marketable securities included $27.6 million held by our foreign subsidiaries as of December 31, 2016 . We believe that we will beable to satisfy our working capital requirements for at least the next twelve months with the liquidity provided by our existing cash and cash equivalents andmarketable securities. If we are unsuccessful in maintaining or growing our revenues, or maintaining or reducing our cost structure in an industry down-turn, orincreasing our available cash through financing, our cash and cash equivalents and marketable securities may decline in fiscal 2017 .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. Should we require additional capital in the United States, we may elect to repatriate indefinitely reinvested foreign funds or raise capital in the UnitedStates. If we were to repatriate indefinitely reinvested foreign funds, we would be required to first reduce our U.S. tax net operating losses (“NOLs”) and we wouldbe required to accrue and pay additional U.S. taxes less applicable foreign tax credits for any repatriation in excess of our US NOL’s.Day Sales Outstanding: Days sales outstanding from receivables, or DSO, were 58 days at December 31, 2016 compared with 45 days at December 26,2015 . Our DSO calculation is determined using the count back method and is based on gross accounts receivable (including accounts receivable for amounts indeferred revenue). The increase in DSO in fiscal 2016 as compared to fiscal 2015 was primarily due to changes in customer mix and their payment terms.37 Fiscal2016 Fiscal2015 Fiscal2014 (In thousands)Net cash provided by operating activities$17,423 $36,122 $17,659Net cash (used in) provided by investing activities(206,318) 1,129 37,339Net cash provided by (used in) financing activities$143,614 $(4,792) $2,542On June 24, 2016, we completed the acquisition of Cascade Microtech. Our consolidated financial statements as of December 31, 2016 included theconsolidated balance sheet of Cascade Microtech as of December 31, 2016 whereas our consolidated statements of operations for the fiscal year endedDecember 31, 2016 included the financial results of Cascade Microtech only for the third and fourth quarters of fiscal 2016 . We excluded the financial results ofCascade Microtech for the second quarter of fiscal 2016 as the one-day stub period between the acquisition of Cascade Microtech on June 24, 2016 and the end ofour second quarter of fiscal 2016 on June 25, 2016 was immaterial. See Note 4 to Notes to Consolidated Financial Statements - Acquisition , for further details. Cash flows from operating activities: Net cash provided by operating activities for fiscal 2016 was primarily attributable to our operations generating $36.5million (a net loss of $6.6 million which included $43.1 million of net non-cash expenses) offset by working capital using $19.1 million of cash. Net non-cashexpenses included $46.8 million of depreciation and amortization, $12.4 million in impairment charges relating to the write-off of an in-process research anddevelopment intangible asset, $10.7 million of stock-based compensation, $10.0 million of acquisition-related inventory step-up amortization, $6.6 million ofprovision for excess and obsolete inventories, $1.0 million of restructuring activities and $0.4 million of loss on disposal and write-off of long-lived assets. Thesenon-cash expenses were partially offset by $45.0 million of deferred income tax benefit as a result of the release of valuation allowance and $0.1 million gain onforeign currency transactions.The net change in working capital for fiscal 2016 of $19.1 million resulted primarily from the acquisition of Cascade Microtech. The change was comprisedof cash used of $11.7 million for inventory build, $6.8 million in accounts receivable from higher sales and slower collections, an increase of $3.3 million inprepaid expenses and other current assets, payments of $1.1 million in income taxes, a decrease of $0.3 million in deferred revenues due to recognition ofpreviously deferred revenues for which the revenue recognition criteria have been met, and an increase of $0.2 million in other assets. The above use of cash waspartially offset by an increase of $3.4 million in accounts payable driven by payment on vendor obligations and an increase of $0.8 million in accrued liabilitiesdue to incentive compensation.Net cash provided by operating activities for fiscal 2015 was primarily attributable to improved operating results from increased revenues and decreasedcosts, and lower working capital necessary to support the increased revenues. The company had a net loss of $1.5 million and non-cash expenses of $41.1 million,including $23.8 million of depreciation and amortization, $11.6 million of stock-based compensation, $6.5 million of provision for excess and obsolete inventories,$0.5 million of restructuring activities and which was partially offset by $1.0 million gain on disposal and write-off of long-lived assets and $0.3 million gain onforeign currency transactions.The net change in operating assets and liabilities for fiscal 2015 resulted in a net use of cash of $3.4 million comprised of $8.2 million of cash used forinventory build, a $2.4 million decrease in deferred revenues due to recognition of previously deferred revenues for which the revenue recognition criteria havebeen met and a $2.0 million decrease in accounts payable driven by the timing of our payments on vendor obligations. The above use of cash was offset in part byan increase of $8.3 million in accounts receivable from strong collections, $0.8 million in income tax refunds and a $0.3 million decrease in other assets.Cash flows from investing activities: Net cash used in investing activities for fiscal 2016 was primarily related to $228.0 million paid (net of cash acquired)as part of the consideration for the acquisition of Cascade Microtech, cash used in the acquisition of property and equipment of $11.5 million , purchases ofmarketable securities totaling $10.6 million and an increase in restricted of $0.8 million due to foreign subsidiary employee retirement obligations, which waspartially offset by $44.5 million of proceeds from maturities of marketable securities. We carefully monitor our investments to minimize risks and have notexperienced other than temporary investment losses. Net cash provided by investing activities for fiscal 2015 was primarily related to $74.8 million of proceeds from maturities of marketable securities and $1.2million of proceeds from sales of property, plant and equipment offset by purchases of marketable securities totaling $66.2 million and cash used in the acquisitionof property and equipment of $8.6 million.38Cash flows from financing activities: Net cash provided by financing activities for fiscal 2016 primarily related to $150.0 million of proceeds from TermLoan debt used to partially fund the acquisition of Cascade Microtech and $5.7 million from proceeds received from purchases under our 2012 Employee StockPurchase Plan and stock option exercises, partially offset by $10.6 million of principal payments made towards the repayment of our Term Loan and $1.5 millionused to pay for Term Loan debt issuance costs.Net cash used in financing activities for fiscal 2015 included $8.2 million used for the repurchase and retirement of our common stock offset by $3.4 millionfrom proceeds received from purchases under our 2012 Employee Stock Purchase Plan and stock option exercises.Our cash and cash equivalents and marketable securities decreased by $78.7 million in fiscal 2016 primarily due to the cash portion of the considerationpaid for the acquisition of Cascade Microtech partially offset by proceeds from the $150 million Term Loan we entered into on June 24, 2016 to fund theacquisition. We continue to focus on improving our operating efficiency to increase operating cash flows. We believe that we will be able to satisfy our cashrequirements for at least the next twelve months with the liquidity provided by our existing cash, cash equivalents and marketable securities. To the extentnecessary, we may also consider entering into short and long-term debt obligations, raising cash through a stock issuance, or obtaining new financing facilitieswhich may not be available on terms favorable to us. Our future capital requirements may vary materially from those now planned. However, if we areunsuccessful in maintaining or growing our revenues, or maintaining or reducing our cost structure in an industry down-turn, or increasing our available cashthrough financing, our cash and cash equivalents and marketable securities could decline in future fiscal years.Contractual Obligations and CommitmentsThe following table summarizes our significant contractual commitments to make future payments in cash under contractual obligations as of December 31,2016 (in thousands): Payments Due In Fiscal Years 2017 2018 2019 2020 2021 After 2021 Total (In thousands)Operating leases$6,279 $5,789 $4,882 $3,581 $3,236 $15,734 $39,501Purchase obligations33,696 4,550 515 — — — 38,761Senior secured term loanfacility-principal payments(1)13,125 26,250 41,250 50,625 8,125 — 139,375Senior secured term loanfacility-interest payments (2)2,828 2,400 1,739 821 41 — 7,829Total $55,928 $38,989 $48,386 $55,027 $11,402 $15,734 $225,466 (1) On June 24, 2016, we entered into a senior secured term loan facility in an aggregate amount of $150 million in order to finance a portion of the Cascade Microtechacquisition consideration. See Note 5 to Notes to Consolidated Financial Statements - Debt , for further details. (2) Represents our minimum interest payment commitments at2.00% per annum.Purchase obligations are primarily for purchases of inventory and manufacturing related service contracts. For the purposes of this table, purchaseobligations are defined as agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to bepurchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The expected timing of payment of the obligationsdiscussed above is estimated based on information available to us as of December 31, 2016 . Timing of payments and actual amounts paid may be differentdepending on the timing of receipt of goods or services or changes to agreed-upon amounts for some obligations.The table above excludes our gross liability for unrecognized tax benefits, which totaled approximately $18.0 million as of December 31, 2016 . The timingof any payments which could result from these unrecognized tax benefits will depend upon a number of factors. Accordingly, the timing of payment cannot beestimated and has been excluded from the table above. As of December 31, 2016 , the changes to our uncertain tax positions in the next 12 months that arereasonable and probable are not expected to have a significant impact on our financial position or results of operations.39Off-Balance Sheet ArrangementsHistorically, we have not participated in transactions that have generated relationships with unconsolidated entities or financial partnerships, such as entitiesoften referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangementsor other contractually narrow or limited purposes. As of December 31, 2016 , we were not involved in any off-balance sheet arrangements.Indemnification AgreementsWe have entered, and may, from time to time in the ordinary course of our business enter into contractual arrangements with third parties that includeindemnification obligations. Under these contractual arrangements, we have agreed to defend, indemnify and/or hold the third party harmless from and againstcertain liabilities. These arrangements include indemnities in favor of customers in the event that our probe cards infringe a third party's intellectual property andour lessors in connection with facility leasehold liabilities that we may cause. In addition, we have entered into indemnification agreements with our directors andcertain of our officers, and our bylaws contain indemnification obligations in favor of our directors, officers and agents. These indemnity arrangements may limitthe type of the claim, the total amount that we can be required to pay in connection with the indemnification obligation and the time within which anindemnification claim can be made. The duration of the indemnification obligation may vary and, for most arrangements, survives the agreement term and isindefinite. We believe that substantially all of our indemnity arrangements provide either for limitations on the maximum potential future payments we could beobligated to make, or for limitations on the types of claims and damages we could be obligated to indemnify, or for both. However, it is not possible to determineor reasonably estimate the maximum potential amount of future payments under these indemnification obligations due to the varying terms of such obligations, thehistory of prior indemnification claims, the unique facts and circumstances involved in each particular contractual arrangement and in each potential future claimfor indemnification, and the contingency of any potential liabilities upon the occurrence of events that are not reasonably determinable. We have not had anyrequests for indemnification under these arrangements. We have not recorded any liabilities for these indemnification arrangements on our consolidated balancesheet as of December 31, 2016 .Recent Accounting PronouncementsIn January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-01, “ Business Combinations(Topic 805) - Clarifying the Definition of a Business ” which clarifies the definition and provides a more robust framework to use in determining when a set ofassets and activities constitutes a business. ASU 2017-01 is intended to provide guidance when evaluating whether transactions should be accounted for asacquisitions (or disposals) of assets or businesses. ASU 2017-01 will be effective for us at the beginning of the first quarter of fiscal year 2018 and is not expectedto have a significant impact on our financial statements.In November 2016, the FASB issued ASU 2016-18, “ Statement of Cash Flows (Topic 230) - Restricted Cash ” which requires that a statement of cashflows 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, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling thebeginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 will be effective for us at the beginning of the firstquarter of fiscal year 2018 and is not expected to have a significant impact on our financial statements.In April 2016, the FASB issued ASU 2016-10, “ Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing ”and which was issued to clarify Accounting Standards Codification ("ASC") Topic 606, “Revenue from Contracts with Customers ” related to (i) identifyingperformance obligations; and (ii) the licensing implementation guidance. The effective date and transition of ASU 2016-10 is the same as the effective date andtransition of ASU 2014-09, “ Revenue from Contracts with Customers (Topic 606) ,”as discussed below.In March 2016, the FASB issued ASU 2016-09, " Improvements to Employee Share-Based Payment Accounting", which amends ASC Topic 718, "Compensation - Stock Compensation". The ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted forand presented in the financial statements and is effective for us beginning in our fiscal 2017 though early adoption is permitted. We are evaluating the effects of theadoption of this ASU on our financial statements.In February 2016, the FASB issued ASU 2016-02, Leases . ASU 2016-02 requires that lease arrangements longer than twelve months result in an entityrecognizing an asset and liability. The updated guidance is effective for interim and annual40periods beginning after December 15, 2018, and early adoption is permitted. We are evaluating the impact of the updated guidance on our consolidated financialstatements.In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers", and in August 2015 the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which defers the effective date of ASU 2014-09 by one year. ASU 2014-09requires 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 entityexpects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, anduncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customercontracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The standard permits the use ofeither the retrospective or cumulative effect transition methods. This guidance will replace most existing revenue recognition guidance in United States GAAPwhen it becomes effective, which for us will be at the beginning of the first quarter of fiscal year 2018 using one of the two prescribed transition methods. Earlyadoption of one year prior to the required effective date is permitted.We do not plan to early adopt the guidance. We have substantially completed our evaluation of the impact of this ASU on our Systems and Probes CardsSegments. Depending on the results of our review, there could be changes to the timing of recognition of revenues. We expect to complete our assessment process,including selecting a transition method for adoption, by the end of the third quarter of our fiscal 2017 along with our implementation process prior to the adoptionof this ASU on January 1, 2018.Item 7A: Quantitative and Qualitative Disclosures about Market RiskForeign Currency Exchange Risk. We conduct certain operations in foreign currencies. We enter into currency forward exchange contracts to hedge aportion, but not all, of existing foreign currency denominated amounts. Gains and losses on these contracts are generally recognized in "Other income (expense)net" in our Consolidated Statements of Operations. Because the effect of movements in currency exchange rates on the currency forward exchange contractsgenerally offsets the related effect on the underlying items being hedged, these financial instruments are not expected to subject us to risks that would otherwiseresult from changes in currency exchange rates. We do not use derivative financial instruments for trading or speculative purposes. We recognized a net loss of$0.7 million and $2.1 million , respectively for fiscal 2016 and 2015 , from the fluctuation in foreign exchange rates and the valuation of these hedge contracts.Interest Rate Sensitivity. Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We invest in a number ofsecurities including U.S. agency discount notes, money market funds and commercial paper. We attempt to ensure the safety and preservation of our investedprincipal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in high grade investment securities. By policy, welimit the amount of credit exposure to an issuer, except U.S. Treasuries and U.S. agencies.Our exposure to interest rate risk arising from our Term Loan debt (See Note 5 to Notes to Consolidated Financial Statements - Debt for further details) isinsignificant as a result of the interest-rate swap agreement (See Note 8 to Notes to Consolidated Financial Statements - Derivative Financial Instruments forfurther details) that we entered into with HSBC and other lenders to hedge the interest payments on our term loan entered into on June 24, 2016.We use interest rate derivative instruments to manage interest rate exposures. We do not use derivative instruments for trading or speculative purposes. Thefair market value of our fixed rate securities may be adversely impacted by increases in interest rates while income earned on floating rate securities may decline asa result of decreases in interest rates. A hypothetical 100 basis-point (one percentage point) increase or decrease in interest rates compared to rates at December 31,2016 and December 26, 2015 would have affected the fair value of our investment portfolio by less than $0.1 million and $0.2 million , respectively.Item 8: Financial Statements and Supplementary DataConsolidated Financial StatementsThe consolidated financial statements and supplementary data of FormFactor required by this item are included in the section entitled "ConsolidatedFinancial Statements" of this Annual Report on Form 10-K. See Item 15(a)(1) for a list of our consolidated financial statements.Item 9: Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.41Item 9A: Controls and ProceduresEvaluation of Disclosure Controls and ProceduresBased on our management's evaluation (with the participation of our Principal Executive Officer and Principal Financial Officer), as of the end of the periodcovered by this report, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures (as defined inRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the "Exchange Act")) were effective to ensure that information required tobe 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 inSEC rules and forms and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, asappropriate to allow timely decisions regarding required disclosure.Changes in Internal Control over Financial ReportingThere was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) except asdescribed below under Management's Report on Internal Control over Financial Reporting that occurred during the period covered by this Annual Report on Form10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.Management's Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our Principal Executive Officer andPrincipal Financial Officer, and effected by our board of directors, management and other personnel and consultants, to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, andincludes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors;and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have amaterial effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.We acquired Cascade Microtech on June 24, 2016, and we have not yet completed the process of integrating the acquired business’ internal control overfinancial reporting into our overall internal control over financial reporting process. Accordingly, we excluded from our assessment of internal control overfinancial reporting as of December 31, 2016, the internal control over financial reporting of Cascade Microtech. Associated with Cascade Microtech are total assetsof $351.0 million and net revenues of $82.6 million included in our consolidated financial statements as of and for the fiscal year ended December 31, 2016.Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, weconducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016 . In making this assessment, our managementused the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission("COSO"). Based on the results of this assessment, management has concluded that, our internal control over financial reporting was effective as of December 31,2016 , based on the criteria in Internal Control-Integrated Framework (2013) issued by the COSO.The effectiveness of our internal control over financial reporting as of December 31, 2016 has been audited by KPMG LLP, an independent registeredpublic accounting firm, as stated in their report which appears in this Annual Report on Form 10-K.Limitations on the Effectiveness of ControlsControl systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems' objectives arebeing 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 consideredrelative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues andinstances42of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and thatbreakdowns 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 ormore 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 offuture 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 maybecome inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.CEO and CFO CertificationsWe have attached as exhibits to this Annual Report on Form 10-K the certifications of our Chief Executive Officer and Chief Financial Officer, which arerequired in accordance with the Exchange Act. We recommend that this Item 9A be read in conjunction with the certifications for a more complete understandingof the subject matter presented.Item 9B: Other InformationNone.43PART IIIItem 10: Directors, Executive Officers and Corporate GovernanceThe information required by this item is incorporated by reference to the proxy statement for our 2017 Annual Meeting of Stockholders.Item 11: Executive CompensationThe information required by this item is incorporated by reference to the proxy statement for our 2017 Annual Meeting of Stockholders.Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this item is incorporated by reference to the proxy statement for our 2017 Annual Meeting of Stockholders.Item 13: Certain Relationships and Related Transactions, and Director IndependenceThe information required by this item is incorporated by reference to the proxy statement for our 2017 Annual Meeting of Stockholders.Item 14: Principal Accounting Fees and ServicesThe information required by this item is incorporated by reference to the proxy statement for our 2017 Annual Meeting of Stockholders.PART IVItem 15: Exhibits, Financial Statement Schedules(a)The following documents are filed as part of this Annual Report on Form 10-K:(1) Consolidated Financial Statements:Report of Independent Registered Public Accounting FirmConsolidated Balance SheetsConsolidated Statements of OperationsConsolidated Statements of Comprehensive LossConsolidated Statements of Stockholders' EquityConsolidated Statements of Cash FlowsNotes to Consolidated Financial Statements(2) Exhibits:The exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K.(b)Financial Statement Schedules:All schedules have been omitted because they are not required, not applicable, or the required information is included in the consolidated financialstatements or notes thereto.(c)Exhibits:44 Incorporated by Reference ExhibitNumber Exhibit Description Form File No Date ofFirst Filing ExhibitNumber FiledHerewith2.01*** Agreement and Plan of Merger, dated February 3, 2016, by andamong Cascade Microtech, Inc., FormFactor, Inc. and CardinalMerger Subsidiary, Inc. 8-K 000-50307 2/9/2016 2.1 3.01 Amended and Restated Certificate of Incorporation of theRegistrant as filed with the Delaware Secretary of State onJune 17, 2003 S-1 333-109815 10/20/2003 3.01 3.02 Amended and Restated Bylaws of the Registrant 8-K 000-50307 7/22/2016 3.2 4.01 Specimen Common Stock Certificate S-1/A 333-86738 5/28/2002 4.01 10.01 Credit Agreement among FormFactor, Inc. as Borrower, theGuarantors that are from time to time parties thereto, HSBCBank USA, National Association, as Administrative Agent,Lead Lender, Co-Lead Arranger, Sole Bookrunner, SyndicationAgent and Lender, the Lenders that are from time to time partiesthereto, and Silicon Valley Bank, as Co-Lead Arranger andDocumentation Agent, dated as of June 24, 2016 8-K 000-50307 6/28/2016 10.1 10.02+ Form of Indemnity Agreement S-1/A 333-86738 5/28/2002 10.01 10.03+ Form of Change of Control Severance Agreement 10-K 000-50307 3/14/2005 10.48 10.04+ 1996 Stock Option Plan, and form of option grant S-1 333-86738 4/22/2002 10.03 10.05+ Incentive Option Plan, and form of option grant S-1 333-86738 4/22/2002 10.04 10.06+ Management Incentive Option Plan, and form of option grant S-1 333-86738 4/22/2002 10.05 10.07+ 2002 Equity Incentive Plan, as amended, and forms of planagreements 10-Q 000-50307 5/4/2011 10.06 10.08+ 2002 Employee Stock Purchase Plan, as amended 10-Q 000-50307 8/7/2007 10.01 10.09+ Key Employee Bonus Plan, as amended 10-Q 000-50307 5/7/2007 10.01 10.10+ Equity Incentive Plan, as amended and restated effective April18, 2012, and forms of plan agreements 10-K 000-50307 3/13/2013 10.09 10.11+ Employee Stock Purchase Plan, as amended and restated April18, 2012 10-K 000-50307 3/13/2013 10.1 10.12 Pacific Corporate Center Lease (Building 1) by and betweenGreenville Holding Company LLC (successor to GreenvilleInvestors, L.P.) ("Greenville") and the Registrant dated May 3,2001 S-1/A 333-86738 6/10/2003 10.18 10.13 First Amendment to Pacific Corporate Center Lease (Building1) by and between Greenville and the Registrant datedJanuary 31, 2003 S-1/A 333-86738 5/7/2003 10.18.1 10.14 Pacific Corporate Center Lease (Building 2) by and betweenGreenville and the Registrant dated May 3, 2001 S-1/A 333-86738 6/10/2003 10.19 10.15 First Amendment to Pacific Corporate Center Lease (Building2) by and between Greenville and the Registrant datedJanuary 31, 2003 S-1/A 333-86738 5/7/2003 10.19.1 10.16 Pacific Corporate Center Lease (Building 3) by and betweenGreenville and the Registrant dated May 3, 2001 S-1/A 333-86738 6/10/2003 10.20 10.17+ First Amendment to Pacific Corporate Center Lease (Building3) by and between Greenville and the Registrant datedJanuary 31, 2003 S-1/A 333-86738 5/7/2003 10.20.1 10.18 Third Amendment, dated December 19, 2016, betweenFormFactor, Inc. and MOHR PCC, LP, to Pacific CorporateCenter Leases (Buildings 1, 2 and 3), dated May 3, 2001, byand between Greenville Investors, L.P. and FormFactor, Inc., asamended 8-K 000-50307 12/23/2016 10.2 10.19+ Pacific Corporate Center Lease by and between Greenville andthe Registrant dated September 7, 2004., as amended by FirstAmendment to Building 6 Lease dated August 16, 2006 10-Q 000-50307 11/7/2006 10.01 10.20 Second Amendment, dated December 19, 2016, betweenFormFactor, Inc. and MOHR PCC, LP, to Pacific CorporateCenter Lease, dated October 5, 2004, by and betweenGreenville Investors, L.P. and FormFactor, Inc., as amended 8-K 000-50307 12/23/2016 10.1 10.21 Lease Agreements I and II between Amberjack, Ltd. AndCascade Microtech, Inc. dated August 20, 1997, andAmendment No. 2 to Lease Agreement I dated July 23, 1998,and Amendment No. 2 to Lease Agreement II dated April 12,1999. 8-K 333-47100 10/2/2000 10.9 10.22 Third Amendment dated August 11, 2006 to Lease Agreement Idated August 20, 1997 between Amberjack, LTD. and CascadeMicrotech, Inc. 10-Q 000-51072 11/9/2006 10.2 45 Incorporated by Reference ExhibitNumber Exhibit Description Form File No Date ofFirst Filing ExhibitNumber FiledHerewith10.23 Third Amendment dated August 11, 2006 to LeaseAgreement II dated August 20, 1997 between Amberjack,LTD. and Cascade Microtech, Inc. 10-Q 000-51072 11/9/2006 10.3 10.24 Assignment, Assumption and Amendment of Lease dated asof September 22, 2011 by and among Cascade Microtech,Inc. and R&D Sockets, Inc. 8-K 000-51072 9/26/2011 10.1 10.25 Rental Agreement by and between Cascade MicrotechDresden GmbH and Süss Grundstücksverwaltungs GbRdated as of June 17, 2011. 10-Q 000-51072 8/10/2011 10.3 10.26 Lease dated April 2, 1999 between Spieker Properties, L.P.and Cascade Microtech, Inc. 8-K 333-47100 10/2/2000 10.8 10.27 First amendment to Lease dated January 10, 2007, betweenNimbus Center LLC (as successor in interest to SpiekerProperties, L.P.) and Cascade Microtech, Inc. 10-Q 000-51072 5/9/2014 10.1 10.28 Second amendment to Lease dated February 25, 2013,between Nimbus Center LLC and Cascade Microtech, Inc. 10-Q 000-51072 5/8/2013 10.2 10.29 Third amendment to Lease dated January 23, 2014, betweenNimbus Center LLC and Cascade Microtech, Inc. 10-Q 000-51072 5/9/2014 10.2 10.30 Fourth amendment to Lease dated March 31, 2014, betweenNimbus Center LLC and Cascade Microtech, Inc. 10-Q 000-51072 5/9/2014 10.3 10.31 Fifth amendment to Lease dated September 24, 2014,between Nimbus Center LLC and Cascade Microtech, Inc. 10-K 000-51072 3/72016 10.22 10.32 Sixth amendment to Lease dated July 8, 2015, betweenNimbus Center LLC and Cascade Microtech, Inc. 10-K 000-51072 3/72016 10.23 10.33+ Employment Offer Letter, dated August 29, 2012 to MikeSlessor 10-K 000-50307 3/13/2013 10.19+ 10.34+ Tax withholding reimbursement letter between MikeSlessor and the Registrant dated December 30, 2013 10-K 000-50307 3/6/2015 10.2 10.35+ CEO Change of Control and Severance Agreement, datedApril 28, 2016 by and between Mike Slessor and theRegistrant — — — — X10.36+ Change of Control and Severance Agreement, dated April28, 2016 by and between Michael Ludwig and theRegistrant — — — — X21.01 List of Registrant's subsidiaries — — — — X23.01 Consent of Independent Registered Public Accounting Firm- KPMG — — — — X24.01 Power of Attorney (included on the signature page of thisForm 10-K) — — — — X31.01 Certification of Chief Executive Officer pursuant to15 U.S.C. Section 7241, as adopted pursuant to Section 302of the Sarbanes-Oxley Act of 2002 — — — — X31.02 Certification of Chief Financial Officer pursuant to15 U.S.C. Section 7241, as adopted pursuant to Section 302of the Sarbanes-Oxley Act of 2002 — — — — X32.01* Certification of Chief Executive Officer and Chief FinancialOfficer pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — — — — X101.INS** XBRL Instance Document — — — — X101.SCH** XBRL Taxonomy Extension Schema Document — — — — X101.CAL** XBRL Taxonomy Extension Calculation LinkbaseDocument — — — — X101.DEF** XBRL Taxonomy Extension Definition LinkbaseDocument — — — — X101.LAB** XBRL Taxonomy Extension Label Linkbase Document — — — — X101.PRE** XBRL Taxonomy Extension Presentation LinkbaseDocument — — — — X46*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 deemedincorporated 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 anygeneral incorporation language in any filings.**Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of theSecurities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.***Confidential treatment has been requested for portions of this document. The schedules, exhibits, and annexes to this exhibit have been omitted in reliance on Item 601(b)(2) ofRegulation S-K and will be furnished supplementally to the SEC upon request.+Indicates a management contract or compensatory plan or arrangement.Item 16: Form 10-K SummaryNone.47SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized, in the City of Livermore, State of California, on the 15 th day of March 2017 . FORMFACTOR, INC. By: /s/ MICHAEL M. LUDWIG Michael M. LudwigChief Financial Officer(Principal Financial Officer and PrincipalAccounting Officer) POWER OF ATTORNEYKNOW BY ALL PERSONS BY THESE PRESENTS, that each of the undersigned whose signature appears below constitutes and appoints Michael M.Ludwig and Jason Cohen, and each of them, the undersigned's true and lawful attorneys in-fact and agents with full power of substitution, for the undersigned andin the undersigned's name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and any other documentsin connection therewith, and to file the same, with all exhibits thereto, with the Securities and Exchange Commission, granting unto said attorneys-in-fact andagents, and each of them, full power and authority to do and perform each and every act requisite and necessary to be done with respect to this Annual Report onForm 10-K, including amendments, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that saidattorneys-in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated below.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrantand in the capacities and on the dates indicated. SignatureTitleDate Principal Executive Officer: /s/ MICHAEL D. SLESSORChief Executive Officer and Director March 15, 2017 Michael D. Slessor Principal Financial Officer and PrincipalAccounting Officer: /s/ MICHAEL M. LUDWIGChief Financial Officer March 15, 2017 Michael M. Ludwig48 SignatureTitle Date Additional Directors: /s/ LOTHAR MAIERDirector March 15, 2017 Lothar Maier /s/ EDWARD ROGAS, JRDirectorMarch 15, 2017 Edward Rogas, Jr /s/ KELLEY STEVEN-WAISSDirectorMarch 15, 2017 Kelley Steven-Waiss /s/ MICHAEL W. ZELLNERDirectorMarch 15, 2017 Michael W. Zellner /s/ RAYMOND LINKDirectorMarch 15, 2017 Raymond Link /s/ RICHARD DELATEURDirectorMarch 15, 2017 Richard DeLateur /s/ THOMAS ST. DENNISDirectorMarch 15, 2017 Thomas St. Dennis49Report of Independent Registered Public Accounting FirmThe Board of Directors and StockholdersFormFactor, Inc.:We have audited the accompanying consolidated balance sheets of FormFactor, Inc. and subsidiaries as of December 31, 2016 and December 26, 2015 , and therelated consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year period endedDecember 31, 2016 . We also have audited the Company’s internal control over financial reporting as of December 31, 2016 , based on criteria established inInternal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’smanagement is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment ofthe effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reportingappearing under Item 9A. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal controlover financial reporting based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internalcontrol over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made bymanagement, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understandingof internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believethat our audits provide a reasonable basis for our opinions.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.The Company acquired Cascade Microtech, Inc. on June 24, 2016, and management excluded from its assessment of the effectiveness of the Company’s internalcontrol over financial reporting as of December 31, 2016, Cascade Microtech, Inc.’s internal control over financial reporting associated with total assets of $351.0million and net revenues of $82.6 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2016. Ouraudit of internal control over financial reporting of FormFactor, Inc. also excluded an evaluation of the internal control over financial reporting of CascadeMicrotech, Inc.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FormFactor, Inc. andsubsidiaries as of December 31, 2016 and December 26, 2015, and the results of its operations and its cash flows for each of the years in the three-year periodended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, FormFactor, Inc. maintained, in all materialrespects, effective internal control over financial reporting as of December 31, 2016 , based on criteria established in Internal Control - Integrated Frameworkissued by the COSO./s/ KPMG LLPSanta Clara, CaliforniaMarch 15, 201750FORMFACTOR, INC.CONSOLIDATED BALANCE SHEETS December 31,2016 December 26,2015 (In thousands, except shareand per share data)ASSETS Current assets: Cash and cash equivalents$101,408 $146,264Marketable securities7,497 41,325Accounts receivable, net70,225 36,725Inventories, net59,806 27,223Restricted cash106 —Refundable income taxes1,391 —Prepaid expenses and other current assets14,276 6,481Total current assets254,709 258,018Restricted cash1,082 435Property, plant and equipment, net42,663 23,853Goodwill188,010 30,731Intangibles, net126,608 25,552Deferred tax assets3,310 3,281Other assets2,600 853Total assets$618,982 $342,723LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable$34,075 $18,072Accrued liabilities30,184 21,507Current portion of term loan12,701 —Income taxes payable442 110Deferred revenue5,305 3,892Total current liabilities82,707 43,581Long-term income taxes payable1,315 1,069Term loan, less current portion125,475 —Deferred tax liabilities3,703 —Deferred rent and other liabilities4,726 3,392Total liabilities217,926 48,042Commitments and contingencies (Note 11) Stockholders' equity: Preferred stock, $0.001 par value: 10,000,000 shares authorized; no shares issued and outstanding at December 31, 2016 andDecember 26, 2015— —Common stock, $0.001 par value: 250,000,000 shares authorized; 70,907,847 and 58,088,969 shares issued and outstanding atDecember 31, 2016 and December 26, 2015, respectively71 58Additional paid-in capital833,341 718,904Accumulated other comprehensive loss(3,740) (2,222)Accumulated deficit(428,616) (422,059)Total stockholders' equity401,056 294,681Total liabilities and stockholders' equity$618,982 $342,723The accompanying notes are an integral part of these consolidated financial statements.51FORMFACTOR, INC.CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Year Ended December 31,2016 December 26,2015 December 27,2014 (In thousands, except per share data)Revenues$383,881 $282,358 $268,530Cost of revenues281,199 196,620 191,091Gross profit102,682 85,738 77,439Operating expenses: Research and development57,453 44,184 42,725Selling, general and administrative73,444 45,090 51,385Restructuring and impairment charges, net19,692 567 3,887Total operating expenses150,589 89,841 97,997Operating loss(47,907) (4,103) (20,558)Interest income, net327 285 302Other income (expense), net(2,615) 2,547 161Loss before income taxes(50,195) (1,271) (20,095)Provision (benefit) from income taxes(43,638) 252 (910)Net loss$(6,557) $(1,523) $(19,185)Net loss per share: Basic and diluted$(0.10) $(0.03) $(0.34)Weighted-average number of shares used in per share calculations: Basic and diluted64,941 57,850 55,908The accompanying notes are an integral part of these consolidated financial statements.52FORMFACTOR, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Fiscal Year Ended December 31,2016 December 26,2015 December 27,2014 (In thousands)Net loss$(6,557) $(1,523) $(19,185)Other comprehensive loss, net of tax: Foreign currency translation adjustments(2,042) (397) (1,502)Unrealized gains (losses) on available-for-sale marketable securities29 (64) (10)Unrealized gains on derivative instruments495 — —Other comprehensive loss, net of tax(1,518) (461) (1,512)Comprehensive loss$(8,075) $(1,984) $(20,697)The accompanying notes are an integral part of these consolidated financial statements.53FORMFACTOR, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Stock AdditionalPaid-inCapital AccumulatedOtherComprehensiveLoss AccumulatedDeficit Total Shares Amount (In thousands, except shares)Balances, December 28, 201354,649,600 $55 $695,631 $(249) $(401,351) $294,086Issuance of common stock pursuant to vestingof restricted stock units, net of stock withheld1,282,442 1 — — — 1Issuance of common stock under the EmployeeStock Purchase Plan586,386 1 2,811 — — 2,812Stock-based compensation— — 13,234 — — 13,234Components of other comprehensive loss: Change in unrealized gain (loss) onmarketable securities, net of tax— — — (10) — (10)Currency translation adjustments— — — (1,502) — (1,502)Net loss— — — — (19,185) (19,185)Balances, December 27, 201456,518,428 57 711,676 (1,761) (420,536) 289,436Issuance of common stock pursuant to exerciseof options for cash24,607 — 209 — — 209Issuance of common stock pursuant to vestingof restricted stock units, net of stock withheld1,993,603 2 — — — 2Issuance of common stock under the EmployeeStock Purchase Plan565,493 — 3,206 — — 3,206Purchase and retirement of common stock(1,013,162) (1) (8,210) — — (8,211)Stock-based compensation— — 12,023 — — 12,023Components of other comprehensive loss: Change in unrealized gain (loss) onmarketable securities, net of tax— — — (64) — (64)Currency translation adjustments— — — (397) — (397)Net loss— — — — (1,523) (1,523)Balances, December 26, 201558,088,969 58 718,904 (2,222) (422,059) 294,681Issuance of common stock pursuant to exerciseof options for cash232,190 — 2,003 — — 2,003Issuance of common stock pursuant to vestingof restricted stock units, net of stock withheld1,579,218 2 — — — 2Issuance of common stock under the EmployeeStock Purchase Plan557,281 1 3,740 — — 3,741Issuance of common stock pursuant to CascadeMicrotech acquisition10,450,189 10 97,069 — — 97,079Stock-based compensation— — 11,625 — — 11,625Components of other comprehensive loss: Change in unrealized gain (loss) onmarketable securities, net of tax— — — 29 — 29Currency translation adjustments— — — (2,042) — (2,042)Unrealized Gain (loss) on derivativeinstruments, net of tax— — — 495 — 495Net loss— — — — (6,557) (6,557)Balances, December 31, 201670,907,847 $71 $833,341 $(3,740) $(428,616) $401,056The accompanying notes are an integral part of these consolidated financial statements.54FORMFACTOR, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Year Ended December 31,2016 December 26,2015 December 27,2014 (In thousands)Cash flows from operating activities: Net loss$(6,557) $(1,523) $(19,185)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization46,798 23,771 30,491(Accretion) amortization of discount on investments(31) (10) 208Stock-based compensation expense10,722 11,575 13,279Amortization of debt issuance costs307 — —Deferred income tax (benefit) provision(45,022) (14) 230Provision for doubtful accounts receivable15 18 1Provision for excess and obsolete inventories6,631 6,493 7,127Acquired inventory step-up amortization10,022 — —(Gain) loss on disposal and write-off of long-lived assets361 (1,009) (10)Impairment of long-lived assets12,400 8 1,219Non-cash restructuring964 500 600Foreign currency transaction (gains) losses(77) (275) 2,489Gain on derivative instruments(51) — —Changes in assets and liabilities: Accounts receivable(6,847) 8,261 (15,949)Inventories(11,733) (8,167) (11,975)Prepaid expenses and other current assets(3,292) 173 (822)Refundable income taxes126 782 —Other assets(248) 250 25Accounts payable3,433 (2,036) 4,155Accrued liabilities786 (333) 7,765Income taxes payable(1,127) 19 (1,511)Deferred rent and other liabilities126 52 248Deferred revenues(283) (2,413) (726)Net cash provided by operating activities17,423 36,122 17,659Cash flows from investing activities: Acquisition of property, plant and equipment(11,521) (8,640) (5,670)Acquisition of Cascade Microtech, net of cash acquired(228,031) — —Proceeds from sale of subsidiary47 53 115Proceeds from sale of intellectual property and property, plant andequipment53 1,200 1,114Purchases of marketable securities(10,587) (66,234) (31,693)Proceeds from maturities of marketable securities44,500 74,750 73,473Change in restricted cash(779) — —Net cash (used in) provided by investing activities(206,318) 1,129 37,339 Cash flows from financing activities: Proceeds from issuances of common stock5,745 3,418 2,813Purchase and retirement of common stock— (8,210) —Proceeds from term loan debt150,000 — —Payments on term loan debt(10,625) — —Payments of term loan debt issuance costs(1,506) — —Payments made on capital leases— — (271)Net cash provided by (used in) financing activities143,614 (4,792) 2,542Effect of exchange rate changes on cash and cash equivalents425 (135) (2,796)Net increase (decrease) in cash and cash equivalents(44,856) 32,324 54,744Cash and cash equivalents, beginning of year146,264 113,940 59,196Cash and cash equivalents, end of year$101,408 $146,264 $113,940 55FORMFACTOR, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Year Ended December 31,2016 December 26,2015 December 27,2014 (In thousands)Non-cash investing and financing activities: Fair value of stock issued in connection with the acquisition of CascadeMicrotech$97,080 $— $—Changes in accounts payable and accrued liabilities related to property,plant and equipment purchases$(732) $361 $(122) Supplemental disclosure of cash flow information: Income and property taxes paid, net$3,667 $27 $950Cash paid for interest$2,110 $— $—The accompanying notes are an integral part of these consolidated financial statements.56FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1—Formation and Business of the CompanyFormFactor, Inc. ("FormFactor" or the "Company" and also referred to as "we" or "our") was incorporated in Delaware on April 15, 1993 and isheadquartered in Livermore, California. We are a leading provider of test and measurement solutions. We provide a broad range of high-performance probe cards,analytical probes, probe stations, thermal sub-systems and reliability test systems to both semiconductor companies and scientific institutions. Our productsprovide 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 believe ourtechnology leadership enables critical roadmap advances for our customers.On June 24, 2016, we acquired Cascade Microtech Inc. ("Cascade Microtech") which designs, develops, manufactures and markets advanced wafer probing,thermal and reliability solutions for the electrical measurement and testing of high performance semiconductor devices. Design, development and manufacturingoperations are located in Beaverton, Oregon, United States and Munich and Thiendorf, Germany, and sales, service and support operations are located in theUnited States, Germany, Japan, Taiwan, China and Singapore. The acquisition of Cascade Microtech transforms our business into a broader test and measurementmarket leader with significant scale and increased diversification and demand for the combined company’s products and technologies.Fiscal YearOur fiscal year ends on the last Saturday in December. The fiscal years ended on December 31, 2016 , December 26, 2015 and December 27, 2014 consistedof 53 weeks, 52 weeks and 52 weeks, respectively. The first three fiscal quarters in our fiscal year ended December 31, 2016 contained 13 weeks, and the fourthfiscal quarter contained 14 weeks.Note 2—Summary of Significant Accounting PoliciesBasis of Consolidation and Foreign Currency TranslationThe consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All intercompany balances and transactions havebeen eliminated.Our consolidated financial statements as of December 31, 2016 included the consolidated balance sheet of Cascade Microtech as of December 31, 2016whereas our consolidated statements of operations for the fiscal year ended December 31, 2016 included the financial results of Cascade Microtech only for thethird and fourth quarters of fiscal 2016 . We excluded the financial results of Cascade Microtech for the second quarter of fiscal 2016 as the one-day stub periodbetween the acquisition of Cascade Microtech on June 24, 2016 and the end of our second quarter of fiscal 2016 on June 25, 2016 was immaterial. See Note 4 tothe Consolidated Financial Statements - Acquisition , for further details. The functional currencies of certain of our foreign subsidiaries are the local currencies and, accordingly, all assets and liabilities of these foreign operationsare translated to U.S. Dollars at current period-end exchange rates, and revenues and expenses are translated to U.S. Dollars using average exchange rates in effectduring the period. The gains and losses from the foreign currency translation of these subsidiaries' financial statements are included as a separate component ofstockholders' equity under “Accumulated other comprehensive income (loss).”Certain other of our foreign subsidiaries use the U.S. Dollar as their functional currency. Accordingly, monetary assets and liabilities in non-functionalcurrencies of these subsidiaries are remeasured using exchange rates in effect at the end of the period. Revenues and costs in local currency are remeasured usingaverage exchange rates for the period, except for costs related to those balance sheet items that are remeasured using historical exchange rates. The resultingremeasurement gains and losses are included in the Consolidated Statements of Operations as incurred.Use of EstimatesThe preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP")requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilitiesat the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates may change as new information isobtained. We believe that the estimates, assumptions and judgments involved in revenue recognition, fair value of marketable securities, fair value of derivativefinancial instruments used to hedge both foreign currency and interest rate exposures, allowance for57FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)doubtful accounts, reserves for product warranty, valuation of obsolete and slow moving inventory, assets acquired and liabilities assumed in businesscombinations, legal contingencies, valuation of goodwill, the assessment of recoverability of long-lived assets, valuation and recognition of stock-basedcompensation, provision for income taxes and valuation of deferred tax assets have the greatest potential impact on our consolidated financial statements. Actualresults could differ from those estimates.Business AcquisitionsOur consolidated financial statements include the operations of acquired businesses after the completion of their respective acquisitions. We account foracquired businesses using the acquisition method of accounting. The acquisition method of accounting for acquired businesses requires, among other things, thatassets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date, and that the fair value of acquired intangiblesincluding in-process research and development (IPR&D) be recorded on the balance sheet. Also, transaction costs are expensed as incurred. Any excess of thepurchase price over the assigned fair values of the net assets acquired is recorded as goodwill.Cash and Cash Equivalents and Marketable SecuritiesCash and cash equivalents consist of deposits and financial instruments which are readily convertible into cash and have original maturities of 90 days orless at the time of acquisition. Marketable securities consist primarily of highly liquid investments with maturities of greater than 90 days when purchased. Wegenerally classify our marketable securities at the date of acquisition as available-for-sale. These securities are reported at fair value with the related unrealizedgains and losses included in "Accumulated other comprehensive income (loss)", a component of stockholder's equity, net of tax. Any unrealized losses which areconsidered to be other-than-temporary impairments are recorded in "Other income (expense), net" in the Consolidated Statements of Operations. Realized gains(losses) on the sale of marketable securities are determined using the specific-identification method and recorded in "Other income (expense), net" in theConsolidated Statements of Operations.All of our available-for-sale investments are subject to a periodic impairment review. We record a charge to earnings when a decline in fair value issignificantly below cost basis and judged to be other-than-temporary, or have other indicators of impairments. If the fair value of an available-for-sale investmentis less than its amortized cost basis, an other-than-temporary impairment is triggered in circumstances where (1) we intend to sell the instrument, (2) it is morelikely than not that we will be required to sell the instrument before recovery of its amortized cost basis or (3) a credit loss exists where we do not expect to recoverthe entire amortized cost basis of the instrument. If we intend to sell or it is more likely than not that we will be required to sell the available-for-sale investmentbefore recovery of its amortized cost basis, we recognize an other-than- temporary impairment charge equal to the entire difference between the investment'samortized cost basis and its fair value.Fair Value of Financial InstrumentsWe have evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources.The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts. The fair value of theCompany's cash and cash equivalents, accounts receivable, accounts payable and other current liabilities approximate their carrying amounts due to the relativelyshort maturity of these items. Estimates of fair value of our marketable securities are based on quoted market prices from active markets or third party, market-based pricing sources which we believe to be reliable. These estimates represent the third parties' good faith opinion as to what a buyer in the marketplace wouldpay for a security in a current sale.Whenever possible, the fair values of our financial assets and liabilities are determined using quoted market prices of identical assets or quoted marketprices of similar assets 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 assets;•Level 2 inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted pricesnear the reporting date in markets that are less active, or other inputs that are observable or can be corroborated by observable market data forsubstantially the full term of the assets or liabilities; and•Level 3 valuations are based on unobservable inputs to the valuation methodology and include our own data about assumptions market participantswould use in pricing the asset or liability based on the best information available under the circumstances.Each level of input has different levels of subjectivity and difficulty involved in determining fair value.58FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Foreign Exchange ManagementWe transact business in various foreign currencies. We enter into forward foreign exchange contracts in an effort to mitigate the risks associated withcurrency fluctuations on certain foreign currency balance sheet exposures and certain operational costs denominated in local currency impacting our statement ofoperations. Gains and losses resulting from the impact of currency exchange rate movements on forward foreign exchange contracts designated to offset certainforeign currency balance sheet exposures and certain operational exposures are recognized as "Other income (expense), net" in the Consolidated Statements ofOperations in the period in which the exchange rates change. These gains and losses are intended to partially offset the foreign currency exchange gains and losseson the underlying exposures being hedged. We record the fair value of these contracts as of the end of our reporting period in the Consolidated Balance Sheet. Wedo not use derivative financial instruments for trading or speculative purposes.Restricted CashAs of December 31, 2016 and December 26, 2015 , restricted cash included in our Consolidated Balance Sheets were $1.2 million and $0.4 million ,respectively. Restricted cash is comprised of security provided to one of our facility landlords in the form of letters of credit and for a foreign subsidiary employeeretirement obligations.InventoriesInventories are stated at the lower of cost (principally standard cost which approximates actual cost on a first-in, first-out basis) or market value. Theprovision for potentially excess and obsolete inventory is made based on management's analysis of inventory levels and forecasted future sales. On a quarterlybasis, we review inventory quantities on hand and on order under non-cancelable purchase commitments in comparison to our past usage and estimated forecast ofproduct demand for the next six to twelve months to determine what inventory quantities, if any, may not be sellable. Based on this analysis, we write down theaffected inventory value for estimated excess and obsolescence charges. Once the value is adjusted, the original cost of our inventory less the related inventorywrite-down represents the new cost basis of such products. Reversal of these write downs is recognized only when the related inventory has been scrapped or sold.Shipping and handling costs are classified as a component of "Cost of revenues" in the Consolidated Statements of Operations.We design, manufacture and sell a fully custom product into a market that has been subject to cyclicality and significant demand fluctuations. Our productsare complex, custom to a specific chip design and have to be delivered on short lead-times. Probe cards are manufactured in low volumes, but for certain materials,the purchases are often subject to minimum order quantities in excess of the actual underlying probe card demand. It is not uncommon for us to acquire productionmaterials and commence production activities based on estimated production yields and forecasted demand prior to or in excess of actual demand for our probecards. These factors result in normal recurring inventory valuation adjustments to cost of revenues. Aggregate inventory write downs were $6.6 million , $6.5million and $7.1 million for fiscal 2016 , 2015 and 2014 , respectively.When our products have been delivered, but the revenue associated with that product is deferred because the related revenue recognition criteria have notbeen met, we may defer the related inventory costs. The deferred inventory costs do not exceed the deferred revenue amounts. The deferred inventory costs areclassified as a component of "Prepaid expenses and other current assets" in the Consolidated Balance Sheet.Property, Plant, and EquipmentProperty and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is provided on a straight-line method over thefollowing estimated useful lives of the assets: 1 to 5 years for machinery and equipment, 1 to 5 years for computer equipment and software and 1 to 5 years forfurniture and fixtures. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related asset. Construction-in-progress assets are not depreciated until the assets are placed in service. Upon sale or retirement of assets, the cost and related accumulated depreciation oramortization, are removed from the balance sheet and the resulting gain or loss is reflected in operations.GoodwillGoodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed. For fiscal 2015, wedetermined that our reporting unit, for purposes of our goodwill impairment analysis, was comprised of one entity-wide reporting unit associated with the design,development, manufacture, sale and support of precision, high performance advanced semiconductor wafer probe card products and solutions. Upon the acquisitionof Cascade Microtech on June 24, 2016, we determined that we now operate in two reportable segments consisting of the Probe Cards Segment and SystemsSegment, and three operating segments consisting of FormFactor Probes, Cascade Microtech Probes and Systems. We further determined that for purposes of ourgoodwill impairment analysis, we now have four reporting units59FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)consisting of FormFactor Probes, Cascade Microtech Probes, Systems, and Advanced Temperature Test Systems GmbH ("ATT").The Company first assesses qualitative factors to determine whether it is necessary to perform a two-step quantitative goodwill impairment test. If an entitydetermines as a result of the qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then thequantitative impairment test is required. Otherwise, no further testing is required.The performance of the quantitative impairment test involves a two-step process. The first step of the impairment test involves comparing the fair value ofthe applicable reporting unit with its aggregate carrying value, including goodwill. We generally determine the fair value of our reporting unit using a combinationof the income approach (that includes the use of the discounted cash flow method) and the market approach (guideline company approach) valuationmethodologies. If the carrying amount of a reporting unit exceeds the fair value of that reporting unit, we perform the second step of the quantitative impairmenttest to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the affectedreporting unit's goodwill with the carrying value of that goodwill.During the fourth quarter of fiscal 2016 , we performed our annual goodwill impairment test by assessing qualitative factors and we concluded that ourgoodwill was not impaired as of December 31, 2016 . Our qualitative review included, among other factors, an assessment of our market capitalization which wassignificantly higher than our book value. The evaluation of goodwill for impairment requires the exercise of significant judgment. In the event of future changes inbusiness conditions, we will be required to reassess and update our forecasts and estimates used in future impairment analyses. If the results of these analyses arelower than current estimates, a material impairment charge may result at that time. Refer to Note 10 to Notes to Consolidated Financial Statements - Goodwill andIntangible Assets, for further details.Intangible AssetsIntangible assets consist of acquisition related intangible assets and intellectual property. The intangible assets are being amortized over periods whichreflect the pattern in which economic benefits of the assets are expected to be realized, over 1 to 10 years. We perform a review of intangible assets when facts andcircumstances indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. Such facts andcircumstances include significant adverse changes in the business climate or legal factors; current period cash flow or operating losses combined with a history oflosses or a forecast of continuing losses associated with the use of the intangible assets; and current expectation that the intangible assets will more likely than notbe sold or disposed of before the end of their estimated useful lives. We assess the recoverability of identified intangible assets by comparing the projectedundiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments,if any, are based on the excess of the carrying amount over the fair value of those assets.Impairment of Long-Lived AssetsWe test long-lived assets or asset groups such as property, plant and equipment and intangible assets for recoverability when events or changes incircumstances indicate that their carrying amounts may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significantdecreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of theamount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or aforecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed of before theend of its estimated useful life.Recoverability is assessed based on the carrying amounts of the asset or asset group and the sum of the undiscounted cash flows expected to result from theuse and the eventual disposal of the asset. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. Refer to Note 7 toNotes to Consolidated Financial Statements - Impairment of Long-lived Assets , for additional information.Concentration of Credit Risk and Other Risks and UncertaintiesFinancial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, marketable securities and tradereceivables. Our cash equivalents and marketable securities are held in safekeeping by large, credit worthy financial institutions. We invest our excess cashprimarily in U.S. banks, government and agency bonds, money market funds and corporate obligations. We have established guidelines relative to credit ratings,diversification and maturities that seek to maintain safety and liquidity. Deposits in these banks may exceed the amounts of insurance provided on such deposits.To date, we have not experienced any losses on our deposits of cash and cash equivalents. We market and sell our products to a narrow base of customers andgenerally do not require collateral.60FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following customers represented greater than 10% of our revenues in fiscal 2016 , fiscal 2015 and fiscal 2014 : Fiscal 2016 Fiscal 2015 Fiscal 2014Intel30.1% 19.6% 19.7%Samsung* 14.6 *SK hynix* 14.3 16.9Micron* 11.7 15.0Total revenues attributable to customers greater than10%30.1% 60.2% 51.6%* Less than 10% of revenuesAt December 31, 2016 and December 26, 2015 , one customer accounted for 21% and 29% of gross accounts receivable, respectively. We operate in thecompetitive semiconductor industry, including the Dynamic Random Access Memory, or DRAM, Flash memory, and Foundry & Logic (previously referred to asSystem-on-Chip, or SoC) markets, which have been characterized by price erosion, rapid technological change, short product life cycles and heightened foreignand domestic competition. Significant technological changes in the industry could adversely affect our operating results.We are exposed to non-performance risk by counterparties on our derivative instruments used in hedging activities. We seek to minimize risk bydiversifying our hedging program across multiple financial institutions. These counterparties are large international financial institutions, and to date no suchcounterparty has failed to meet its financial obligations to us.Certain components for our products that meet our requirements are available only from a limited number of suppliers. The rapid rate of technological changeand the necessity of developing and manufacturing products with short life cycles may intensify our reliance on such suppliers. The inability to obtain componentsas required, or to develop alternative sources, if and as required in the future, could result in delays or reductions in product shipments, which in turn could have amaterial adverse effect on our business, financial condition, results of operations or cash flows.Revenue RecognitionWe recognize revenue when persuasive evidence of a sales arrangement exists, title and risk of loss has transferred to the customer, the selling price is fixedor determinable and collection of the related receivable is reasonably assured. In instances where final acceptance of the deliverable is specified by the customer,revenue is deferred until all acceptance criteria have been met. Revenues from the licensing of our design and manufacturing technology, which have not beenmaterial to date, are recognized over the term of the license agreement or when the significant contractual obligations have been fulfilled.Our transactions may involve the sale of systems and services under multiple element arrangements. Revenue under multiple element arrangements isallocated based on the fair value of each element. A typical multiple element arrangement may include some or all of the following components: products,accessories, installation services and extended warranty contracts. The total sales price is allocated based on the relative fair value of each component. Historically,most of our products are delivered complete and the impact of the relative fair value by component has not been significant. We record deferred revenue for servicecontracts, extended warranties and customer deposits. Deferred revenue related to service contracts and extended warranties is recognized over the life of thecontract based on the stated contractual price, typically one to two years.We account for tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction (i.e., sales, use, value added) on a net(excluded from revenue) basis.Warranty ObligationsWe offer warranties on certain products and record a liability for the estimated future costs associated with warranty claims at the time revenue isrecognized. The warranty liability is based upon historical experience and our estimate of the level of future costs. While we engage in product quality programsand processes, our warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Wecontinuously monitor product returns for warranty and maintain a reserve for the related expenses based upon our historical experience and any specificallyidentified field failures. As we sell new products to our customers, we must exercise considerable judgment in estimating the expected failure rates. This estimatingprocess is based on historical experience of similar products, as well as various other assumptions that we believe to be reasonable under the circumstances.61FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)We provide for the estimated cost of product warranties at the time revenue is recognized. Warranty costs are reflected in the Consolidated Statement ofOperations as a cost of revenues.A reconciliation of the changes in our warranty liability is as follows (in thousands): Fiscal Years Ended December 31,2016 December 26,2015Balance at beginning of year$1,116 $1,592Warranty reserve from acquisition-Cascade Microtech795 —Accruals5,254 2,536Settlements(4,193) (3,012)Balance at end of year$2,972 $1,116Research and DevelopmentResearch and development expenses include expenses related to product development, engineering and material costs. All research and development costsare expensed as incurred.Allowance for Doubtful AccountsThe majority of our trade receivables are derived from sales to large multinational semiconductor manufacturers throughout the world. In order to monitorpotential credit losses, we perform ongoing credit evaluations of our customers' financial condition. An allowance for doubtful accounts is maintained based uponour assessment of the expected collectability of all accounts receivable. The allowance for doubtful accounts is reviewed and assessed for adequacy on a quarterlybasis. We take into consideration (1) any circumstances of which we are aware of a customer's inability to meet its financial obligations and (2) our judgments as toprevailing economic conditions in the industry and their impact on our customers. If circumstances change, and the financial condition of our customers isadversely affected and they are unable to meet their financial obligations, we may need to take additional allowances, which would result in an increase in ouroperating expense.The allowance for doubtful accounts receivable consisted of the following activity for fiscal years 2016 , 2015 and 2014 (in thousands): Balance atBeginning ofYear Additions Reductions Balance at Endof YearFiscal year ended December 27, 2014$265 $5 $(4) $266Fiscal year ended December 26, 2015266 20 (2) 284Fiscal year ended December 31, 2016$284 $62 $(48) $298Restructuring ChargesRestructuring charges are comprised of costs related to employee termination benefits, long-lived assets impaired or abandoned, and contract terminationcosts. The determination of when we accrue for employee termination benefits depends on whether the termination benefits are provided under a one-time benefitarrangement or under an on-going benefit arrangement. For restructuring charges recorded as an on-going benefit arrangement, a liability for post-employmentbenefits is recorded when payment is probable, the amount is reasonably estimable, and the obligation relates to rights that have vested or accumulated. Forrestructuring charges recorded as a one-time benefit arrangement, we recognize a liability for employee termination benefits when a plan of termination, approvedby management and establishing the terms of the benefit arrangement, has been communicated to employees. The timing of the recognition of one-time employeetermination benefits is dependent upon the period of time the employees are required to render service after communication. If employees are not required torender service in order to receive the termination benefits or if employees will not be retained to render service beyond the minimum legal notification period, aliability for the termination benefits is recognized at the communication date. In instances where employees will be retained to render service beyond the minimumlegal notification period, the liability for employee termination benefits is measured initially at the communication date based on the fair value of the liability as ofthe termination date and is recognized ratably over the future service period. We continually evaluate the adequacy of the remaining liabilities under ourrestructuring initiatives.We record charges related to long-lived assets to be abandoned when the assets cease to be used. When we cease using a building or other asset withremaining non-cancelable lease payments continuing beyond our use period, we record a liability62FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)for remaining payments under lease arrangements, as well as for contract termination costs, that will continue to be incurred under a contract for its remaining termwithout economic benefit to us at the cease-use date. Given the significance of, and the timing of the execution of such activities, this process is complex andinvolves periodic reassessments of estimates made at the time the original decisions were made, including evaluating real estate market conditions for expectedvacancy periods and sub-lease rents. Although we believe that these estimates accurately reflect the costs of our restructuring plans, actual results may differ,thereby requiring us to record additional provisions or reverse a portion of such provisions.The Company recorded restructuring charges of $7.3 million , $0.6 million and $2.7 million for fiscal years 2016 , 2015 and 2014 , respectively. Refer toNote 6, Restructuring Charges, in Notes to Consolidated Financial Statements for further details.Income TaxesWe utilize the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differencesbetween the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverseand for operating losses and tax credit carryforwards. We estimate our provision for income taxes and amounts ultimately payable or recoverable in numerous taxjurisdictions around the world. Estimates involve interpretations of regulations and are inherently complex. Resolution of income tax treatments in individualjurisdictions may not be known for many years after completion of any fiscal year. We are required to evaluate the realizability of our deferred tax assets on anongoing basis to determine whether there is a need for a valuation allowance with respect to such deferred tax assets. A valuation allowance is recorded when it ismore likely than not that some or all of the deferred tax assets will not be realized. Significant management judgment is required in determining any valuationallowance recorded against deferred tax assets. In evaluating the ability to recover deferred tax assets, we consider all available positive and negative evidencegiving greater weight to our recent cumulative losses and our ability to carryback losses against prior taxable income and, commensurate with objectiveverifiability, the forecast of future taxable income including the reversal of temporary differences and the implementation of feasible and prudent tax planningstrategies.We recognize and measure uncertain tax positions taken or expected to be taken in a tax return if it is more likely than not that the tax position will besustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financialstatements from such positions are then measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimatesettlement. We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We adjust thesereserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome ofthese matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made.The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest.We recognize interest and penalties related to unrecognized tax benefits within the income tax provision. Accrued interest and penalties are included within therelated tax liability caption line in the consolidated balance sheet.We file annual income tax returns in multiple taxing jurisdictions around the world. A number of years may elapse before an uncertain tax position isaudited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believethat our reserves for income taxes reflect the most likely outcome. We adjust these reserves, as well as the related interest, in light of changing facts andcircumstances. Settlement of any particular position could require the use of cash.Stock-Based CompensationWe recognize compensation expense for all stock-based awards based on the grant-date estimated fair values, net of an estimated forfeiture rate. The valueof the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service periods in our Consolidated Statement ofOperations. The fair value of stock options is measured using the Black-Scholes option pricing model while the fair value for restricted stock awards and restrictedstock units is measured based on the closing market price of our common stock on the date of grant. The fair value of restricted stock awards based on certainmarket performance criteria is measured using the Monte Carlo simulation pricing model. Refer to note 12 to Notes to Consolidated Financial Statements -Stockholder's Equity, for further details.Net Loss Per ShareBasic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss pershare is computed giving effect to all potential dilutive common stock, including stock options, restricted stock units and common stock subject to repurchase.Diluted loss per share was based only on the weighted-average number of shares outstanding during that period as the inclusion of any common stock equivalentswould have been anti-dilutive.63FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share is as follows (in thousands): Fiscal Years Ended December 31,2016 December 26,2015 December 27,2014Numerator: Net loss used in computing basic and diluted net lossper share$(6,557) $(1,523) $(19,185)Denominator: Weighted-average shares used in computing basic netloss per share64,941 57,850 55,908Add potentially dilutive securities— — —Weighted-average shares used in computing basic anddiluted net loss per share64,941 57,850 55,908The following securities were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periodspresented (in thousands): Fiscal Years Ended December 31,2016 December 26,2015 December 27,2014Options to purchase common stock2,198 2,320 2,874Restricted stock units3,113 2,578 —Employee stock purchase plan10 8 28Total potentially dilutive securities5,321 4,906 2,902Accumulated Other Comprehensive LossAccumulated other comprehensive loss includes foreign currency translation adjustments, unrealized gains on derivative instruments and unrealized losses onavailable-for-sale securities, net of tax, the impact of which has been excluded from earnings and reflected as components of stockholders' equity as shown below(in thousands): December 31,2016 December 26,2015Unrealized loss on marketable securities, net of tax of $364in fiscal 2016 and $428 in fiscal 2015, respectively $(454) $(483)Cumulative translation adjustments (3,781) (1,739)Unrealized gains on derivative instruments 495 —Accumulated other comprehensive loss $(3,740) $(2,222)Note 3—Balance Sheet ComponentsMarketable SecuritiesMarketable securities at December 31, 2016 consisted of the following (in thousands): AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses Fair ValueU.S. Treasuries$7,504 $— $(7) $7,497 $7,504 $— $(7) $7,49764FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Marketable securities at December 26, 2015 consisted of the following (in thousands): AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses Fair ValueU.S. Treasuries$18,896 $1 $(44) $18,853Agency securities (Federal)22,484 — (12) 22,472 $41,380 $1 $(56) $41,325We classify our marketable securities as available-for-sale. All marketable securities represent the investment of funds available for current operations,notwithstanding their contractual maturities. Such marketable securities are recorded at fair value and unrealized gains and losses are recorded in accumulatedother comprehensive income until realized.We typically invest in highly-rated securities with low probabilities of default. Our investment policy requires investments to be rated single-A or better,limits the types of acceptable investments, concentration as to security holder and duration of the investment. The gross unrealized losses on the Company'sinvestments in fiscal 2016 and 2015 , respectively, were caused primarily by changes in interest rates.Our investment portfolio consists of both corporate and government securities that have a maximum maturity of three years. The longer the duration of thesesecurities, the more susceptible they are to changes in market interest rates and bond yields. As yields increase, those securities with a lower yield-at-cost show amark-to-market unrealized loss. We anticipate recovering the full cost of the securities either as market conditions improve, or as the securities mature.Accordingly, we believe that the unrealized losses are not other-than-temporary. When evaluating the investments for other-than-temporary impairment, we reviewfactors such as the length of time and extent to which fair value has been below the amortized cost basis, review of current market liquidity, interest rate risk, thefinancial condition of the issuer, as well as credit rating downgrades. As of December 31, 2016 and December 26, 2015 , none of our investments had been in acontinuous loss position for 12 months or more.The contractual maturities of marketable securities as of December 31, 2016 and December 26, 2015 were as follows (in thousands): December 31, 2016 December 26, 2015 AmortizedCost Fair Value AmortizedCost Fair ValueDue in one year or less$7,504 $7,497 $33,882 $33,871Due after one year to five years— — 7,498 7,454 $7,504 $7,497 $41,380 $41,325Asset Retirement ObligationsWe account for the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate offair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is amortized overthe life of the asset. Our asset retirement obligation is associated with our commitment to return property subject to operating leases in the People's Republic ofChina, Taiwan, South Korea, Singapore and Japan to their original condition upon lease termination. We have estimated that as of December 31, 2016 , grossexpected future cash flows of $1.1 million would be required to fulfill these obligations.The carrying amount of a majority of the leasehold improvements resulting from asset retirement obligations were fully amortized in prior years and overthe original term of the related leases. Leasehold improvements amortization expense was immaterial for each of fiscal years 2016 and 2015 .65FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following is a reconciliation of the aggregate asset retirement liability associated with our commitment to return property to its original condition uponlease termination (in thousands): Fiscal Years Ended December 31,2016 December 26,2015Asset retirement obligation beginning balance$919 $903Initial amount recorded for new asset retirement obligation34 10Initial amount recorded for new asset retirement obligation uponacquisition of Cascade Microtech165 —Currency translation11 6Asset retirement obligation ending balance$1,129 $919The aggregate asset retirement liability was further classified in the Consolidated Balance Sheets as (in thousands):Other accrued liabilities, current$165 $212Deferred rent and other liabilities, non-current964 707 $1,129 $919InventoriesNet inventories consisted of the following (in thousands): Fiscal Years Ended December 31,2016 December 26,2015Raw materials$27,402 $12,996Work-in-progress20,390 12,492Finished goods12,014 1,735 $59,806 $27,223Property, Plant and EquipmentProperty, plant and equipment consisted of the following (in thousands): Fiscal Years Ended December 31,2016 December 26,2015Machinery and equipment$169,056 $150,983Computer equipment and software30,640 27,951Furniture and fixtures6,060 5,380Leasehold improvements72,954 67,121Sub-total278,710 251,435Less: Accumulated depreciation and amortization(241,943) (232,005)Net long-lived assets36,767 19,430Construction-in-progress5,896 4,423Total$42,663 $23,853In fiscal 2016 and 2015 , we ceased use of fully depreciated assets with an acquired cost of $1.7 million and $1.6 million , respectively.As discussed in Note 7 to the Notes to Consolidated Financial Statements - Impairment of Long-lived Assets , in fiscal 2016 , we recorded an impairmentcharge of $12.4 million relating to an in-process research and development intangible asset acquired as part of our acquisition of Cascade Microtech. During thefourth quarter of fiscal 2016 and subsequent to the66FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Cascade Microtech acquisition, we were informed by a customer that they had abandoned their project for which this intangible asset was being developed for, andtherefore we fully impaired this intangible asset as it had no alternative future use to us.In fiscal 2015 , long-lived asset impairment charges recorded were insignificant. In fiscal 2014 , we recorded impairment charges of $1.0 million formanufacturing assets and software that we no longer utilize.Depreciation and amortization of property, plant and equipment, excluding the impairments charges discussed above, for the fiscal years 2016 , 2015 and2014 was $11.3 million , $10.6 million and $11.7 million , respectively.Accrued LiabilitiesAccrued liabilities consisted of the following (in thousands): Fiscal Years Ended December 31,2016 December 26,2015Accrued compensation and benefits$16,516 $12,286Accrued indirect and other taxes3,634 2,189Accrued commissions792 366Accrued warranty2,972 1,116Deferred rent160 325Accrued restructuring434 2Other accrued expenses5,676 5,223 $30,184 $21,507Note 4—AcquisitionOn June 24, 2016, we acquired Cascade Microtech pursuant to the Agreement and Plan of Merger dated as of February 3, 2016 (the “Merger Agreement”)between Cascade Microtech and Cardinal Merger Subsidiary, Inc., an Oregon corporation and our wholly owned subsidiary. Cascade Microtech designs, develops,manufactures and markets advanced wafer probing, thermal and reliability solutions for the electrical measurement and testing of high performance semiconductordevices. Design, development and manufacturing operations are located in Beaverton, Oregon, United States and Munich and Thiendorf, Germany, and sales,service and support operations are located in the United States, Germany, Japan, Taiwan, China and Singapore.In accordance with the terms of the Merger Agreement, each outstanding share of Cascade Microtech common stock was canceled and converted into theright to receive $16.00 in cash, without interest, and 0.6534 of a share of FormFactor common stock. At the effective time of the merger (the “Effective Time”),each in-the-money Cascade Microtech stock option which was outstanding and vested prior to the Effective Time (or that vested as a result of the consummation ofthe merger) was canceled and converted into the right to receive an amount in cash equal to the excess, if any, of $21.47 over the applicable per share exerciseprice of such option. Each out-of-the-money vested option to purchase shares of Cascade Microtech common stock was canceled without any cash payment. Alsoat the Effective Time, each Cascade Microtech restricted stock unit which was outstanding and vested immediately prior to the Effective Time (or that vested as aresult of the consummation of the Merger) was canceled and converted into the right to receive an amount of cash (without interest) equal to $21.47 per shareunderlying such restricted stock unit.Additionally, all of the equity awards originally granted by Cascade Microtech which were outstanding and unvested immediately prior to theconsummation of the merger (and that did not vest as a result of the consummation of the merger) were assumed by us on substantially the same terms at theEffective Time, except that the number of shares of our common stock that underlie the assumed award and the exercise price of any assumed option weredetermined pursuant to a formula intended to preserve the intrinsic value of the original award, resulting in the assumption of stock options exercisable for anaggregate of 152,276 shares of our common stock and restricted stock units representing 777,444 shares of our common stock as of the acquisition date. The fairvalue of the stock options assumed was determined using a Black-Scholes valuation model with market-based assumptions. The fair value of the restricted stockunits assumed was $8.92 per unit, based on the FormFactor closing stock price on June 24, 2016. The fair value of unvested equity awards relating to futureservices, and not yet earned, will be recorded as operating expense over the remaining service periods. Option pricing models require the use of67FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)highly subjective market assumptions, including expected stock price volatility, which if changed can materially affect fair value estimates. See Note 12 to theConsolidated Financial Statements - Stockholder’s Equity , for further details.The acquisition was accounted for using the acquisition method of accounting in accordance with the Financial Accounting Standards Board ("FASB")Accounting Standards Codification ("ASC") Topic No. 805, Business Combinations, with FormFactor treated as the acquirer. The acquired assets and liabilities ofCascade Microtech were recorded at their respective fair values including an amount for goodwill representing the difference between the acquisition considerationand the fair value of the identifiable net assets. As a result of the acquisition, Cascade Microtech shares ceased to trade on the NASDAQ Global Market effectiveJune 24, 2016.The total acquisition consideration of $325.1 million , net of cash acquired of $40.7 million was determined based on the terms of the Merger Agreementwhich consisted of the a) payment of $255.9 million in cash to former shareholders of Cascade Microtech, b) issuance of 10,450,189 shares of FormFactor'scommon stock to former shareholders of Cascade Microtech which was valued at the closing market price of $8.92 per share on June 24, 2016 and amounted to$93.2 million in the aggregate, c) payment of $12.8 million at the commencement of the third quarter of fiscal 2016, in cash, to Cascade Microtech outstanding andvested equity award holders, and d) $3.9 million attributable to the fair value of the assumed unvested equity awards for services performed by Cascade Microtechemployees for the period leading up to the effective date of the acquisition.During fiscal 2016, we incurred approximately $6.5 million in transaction costs related to the acquisition, which primarily consisted of investment banking,legal, accounting and valuation-related expenses. These expenses were recorded in selling, general and administrative expense in the accompanying ConsolidatedStatements of Operations.Our consolidated financial statements as of December 31, 2016 included the consolidated balance sheet of Cascade Microtech as of December 31, 2016whereas our consolidated statements of operations for the fiscal year ended December 31, 2016 included the financial results of Cascade Microtech only for thethird and fourth quarters of fiscal 2016 . We excluded the financial results of Cascade Microtech for the second quarter of fiscal 2016 as the one-day stub periodbetween the acquisition of Cascade Microtech on June 24, 2016 and the end of our second quarter of fiscal 2016 on June 25, 2016 was immaterial.To finance a portion of the acquisition consideration, we entered into a credit agreement with certain lenders to provide a senior secured term loan facility inan aggregate amount of $150 million . See Note 5 to the to the Notes to Consolidated Financial Statements - Debt, for further details.The acquisition price was allocated to the tangible and identified intangible assets acquired and liabilities assumed as of the closing date of the acquisitionbased upon their respective fair values. Asset categories acquired included working capital, long-term assets and liabilities and identifiable intangible assets,including in-process research and development ("IPR&D"). The allocation of the acquisition price has been prepared on a preliminary basis and changes to thatallocation may occur as additional information becomes available.The fair values assigned to assets acquired and liabilities assumed are based on management’s best estimates and assumptions as of the reporting date andare considered preliminary pending finalization of valuation analyses pertaining to intangible assets acquired, liabilities assumed and tax liabilities assumedincluding calculation of deferred tax assets and liabilities. Changes to amounts recorded as assets or liabilities may result in corresponding adjustments to goodwill,restructuring and impairment charges, recognized deferred tax assets and liabilities including changes to release of valuation allowance during the measurementperiod (up to one year from the acquisition date). Any such revisions or changes may be material as we finalize the fair values of the tangible and intangible assetsacquired and liabilities assumed.During the year ended December 31, 2016 and subsequent to the acquisition of Cascade Microtech, we made adjustments to certain identifiable intangibleassets (order backlog and customer relationships amounting to $(0.1) million ) and accrued liabilities (amounting to $0.5 million ) resulting in a net increase togoodwill of approximately $ 0.4 million .68FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The table below summarizes the assets acquired and liabilities assumed, as of December 31, 2016 (in thousands): AmountCash and cash equivalents $40,681Accounts receivable 27,112Inventory 38,315Prepaid expenses and other current assets 6,249Property, plant and equipment 19,875Other long-term assets 818Deferred revenue (1,829)Accounts payable and accrued liabilities (23,370)Deferred tax liabilities (48,993)Other long-term liabilities (960)Total tangible assets acquired and liabilitiesassumed 57,898Intangible assets 149,753Goodwill 158,141Total acquisition price $365,792The intangible assets as of the closing date of the acquisition included (in thousands): Amount Weighted Average UsefulLife (in years)Developed technologies $91,100 4.7Customer relationships 23,053 6.8Order backlog 15,600 0.5Trade names 7,600 3.5In-process research and development 12,400 Total intangible assets $149,753 Indications of fair value of the intangible assets acquired in connection with the acquisition were determined using either the income, market or replacementcost methodologies. The intangible assets are being amortized over periods which reflect the pattern in which economic benefits of the assets are expected to berealized. Order backlog is expected to be fully amortized by the second quarter of fiscal 2017.Identifiable intangible assetsDeveloped technology acquired primarily consists of Cascade Microtech’s existing technologies related to engineering and production probes used in testingwafers, manufacturing wafer testing stations, thermal chuck systems, and reliability test systems. A Multi-Period Excess Earnings (MPEE) Method was used tovalue the developed technologies. Along with the cash flow forecast associated with each developed technology, other key assumptions in MPEE method areremaining life of technology, technology migration pattern (or technology decay curve), level of R&D required to maintain the technology, discount rate andapplicable tax rate. Using this approach, the estimated fair values were calculated using expected future cash flows from specific products discounted to their netpresent values at an appropriate risk-adjusted rate of return that resulted in a value of $91.1 million and will be amortized over their useful lives.Customer relationships represent the fair value of future projected revenues that will be derived from the sale of products to existing customers of theacquired company. The fair value of the customer relationships is determined based on the With and Without Method and resulted in a value of $23.1 millionwhich will be amortized over their useful lives. The With and Without Method is appropriate for valuing non-primary customer-related assets for which reasonableestimates can be made for both the time and resources required to recreate those assets, as well as the economic impact over the period of time in which the assetsare recreated. The Without scenario incorporates lost revenue and lost profits over the period necessary to retain the69FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)asset. Key assumptions in this valuation are attrition rate, time to recreate customer relationships, composition of costs into fixed versus variable costs, tax ratesand discount rates.Trade names and trademarks are considered a type of guarantee of a certain level of quality or performance represented by the brands owned including theCascade Microtech brand. Trade names and trademarks were valued using the “relief-from-royalty income” approach. This method is based on the assumption thatin lieu of ownership, a market participant would be willing to pay a royalty in order to exploit the related benefits of this asset. Key assumptions involved invaluation of trade names include royalty rate, expected utilization of the trade names, tax rates and discount rates. The value of the trade names acquired wasdetermined to be $7.6 million and will be amortized over their useful lives.IPR&D represents the estimated fair values of incomplete Cascade Microtech research and development projects that had not reached commercializationstage and meet the criteria for recognition as IPR&D as described in the American Institute of Certified Public Accountants IPR&D guide as of the date of theacquisition. In the future, the fair value of each project at the acquisition date will be either amortized or impaired depending on whether the projects are completedor abandoned. The fair value of IPR&D was determined using the MPEE method. For IPR&D, costs to complete the project and expected commercializationtimeline are considered as key assumptions. This method reflects the present value of the projected cash flows that are expected to be generated by the IPR&D lesscharges representing the contribution of other assets to those cash flows. The value of the IPR&D was determined to be $12.4 million and the amortization willcommence upon completion of the IPR&D projects. In the fourth quarter of fiscal 2016, we fully impaired this $12.4 million IPR&D intangible asset. See Note 7,Impairment of Long-lived Assets , to the Notes to Consolidated Financial Statements for further details.GoodwillThe excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the amount of goodwill resultingfrom the acquisition. We believe the factors that contributed to goodwill include synergies that are specific to our consolidated business such as cost savings andoperational efficiencies and the acquisition of a talented workforce that expands our expertise in business development and commercializing semiconductor testproducts, none of which qualify for recognition as a separate intangible asset. We do not expect any portion of this goodwill to be deductible for tax purposes. Thegoodwill attributable to the acquisition has been recorded as a non-current asset and is not amortized, but is subject to an annual review for impairment.The goodwill arising from the acquisition was preliminarily allocated to our reporting units based on the relative fair values of the expected incremental cashflows that the acquisition is expected to provide to each reporting unit within our reportable segments. The allocation of goodwill, which was prepared on apreliminary basis, may be subject to changes as additional information becomes available as the allocation was based on estimates and assumptions made bymanagement at the time of acquisition.Operating and reporting segments, and reporting unitsUpon acquisition of Cascade Microtech, we re-evaluated our operating and reportable segments as well as our reporting units for goodwill impairmentconsideration in accordance with Financial Accounting Standards Board's Accounting Standards Codification ("ASC") Topics Nos. 280, Segment Reporting and350, Intangibles-Goodwill and Other . See Note 16 to the Notes to Condensed Consolidated Financial Statements - Operating Segments and GeographicInformation, for further details. Pro forma consolidated results of operationsThe following unaudited pro forma results of operations for the year ended December 31, 2016 and December 26, 2015 presents the combined results ofoperations of FormFactor and Cascade Microtech as if the acquisition had been completed at the beginning of fiscal 2015. The pro forma information includesadjustments to amortization and depreciation for intangible assets and property, plant and equipment, adjustments to stock-based compensation expense, interestexpense for the incremental indebtedness incurred, and interest income for the cash paid in connection with the transaction. The pro forma results for the yearended December 26, 2015 include non-recurring adjustments related to deferred tax asset valuation allowance release of $44.0 million which increases pro-formanet income, and acquisition-related transaction costs of $14.4 million and restructuring charges of $7.3 million which decreases pro-forma net income.The pro forma results also include utilization of the net increase in the cost basis of acquired inventory and acquisition related expenses. The pro forma dataare for informational purposes only and are not necessarily indicative of the consolidated results of operations of the combined business had the acquisitionactually occurred at the beginning of fiscal year 2015 and70FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)2016 or of the results of future operations of the combined business. Consequently, actual results may differ from the unaudited pro forma information presentedbelow (in thousands, except per share data): Twelve Months Ended December 31, 2016 December 26, 2015Revenues $455,713 $426,336Net loss (20,641) (15,469)Net loss per share - basic $(0.27) $(0.23)Net loss per share - diluted $(0.27) $(0.23)Note 5—DebtSenior Secured Term Loan FacilityOur debt as of December 31, 2016 consisted of the following (in thousands): December 31,2016Senior secured term loan$139,375Less debt issuance costs(1,199)Total debt less debt issuance costs$138,176On June 24, 2016, we entered into a Credit Agreement (the “Credit Agreement”) with HSBC Bank USA, National Association ("HSBC"), as administrativeagent, co-lead arranger, sole bookrunner and syndication agent, other lenders that may from time-to-time be a party to the Credit Agreement, and certainguarantors. Pursuant to the Credit Agreement, the lenders have provided us with a senior secured term loan facility of $150 million (the “Term Loan”). Theproceeds of the Term Loan were used to finance a portion of the purchase price paid in connection with the Cascade Microtech acquisition and to pay related bankfees and expenses.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 initially elected to pay interest at 2.00% over the one-month LIBOR rate. Interestpayments are payable in quarterly installments over a five -year period. The Term Loan will amortize in equal quarterly installments, beginning June 30, 2016, inan annual amount equal to 5% for year one, 10% for year two, 20% for year three, 30% for year four and 35% for year five.On July 25, 2016, we entered into an interest-rate swap agreement with HSBC and other lenders to hedge the interest payments on our Term Loan enteredinto on June 24, 2016. See Note 8 to Notes to Consolidated Financial Statements - Derivative Financial Instruments , for further details.The obligations under the Term Loan are and will be fully and unconditionally guaranteed by certain of our existing and subsequently acquired or organizeddirect and indirect domestic subsidiaries and are secured by a perfected first priority security interest in substantially all of our assets and the assets of thoseguarantors, subject to certain customary exceptions. See Note 11 to Notes to Consolidated Financial Statements - Commitments and Contingencies , for a scheduleof our principal and interest payment commitments under the Term Loan.The Credit Agreement contains negative covenants customary for financing of this type, including covenants that place limitations on the incurrence ofadditional indebtedness, the creation of liens, the payment of dividends; dispositions; fundamental changes, including mergers and acquisitions; loans andinvestments; sale leasebacks; negative pledges; transactions with affiliates; changes in fiscal year; sanctions and anti-bribery laws and regulations, andmodifications to charter documents in a manner materially adverse to the Lenders. The Credit Agreement also contains affirmative covenants and representationsand warranties customary for financing of this type.In addition, the Credit Agreement contains financial maintenance covenants requiring, at the end of, and for, each period of four consecutive fiscal quarters,beginning as of June 30, 2016, (a) a ratio of total debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") not in excess of 2.75 to 1.00 ,stepping down to 2.50 to 1.00 at the end of the fiscal71FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)quarter ending June 30, 2017; and (b) a fixed charge coverage ratio of not less than 1.50 to 1.00 , stepping down to 1.30 to 1.00 at the end of the fiscal quarterending June 30, 2018 and to 1.20 to 1.00 at the end of the fiscal quarter ending June 30, 2019. As of December 31, 2016 , the Company was in compliance with allof the financial covenants under the senior secured term loan facility.The Credit Agreement contains customary events of default, including (subject to certain materiality thresholds and grace periods) payment default, failureto comply with covenants, material inaccuracy of representation or warranty, bankruptcy or insolvency proceedings, change of control, certain material EmployeeRetirement Security Act ("ERISA") events and cross event of default and cross-acceleration in respect of other material debt.The foregoing description of the Credit Agreement does not purport to be complete and is subject to and qualified in its entirety by reference to the full textof the Credit Agreement, which is filed as Exhibit 10.1 to our Current Report on Form 8-K filed on June 28, 2016.Note 6—Restructuring ChargesRestructuring charges are comprised of costs related to employee termination benefits, cost of long-lived assets abandoned or impaired, as well as contracttermination costs. Restructuring charges are included in "Restructuring and impairment charges, net" in the Consolidated Statements of Operations. A summary ofthe actions we have taken during fiscal 2016 , 2015 , and 2014 , the purpose of which were to improve operating efficiency, streamline and simplify our operationsand reduce our operating costs, are discussed below.2016 Restructuring ActivitiesDuring fiscal 2016 , we recorded;• approximately $0.8 million of severance charges and $0.3 million of stock-based compensation expense relating to the modification of certainequity-based awards as a result of the consolidation of our operations;• approximately $5.4 million of severance charges and $0.7 million of stock-based compensation expense relating to the acceleration of certainequity-based awards of certain executives of Cascade Microtech who were terminated upon our acquisition of Cascade Microtech and in accordance withtheir contractual change of control agreements; and• approximately $0.1 million of cease use charges relating to abandoned facilities no longer to be used in our operations.The cash payments associated with the restructuring activities are expected to be completed by the end of the second quarter of fiscal 2017.2015 Restructuring ActivitiesDuring fiscal 2015, we recorded restructuring charges of approximately $0.6 million which included stock-based compensation expense of approximately$0.5 million relating to the modification of an equity-based award.2014 Restructuring ActivitiesOn January 27, 2014, we announced a global organizational restructuring and cost reduction plan. As part of the plan, the Company eliminated 52 full-timeemployees. In addition, we reduced our temporary workforce by 9 positions. We recorded $2.0 million of restructuring charges during the first quarter of fiscal2014, which was comprised of $1.4 million in severance and related benefits and $0.6 million in impairment charges for certain equipment that would no longer beutilized. During the remainder of fiscal 2014, we further eliminated an additional 5 full-time positions and recorded $0.7 million in severance charges.72FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following table summarizes the activities related to the restructuring actions from fiscal 2014 to 2016 (in thousands): Employee Severance and Benefits Property andEquipmentImpairment Contract Termination and OtherCosts Stock-basedCompensation Total Accrual at December 28, 2013$138 $— $— $— $138Restructuring charges2,068 600 — — 2,668Asset impairments— (600) — — (600) Cash payments(1,620) — — — (1,620) Non-cash settlements(2) — — — (2)Accrual at December 27, 2014584 — — — 584Restructuring charges59 — 500 — 559 Cash payments(641) — — — (641) Non-cash settlements— — (500) — (500)Accrual at December 26, 20152 — — — 2Restructuring charges6,220 — 104 964 7,288 Cash payments(5,892) — — — (5,892)Non-cash settlements— — (964) (964)Accrual at December 31, 2016$330 $— $104 $— $434Note 7—Impairment of Long-lived AssetsThe following table summarizes the components of the impairments that we recorded in fiscal 2016 , 2015 and 2014 (in thousands): Fiscal Years Ended December 31,2016 December 26,2015 December 27,2014Impairment of long-lived assets: Assets held for sale$— $— $191Assets to be disposed of other than by sale12,400 8 1,028Total$12,400 $8 $1,219Assets held for saleIn fiscal 2016 and 2015 , we did not record any impairment charge on assets held for sale and there were no long-lived assets classified as held for sale as ofDecember 31, 2016 and December 26, 2015 .During fiscal 2014 , we reclassified $0.6 million of building and $0.5 million of machinery and equipment from "Property, plant and equipment, net" to"Prepaid expenses and other current assets" in our Consolidated Balance Sheet as these assets were identified as held for sale. In the same fiscal year, we recordeda gain of $0.2 million and $52.0 thousand on the sale of the building and machinery and equipment, respectively. In addition, we also recorded a $0.2 millionimpairment charge related to machinery and equipment which was held for sale. There were no long-lived assets classified as held for sale as of December 27,2014 .These impairments were included within "Restructuring and Impairment Charges, net" in the Consolidated Statement of Operations for their respectiveperiods.Assets to be disposed of other than by saleWe test long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amounts may not berecoverable. In fiscal 2016 , we recorded an impairment charge of $12.4 million relating to an in-process research and development intangible asset acquired aspart of our acquisition of Cascade Microtech. During the fourth quarter of fiscal 2016 and subsequent to the Cascade Microtech acquisition, we were informed by acustomer that they had73FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)abandoned their project for which this intangible asset was being developed for, and therefore we fully impaired this intangible asset as it had no alternative futureuse to us.In fiscal 2015 , long-lived asset impairment charges recorded were insignificant. In fiscal 2014 , we recorded impairment charges of $1.0 million formanufacturing assets and software that we no longer utilize.All of these charges are included in "Restructuring and Impairment Charges, net" in the Consolidated Statements of Operations for their respective periods.Refer to Note 10 to the Notes to Consolidated Financial Statements - Goodwill and Intangible Assets for further details relating to our intangible long-livedassets.Note 8—Derivative Financial InstrumentsForeign Currency DerivativesWe operate and sell our products in various global markets. As a result, we are exposed to changes in foreign currency exchange rates. We utilize foreigncurrency forward contracts to hedge against future movements in foreign exchange rates that affect certain existing foreign currency denominated assets andliabilities and forecasted foreign currency revenue and expense transactions. Under this program, our strategy is to have increases or decreases in our foreigncurrency exposures offset by gains or losses on the foreign currency forward contracts to mitigate the risks and volatility associated with foreign currencytransaction gains or losses. We do not use derivative financial instruments for speculative or trading purposes. For accounting purposes, our foreign currencyforward contracts are not designated as hedging instruments as defined under ASC 815, Derivatives and Hedging. We record the fair value of these contracts as ofthe end of our reporting period to our Consolidated Balance Sheets with changes in fair value recorded within " Other income (expense), net " in our ConsolidatedStatement of Operations for both realized and unrealized gains and losses.The following table provides information about our foreign currency forward contracts outstanding as of December 31, 2016 (in thousands):Currency Contract Position Contract Amount(Local Currency) Contract Amount(U.S. Dollars)Taiwan Dollar Buy (42,660) $(1,326)Korean Won Buy (1,806,386) (1,508)Euro Buy (2,500) (2,774)Japanese Yen Sell 1,548,535 13,252Euro Sell 2,732 2,876Euro Sell 15,877 17,852Japanese Yen Sell 136,000 1,288Total USD notional amount of outstandingforeign exchange contracts $29,660The contracts were entered into during the fourth quarter of fiscal 2016 and will mature during the first quarter of fiscal 2017. Our foreign currency contractsare classified within Level 2 of the fair value hierarchy as they are valued using pricing models that utilize observable market inputs.The location and amount of gains (losses) related to non-designated derivative instruments that matured in fiscal 2016 and 2015 in the ConsolidatedStatements of Operations are as follows (in thousands): Fiscal Years EndedDerivatives Not Designated as HedgingInstruments Location of Gain (Loss)Recognized on Derivatives December 31,2016 December 26,2015Foreign exchange forward contracts Other income (expense), net $139 $(310)74FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Interest Rate SwapsPursuant to our interest rate and risk management strategy, on July 25, 2016, we entered into interest-rate swap agreements with HSBC and other lenders tohedge the interest payments on our Term Loan entered into on June 24, 2016. The Term Loan has a LIBOR based floating interest rate and matures on March 31,2021. 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 raterisks associated with movement in LIBOR rates. See Note 5 to Notes to Consolidated Financial Statements - Debt, for further details of the Term Loan.For accounting purposes, the interest-rate swap contracts qualify for and are designated as cash flow hedges as defined under ASC 815, Derivatives andHedging . All hedging relationships are formally documented, and the hedges are designed to offset changes to future cash flows on hedged transactions. Werecognize derivative instruments from hedging activities as either assets or liabilities on the balance sheet and measure them at fair value on a quarterly basis. Werecord changes in the effective portion of our cash flow hedges in accumulated other comprehensive income on the Consolidated Balance Sheets, until theforecasted transaction occurs. Amounts expected to be reclassified from other comprehensive income into earnings in the next twelve months were insignificant.We evaluate hedge effectiveness at hedge inception and on an ongoing basis, and record any ineffective portion of the hedge in " Other income (expense), net " inour Consolidated Statement of Operations. We recorded approximately $51 thousand of hedge ineffectiveness for fiscal 2016 . The cash flows associated with theinterest rate swaps are reported in net cash provided by operating activities on the Consolidated Statements of Cash Flows.The estimated fair value of the interest rate swaps as of December 31, 2016 was reported as a derivative asset of approximately $0.8 million , recordedwithin other assets (non-current) on the Company's Consolidated Balance Sheet.The impact of the cash flow hedges on the consolidated financial statements is depicted below (in thousands):The Effect of Derivative Instruments on the Statement of Financial PerformanceFor the Twelve Months Ended Amount of Gain or(Loss) Recognized inOCI on Derivative(Effective Portion)Location of Gainor (Loss)Reclassified fromAccumulatedOCI into Income(EffectivePortion)Amount of Gain or(Loss) Reclassified fromAccumulated OCI intoIncome (EffectivePortion)Location ofGain or (Loss)Recognized inIncome onDerivative(IneffectivePortion )Amount of Gain or(Loss) Recognized inIncome on Derivative(Ineffective Portion ) Derivativesin ASC 815Cash FlowHedgingRelationships December31, 2016December26, 2015 December31, 2016December26, 2015 December31, 2016December26, 2015 Interestratecontracts $628$— Other income(expense), net $(160)$— Otherincome(expense),net $51$— Total $628$— $(160)$— $51$—Note 9—Fair ValueWe use fair value measurements to record adjustments to certain financial and non-financial assets and to determine fair value disclosures. The carryingamounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued compensation and otheraccrued liabilities, approximate fair value because of their short maturities. Our marketable securities are financial assets recorded at fair value on a recurring basis.The accounting standards for fair value defines fair value, establishes a framework for measuring fair value and requires disclosures about fair valuemeasurements. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, we consider theprincipal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability,such as inherent risk, transfer restrictions and risk of nonperformance. The accounting standard establishes a fair value hierarchy that requires an entity tomaximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within thefair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The standard describes a fair value hierarchy based onthree levels of inputs, the first two of which are considered observable and the last unobservable. We apply the following fair value hierarchy, which prioritizes theinputs used in measuring fair value as follows:75FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)•Level 1—Quoted prices in active markets for identical assets or liabilities;•Level 2—Inputs, other than the quoted prices in active markets, such as quoted prices for similar assets or liabilities, quoted prices near the reporting datein 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 theassets or liabilities; and•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.We obtain the fair value of our Level 1 investments in certain money market funds, at the expected market price. These investments are expected tomaintain a net asset value of $1 per share.We determine the fair value of our Level 2 financial instruments from several third-party asset managers, custodian banks, and the accounting serviceproviders. Independently, these service providers use professional pricing services to gather pricing data, which may include quoted market prices for identical orcomparable instruments or inputs other than quoted prices that are observable either directly or indirectly.We utilize the market approach to measure the fair value of our fixed income securities. The market approach is a valuation technique that uses prices andother relevant information generated by market transactions involving identical or comparable assets or liabilities. The fair value of our fixed income securities isobtained using readily-available market prices from a variety of industry standard data providers, large financial institutions and other third-party sources for theidentical underlying securities.Our fair value processes include controls that are designed to ensure appropriate fair values are recorded. Such controls include model validation, review ofkey model inputs, analysis of period-over-period fluctuations and independent recalculation of prices.Assets Measured at Fair Value on a Recurring BasisWe measure and report certain assets and liabilities at fair value on a recurring basis, including money market funds, U.S. Treasury securities, agencysecurities and derivatives comprised of foreign currency forward contracts and interest-rate swap contracts (see Note 8 to the Notes to Consolidated FinancialStatements - Derivative Financial Instruments , for further details).Assets measured on a recurring basis as of December 31, 2016 (in thousands): Level 1 Level 2 TotalAssets: Cash equivalents Money market funds$19,350 $— $19,350Marketable securities U.S. Treasuries— 7,497 7,497Foreign exchange derivative contracts— 1,137 1,137Interest rate swap derivative contracts— 838 838Total$19,350 $9,472 $28,822Assets measured on a recurring basis as of December 26, 2015 (in thousands): Level 1 Level 2 TotalAssets: Cash equivalents Money market funds$82,935 $— $82,935Marketable securities U.S. Treasuries— 18,853 18,853Agency securities (Federal)— 22,472 22,472Total$82,935 $41,325 $124,260The Level 1 assets consist of our money market fund deposits. The Level 2 assets consist of our available-for-sale investment portfolio, which are valuedutilizing a market approach. Our investments are priced by pricing vendors who provided observable inputs for their pricing without applying significant judgment.Broker pricing is used mainly when a76FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)quoted price is not available, the investment is not priced by our pricing vendors or when a broker price is more reflective of fair values in the market in which theinvestment trades. Our broker-priced investments are labeled as Level 2 investments because fair values of these investments are based on similar assets withoutapplying significant judgments. In addition, all of our investments have a sufficient level of trading volume to demonstrate that the fair values used are appropriatefor these investments.Derivative assets and liabilities include foreign currency forward contracts and interest rate swap contracts. The fair value of foreign currency forwardcontracts represents the estimated amount required to settle the contracts using current market exchange rates, and is based on the current foreign currencyexchange rates and forward points. The fair value of interest rate swaps is estimated based on valuation models that use interest rate yield curves as inputs. Theinputs used to estimate the fair value of the Company's derivatives are classified as Level 2.We did not have any transfers of assets measured at fair value on a recurring basis to or from Level 1 and Level 2 during fiscal 2016 and 2015 .Assets Measured at Fair Value on a Non-recurring BasisWe 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 periodwhen we make a business acquisition. Refer to Note 10 to Notes to Consolidated Financial Statements- Goodwill and Intangible Assets , for further details. Theonly assets that were measured at fair value on a nonrecurring basis during fiscal 2016 related to the Cascade Acquisition. See Note 4 to Notes to ConsolidatedFinancial Statements - Acquisition, for further details. There were no assets measured at fair value on a non-recurring basis during fiscal 2015 .Note 10—Goodwill and Intangible AssetsGoodwill recorded from the acquisition of Cascade Microtech on June 24, 2016 was $158.1 million as of December 31, 2016 . The Company determinedthe total consideration paid for its acquisition of Cascade Microtech as well as the fair value of the assets acquired and liabilities assumed as of the acquisition date.The fair values assigned to assets acquired and liabilities assumed are based on management’s best estimates and assumptions as of the reporting date and areconsidered preliminary pending finalization of valuation analyses pertaining to intangible assets acquired, liabilities assumed and tax liabilities assumed includingcalculation of deferred tax assets and liabilities. Changes to amounts recorded as assets or liabilities may result in corresponding adjustments to goodwill,recognized deferred tax assets and liabilities including changes to release of valuation allowance during the measurement period (up to one year from theacquisition date). Any such revisions or changes may be material as we finalize the fair values of the tangible and intangible assets acquired and liabilitiesassumed. See Note 4 to Notes to Consolidated Financial Statements - Acquisition, for further details. Goodwill recorded from the acquisition of MicroProbe Inc. on October 16, 2012 was $30.7 million as of December 31, 2016 and remained unchanged fromthe amounts recorded as of December 26, 2015 .Upon the acquisition of Cascade Microtech on June 24, 2016 and for purposes of our goodwill impairment analysis, we determined that we now have fourreporting units consisting of FormFactor Probes, Cascade Microtech Probes, Systems, and Advanced Temperature Test Systems GmbH ("ATT").During the fourth quarter of fiscal 2016 , we performed our annual goodwill impairment test by assessing qualitative factors and we concluded that ourgoodwill was not impaired as of December 31, 2016 . Our qualitative review included, among other factors, an assessment of our market capitalization which wassignificantly higher than our book value. Furthermore, the Company has not recorded any historical goodwill impairments as of December 31, 2016 . Theevaluation of goodwill for impairment requires the exercise of significant judgment. In the event of future changes in business conditions, we will be required toreassess and update our forecasts and estimates used in future impairment analyses. If the results of these analyses are lower than current estimates, a materialimpairment charge may result at that time.77FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The changes in intangible assets for fiscal 2016 and the net book value of intangible assets at December 31, 2016 and December 26, 2015 were as follows(in thousands): Intangible Assets, Gross Amount Accumulated Amortization Intangible Assets, Net WeightAverageUseful LifeOtherIntangibleAssets (1) December26, 2015 Additions/Disposals December 31,2016 December26, 2015 Expense,net December 31,2016 December 26,2015December 31,2016 December 31,2016Existingdevelopedtechnologies $52,200 $90,501 $142,701 $39,581 $16,550 $56,131 $12,619$86,569 4.4Trade name 4,388 7,533 11,921 1,409 1,580 2,989 2,9798,932 4.0Customerrelationships 17,000 22,869 39,869 7,046 3,808 10,854 9,95429,015 5.8Backlog — 15,581 15,581 — 13,489 13,489 —2,092 0.2Total finite-livedintangibleassets 73,588 136,484 210,072 48,036 35,427 83,463 25,552126,608 IPR&D-addition (2) — 12,400 12,400 — — — —12,400 Totalintangibleassets 73,588 148,884 222,472 48,036 35,427 83,463 25,552139,008 IPR&D-disposal (2) — (12,400) (12,400) — — — —(12,400) Totalintangibleassets $73,588 $136,484 $210,072 $48,036 $35,427 $83,463 $25,552$126,608 (1)Excludes fully amortized intangible assets.(2) In the fourth quarter of fiscal 2016, we recorded an impairment charge of $12.4 million relating to an in-process research and development intangible assetacquired as part of our acquisition of Cascade Microtech. See Note 7, Impairment of Long-lived Assets , to the Notes to Consolidated Financial Statements forfurther details.Intangible asset additions during fiscal 2016 related to Cascade Microtech acquisition-see Note 4 to Notes to Consolidated Financial Statements -Acquisition, for further details. We recorded $35.4 million , $13.1 million and $18.8 million , in amortization expense related to our intangible assets in fiscal 2016 , 2015 , and 2014 ,respectively. Of the total amortization expense for fiscal 2016 , 2015 , and 2014 , $30.0 million , $10.4 million , and $16.1 million were charged to cost ofrevenues, respectively, and $5.4 million , $2.7 million and $2.7 million were charged to selling, general and administrative expenses, respectively.Based on the carrying value of the finite-lived intangible assets recorded as of December 31, 2016 , and assuming no subsequent additions to or impairmentof the underlying assets, the remaining estimated annual amortization expense is expected to be as follows (in thousands):Fiscal Year Amount2017 $30,6722018 28,3032019 25,6392020 23,5702021 12,915and thereafter 5,509Total $126,608As of the Effective Date of the acquisition of Cascade Microtech, we began operating under two reportable segments consisting of Probe Cards Segmentand Systems Segment. See Note 16 to Notes to Consolidated Financial Statements - Operating Segments and Geographic Information, for further details. Thefollowing table summarizes the changes in the78FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)carrying amount of goodwill, by reportable segments, for fiscal 2016 , applying the segment changes as of June 24, 2016, which was the date when we acquiredCascade Microtech. Probe Cards Systems Total (in thousands)Goodwill, gross, as of December 27, 2014 andDecember 26, 2015 $30,731 $— $30,731Additions-Cascade Microtech 141,751 16,390 158,141Foreign currency translation — (862) (862)Balance as of December 31, 2016 $172,482 $15,528 $188,010Note 11—Commitments and ContingenciesLeasesWe lease facilities under non-cancellable operating leases with various expiration dates through 2027. The facilities generally require us to pay propertytaxes, insurance and maintenance costs. Further, several lease agreements contain rent escalation clauses or rent holidays. For purposes of recognizing minimumrental expenses on a straight-line basis over the terms of the leases, we use the date of initial possession to begin amortization. We have the option to extend orrenew most of our leases which may increase the future minimum lease commitments.Rent expense for the fiscal years 2016 , 2015 , and 2014 was $6.5 million , $4.9 million and $4.8 million , respectively.Future minimum payments under our non-cancelable operating leases are as follows as of December 31, 2016 (in thousands): Operating LeasesFiscal years: 2017 $6,2792018 5,7892019 4,8822020 3,5812021 3,236Thereafter 15,734Total $39,501Other Contractual ObligationsThe following table sets forth our commitments to settle other contractual obligations in cash as of December 31, 2016 (in thousands): Payments Due In Fiscal Years 2017 2018 2019 2020 2021 Total (In thousands)Purchase obligations$33,696 $4,550 $515 $— $— $38,761Senior secured term loan facility-principalpayments (1)13,125 26,250 41,250 50,625 8,125 139,375Senior secured term loan facility-interestpayments (2)2,828 2,400 1,739 821 41 7,829Total $49,649 $33,200 $43,504 $51,446 $8,166 $185,965(1) On June 24, 2016, we entered into a senior secured term loan facility in an aggregate amount of $150 million in order to finance a portion of the Cascade Microtechacquisition consideration. See Note 5 to Notes to Consolidated Financial Statements - Debt , for further details. (2) Represents our minimum interest payment commitments at2.00% per annum.79FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Purchase obligations are primarily for purchases of inventory and manufacturing related service contracts. For the purposes of this table, purchaseobligations are defined as agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to bepurchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The expected timing of payment of the obligationsdiscussed above is estimated based on information available to us as of December 31, 2016 . Timing of payments and actual amounts paid may be differentdepending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.The table above excludes our gross liability for unrecognized tax benefits, which totaled $18.0 million as of December 31, 2016 . The timing of anypayments which could result from these unrecognized tax benefits will depend upon a number of factors. Accordingly, the timing of payment cannot be estimatedand has been excluded from the table above. As of December 31, 2016 , the changes to our uncertain tax positions in the next 12 months, that are reasonablypossible, are not expected to have a significant impact on our financial position or results of operations.Environmental MattersWe are subject to U.S. Federal, State, local, and foreign governmental laws and regulations relating to the protection of the environment, including thosegoverning the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes, the clean-up of contaminated sitesand the maintenance of a safe workplace. We believe that we comply in all material respects with the environmental laws and regulations that apply to us. We didnot receive any notices of violations of environmental laws and regulations in fiscal 2016 , 2015 or 2014 . In the future, we may receive notices of violations ofenvironmental regulations, or otherwise learn of such violations. Environmental contamination or violations may negatively impact our business.Indemnification ArrangementsWe have entered, and may from time to time in the ordinary course of our business enter, into contractual arrangements with third parties that includeindemnification obligations. Under these contractual arrangements, we have agreed to defend, indemnify and/or hold the third party harmless from and againstcertain liabilities. These arrangements include indemnities in favor of customers in the event that our products or services infringe a third party's intellectualproperty or cause property or other indemnities in favor of our lessors in connection with facility leasehold liabilities that we may cause. In addition, we haveentered into indemnification agreements with our directors and certain of our officers, and our bylaws contain indemnification obligations in favor of our directors,officers and agents. These indemnity arrangements may limit the type of the claim, the total amount that we can be required to pay in connection with theindemnification obligation and the time within which an indemnification claim can be made. The duration of the indemnification obligation may vary, and for mostarrangements, survives the agreement term and is indefinite. We believe that substantially all of our indemnity arrangements provide either for limitations on themaximum potential future payments we could be obligated to make, or for limitations on the types of claims and damages we could be obligated to indemnify, orboth. However, it is not possible to determine or reasonably estimate the maximum potential amount of future payments under these indemnification obligationsdue to the varying terms of such obligations, a lack of history of prior indemnification claims, the unique facts and circumstances involved in each particularcontractual arrangement and in each potential future claim for indemnification, and the contingency of any potential liabilities upon the occurrence of events thatare not reasonably determinable. We have not had any material requests for indemnification under these arrangements. We have not recorded any liabilities forthese indemnification arrangements on our condensed consolidated balance sheet as of December 31, 2016 .Legal MattersFrom time to time, we may be subject to legal proceedings and claims in the ordinary course of business. As of December 31, 2016 and as of the filing ofthis Annual Report on Form 10-K, we were not involved in any material legal proceedings other than the proceeding summarized below. In the future, we maybecome a party to additional legal proceedings that may require us to spend significant resources, including proceedings designed to protect our intellectualproperty rights. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings are difficult to predict, and thecosts incurred in litigation can be substantial, regardless of outcome.On April 8, 2016, an individual plaintiff filed a putative class action lawsuit on behalf of Cascade Microtech’s shareholders against Cascade Microtech, itsdirectors, FormFactor and Cascade Merger Sub, in connection with the acquisition of Cascade Microtech by the Company. The lawsuit, captioned Solak v.Cascade Microtech, Inc., et al. , No. 16CV11809, was filed in Multnomah County Circuit Court in the State of Oregon.The Solak lawsuit alleges that the individual members of Cascade Microtech’s board of directors breached their fiduciary duties owed to CascadeMicrotech’s shareholders by approving the proposed merger for inadequate consideration; approving the merger to obtain unique benefits not shared equally withCascade Microtech’s other shareholders; failing to take steps to80FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)maximize the value paid to Cascade Microtech shareholders; failing to take steps to ensure a fair process leading up to the proposed merger; and agreeing topreclusive deal protection devices in the merger agreement. The lawsuit also alleges claims against FormFactor and one of its subsidiaries for aiding and abettingthe alleged breaches of fiduciary duties by the individual members of Cascade Microtech’s board of directors.Under a memorandum of understanding signed by the parties and filed with the court in the Solak case, Cascade Microtech and the Company agreed withthe plaintiff’s counsel to supplement the disclosures made in connection with the merger. The supplemental disclosures were made on June 14, 2016. The court inthe Solak lawsuit has granted preliminary approval of a stipulated settlement, including an award of the plaintiffs’ attorneys’ fees and expenses. The finalresolution of the proceedings under the stipulation of settlement is subject to customary conditions, including final court approval of the class settlement followingnotice to Cascade Microtech’s former shareholders within the proposed class.There can be no assurance that the court will approve the final settlement. In such event, the proposed settlement may be terminated.In August 2013, a former employee filed a class action lawsuit against the Company in the Superior Court of California, alleging violations of California’swage and hour laws and other claims on behalf of himself and all other similarly situated current and former employees at the Company’s Livermore facilities fromAugust 21, 2009, to the present. On January 4, 2016, the court certified the plaintiff class. The parties have signed a stipulation dated March 3, 2017, regarding thesettlement of the class action under which the parties have agreed to settle the lawsuit, subject court approvals and other conditions. The stipulation provides forpayment by the Company of $1.5 million in settlement of the lawsuit. As of December 31, 2016, we have accrued in our Consolidated Financial Statements $1.5million in respect of the potential payment under the stipulation of settlement.Note 12—Stockholders' EquityPreferred StockWe have authorized 10,000,000 shares of undesignated preferred stock, $0.001 par value, none of which is issued and outstanding. Our Board of Directorsshall determine the rights, preferences, privileges and restrictions of the preferred stock, including dividends rights, conversion rights, voting rights, terms ofredemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of any series.Common StockEach share of common stock has the right to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legallyavailable and when declared by the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding having priority rights as todividends. No dividends have been declared or paid as of December 31, 2016 .Common Stock Repurchase ProgramOn April 16, 2015, our Board of Directors authorized a program to repurchase up to $25.0 million of outstanding common stock on the open market andwhich expired on April 15, 2016. During fiscal 2016 , we did not repurchase any shares under this program. During fiscal 2015 , we repurchased and retired1,013,162 shares of common stock for approximately $8.2 million .In February 2017, our Board of Directors authorized a new program to repurchase up to $25 million of outstanding common stock to offset potentialdilution from sales of common stock under our employee stock purchase plan and exercises of stock options. The share repurchase program will expire onFebruary 1, 2020.Repurchased shares are retired upon the settlement of the related trade transactions. Our policy related to repurchases of our common stock is to charge theexcess of cost over par value to additional paid-in capital. All repurchases were made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934,as amended.Equity Incentive PlanWe currently grant equity-based awards under our Equity Incentive Plan (the "2012 Plan") which was approved by our stockholders at our Annual Meetingof Stockholders on April 18, 2012. On May 1, 2015, at our Annual Meeting of Stockholders, our stockholders further approved the amended and restated 2012Plan which increased the maximum number of81FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)shares of common stock authorized for issuance by an additional 4.5 million shares and prohibited the cashing out of stock appreciation rights.Restricted stock and restricted stock units granted under the 2012 Plan will generally vest over three years in annual tranches though we also have grantedand will continue to grant such awards over a shorter vest term for employee retention purposes. Additionally, restricted shares reduce the shares available forissuance at 1.70 shares for every one share issued.The 2012 Plan also provides for the grant of incentive stock options, nonqualified stock options and stock appreciation rights. The incentive stock optionsmay be granted to our employees and the nonqualified stock options, and all awards other than incentive stock options, may be granted to employees, directors andconsultants. The exercise price of incentive stock options must be at least equal to the fair market value of common stock on the date of grant. All options grantedunder the 2012 Plan will generally vest over four years and have a term of seven years, unless otherwise determined by the Compensation Committee of the Boardof Directors. Stock appreciation rights granted under the 2012 Plan will generally vest over four years in annual tranches. We have not granted any incentive stockoptions or stock appreciation rights during fiscal 2016 and 2015 .At December 31, 2016 , there were 3.5 million shares available for grant under the 2012 Plan.Stock OptionsOn June 24, 2016, pursuant to the Agreement and Plan of Merger with Cascade Microtech, we granted 152,276 stock options with a total grant date fairvalue of approximately $0.8 million , of which approximately $0.3 million was attributable to the fair value of the assumed unvested options for servicesperformed by Cascade Microtech employees for the period leading up to the effective date of the acquisition and which was included as part of the purchase priceconsideration. See Note 4 to Notes to Consolidated Financial Statements - Acquisition , for further details. Stock option activity is set forth below: Outstanding Options Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life in Years Aggregate Intrinsic ValueOutstanding at December 26, 20152,320,195 $9.40 Options granted152,276 4.42 Options exercised(232,190) 8.63 Options canceled(42,250) 9.87 Outstanding at December 31, 20162,198,031 $9.13 2.02 $4,825,647Vested and expected to vest at December31, 20162,171,229 $9.14 1.97 $4,735,512Exercisable at December 31, 20161,767,871 $9.48 1.14 $3,305,020On February 9, 2015, we granted 450,000 non-qualified stock options to our Chief Executive Officer with a grant-date fair value of approximately $1.7million which will be recognized as stock compensation expense ratably over the service period. The following weighted average assumptions were used in theestimated grant-date fair value calculations using the Black-Scholes option pricing model:Stock Options: Dividend yield—%Expected volatility47.5%Risk-free interest rate1.6%Expected term (in years)5.582FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Restricted Stock UnitsRestricted stock units are converted into shares of our common stock upon vesting on a one-for-one basis. The vesting of restricted stock units is subject tothe employee's continuing service to us. Restricted stock unit (RSU) activity is set forth below: Number of Shares Weighted Average Grant Date Fair ValueRestricted stock units at December 28, 20132,929,639 $5.88Granted1,900,000 6.52Vested(1,282,442) 6.30Canceled(297,151) 6.17Restricted stock units at December 27, 20143,250,046 6.07Granted1,540,250 8.64Vested(1,993,603) 6.00Canceled(218,555) 6.36Restricted stock units at December 26, 20152,578,138 7.63Granted2,296,210 8.20Vested(1,579,218) 6.60Canceled(182,509) 6.44Restricted stock units at December 31, 20163,112,621 $8.65On June 24, 2016, pursuant to the Agreement and Plan of Merger with Cascade Microtech, we granted 777,444 RSUs with a total grant date fair value ofapproximately $ 6.9 million , of which approximately $3.6 million was attributable to the fair value of the assumed unvested RSUs for services performed byCascade Microtech employees for the period leading up to the effective date of the acquisition and which was included as part of the purchase price consideration.See Note 4 to Notes to Consolidated Financial Statements - Acquisition , for further details. On August 19, 2016, we issued 155,000 RSUs to six senior executives which will vest based on certain market performance criteria. The performancecriteria are based on a metric called our Total Shareholder Return (TSR) for the period from April 1, 2016 to March 31, 2019 relative to the TSR of the companiesidentified as being part of the S&P Semiconductor Select Industry Index (FormFactor peer companies), as of April 1, 2016. The total stock-based compensationcost of approximately $1.7 million will be recognized ratably over the requisite service period.On May 2, 2016, we issued 40,000 RSUs to a senior executive which will vest based on certain market performance criteria. The performance criteria arebased on a metric called our TSR for the period from April 1, 2016 to March 31, 2019 relative to the TSR of the companies identified as being part of the S&PSemiconductor Select Industry Index (FormFactor peer companies), as of April 1, 2016. The total stock-based compensation cost of approximately $0.3 millionwill be recognized ratably over the requisite service period.On May 28, 2015, we issued 195,000 RSUs to seven senior executives of our company that will vest based on certain market performance criteria. Theperformance criteria are based on our TSR for the period from April 1, 2015 to March 31, 2017 relative to the TSR of the companies identified as being part of theS&P Semiconductor Select Industry Index (FormFactor peer companies), as of April 1, 2015. The total stock-based compensation cost of approximately $1.5million will be recognized ratably over the requisite service period.On May 5, 2014, we issued 350,000 RSUs to seven senior executives of our company that will vest based on certain market performance criteria. Theperformance criteria are based on our TSR for the period from April 1, 2014 to March 31, 2016 relative to the TSR of the companies identified as being part of theS&P Semiconductor Select Industry Index (FormFactor peer companies), as of April 1, 2014. Upon the review of the market performance criteria on April 4, 2016,our Compensation Committee certified a total earn out of 328,600 RSUs which immediately vested as of that date.The total fair value of restricted stock units vested during fiscal 2016 , 2015 and 2014 was $12.0 million , $18.1 million and $8.2 million , respectively.83FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Employee Stock Purchase PlanUnder the 2012 Employee Stock Purchase Plan ("ESPP"), the offering periods are 12 months commencing on February 1 of each calendar year and endingon January 31 of the subsequent calendar year, and a six-month fixed offering period commencing on August 1 of each calendar year and ending on January 31 ofthe subsequent calendar year. The 12-month offering period consists of two six-month purchase periods and the six-month offering period consists of one six-month purchase period. The price of the common stock purchased is 85% of the lesser of the fair market value of the common stock on the first day of theapplicable offering period or the last day of each purchase period.During fiscal 2016 , 2015 , and 2014 , employees purchased 557,281 shares, 565,493 shares and 586,386 shares under this program at a weighted averageexercise price of $6.71 , $5.67 and $4.80 , respectively.Note 13—Stock-Based CompensationWe account for all stock-based compensation to employees and directors, including grants of RSUs and stock options, as stock-based compensation costsbased on the fair value measured as of the date of grant. These costs are recognized as an expense in the Consolidated Statements of Operations over the requisiteservice period.The table below shows the stock-based compensation expense included in the Consolidated Statement of Operations (in thousands): Fiscal Years Ended December 31, 2016 December 26, 2015 December 27, 2014Stock-based compensation expense included in: Cost of revenues$2,518 $2,651 $2,433Research and development3,329 3,490 3,529Selling, general and administrative4,875 5,434 7,317Total stock-based compensation10,722 11,575 13,279Tax effect on stock-based compensation— — —Total stock-based compensation, net of tax$10,722 $11,575 $13,279During fiscal 2016 , we recorded approximately $0.3 million of stock-based compensation expense relating to the modification of certain equity-basedawards as a result of the consolidation of our operations. In addition, we also recorded approximately $0.7 million of stock-based compensation expense relating tothe acceleration of certain equity-based awards of an executive of Cascade Microtech who was terminated upon our acquisition of Cascade Microtech and inaccordance with his contractual change of control agreement with Cascade Microtech.During fiscal 2015 , we recorded stock-based compensation expense of approximately $0.5 million relating to the modification of an equity-based award.We classified these stock-based compensation expenses as restructuring-related expenses. Refer to Note 6 to Notes to Consolidated Financial Statements -Restructuring Charges for further details.Restricted Stock UnitsThe fair value of restricted stock units is determined using the market closing price of our common stock on the grant date and compensation cost isrecognized over the vesting period on a straight-line basis. The restricted stock units generally vest over three years though we also have granted and will continueto grant such awards over a shorter vest term for employee retention purposes.During fiscal 2016 , 2015 and 2014 , we granted 2,296,210 shares, 1,540,250 shares and 1,900,000 shares of restricted stock units with the weighted averagegrant-date fair values of $8.20 , $8.64 and $6.52 per share, respectively. As of December 31, 2016 , the unamortized stock-based compensation balance related torestricted stock units was $19.1 million after estimated forfeitures, which will be recognized over an estimated period of 2.20 years based on the weighted averagedays to vest.84FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Stock OptionsThe exercise price of each stock option equals the market price of our stock on the date of grant. Most options are scheduled to vest over three to four yearsand expire five to ten years from the grant date. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.In addition, we estimate forfeitures when recognizing compensation expense, and adjust our estimates of forfeitures over the requisite service period based on theextent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures are recognized as a change in estimate inthe period of change and will also impact the amount of compensation expense to be recognized in future periods.During fiscal 2016 , we granted 152,276 stock options pursuant to the Agreement and Plan of Merger with Cascade Microtech acquired on June 24, 2016with a weighted average grant-date fair value of $4.42 per share. Our computation of expected volatility was based on a combination of historical and market-basedimplied volatility from traded options on our common stock. We believe that including market-based implied volatility in the calculation of expected volatilityresults in a more accurate measure of the volatility expected in future periods. Risk-free interest rates are yields for zero-coupon U.S. Treasury notes maturingapproximately at the end of the expected option life. We determine the expected term by considering several factors, including historical option exercise behavior,post vesting turnover rates, contractual terms and vesting periods of the options granted.As of December 31, 2016 , the unamortized stock-based compensation balance related to stock options was $1.1 million after estimated forfeitures, whichwill be recognized over an estimated period of 2.0 years based on the weighted average days to vest.Employee Stock Purchase PlanDuring fiscal 2016 , we issued 557,281 shares under our approved employee stock purchase plans. As of December 31, 2016 , we had $0.2 million of totalunrecognized stock-based compensation expense, which will be recognized over the weighted average period of approximately one month. Compensation expenseis calculated using the fair value of the employees' purchase rights under the Black-Scholes model.The following assumptions were used in estimating the fair value of employees' purchase rights under the approved employee stock purchase plans: Fiscal Years Ended December 31,2016 December 26,2015 December 27,2014Employee Stock Purchase Plan: Dividend yield—% —% —%Expected volatility45.43% 51.78% 41.71%Risk-free interest rate0.43% 0.12% 0.09%Expected life (in years)0.8 0.7 0.7Note 14—Income TaxesThe components of loss before income taxes were as follows (in thousands): Fiscal Years Ended December 31,2016 December 26,2015 December 27,2014United States$(50,947) $(3,069) $(23,230)Foreign752 1,798 3,135 $(50,195) $(1,271) $(20,095)85FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The components of the provision for income taxes are as follows (in thousands): Fiscal Years Ended December 31,2016 December 26,2015 December 27,2014Current provision (benefit): Federal$— $(3) $(983)State120 72 (386)Foreign1,804 198 234 1,924 267 (1,135)Deferred provision (benefit): Federal(42,150) — —State(2,165) — —Foreign(1,247) (15) 225 (45,562) (15) 225Total provision (benefit) from income taxes$(43,638) $252 $(910)The following is a reconciliation of the difference between income taxes computed by applying the federal statutory rate of 35% and the provision (benefit)from income taxes for fiscal 2016 , 2015 and 2014 (in thousands): Fiscal Years Ended December 31,2016 December 26,2015 December 27,2014U.S. statutory federal tax rate$(17,568) $(445) $(7,033)State taxes and credits, net of Federal benefit(975) 17 (186)Amortization of stock-based compensation1,256 907 686Research and development credits(1,654) (1,872) (1,183)Foreign taxes at rates different than the U.S. 504 (66) (84)Other permanent differences2,048 238 (972)Change in valuation allowance(27,120) 1,457 7,886Other(129) 16 (24)Total$(43,638) $252 $(910)86FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities andtheir respective tax bases using enacted tax rates in effect for the year in which the differences are expected to be reversed. Significant deferred tax assets andliabilities consist of the following (in thousands): Fiscal Years Ended December 31,2016 December 26,2015Tax credits$33,486 $30,968Inventory reserve13,863 14,010Unrealized investment gains— 20Other reserves and accruals10,593 5,953Non-statutory stock options6,206 4,936Depreciation and amortization7,719 13,440Net operating loss carryforwards118,482 119,327Gross deferred tax assets190,349 188,654Valuation allowance(150,581) (176,196)Total deferred tax assets39,768 12,458Acquired intangibles & fixed assets(39,801) (9,177)Unrealized investment gains(289) —Tax on undistributed earnings(71) —Total deferred tax liabilities(40,161) (9,177)Net deferred tax assets (liabilities)$(393) $3,281We are required to evaluate the realizability of our deferred tax assets in both our U.S. and non-U.S. jurisdictions on an ongoing basis to determine whetherthere is a need for a valuation allowance with respect to such deferred tax assets. During fiscal 2016 and 2015 , we maintained a valuation allowance against ourU.S. deferred tax assets. We intend to maintain a valuation allowance until sufficient positive evidence exists to support the realization of such deferred tax assets.The valuation allowance against deferred tax assets consisted of the following activity for the fiscal years 2016 , 2015 and 2014 (in thousands):Description Balance at Beginning of Year Additions Reduction Balance at End of YearAllowance against deferred tax assets Year ended December 31, 2016 $176,196 $— $(25,615) $150,581Year ended December 31, 2015 187,759 — (11,563) 176,196Year ended December 31, 2014 $180,913 $6,846 $— $187,759At December 31, 2016 , we had Federal research and development tax credit, Federal net operating loss, and foreign tax credit carryforwards of $22.5million , $298.7 million and $2.2 million , respectively, which will expire at various dates from 2017 through 2036. We had alternative minimum tax credits of$2.4 million which do not expire. We had California and Oregon research credits of $29.9 million and $0.6 million , respectively. The California research creditcan be carried forward indefinitely while Oregon research credits expire at various dates from 2017 through 2022. We had state net operating loss carryforwards ofapproximately $271.7 million , which will expire at various dates from 2017 through 2036. We had Singapore net operating loss carryforwards of approximately$9.7 million , which can be carried forward indefinitely.We have not provided U.S. Federal and State income taxes, nor foreign withholding taxes, on approximately $20.2 million of undistributed earnings forcertain non-US subsidiaries, because such earnings are intended to be indefinitely reinvested. If these earnings were distributed to the U.S. in the form of dividendsor otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, we would be subject to additional U.S. income taxes (subject toan adjustment for foreign tax credits) and foreign withholding taxes, of approximately $0.4 million . Determination of the amount of unrecognized deferred taxliability for temporary differences related to investment in these non-U.S. subsidiaries that are essentially permanent in duration is not practicable.87FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)During fiscal 2016 and 2015 , there were $1.8 million and $6.3 million , respectively, of unrecognized tax benefit associated with the exercise of employeestock options and other employee stock programs. During fiscal 2014 , there were no tax benefits associated with the exercise of employee stock options and otheremployee stock programs.The following table reflects changes in the unrecognized tax benefits (in thousands): Fiscal Years Ended December 31,2016 December 26,2015 December 27,2014Unrecognized tax benefit beginning balance$17,033 $16,333 $16,972Additions based on tax positions related to the currentyear614 667 498Additions based on tax position from prior year450 163 324Reductions for tax positions of prior years— (18) (1,109)Reductions to unrecognized tax benefits due to lapseof the applicable statute of limitations(119) (112) (352)Unrecognized tax benefit ending balance$17,978 $17,033 $16,333At December 31, 2016 , we had total tax-effected unrecognized tax benefits of $18.0 million of which $1.3 million , if recognized, would impact theeffective tax rate.We recognize interest (benefit) charges and penalties related to uncertain tax positions as part of the income tax provision. We recognized interest (benefit)charges and penalties of $22 thousand , $50 thousand and $(0.1) million in fiscal 2016 , 2015 , and 2014 , respectively. As of December 31, 2016 andDecember 26, 2015 , we have accrued total interest charges and penalties of $0.2 million and $0.2 million , respectively, related to uncertain tax positions.The amount of income taxes we pay is subject to ongoing audits by Federal, State and foreign tax authorities which might result in proposed assessments.Our estimate for the potential outcome for any uncertain tax issue is judgmental in nature. However, we believe we have adequately provided for any reasonablyforeseeable outcome related to those matters. Our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period theassessments are made or resolved or when statutes of limitation on potential assessments expire. As of December 31, 2016 , changes to our uncertain tax positionsin the next 12 months that are reasonably possible are not expected to have a significant impact on our financial position or results of operations.We and our subsidiaries file income tax returns in the U.S. Federal jurisdiction, various states and non U.S. jurisdictions. The material income taxjurisdictions are the United States (Federal), California, Germany, Singapore, China and Japan. The audit of income tax returns for Federal and California for thetax years 2010 to 2012 stub period and 2010 to 2011, respectively, have been settled. However, as a result of net operating loss carryforwards, we are subject toaudit for tax years 2007 and forward for Federal purposes and 2008 and forward for California purposes. For Germany, Singapore, China and Japan purposes, weare subject to audit for tax years after 2012.Note 15—Employee Benefit PlansWe have an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. The plan is designedto provide employees with an accumulation of funds for retirement on a tax-deferred basis and provide for annual discretionary employer contributions. The totalcharge to operations under the 401(k) plan for fiscal 2016 , 2015 and 2014 aggregated $0.5 million , $1.1 million and $1.0 million , respectively.Note 16—Operating Segments and Geographic InformationUntil the acquisition of Cascade Microtech, we operated in one reportable segment consisting of one operating segment relating to the design, development,manufacture and sale of high performance advanced probe cards. Our chief operating decision maker ("CODM") is our Chief Executive Officer, who reviewsoperating results to make decisions about allocating resources and assessing performance for the entire company.Upon the acquisition of Cascade Microtech (See Note 4 to Notes to Consolidated Financial Statements - Acquisition , for further details), we re-evaluatedour CODM's decision process for allocating resources and assessing performance for the company and determined that we now operate in two reportable segmentsconsisting of the Probe Cards Segment and Systems Segment.88FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following table summarizes the operating results by reportable segments for fiscal 2016 and 2015 (in thousands, except percentages): Fiscal 2016 Probe Cards Systems Corporate andOther TotalRevenues$337,970 $45,911 $— $383,881Gross profit$121,407 $23,925 $(42,650) $102,682Gross margin35.9% 52.1% —% 26.7%Operating income (loss)$49,382 $8,968 $(106,257) $(47,907) Fiscal 2015 Probe Cards Systems Corporate andOther TotalRevenues$282,358 $— $— $282,358Gross profit$99,199 $— $(13,461) $85,738Gross margin35.1% —% —% 30.4%Operating income (loss)$39,964 $— $(44,067) $(4,103)Operating results provide useful information to our management for assessment of our performance and results of operations. Certain components of ouroperating results are utilized to determine executive compensation along with other measures.Corporate and other includes unallocated expenses relating to amortization of intangible assets, share-based compensation expense, acquisition-relatedcosts, 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.The following table summarizes revenue, by geographic region, as a percentage of total revenues based upon ship-to location: Fiscal Years Ended December 31,2016 December 26,2015 December 27,2014United States33.3% 23.4% 28.1%South Korea17.1 25.2 19.6Taiwan14.9 21.9 18.4Europe12.9 9.0 11.4Asia-Pacific (1)11.4 11.1 12.9Japan10.0 9.4 9.6Rest of the world0.4 — —Total Revenues100.0% 100.0% 100.0%(1) Asia-Pacific includes all countries in the region except Taiwan, Japan and South Korea, which are disclosed separately.89FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following table summarizes revenue by product group (in thousands): Fiscal Years Ended December 31,2016 December 26,2015 December 27,2014Foundry & Logic$237,591 $145,839 $142,360DRAM86,910 125,512 110,800Flash13,469 11,007 15,370Systems45,911 — —Total revenues$383,881 $282,358 $268,530The following customers represented greater than 10% of our revenues in fiscal 2016 , fiscal 2015 and fiscal 2014 : Fiscal 2016 Fiscal 2015 Fiscal 2014Intel30.1% 19.6% 19.7%Samsung* 14.6 *SK hynix* 14.3 16.9Micron* 11.7 15.0Total revenues attributable to customers greater than10%30.1% 60.2% 51.6%* Less than 10% of revenuesLong-lived assets, comprising of net property, plant and equipment, goodwill and net intangibles assets are reportedbased on the location of the asset. Long-lived assets by geographic location are as follows (in thousands): December 31,2016 December 26,2015United States$323,369 $77,257Europe30,903 655Asia-Pacific (1)1,709 689South Korea733 1,128Japan510 295Singapore57 112Total$357,281 $80,136(1) Asia-Pacific includes all countries in the region except Taiwan, Japan and South Korea, which are disclosed separately.Note 17—Selected Quarterly Financial Data (Unaudited)The following selected quarterly financial data should be read in conjunction with our consolidated financial statements and the related notes and "Item 7:Management's Discussion and Analysis of Financial Condition and Results of Operations." This information has been derived from our unaudited consolidatedfinancial statements that, in our opinion, reflect all recurring adjustments necessary to fairly present this information when read in conjunction with ourconsolidated financial statements and the related notes appearing in the section entitled "Consolidated Financial Statements." The results of operations for anyquarter are not necessarily indicative of the results to be expected for any future period.90FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Fiscal Quarters Ended Dec. 31, 2016 (3) Sep. 24, 2016 June. 25,2016 (1) (2) March 26, 2016 Dec. 26, 2015 Sep. 26, 2015 (5) June. 27,2015 March 28, 2015 (4) (in thousands, except per share data)Revenues$123,888 $123,299 $83,083 $53,611 $71,782 $65,862 $73,885 $70,829Cost of revenues83,613 96,111 57,656 43,819 50,591 47,407 50,582 48,040Gross profit40,275 27,188 25,427 9,792 21,191 18,455 23,303 22,789Operating Expenses: Research anddevelopment18,218 17,253 11,133 10,849 11,236 10,645 11,217 11,086Selling, generaland administrative23,890 23,008 14,030 12,516 10,719 11,108 11,381 11,882Restructuring andimpairmentcharges, net12,697 85 6,910 — (3) 59 8 503Total operatingexpenses54,805 40,346 32,073 23,36521,952 21,812 22,606 23,471Operating income(loss)(14,530) (13,158) (6,646) (13,573) (761) (3,357) 697 (682)Interest income, net59 52 88 117 70 65 65 85Other income(expense), net(946) (1,042) (302) (314) (36) 982 100 1,501Income (loss) beforeincome taxes(15,417) (14,148) (6,860) (13,770) (727) (2,310) 862 904Provision (benefit) forincome taxes26 50 (43,744) 30 (108) 215 24 121Net income (loss)$(15,443) $(14,198) $36,884 $(13,800) $(619) $(2,525) $838 $783Net income (loss) pershare: Basic$(0.22) $(0.20) $0.62 $(0.24) $(0.01) $(0.04) $0.01 $0.01Diluted$(0.22) $(0.20) $0.61 $(0.24) $(0.01) $(0.04) $0.01 $0.01Weighted averagenumber of shares usedin per sharecalculations: Basic70,807 70,502 59,572 58,431 58,128 58,209 58,109 56,594Diluted70,807 70,502 59,988 58,431 58,128 58,209 59,094 58,838(1)In the second quarter of fiscal 2016, we recorded $5.4 million of severance charges and $0.7 million of stock-based compensation expense relating to the acceleration of certainequity-based awards of certain executives of Cascade Microtech who were terminated upon our acquisition of Cascade Microtech and in accordance with their contractual change ofcontrol agreements. See Note 6, Restructuring Charges , to the Notes to Consolidated Financial Statements for further details.(2)In the second quarter of fiscal 2016, we recorded an income tax benefit of $43.7 million primarily due to the release of valuation allowance of our deferred tax assets in connectionwith our acquisition of Cascade Microtech. See Note 14, Income Taxes , to the Notes to Consolidated Financial Statements for further details.(3)In the fourth quarter of fiscal 2016, we recorded an impairment charge of $12.4 million relating to an in-process research and development intangible asset acquired as part of ouracquisition of Cascade Microtech. See Note 7, Impairment of Long-lived Assets , to the Notes to Consolidated Financial Statements for further details.(4)In the first quarter of fiscal 2015, we recorded a $1.5 million gain from a business interruption insurance claim relating to a factory fire at a customer. See Note 18, BusinessInterruption Insurance Claim Recovery , to the Notes to Consolidated Financial Statements for further details.(5)In the third quarter of fiscal 2015, we recorded a $1.0 million net gain from the sale of intellectual property.Note 18—Business Interruption Insurance Claim RecoveryDuring fiscal 2015, we received approximately $1.5 million as a result of a payment from our insurer arising from a business interruption insurance claimrelated to a factory fire at a customer during the second half of fiscal 2013. We recorded this cash receipt within “Other income (expense), net” in our ConsolidatedStatements of Operations.91INDEX TO EXHIBITSSet forth below is a list of exhibits that are being filed or incorporated by reference into this Annual Report on Form 10-K: Incorporated by Reference Exhibit Number Exhibit Description Form File No Date of First Filing Exhibit Number Filed Herewith2.01*** Agreement and Plan of Merger, dated February 3, 2016, by andamong Cascade Microtech, Inc., FormFactor, Inc. and CardinalMerger Subsidiary, Inc. 8-K 000-50307 2/9/2016 2.1 3.01 Amended and Restated Certificate of Incorporation of theRegistrant as filed with the Delaware Secretary of State onJune 17, 2003 S-1 333-109815 10/20/2003 3.01 3.02 Amended and Restated Bylaws of the Registrant 8-K 000-50307 7/22/2016 3.2 4.01 Specimen Common Stock Certificate S-1/A 333-86738 5/28/2002 4.01 10.01 Credit Agreement among FormFactor, Inc. as Borrower, theGuarantors that are from time to time parties thereto, HSBCBank USA, National Association, as Administrative Agent,Lead Lender, Co-Lead Arranger, Sole Bookrunner, SyndicationAgent and Lender, the Lenders that are from time to time partiesthereto, and Silicon Valley Bank, as Co-Lead Arranger andDocumentation Agent, dated as of June 24, 2016 8-K 000-50307 6/28/2016 10.1 10.02+ Form of Indemnity Agreement S-1/A 333-86738 5/28/2002 10.01 10.03+ Form of Change of Control Severance Agreement 10-K 000-50307 3/14/2005 10.48 10.04+ 1996 Stock Option Plan, and form of option grant S-1 333-86738 4/22/2002 10.03 10.05+ Incentive Option Plan, and form of option grant S-1 333-86738 4/22/2002 10.04 10.06+ Management Incentive Option Plan, and form of option grant S-1 333-86738 4/22/2002 10.05 10.07+ 2002 Equity Incentive Plan, as amended, and forms of planagreements 10-Q 000-50307 5/4/2011 10.06 10.08+ 2002 Employee Stock Purchase Plan, as amended 10-Q 000-50307 8/7/2007 10.01 10.09+ Key Employee Bonus Plan, as amended 10-Q 000-50307 5/7/2007 10.01 10.10+ Equity Incentive Plan, as amended and restated effective April18, 2012, and forms of plan agreements 10-K 000-50307 3/13/2013 10.09 10.11+ Employee Stock Purchase Plan, as amended and restated April18, 2012 10-K 000-50307 3/13/2013 10.1 10.12 Pacific Corporate Center Lease (Building 1) by and betweenGreenville Holding Company LLC (successor to GreenvilleInvestors, L.P.) ("Greenville") and the Registrant dated May 3,2001 S-1/A 333-86738 6/10/2003 10.18 10.13 First Amendment to Pacific Corporate Center Lease (Building1) by and between Greenville and the Registrant datedJanuary 31, 2003 S-1/A 333-86738 5/7/2003 10.18.1 10.14 Pacific Corporate Center Lease (Building 2) by and betweenGreenville and the Registrant dated May 3, 2001 S-1/A 333-86738 6/10/2003 10.19 10.15 First Amendment to Pacific Corporate Center Lease (Building2) by and between Greenville and the Registrant datedJanuary 31, 2003 S-1/A 333-86738 5/7/2003 10.19.1 10.16 Pacific Corporate Center Lease (Building 3) by and betweenGreenville and the Registrant dated May 3, 2001 S-1/A 333-86738 6/10/2003 10.20 10.17+ First Amendment to Pacific Corporate Center Lease (Building3) by and between Greenville and the Registrant datedJanuary 31, 2003 S-1/A 333-86738 5/7/2003 10.20.1 10.18 Third Amendment, dated December 19, 2016, betweenFormFactor, Inc. and MOHR PCC, LP, to Pacific CorporateCenter Leases (Buildings 1, 2 and 3), dated May 3, 2001, byand between Greenville Investors, L.P. and FormFactor, Inc., asamended 8-K 000-50307 12/23/2016 10.2 10.19+ Pacific Corporate Center Lease by and between Greenville andthe Registrant dated September 7, 2004., as amended by FirstAmendment to Building 6 Lease dated August 16, 2006 10-Q 000-50307 11/7/2006 10.01 10.20 Second Amendment, dated December 19, 2016, betweenFormFactor, Inc. and MOHR PCC, LP, to Pacific CorporateCenter Lease, dated October 5, 2004, by and betweenGreenville Investors, L.P. and FormFactor, Inc., as amended 8-K 000-50307 12/23/2016 10.1 10.21 Lease Agreements I and II between Amberjack, Ltd. AndCascade Microtech, Inc. dated August 20, 1997, andAmendment No. 2 to Lease Agreement I dated July 23, 1998,and Amendment No. 2 to Lease Agreement II dated April 12,1999. 8-K 333-47100 10/2/2000 10.9 10.22 Third Amendment dated August 11, 2006 to Lease Agreement Idated August 20, 1997 between Amberjack, LTD. and CascadeMicrotech, Inc. 10-Q 000-51072 11/9/2006 10.2 92 Incorporated by Reference Exhibit Number Exhibit Description Form File No Date of First Filing Exhibit Number Filed Herewith10.23 Third Amendment dated August 11, 2006 to Lease AgreementII dated August 20, 1997 between Amberjack, LTD. andCascade Microtech, Inc. 10-Q 000-51072 11/9/2006 10.3 10.24 Assignment, Assumption and Amendment of Lease dated as ofSeptember 22, 2011 by and among Cascade Microtech, Inc. andR&D Sockets, Inc. 8-K 000-51072 9/26/2011 10.1 10.25 Rental Agreement by and between Cascade Microtech DresdenGmbH and Süss Grundstücksverwaltungs GbR dated as of June17, 2011. 10-Q 000-51072 8/10/2011 10.3 10.26 Lease dated April 2, 1999 between Spieker Properties, L.P. andCascade Microtech, Inc. 8-K 333-47100 10/2/2000 10.8 10.27 First amendment to Lease dated January 10, 2007, betweenNimbus Center LLC (as successor in interest to SpiekerProperties, L.P.) and Cascade Microtech, Inc. 10-Q 000-51072 5/9/2014 10.1 10.28 Second amendment to Lease dated February 25, 2013, betweenNimbus Center LLC and Cascade Microtech, Inc. 10-Q 000-51072 5/8/2013 10.2 10.29 Third amendment to Lease dated January 23, 2014, betweenNimbus Center LLC and Cascade Microtech, Inc. 10-Q 000-51072 5/9/2014 10.2 10.30 Fourth amendment to Lease dated March 31, 2014, betweenNimbus Center LLC and Cascade Microtech, Inc. 10-Q 000-51072 5/9/2014 10.3 10.31 Fifth amendment to Lease dated September 24, 2014, betweenNimbus Center LLC and Cascade Microtech, Inc. 10-K 000-51072 3/72016 10.22 10.32 Sixth amendment to Lease dated July 8, 2015, between NimbusCenter LLC and Cascade Microtech, Inc. 10-K 000-51072 3/72016 10.23 10.33+ Employment Offer Letter, dated August 29, 2012 to MikeSlessor 10-K 000-50307 3/13/2013 10.19+ 10.34+ Tax withholding reimbursement letter between Mike Slessorand the Registrant dated December 30, 2013 10-K 000-50307 3/6/2015 10.2 10.35+ CEO Change of Control and Severance Agreement, dated April28, 2016 by and between Mike Slessor and the Registrant — — — — X10.36+ Change of Control and Severance Agreement, dated April 28,2016 by and between Michael Ludwig and the Registrant — — — — X21.01 List of Registrant's subsidiaries — — — — X23.01 Consent of Independent Registered Public Accounting Firm -KPMG — — — — X24.01 Power of Attorney (included on the signature page of thisForm 10-K) — — — — X31.01 Certification of Chief Executive Officer pursuant to 15 U.S.C.Section 7241, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002 — — — — X31.02 Certification of Chief Financial Officer pursuant to 15 U.S.C.Section 7241, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002 — — — — X32.01* Certification of Chief Executive Officer and Chief FinancialOfficer pursuant to 18 U.S.C. Section 1350, as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002 — — — — X101.INS** XBRL Instance Document — — — — X101.SCH** XBRL Taxonomy Extension Schema Document — — — — X101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document — — — — X101.DEF** XBRL Taxonomy Extension Definition Linkbase Document — — — — X101.LAB** XBRL Taxonomy Extension Label Linkbase Document — — — — X101.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 deemedincorporated 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 anygeneral incorporation language in any filings.**Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of theSecurities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.***Confidential treatment has been requested for portions of this document. The schedules, exhibits, and annexes to this exhibit have been omitted in reliance Item 601(b)(2) ofRegulation S-K and will be furnished supplementally to the SEC upon request.+Indicates a management contract or compensatory plan or arrangement.93EXHIBIT 10.35FORMFACTOR, INC.CEO CHANGE OF CONTROL AND SEVERANCE AGREEMENTThis CEO Change of Control and Severance Agreement (the “ Agreement ”) is made and entered into effective as of April 28, 2016 (the “ Effective Date”), by and between Michael Slessor (the “ Employee ”) and FormFactor, Inc., a Delaware corporation (the “ Company ”).R E C I T A L SWHEREAS, the Company considers it essential to the best interests of its shareholders to foster the continuous employment of key managementpersonnel;WHEREAS, the Board of Directors of the Company (the “ Board ”) recognizes that, as is the case with many publicly-held corporations, the possibility ofa Change in Control (as defined below) exists and that such possibility, and the uncertainty and questions which it may raise among management, could result inthe departure or distraction of management personnel to the detriment of the Company and its shareholders; andWHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication ofmembers of the Company’s management, including the Employee, to their assigned duties without distraction in light of the possibility of a Change in Control;NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Employee hereby agree asfollows.ARTICLES1.Definitions . The following terms referred to in this Agreement shall have the following meanings.“ Cause ” shall mean (i) any act of personal dishonesty taken by the Employee in connection with his or her responsibilities as an employee which isintended to result in substantial personal enrichment of the Employee and is reasonably likely to result in material harm to the Company, (ii) the Employee’sconviction of a felony, (iii) a willful act by the Employee which constitutes misconduct and is materially injurious to the Company, or (iv) continued willfulviolations by the Employee of the Employee’s obligations to the Company after the Employee has received a written demand for performance from the Companywhich describes the basis for the Company’s belief that the Employee has not substantially performed his or her duties.“ Change of Control ” shall mean the first to occur of any of the following events after the date hereof:(i)the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which wouldresult in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding orby being converted into or exchanged for voting securities of the surviving entity) more than sixty percent (60%) of the total voting powerrepresented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or(ii)(A) any approval by the shareholders of the Company of a plan of complete liquidation of the Company, other than as a result of insolvency or(B) the consummation of the sale or disposition (or the last in a series of sales or dispositions) by the Company of all or substantially all of theCompany’s assets, other than a sale or disposition to a wholly-owned direct or indirect subsidiary of the Company and other than a sale ordisposition1which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (by being convertedinto or exchanged for voting securities of the entity to which such sale or disposition was made) more than sixty percent (60%) of the totalvoting power represented by the voting securities of the entity to which such sale or disposition was made after such sale or disposition; or(iii)any “ person ” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becoming the “ beneficialowner ” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 40% or more of the totalvoting power represented by the Company’s then outstanding voting securities; or(iv)during any period of two consecutive years after the Effective Date, Incumbent Directors cease for any reason to constitute a majority of theBoard.“ Good Reason ” shall mean the occurrence of any of the following: (i) without the Employee’s express written consent, a material reduction of theEmployee’s duties, position or responsibilities relative to the Employee’s duties, position or responsibilities in effect immediately prior such reduction; (ii) areduction by more than 10% of the Employee’s base salary or target bonus as in effect immediately prior to such reduction; (iii) without the Employee’s expresswritten consent, the relocation of the Employee’s primary work location by more than 50 miles; or (iv) the failure of the Company to obtain the assumption of thisAgreement by a successor (by express agreement or operation of law); provided, however, that the Employee will have Good Reason to terminate employmentonly if (i) the Employee provides notice to the Company of the existence of the event or circumstances constituting Good Reason specified in any of the precedingclauses within 90 days of the initial existence of such event or circumstances, and (ii) the Company does not remedy such event or circumstances within 15 daysfollowing receipt of such notice.“ Incumbent Directors ” shall mean directors who either (A) are directors of the Company as of the Effective Date, or (B) are elected, or nominated forelection, to the Board with the affirmative votes of at least a majority of those directors then still in office who either were directors on the Effective Date or whoseelection or nomination for election was so approved.“ Involuntary Termination ” shall mean a termination of the Employee by the Company without Cause or a resignation by the Employee within 120 daysof any event constituting Good Reason.“ Separation from Service ” shall have the meaning given in Section 409A of the Internal Revenue Code (as defined herein).2.Term of Agreement . This Agreement shall be in effect for the period commencing on the Effective Date and ending on the third anniversary of theEffective Date (the “ Term ”); provided, however , that the Term shall automatically be extended for one additional year unless, not later than 90 daysprior to the scheduled expiration of the then-current Term, the Company or Employee shall have given notice not to extend the Term; and providedfurther that if a Change of Control shall have occurred during the Term, this Agreement shall remain in effect until 12 months following such Change ofControl to give effect to its provisions. 3.At-Will Employment . The Company and the Employee acknowledge that the Employee’s employment is and shall continue to be at-will, as defined underapplicable law. If the Employee’s employment terminates for any reason, the Employee shall not be entitled to any payments, benefits, damages, awardsor compensation other than as provided by this Agreement, or as may otherwise be established under the Company’s then existing employee benefit plansor policies at the time of termination.4.Change of Control and Severance Benefits; Non-solicitation .(a)Involuntary Termination Following Change of Control . If the Employee’s employment with the Company terminates as a result of anInvoluntary Termination at any time within2twelve (12) months after a Change of Control, then the Employee shall be entitled to receive from the Company the following benefits (the “CIC Severance Benefits ”), contingent upon the Employee’s delivery of a signed release reasonably satisfactory to the Company (the “ Release”) within 45 days from the Employee’s Separation from Service (the “ Release Deadline ”) and non-revocation of such Release within the timeperiod specified therein.(i)Cash Severance Payments . Employee shall receive an aggregate amount equal to one times the sum of (A) the Employee’s annualbase salary in effect on the date of termination plus (B) the greater of (x) the Employee’s annual target bonus amount for the yearof termination assuming a 100% payout on all objectives under the Company’s bonus plan in effect on the date of termination or(y) such annual target bonus amount times the average rate of annual bonus paid to each executive officer (compared to suchofficer’s target bonus) covered under a change of control severance agreement substantially similar to this Agreement averagedover the two most recently completed fiscal years preceding the date of termination. The Company shall pay the foregoing amountto the Employee in a lump sum within 60 days following the Employee’s Separation from Service.(ii)Health Benefits Continuation . The Company shall pay to the Employee the product of: (A) the Company’s monthly COBRApremium in effect on the date of Separation from Service under the Company’s group health plan for the type of coverage in effectunder such plan (e.g., family coverage) for the Employee on the date of Separation from Service, and (B) 12, which shall be paid ina lump sum within 60 days following the Employee’s Separation from Service.(iii)Equity Acceleration . The vesting and exercisability of each option, restricted stock award, restricted stock unit or other stockbased award, including any cash-based award that was substituted or assumed for any stock-based award at the time of the Changein Control (each, an “ Equity Award ”) shall be automatically accelerated in full and the forfeiture provisions and/or Companyright of repurchase of each Equity Award shall automatically lapse in full.(iv)Forfeiture upon Breach of Covenants . Notwithstanding any of the foregoing, if the Employee materially breaches his or herobligations under paragraph (e) or (f) of this Article 4, from and after the date of such breach, the Employee will no longer beentitled to, and the Company will no longer be obligated to pay, any remaining unpaid portion of the CIC Severance Benefits.(b)Other Involuntary Termination . If Employee’s employment with the Company terminates as a result of an Involuntary Termination at any timeduring the Term other than within twelve (12) months following a Change of Control, then Employee shall be entitled to receive from theCompany the following benefits (the “ Severance Benefits ”), contingent upon the Employee’s delivery of a signed release reasonablysatisfactory to the Company (the “ Release ”) within 45 days from Employee’s Separation from Service (the “ Release Deadline ”) and non-revocation of such Release within the time period specified therein.(v)Cash Severance Payments . Employee shall receive an aggregate amount equal to (A) one times the Employee’s annual base salaryin effect on the date of termination plus (B) a pro-rated annual bonus (pro-rated through the3date of termination) equal to (1) a pro-rata portion of Employee’s annual target bonus for the fiscal year of termination ofemployment or (2) if such annual bonus is intended to be under a Section 162(m) plan, a pro-rata portion of the lesser of (x) thebonus actually earned for the year of termination, as determined following the end of the year, or (y) the target bonus. TheCompany shall pay the foregoing amount to the Employee in a lump sum within 60 days following the Employee’s Separationfrom Service or, if payment is made under clause (2) of the foregoing sentence, within two and one-half months following the endof the year of termination.(vi)Health Benefits Continuation . The Company shall pay to the Employee the product of: (A) the Company’s monthly COBRApremium in effect on the date of Separation from Service under the Company’s group health plan for the type of coverage in effectunder such plan (e.g., family coverage) for the Employee on the date of Separation from Service, and (B) 12, which shall be paid ina lump sum within 60 days following the Employee’s Separation from Service.(vii)Equity Acceleration . Employee will become immediately vested in an additional number of shares of Company common stockunder all of Employees outstanding Equity Awards as if Employee had continued in employment for twelve (12) additional monthsfollowing Employee’s Separation from Service; provided that with respect to any performance-based Equity Award for which theperformance period has not ended as of the date of termination (a “Performance Award”) but for which the initial vesting datewould occur within 12 months following Employee’s Separation from Service, such Performance Award shall remain outstandingand, upon determination of the amount earned for such performance period, the earned amount of the Performance Period shall besubject to the foregoing 12-month acceleration provision (from the date of termination) and, if applicable, shall be settled withintwo and one-half months following the year in which Employee’s Separation from Service occurs. Further, Employee will havetwelve (12) months following Employee’s Separation from Service to exercise any vested stock options not to exceed theexpiration date of such options.(c)Other Termination. If the Employee’s employment with the Company terminates other than as a result of an Involuntary Termination, then theEmployee shall not be entitled to receive the CIC Severance Benefits or Severance Benefits, as applicable, but may be eligible for those benefits(if any) as may then be established under the Company’s then existing severance and benefits plans and policies.(d)Accrued Wages and Vacation; Expenses . Without regard to the reason for, or the timing of, Employee’s termination of employment: (i) theCompany shall pay the Employee any unpaid base salary due for periods prior to the date of termination; (ii) the Company shall pay theEmployee all of the Employee’s accrued and unused vacation through the date of termination; and (iii) following submission of proper expensereports by the Employee, the Company shall reimburse the Employee for all expenses reasonably and necessarily incurred by the Employee inconnection with the business of the Company prior to the date of termination. These payments shall be made promptly upon termination andwithin the period of time mandated by law.4(e)Non-solicitation. In consideration of the benefits and protections conferred under this Agreement, Employee agrees that for the Non-solicitPeriod (as defined below), the Employee shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company’sPersonnel (as defined below) to leave their employment, or take away such Personnel, or attempt to solicit, induce, recruit, encourage or takeaway such Personnel, either for the Employee or for any other person or entity. “ Personnel ” means any of the Company’s employees, excludingthe Employee’s administrative assistant. “ Non-solicit Period ” means the period commencing on the date of a Change of Control and ending 12months thereafter.(f)Confidentiality . In consideration of the benefits and protections conferred under this Agreement, the Employee agrees that he or she willcontinue to abide by the confidentiality provisions in the Company’s Employment, Confidential Information and Invention AssignmentAgreement, as executed by the Employee.5.Limitation on Benefits .(a)Notwithstanding anything contained in this Agreement to the contrary, to the extent that the payments and benefits provided under thisAgreement and benefits provided to, or for the benefit of, the Employee under any other employer plan or agreement (such payments or benefitsare collectively referred to as the “ Benefits ”) would be subject to the excise tax (the “ Excise Tax ”) imposed under Section 4999 of the InternalRevenue Code of 1986, as amended (the “ Code ”), the Benefits shall be reduced (but not below zero) if and to the extent that a reduction in theBenefits would result in Employee retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes andthe Excise Tax), than if Employee received all of the Benefits (such reduced amount is hereinafter referred to as the “ Limited Benefit Amount”). The Company shall reduce or eliminate the Benefits, by first reducing or eliminating those payments or benefits which are not payable incash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paidthe farthest in time from the “ Determination ” (as hereinafter defined).(b)A determination as to whether the Benefits shall be reduced to the Limited Benefit Amount pursuant to this Agreement and the amount of suchLimited Benefit Amount shall be made by the Company’s independent public accountants or another certified public accounting firm orvaluation firm designated by the Company (the “Accounting Firm”) at the Company’s expense. The Accounting Firm shall provide itsdetermination (the “Determination”), together with detailed supporting calculations and documentation to the Company and Employeewithin 30 days of the date of termination of Employee’s employment.6.Successors .(a)Company’s Successors . Any successor to the Company (whether direct or indirect) to all or substantially all of the Company’s business and/orassets shall assume the Company’s obligations under this Agreement and agree (either expressly or by operation of law) to perform theCompany’s obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform suchobligations in the absence of a succession. For all purposes under this Agreement, the term “ Company ” shall include any successor to theCompany’s business and/or assets.(b)Employee’s Successors . Without the written consent of the Company, Employee shall not assign or transfer this Agreement or any right orobligation under this Agreement to any other person or entity. Notwithstanding the foregoing, the terms of this Agreement and all rights ofEmployee hereunder shall inure to the benefit of, and be enforceable by,5Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.7.Notices .(a)General . Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly givenwhen personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of theEmployee, mailed notices shall be addressed to him or her at the home address that he or she most recently communicated to the Company inwriting. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to theattention of its General Counsel, or to the Chief Financial Officer if the notice to the Company is from the General Counsel.(b)Notice of Termination . Any termination by the Company or by the Employee shall be communicated by a notice of termination to the otherparty hereto given in accordance with this Article.8.Arbitration .(a)Any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction,performance, breach, or termination thereof, shall be settled by binding arbitration to be held in San Francisco, California, in accordance with theNational Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the “ Rules ”). Thearbitrator(s) may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive andbinding on the parties to the arbitration. Judgment may be entered on the arbitrator’s decision in any court having jurisdiction.(b)The arbitrator(s) shall apply California law to the merits of any dispute or claim, without reference to conflicts of law rules. The arbitralproceedings shall be governed by federal arbitration law and by the Rules, without reference to state arbitration law. Employee hereby consentsto the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to thisAgreement or relating to any arbitration in which the parties are participants.(c)EMPLOYEE HAS READ AND UNDERSTANDS THIS ARTICLE, WHICH DISCUSSES ARBITRATION. EMPLOYEE UNDERSTANDSTHAT SUBMITTING ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THEINTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDINGARBITRATION, CONSTITUTES A WAIVER OF EMPLOYEE’S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OFALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITEDTO, THE FOLLOWING CLAIMS:i.ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESSAND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED;NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONALMISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVEECONOMIC ADVANTAGE; AND DEFAMATION.6ii.ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL, STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOTLIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGEDISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIRLABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE SECTION201, et seq.;iii.ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING TO EMPLOYMENT OREMPLOYMENT DISCRIMINATION.9.Miscellaneous Provisions .(a)Section 409A . It is intended, and this Agreement will be so construed, that any amounts payable under this Agreement shall either be exemptfrom or comply with the provisions of Section 409A of the Code and the treasury regulations relating thereto so as not to subject the Employeeto the payment of interest and/or any tax penalty that may be imposed under Section 409A of the Code. Employee acknowledges and agrees thatthe Company has made no representation to Employee as to the tax treatment of the compensation and benefits provided pursuant to thisAgreement and that Employee is solely responsible for all taxes due with respect to such compensation and benefits. In addition, to the extent (i)any payments to which Employee becomes entitled under this Agreement in connection with Employee's termination of employment with theCompany constitutes deferred compensation subject to Section 409A and (ii) Employee is deemed at the time of such termination ofemployment to be a “specified” employee under Section 409A, then to the extent required to avoid adverse tax treatment under Section 409A toEmployee, such payment or payments shall not be made or commence until the date which is more than six (6) months after the Employee'sSeparation from Service or, if earlier, the date of death of the Employee. If the condition of providing a Release by the Employee could cause thepayment of any amount or provision of any Benefit subject to such release to be paid or provided in either of two taxable years of the Employee,then to the extent required to avoid adverse tax treatment under Section 409A to Employee, such amount or benefit shall be paid or provided inthe later such taxable year.(b)No Duty to Mitigate . The Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall anysuch payment be reduced by any earnings that the Employee may receive from any other source.(c)Waiver . No provision of this Agreement may be modified, waived or discharged unless the modification, waiver or discharge is agreed to inwriting and signed by the Employee and by an authorized officer of the Company other than the Employee. No waiver by either party of anybreach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any othercondition or provision or of the same condition or provision at another time.(d)Integration . This Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedeall prior or contemporaneous agreements, whether written or oral.(e)Choice of Law . The validity, interpretation, construction and performance of this Agreement shall be governed by the internal substantive laws,but not the conflicts of law rules, of the State of California.7(f)Severability . The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability ofany other provision hereof, which shall remain in full force and effect.(g)Withholding Taxes . All payments made pursuant to this Agreement shall be subject to withholding of applicable income and employment taxes.(h)Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together willconstitute one and the same instrument.8(i)IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day andyear first above written.FormFactor, Inc. Michael Slessor By: /s/ JASON COHEN /s/ MICHAEL SLESSORName: Jason Cohen Title: Vice President and General Counsel 9EXHIBIT 10.36FORMFACTOR, INC.CHANGE OF CONTROL SEVERANCE AGREEMENTThis Change of Control Severance Agreement (the “ Agreement ”) is made and entered into effective as of April 28, 2016 (the “ Effective Date ”), by andbetween the undersigned employee (the “ Employee ”) and FormFactor, Inc., a Delaware corporation (the “ Company ”).R E C I T A L SWHEREAS, the Company considers it essential to the best interests of its shareholders to foster the continuous employment of key managementpersonnel;WHEREAS, the Board of Directors of the Company (the “ Board ”) recognizes that, as is the case with many publicly-held corporations, the possibility ofa Change in Control (as defined below) exists and that such possibility, and the uncertainty and questions which it may raise among management, could result inthe departure or distraction of management personnel to the detriment of the Company and its shareholders; andWHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication ofmembers of the Company’s management, including the Employee, to their assigned duties without distraction in light of the possibility of a Change in Control;NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Employee hereby agree asfollows.ARTICLES1.Definitions . The following terms referred to in this Agreement shall have the following meanings.“ Cause ” shall mean (i) any act of personal dishonesty taken by the Employee in connection with his or her responsibilities as an employee which isintended to result in substantial personal enrichment of the Employee and is reasonably likely to result in material harm to the Company, (ii) the Employee’sconviction of a felony, (iii) a willful act by the Employee which constitutes misconduct and is materially injurious to the Company, or (iv) continued willfulviolations by the Employee of the Employee’s obligations to the Company after the Employee has received a written demand for performance from the Companywhich describes the basis for the Company’s belief that the Employee has not substantially performed his or her duties.“ Change of Control ” shall mean the first to occur of any of the following events after the date hereof:(i)the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which wouldresult in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding orby being converted into or exchanged for voting securities of the surviving entity) more than sixty percent (60%) of the total voting powerrepresented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or(ii)(A) any approval by the shareholders of the Company of a plan of complete liquidation of the Company, other than as a result of insolvency or(B) the consummation of the sale or disposition (or the last in a series of sales or dispositions) by the Company of all or substantially all of theCompany’s assets, other than a sale or disposition to a wholly-owned direct or indirect subsidiary of the Company and other than a sale ordisposition1which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (by being convertedinto or exchanged for voting securities of the entity to which such sale or disposition was made) more than sixty percent (60%) of the totalvoting power represented by the voting securities of the entity to which such sale or disposition was made after such sale or disposition; or(iii)any “ person ” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becoming the “ beneficialowner ” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 40% or more of the totalvoting power represented by the Company’s then outstanding voting securities; or(iv)during any period of two consecutive years after the Effective Date, Incumbent Directors cease for any reason to constitute a majority of theBoard.“ Good Reason ” shall mean the occurrence of any of the following: (i) without the Employee’s express written consent, a material reduction of theEmployee’s duties, position or responsibilities relative to the Employee’s duties, position or responsibilities in effect immediately prior to the Change of Control;(ii) a reduction by more than 10% of the Employee’s base salary or target bonus as in effect immediately prior to such reduction; (iii) without the Employee’sexpress written consent, the relocation of the Employee’s primary work location by more than 50 miles; or (iv) the failure of the Company to obtain the assumptionof this Agreement by a successor (by express agreement or operation of law); provided, however, that the Employee will have Good Reason to terminateemployment only if (i) the Employee provides notice to the Company of the existence of the event or circumstances constituting Good Reason specified in any ofthe preceding clauses within 90 days of the initial existence of such event or circumstances, and (ii) the Company does not remedy such event or circumstanceswithin 15 days following receipt of such notice.“ Incumbent Directors ” shall mean directors who either (A) are directors of the Company as of the Effective Date, or (B) are elected, or nominated forelection, to the Board with the affirmative votes of at least a majority of those directors then still in office who either were directors on the Effective Date or whoseelection or nomination for election was so approved.“ Involuntary Termination ” shall mean a termination of the Employee by the Company without Cause or a resignation by the Employee within 120 daysof any event constituting Good Reason.“ Separation from Service ” shall have the meaning given in Section 409A of the Internal Revenue Code (as defined herein).2.Term of Agreement . This Agreement shall be in effect for the period commencing on the Effective Date and ending on the third anniversary of theEffective Date (the “ Term ”); provided, however , that the Term shall automatically be extended for one additional year unless, not later than 90 daysprior to the scheduled expiration of the then-current Term, the Company or Employee shall have given notice not to extend the Term; and providedfurther that if a Change of Control shall have occurred during the Term, this Agreement shall remain in effect until 12 months following such Change ofControl to give effect to its provisions. 3.At-Will Employment . The Company and the Employee acknowledge that the Employee’s employment is and shall continue to be at-will, as defined underapplicable law. If the Employee’s employment terminates for any reason, the Employee shall not be entitled to any payments, benefits, damages, awardsor compensation other than as provided by this Agreement, or as may otherwise be established under the Company’s then existing employee benefit plansor policies at the time of termination.24.Change of Control and Severance Benefits; Non-solicitation .(a)Involuntary Termination Following Change of Control . If the Employee’s employment with the Company terminates as a result of anInvoluntary Termination at any time within twelve (12) months after a Change of Control, then the Employee shall be entitled to receive fromthe Company the following benefits (the “ Severance Benefits ”), contingent upon the Employee’s delivery of a signed release reasonablysatisfactory to the Company (the “ Release ”) within 45 days from the Employee’s Separation from Service (the “ Release Deadline ”) and non-revocation of such Release within the time period specified therein.(i)Cash Severance Payments . Employee shall receive an aggregate amount equal to one times the sum of (A) the Employee’s annualbase salary in effect on the date of termination plus (B) the greater of (x) the Employee’s annual target bonus amount for the yearof termination assuming a 100% payout on all objectives under the Company’s bonus plan in effect on the date of termination or(y) such annual target bonus amount times the average rate of annual bonus paid to each executive officer (compared to suchofficer’s target bonus) covered under a change of control severance agreement substantially similar to this Agreement averagedover the two most recently completed fiscal years preceding the date of termination. The Company shall pay the foregoing amountto the Employee in a lump sum within 60 days following the Employee’s Separation from Service.(ii)Health Benefits Continuation . The Company shall pay to the Employee the product of: (A) the Company’s monthly COBRApremium in effect on the date of Separation from Service under the Company’s group health plan for the type of coverage in effectunder such plan (e.g., family coverage) for the Employee on the date of Separation from Service, and (B) 12, which shall be paid ina lump sum within 60 days following the Employee’s Separation from Service.(iii)Equity Acceleration . The vesting and exercisability of each option, restricted stock award, restricted stock unit or other stockbased award, including any cash-based award that was substituted or assumed for any stock-based award at the time of the Changein Control (each, an “ Equity Award ”) shall be automatically accelerated in full and the forfeiture provisions and/or Companyright of repurchase of each Equity Award shall automatically lapse in full.(iv)Forfeiture upon Breach of Covenants . Notwithstanding any of the foregoing, if the Employee materially breaches his or herobligations under paragraph (e) or (f) of this Article 4, from and after the date of such breach, the Employee will no longer beentitled to, and the Company will no longer be obligated to pay, any remaining unpaid portion of the Severance Benefits.(b)Other Termination in Connection with a Change of Control. If the Employee’s employment with the Company terminates other than as a resultof an Involuntary Termination at any time within twelve (12) months after a Change of Control, then the Employee shall not be entitled toreceive the Severance Benefits, but may be eligible for those benefits (if any) as may then be established under the Company’s then existingseverance and benefits plans and policies.3(c)Termination Apart from a Change of Control . If the Employee’s employment with the Company terminates for any or no reason other thanwithin twelve (12) months following a Change of Control, then the Employee shall not be entitled to receive the Severance Benefits, but may beeligible for those benefits (if any) as may then be established under the Company’s then existing severance and benefits plans and policies at thetime of such termination.(d)Accrued Wages and Vacation; Expenses . Without regard to the reason for, or the timing of, Employee’s termination of employment: (i) theCompany shall pay the Employee any unpaid base salary due for periods prior to the date of termination; (ii) the Company shall pay theEmployee all of the Employee’s accrued and unused vacation through the date of termination; and (iii) following submission of proper expensereports by the Employee, the Company shall reimburse the Employee for all expenses reasonably and necessarily incurred by the Employee inconnection with the business of the Company prior to the date of termination. These payments shall be made promptly upon termination andwithin the period of time mandated by law.(e)Non-solicitation. In consideration of the benefits and protections conferred under this Agreement, Employee agrees that for the Non-solicitPeriod (as defined below), the Employee shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company’sPersonnel (as defined below) to leave their employment, or take away such Personnel, or attempt to solicit, induce, recruit, encourage or takeaway such Personnel, either for the Employee or for any other person or entity. “ Personnel ” means any of the Company’s employees, excludingthe Employee’s administrative assistant. “ Non-solicit Period ” means the period commencing on the date of a Change of Control and ending 12months thereafter.(f)Confidentiality . In consideration of the benefits and protections conferred under this Agreement, the Employee agrees that he or she willcontinue to abide by the confidentiality provisions in the Company’s Employment, Confidential Information and Invention AssignmentAgreement, as executed by the Employee.5.Limitation on Benefits .(a)Notwithstanding anything contained in this Agreement to the contrary, to the extent that the payments and benefits provided under thisAgreement and benefits provided to, or for the benefit of, the Employee under any other employer plan or agreement (such payments or benefitsare collectively referred to as the “ Benefits ”) would be subject to the excise tax (the “ Excise Tax ”) imposed under Section 4999 of the InternalRevenue Code of 1986, as amended (the “ Code ”), the Benefits shall be reduced (but not below zero) if and to the extent that a reduction in theBenefits would result in Employee retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes andthe Excise Tax), than if Employee received all of the Benefits (such reduced amount is hereinafter referred to as the “ Limited Benefit Amount”). The Company shall reduce or eliminate the Benefits, by first reducing or eliminating those payments or benefits which are not payable incash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paidthe farthest in time from the “ Determination ” (as hereinafter defined).(b)A determination as to whether the Benefits shall be reduced to the Limited Benefit Amount pursuant to this Agreement and the amount of suchLimited Benefit Amount shall be made by the Company’s independent public accountants or another certified public accounting firm orvaluation firm designated by the Company (the “Accounting Firm”) at the Company’s expense. The Accounting Firm shall provide itsdetermination (the “Determination”), together with detailed supporting calculations and documentation4to the Company and Employee within 30 days of the date of termination of Employee’s employment.6.Successors .(a)Company’s Successors . Any successor to the Company (whether direct or indirect) to all or substantially all of the Company’s business and/orassets shall assume the Company’s obligations under this Agreement and agree (either expressly or by operation of law) to perform theCompany’s obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform suchobligations in the absence of a succession. For all purposes under this Agreement, the term “ Company ” shall include any successor to theCompany’s business and/or assets.(b)Employee’s Successors . Without the written consent of the Company, Employee shall not assign or transfer this Agreement or any right orobligation under this Agreement to any other person or entity. Notwithstanding the foregoing, the terms of this Agreement and all rights ofEmployee hereunder shall inure to the benefit of, and be enforceable by, Employee’s personal or legal representatives, executors, administrators,successors, heirs, distributees, devisees and legatees.7.Notices .(a)General . Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly givenwhen personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of theEmployee, mailed notices shall be addressed to him or her at the home address that he or she most recently communicated to the Company inwriting. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to theattention of its General Counsel, or to the Chief Financial Officer if the notice to the Company is from the General Counsel.(b)Notice of Termination . Any termination by the Company or by the Employee shall be communicated by a notice of termination to the otherparty hereto given in accordance with this Article.8.Arbitration .(a)Any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction,performance, breach, or termination thereof, shall be settled by binding arbitration to be held in San Francisco, California, in accordance with theNational Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the “ Rules ”). Thearbitrator(s) may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive andbinding on the parties to the arbitration. Judgment may be entered on the arbitrator’s decision in any court having jurisdiction.(b)The arbitrator(s) shall apply California law to the merits of any dispute or claim, without reference to conflicts of law rules. The arbitralproceedings shall be governed by federal arbitration law and by the Rules, without reference to state arbitration law. Employee hereby consentsto the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to thisAgreement or relating to any arbitration in which the parties are participants.(c)EMPLOYEE HAS READ AND UNDERSTANDS THIS ARTICLE, WHICH DISCUSSES ARBITRATION. EMPLOYEE UNDERSTANDSTHAT SUBMITTING ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH5THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATIONTHEREOF TO BINDING ARBITRATION, CONSTITUTES A WAIVER OF EMPLOYEE’S RIGHT TO A JURY TRIAL AND RELATESTO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP,INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:i.ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESSAND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED;NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONALMISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVEECONOMIC ADVANTAGE; AND DEFAMATION.ii.ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL, STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOTLIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGEDISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIRLABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE SECTION201, et seq.;iii.ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING TO EMPLOYMENT OREMPLOYMENT DISCRIMINATION.9.Miscellaneous Provisions .(a)Section 409A . It is intended, and this Agreement will be so construed, that any amounts payable under this Agreement shall either be exemptfrom or comply with the provisions of Section 409A of the Code and the treasury regulations relating thereto so as not to subject the Employeeto the payment of interest and/or any tax penalty that may be imposed under Section 409A of the Code. Employee acknowledges and agrees thatthe Company has made no representation to Employee as to the tax treatment of the compensation and benefits provided pursuant to thisAgreement and that Employee is solely responsible for all taxes due with respect to such compensation and benefits. In addition, to the extent (i)any payments to which Employee becomes entitled under this Agreement in connection with Employee's termination of employment with theCompany constitutes deferred compensation subject to Section 409A and (ii) Employee is deemed at the time of such termination ofemployment to be a “specified” employee under Section 409A, then to the extent required to avoid adverse tax treatment under Section 409A toEmployee, such payment or payments shall not be made or commence until the date which is more than six (6) months after the Employee'sSeparation from Service or, if earlier, the date of death of the Employee. If the condition of providing a Release by the Employee could cause thepayment of any amount or provision of any Benefit subject to such release to be paid or provided in either of two taxable years of the Employee,then to the extent required to avoid adverse tax treatment under Section 409A to Employee, such amount or benefit shall be paid or provided inthe later such taxable year.(b)No Duty to Mitigate . The Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall anysuch payment be reduced by any earnings that the Employee may receive from any other source.6(c)Waiver . No provision of this Agreement may be modified, waived or discharged unless the modification, waiver or discharge is agreed to inwriting and signed by the Employee and by an authorized officer of the Company other than the Employee. No waiver by either party of anybreach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any othercondition or provision or of the same condition or provision at another time.(d)Integration . This Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedeall prior or contemporaneous agreements, whether written or oral.(e)Choice of Law . The validity, interpretation, construction and performance of this Agreement shall be governed by the internal substantive laws,but not the conflicts of law rules, of the State of California.(f)Severability . The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability ofany other provision hereof, which shall remain in full force and effect.(g)Withholding Taxes . All payments made pursuant to this Agreement shall be subject to withholding of applicable income and employment taxes.(h)Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together willconstitute one and the same instrument.7(i)IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day andyear first above written.FormFactor, Inc. Michael Ludwig By: /s/ MICHAEL SLESSOR /s/ MICHAEL LUDWIGName: Michael Slessor Title: Chief Executive Officer 8EXHIBIT 21.01LIST OF REGISTRANT'S SUBSIDIARIESSUBSIDIARY NAME JURISDICTION OF ORGANIZATIONFormFactor Germany GmbHGermanyFormFactor International, Inc.Delaware, United StatesFormFactor, K.K.JapanFormFactor Korea, Inc.South KoreaFormFactor Singapore Pte. Ltd.SingaporeAstria Semiconductor Holdings, IncDelaware, United StatesMicro-Probe IncorporatedCalifornia, United StatesMicroprobe HongKong LimitedHong KongMicroprobe Technology (Suzhou) LimitedPeople's Republic of ChinaCascade Microtech Inc.Oregon, United StatesCascade Microtech GmbHGermanyCascade Microtech Japan, K.KJapanCascade Microtech Singapore Pte, LtdSingaporeCascade Microtech Taiwan Co., LtdTaiwanCascade International Trading (Shanghai) Co., LtdPeople's Republic of ChinaAdvanced Temperature Test Systems GmbHGermanyEXHIBIT 23.01CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of DirectorsFormFactor, Inc.:We consent to the incorporation by reference in the registration statements on Form S-3 (No. 333-198760) and Form S-8 (Nos. 333-212587, 333-195744, 333-106043, 333-115137, 333-125918, 333-139074, 333-148198, 333-149411, 333-157610, 333-165058, 333-172318, 333-179589, 333-181450, and 333-188363) ofFormFactor, Inc. of our report dated March 15, 2017, with respect to the consolidated balance sheets of FormFactor, Inc. as of December 31, 2016 and December26, 2015, and the related consolidated statements of operations, comprehensive loss, stockholders equity, and cash flows for each of the years in the three-yearperiod ended December 31, 2016, and the effectiveness of internal control over financial reporting as of December 31, 2016, which report appears in the December31, 2016 annual report on Form 10-K of FormFactor, Inc. for the year ended December 31, 2016.Our report dated March 15, 2017 contains an explanatory paragraph that states that management excluded from its assessment of the effectiveness of FormFactor,Inc.’s internal control over financial reporting as of December 31, 2016, the internal controls over financial reporting of Cascade Microtech, Inc., which theCompany acquired in 2016./s/ KPMG LLPSanta Clara, CaliforniaMarch 15, 2017EXHIBIT 31.01CERTIFICATION OF CHIEF EXECUTIVE OFFICERPURSUANT TO 15 U.S.C. SECTION 7241, ASADOPTED PURSUANT TO SECTION 302 OF THE SARBANES‑‑OXLEY ACT OF 2002I, Michael D. Slessor, certify that:1.I have reviewed the Annual Report on Form 10-K of FormFactor, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controlover financial reporting.Date:March 15, 2017/s/ MICHAEL D. SLESSOR Michael D. SlessorChief Executive Officer(Principal Executive Officer and Director)EXHIBIT 31.02CERTIFICATION OF CHIEF FINANCIAL OFFICERPURSUANT TO 15 U.S.C. SECTION 7241,AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES‑‑OXLEY ACT OF 2002I, Michael M. Ludwig, certify that:1.I have reviewed the Annual Report on Form 10-K of FormFactor, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controlover financial reporting.Date:March 15, 2017/s/ MICHAEL M. LUDWIG Michael M. LudwigChief Financial Officer(Principal Financial Officer and Principal Accounting Officer)EXHIBIT 32.01CERTIFICATION OFCHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICERPURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES‑‑OXLEY ACT OF 2002In connection with the annual report on Annual Report on Form 10-K of FormFactor, Inc., a Delaware corporation, for the period ended December 31,2016 , as filed with the Securities and Exchange Commission, each of the undersigned officers of FormFactor, Inc. certifies pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that, to his respective knowledge:(1)the annual report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and(2)the information contained in the annual report fairly presents, in all material respects, the financial condition and results of operations ofFormFactor, Inc. for the periods presented therein.Date:March 15, 2017/s/ MICHAEL D. SLESSOR Michael D. SlessorChief Executive Officer(Principal Executive Officer and Director) Date:March 15, 2017/s/ MICHAEL M. LUDWIG Michael M. LudwigChief Financial Officer(Principal Financial Officer and Principal Accounting Officer)

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