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Pivotal Systems CorporationUNITED 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 30, 2017Oro 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 forsuch shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No 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 andposted pursuant 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 suchfiles). 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'sknowledge, 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, a smaller reporting company, or an emerging growthcompany. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:Large accelerated filer ý Accelerated filer o Non-accelerated filer o(Do not check if a smallerreporting company) Smaller reporting companyo Emerging growth companyoIf an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisedfinancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No 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 onJune 30, 2017 (the last business day of the registrant's most recently completed second quarter) as reported by NASDAQ Global Market on that date: $637,498,421. Shares of theregistrant's common stock held by each executive officer, director and person who owns 5% or more of the outstanding common stock of the registrant have been excluded in thatsuch persons may be deemed to be affiliates. 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 February 20, 2018 was 72,950,475 shares.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant's definitive Proxy Statement for the 2018 Annual Meeting of Stockholders, which will be filed within 120 days of the end of the registrant's fiscal yearended December 30, 2017, are incorporated by reference in Part III hereof. Except with respect to information specifically incorporated by reference in this Annual Report onForm 10-K, the Proxy Statement 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 30, 2017Index PagePart IItem 1:Business4Item 1A:Risk Factors9Item 1B:Unresolved Staff Comments17Item 2:Properties17Item 3:Legal Proceedings18Item 4:Mine Safety Disclosures18Part IIItem 5:Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities18Item 6:Selected Financial Data20Item 7:Management's Discussion and Analysis of Financial Condition and Results of Operations21Item 7A:Quantitative and Qualitative Disclosures about Market Risk34Item 8:Financial Statements and Supplementary Data35Item 9:Changes in and Disagreements with Accountants on Accounting and Financial Disclosure35Item 9A:Controls and Procedures35Item 9B:Other Information36Part IIIItem 10:Directors, Executive Officers, and Corporate Governance37Item 11:Executive Compensation37Item 12:Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters37Item 13:Certain Relationships and Related Transactions, and Director Independence37Item 14:Principal Accounting Fees and Services37Part IVItem 15:Exhibits, Financial Statement Schedules38Item 16:Form 10-K Summary38Signatures39Consolidated Financial Statements41______________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 30, 2017, December 31, 2016 and December 26,2015.2 NOTE 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,our business strategy (including the influence of anticipated trends and developments in our business and the markets in which we operate), financialresults, operating results, revenues, gross margin, operating expenses, products, projected costs and capital expenditures, research and developmentprograms, sales and marketing initiatives 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 ofthese words and other comparable terminology. Forward-looking statements are based on information available to us as of the filing date of this AnnualReport on Form 10-K and our current expectations about future events, which are inherently subject to change and involve known and unknown risks anduncertainties. You should not place undue reliance on these forward-looking statements. We have no obligation to update any of these statements, and weassume no obligation to do so. Actual events or results may differ materially from those expressed or implied by these statements due to various factors,including but not limited to the matters discussed below in the 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 fromperiod to 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 newproducts into 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 variableproduction volumes 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.3 PART IItem 1: BusinessGeneralFormFactor, Inc., headquartered in Livermore, California, is a leading provider of test and measurement technologies. We provide a broad range of high-performance probe cards, analytical probes, probe stations and thermal sub-systems to both semiconductor companies and scientific institutions. Ourproducts provide electrical information from a variety of semiconductor and electro-optical devices and integrated circuits (devices) from developmentthrough production. Customers use our products and services to lower production costs, improve yields, and enable development of complex next generationdevices.FormFactor, Inc. was incorporated in 1993, and we introduced our first product in 1995. In June 2016, we acquired Cascade Microtech Inc. ("CascadeMicrotech"), a leading manufacturer of advanced wafer probe cards, probe stations, and thermal sub-systems. The acquisition of Cascade Microtechtransformed our business into a broader electrical test and measurement market leader with greater scale, diversification and market opportunities.As of December 30, 2017, we operate in two reportable segments consisting of the Probe Cards Segment and the Systems Segment. Sales of our probe cardsand analytical probes are included in the Probe Cards Segment, while sales of our probe stations and thermal sub-systems are included in the SystemsSegment.ProductsWe design, manufacture and sell multiple product lines, including probe cards, analytical probes, probe stations, thermal sub-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 provide a specific range offorces 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 ofcompression levels. In addition, while maintaining these mechanical characteristics, the contact elements must achieve reliable and high-fidelity electricalcontact through wafer surfaces that are generally oxidized or otherwise contaminated, and must maintain these attributes over hundreds of thousands, andeven millions, of compression cycles. Our range of capabilities enable us to rapidly produce customer-design specific probe cards that deliver leadingprecision, reliability, and electro-mechanical performance.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 “systemon a chip” products, mobile application processors, microprocessors, microcontrollers, graphic processors, radio frequency, analog, mixed signal, imagesensors, 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 40microns over geometries as large as 300mm. In addition, for high signal-fidelity devices such as wireless radio frequency transceivers and automotive radarchips, our probe card technologies are capable of testing at millimeter-wave frequencies range, currently up to 81 GHz.We have invested, and intend to continue to invest, considerable resources in proprietary probe card design tools and processes. These tools and processes areintended 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 test operating temperatures. For many of our products, our customers can usethe same probe card for both low and high temperature testing. We also design probe cards for customers that require extreme positional accuracy at a specifictemperature.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 probecard markets to realize synergies and economies of scale to benefit our competitiveness, time-to-market and overall profitability.4 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 customersfor analytical probes include universities, research institutions, semiconductor integrated device manufacturers, semiconductor foundries, and fablesssemiconductor companies. We continue to add new models of analytical probes that address measurements with higher complexities and at higherfrequencies 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 semiconductortechnology to accommodate smaller design geometries, new materials and more layers. Probing systems are a fundamental tool for characterizing andverifying electrical performance and reliability to enable new semiconductor technologies. We design our probing systems for semiconductor designengineers to capture and analyze more 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 forcomplex application and measurement needs. We offer pre-configured and customized measurement systems for production testing, power devicecharacterization, vacuum probing, 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 the testingof devices at precise temperatures or across a range of temperatures.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 assistour customers 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.We assist our customers in the selection, integration and use of our products through application engineering support. We also provide worldwide on-siteprobe card maintenance and service training, seminars and telephone support. Our manufacturers’ representatives and distributors provide additional serviceand support.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 of the Notes to Consolidated FinancialStatements included in Part II, Item 8 of this Annual Report on Form 10-K .Information concerning revenue concentration by customer appears under Note 2 of the Notes to Consolidated Financial Statements included in Part II, Item8 of this Annual Report on Form 10-K .Segment and Enterprise-Wide DisclosuresSee Note 16 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for certain financialinformation related to our segments and our enterprise-wide disclosures.5 BacklogWe manufacture our products based on order backlog and customer commitments. Backlog includes only orders with written authorizations and scheduledshipment dates. Backlog also includes revenue for existing product service agreements to be earned within the next 12 to 24 months. Customers may delaydelivery of products or cancel orders prior to shipment, subject to possible cancellation penalties. Due to possible changes in delivery schedules andcancellations of orders, our backlog on any particular date is not necessarily indicative of actual sales for any succeeding period. Delays in deliveryschedules or a reduction in backlog 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 designs, by modifying and adapting our product architectures to meet an individualcustomer’s chip 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, pickand place assembly; and a back-end process, which includes general assembly and test. Critical steps in our manufacturing process are performed in a varietyof clean room environments, including as stringent as a Class 100 environment, depending on the requirements of the specific manufacturing processes.Our probe stations are designed to provide highly accurate electrical measurements, precise and reliable mechanical components and assemblies, andcompliance with industry and governmental safety requirements. We prototype and test our new standard product designs and components to ensure highelectrical signal integrity, mechanical accuracy and safety. We also monitor our product quality throughout the various stages of our manufacturing processesusing 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 thesecomponents and materials are supplied by a single vendor, and some are subject to certain minimum order quantities. Generally, we rely on purchase ordersrather than long-term contracts with our suppliers, which subjects us to risks, including price increases, manufacturing capacity constraints and componentshortages. We continually 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.We 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 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 andenhancing our competitive position. We allocate significant resources to these efforts, and prioritize those resources to prepare for our customers’ nextgeneration electrical test and measurement challenges. We also increasingly seek to deploy our resources to solve fundamental challenges that are bothcommon to, and provide competitive advantage across, our probe card and system product offerings and roadmaps.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 economicadvantages to our customers. We utilize a highly skilled team of application and customer support engineers that support our customers as they integrate ourproducts into their research, development and manufacturing processes. Through these customer relationships, we seek to develop a close understanding ofcustomer and product requirements to align our capabilities with our customers’ roadmaps and production ramps.We also have a network of representatives and distributors across the globe to broaden 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 salesrepresentatives in areas that we believe require greater levels of customer support than we6 can deliver from our own sales offices and where local language capabilities can offer an advantage. Our distributors purchase our products and resell them atprices and upon terms set by the particular distributor. We typically use distributors in particular 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 contaminatedsites and the maintenance of a safe workplace. We believe that we comply in all material respects with the environmental laws and regulations that apply tous. We did not receive any notices of violations of environmental laws and regulations in fiscal 2017, 2016 or 2015. In the future, we may receive notices ofviolations of environmental regulations, or otherwise learn of such violations. Environmental contamination or violations may negatively impact ourbusiness.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 local suppliersservicing individual customers in often differentiated applications. Our primary competitors are Advantest Corporation, AMST Co., Ltd., Feinmetall GmbH,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, totalcost of 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 similartypes of lithographic patterning as do we. The high capital investment and other costs associated with the development of lithographically defined probecards and the time and high cost of the customer evaluation process represent significant barriers to entry for 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,speed and frequency of the probe card, number of chips contacted in parallel, number of probe tips and their layout, signal integrity, and frequency andeffectiveness of any required cleaning. As a result of our relative strengths in these areas, we believe that we compete favorably in the advanced probe cardmarket, and in probe cards for parallel testing of chips with densely-packed bond pads, bumps or pillars, and in high signal integrity testing of wireless radiofrequency transceivers, microwave, and millimeter wave.Analytical Probes. Our primary competitor in the analytical probe market is GGB Industries Inc. Regional competitors include Yokowo and TechnoProbe CoLtd 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 andprice. 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, Semiprobe, MPICorporation, Tokyo Seimitsu Co., LTD/Accretech, Tokyo Electron (“TEL”), The Micromanipulator Company Inc., HiSOL, Inc., and Wentworth LaboratoriesInc. We believe that the primary competitive factors in the probe station market are measurement accuracy and versatility, measurement speed, automationfeatures, knowledge of measurement techniques, completeness of the measurement solutions, delivery time and price. We believe that we compete favorablywith respect to these factors.Thermal Subsystems. In the market for thermal subsystems, we compete principally against ERS Electronic, GmbH, Temptronic Corporation, and Espec Corp.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 competefavorably with respect to these factors.7 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. Our competitors may enhance their current products and may introduce new products that will be competitive with ours. Newalternatives to our products may also be introduced, by our current competitors or others, which may reduce the value of one or more of our products.Semiconductor manufacturers may implement chip designs that include capabilities or use other methodologies that increase test throughput and reduce testcontent. This may reduce or eliminate some or all of our current products’ advantages. Semiconductor manufacturers may also increase their use of teststrategies that include low performance semiconductor testers, less complex probe cards, or test procedures that do not involve our products. Our ability tocompete favorably may also adversely affect 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 ona combination of patents, trade secrets, trademarks and contractual restrictions on disclosure to protect our intellectual property rights. We have filed actionsto enforce 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 substantialpatent portfolios 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 within the markets that we serve, it is possible that our protectionthrough patents may be less important than factors such as our technological expertise, continuing development of new products and technologies,protection of trade secrets, market penetration, customer relationships, and our ability to provide comprehensive support 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 30, 2017, we had 1,685 regular full-time employees, including 1,020 in operations, 325 in research and development, 226 in sales andmarketing and 114 in general and administrative functions. By region, 1,195 of our employees were in North America, 298 in Asia and 192 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, Quarterly Reportson 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, as soonas 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 Internetwebsite is 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 2018 Annual Meeting of Stockholders.8 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 operationscould be materially adversely affected, the trading price of our common stock could decline, and you may lose all or part of your investment in our commonstock. The risks 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 knowabout, or that we currently believe to be sufficiently important to describe here, may also impair our business operations or the trading price of our commonstock.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 timesor broader 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.Our 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 ourrevenues and 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 todevelop and support new products and product enhancements to meet these needs on a timely and cost-effective basis. Our customers’ testing needs arebecoming more challenging as the semiconductor industry continues to experience rapid technological change driven by the demand for complex circuitsthat 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 manufacturingprocess;•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 torecover our research and development expenditures, which could harm our operating results.9 We depend upon the sale of our probes cards products for the substantial majority of our revenues.Although our acquisition of Cascade Microtech expanded our product offerings, we derive the majority of our revenues from the sale of our probe cardsproducts, primarily to manufacturers of microprocessor, foundry & logic and memory devices. We anticipate that sales of probe cards will represent asubstantial majority of our revenues for the foreseeable future. Our success depends in large part upon the continued acceptance of our products on the basisof 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 increaseour susceptibility 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 26% and 30% of total revenues in fiscal2017 and 2016, respectively, and four customers represented 60% of total revenues in fiscal 2015. We anticipate that sales of our products to a relativelysmall number of customers will continue to account for a significant portion of our revenues. Consolidation in the semiconductor industry may increase thisconcentration. In the future, the loss of any of these customers, or cancellation, reduction or deferral of even a small number of purchases of our products bythese customers could significantly reduce our revenues. Cancellations, reductions, deferrals or non-payment of invoices, could result from another downturnin the semiconductor industry, manufacturing delays, quality or reliability issues with our products, or from interruptions to our customers’ operations due tofire, 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,our customers 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 thesemiconductor industry, which enables us to better plan our product development activities. These relationships also provide us with opportunities tounderstand the performance and functionality requirements of our customers, which improves our ability to customize our products to fulfill their needs. Ourrelationships with our customers could deteriorate as a result of a variety of factors, such as if they become concerned about our ability to deliver qualityproducts on a timely basis or to protect their intellectual property. Many of our customers are large companies that place significant orders with us, and theconsequences of deterioration in our relationship with any of these companies could be significant due to the competitiveness of our industry and thesignificant influence that these companies exert in our 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 maylead to relatively fewer opportunities to sell our products if we are not chosen as a supplier by any given prospective customer, and may lead to increasedpricing pressures from customers that have greater volume purchasing power.There has also been consolidation within the semiconductor test equipment market. This consolidation trend could change our interactions and relationshipswith 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 devicesbeing tested, the complexity of these devices, the test software program, the test equipment itself, and the utilization of chip designs featuring design-for-testability capabilities. Customers may demand fewer probe cards or probing systems if they use test strategies that reduce the technical requirements on testequipment, improve available data on device performance earlier in the manufacturing process, or test devices later in the manufacturing process. Changes inthe effectiveness of 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, orif semiconductor manufacturers reduce the amount or degree of testing that they perform. We may also incur significant research and development expensesin order to introduce new product architectures and platforms to serve the testing needs of new semiconductor technologies.10 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 inventoriesand declines in general economic conditions. The global economic and semiconductor downturns have caused and may in the future cause our operatingresults to decline dramatically from one period to the next. Our business depends heavily upon the development and manufacture of new semiconductors, therate at which semiconductor manufacturers make transitions to smaller nanometer technology nodes and implement tooling cycles, the volume of productionby semiconductor manufacturers and the overall financial strength of our customers, which, in turn, depend upon the current and anticipated market demandfor semiconductors and products, such as servers, personal computers, automobiles and cell phones, that use semiconductors. During industry downturns,semiconductor manufacturers sharply curtail their spending, including their spending on our products, which may adversely impact our revenues, grossmargins and results of operations. Further, a protracted downturn could cause one or more of our customers to become insolvent, resulting in a loss of revenueand impacting our ability to collect on accounts receivable. The timing, length and severity of these cyclical downturns are difficult to predict and ourbusiness depends on our ability to plan for 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 andfulfill in that 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 be unable to adjust spending in time to compensate for any unexpected shortfall in revenues. Accordingly, any significant shortfall of revenues inrelation to our expectations 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. Dueto 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 weare operating 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 webuild additional inventory to compensate for unpredictable manufacturing yields, we could have excess or obsolete inventory that we may not be able to sell,which would 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 maynot be commercially successful, our revenues may be adversely affected, our customer relationships and our reputation may be harmed and our business maybe materially 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. Wehave experienced, and may experience in the future, manufacturing delays and other inefficiencies in connection with implementation of these improvementsand customer 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 varyingcustomer test cell 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, volumeand mix of products they must produce. We may be unable to design and produce our products within the short cycle times required to respond to such rapidchanges. We have 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 timeit takes for us to design,11 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 tolose customers 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 ourspecifications, contamination in the manufacturing environment, impurities in the materials used, and unknown sensitivities to process conditions such astemperature and humidity, and equipment failures. Any errors or defects could:•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 resourceseducating our prospective customers regarding the uses and benefits of our probe cards and developing probe cards customized to the potential customer’sneeds, for which we might not be reimbursed. Although we commit substantial resources to our sales efforts, we might never receive any revenues from acustomer. For example, many semiconductor chip designs never reach production, including designs for which we may have expended design effort andexpense. In addition, prospective customers might decide not to use our products or use our products for a relatively small percentage of their requirementsafter we have expended significant effort and 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 lossof one 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, froma 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 toseveral other risks, including inability to obtain an adequate supply of materials, late deliveries, poor component quality, and business disruptions while weseek to identify and qualify alternative suppliers. The occurrence of any of these risks could adversely impact our business, results of operations and financialcondition.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. As ofDecember 30, 2017, we had $91.2 million of cash and cash equivalents, $49.0 million of short-term investments and $105.7 million term loan debtoutstanding, net of debt-related issuance costs. Our use of cash on hand and indebtedness to finance the cash portion of the transaction consideration reducedour liquidity. We must generate cash from operations to pay principal and interest on our debt, thereby reducing the availability of cash flow for workingcapital and capital expenditure needs or to pursue other initiatives. The senior secured term loan facility contains financial covenants requiring us tomaintain a certain leverage ratio of consolidated total indebtedness to EBITDA and a fixed charge coverage ratio. In addition, it also imposes limitations onour ability to incur liens and indebtedness or to pay dividends, make certain investments, or dispose of assets (in each case, subject to customary exceptions).Our ability to comply with these financial and restrictive covenants can be affected by events beyond our control. The indebtedness and restrictive covenantswill also have the effect of limiting our ability to obtain additional financing, if needed, which may limit our flexibility in the conduct of our business andmakes us more vulnerable12 to economic downturns and adverse competitive and 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 the senior secured term loan facility, which, if not cured or waived, could result in the obligations under thefacility 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 of ourrevenues were 66%, 67% and 77% for fiscal 2017, 2016 and 2015, 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 asignificant percentage of our revenues. Accordingly, we will be subject to risks and challenges that we would not otherwise face if we conducted our businesssolely in North America.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 productsrelative to 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. Political developments in the United States and elsewhere may increase the risks and uncertainties associated withconducting international business, including the possibilities of greater tariffs and other trade barriers in the regions where we conduct business.Additionally, we are required to comply with foreign import and export requirements, customs and value added tax standards. Our failure to meet theserequirements and standards could negatively impact our business operations.Our 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 theUnited States. Since we incur certain costs in currencies other than U.S. dollars, and have certain foreign currency denominated assets and liabilities, butreport our financial results in U.S. dollars, we face exposure to fluctuations in currency exchange rates. Although we hedge a portion of our internationalcurrency exposure, significant fluctuations in exchange rates between the U.S. dollar and foreign currencies may adversely affect our revenues and earnings.Additionally, hedging programs are inherently risky and could expose us to additional risks that could adversely affect our financial condition and results ofoperations.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 mightindependently develop similar or competing technologies or methods or design around our patents. In addition, the laws of many foreign countries in whichwe or our customers do business do not protect our intellectual property rights to the same extent as the laws of the United States. As a result, our proprietaryrights could be compromised, our competitors might offer products similar to ours and we might not be able to compete successfully. We also cannot assurethat:•our means of protecting our proprietary rights will be adequate;•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;or13 •others will not misappropriate our proprietary technologies or independently develop similar technologies, duplicate our products or design aroundany of our patents or other intellectual property, or attempt to manufacture and sell infringing products in countries that do not strongly enforceintellectual property 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,whether or 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 divertthe efforts of our 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 conflictingintellectual property claims and vigorous protection and pursuit of these rights. The resolution of any claims of this nature, with or without merit, could betime consuming, result in costly litigation or cause product shipment delays. In the event of an adverse ruling or settlement, we might be required to paysubstantial damages, cease the use or sale of infringing products, spend significant resources to develop non-infringing technology, discontinue the use ofcertain technology and/or enter into license agreements. License agreements, if required, might not be available on terms acceptable to us or at all. The loss ofaccess to any of our intellectual property or the ability to use any of our technology could harm our business. Finally, certain of our customer contractscontain provisions that require us to defend or indemnify our customers for third party intellectual property infringement claims, which would increase thecost 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 couldhave a material negative impact on our business.We recorded restructuring charges in fiscal 2017, 2016 and 2015, and impairment charges related to our long-lived assets in fiscal 2016. We may implementrestructuring plans in the future, which would require us to take additional, potentially material, restructuring charges related to employee terminations, assetdisposal or exit costs. We may also be required to write off additional inventory if our product build plans or usage of inventory experience declines, andsuch additional write-offs could constitute material charges. In addition, significant adverse changes in market conditions could require us to take additionalmaterial impairment charges related to our long-lived assets if the changes impact the critical assumptions or estimates that we use in our assessment of therecoverability 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 othercompromise of these systems.We rely on electronic data systems to operate and manage our business and to process, maintain, and safeguard information, including information belongingto 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, computerviruses, or other cyber security attacks. Such system failures or disruptions could subject us to downtimes and delays, compromise or loss of sensitive orconfidential information or intellectual property, destruction or corruption of data, financial losses from remedial actions, liabilities to customers or otherthird parties, or damage to our reputation or customer relationships. Any of the foregoing could have a material adverse effect on our business, operatingresults and financial condition.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 andother companies may have greater resources available to provide substantial inducements to lure key personnel away from us or to offer more competitivecompensation packages to individuals we are trying to hire.Our failure to comply with environmental laws and regulations could subject us to significant fines and liabilities, and new laws and regulations orchanges in regulatory 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 cleanupof contaminated sites and the maintenance of a safe workplace. We could incur substantial costs, including cleanup costs, civil or criminal fines or sanctionsand third-party claims for property damage or personal injury, as a result of violations of or liabilities under environmental laws and regulations or non-compliance with the environmental permits required at our facilities.14 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,stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination at our or others’ sites or the imposition of newcleanup requirements could require us to curtail our operations, restrict our future expansion, subject us to liability and cause us to incur future costs thatcould harm our operations, thereby adversely impacting our operating results and cash flow.Natural and man-made disasters may negatively impact our business.Our business is vulnerable to the direct and indirect impact of natural and man-made 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 proneto earthquakes and could be substantially disrupted in the event of an earthquake. It is also possible that future natural and man-made disasters couldnegatively impact the 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 supply components to us on a timely basis.Risks Relating to Our AcquisitionsWe may fail to realize the anticipated benefits from our acquisition of Cascade Microtech.The long-term success of our acquisition of Cascade Microtech will depend, in part, on our ability to realize the anticipated benefits and cost savings fromcombining that business with ours. Our ability to continue to realize these 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.To successfully integrate Cascade Microtech and realize the anticipated benefits from the acquisition we must address the further combination of certainoperations, administrative functions, information technology infrastructure and research and development.We may make additional acquisitions and investments in the future, which could put a strain on our resources, cause ownership dilution to ourstockholders and 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 delivery and might not be successful. Future acquisitions and investments could divert management’s attention fromother business concerns and expose our business to unforeseen liabilities or risks associated with entering new markets. In addition, we might lose keyemployees while integrating new organizations. We might not be successful in integrating any acquired businesses, products or technologies, and might notachieve anticipated revenues and cost benefits. Investments that we make may not result in a return consistent with our projections upon which suchinvestments are made, or may require additional investment that we did not originally anticipate. In addition, future acquisitions could result in customerdissatisfaction, performance problems with an acquired company, potentially dilutive issuances of equity securities or the incurrence of debt and restrictivedebt covenants, contingent liabilities, possible impairment charges related to goodwill or other intangible assets or other unanticipated events orcircumstances. If any of these risks were to come about, our business, financial results and stock price could be materially and adversely affected.If goodwill or other intangible assets that we recorded in connection with our past acquisitions become impaired, we could be required to take significantcharges 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, whetherthe value of goodwill and other indefinite-lived intangible assets have been impaired. Finite-lived intangible assets will be assessed for impairment in theevent of an impairment indicator. Any reduction or impairment of the value of goodwill or other intangible assets will result in a charge against earnings,which could materially adversely affect our results of operations and stockholders’ equity in future periods. Refer to Note 2 to Notes to ConsolidatedFinancial Statements - Goodwill and Intangible Assets for further details relating to our annual goodwill impairment assessment.15 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 resultsor prevent fraud.Effective internal and disclosure controls and procedures are necessary for us to provide reliable financial reports, to prevent fraud and to operate successfullyas a public company. If we cannot provide reliable financial reports or prevent fraud, our business and reputation may be harmed. We regularly review andassess our internal controls over financial reporting and our disclosure controls and procedures. As part of that process, we may discover material weaknessesin our internal controls. If we fail to maintain effective controls or timely effect any necessary improvement of our internal and disclosure controls, we maynot have accurate information to make management decisions, our operating results could be harmed or we may fail to meet our reporting obligations.Ineffective internal and disclosure controls could also cause stockholders to lose confidence in our reported financial information and our ability to manageour 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 pricethat you paid for them.The trading prices of the securities of technology companies have been highly volatile. During fiscal 2017, our stock price (NASDAQ Global Market closeprice) ranged from $10.60 per share to $18.20 per share. The trading price of our common 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 orsignificant agreements 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;•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/mergedcompany.In addition, if the market for technology stocks or the stock market in general experiences loss of investor confidence, the trading price of our common stockcould 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 orchanges in 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, each ofour named executive officers and certain other officers of the company have entered into change16 of control severance agreements, which were approved by our Compensation Committee, which could increase the costs associated with a change of controland thus, potentially deter such a transaction.Item 1B: Unresolved Staff CommentsNone.Item 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 andoutside of the United States. The leases expire at various times through 2027. We believe that our existing and planned facilities are suitable for our currentneeds.Information concerning our properties as of December 30, 2017 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 Sales, Product design, administration, manufacturing, serviceand repair, distribution, research and development 30,876 LeasedSan Jose,California,United States Administration, product design, manufacturing, service andrepair, distribution, research and development 23,860 LeasedSt. Paul,Minnesota,United States Marketing and design 9,122 LeasedSouthbury,Connecticut,United States Sales office 1,000 LeasedThiendorf,Germany Sales, marketing, administration, manufacturing, service andrepair, distribution, research and development 44,767 LeasedMunich,Germany Sales, Manufacturing, service and repair, distribution, researchand development 10,656 LeasedSingapore Sales, administration, product design, service, and fieldservice 30,088 LeasedJubei City,Hsinchu,Taiwan Sales, administration, product design, field service and repaircenter 18,568 LeasedBundang,South Korea Sales, administration, product design, field service, and repaircenter 15,310 LeasedYokohamaCity, Japan Sales, marketing, administration, product design,manufacturing, service and repair, distribution, research anddevelopment 15,210 LeasedHiroshima,Japan Repair center 1,007 LeasedSuzhou, China Sales, marketing, administration, product design,manufacturing, service and repair, distribution, research anddevelopment 15,177 LeasedShanghai,China Sales and service 1,865 LeasedLegnano, Italy Sales office 215 Leased17 Item 3: Legal ProceedingsFrom time to time, we may be subject to legal proceedings and claims in the ordinary course of business. As of December 30, 2017, and as of the filing of thisAnnual Report on Form 10-K, we were not involved in any material legal proceedings. In the future, we may become a party to additional legal proceedingsthat may require us to spend significant resources, including proceedings designed to protect our intellectual property rights. Litigation can be expensive anddisruptive to normal business operations. Moreover, the results of legal proceedings are difficult to predict, and the costs incurred in litigation can besubstantial, regardless of outcome.Item 4: Mine Safety DisclosuresNot applicable.PART 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 closing salesprices per share as reported on the Nasdaq Global Market for the periods indicated.Fiscal 2017High LowFirst Quarter$12.70 $10.65Second Quarter15.45 10.60Third Quarter16.85 11.90Fourth Quarter18.20 14.85Fiscal 2016High LowFirst Quarter$9.33 $6.34Second Quarter9.09 6.51Third Quarter10.86 8.72Fourth Quarter11.95 8.65The closing sales price of our common stock on the NASDAQ Global Market was $13.20 per share on February 20, 2018. As of February 20, 2018, there were176 registered holders of record of our common stock.Repurchase of Common StockIn February 2017, our Board of Directors authorized a program to repurchase up to $25 million of outstanding common stock to offset potential dilution fromsales of common stock under our employee stock purchase plan and exercises of stock options. The share repurchase program will expire on February 1,2020. During the year ended December 30, 2017, we repurchased and retired 1,367,617 shares of common stock for $19.0 million and, as of December 30,2017, $6.0 million remained available for future repurchases.Repurchased shares are retired upon the settlement of the related trade transactions with the excess of cost over par value charged to additional paid-incapital. All repurchases were made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.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.18 Stock Price Performance GraphThe following graph shows the total stockholder return of an investment of $100 in cash on December 29, 2012 through December 30, 2017 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.No cash 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.COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among FormFactor, Inc., the S&P 500 Index, and the RDG Semiconductor Composite Index*$100 invested on December 29, 2012 in stock or index, including reinvestment of dividends. Cumulative Total Return December 29,2012 December 28,2013 December 27,2014 December 26,2015 December 31,2016 December 30,2017FormFactor, Inc.$100.00 $134.95 $190.11 $200.22 $246.15 $343.96S&P 500100.00 132.39 150.51 152.59 170.84 208.14RDG SemiconductorComposite100.00 135.28 172.65 159.13 212.14 297.1019 Item 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 ofOperations contained elsewhere in this Annual Report on Form 10-K. Fiscal2017 (1) Fiscal2016 (1)(2)(5)(6) Fiscal2015 (1)(3) Fiscal2014 (1)(2) Fiscal2013 (1)(2)(4) (Dollars in thousands, except per share data)Consolidated Statements of OperationsData: Revenues$548,441 $383,881 $282,358 $268,530 $231,533Gross profit215,597 102,682 85,738 77,439 42,284Net income (loss)40,913 (6,557) (1,523) (19,185) (57,683)Basic net income (loss) per share0.57 (0.10) (0.03) (0.34) (1.06)Diluted net income (loss) per share0.55 $(0.10) $(0.03) $(0.34) $(1.06) Consolidated Balance Sheets Data: Cash, cash equivalents and marketablesecurities$140,172 $108,905 $187,589 $163,837 $151,091Working capital213,693 172,002 214,437 196,412 173,881Total assets646,574 618,982 342,723 344,243 340,708Term loan, net of current portion87,228 125,475 — — —Total stockholders' equity458,637 401,056 294,681 289,436 294,086 Number of employees1,685 1,571 958 907 961(1)Fiscal 2017, 2016, 2015, 2014 and 2013 net income (loss) includes restructuring charges, net of $0.8 million, $7.3 million, $0.6 million, $2.7 millionand $4.7 million, respectively. See Note 6 of Notes to Consolidated Financial Statements.(2)Fiscal 2016, 2014 and 2013 net loss includes impairment charges of $12.4 million, $1.2 million and $0.8 million, respectively. See Note 7 of Notes toConsolidated Financial Statements.(3)Fiscal 2015 net loss includes the following: i) a $1.5 million gain from a business interruption insurance claim relating to a factory fire at a customer (seeNote 18 of Notes to Consolidated Financial Statements); and ii) a $1.0 million net gain 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 2016 includes a $44.0 million tax benefit from the release of deferred tax asset valuation allowances due to deferred tax liabilities established onthe acquired identifiable intangible assets from our acquisition of Cascade Microtech. Refer to Results of Operations in Management's Discussion andAnalysis.(6)Fiscal 2016 includes the following as a result of the Cascade Microtech acquisition: i) $82.6 million in revenue; ii) $27.8 million of intangibleamortization expense; and iii) a $7.6 million charge for inventory-related step-up amortization.20 Item 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, thefollowing discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions as described under the "NoteRegarding Forward-Looking Statements" that appears earlier in this Annual Report on Form 10-K. Our actual results could differ materially from thoseanticipated by these forward-looking statements as a result of many factors, including those discussed under "Item 1A: Risk Factors" and elsewhere in thisAnnual Report on Form 10-K.OverviewFormFactor, Inc., headquartered in Livermore, California, is a leading provider of electrical test and measurement solutions. We provide a broad range ofhigh-performance probe cards, analytical probes, probe stations, thermal sub-systems and reliability test systems to both semiconductor companies andscientific institutions. Our products provide electrical information from a variety of semiconductor and electro-optical devices and integrated circuits(devices) from development to production. Customers use our products and services to lower production costs, improve yields, and enable development ofcomplex next-generation devices.On June 24, 2016, we completed the acquisition of Cascade Microtech, Inc. ("Cascade Microtech"), headquartered in Beaverton, Oregon and, accordingly,our Consolidated Statements of Operations include the results of operations of Cascade Microtech since that date. Therefore, our consolidated financialresults for fiscal 2016 and 2015 may not be directly comparable to our consolidated financial results for fiscal 2017.We operate in two reportable segments consisting of the Probe Cards Segment and Systems Segment. Sales of our probe cards and analytical probes areincluded in the Probe Cards Segment while sales of our probe stations, thermal sub-systems and reliability test systems are included in the Systems Segment.We generated net income of $40.9 million in fiscal 2017 compared to a net loss of $6.6 million in fiscal 2016 and a net loss of $1.5 million in fiscal 2015.The increase in net income was primarily due to increased revenues generated by the acquisition of Cascade Microtech at the end of the second quarter offiscal 2016, increased demand for our legacy products, and lower restructuring charges, partially offset by increased operating expenses and a $44.0 millionincome tax benefit recognized in fiscal 2016 related to the release of valuation allowances on our deferred tax assets in connection with our acquisition ofCascade Microtech.Fiscal YearWe operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December. The fiscal years ended December 30, 2017,December 31, 2016 and December 26, 2015 included 52 weeks, 53 weeks (with an extra week falling in the fourth quarter) and 52 weeks, respectively.Use of EstimatesPreparation 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 fromother sources. Actual results may differ from these estimates under different assumptions or conditions.Critical Accounting PoliciesOur 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 estimatesand assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue andexpenses in the reporting period. Our accounting policies are fundamental to understanding our financial condition and results of operations reported in ourfinancial statements and related disclosures. We have identified the following accounting policies as being critical because they require our management tomake particularly difficult, subjective and/or complex judgments about the effect of matters that are inherently uncertain. Our management has discussed thedevelopment, selection, application and disclosure of these critical accounting policies with the Audit Committee of our Board of Directors.21 Revenue RecognitionWe recognize revenue when persuasive evidence of an arrangement exists, title and risk of loss has transferred to the customer, the selling price is fixed ordeterminable and collection of the related receivable is reasonably assured. In instances where final acceptance of the deliverable is specified by thecustomer, revenue is deferred until all acceptance criteria have been met.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, service contracts and extended warranty contracts. The total sales price is allocated based on the relative fair value of eachcomponent. 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 service contracts, extended warranties and customer deposits. Deferred revenue related to service contracts and extendedwarranties 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.GoodwillGoodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed. We first assess qualitativefactors to determine whether it is necessary to perform a two-step quantitative goodwill impairment test. If an entity determines as a result of the qualitativeassessment that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative impairment test isrequired. 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 of theapplicable reporting unit with its aggregate carrying value, including goodwill. We generally determine the fair value of our reporting unit using acombination of the income approach (that includes the use of the discounted cash flow method) and the market approach (guideline company approach)valuation methodologies. If the carrying amount of a reporting unit exceeds the fair value of that reporting unit, we perform the second step of thequantitative impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the impliedfair value of the affected reporting unit's goodwill with the carrying value of that goodwill.We perform our annual goodwill impairment test in the fourth quarter of each fiscal year. By assessing qualitative factors, we concluded that our goodwillwas not impaired during fiscal 2017, 2016 or 2015. Our qualitative review included, among other factors, an assessment of our market capitalization, whichwas significantly higher than our book value. The evaluation of goodwill for impairment requires the exercise of significant judgment. In the event of futurechanges in business conditions, we will be required to reassess and update our forecasts and estimates used in our analysis. If the results of this analysis arelower than current estimates, a material impairment charge may result at that time. Refer to Note 10 of Notes to Consolidated Financial Statements for furtherdetails.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 valueof acquired assets and assumed liabilities, especially with respect to intangible assets. These estimates are based on information obtained from managementof the acquired companies, market participant data and historical experience. These estimates can include, but are not limited to: the time and expenses thatwould be necessary 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 discount rates.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 ofthe acquisition 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 year from the acquisition date, any subsequent adjustments are recorded to earnings.Impairment of Long-Lived AssetsWe test long-lived assets or asset groups, such as property, plant and equipment and intangibles, for recoverability when events or changes in circumstancesindicate that their carrying amounts may not be recoverable. Circumstances that could trigger a review include, but are not limited to: significant decreases inthe market price of the asset; significant adverse changes in the business22 climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset;current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; andcurrent expectation that the asset will more likely than not be sold or disposed of significantly before the end 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.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,discount rates and terminal growth rates. In addition, significant estimates and assumptions are required in the determination of the fair value of ourintangible assets and tangible long-lived assets, including replacement cost, economic obsolescence, and the value that could be realized in an orderlyliquidation. Changes in these estimates could have a material adverse effect on the assessment of our long-lived assets, thereby requiring us to write down theassets.Restructuring ChargesRestructuring charges include costs related to employee termination benefits, long-lived assets impaired or abandoned, and contract termination costs. Thedetermination 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-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 therecognition of one-time employee termination benefits is dependent upon the period of time the employees are required to render service aftercommunication. If employees are not required to render service in order to receive the termination benefits or if employees will not be retained to renderservice beyond the minimum legal notification period, a liability for the termination benefits is recognized at the communication date. In instances whereemployees will be retained to render service beyond the minimum legal notification period, the liability for employee termination benefits is measuredinitially at the communication date based on the fair value of the liability as of the termination date and is recognized ratably over the future service period.We continually evaluate the adequacy of the remaining liabilities 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 wellas for contract 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 the significance of, and the timing of the execution of such activities, this process is complex and involves periodic reassessments of estimates made atthe time the original decisions were made, including evaluating real estate market conditions for expected vacancy periods and sub-lease rents. Although webelieve that these estimates accurately reflect the costs of our restructuring plans, actual results may differ, thereby requiring us to record additionalprovisions or reverse a portion of such provisions.Inventory ValuationWe state our inventories at the lower of cost (principally standard cost which approximates actual cost on a first in, first out basis) or net realizable value. Wecontinually assess the value of our inventory and will periodically write down its value for estimated excess inventory and product obsolescence based uponassumptions about forecasted future sales, past usage, and market conditions. On a quarterly basis, we review inventory quantities on hand and on order undernon-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 andcircumstances do not result in the restoration or increase in that newly established cost basis. Market conditions are subject to change, and demand for ourproducts can fluctuate significantly. Actual consumption of inventories could differ from forecasted demand, and this difference could have a material impacton our gross profit and inventory balances based on additional provisions for excess or obsolete inventories or a benefit from the sale of inventoriespreviously written down.23 Results of OperationsThe following table sets forth our operating results as a percentage of revenues: Fiscal 2017 Fiscal 2016 Fiscal 2015Revenues100.0 % 100.0 % 100.0 %Cost of revenues60.7 73.3 69.6Gross profit39.3 26.7 30.4Operating expenses: Research and development13.5 15.0 15.6Selling, general and administrative17.3 19.1 16.0Restructuring and impairment charges, net0.1 5.1 0.2Total operating expenses30.9 39.2 31.8Operating income (loss)8.4 (12.5) (1.4)Interest income0.1 0.1 0.1Interest expense(0.8) (0.6) —Other income (expense), net— (0.1) 0.9Income (loss) before income taxes7.7 (13.1) (0.4)Provision (benefit) for income taxes0.2 (11.4) 0.1Net income (loss)7.5 % (1.7)% (0.5)%Revenues by Segment Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015 (In thousands)Probe Cards$454,794 $337,970 $282,358Systems93,647 45,911 —Total$548,441 $383,881 $282,358The increase in Probe Cards Segment revenue in fiscal 2017 compared to fiscal 2016 was primarily the result of an increase in unit sales, driven by higherdemand for both our Foundry & Logic and DRAM products, as well as the acquisition of Cascade Microtech, and an increase in the average selling prices ofour Foundry & Logic products due to changes in product sales mix. The increase in Systems Segment revenue in fiscal 2017 compared to fiscal 2016 was primarily the result of the acquisition of Cascade Microtech at the endof June 2016. Prior to the acquisition, we did not operate in the Systems Segment.The increases in Probe Cards Segment and Systems Segment revenues in fiscal 2016 compared to fiscal 2015 were primarily due to additional revenuesgenerated during the second half of fiscal 2016 from sale of probe cards ($36.7 million) and probe stations, services and thermal sub-systems ($45.9 million)products as a result of our acquisition of Cascade Microtech on June 24, 2016, as well as strong demand for our Foundry & Logic products. Prior to theacquisition of Cascade Microtech, we only operated in the Probe Cards Segment and did not generate any Systems Segment revenue. Further, fiscal 2016consisted of 53 weeks compared to 52 weeks in fiscal 2015.24 Revenues by Market Fiscal % of Fiscal % of Change 2017 Revenues 2016 Revenues $ % (In thousands, except percentages)Probe Cards Markets: Foundry & Logic$313,714 57.2% $237,591 61.9% $76,123 32.0%DRAM124,685 22.7 86,910 22.6 37,775 43.5Flash16,395 3.0 13,469 3.5 2,926 21.7Systems Market: Systems93,647 17.1 45,911 12.0 47,736 104.0Total revenues$548,441 100.0% $383,881 100.0% $164,560 42.9% 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 %The increases in Foundry & Logic product revenue in fiscal 2017 compared to fiscal 2016, and in fiscal 2016 compared to fiscal 2015, were primarily theresult of strong customer demand across all end markets, including data center, mobile and automotive, as well as to the June 2016 acquisition of CascadeMicrotech. All of Cascade Microtech's probe card revenues are included in our Foundry & Logic revenues.The increase in DRAM product revenue in fiscal 2017 compared to fiscal 2016 was the result of increased customer demand in the DRAM market driven by acombination of node transitions, capacity additions and new designs. The decrease in our DRAM product revenue in fiscal 2016 compared to fiscal 2015 wasdue to lower probe card demand driven by a volatile DRAM market as DRAM manufacturers continued their technology node transitions.Flash product revenue increased in fiscal 2017 compared to fiscal 2016, and in fiscal 2016 compared t fiscal 2015, due to increased design wins. The increases in Systems product revenue in fiscal 2017 compared to fiscal 2016, and fiscal 2016 compared to fiscal 2015, were driven by the June 2016acquisition of Cascade Microtech. Prior to the acquisition, we did not operate in the Systems market.Revenues by Geographic Region Fiscal 2017 % ofRevenues Fiscal 2016 % ofRevenues Fiscal 2015 % ofRevenues (Dollars in thousands)United States$186,654 34.0% $127,641 33.3% $66,051 23.4%South Korea81,727 14.9 65,508 17.1 71,120 25.2Taiwan96,903 17.7 57,331 14.9 61,711 21.9Europe45,086 8.2 49,445 12.9 25,542 9.0Asia-Pacific(1)91,002 16.6 43,659 11.4 31,389 11.1Japan44,559 8.1 38,650 10.0 26,418 9.4Rest of the world2,510 0.5 1,647 0.4 127 —Total Revenues$548,441 100.0% $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.25 Geographic revenue information is based on the location to which we ship the product. For example, if a certain South Korean customer purchases throughtheir U.S. subsidiary and requests the products to be shipped to an address in South Korea, this sale will be reflected in the revenue for South Korea ratherthan U.S.The increases in geographical revenues across the regions in fiscal 2017 compared to fiscal 2016 were primarily attributable to additional revenues generatedas a result of our acquisition of Cascade Microtech and strong demand for our legacy products across the board. The decrease in Europe was driven bydecreases in legacy product revenue, partially offset by increases in sales of products related to our Cascade Microtech acquisition.The increases in geographical revenues across the regions except for South Korea and Taiwan in fiscal 2016 compared to fiscal 2015 were primarilyattributable to additional revenues generated in the second half of fiscal 2016 as a result of our acquisition of Cascade Microtech. In addition, North Americarevenues benefited from increased demand from our significant microprocessor customer. South Korea and Taiwan revenues decreased primarily due to thereduced 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, someof which 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.The overall gross profit and gross margin were as follows (dollars in thousands): Fiscal Year Ended December 30,2017 December 31,2016 $ Change % ChangeGross profit$215,597 $102,682 $112,915 110.0%Gross margin39.3% 26.7% Fiscal Year Ended December 31,2016 December 26,2015 $ Change % ChangeGross profit$102,682 $85,738 $16,944 19.8%Gross margin26.7% 30.4% Gross profit and margin fluctuate with revenue levels, product mix, selling prices, factory loading and material costs.The increase in overall gross margins in fiscal 2017 compared to fiscal 2016 was due to strong revenues, favorable product mix and higher factory utilizationin our DRAM and Foundry & Logic products, as well as improved manufacturing efficiency. Fiscal 2016 gross margin also included the impact of higheramortization of backlog and inventory step-up, which reduced gross margin.The decrease in gross margins in fiscal 2016 compared to fiscal 2015 was primarily due to the impact of lower factory utilization in certain of our factoriesand inclusion of the intangible asset amortization expenses from our Cascade Microtech acquisition. In addition, we made investments in additionalproduction capacity 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 mostsignificant microprocessor customer. We also incurred late delivery fees on probe cards that missed our customer's required delivery date in the first quarter offiscal 2016. These factors were partially offset by strong sales and gross margin in the second half of fiscal 2016 resulting from our acquisition of CascadeMicrotech.Stock-based compensation expense included in gross profit for fiscal 2017, 2016 and 2015 was $3.5 million, $2.5 million and $2.7 million, respectively. Future gross margins may be adversely impacted by lower revenues and lower factory utilization even though we have taken significant steps to reduce ouroperating cost structure. Our gross margins may also be adversely affected if we are required to26 record additional inventory write-downs for estimated average selling prices of products held in finished goods and work in process inventories that arebelow the manufacturing cost of those products.Gross profit and gross margin by segment were as follows (dollars in thousands): Fiscal 2017 Probe Cards Systems Corporate andOther TotalGross profit$195,903 $46,647 $(26,953) $215,597Gross margin43.1% 49.8% —% 39.3% 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%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 allocatingresources to, our reportable segments. Acquisition-related costs include transaction costs and any costs directly related to the acquisition and integration ofacquired businesses.Probe CardsGross profits and gross margins increased in fiscal 2017 compared to fiscal 2016 in the Probe Cards Segment as a result of increased sales to several majorcustomers, favorable product mix, higher factory utilization and improved manufacturing efficiency.Gross profit increased in fiscal 2016 compared to fiscal 2015 in the Probe Cards Segment primarily due to the inclusion of revenues related to the acquisitionof Cascade Microtech. Gross margins improved in the same period due to a more favorable product mix and improved manufacturing efficiency in ourFoundry & Logic factories. These benefits to gross profit and gross margin were partially offset by investments made in additional production capacity in ourSan 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 factoryutilization in the first half of fiscal 2016.SystemsGross margins decreased in the Systems Segment in fiscal 2017 compared to fiscal 2016 primarily due to unfavorable changes in product mix and foreigncurrency exchange rates. Prior to the acquisition of Cascade Microtech, we only operated in the Probe Cards Segment and did not generate any SystemsSegment revenue.Fiscal 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, 2016.27 Research and Development Fiscal Year Ended December 30,2017 December 31,2016 $ Change % Change (Dollars in thousands)Research and development$73,807 $57,453 $16,354 28.5%% of revenues13.5% 15.0% Fiscal Year Ended December 31,2016 December 26,2015 $ Change % Change (Dollars in thousands)Research and development$57,453 $44,184 $13,269 30.0%% of revenues15.0% 15.6% The increase in research and development expenses in fiscal 2017 compared to fiscal 2016 was primarily due to our acquisition of Cascade Microtech onJune 24, 2016, as well as an increase in incentive plan costs related to improved performance. The components of this increase were as follows (in millions): Fiscal 2017compared toFiscal 2016Employee compensation costs$12.5Stock-based compensation2.0Project material costs0.2General operating expenses1.0Depreciation0.7 $16.4The increase in research and development expenses in fiscal 2016 compared to fiscal 2015 was primarily due to the acquisition of Cascade Microtech. Thecomponents of this increase were as follows (in millions): Fiscal 2016compared toFiscal 2015Employee compensation costs$8.3Stock-based compensation(0.2)Project material costs2.4General operating expenses2.4Depreciation0.4$13.3Stock-based compensation expense included within research and development in fiscal 2017, 2016 and 2015 was $5.3 million, $3.3 million and $3.5million, respectively. 28 Selling, General and Administrative Fiscal Year Ended December 30,2017 December 31,2016 $ Change % Change (Dollars in thousands)Selling, general and administrative94,679 73,444 $21,235 28.9%% of revenues17.3% 19.1% Fiscal Year Ended December 31,2016 December 26,2015 $ Change % Change (Dollars in thousands)Selling, general and administrative73,444 $45,090 $28,354 62.9%% of revenues19.1% 16.0% The increase in selling, general and administrative expenses in fiscal 2017 compared to fiscal 2016 was primarily due to our acquisition of CascadeMicrotech on June 24, 2016, an increase in incentive plan costs related to improved performance, and amortization of intangible assets, offset by reduction inacquisition related costs. The components of this increase were as follows (in millions): Fiscal 2017compared toFiscal 2016Employee compensation costs$14.0Consulting fees3.3Depreciation and amortization2.7Travel related costs2.0General operating costs1.8Stock-based compensation2.5Acquisition related(5.1)$21.2The increase in selling, general and administrative expenses in fiscal 2016 compared to fiscal 2015 was primarily due to the acquisition of CascadeMicrotech. The components of this increase were as follows (in millions): Fiscal 2016compared toFiscal 2015Employee compensation costs$12.4Consulting fees1.8Depreciation and amortization2.7Travel related costs2.0General operating costs2.2Stock-based compensation(0.1)Acquisition related7.3$28.3Stock-based compensation expense included within selling, general and administrative expenses in fiscal 2017, 2016 and 2015 was $7.4 million, $4.9million and $5.4 million, respectively.29 Restructuring and Impairment Charges, net Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015 (Dollars in thousands)Restructuring and impairment charges,net810 19,692 567% of revenues0.1% 5.1% 0.2%Restructuring and impairment charges, net are comprised of costs related to employee termination benefits, cost of long-lived assets abandoned or impaired,as well as contract termination costs.Restructuring and impairment charges, net in fiscal 2017 and 2016 were related to the integration of Cascade Microtech into our operations. The fiscal 2016period also included costs related to the consolidation of our operations and a $12.4 million charge for the write-off of in-process research and development.Restructuring and impairment charges, net in fiscal 2015 primarily related to the modification of an equity-based award relating to a full-time employee whowas impacted by restructuring activities.See Notes 6 and Note 7 of Notes to Consolidated Financial Statements for additional information.Interest Income and Interest Expense Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015 (Dollars in thousands)Interest income$548 $327 $283Weighted average balance of cash andinvestments$124,637 $131,610 $172,941Weighted average yield on cash andinvestments0.84% 0.31% 0.12% Interest expense4,491 2,391 $—Average debt outstanding$127,598 $76,228 $—Weighted average interest rate on debt3.07% 1.25% —%Interest income is earned on our cash, cash equivalents and marketable securities. The increase in interest income in fiscal 2017 compared with fiscal 2016was attributable to higher investment yields offset by lower average cash and investment balances.Interest expense primarily includes interest on our term loan and interest-rate swap derivative contracts and term loan issuance costs amortization charges.The increase in interest expense in fiscal 2017 compared to fiscal 2016 is attributable to the term loan entered into at the end of June 2016 in connection withour acquisition of Cascade Microtech and, accordingly, was not outstanding for the first six months of fiscal 2016.Other Income (Expense), NetOther income (expense), net primarily includes the effects of foreign currency impact and various other gains and losses.Other income (expense), net in fiscal 2015 includes a $1.5 million gain as a result of a payment from our insurer arising from a business interruption insuranceclaim related to a factory fire at a customer during the second half of fiscal 2013, as well as a $1.0 million gain from the sale of intellectual property.30 Provision (Benefit) For Income Taxes Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015 (Dollars in thousands)Provision (benefit) for income taxes$1,293 $(43,638) $252Effective tax rate3.1% 86.9% (19.8)%Income tax provision (benefit) reflects the tax provision on our operations in foreign and U.S. jurisdictions, offset by tax benefits from lapsing of statute oflimitations related to uncertain tax positions in foreign jurisdictions. We continue to maintain a full valuation allowance against our U.S. Federal and Statedeferred tax assets ("DTAs").The provision for income taxes in fiscal 2017 includes taxes on higher profits in foreign jurisdictions in fiscal 2017 compared to fiscal 2016 and was reducedin fiscal 2017 for refundable AMT tax credits in the U.S. of $2.4 million. In addition, we continue to maintain a full valuation allowance against our U.S.Federal and State DTAs.The Tax Cuts and Jobs Act (“the Tax Act”) was enacted in December 2017 and significantly changes U.S. tax law by, among other things, repealing thecorporate alternative minimum tax beginning January 1, 2018. This change in U.S. tax law caused the reassessment of realizability of DTAs, whichcontributed $0.8 million to the $2.4 million tax benefit from AMT tax credits recognized in fiscal 2017. For further information, see Note 14 of Notes to theConsolidated Financial Statements.The income tax benefit in fiscal 2016 was primarily due to the release of valuation allowance on our DTAs in connection with our acquisition of CascadeMicrotech in June 2016 as a result of the establishment of deferred tax liabilities ("DTLs") on the acquired identifiable intangible assets. These DTLsexceeded the acquired DTAs by $44.0 million and created additional sources of income to realize a tax benefit for our previously-existing DTAs.Accordingly, the valuation allowance on a portion of our DTAs was released and resulted in an income tax benefit of $44.0 million.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, deductibilityof certain costs and expenses by jurisdiction.Liquidity and Capital ResourcesCapital ResourcesOur working capital increased to $213.7 million at December 30, 2017 compared to $172.0 million at December 31, 2016 primarily due to cash generatedfrom operations as a result of higher revenues and greater operating efficiencies.Cash and cash equivalents primarily consist of deposits held at banks, money market funds and corporate bonds that, at the time of purchase, had maturitiesof 90 days or less. Marketable securities primarily consist of U.S. agency securities and corporate bonds. We typically invest in highly-rated securities withlow probabilities 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, cash equivalents and marketable securities totaled approximately $140.2 million at December 30, 2017 compared to $108.9 million atDecember 31, 2016. We believe that we will be able to satisfy our working capital requirements for at least the next twelve months with the liquidityprovided by our existing cash, cash equivalents and marketable securities. To the extent necessary, we may consider entering into short and long-term debtobligations, raising cash through a stock issuance, or obtaining new financing facilities, which may not be available on terms favorable to us. Our futurecapital requirements may vary materially from those now planned.If we are unsuccessful in maintaining or growing our revenues, maintaining or reducing our cost structure (in response to an industry demand downturn orother event), or increasing our available cash through debt or equity financings, our cash, cash equivalents and marketable securities may decline in fiscal2018.We utilize a variety of tax planning and financing strategies in an effort to manage our worldwide cash and deploy funds to locations where they are needed.As part of these strategies, we indefinitely reinvest a portion of our foreign earnings and our current plans31 do not demonstrate a need to repatriate these earnings. Should we require additional capital in the U.S. we may elect to repatriate indefinitely-reinvestedforeign funds or raise capital in the U.S.Cash Flows Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015 (Dollars in thousands)Net cash provided by operating activities$86,323 $17,423 $36,122Net cash provided by (used in) investing activities(59,673) (206,318) 1,129Net cash (used in) provided by financingactivities(39,470) 143,614 (4,792)Operating Activities Net cash provided by operating activities in fiscal 2017 was primarily attributable to net income of $40.9 million, which included $69.5 million of net non-cash expenses, offset by operating assets and liabilities using $24.1 million of cash as discussed in more detail below.Accounts receivable increased $11.3 million to $81.5 million at December 30, 2017 compared to $70.2 million at December 31, 2016 as a result of increasedrevenues, timing of customer shipments and contractual payment terms.Inventories, net increased $8.0 million to $67.8 million at December 30, 2017 compared to $59.8 million at December 31, 2016 as a result of inventory buildaided by appreciation of the Euro, which affected our inventory at our Germany locations, partially offset by higher revenues and a $9.3 million increase toour inventory valuation allowance.Net cash provided by operating activities in fiscal 2016 was driven by net non-cash expenses of $43.0 million, partially offset by a net loss of $6.6 million,and changes in operating assets and liabilities, which used cash of $19.1 million. Changes in operating assets and liabilities in fiscal 2016 resulted primarilyfrom the acquisition of Cascade Microtech.Investing ActivitiesNet cash used in investing activities in fiscal 2017 primarily related to $17.8 million of cash used in the acquisition of property, plant and equipment and$41.7 million used for the purchase of marketable securities, net of maturities.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 theacquisition of Cascade Microtech, and cash used in the acquisition of property and equipment of $11.5 million, offset partially by proceeds from the sale ofmarketable securities of $33.9 million, net of purchases.Financing ActivitiesNet cash used in financing activities in fiscal 2017 primarily related to $33.1 million of principal payments made towards the repayment of our term loan,$19.0 million related to the repurchase of our common stock and $6.9 million related to tax withholdings associated with the net share settlements of ourequity awards, partially offset by $19.5 million of proceeds received from issuances of common stock under our stock incentive plans.Net cash provided by financing activities for fiscal 2016 primarily related to $150.0 million of proceeds from Term Loan debt used to partially fund theacquisition of Cascade Microtech and $5.7 million from proceeds received from purchases under our 2012 Employee Stock Purchase Plan and stock optionexercises, partially offset by $10.6 million of principal payments made towards the repayment of our Term Loan and $1.5 million used to pay for Term Loandebt issuance costs.Debt FacilityOn June 24, 2016, we entered into a credit agreement (the “Credit Agreement”) with HSBC Bank USA, National Association ("HSBC"). Pursuant to the CreditAgreement, the lenders provided us with a senior secured term loan facility of $150 million (the “Term Loan”). The proceeds of the Term Loan were used tofinance a portion of the purchase price paid in connection with the acquisition of Cascade Microtech.The Term Loan bears interest at a rate equal to, at our option, (i) the applicable London Interbank Offered Rate ("LIBOR") rate plus 2.00% per annum or (ii)Base Rate (as defined in the Credit Agreement) plus 1.00% per annum. We have currently elected to pay interest at 2.00% over the one-month LIBOR rate.Interest payments are payable in quarterly installments over a five-year32 period. The Term Loan amortizes in equal quarterly installments, which began June 30, 2016, in annual amounts equal to 5% for year one, 10% for year two,20% for year three, 30% for year four and 35% for year five. There are no prepayment penalties.The obligations under the Term Loan are guaranteed by substantially all of our assets and the assets of our domestic subsidiaries, subject to certain customaryexceptions.The Credit Agreement contains negative covenants customary for financing of this type, as well as certain financial maintenance covenants. As ofDecember 30, 2017, the balance outstanding pursuant to the term loan was $106.3 million at an interest rate of 3.35% and we were in compliance with allcovenants under the Credit Agreement.Stock Repurchase ProgramIn February 2017, our Board of Directors authorized a program to repurchase up to $25 million of outstanding common stock to offset potential dilution fromissuances of common stock under our stock-based incentive plans. The share repurchase program will expire on February 1, 2020. During fiscal 2017, werepurchased and retired 1,367,617 shares of common stock for $19.0 million and, as of December 30, 2017, $6.0 million remained available for futurerepurchases.Repurchased shares are retired upon the settlement of the related trade transactions with the excess of cost over par value charged to additional paid-incapital. All repurchases were made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.Contractual Obligations and CommitmentsThe following table summarizes our significant contractual commitments to make future payments in cash under contractual obligations as of December 30,2017 (in thousands): Payments Due In Fiscal Year 2018 2019 2020 2021 2022 After 2022 TotalOperating leases$6,603 $5,735 $4,385 $3,984 $3,061 $13,335 $37,103Purchase obligations34,839 2,681 1,540 1,518 — — 40,578Senior secured term loanfacility-principal payments18,750 37,500 48,750 1,250 — — 106,250Senior secured term loanfacility-interest payments(1)3,085 2,336 840 4 — — 6,265Total $63,277 $48,252 $55,515 $6,756 $3,061 $13,335 $190,196(1) Represents our minimum interest payment commitments at 3.35% per annum.Purchase obligations are primarily for purchases of inventory and manufacturing related service contracts. For the purposes of this table, purchase obligationsare 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 table above excludes our gross liability for unrecognized tax benefits, which totaled $18.3 million as of December 30, 2017. The timing of any paymentswhich could result from these unrecognized tax benefits will depend upon a number of factors. Accordingly, the timing of payment cannot be estimated andhas been excluded from the table above.Off-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 sheetarrangements or other contractually narrow or limited purposes. As of December 30, 2017, we were not involved in any off-balance sheet arrangements.33 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 andagainst certain liabilities. These arrangements include indemnities in favor of customers in the event that our products or services infringe a third party'sintellectual property or cause property or other indemnities in favor of our lessors in connection with facility leasehold liabilities that we may cause. Inaddition, we have entered into indemnification agreements with our directors and certain of our officers, and our bylaws contain indemnification obligationsin 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 inconnection with the indemnification obligation and the time within which an indemnification claim can be made. The duration of the indemnificationobligation may vary, and for most arrangements, survives the agreement term and is indefinite. We believe that substantially all of our indemnityarrangements provide either for limitations on the maximum potential future payments we could be obligated to make, or for limitations on the types ofclaims and damages we could be obligated to indemnify, or both. However, it is not possible to determine or reasonably estimate the maximum potentialamount of future payments under these indemnification obligations due to the varying terms of such obligations, a lack of history of prior indemnificationclaims, the unique facts and circumstances involved in each particular contractual arrangement and in each potential future claim for indemnification, andthe contingency of any potential liabilities upon the occurrence of events that are not reasonably determinable. We have not had any material requests forindemnification under these arrangements. We have not recorded any liabilities for these indemnification arrangements on our Consolidated Balance Sheetsas of December 30, 2017 or December 31, 2016.New Accounting PronouncementsSee Note 19 of Notes to Consolidated Financial Statements.Item 7A: Quantitative and Qualitative Disclosures about Market RiskForeign Currency Exchange RiskWe conduct certain operations in foreign currencies. We enter into currency forward exchange contracts to hedge a portion, but not all, of existing foreigncurrency denominated amounts. Gains and losses on these contracts are generally recognized in Other income (expense), net in our Consolidated Statementsof Operations. Because the effect of movements in currency exchange rates on the currency forward exchange contracts generally offsets the related effect onthe underlying items being hedged, these financial instruments are not expected to subject us to risks that would otherwise result from changes in currencyexchange rates. We do not use derivative financial instruments for trading or speculative purposes. We recognized a net loss from our foreign exchange of$0.6 million, $0.7 million and $0.0 million, respectively in fiscal 2017, 2016 and 2015.Interest Rate SensitivityOur exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We invest in a number of securities including U.S.agency discount notes, money market funds and commercial paper. We attempt to ensure the safety and preservation of our invested principal funds bylimiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in high grade investment securities. By policy, we limit theamount 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 (See Note 5 of Notes to Consolidated Financial Statements) is insignificant as a result of theinterest-rate swap agreement (See Note 8 of Notes to Consolidated Financial Statements) that we entered into with HSBC and other lenders to hedge theinterest payments on our term loan.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 maydecline as a result of decreases in interest rates. A hypothetical 100 basis-point (one percentage point) increase or decrease in interest rates compared to ratesat December 30, 2017 and December 31, 2016 would have affected the fair value of our investment portfolio by $1.1 million and $0.1 million, respectively.34 Item 8: Financial Statements and Supplementary DataConsolidated Financial StatementsThe consolidated financial statements and supplementary data required by this item are included in the section entitled "Consolidated Financial Statements"of this Annual Report on Form 10-K. See Item 15 for a list of our consolidated financial statements.Item 9: Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 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 definedin Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) were effective to ensure that informationrequired to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the timeperiods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our principalexecutive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), except asdescribed below, that occurred during the period covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting.On June 24, 2016, we completed the acquisition of Cascade Microtech, headquartered in Beaverton, Oregon. As of December 30, 2017, we have updated ourinternal control over financial reporting as necessary and completed the testing of its effectiveness.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 Officerand Principal Financial Officer, and effected by our board of directors, management and other personnel and consultants, to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles, and includes 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 ourmanagement and directors; and(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could havea 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 compliancewith the policies or procedures may deteriorate.Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conductedan assessment of the effectiveness of our internal control over financial reporting as of December 30, 2017. In making this assessment, our management usedthe 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 ofDecember 30, 2017, based on the criteria in Internal Control-Integrated Framework (2013) issued by the COSO.35 The effectiveness of our internal control over financial reporting as of December 30, 2017 has been audited by KPMG LLP, an independent registered publicaccounting 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 beconsidered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that allcontrol issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments indecision making can be faulty and that breakdowns can occur because of simple error or mistake. Control systems can also be circumvented by the individualacts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based, in part,on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals underall potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliancewith 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 completeunderstanding of the subject matter presented.Item 9B: Other InformationNone.36 PART IIIItem 10: Directors, Executive Officers and Corporate GovernanceThe information required by this item is incorporated by reference to the proxy statement for our 2018 Annual Meeting of Stockholders.Item 11: Executive CompensationThe information required by this item is incorporated by reference to the proxy statement for our 2018 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 2018 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 2018 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 2018 Annual Meeting of Stockholders.37 PART IVItem 15: Exhibits, Financial Statement SchedulesFinancial Statements and SchedulesThe Consolidated Financial Statements, together with the report thereon of KPMG LLP, are included on the pages indicated below: PageReport of KPMG LLP 41Consolidated Balance Sheets as of December 30, 2017 and December 31, 2016 43Consolidated Statements of Operations for the fiscal years ended December 30, 2017, December 31, 2016 and December 26, 2015 44Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended December 30, 2017, December 31, 2016 andDecember 26, 2015 45Consolidated Statements of Stockholders' Equity for the fiscal years ended December 30, 2017, December 31, 2016 and December 26,2015 46Consolidated Statements of Cash Flows for the fiscal years ended December 30, 2017, December 31, 2016 and December 26, 2015 47Notes to Consolidated Financial Statements 49Financial statement schedules have been omitted because they are not applicable or the required information is shown in the consolidated financialstatements or notes thereto.ExhibitsThe exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K.Item 16: Form 10-K SummaryNone.38 SIGNATURESPursuant 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 February 27, 2018. 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 undersignedand in 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 otherdocuments in connection therewith, and to file the same, with all exhibits thereto, with the Securities and Exchange Commission, granting unto saidattorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act requisite and necessary to be done with respectto this Annual Report on Form 10-K, including amendments, as fully to all intents and purposes as the undersigned might or could do in person, herebyratifying and confirming all that said attorneys-in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtuehereof.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 February 27, 2018 Michael D. Slessor Principal Financial Officer and PrincipalAccounting Officer: /s/ MICHAEL M. LUDWIGChief Financial Officer February 27, 2018 Michael M. Ludwig39 SignatureTitle Date Additional Directors: /s/ LOTHAR MAIERDirector February 27, 2018 Lothar Maier /s/ EDWARD ROGAS, JRDirectorFebruary 27, 2018 Edward Rogas, Jr /s/ KELLEY STEVEN-WAISSDirectorFebruary 27, 2018 Kelley Steven-Waiss /s/ MICHAEL W. ZELLNERDirectorFebruary 27, 2018 Michael W. Zellner /s/ RAYMOND LINKDirectorFebruary 27, 2018 Raymond Link /s/ RICHARD DELATEURDirectorFebruary 27, 2018 Richard DeLateur /s/ THOMAS ST. DENNISDirectorFebruary 27, 2018 Thomas St. Dennis40 Report of Independent Registered Public Accounting FirmTo the Stockholders and Board of DirectorsFormFactor, Inc.:Opinions on the Consolidated Financial Statements and Internal Control Over Financial ReportingWe have audited the accompanying consolidated balance sheets of FormFactor, Inc. and subsidiaries (the Company) as of December 30, 2017 andDecember 31, 2016, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of theyears in the three-year period ended December 30, 2017, and the related notes (collectively, the consolidated financial statements). We also have audited theCompany’s internal control over financial reporting as of December 30, 2017, based on criteria established in Internal Control - Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 30, 2017 and December 31, 2016, and the results of its operations and its cash flows for each of the years in the three-year period endedDecember 30, 2017, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects,effective internal control over financial reporting as of December 30, 2017, based on criteria established in Internal Control - Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission.Basis for OpinionsThe Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting,and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on InternalControl over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on the Company’s consolidated financial statementsand an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the PublicCompany Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internalcontrol over financial reporting was maintained in all material respects.Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financialstatements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles usedand significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internalcontrol over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.41 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 compliancewith the policies or procedures may deteriorate./s/ KPMG LLPWe have served as the Company’s auditor since 2013.Santa Clara, CaliforniaFebruary 27, 201842 FORMFACTOR, INC.CONSOLIDATED BALANCE SHEETS December 30,2017 December 31,2016 (In thousands, except shareand per share data)ASSETS Current assets: Cash and cash equivalents$91,184 $101,408Marketable securities48,988 7,497Accounts receivable, net81,515 70,225Inventories, net67,848 59,806Restricted cash372 106Refundable income taxes2,242 1,391Prepaid expenses and other current assets13,705 14,276Total current assets305,854 254,709Restricted cash1,170 1,082Property, plant and equipment, net46,754 42,663Goodwill189,920 188,010Intangibles, net97,484 126,608Deferred tax assets3,133 3,310Other assets2,259 2,600Total assets$646,574 $618,982LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable$35,046 $34,075Accrued liabilities32,887 30,184Current portion of term loan, net of unamortized issuance cost of $307 and $42418,443 12,701Income taxes payable807 442Deferred revenue4,978 5,305Total current liabilities92,161 82,707Long-term income taxes payable1,028 1,315Term loan, less current portion, net of unamortized issuance cost of $272 and $77587,228 125,475Deferred tax liabilities3,379 3,703Deferred rent and other liabilities4,141 4,726Total liabilities187,937 217,926 Stockholders' equity: Preferred stock, $0.001 par value: 10,000,000 shares authorized; no shares issued and outstanding— —Common stock, $0.001 par value: 250,000,000 shares authorized; 72,532,176 and 70,907,847 shares issued and outstanding73 71Additional paid-in capital843,116 833,341Accumulated other comprehensive income (loss)3,021 (3,740)Accumulated deficit(387,573) (428,616)Total stockholders' equity458,637 401,056Total liabilities and stockholders' equity$646,574 $618,982The accompanying notes are an integral part of these consolidated financial statements.43 FORMFACTOR, INC.CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015 (In thousands, except per share data)Revenues$548,441 $383,881 $282,358Cost of revenues332,844 281,199 196,620Gross profit215,597 102,682 85,738Operating expenses: Research and development73,807 57,453 44,184Selling, general and administrative94,679 73,444 45,090Restructuring and impairment charges, net810 19,692 567Total operating expenses169,296 150,589 89,841Operating income (loss)46,301 (47,907) (4,103)Interest income548 327 283Interest expense(4,491) (2,391) —Other income (expense), net(152) (224) 2,549Income (loss) before income taxes42,206 (50,195) (1,271)Provision (benefit) for income taxes1,293 (43,638) 252Net income (loss)$40,913 $(6,557) $(1,523)Net income (loss) per share: Basic$0.57 $(0.10) $(0.03)Diluted$0.55 $(0.10) $(0.03)Weighted-average number of shares used in per share calculations: Basic72,292 64,941 57,850Diluted74,239 64,941 57,850The accompanying notes are an integral part of these consolidated financial statements.44 FORMFACTOR, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015 (In thousands)Net Income (loss)$40,913 $(6,557) $(1,523)Other comprehensive income (loss), net of tax: Foreign currency translation adjustments6,764 (2,042) (397)Unrealized gains (losses) on available-for-sale marketable securities(206) 29 (64)Unrealized gains on derivative instruments203 495 —Other comprehensive income (loss), net of tax6,761 (1,518) (461)Comprehensive Income (loss)$47,674 $(8,075) $(1,984)The accompanying notes are an integral part of these consolidated financial statements.45 FORMFACTOR, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Stock AdditionalPaid-inCapital AccumulatedOtherComprehensiveIncome (Loss) AccumulatedDeficit Total Shares Amount (In thousands, except shares)Balances, December 27, 201456,518,428 $57 $711,676 $(1,761) $(420,536) $289,436Issuance of common stock pursuant toexercise of options for cash24,607 — 209 — — 209Issuance of common stock pursuant to vestingof restricted stock units1,993,603 2 — — — 2Issuance of common stock under theEmployee Stock 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: Unrealized loss on marketable 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 toexercise of options for cash232,190 — 2,003 — — 2,003Issuance of common stock pursuant to vestingof restricted stock units1,579,218 2 — — — 2Issuance of common stock under theEmployee Stock Purchase Plan557,281 1 3,740 — — 3,741Issuance of common stock pursuant toCascade Microtech acquisition10,450,189 10 97,069 — — 97,079Stock-based compensation— — 11,625 — — 11,625Components of other comprehensive loss: Unrealized gain on marketable securities,net of tax— — — 29 — 29Currency translation adjustments— — — (2,042) — (2,042)Unrealized gain on derivative instruments,net of tax— — — 495 — 495Net loss— — — — (6,557) (6,557)Balances, December 31, 201670,907,847 71 833,341 (3,740) (428,616) 401,056Issuance of common stock pursuant toexercise of options for cash1,473,389 1 13,836 — — 13,837Issuance of common stock pursuant to vestingof restricted stock units1,364,612 1 — — — 1Common stock withheld from vesting ofrestricted stock units for tax(502,016) — (6,886) — — (6,886)Issuance of common stock under theEmployee Stock Purchase Plan655,961 1 5,694 — — 5,695Purchase and retirement of common stock(1,367,617) (1) (18,969) — — (18,970)Stock-based compensation— — 16,230 — — 16,230ASU 2016-09 Adjustment— — (130) — 130 —Components of other comprehensive income: Unrealized loss on marketable securities,net of tax— — — (206) — (206)Currency translation adjustments— — — 6,764 — 6,764Unrealized gain on derivative instruments,net of tax— — — 203 — 203Net income— — — — 40,913 40,913Balances, December 30, 201772,532,176 $73 $843,116 $3,021 $(387,573) $458,637The accompanying notes are an integral part of these consolidated financial statements.46 FORMFACTOR, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015 (In thousands)Cash flows from operating activities: Net income (loss)$40,913 $(6,557) $(1,523)Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation13,626 11,371 10,634Amortization30,940 35,427 13,137Impairment of long-lived assets— 12,400 8Amortization (accretion) of discount on investments38 (31) (10)Stock-based compensation expense16,339 11,686 12,075Amortization of debt issuance costs619 307 —Deferred income tax benefit(590) (45,022) (14)Provision (benefit) for doubtful accounts receivable(99) 15 18Provision for excess and obsolete inventories9,259 6,631 6,493Acquired inventory step-up amortization569 10,022 —Loss (gain) on disposal off of long-lived assets510 361 (1,009)Foreign currency transaction gains(1,717) (77) (275)Gain on derivative instruments(10) (51) —Changes in assets and liabilities: Accounts receivable(10,651) (6,847) 8,261Inventories(15,635) (11,733) (8,167)Prepaid expenses and other current assets870 (3,292) 173Refundable income taxes(413) 126 782Other assets61 (248) 250Accounts payable741 3,433 (2,036)Accrued liabilities810 786 (333)Income taxes payable62 (1,127) 19Deferred rent and other liabilities111 126 52Deferred revenues(30) (283) (2,413)Net cash provided by operating activities86,323 17,423 36,122Cash flows from investing activities: Acquisition of property, plant and equipment(17,756) (11,521) (8,640)Acquisition of Cascade Microtech, net of cash acquired— (228,031) —Proceeds from sale of subsidiary68 47 53Proceeds from sale of property and property, plant and equipment— 53 1,200Purchases of marketable securities(50,733) (10,587) (66,234)Proceeds from maturities of marketable securities8,996 44,500 74,750Change in restricted cash(248) (779) —Net cash provided by (used in) investing activities(59,673) (206,318) 1,129Cash flows from financing activities: Proceeds from issuances of common stock19,510 5,745 3,418Purchase and retirement of common stock(18,970) — (8,210)Tax withholdings related to net share settlements of equity awards(6,885) — —Proceeds from term loan debt— 150,000 —Payments on term loan debt(33,125) (10,625) —Payment of term loan debt issuance costs— (1,506) —Net cash provided by (used in) financing activities(39,470) 143,614 (4,792)Effect of exchange rate changes on cash and cash equivalents2,596 425 (135)Net increase (decrease) in cash and cash equivalents(10,224) (44,856) 32,324Cash and cash equivalents, beginning of year101,408 146,264 113,940Cash and cash equivalents, end of year$91,184 $101,408 $146,264 47 FORMFACTOR, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015 (In thousands)Non-cash investing and financing activities: Fair value of stock issued in connection with the acquisition of Cascade Microtech$— $97,080 $—Fair value of stock options and restricted stock-based awards assumed inconnection with the acquisition of Cascade Microtech— 7,776 —Fair value of vested stock options and restricted stock-based awards paid in cashin connection with the acquisition of Cascade Microtech— 12,815 —Change in accounts payable and accrued liabilities related to property, plant andequipment purchases(33) (732) 361 Supplemental disclosure of cash flow information: Income taxes paid, net$3,172 $2,567 $27Cash paid for interest3,836 2,110 —The accompanying notes are an integral part of these consolidated financial statements.48 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1—Formation and Nature of BusinessFormFactor, Inc. was incorporated in Delaware on April 15, 1993 and is headquartered in Livermore, California. We are a leading provider of test andmeasurement solutions. We provide a broad range of high-performance probe cards, analytical probes, probe stations and thermal sub-systems to bothsemiconductor companies and scientific institutions. Our products provide electrical information from a variety of semiconductor and electro-optical devicesand integrated circuits (devices) from development to production. Customers use our products and services to lower production costs, improve yields, andenable development of complex next generation devices. We believe our technology 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 andmanufacturing operations are located in Beaverton, Oregon, United States and Munich and Thiendorf, Germany, and sales, service and support operations arelocated in the United States, Germany, Japan, Taiwan, China, and Singapore. The acquisition of Cascade Microtech transforms our business into a broadertest and measurement market 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 30, 2017, December 31, 2016 and December 26, 2015 consisted of52 weeks, 53 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.On June 24, 2016, we completed the acquisition of Cascade Microtech and, accordingly, our Consolidated Statements of Operations include the results ofoperations of Cascade Microtech since that date. See Note 4. 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 ineffect during the period. The gains and losses from the foreign currency translation of these subsidiaries' financial statements are included as a separatecomponent of stockholders' equity on our Consolidated Balance Sheets 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 remeasuredusing average exchange rates for the period, except for costs related to those balance sheet items that are remeasured using historical exchange rates. Theresulting remeasurement gains and losses are included in the Consolidated Statements of Operations as a component of Other income (expense), net asincurred.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 andliabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates may change asnew information is obtained. We believe that the estimates, assumptions and judgments involved in revenue recognition, fair value of marketable securities,fair value of derivative financial instruments used to hedge both foreign currency and interest rate exposures, allowance for doubtful accounts, reserves forproduct warranty, valuation of obsolete and slow moving inventory, assets acquired and liabilities assumed in business combinations, legal contingencies,valuation of goodwill, the assessment of recoverability of long-lived assets, valuation and recognition of stock-based compensation, provision for incometaxes and valuation of deferred tax assets have the greatest potential impact on our consolidated financial statements. Actual results could differ from thoseestimates.49 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)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, which requires, among other things, that assets acquired and liabilities assumed berecognized at their estimated fair values as of the acquisition date, and that the fair value of acquired intangibles, including in-process research anddevelopment ("IPR&D"), be recorded on the balance sheet. Transaction costs are expensed as incurred. Any excess of the purchase price over the assigned fairvalues 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 or lessat the time of acquisition. Marketable securities consist primarily of highly liquid investments with maturities of greater than 90 days when purchased. Weclassify our marketable securities as available-for-sale and, accordingly, report them at fair value with the related unrealized gains and losses included inAccumulated other comprehensive income (loss) in our Consolidated Balance Sheets. Any unrealized losses which are considered to be other-than-temporaryare recorded in Other income (expense), net in the Consolidated Statements of Operations. Realized gains and losses on the sale of marketable securities aredetermined using the specific-identification method and recorded in Other income (expense), net in the Consolidated 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-saleinvestment is 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 more likely 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 donot expect to recover the 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, theavailable-for-sale investment before recovery of its amortized cost basis, we recognize an other-than- temporary impairment charge equal to the differencebetween the investment's amortized cost basis and its fair value. We did not record any other-than-temporary impairments during fiscal 2017, 2016 or 2015.Foreign Exchange ManagementWe transact business in various foreign currencies. We enter into forward foreign exchange contracts in an effort to mitigate the risks associated with currencyfluctuations 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 offsetcertain foreign currency balance sheet exposures and certain operational exposures are recognized as Other income (expense), net in the ConsolidatedStatements of Operations in the period in which the exchange rates change. These gains and losses are intended to partially offset the foreign currencyexchange gains and losses on the underlying exposures being hedged. We record the fair value of these contracts as of the end of our reporting period in theConsolidated Balance Sheets. We do not use derivative financial instruments for trading or speculative purposes.Restricted CashRestricted 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 obligation.Accounts Receivable and Allowance for Doubtful AccountsThe majority of our trade receivables are derived from sales to large multinational semiconductor manufacturers throughout the world, are recorded at theirinvoiced amount and do not bear interest.In order to monitor potential credit losses, we perform ongoing credit evaluations of our customers' financial condition. An allowance for doubtful accounts ismaintained based upon our assessment of the expected collectability of all accounts receivable. The allowance for doubtful accounts is reviewed andassessed for adequacy on a quarterly basis. We take into consideration (1) any circumstances of which we are aware of a customer's inability to meet itsfinancial obligations and (2) our judgments as to prevailing economic conditions in the industry and their impact on our customers. If circumstances change,and the financial condition of our customers is adversely affected and they are unable to meet their financial obligations, we may need to take additionalallowances, which would result in an increase in our operating expense.50 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Activity related to our allowance for doubtful accounts receivable was as follows (in thousands): Fiscal Year EndedDecember 30,2017 December 31,2016 December 26,2015Balance at beginning of year$299 $284 $266Charges (reversals) to costs and expenses(99) 51 25Write-offs— (36) (7)Balance at end of year$200 $299 $284InventoriesInventories are stated at the lower of cost (principally standard cost which approximates actual cost on a first-in, first-out basis) or net realizable value.The provision for potentially excess and obsolete inventory is made based on management's analysis of inventory levels and forecasted future sales. On aquarterly basis, we review inventory quantities on hand and on order under non-cancelable purchase commitments in comparison to our past usage andestimated forecast of product demand for the next six to twelve months to determine what inventory quantities, if any, may not be sellable. Based on thisanalysis, we write down the affected inventory value for estimated excess and obsolescence charges. Once the value is adjusted, the original cost of ourinventory, less the related inventory write-down, represents the new cost basis. Reversal of these write downs is recognized only when the related inventoryhas 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. Many of ourproducts are complex, custom to a specific chip design and have to be delivered on short lead-times. Probe cards are manufactured in low volumes, but, forcertain materials, the purchases are often subject to minimum order quantities in excess of the actual underlying probe card demand. It is not uncommon forus to acquire production materials and commence production activities based on estimated production yields and forecasted demand prior to, or in excess of,actual demand for our probe cards. These factors result in normal recurring inventory valuation charges to Cost of revenues.Inventory write downs totaled $9.3 million, $6.6 million and $6.5 million for fiscal 2017, 2016 and 2015, respectively.Property, Plant, and EquipmentProperty, plant 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:Machinery and equipment1to5yearsComputer equipment and software1to3yearsFurniture and fixtures1to5yearsLeasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related asset. Construction-in-progress assets arenot depreciated until the assets are placed in service. Upon sale or retirement of assets, the cost and related accumulated depreciation or amortization areremoved from the Consolidated Balance Sheets and the resulting gain or loss is reflected in Operating income (loss) in our Consolidated Statements ofOperations.GoodwillGoodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed. We first assess qualitativefactors to determine whether it is necessary to perform a two-step quantitative goodwill impairment test. If we determine, as a result of the qualitativeassessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative impairment test isrequired. 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 of theapplicable reporting unit with its aggregate carrying value, including goodwill. We generally determine the fair value of our reporting units using acombination of the income approach (that includes the use of the discounted cash flow method) and the market approach (guideline company approach)valuation methodologies. If the carrying amount of a reporting unit exceeds the fair value of that reporting unit, we perform the second step of thequantitative impairment test to51 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reportingunit's goodwill with the carrying value of that goodwill.We perform our annual goodwill impairment test in the fourth quarter of each year by assessing qualitative factors, including, but not limited to anassessment of our market capitalization, which was significantly higher than our book value. Based on these tests, we determined that the two-stepquantitative test was not required and no impairment charges were recorded in fiscal 2017, 2016 or 2015.The evaluation of goodwill for impairment requires the exercise of significant judgment. In the event of future changes in business conditions, we will berequired to reassess and update our forecasts and estimates used in future impairment analysis. If the results of these analysis are lower than current estimates,a material impairment charge may result at that time.See Note 10 for additional information.Intangible AssetsIntangible assets consist of acquisition related intangible assets and intellectual property. The intangible assets are being amortized over periods of 1 to 10years, which reflect the pattern in which economic benefits of the assets are expected to be realized. 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 ahistory of losses or a forecast of continuing losses associated with the use of the intangible assets; and current expectation that the intangible assets will morelikely than not be sold or disposed of before the end of their estimated useful lives. We assess the recoverability of identified intangible assets by comparingthe projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carryingamounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets.See Note 10 for additional information.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:significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantlyin excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with ahistory 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 soldor disposed of before the end 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.See Note 7 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 creditratings, diversification and maturities that seek to maintain safety and liquidity. Deposits in these banks may exceed the amounts of insurance provided onsuch 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 ofcustomers and generally do not require collateral.52 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following customers represented 10% or more of our revenues: Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015Intel25.9% 30.1% 19.6%Samsung* * 14.6SK Hynix* * 14.3Micron* * 11.7* Less than 10% of revenuesAt December 30, 2017, two customers accounted for 24.1% and 13.6% of gross accounts receivable, respectively. At December 31, 2016, one customeraccounted for 21.0% of gross accounts receivable. No other customers accounted for 10% or more of gross accounts receivable for these fiscal period ends.We operate in the competitive semiconductor industry, including the Dynamic Random Access Memory, or DRAM, Flash memory, and Foundry & Logic(previously referred to as System-on-Chip, or SoC) and probe stations markets, which have been characterized by price erosion, rapid technological change,short product life cycles and heightened foreign and domestic competition. Significant technological changes in the industry could adversely affect ouroperating results.We are exposed to non-performance risk by counterparties on our derivative instruments used in hedging activities. We seek to minimize risk by diversifyingour 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 obtaincomponents as required, or to develop alternative sources, if and as required in the future, could result in delays or reductions in product shipments, which inturn could have a material 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 fixed ordeterminable and collection of the related receivable is reasonably assured. In instances where final acceptance of the deliverable is specified by thecustomer, revenue is deferred until all acceptance criteria have been met.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, service contracts and extended warranty contracts. The total sales price is allocated based on the relative fair value of eachcomponent. 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 service contracts, extended warranties and customer deposits. Deferred revenue related to service contracts and extendedwarranties 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.Deferred RevenueWhen 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 costsare classified as a component of Inventories, net in the Consolidated Balance Sheets.Warranty ObligationsWe offer warranties on certain products and record a liability for the estimated future costs associated with warranty claims at the time revenue is recognized.The warranty liability is based upon historical experience and our estimate of the level of future costs. While we engage in product quality programs andprocesses, 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 warranty53 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)and maintain a reserve for the related expenses based upon our historical experience and any specifically identified field failures. As we sell new products toour customers, we must exercise considerable judgment in estimating the expected failure rates. This estimating process is based on historical experience ofsimilar products, as well as various other assumptions that we believe to be reasonable under the circumstances.We provide for the estimated cost of product warranties at the time revenue is recognized. 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 Year Ended December 30,2017 December 31,2016 December 26,2015Balance at beginning of year$2,972 $1,116 $1,592Warranty reserve from acquisition-Cascade Microtech— 795 —Accruals8,115 5,254 2,536Settlements(7,425) (4,193) (3,012)Balance at end of year$3,662 $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.Restructuring 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-timebenefit arrangement or under an on-going benefit arrangement. For restructuring charges recorded as an on-going benefit arrangement, a liability for 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 therecognition of one-time employee termination benefits is dependent upon the period of time the employees are required to render service aftercommunication. If employees are not required to render service in order to receive the termination benefits or if employees will not be retained to renderservice beyond the minimum legal notification period, a liability for the termination benefits is recognized at the communication date. In instances whereemployees will be retained to render service beyond the minimum legal notification period, the liability for employee termination benefits is measuredinitially at the communication date based on the fair value of the liability as of the termination date and is recognized ratably over the future service period.We continually evaluate the adequacy of the remaining liabilities 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 wellas for contract 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 the significance of, and the timing of the execution of such activities, this process is complex and involves periodic reassessments of estimates made atthe time the original decisions were made, including evaluating real estate market conditions for expected vacancy periods and sub-lease rents. Although webelieve that these estimates accurately reflect the costs of our restructuring plans, actual results may differ, thereby requiring us to record additionalprovisions or reverse a portion of such provisions.We recorded restructuring charges of $0.8 million, $7.3 million and $0.6 million for fiscal years 2017, 2016 and 2015, respectively.See Note 6 for additional information.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 differencesreverse and for operating losses and tax credit carryforwards. We estimate our provision for income taxes and amounts ultimately payable or recoverable innumerous tax jurisdictions around the world. Estimates involve interpretations of regulations and are inherently complex. Resolution of income taxtreatments in individual jurisdictions54 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)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 an ongoingbasis 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 is morelikely 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 negativeevidence giving greater weight to our recent cumulative losses and our ability to carry back losses against prior taxable income and, commensurate withobjective verifiability, the forecast of future taxable income, including the reversal of temporary differences and the implementation of feasible and prudenttax planning strategies.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 are then measured based on thelargest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. We report a liability for unrecognized tax benefitsresulting from uncertain tax positions taken or expected to be taken in a tax return. We adjust these reserves 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 of these matters is different than the amountsrecorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxesincludes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest. We recognize interest andpenalties related to unrecognized tax benefits within the income tax provision. Accrued interest and penalties are included within the related tax liability inthe Consolidated Balance Sheets.We file annual income tax returns in multiple taxing jurisdictions around the world. A number of years may elapse before an uncertain tax position is auditedand finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe thatour related liability reflects the most likely outcome. We adjust the liability, as well as the related interest, in light of changing facts and circumstances.Settlement of any particular position could require the use of cash.See Note 14 for additional information, including the Tax Cuts and Jobs Act enacted in December 2017.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 value ofthe portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service periods in our Consolidated Statementsof Operations. The fair value of stock options is measured using the Black-Scholes option pricing model, while the fair value for restricted stock units("RSUs") is measured based on the closing market price of our common stock on the date of grant. The fair value of Performance RSUs ("PRSU") is based oncertain market performance criteria is measured using the Monte Carlo simulation pricing model.See Notes 12 and 13 for additional information.Net Income (Loss) Per ShareBasic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period.Diluted net income (loss) per share is computed giving effect to all potentially dilutive common stock and common stock equivalents, including stockoptions, RSUs and common stock subject to repurchase.55 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The amounts used in the calculation of basic and diluted net income (loss) per share are as follows (in thousands): Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015Numerator: Net income (loss) used in computing basic and dilutednet income (loss) per share$40,913 $(6,557) $(1,523)Denominator: Weighted-average shares used in computing basic netloss per share72,292 64,941 57,850Add potentially dilutive securities1,947 — —Weighted-average shares used in computing basic anddiluted net loss per share74,239 64,941 57,850The following securities were excluded from the calculation of diluted net income (loss) per share because their effect would have been anti-dilutive for theperiods presented (in thousands): Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015Options to purchase common stock— 2,198 2,320Restricted stock units1 3,113 2,578Employee stock purchase plan— 10 8Total potentially dilutive securities1 5,321 4,906Accumulated Other Comprehensive Income (Loss)Accumulated other comprehensive income (loss) includes the following items, the impact of which has been excluded from earnings and reflected ascomponents of stockholders' equity as shown below (in thousands): December 30,2017 December 31,2016Unrealized losses on marketable securities$(660) $(454)Cumulative translation adjustments2,983 (3,781)Unrealized gains on derivative instruments698 495Accumulated other comprehensive income (loss)$3,021 $(3,740)Note 3—Balance Sheet ComponentsMarketable SecuritiesMarketable securities consisted of the following (in thousands):December 30, 2017AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses Fair ValueU.S. Treasuries$3,968 $— $(5) $3,963Commercial paper3,000 — — 3,000Corporate bond30,785 1 (150) 30,636Certificate of deposit960 — (3) 957Agency securities10,489 — (57) 10,432 $49,202 $1 $(215) $48,988December 31, 2016AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses Fair ValueU.S. Treasuries$7,504 $— $(7) $7,49756 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)We 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 inAccumulated other comprehensive income (loss) 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 gains and losses in fiscal2017 and 2016 were caused primarily by changes in interest rates.The longer the duration of marketable securities, the more susceptible they are to changes in market interest rates and bond yields. As yields increase, thosesecurities with a lower yield-at-cost show a mark-to-market unrealized loss. We anticipate recovering the full cost of the securities either as market conditionsimprove, or as the securities mature. Accordingly, we believe that the unrealized losses are not other-than-temporary. When evaluating the investments forother-than-temporary impairment, we review factors such as the length of time and extent to which fair value has been below the amortized cost basis, currentmarket liquidity, interest rate risk, the financial condition of the issuer, and credit rating downgrades. As of December 30, 2017 and December 31, 2016, noneof our investments had been in a continuous loss position for 12 months or more.The contractual maturities of marketable securities were as follows (in thousands): December 30, 2017 December 31, 2016 AmortizedCost Fair Value AmortizedCost Fair ValueDue in one year or less$23,009 $22,966 $7,504 $7,497Due after one year to five years26,193 26,022 — — $49,202 $48,988 $7,504 $7,497See also Note 9.Inventories, netInventories consisted of the following (in thousands): December 30,2017 December 31,2016Raw materials$33,101 $27,402Work-in-progress20,134 20,390Finished goods14,613 12,014 $67,848 $59,806Property, Plant and Equipment, netProperty, plant and equipment, net consisted of the following (in thousands): December 30,2017 December 31,2016Machinery and equipment$183,186 $169,056Computer equipment and software32,841 30,640Furniture and fixtures6,478 6,060Leasehold improvements73,978 72,954Sub-total296,483 278,710Less: Accumulated depreciation and amortization(255,755) (241,943)Net property, plant and equipment40,728 36,767Construction-in-progress6,026 5,896Total$46,754 $42,66357 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)In fiscal 2017 and 2015, asset impairment charges were immaterial. See Note 7 for a discussion of asset impairment charges recorded in fiscal 2016.Accrued LiabilitiesAccrued liabilities consisted of the following (in thousands): December 30,2017 December 31,2016Accrued compensation and benefits$18,141 $14,801Accrued ESPP withheld3,279 2,507Accrued warranty3,662 2,972Accrued income and other taxes3,158 3,562Other accrued expenses4,647 6,342 $32,887 $30,184Note 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.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 “EffectiveTime”), 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 theconsummation of the merger), was canceled and converted into the right to receive an amount in cash equal to the excess, if any, of $21.47 over theapplicable per share exercise price of such option. Each out-of-the-money vested option to purchase shares of Cascade Microtech common stock wascanceled without any cash payment. Also at the Effective Time, each Cascade Microtech RSU, which was outstanding and vested immediately prior to theEffective Time (or that vested as a result of the consummation of the Merger), was canceled and converted into the right to receive an amount of cash (withoutinterest) equal to $21.47 per share underlying such RSU.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 RUSs representing 777,444 shares of our common stock as of the acquisition date. The fair value of thestock options assumed was determined using a Black-Scholes valuation model with market-based assumptions. The fair value of the RSUs assumed was $8.92per unit, based on the FormFactor closing stock price on June 24, 2016. The fair value of unvested equity awards relating to future services, and not yetearned, is being recorded as operating expense over the remaining service periods. Option pricing models require the use of highly subjective marketassumptions, including expected stock price volatility, which, if changed, can materially affect fair value estimates. See Note 12 for additional information.The acquisition was accounted for using the acquisition method of accounting, 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 acquisitionconsideration and the fair value of the identifiable net assets. As a result of the acquisition, Cascade Microtech shares ceased to trade on the NASDAQ GlobalMarket effective June 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 following:•payment of $255.9 million in cash to former shareholders of Cascade Microtech;•issuance of 10,450,189 shares of FormFactor's common stock to former shareholders of Cascade Microtech, which was valued at the closing marketprice of $8.92 per share on June 24, 2016 and amounted to $93.2 million in the aggregate;•payment of $12.8 million at the commencement of the third quarter of fiscal 2016, in cash, to Cascade Microtech outstanding and vested equityaward holders; and•$3.9 million attributable to the fair value of the assumed unvested equity awards for services performed by Cascade Microtech employees for theperiod leading up to the effective date of the acquisition.58 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)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 accompanyingConsolidated Statements of Operations.Our Consolidated Statements of Operations include the financial results of Cascade Microtech subsequent to the acquisition date of June 24, 2016.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 for additional information.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. The fair values assigned to assets acquired and liabilities assumed were based on management’s best estimates andassumptions as of the reporting date.During fiscal 2016 and subsequent to the acquisition of Cascade Microtech, we decreased the value assigned to certain identifiable intangible assets (orderbacklog and customer relationships) by $0.1 million and increased the value assigned to certain accrued liabilities by $0.5 million, resulting in a net increaseto goodwill of approximately $0.4 million.The table below summarizes the assets acquired and liabilities assumed following the adjustments mentioned above (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 818Tangible assets acquired 133,050 Deferred revenue (1,829)Accounts payable and accrued liabilities (23,370)Deferred tax liabilities (48,993)Other long-term liabilities (960)Liabilities assumed (75,152)Total tangible assets acquired and liabilities assumed 57,898Intangible assets 149,753Goodwill 158,141Net assets acquired $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 N/ATotal intangible assets $149,753 4.1Indications 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 pattern59 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)in which economic benefits of the assets are expected to be realized. Order backlog has been fully amortized by the third quarter of fiscal 2017.Identifiable Intangible AssetsDeveloped technologies acquired primarily consist of Cascade Microtech’s existing technologies related to engineering and production probes used intesting wafers, manufacturing wafer testing stations, thermal chuck systems, and reliability test systems. A Multi-Period Excess Earnings ("MPEE") Methodwas used to value the developed technologies. Along with the cash flow forecast associated with each developed technology, other key assumptions inMPEE method are remaining life of technology, technology migration pattern (or technology decay curve), level of R&D required to maintain thetechnology, discount rate and applicable tax rate. Using this approach, the estimated fair values were calculated using expected future cash flows fromspecific products discounted to their net present values at an appropriate risk-adjusted rate of return.Customer relationships represent the fair value of future projected revenues that will be derived from the sale of products to Cascade Microtech's existingcustomers. The fair value of the customer relationships was determined based on the With and Without Method, which is appropriate for valuing non-primarycustomer-related assets for which reasonable estimates can be made for both the time and resources required to recreate those assets, as well as the economicimpact over the period of time in which the assets are recreated. The Without scenario incorporates lost revenue and lost profits over the period necessary toretain the asset. Key assumptions in this valuation are attrition rate, time to recreate customer relationships, composition of costs into fixed versus variablecosts, tax rates and 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 assumptionthat, in lieu of ownership, a market participant would be willing to pay a royalty in order to exploit the related benefits of this asset. Key assumptionsinvolved in the valuation of trade names include royalty rate, expected utilization of the trade names, tax rates and discount rates.In-process research and development ("IPR&D") represents the estimated fair value of incomplete Cascade Microtech research and development projects thathad not reached commercialization stage and meet the criteria for recognition as IPR&D as of the date of the acquisition. The value of the IPR&D wasdetermined to be $12.4 million and the amortization was to commence upon completion of the IPR&D projects. However, in the fourth quarter of fiscal 2016,we fully impaired this $12.4 million IPR&D intangible asset. See Note 7 for additional information.GoodwillThe excess of purchase price over the fair value assigned to the assets acquired and liabilities assumed represents the amount of goodwill resulting from theacquisition. 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 semiconductortest products, none of which qualify for recognition as a separate intangible asset. We do not expect any portion of this goodwill to be deductible for taxpurposes. The goodwill attributable to the acquisition was recorded as a non-current asset and is not amortized, but is subject to an annual review forimpairment.The goodwill arising from the acquisition was allocated to our reporting units based on the relative fair values of the expected incremental cash flows that theacquisition is expected to provide to each reporting unit within our reportable segments.Operating and Reporting Segments, and Reporting UnitsUpon the acquisition of Cascade Microtech, we re-evaluated our operating and reportable segments, as well as our reporting units, for goodwill impairmentconsideration. See Note 16 for additional information. Pro Forma Consolidated Results of OperationsThe following unaudited pro forma results of operations present the combined results of operations of FormFactor and Cascade Microtech as if theacquisition had been completed at the beginning of fiscal 2015. The pro forma information includes adjustments to amortization and depreciation forintangible assets and property, plant and equipment, adjustments to stock-based compensation expense, interest expense for the incremental indebtednessincurred, and interest income for the cash paid in connection with the transaction. The pro forma results for the fiscal year ended December 26, 2015 includenon-recurring adjustments related to deferred tax asset valuation allowance release of $44.0 million, which increases pro-forma net income, and acquisition-related transaction costs of $14.4 million and restructuring charges of $7.3 million, which decrease 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 of60 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)operations of the combined business had the acquisition actually occurred at the beginning of fiscal 2015 or of the results of future operations of thecombined business. Consequently, actual results may differ from the unaudited pro forma information presented below (in thousands, except per share data): Fiscal Year 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)Revenue related to Cascade Microtech since the acquisition date that was included in our Consolidated Statements of Operations for fiscal 2016 was $83.5million. It was not practicable to calculate net income or loss attributed to Cascade Microtech included in our Consolidated Statements of Operations forfiscal 2016 due to integration.Note 5—DebtSenior Secured Term Loan FacilityOur debt consisted of the following (in thousands): December 30,2017 December 31,2016Senior secured term loan$106,250 $139,375Less unamortized debt issuance costs(579) (1,199)Total debt less debt issuance costs$105,671 $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 relatedbank fees 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.Interest payments are payable in quarterly installments over a five-year period. The interest rate at December 30, 2017 was 3.35%.The principal payments on the Term Loan are paid in equal quarterly installments that began June 30, 2016, in an 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. In addition to quarterly installments, we made a $25.0 million prepayment asof December 30, 2017.61 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Future principal and interest payments, based on the interest rate in effect at December 30, 2017 were as follows as of December 30, 2017 (in thousands): Principal Interest*Fiscal year: 2018$18,750 $3,085201937,500 2,336202048,750 84020211,250 4Total$106,250 $6,265* Represents interest payment commitment at 3.35% per annum.On July 25, 2016, we entered into an interest-rate swap agreement with HSBC and other lenders to hedge the interest payments on the Term Loan. See Note 8for additional information.The obligations under the Term Loan are fully and unconditionally guaranteed by certain of our existing and subsequently acquired or organized direct andindirect domestic subsidiaries and are secured by a perfected first priority security interest in substantially all of our assets and the assets of those guarantors,subject to certain customary exceptions.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 andrepresentations and warranties customary for financing of this type.In addition, the Credit Agreement contains financial maintenance covenants requiring:•a ratio of total debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") not in excess of 2.50 to 1.00; and•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 quarter ending June 30, 2018 and to1.20 to 1.00 at the end of the fiscal quarter ending June 30, 2019.As of December 30, 2017, we were in compliance with all of the financial covenants.The Credit Agreement contains customary events of default, including (subject to certain materiality thresholds and grace periods) payment default, failure tocomply with covenants, material inaccuracy of representation or warranty, bankruptcy or insolvency proceedings, change of control, certain materialEmployee Retirement Security Act ("ERISA") events and cross event of default and cross-acceleration in respect of other material debt.Note 6—Restructuring ChargesRestructuring charges are comprised of costs related to employee termination benefits, including stock-based compensation, cost of long-lived assetsabandoned or impaired, as well as contract termination costs and are included in Restructuring and impairment charges, net in the Consolidated Statements ofOperations.Restructuring charges in fiscal 2017 and 2016 were related to the consolidation of Cascade Microtech into our operations. Restructuring charges in fiscal2016 also included costs related to the consolidation of our sales operations. Restructuring charges in fiscal 2015 were primarily related to modification ofshare based awards for one full time employee terminated as result of restructuring activities.62 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following table summarizes the activities related to the restructuring actions (in thousands): EmployeeSeverance andBenefits ContractTerminationand OtherCosts Stock-basedCompensation TotalAccrual at December 27, 2014$584 $— $— $584Restructuring charges59 — 500 559Cash 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, 2016330 104 — 434Restructuring charges690 11 109 810Cash payments(622) (109) — (731)Non-cash settlements— (5) (109) (114)Accrual at December 30, 2017$398 $1 $— $399The cash payments associated with the restructuring activities as of December 30, 2017 are expected to be completed during the first quarter of fiscal 2018.Note 7—Impairment of Long-lived AssetsImpairment of long-lived assets was as follows (in thousands):Fiscal Year EndedDecember 30,2017 December 31,2016 December 26,2015$— $12,400 $8In 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. 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, and, therefore, we fully impaired this intangible asset asit had no alternative future use.Long-lived asset impairment charges are included in Restructuring and impairment charges, net in the Consolidated Statements of Operations.Note 8—Derivative Financial InstrumentsForeign Exchange Derivative ContractsWe 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 mitigated by gains or losses on the foreign currency forward contracts in order to mitigate the risks and volatility associated with foreigncurrency transaction gains or losses.We do not use derivative financial instruments for speculative or trading purposes. For accounting purposes, our foreign currency forward contracts are notdesignated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our ConsolidatedBalance Sheets with changes in fair value recorded within Other income (expense), net in our Consolidated Statement of Operations for both realized andunrealized gains and losses.The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange rates and63 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)forward points. All of our foreign exchange derivative contracts outstanding at December 30, 2017 will mature in the first quarter of fiscal 2018.The following table provides information about our foreign currency forward contracts outstanding as of December 30, 2017 (in thousands):Currency Contract Position Contract Amount(Local Currency) Contract Amount(U.S. Dollars)Taiwan Dollar Buy (33,666) $(1,139)Korean Won Buy (1,848,796) (1,745)Euro Sell 17,750 21,362Japanese Yen Sell 637,090 5,649Total USD notional amount of outstanding foreign exchange contracts $24,127Our foreign currency contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing models that utilize observable marketinputs.The location and amount of gains (losses) related to non-designated derivative instruments in the Consolidated Statements of Operations were as follows (inthousands): Location of Gain (Loss)Recognizedon Derivatives Fiscal Year EndedDerivatives Not Designated as HedgingInstruments December 30,2017 December 31,2016 December 26,2015Foreign exchange forward contracts Other income (expense), net $(2,505) $(1,490) $(310)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 March31, 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 ininterest rate risks associated with movement in LIBOR rates. See Note 5 for additional information.For accounting purposes, the interest-rate swap contracts qualify for and are designated as cash flow hedges. All hedging relationships are formallydocumented, and the hedges are designed to offset changes to future cash flows on hedged transactions. We evaluate hedge effectiveness at hedge inceptionand on an ongoing basis. Amounts expected to be reclassified from Other comprehensive income (loss) into earnings in the next twelve months wereinsignificant at December 30, 2017.The fair value of our interest rate swap contracts is determined at the end of each reporting period based on valuation models that use interest rate yieldcurves as inputs. For accounting purposes, our interest rate swap contracts qualify for, and are designated as, cash flow hedges. The cash flows associated withthe interest rate swaps are reported in Net cash provided by operating activities in our Consolidated Statements of Cash Flows.The estimated fair value of the interest rate swaps as of December 30, 2017 and December 31, 2016 was reported as a derivative asset of approximately $1.0million and $0.8 million, respectively, within Prepaid expenses and other current assets and Other assets in our Consolidated Balance Sheets.64 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The impact of the interest rate swaps on the Consolidated Statements of Operations was as follows (in thousands): Amount ofGain or(Loss)Recognizedin OCI onDerivative(EffectivePortion) Location ofGain or (Loss)ReclassifiedfromAccumulatedOCI intoIncome(EffectivePortion) Amount ofGain or (Loss)ReclassifiedfromAccumulatedOCI intoIncome(EffectivePortion) Location ofGain or(Loss)Recognizedin IncomeonDerivative(IneffectivePortion ) Amount ofGain or(Loss)Recognizedin Income onDerivative(IneffectivePortion )Fiscal 2017 $287 Other income(expense), net $84 Otherincome(expense),net $29Fiscal 2016 $628 Other income(expense), net $(160) Otherincome(expense),net $51See also Note 9.Note 9—Fair ValueWhenever possible, the fair values of our financial assets and liabilities are determined using quoted market prices of identical securities or quoted marketprices of similar securities from active markets. The three levels of inputs that may be used to measure fair value are as follows:•Level 1 valuations are obtained from real-time quotes for transactions in active exchange markets involving identical securities;•Level 2 valuations utilize significant observable inputs, such as quoted prices for similar assets or liabilities, quoted prices near the reporting date inmarkets 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 valuations utilize 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.We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during fiscal 2017, 2016or 2015.The carrying values of Cash, Accounts receivable, net, Restricted cash, Prepaid expenses and other current assets, Accounts payable and Accrued liabilitiesapproximate fair value due to their short maturities.No changes were made to our valuation techniques during fiscal 2017.Cash EquivalentsThe fair value of our cash equivalents is determined based on quoted market prices for similar or identical securities.Marketable SecuritiesWe classify our marketable securities as available-for-sale and value them utilizing a market approach. Our investments are priced by pricing vendors whoprovide observable inputs for their pricing without applying significant judgment. Broker pricing is used mainly when a quoted price is not available, theinvestment is not priced by our pricing vendors or when a broker price is more reflective of fair value. Our broker-priced investments are categorized as Level2 investments because fair value is based on similar assets without applying significant judgments. In addition, all of our investments have a sufficient levelof trading volume to demonstrate that the fair value is appropriate.65 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Assets and Liabilities Measured at Fair Value on a Recurring BasisAssets measured at fair value on a recurring basis were as follows (in thousands): December 30, 2017Level 1 Level 2 TotalAssets: Cash equivalents: Money market funds$1,064 $— $1,064Corporate bonds 774 774 1,064 774 1,838Marketable securities: U.S. Treasuries3,963 — 3,963 Certificates of deposit— 957 957 Agency securities— 10,432 10,432 Corporate bonds— 30,636 30,636 Commercial paper— 3,000 3,0003,963 45,025 48,988Foreign exchange derivative contract— 31 31Interest rate swap derivative contracts— 1,043 1,043Total assets$5,027 $46,873 $51,900December 31, 2016Level 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 $28,822We did not have any liabilities measured at fair value on a recurring basis at December 30, 2017 or December 31, 2016.Assets and Liabilities 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 period whenwe make a business acquisition. Other than as discussed in Note 4 and Note 7, there were no assets or liabilities measured at fair value on a nonrecurring basisduring fiscal 2017, 2016 or 2015.Note 10—Goodwill and Intangible AssetsGoodwillGoodwill by reportable segment was as follows (in thousands): Probe Cards Systems TotalGoodwill, gross, as of December 27, 2014and December 26, 2015 $30,731 $— $30,731Additions - Cascade Microtech acquisition 141,751 16,390 158,141Foreign currency translation — (862) (862)Goodwill, gross, as of December 31, 2016 172,482 15,528 188,010Foreign currency translation — 1,910 1,910Goodwill, gross, as of December 30, 2017 $172,482 $17,438 $189,920We have not recorded any goodwill impairments as of December 30, 2017.66 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Intangible AssetsIntangible assets were as follows (in thousands): December 30, 2017 December 31, 2016Other Intangible Assets Gross AccumulatedAmortization Net Gross AccumulatedAmortization NetExisting developed technologies $143,966 $76,826 $67,140 $142,700 $56,131 $86,569Trade name 12,086 5,735 6,351 11,921 2,989 8,932Customer relationships 40,313 16,320 23,993 39,869 10,854 29,015Backlog 15,811 15,811 — 15,581 13,489 2,092 $212,176 $114,692 $97,484 $210,071 $83,463 $126,608Amortization expense was included in our Condensed Consolidated Statements of Operations as follows (in thousands): Fiscal Year Ended December 30, 2017 December 31, 2016 December 26, 2015Cost of revenues $22,800 $30,039 $10,484Selling, general and administrative 8,140 5,388 2,653 $30,940 $35,427 $13,137The estimated future amortization of intangible assets is as follows (in thousands):Fiscal Year Amount2018 $28,6942019 26,0312020 23,9612021 13,1562022 3,583Thereafter 2,059Total $97,484We did not record any impairment of intangible assets in fiscal 2017, 2016 and 2015.Note 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 recognizingminimum rental 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 optionto extend or renew most of our leases which may increase the future minimum lease commitments.Rent expense for fiscal 2017, 2016 and 2015 was $7.9 million, $6.5 million and $4.9 million, respectively.Future minimum payments under our non-cancelable operating leases were as follows as of December 30, 2017 (in thousands):Fiscal year: Amount2018 $6,6032019 5,7352020 4,3852021 3,9842022 3,061Thereafter 13,335Total $37,10367 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Purchase ObligationsWe had purchase obligations primarily for purchases of inventory and manufacturing related service contracts totaling $40.6 million as of December 30,2017, a majority of which will be paid during fiscal 2018. Purchase obligations are defined as agreements that are enforceable and legally binding and thatspecify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximatetiming of the transaction. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes toagreed-upon amounts for some obligations.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 contaminatedsites and the maintenance of a safe workplace. We believe that we comply in all material respects with the environmental laws and regulations that apply tous. We did not receive any notices of violations of environmental laws and regulations in fiscal 2017, 2016 or 2015. In the future, we may receive notices ofviolations of environmental regulations, or otherwise learn of such violations. Environmental contamination or violations may negatively impact ourbusiness.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 andagainst certain liabilities. These arrangements include indemnities in favor of customers in the event that our products or services infringe a third party'sintellectual property or cause property or other indemnities in favor of our lessors in connection with facility leasehold liabilities that we may cause. Inaddition, we have entered into indemnification agreements with our directors and certain of our officers, and our bylaws contain indemnification obligationsin 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 inconnection with the indemnification obligation and the time within which an indemnification claim can be made. The duration of the indemnificationobligation may vary, and for most arrangements, survives the agreement term and is indefinite. We believe that substantially all of our indemnityarrangements provide either for limitations on the maximum potential future payments we could be obligated to make, or for limitations on the types ofclaims and damages we could be obligated to indemnify, or both. However, it is not possible to determine or reasonably estimate the maximum potentialamount of future payments under these indemnification obligations due to the varying terms of such obligations, a lack of history of prior indemnificationclaims, the unique facts and circumstances involved in each particular contractual arrangement and in each potential future claim for indemnification, andthe contingency of any potential liabilities upon the occurrence of events that are not reasonably determinable. We have not had any material requests forindemnification under these arrangements. We have not recorded any liabilities for these indemnification arrangements on our Consolidated Balance Sheetsas of December 30, 2017 or 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 30, 2017, and as of the filing ofthese financial statements, we were not involved in any material legal proceedings. In the future, we may become a party to additional legal proceedings thatmay require us to spend significant resources. Litigation can be expensive and disruptive to normal business operations. The results of legal proceedings aredifficult to predict, and the costs incurred in litigation can be substantial, regardless of outcome.In August 2013, a former employee filed a class action lawsuit against us in the Superior Court of California for the County of Alameda alleging violations ofCalifornia’s wage and hour laws and other claims on behalf of himself and all similarly situated current and former employees at our Livermore facilities. OnAugust 25, 2017, the court granted final approval of the parties’ agreement to settle the lawsuit. The settlement provided for payment by us of $1.5 million,which was accrued as of December 31, 2016 and paid during the third quarter of fiscal 2017.68 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)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 30, 2017.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 2015, we repurchased and retired 1,013,162 shares of common stock for approximately $8.2 million. Duringfiscal 2016, we did not repurchase any shares under this program.In February 2017, our Board of Directors authorized a program to repurchase up to $25 million of outstanding common stock to offset potential dilution fromissuances of common stock under our stock-based incentive plans. The share repurchase program will expire on February 1, 2020. During fiscal 2017, werepurchased 1,367,617 shares of common stock for $19.0 million and, as of December 30, 2017, $6.0 million remained available for future repurchases.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 of1934, as amended.Equity Incentive PlanWe currently grant equity-based awards under our Equity Incentive Plan, as amended (the "2012 Plan") which was approved by our stockholders. Asamended, the 2012 Plan has authorized for issuance a total of 17.9 million shares, 7.0 million of which were available for grant as of December 30, 2017.RSUs granted under the 2012 Plan generally vest over three years in annual tranches, though we have granted, and will continue to grant, such awards thatvest over a shorter term for employee retention purposes.The 2012 Plan provides that incentive stock options may be granted to our employees and nonqualified stock options, and all awards other than incentivestock options, may be granted to employees, directors and consultants. The exercise price of incentive stock options must be at least equal to the fair marketvalue of our common stock on the date of grant. All restricted stock units and options granted under the 2012 Plan generally vest over three years and expireafter seven years, unless otherwise determined by the Compensation Committee of the Board of Directors.69 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Stock OptionsStock option activity was as follows: Outstanding Options Number ofShares WeightedAverageExercise Price WeightedAverageRemainingContractualLife in Years AggregateIntrinsicValueOutstanding at December 31, 20162,198,031 $9.13 Options exercised(1,473,389) 9.38 Options canceled(65,308) 13.60 Outstanding at December 30, 2017659,334 $8.12 3.8 $4,965,101Vested and expected to vest at December 30, 2017659,334 $8.12 3.8 $4,965,101Exercisable at December 30, 2017381,784 $8.37 3.2 $2,781,113Restricted Stock UnitsRSUs are converted into shares of our common stock upon vesting on a one-for-one basis. The vesting of RSUs is subject to the employee's continuingservice. RSU activity was as follows: Number ofShares WeightedAverage GrantDate Fair ValueRestricted stock units at December 31, 20163,108,560 $8.61Granted1,619,202 13.20Vested(1,364,612) 7.93Canceled(215,089) 9.05Restricted stock units at December 30, 20173,148,061 11.22Performance Restricted Stock UnitsThe Performance RSUs ("PRSU") granted in fiscal 2017, 2016 and 2015 listed below vest based on us achieving certain market performance criteria. Theperformance criteria are based on a metric called Total Shareholder Return ("TSR") for the performance period of two or three years, relative to the TSR of thecompanies identified as being part of the S&P Semiconductor Select Industry Index (FormFactor peer companies) as of a specific date.PRSU activity was as follows: Fiscal Year Ended December 30, 2017 December 31, 2016 December 26, 2015Grant Date July 20, 2017 August 19, 2016 May 28, 2015Performance period July 1, 2017 - June 30, 2020 April 1, 2016 - March 31, 2019 April 1, 2015 - March 31, 2017Number of shares 333,333 195,000 195,000TSR as-of date July 1, 2017 April 1, 2016 April 1, 2015Stock-based compensation $4.1 million $2.0 million $1.5 millionEmployee Stock Purchase PlanOur 2012 Employee Stock Purchase Plan (the "ESPP") allows for the issuance of a total of 4,000,000 shares. The offering periods under the ESPP are12 months commencing on February 1 of each calendar year and ending on January 31 of the subsequent calendar year, and a six-month fixed offering periodcommencing on August 1 of each calendar year and ending on January 31 of the 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 thelesser of the fair market value of the common stock on the first day of the applicable offering period or the last day of each purchase period.During fiscal 2017, employees purchased 655,961 shares under this program at a weighted average exercise price of $8.68 per share, which represented aweighted average discount of $4.02 per share from the fair value of the stock purchased. As of December 30, 2017, 811,790 shares remained available forissuance.70 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Note 13—Stock-Based CompensationStock-Based Compensation ExpenseCertain information regarding our stock-based compensation was as follows (in thousands, except per share amounts): Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015Weighted average grant date per share fair value of stockoptions granted$— $2.00 $3.80Weighted average grant date per share fair value of RSUsgranted13.20 8.20 8.64Total intrinsic value of stock options exercised5,946 558 22Fair value of RSUs vested18,339 12,441 18,118Stock-based compensation expense was included in the Consolidated Statement of Operations as follows (in thousands): Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015Stock-based compensation expense included in: Cost of revenues$3,539 $2,518 $2,651Research and development5,341 3,329 3,490Selling, general and administrative7,350 4,875 5,434 Restructuring and impairment charges, net109 964 500Total stock-based compensation$16,339 $11,686 $12,075Unrecognized Stock-Based Compensation ExpenseUnrecognized stock-based compensation expense at December 30, 2017 consisted of the following (in thousands): Amount Weighted AverageRecognition Period (Years)Stock Options $519 1.1RSUs 26,754 2.1ESPP 276 0.1Valuation AssumptionsThe following assumptions were used in estimating the fair value of options awarded and Employee Stock Purchase Plan: Fiscal Year Ended December 30, 2017 December 31, 2016 December 26, 20152012 Equity Incentive Plan: Dividend yield—% —% —%Expected volatility—% 43.76% 47.50%Risk-free interest rate—% 1.57% 1.60%Expected life (in years)— 5.5 5.5 Employee Stock Purchase Plan: Dividend yield—% —% —%Expected volatility46.20%-46.33% 43.76%-46.48% 45.95%-54.69%Risk-free interest rate0.65%-1.15% 0.40%-0.47% 0.07%-0.17%Expected life (in years)0.5-1.0 0.5-1.0 0.5-1.071 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Note 14—Income TaxesTax Cuts and Jobs Act of 2017The Tax Cuts and Jobs Act (“the Tax Act”) was enacted in December 2017. The Tax Act significantly changes U.S. tax law effective January 1, 2018 by,among other things, lowering U.S. corporate income tax rates from 35% to 21%, repealing corporate alternative minimum tax, implementing a territorial taxsystem and imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries.The Tax Act provided for the repeal of corporate alternative minimum tax and made AMT tax credits fully refundable in future years. As a result, wereassessed the realizability of our deferred tax assets and released the valuation allowance against $0.8 million of AMT tax credits at December 30, 2017.Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differencesare expected to reverse. As a result of the reduction in the U.S. corporate income tax rate , we revalued our ending U.S. deferred tax assets at December 30,2017, offset by a corresponding change in the U.S. valuation allowance with no material impact to the fiscal 2017 tax provision.The Tax Act provided for a one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”).The estimated tax effects of the provisional income inclusion of $15.7 million for the deemed repatriation transition tax was fully offset by the benefit ofcurrent and carryforward foreign tax credits previously subjected to a full valuation allowance and we expect to pay no U.S. federal cash taxes on the deemedrepatriation. The deemed repatriation of undistributed foreign earnings also resulted in a reassessment of the permanent reinvestment of undistributed foreignearnings and profits and we established a deferred tax liability of $66 thousand for withholding taxes associated with those earnings which are notpermanently reinvested as of December 30, 2017.The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not havethe necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income taxeffects of the Tax Act and allows the registrant to record provisional amounts during a measurement period not to extend beyond one year of the enactmentdate. We recognized the provisional impacts related to the one-time transition tax, the revaluation of deferred tax balances and reassessment of therealizability of deferred tax assets and included these estimates in our consolidated financial statements for the year ended December 30, 2017. We expect tocomplete our analysis within the measurement period in accordance with SAB 118 and do not expect the further analysis to have any material impact to ourconsolidated financial statements.Components of Income (Loss) Before Income TaxesThe components of income (loss) before income taxes were as follows (in thousands): Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015United States$31,492 $(50,947) $(3,069)Foreign10,714 752 1,798 $42,206 $(50,195) $(1,271)72 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Provision for Income TaxesThe components of the provision for income taxes are as follows (in thousands): Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015Current provision (benefit): Federal$(2,130) $— $(3)State17 120 72Foreign4,069 1,804 198 1,956 1,924 267Deferred provision (benefit): Federal66 (42,150) —State— (2,165) —Foreign(729) (1,247) (15) (663) (45,562) (15)Total provision (benefit) for income taxes$1,293 $(43,638) $252Tax Rate ReconciliationThe following is a reconciliation of the difference between income taxes computed by applying the federal statutory rate of 35% for our current income taxprovision and 21% for our deferred tax provision and the provision (benefit) from income taxes as recorded (in thousands): Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015U.S. statutory federal tax rate$14,772 $(17,568) $(445)State taxes and credits, net of Federal benefit951 (975) 17Amortization of stock-based compensation(1,428) 1,256 907Research and development credits(1,979) (1,654) (1,872)Foreign taxes at rates different than the U.S. (271) 504 (66)Other permanent differences160 2,048 238Mandatory deemed repatriation1,655 — —Change in valuation allowance(12,207) (27,120) 1,457Other(360) (129) 16Total$1,293 $(43,638) $252Deferred Tax Assets and LiabilitiesDeferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and theirrespective tax basis using enacted tax rates in effect for the year in which the differences are expected to be reversed.73 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Significant deferred tax assets and liabilities consisted of the following (in thousands): As of December 30,2017 December 31,2016Tax credits$35,484 $33,486Inventory reserve10,763 13,863Other reserves and accruals5,667 10,593Non-statutory stock options2,642 6,206Depreciation and amortization3,677 7,719Net operating loss carryforwards70,457 118,482Gross deferred tax assets128,690 190,349Valuation allowance(109,840) (150,581)Total deferred tax assets18,850 39,768Acquired intangibles and fixed assets(18,921) (39,801)Unrealized investment gains(109) (289)Tax on undistributed earnings(66) (71)Total deferred tax liabilities(19,096) (40,161)Net deferred tax liabilities$(246) $(393)We 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 2017 and 2016, we maintained a valuation allowance againstour U.S. deferred tax assets. We intend to maintain a valuation allowance until sufficient positive evidence exists to support the realization of such deferredtax assets.In accordance with rates specified in the Tax Act, we revalued our net deferred tax asset at 21% in the fourth quarter of fiscal 2017, which resulted in areduction in the value of our net deferred tax asset of $31.3 million, which was offset by a corresponding decrease in the valuation allowance and did notimpact our Statements of Operations.Tax Credits and CarryforwardsTax credits and carryforwards available to us at December 30, 2017 consisted of the following (in thousands): Amount LatestExpirationDateFederal research and development tax credit $23,883 2018-2037Federal net operating loss carryforwards 244,179 2018-2037Foreign tax credit carryforwards 844 2018-2027Alternative minimum tax credits 781 IndefiniteCalifornia research credits 31,535 IndefiniteOregon research credits 748 2018-2023State net operating loss carryforwards 262,941 2018-2037Japan net operating loss carryforwards 86 2026Singapore net operating loss carryforwards 8,810 IndefiniteUndistributed EarningsAs of December 30, 2017, unremitted earnings of foreign subsidiaries was estimated at $26.0 million and have now been subject to U.S. federal income taxdue to the Tax Act one-time transition tax on the deemed repatriation of undistributed foreign earnings and profits. The enactment of the Tax Act alsoresulted in a reassessment of the permanent reinvestment of undistributed foreign earnings. We intend to permanently invest $13.0 million of undistributedearnings indefinitely outside of the U.S. To the extent we repatriate the remaining $13.0 million of undistributed foreign earnings to the U.S. we established adeferred tax liability of $66 thousand for foreign withholding taxes. Our estimates are provisional and subject to further analysis.74 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Unrecognized Tax BenefitsWe recognize the benefits of tax return positions if we determine that the positions are “more-likely-than-not” to be sustained by the taxing authority. Interestand penalties accrued on unrecognized tax benefits are recorded as tax expense in the period incurred.The following table reflects changes in the unrecognized tax benefits (in thousands): Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015Unrecognized tax benefit, beginning balance$17,978 $17,033 $16,333Additions based on tax positions related to the current year694 614 667Additions based on tax positions from prior years— 450 163Reductions for tax positions of prior years— — (18)Reductions due to lapse of the applicable statute oflimitations(376) (119) (112)Unrecognized tax benefit, ending balance$18,296 $17,978 $17,033 Interest and penalties recognized as a component of Provision(benefit) from income taxes$67 $22 $50Interest and penalties accrued at period end218 209 —Of the unrecognized tax benefits at December 30, 2017, $1.0 million would impact the effective tax rate if recognized.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. Ourestimate 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 periodthe assessments are made or resolved or when statutes of limitation on potential assessments expire. As of December 30, 2017, changes to our uncertain taxpositions in 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 file income tax returns in the U.S. Federal jurisdiction, various states and non U.S. jurisdictions. Our significant income tax jurisdictions are the U.S.(Federal), California, Oregon, Germany and Japan. We are currently subject to corporate tax audit for tax years 2013 to 2015 in Germany. As a result of ournet operating loss carryforwards, the statute of limitations is open for audit for tax years 2007 and forward for U.S. Federal purposes, 2008 and forward forCalifornia purposes and 2014 and forward for Oregon purposes. For Germany and Japan, the statute of limitations is open for audit for tax years 2013 andforward.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 designed toprovide employees with an accumulation of funds for retirement on a tax-deferred basis and provide for annual discretionary employer contributions. Thetotal charge to operations under the 401(k) plan for fiscal 2017, 2016 and 2015 aggregated $1.9 million, $0.5 million and $1.1 million, respectively.Note 16—Segments and Geographic InformationUntil the acquisition of Cascade Microtech, we operated in one reportable segment relating to the design, development, manufacture and sale of highperformance advanced probe cards. We currently operate in two reportable segments consisting of the Probe Cards Segment and the Systems Segment.Our chief operating decision maker ("CODM") is our Chief Executive Officer, who reviews operating results to make decisions about allocating resources andassessing performance for the entire company.75 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following table summarizes the operating results by reportable segment (dollars in thousands): Fiscal 2017 Probe Cards Systems Corporate andOther TotalRevenues$454,794 $93,647 $— $548,441Gross profit$195,903 $46,647 $(26,953) $215,597Gross margin43.1% 49.8% —% 39.3%Operating income (loss)$61,108 $17,569 $(32,376) $46,301 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 allocatingresources to, our reportable segments. Acquisition-related costs include transaction costs and any costs directly related to the acquisition and integration ofacquired businesses.The following table summarizes revenue, by geographic region, as a percentage of total revenues based upon ship-to location: Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015United States34.0% 33.3% 23.4%South Korea14.9 17.1 25.2Taiwan17.7 14.9 21.9Europe8.2 12.9 9.0Asia-Pacific(1)16.6 11.4 11.1Japan8.1 10.0 9.4Rest of the world0.5 0.4 —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.76 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following table summarizes revenue by product group (in thousands): Fiscal Year Ended December 30,2017 December 31,2016 December 26,2015Foundry & Logic$313,714 $237,591 $145,839DRAM124,685 86,910 125,512Flash16,395 13,469 11,007Systems93,647 45,911 —Total revenues$548,441 $383,881 $282,358Long-lived assets, comprised of Property, plant and equipment, net, Goodwill and Intangibles, net reported based on the location of the asset was as follows(in thousands): December 30,2017 December 31,2016 December 26,2015United States$299,574 $323,369 $77,257Europe30,922 30,903 655Asia-Pacific(1)1,765 1,709 689South Korea487 733 1,128Japan825 510 295Rest of the world585 57 112Total$334,158 $357,281 $80,136(1) Asia-Pacific includes all countries in the region except Japan and South Korea, which are disclosed separately.77 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)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 unauditedconsolidated financial statements that, in our opinion, reflect all recurring adjustments necessary to fairly present this information when read in conjunctionwith our consolidated financial statements and the related notes. The results of operations for any quarter are not necessarily indicative of the results to beexpected for any future period. Fiscal Quarters Ended Dec. 30,2017(4) Sep. 30,2017 July 1, 2017 April 1,2017 Dec. 31,2016(3) Sep. 24,2016 June. 25,2016(1) (2) March 26,2016 (in thousands, except per share data)Revenues$131,901 $143,735 $143,976 $128,829 $123,888 $123,299 $83,083 $53,611Cost of revenues83,272 86,105 82,209 81,258 83,613 96,111 57,656 43,819Gross profit48,629 57,630 61,767 47,571 40,275 27,188 25,427 9,792Operating Expenses: Research anddevelopment18,513 19,338 18,542 17,414 18,218 17,253 11,133 10,849Selling, general andadministrative24,238 24,010 23,602 22,829 23,890 23,008 14,030 12,516Restructuring andimpairment charges,net481 16 44 269 12,697 85 6,910 —Total operating expenses43,232 43,364 42,188 40,51254,805 40,346 32,073 23,365Operating income (loss)5,397 14,266 19,579 7,059 (14,530) (13,158) (6,646) (13,573)Interest income264 123 93 67 59 52 99 117Interest expense(1,045) (1,109) (1,162) (1,174) (1,255) (1,125) (11) —Other income (expense),net(170) 311 107 (400) 309 83 (302) (314)Income (loss) beforeincome taxes4,446 13,591 18,617 5,552 (15,417) (14,148) (6,860) (13,770)Provision (benefit) forincome taxes(1,142) 1,028 1,040 367 26 50 (43,744) 30Net income (loss)$5,588 $12,563 $17,577 $5,185 $(15,443) $(14,198) $36,884 $(13,800)Net income (loss) pershare: Basic$0.08 $0.17 $0.24 $0.07 $(0.22) $(0.20) $0.62 $(0.24)Diluted$0.07 $0.17 $0.24 $0.07 $(0.22) $(0.20) $0.61 $(0.24)Weighted averagenumber of shares usedin per share calculations: Basic72,846 72,651 72,200 71,423 70,807 70,502 59,572 58,431Diluted74,756 73,885 73,539 72,922 70,807 70,502 59,988 58,431(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 changeof control agreements. See Note 4 for additional information.(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 inconnection with our acquisition of Cascade Microtech. See Notes 4 and 14 for additional information.(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 ofour acquisition of Cascade Microtech. See Note 4 and Note 7 for additional information.(4)In the fourth quarter of fiscal 2017, the tax benefit included a $0.7 million benefit from U.S. tax reform, a $0.8 million benefit from refundable AMT tax credits.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 ourConsolidated Statements of Operations.78 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Note 19—New Accounting PronouncementsASU 2017-12In August 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-12, "Derivatives and Hedging(Topic 815): Targeted Improvements to Accounting for Hedging Activities," which changes the recognition and presentation requirements of hedgeaccounting, including eliminating the requirement to separately measure and report hedge ineffectiveness and changing the presentation to include all itemsthat affect earnings in the same income statement line item as the hedged item. ASU 2017-12 also provides new alternatives for applying hedge accounting toadditional hedging strategies; measuring the hedged item in fair value hedges of interest rate risk; reducing the cost and complexity of applying hedgeaccounting; and reducing the risk of material error correction if a company applies the shortcut method inappropriately. ASU 2017-12 is effective for fiscalyears, including interim periods within those fiscal years, beginning after December 15, 2018, on a prospective basis. Early adoption is permitted. We plan toadopt ASU2017-02 on December 31, 2017 and we do not expect the adoption to have a material effect on our financial position, results of operations or cashflows.ASU 2017-09In May 2017, the FASB issued ASU 2017-09, "Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting," which providesclarity and reduces both diversity in practice and the cost and complexity when accounting for a change to the terms of a stock-based award. ASU 2017-09 iseffective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2017, on a prospective basis. Early adoption ispermitted. We do not expect the adoption of ASU 2017-09 to have a material effect on our financial position, results of operations or cash flows.ASU 2017-04In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment," whichsimplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. An entity should perform its annual, or interim,goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and recognize an impairment charge for the amount bywhich the carrying amount exceeds the reporting unit's fair value, if applicable. The loss recognized should not exceed the total amount of goodwillallocated to the reporting unit. The same impairment test also applies to any reporting unit with a zero or negative carrying amount. An entity still has theoption to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 is effective forfiscal years, including interim periods within those fiscal years, beginning after December 15, 2019, on a prospective basis. Early adoption is permitted forinterim or annual goodwill impairment tests performed after January 1, 2017. We do not expect the adoption of ASU 2017-04 to have a material effect on ourfinancial position, results of operations or cash flows.ASU 2016-09In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," which amends Accounting StandardsCodification ("ASC") Topic 718, "Compensation - Stock Compensation." The ASU includes provisions intended to simplify various aspects related to howshare-based payments are accounted for and presented in the financial statements including:1) that excess tax benefits and tax deficiencies relating to share based payment awards will be recognized as income tax benefit or expense in thereporting period in which they occur (previously such amounts were recognized in additional paid-in capital);2) that excess tax benefits will be classified as an operating activity in the statement of cash flows; and3) companies have the option to elect to estimate forfeitures or to account for them when they occur.We adopted ASU 2016-09 as of January 1, 2017, which is the first day of our fiscal 2017 and made an accounting policy election to account for forfeitures asincurred, resulting in a decrease of $0.1 million in our accumulated deficit on January 1, 2017. The adjustment was reflected in our Consolidated BalanceSheets as of this date.Additionally, we determined that there was no other cumulative effect on accumulated deficit or other components of equity or net assets as of the beginningof the period of adoption of this guidance as the impact of recording cumulative excess tax benefits in income taxes in our Condensed ConsolidatedStatements of Operations was fully offset by a valuation allowance as of the date of adoption. Finally, we will follow the prospective transition method for therecognition of windfalls and shortfalls associated with excess tax benefits and tax deficiencies relating to share-based payment awards.79 FORMFACTOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)ASU 2016-10, ASU 2015-14 and ASU 2014-09In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers," and, in August 2015, the FASB issued ASU 2015-14, “Revenuefrom 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 aboutcustomer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The standard permitsthe use of either the retrospective or modified retrospective transition methods. This guidance replaces most of the existing revenue recognition guidance inUnited States GAAP when it becomes effective, which for us will be at the beginning of the first quarter of fiscal year 2018. In April 2016, the FASB issuedASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” and which was issued to clarifyASC Topic 606, “Revenue from Contracts with Customers” related to (i) identifying performance obligations; and (ii) the licensing implementationguidance. The effective date and transition of ASU 2016-10 is the same as the effective date and transition of ASU 2014-09, “Revenue from Contracts withCustomers (Topic 606),” which for us will be the beginning of the first quarter of fiscal year 2018.We plan to adopt Topic 606 using the modified retrospective method through a cumulative effect adjustment being recognized in accumulated deficit atDecember 31, 2017, the date of adoption. Under this approach, we will not restate the prior period financial statements.We are currently completing the assessment phase of the implementation project and are finalizing our review of the impact of adoption. We are currently inthe process of developing, implementing and testing our internal systems, processes and controls necessary to adopt Topic 606, and are in process of makingthe necessary changes to our accounting policies and disclosures.Based on our current assessment, we do not anticipate that the adoption of Topic 606 will result in a material cumulative effect adjustment to accumulateddeficit nor have a material impact on our financial position, results of operations, or cash flows, as it is not expected to materially change the manner ortiming of recognizing revenue. We are currently evaluating the impact of the expanded disclosures to our consolidated financial statements.ASU 2016-02In February 2016, the FASB issued ASU 2016-02, "Leases," which requires that lease arrangements longer than twelve months result in an entity recognizingan asset and liability. The updated guidance is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted.We are evaluating the impact of the updated guidance on our consolidated financial statements.80 EXHIBIT INDEX Incorporated by Reference ExhibitNumber Exhibit Description Form File No Date ofFirst Filing ExhibitNumber FiledHerewith2.1*** 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 3.1 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 3.2 Amended and Restated Bylaws of the Registrant 8-K 000-50307 7/22/2016 3.2 4.1 Specimen Common Stock Certificate S-1/A 333-86738 5/28/2002 4.01 10.1 Credit Agreement among FormFactor, Inc. as Borrower, theGuarantors that are from time to time parties thereto, HSBCBank USA, National Association, as Administrative Agent, LeadLender, 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 10.2 First Amendment to Credit Agreement dated April 19, 2017among FormFactor, Inc. and HSBC Bank USA, NationalAssociation. X10.3+ Form of Indemnity Agreement S-1/A 333-86738 5/28/2002 10.01 10.4+ Form of Change of Control Severance Agreement 10-K 000-50307 3/14/2005 10.48 10.5+ Incentive Option Plan, and form of option grant S-1 333-86738 4/22/2002 10.04 10.6+ Management Incentive Option Plan, and form of option grant S-1 333-86738 4/22/2002 10.05 10.7+ 2002 Equity Incentive Plan, as amended, and forms of planagreements 10-Q 000-50307 5/4/2011 10.06 10.8+ 2002 Employee Stock Purchase Plan, as amended 10-Q 000-50307 8/7/2007 10.01 10.9+ 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 May26, 2017, and forms of plan agreements S-8 333-222551 1/16/2018 99.1 10.11+ Employee Stock Purchase Plan, as amended and restated April18, 2012 10-K 000-50307 3/13/2013 10.10 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 (Building 1)by and between Greenville and the Registrant dated January 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 (Building 2)by and between Greenville and the Registrant dated January 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 (Building 3)by and between Greenville and the Registrant dated January 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, by andbetween 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 between GreenvilleInvestors, L.P. and FormFactor, Inc., as amended 8-K 000-50307 12/23/2016 10.1 81 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. S-1 333-47100 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 10.23 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. S-1 333-47100 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 Slessor andthe Registrant dated December 30, 2013 10-K 000-50307 3/6/2015 10.20 10.35+ CEO Change of Control and Severance Agreement, dated April28, 2016 by and between Mike Slessor and the Registrant 10-K 000-50307 3/15/2017 10.35 10.36+ Change of Control and Severance Agreement, dated April 28,2016 by and between Michael Ludwig and the Registrant 10-K 000-50307 3/15/2017 10.36 14.1 Code of Business conduct of FormFactor, Inc. 8-K 000-50307 9/13/2017 14.1 21.1 List of Registrant's subsidiaries — — — — X23.1 Consent of Independent Registered Public Accounting Firm -KPMG — — — — X24.1 Power of Attorney (included on the signature page of thisForm 10-K) — — — — X31.1 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 — — — — X31.2 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 — — — — X32.1* 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 — — — — X82 101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document — — — — X*This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it bedeemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof andirrespective of any general 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 12of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.***The schedules, exhibits, and annexes to this exhibit have been omitted in reliance on Item 601(b)(2) of Regulation S-K and will be furnished supplementally to the SECupon request.+Indicates a management contract or compensatory plan or arrangement.83 EXHIBIT 10.2EXECUTION VERSIONFIRST AMENDMENT TO CREDIT AGREEMENTThis FIRST AMENDMENT TO CREDIT AGREEMENT dated as of April 19, 2017 (the “Amendment”) is entered intoamong FORMFACTOR, INC., a Delaware corporation (the “Borrower”), the other Loan Parties party hereto, and HSBC BANKUSA, NATIONAL ASSOCIATION, as Administrative Agent, in connection with the Credit Agreement dated as of June 24, 2016(the “Credit Agreement”) among the Borrower, the other Loan Parties party thereto, the Lenders party thereto and the AdministrativeAgent. Capitalized terms used but not defined herein have the respective meanings set forth in the Credit Agreement.RECITALSWHEREAS, the Borrower has requested that the Administrative Agent and the Lenders amend the Credit Agreement as setforth herein; andWHEREAS, the Administrative Agent and the Lenders have agreed to amend the Credit Agreement as set forth herein.NOW, THEREFORE, the parties hereto agree as follows:SECTION 1. Amendments to Credit Agreement. The Credit Agreement is hereby amended as follows:1.The definition of “Fixed Charge Coverage Ratio” set forth in Section 1.1 of the Credit Agreement is hereby amendedby deleting the reference to “(iii) all Restricted Payments actually made (other than Restricted Payments made in accordance withSections 6.8(a) or (b) and any other Restricted Payments deducted in the calculation of Consolidated Net Income and not added backto EBITDA),” where it appears therein and substituting a reference to “(iii) all Restricted Payments actually made (other than (1)Restricted Payments made in accordance with Sections 6.8(a), or (b); (2) Restricted Payments made by the Borrower in accordancewith Section 6.8(e) to the extent any such Restricted Payment constitutes a repurchase of common shares of the Borrower in the openmarket and such common shares are subsequently and within twelve (12) months of such repurchase either (x) used to settleemployees’ exercise of stock options, or (y) contributed to the 2012 Employee Stock Purchase Program (as may be amended ormodified from time to time) as described in the Form 10-K of the Borrower filed with the SEC for the fiscal year ended December 26,2015; and (3) any other Restricted Payments deducted in the calculation of Consolidated Net Income and not added back toEBITDA),” therefor.SECTION 2. General Representations and Warranties. The Borrower and each other Loan Party represents andwarrants to the Administrative Agent and the Lenders that:1.Authorization; Enforceability. The execution, delivery and performance of this Amendment are within the corporateor limited liability powers of the Loan Parties and have been duly authorized by all necessary organizational action (including, ifapplicable, equityholder action). This Amendment (a) has been duly executed and delivered by each Loan Party that is a party theretoand (b) constitutes a legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms, subject toapplicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally, concepts ofreasonableness and general principles of equity, regardless of whether considered in a proceeding in equity or at law. 2.Representations and Warranties. On the date hereof, each representation and warranty set forth in each of the LoanDocuments to which the Borrower and each other Loan Party is party to is true and correct in all material respects on and as of the datehereof with the same effect as if made on and as of the date hereof (it being understood and agreed that any representation or warrantywhich by its terms is made as of a specified date is true and correct in all material respects only as of such specified date, and that anyrepresentation or warranty which is subject to any materiality qualifier is true and correct in all respects).3.No Default. After giving effect to this Amendment, no event has occurred or is continuing which constitutes aDefault.SECTION 3. Conditions Precedent to Effectiveness. This Amendment shall be effective upon receipt by theAdministrative Agent of:1.Counterparts hereof signed by the Borrower and each other Loan Party, the Administrative Agent, and the RequiredLenders;2.A certificate of good standing for each Loan Party from such Loan Party’s jurisdiction of incorporation;3.Updated insurance certificates and endorsements for each Loan Party (i) showing the Administrative Agent as lendersloss payee with respect to each policy of property or casualty insurance and naming the Administrative Agent as an additional insuredwith respect to each policy of liability insurance and (ii) providing that 30 days’ notice (or in the case of cancellation by reason of non-payment of premium, 10 days’ notice) shall be given to the Administrative Agent prior to any cancellation of, material reduction orchange in coverage provided by or other material modification to such policy; and4.Payment of all out-of pocket-fees and other amounts, to the extent invoiced one Business Day prior to the effectivedate, of the Administrative Agent’s special counsel, Mayer Brown LLP.SECTION 4. Continuing Effectiveness, etc. (a) Except to the extent expressly set forth herein, all of the terms andconditions of the Credit Agreement and the other Loan Documents remain unchanged and in full force and effect. Each Loan Partyaffirms that after giving effect to this Amendment, the Credit Agreement and each other Loan Document to which such Loan Party is aparty will remain in full force and effect and will continue to constitute a legal, valid and binding obligation of such Loan Party,enforceable against such Loan Party in accordance with its terms except insofar as such enforcement may be limited by Debtor ReliefLaws.(b) Upon the effectiveness hereof, all references to the Credit Agreement set forth in any other agreement or instrument shall,unless otherwise specifically provided, be references to the Credit Agreement as amended hereby.SECTION 5. Miscellaneous. (a) This Amendment is solely for the benefit of the parties hereto, and noprovision of this Amendment shall be deemed to confer upon any third party any claim, remedy cause of action or other right.(b) This Amendment shall be deemed a Loan Document for all purposes of the Credit Agreement and each other LoanDocument.(c) The provisions of Sections 1.2, and 11.2 through 11.11 of the Credit Agreement are incorporated herein by reference,mutatis mutandis.(d) No provision of this Amendment shall be construed as a novation, remission or compromise of the Indebtedness evidencedby the Credit Agreement, any promissory note, or any other Loan Document.(e) This Amendment is limited to the matters specifically set forth herein and this Amendment not constitute a waiver, consentor amendment with respect to any other matter whatsoever. (f) The Loan Parties agree to pay, pursuant to Section 11.3(a) of the Credit Agreement, all reasonable and documented out-of-pocket fees and other amounts of the Administrative Agent’s special counsel, Mayer Brown LLP, in connection with the preparationof this Amendment.[Remainder of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officersthereunto duly authorized, as of the date first above written.FORMFACTOR, INC., a Delaware corporation, as BorrowerBy /s/ Michael M. Ludwig Name: Michael M. LudwigTitle: Chief Financial OfficerCASCADE MICROTECH, INC., an Oregon corporation, as a GuarantorBy: /s/ Michael M. Ludwig Name: Michael M. LudwigTitle: Chief Financial OfficerASTRIA SEMICONDUCTOR HOLDINGS, INC., a Delaware corporation, as aGuarantorBy: /s/ Michael M. Ludwig Name: Michael M. LudwigTitle: Chief Financial OfficerMICRO-PROBE INCORPORATED, a California corporation, as a GuarantorBy: /s/ Michael M. Ludwig Name: Michael M. LudwigTitle: Chief Financial OfficerHSBC BANK USA, NATIONAL ASSOCIATION, as Administrative AgentBy: /s/ Fernando AcebedoName: Fernando AcebedoTitle: Vice President HSBC BANK USA, NATIONAL ASSOCIATION, as a LenderBy /s/ Mark HillhonseName: Mark HillhonseTitle: Senior Vice PresidentSILICON VALLEY BANK, as a LenderBy /s/ Matthew WrightName: Matthew WrightTitle: Managing DirectorMUFG UNION BANK, N.A., as a LenderBy /s/ Michael McCauleyName: Michael McCauleyTitle: DirectorCOMERICA BANK, as a LenderBy /s/ Robert ShuttName: Robert ShuttTitle: Senior Vice President EXHIBIT 21.1LIST OF REGISTRANT'S SUBSIDIARIESSUBSIDIARY NAME JURISDICTION OF ORGANIZATIONFormFactor International, Inc.Delaware, United StatesFormFactor, K.K.JapanFormFactor Korea, Inc.South KoreaFormFactor Singapore Pte. Ltd.SingaporeAstria Semiconductor Holdings, IncDelaware, United StatesMicroprobe, Inc.California, United StatesMicroprobe HongKong LimitedHong KongMicroprobe Technology (Suzhou) Co. Ltd.People's Republic of ChinaCascade Microtech, Inc.Oregon, United StatesFormFactor GmbHGermanyCascade Microtech Japan, Inc.JapanCascade Microtech Singapore Pte, LtdSingaporeCascade International (Shanghai) Trading Co., Ltd.People's Republic of ChinaAdvanced Temperature Test Systems GmbHGermany EXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of DirectorsFormFactor, Inc.:We consent to the incorporation by reference in the registration statement on Form S-3 (No. 333-198760) and Form S-8 (Nos. 333-222551, 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) of FormFactor, Inc. of our report dated February 27, 2018, with respect to the consolidated balance sheets of FormFactor Inc. as ofDecember 30, 2017 and December 31, 2016, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, andcash flows for each of the years in the three-year period ended December 30, 2017, and the effectiveness of internal control over financial reporting as ofDecember 30, 2017, which report appears in the December 30, 2017 annual report on Form 10-K of FormFactor, Inc. for the year ended December 30, 2017./s/ KPMG LLPSanta Clara, CaliforniaFebruary 27, 2018 EXHIBIT 31.1CERTIFICATION 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 thisreport;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 inExchange Act 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 the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, 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 mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially 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 arereasonably likely 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 internalcontrol over financial reporting.Date:February 27, 2018/s/ MICHAEL D. SLESSOR Michael D. SlessorChief Executive Officer(Principal Executive Officer and Director) EXHIBIT 31.2CERTIFICATION 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 thisreport;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 inExchange Act 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 the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, 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 mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially 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 arereasonably likely 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 internalcontrol over financial reporting.Date:February 27, 2018/s/ MICHAEL M. LUDWIG Michael M. LudwigChief Financial Officer(Principal Financial Officer and Principal Accounting Officer) EXHIBIT 32.1CERTIFICATION 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 endedDecember 30, 2017, as filed with the Securities and Exchange Commission, each of the undersigned officers of FormFactor, Inc. certifies pursuant to 18U.S.C. Section 1350, as adopted 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:February 27, 2018/s/ MICHAEL D. SLESSOR Michael D. SlessorChief Executive Officer(Principal Executive Officer and Director) Date:February 27, 2018/s/ MICHAEL M. LUDWIG Michael M. LudwigChief Financial Officer(Principal Financial Officer and Principal Accounting Officer)
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