Commitments and Contingencies

Leases

We lease facilities under non-cancellable operating leases with various expiration dates through 2021. The facilities generally require us to pay property taxes, insurance and maintenance costs. Further, several lease agreements contain rent escalation clauses or rent holidays. For purposes of recognizing minimum 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 option to extend or renew most of our leases which may increase the future minimum lease commitments.

Rent expense for the fiscal years 2012, 2011, and 2010, was $4.7 million, $4.8 million and $5.4 million, respectively.

We lease certain equipment under capital leases. The cost and accumulated depreciation for assets under capital leases, which were included in property, plant and equipment in the accompanying Consolidated Balance Sheets are as follows (in thousands):



	Fiscal Years Ended
	December 29, 2012		December 31, 2011
Cost	$	2,367	$	—
Accumulated depreciation	255		—
Net book value	$	2,112	$	—

The depreciation expense of these leased assets was $0.2 million in fiscal 2012 and zero for both fiscal 2011 and 2010, respectively.

Future minimum payments under capital leases and non-cancelable operating leases are as follows as of December 29, 2012 (in thousands):



	Capital Leases			Operating Leases
Fiscal years:
2013	$	593		$	3,658
2014-15	321			5,700
2016-17	29			5,016
Thereafter	—			10,034
Total minimum lease payments	943			$	24,408
Less: amount representing interest and executory costs	(30		)
Present value of capital lease amounts	913
Less: current portion	(573		)
Non-current portion	$	340

The current and non-current portions of the capital lease obligations are included in the accompanying Consolidated Balance Sheets.

Other Contractual Obligations

The following table sets forth our commitments to settle other contractual obligations in cash as of December 29, 2012:



	Payments Due In Fiscal Years
	2013		2014-2015		2016-2017		After 2017		Total
	(In thousands)
Purchase obligations	$	12,402	$	4,950	$	50	$	—	$	17,402

Other purchase obligations are primarily for purchases of inventory and manufacturing related service contracts. For the purposes of this table, other purchase obligations are defined as agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The expected timing of payment of the obligations discussed above is estimated based on information available to us as of December 29, 2012. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.

The table above excludes our gross liability for unrecognized tax benefits, which totaled $17.2 million as of December 29, 2012 and are classified in deferred taxes and other long-term tax liabilities on our consolidated balance sheet. The timing of any payments which could result from these unrecognized tax benefits will depend upon a number of factors. Accordingly, the timing of payment cannot be estimated and has been excluded from the table above. As of December 29, 2012, the changes to our uncertain tax positions 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.

Indemnification Arrangements

We may, from time to time in the ordinary course of our business enter into contractual arrangements with third parties that include indemnification obligations. Under these contractual arrangements, we have agreed to defend, indemnify and/or hold the third party harmless from and against certain liabilities. These arrangements include indemnities in favor of customers in the event that our wafer probe cards infringe a third party's intellectual property and indemnities in favor of our lessors in connection with facility leasehold liabilities that we may cause. In addition, we have entered into indemnification agreements with our directors and certain of our officers, and our bylaws contain indemnification obligations in favor of our directors, officers and agents. These indemnity arrangements may limit the type of the claim, the total amount that we can be required to be paid in connection with the indemnification obligation and the time within which an indemnification claim can be made. The duration of the indemnification obligation may vary, and for most arrangements, survives the agreement term and is indefinite. We believe that substantially all of our indemnity arrangements provide either for limitations on the maximum potential future payments we could be obligated to make, or for limitations on the types of claims and damages we could be obligated to indemnify, or both. However, it is not possible to determine or reasonably estimate the maximum potential amount of future payments under these indemnification obligations due to the varying terms of such obligations, a lack of history of prior indemnification claims, the unique facts and circumstances involved in each particular contractual arrangement and in each potential future claim for indemnification, and the contingency of any potential liabilities upon the occurrence of events that are not reasonably determinable. We have not had any requests for indemnification under these arrangements. Our management believes that any liability for these indemnity arrangements would not be material to our accompanying consolidated financial statements. We have not recorded any liabilities for these indemnification arrangements on our consolidated balance sheet as of December 29, 2012.

Legal Matters

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. As of the filing of this Annual Report on Form 10-K, we were not involved in any material legal proceedings, other than the proceedings summarized below. In the future we may become a party to additional legal proceedings that may require us to spend significant resources, including proceedings designed to protect our intellectual property rights and to collect past due accounts receivable from our customers.

Customs and Trade Matters

From time to time, we receive communications from certain jurisdictions regarding customs and indirect tax matters such as customs duties and value added taxes. In fiscal 2011, we received inquiries from a foreign jurisdiction tax authority regarding certain indirect tax matters. We cooperated with these inquiries, which related to our prior shipping process for new product qualifications and for products for certain of our repair center activities. During fiscal 2011, we accrued $1.0 million for potential exposures related to these tax and customs matters. During the third quarter of 2012, we received what we believe are final communications on these tax and customs matters indicating we owed $0.3 million of unpaid indirect taxes and penalties. In the fourth quarter of fiscal 2012, we adjusted our accrual to reflect this final conclusion.

Patent Litigation

In July 2010, we filed a lawsuit in the United States District Court for the Northern District of California, case no. 4:10-cv-03095-PJH (the "Action"), against MicroProbe Inc. and a MicroProbe officer who was a former FormFactor employee. In the Action, we asserted patent infringement and unfair competition claims against MicroProbe, and trade secret misappropriation and breach of confidence claims against MicroProbe and the former FormFactor employee. On October 16, 2012, and in connection with an Agreement and Plan of Merger dated August 31, 2012, under which we acquired 100% of the outstanding shares of Astria Semiconductor Holdings, Inc. and its subsidiaries, see Note 3 Acquisitions for further information, FormFactor, Astria Semiconductor Holdings, MicroProbe, and a former FormFactor employee entered into a Confidential Settlement Agreement and these parties along with certain other entities entered into a Confidential Release Agreement, both to resolve the Action in favor of FormFactor for $3.3 million.

One or more third parties have initiated challenges in the U.S. Patent and Trademark Office, or USPTO, against certain of our patents, including requests for reexamination directed to all of the patents-in-suit in the Action. The USPTO granted the re-examination requests directed to U.S. Patent Nos. 6,246,247, 6,825,422, 6,441,315, and 7,225,538, and granted in part the requests directed to U.S. Patent Nos. 6,965,244, 7,227,371 and 7,671,614. Requests for reexamination of the Company's U.S. Patent Nos. 6,615,485 and 6,624,648 and 5,994,152 were also granted by the USPTO. With respect to US Patent No. 5,994,152, the re-examination proceeding has concluded and a re-examination certificate was issued. With respect to US Patent No. 6,624,648, the reexamination proceeding has concluded and a re-examination certificate was issued February 28, 2012. The Company did not appeal the adverse USPTO decision regarding US Patent No. 6,615,485. The foreign actions include proceedings in Taiwan against several of our Taiwan patents.

No provision has been made for patent-related litigation because we believe that it is not probable that a liability had been incurred as of December 29, 2012. We will incur material attorneys' fees in prosecuting and defending the various identified actions