☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
September 27, 2019
☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Cayman Islands Not Applicable incorporation or organization) Identification No.)
c/o Intertrust Corporate Services (Cayman) Limited 190 Elgin Avenue George Town Grand Cayman Cayman Islands | KY1-9005 | |
(Address of principal executive offices) | (Zip Code) |
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation (§and post such files). Yes Non-accelerated filer ☐ (Do not check if smaller reporting company)
FABRINET
FORM10-Q
QUARTER ENDED DECEMBER 29, 2017
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ITEM 1. | FINANCIAL STATEMENTS |
(in thousands of U.S. dollars, except share data) | December 29, 2017 | June 30, 2017 | ||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 134,831 | $ | 133,825 | ||||
Marketable securities | 149,403 | 151,450 | ||||||
Trade accounts receivable, net | 258,856 | 264,349 | ||||||
Inventory, net | 239,169 | 238,665 | ||||||
Prepaid expenses | 9,098 | 6,306 | ||||||
Other current assets | 7,974 | 4,159 | ||||||
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Total current assets | 799,331 | 798,754 | ||||||
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Non-current assets | ||||||||
Restricted cash in connection with business acquisition | 3,423 | 3,312 | ||||||
Property, plant and equipment, net | 222,539 | 216,881 | ||||||
Intangibles, net | 5,432 | 5,840 | ||||||
Goodwill | 3,933 | 3,806 | ||||||
Deferred tax assets | 3,056 | 2,905 | ||||||
Deferred debt issuance costs on revolving loan and othernon-current assets | 223 | 1,577 | ||||||
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Totalnon-current assets | 238,606 | 234,321 | ||||||
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Total Assets | $ | 1,037,937 | $ | 1,033,075 | ||||
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Liabilities and Shareholders’ Equity | ||||||||
Current liabilities | ||||||||
Bank borrowings, net of unamortized debt issuance costs | $ | 52,443 | $ | 48,402 | ||||
Trade accounts payable | 182,166 | 215,262 | ||||||
Fixed assets payable | 5,658 | 8,141 | ||||||
Capital lease liability, current portion | 477 | 344 | ||||||
Income tax payable | 1,185 | 1,976 | ||||||
Accrued payroll, bonus and related expenses | 11,244 | 13,852 | ||||||
Accrued expenses | 17,574 | 9,227 | ||||||
Other payables | 11,089 | 14,068 | ||||||
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Total current liabilities | 281,836 | 311,272 | ||||||
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Non-current liabilities | ||||||||
Long-term loan from bank,non-current portion, net of unamortized debt issuance costs | 15,969 | 22,701 | ||||||
Deferred tax liability | 1,989 | 1,981 | ||||||
Capital lease liability,non-current portion | 756 | 1,024 | ||||||
Deferred liability in connection with business acquisition | 3,423 | 3,312 | ||||||
Severance liabilities | 9,264 | 8,488 | ||||||
Othernon-current liabilities | 2,930 | 2,723 | ||||||
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Totalnon-current liabilities | 34,331 | 40,229 | ||||||
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Total Liabilities | 316,167 | 351,501 | ||||||
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Commitments and contingencies (Note 16) | ||||||||
Shareholders’ equity | ||||||||
Preferred shares (5,000,000 shares authorized, $0.01 par value; no shares issued and | ||||||||
outstanding as of December 29, 2017 and June 30, 2017) | — | — | ||||||
Ordinary shares (500,000,000 shares authorized, $0.01 par value; 37,597,301 shares and | ||||||||
37,340,496 shares issued, and 37,281,328 shares and 37,340,496 shares outstanding | 376 | 373 | ||||||
as of December 29, 2017 and June 30, 2017, respectively) | ||||||||
Additionalpaid-in capital | 142,914 | 133,293 | ||||||
Treasury stock, at cost (315,973 shares and zero shares as of December 29, 2017 and | ||||||||
June 30, 2017, respectively) | (9,910 | ) | — | |||||
Accumulated other comprehensive loss | (212 | ) | (348 | ) | ||||
Retained earnings | 588,602 | 548,256 | ||||||
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Total Shareholders’ Equity | 721,770 | 681,574 | ||||||
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Total Liabilities and Shareholders’ Equity | $ | 1,037,937 | $ | 1,033,075 | ||||
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(unaudited)
(in thousands of U.S. dollars, except share data and par value) | September 27, 2019 | June 28, 2019 | ||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 168,535 | $ | 180,839 | ||||
Short-term restricted cash | 22,180 | — | ||||||
Short-term investments | 238,266 | 256,493 | ||||||
Trade accounts receivable, net | 273,616 | 260,602 | ||||||
Contract assets | 11,620 | 12,447 | ||||||
Inventory , net | 321,511 | 293,612 | ||||||
Prepaid expenses | 6,313 | 8,827 | ||||||
Other current assets | 9,122 | 11,015 | ||||||
Total current assets | 1,051,163 | 1,023,835 | ||||||
Non-current assets | ||||||||
Long-term restricted cash | 7,402 | 7,402 | ||||||
Property, plant and equipment, net | 212,270 | 210,686 | ||||||
Intangibles, net | 3,661 | 3,887 | ||||||
Operating right-of-use | 6,185 | — | ||||||
Goodwill | 3,603 | 3,705 | ||||||
Deferred tax assets | 5,201 | 5,679 | ||||||
Other non-current assets | 225 | 124 | ||||||
Total non-current assets | 238,547 | 231,483 | ||||||
Total Assets | $ | 1,289,710 | $ | 1,255,318 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities | ||||||||
Long-term borrowings, current portion , net | $ | 12,157 | $ | 3,250 | ||||
Trade accounts payable | 252,147 | 257,617 | ||||||
Contract liabilities | 2,266 | 2,239 | ||||||
Capital lease liability, current portion | 391 | 398 | ||||||
Operating lease liability, current portion | 1,550 | — | ||||||
Income tax payable | 2,534 | 1,801 | ||||||
Accrued payroll, bonus and related expenses | 18,713 | 16,510 | ||||||
Accrued expenses | 12,014 | 8,997 | ||||||
Other payables | 21,649 | 22,236 | ||||||
Total current liabilities | 323,421 | 313,048 | ||||||
Non-current liabilities | ||||||||
Long-term borrowings, non-current portion, net | 48,631 | 57,688 | ||||||
Deferred tax liability | 3,791 | 3,561 | ||||||
Capital lease liability, non-current portion | — | 102 | ||||||
Operating lease liability, non-current | 4,635 | — | ||||||
Severance liabilities | 15,872 | 15,209 | ||||||
Other non-current liabilities | 2,665 | 2,611 | ||||||
Total non-current liabilities | 75,594 | 79,171 | ||||||
Total Liabilities | 399,015 | 392,219 | ||||||
Commitments and contingencies (Note 1 8 ) | ||||||||
Shareholders’ equity | ||||||||
Preferred shares ( 5,000,000 shares authorized, $0.01 par value; 0 shares issued and outstanding as of September 27, 2019 and June 28, 2019) | — | — | ||||||
Ordinary shares ( 500,000,000 shares authorized, $0.01 par value; 38,389,128 shares and 38,230,753 shares issued at September 27, 2019 and June 28, 2019, respectively ; and 37,000,025 shares and 36,841,650 shares outstanding at September 27, 2019 andJune 28, 2019, respectively) | 384 | 382 | ||||||
Additional paid-in capital | 160,148 | 158,299 | ||||||
Less: Treasury shares (1,389,103 shares and 1,389,103 shares as of September 27, 2019 and June 28, 2019, respectively) | (47,779 | ) | (47,779 | ) | ||||
Accumulated other comprehensive loss | (2,598 | ) | (2,386 | ) | ||||
Retained earnings | 780,540 | 754,583 | ||||||
Total Shareholders’ Equity | 890,695 | 863,099 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 1,289,710 | $ | 1,255,318 |
Three Months Ended | Six Months Ended | |||||||||||||||
(in thousands of U.S. dollars, except per share amounts) | December 29, 2017 | December 30, 2016 | December 29, 2017 | December 30, 2016 | ||||||||||||
Revenues | $ | 337,072 | $ | 351,156 | $ | 694,385 | $ | 683,199 | ||||||||
Cost of revenues | (299,906 | ) | (308,110 | ) | (616,887 | ) | (600,545 | ) | ||||||||
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Gross profit | 37,166 | 43,046 | 77,498 | 82,654 | ||||||||||||
Selling, general and administrative expenses | (13,157 | ) | (17,651 | ) | (28,835 | ) | (33,483 | ) | ||||||||
Expenses related to reduction in workforce | (1,776 | ) | — | (1,776 | ) | — | ||||||||||
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Operating income | 22,233 | 25,395 | 46,887 | 49,171 | ||||||||||||
Interest income | 596 | 320 | 1,405 | 757 | ||||||||||||
Interest expense | (826 | ) | (555 | ) | (1,679 | ) | (1,876 | ) | ||||||||
Foreign exchange (loss) gain, net | (1,348 | ) | 1,945 | (3,282 | ) | 3,602 | ||||||||||
Other income | 250 | 147 | 347 | 289 | ||||||||||||
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Income before income taxes | 20,905 | 27,252 | 43,678 | 51,943 | ||||||||||||
Income tax expense | (1,592 | ) | (1,960 | ) | (3,332 | ) | (3,885 | ) | ||||||||
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Net income | 19,313 | 25,292 | 40,346 | 48,058 | ||||||||||||
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Other comprehensive (loss) income, net of tax: | ||||||||||||||||
Change in net unrealized loss on marketable securities | (462 | ) | (353 | ) | (432 | ) | (540 | ) | ||||||||
Change in net unrealized loss on derivative instruments | — | — | (1 | ) | (158 | ) | ||||||||||
Change in foreign currency translation adjustment | 44 | (1,903 | ) | 569 | (1,162 | ) | ||||||||||
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Total other comprehensive (loss) income, net of tax | (418 | ) | (2,256 | ) | 136 | (1,860 | ) | |||||||||
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Net comprehensive income | $ | 18,895 | $ | 23,036 | $ | 40,482 | $ | 46,198 | ||||||||
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Earnings per share | ||||||||||||||||
Basic | $ | 0.52 | $ | 0.69 | $ | 1.08 | $ | 1.31 | ||||||||
Diluted | $ | 0.51 | $ | 0.67 | $ | 1.06 | $ | 1.28 | ||||||||
Weighted-average number of ordinary shares outstanding (thousands of shares) |
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Basic | 37,477 | 36,848 | 37,462 | 36,626 | ||||||||||||
Diluted | 38,156 | 37,805 | 38,160 | 37,567 |
(unaudited)
Three Months Ended | ||||||||
(in thousands of U.S. dollars, except per share data) | September 27, 2019 | September 28, 2018 | ||||||
Revenues | $ | 399,296 | $ | 377,177 | ||||
Cost of revenues | (353,309 | ) | (336,901 | ) | ||||
Gross profit | 45,987 | 40,276 | ||||||
Selling, general and administrative expenses | (16,000 | ) | (14,437 | ) | ||||
Expenses related to reduction in workforce | — | (85 | ) | |||||
Operating income, net | 29,987 | 25,754 | ||||||
Interest income | 2,098 | 1,444 | ||||||
Interest expense | (2,393 | ) | (634 | ) | ||||
Foreign exchange (loss) gain, net | (1,953 | ) | 3,068 | |||||
Other income, net | 377 | 77 | ||||||
Income before income taxes | 28,116 | 29,709 | ||||||
Income tax expense | (2,159 | ) | (1,859 | ) | ||||
Net income | 25,957 | 27,850 | ||||||
Other comprehensive (loss) income, net of tax: | ||||||||
Change in net unrealized gain on available-for-sale securities | 35 | 288 | ||||||
Change in net unrealized gain (loss) on derivative instruments | 39 | (1 | ) | |||||
Change in net retirement benefits plan – prior service cost | 83 | — | ||||||
Change in foreign currency translation adjustment | (369 | ) | (200 | ) | ||||
Total other comprehensive (loss) income, net of tax | (212 | ) | 87 | |||||
Net comprehensive income | $ | 25,745 | $ | 27,937 | ||||
Earnings per share | ||||||||
Basic | $ | 0.70 | $ | 0.76 | ||||
Diluted | $ | 0.69 | $ | 0.75 | ||||
Weighted-average number of ordinary shares outstanding | ||||||||
Basic | 36,913 | 36,625 | ||||||
Diluted | 37,529 | 37,140 |
(in thousands of U.S. dollars, except share data) | Ordinary Share | Additional Paid-in | Treasury Shares | Accumulated Other Comprehensive | Retained | ||||||||||||||||||||
Shares | Amount | Capital | (Loss) Income | Earnings | Total | ||||||||||||||||||||
Balances at June 28, 2019 | 38,230,753 | 382 | 158,299 | (47,779 | ) | (2,386 | ) | 754,583 | 863,099 | ||||||||||||||||
Net income | — | — | — | — | — | 25,957 | 25,957 | ||||||||||||||||||
Other comprehensive income | — | — | — | — | (212 | ) | — | (212 | ) | ||||||||||||||||
Share-based compensation | — | — | 5,995 | — | — | — | 5,995 | ||||||||||||||||||
Issuance of ordinary shares | 158,375 | 2 | (2 | ) | — | — | — | — | |||||||||||||||||
Tax withholdings related to net share settlement of restricted share units | — | — | (4,144 | ) | — | — | — | (4,144 | ) | ||||||||||||||||
Balances at September 27, 2019 | 38,389,128 | 384 | 160,148 | (47,779 | ) | (2,598 | ) | 780,540 | 890,695 |
(in thousands of U.S. dollars, except share data) | Ordinary Share | Additional Paid-in | Treasury Shares | Accumulated Other Comprehensive | Retained | ||||||||||||||||||||
Shares | Amount | Capital | (Loss) Income | Earnings | Total | ||||||||||||||||||||
Balances at June 29, 2018 | 37,723,733 | | 377 | | 151,797 | | (42,401 | ) | | (1,257 | ) | | 632,423 | 740,939 | |||||||||||
Net income | — | — | — | — | — | 27,850 | 27,850 | ||||||||||||||||||
Other comprehensive income | — | — | — | — | 87 | — | 87 | ||||||||||||||||||
Cumulative effect adjustment from adoption of ASC 606 | — | — | — | — | — | 1,205 | 1,205 | ||||||||||||||||||
Share-based compensation | — | — | 4,980 | — | — | — | 4,980 | ||||||||||||||||||
Issuance of ordinary shares | 394,876 | 4 | (4 | ) | — | — | — | — | |||||||||||||||||
Tax withholdings related to net share settlement of restricted share units | — | — | (8,904 | ) | — | — | — | (8,904 | ) | ||||||||||||||||
Balances at September 28, 2018 | 38,118,609 | 381 | 147,869 | (42,401 | ) | (1,170 | ) | 661,478 | 766,157 |
Six Months Ended | ||||||||
(in thousands of U.S. dollars) | December 29, 2017 | December 30, 2016 | ||||||
Cash flows from operating activities | ||||||||
Net income for the period | $ | 40,346 | $ | 48,058 | ||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
Depreciation and amortization | 14,265 | 10,758 | ||||||
Loss on disposal of property, plant and equipment | — | 19 | ||||||
Loss from sales and maturities ofavailable-for-sale securities | 357 | 15 | ||||||
Amortization of investment (premium) discount | (163 | ) | 228 | |||||
Amortization of deferred debt issuance costs | 295 | 1,072 | ||||||
Allowance for doubtful accounts (reversal) | 5 | (40 | ) | |||||
Unrealized loss (gain) on exchange rate and fair value of derivative instruments | 1,740 | (3,033 | ) | |||||
Share-based compensation | 12,378 | 14,208 | ||||||
Deferred income tax | (153 | ) | 938 | |||||
Othernon-cash expenses | 962 | 586 | ||||||
Inventory obsolescence (reversal) | 654 | (100 | ) | |||||
Changes in operating assets and liabilities | ||||||||
Trade accounts receivable | 5,707 | (40,779 | ) | |||||
Inventory | (1,047 | ) | (29,286 | ) | ||||
Other current assets andnon-current assets | (6,801 | ) | 4,747 | |||||
Trade accounts payable | (33,626 | ) | 11,026 | |||||
Income tax payable | (791 | ) | 448 | |||||
Other current liabilities andnon-current liabilities | 2,985 | 887 | ||||||
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Net cash provided by operating activities | 37,113 | 19,752 | ||||||
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Cash flows from investing activities | ||||||||
Purchase of marketable securities | (48,679 | ) | (83,405 | ) | ||||
Proceeds from sales of marketable securities | 18,672 | 15,682 | ||||||
Proceeds from maturities of marketable securities | 31,427 | 38,142 | ||||||
Payments in connection with business acquisition, net of cash acquired | — | (9,917 | ) | |||||
Purchase of property, plant and equipment | (21,405 | ) | (44,412 | ) | ||||
Purchase of intangibles | (689 | ) | (319 | ) | ||||
Proceeds from disposal of property, plant and equipment | 35 | 127 | ||||||
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Net cash used in investing activities | (20,639 | ) | (84,102 | ) | ||||
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Cash flows from financing activities | ||||||||
Proceeds of short-term loans from banks | 5,000 | 15,744 | ||||||
Repayment of short-term loans from bank | (1,003 | ) | — | |||||
Repayment of long-term loans from bank | (6,800 | ) | (9,800 | ) | ||||
Repayment of capital lease liability | (174 | ) | (92 | ) | ||||
Repurchase of ordinary shares | (9,910 | ) | — | |||||
Proceeds from issuance of ordinary shares under employee share option plans | 990 | 5,848 | ||||||
Withholding tax related to net share settlement of restricted share units | (3,744 | ) | (1,008 | ) | ||||
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Net cash (used in) provided by financing activities | (15,641 | ) | 10,692 | |||||
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Net increase (decrease) in cash, cash equivalents and restricted cash | 833 | (53,658 | ) | |||||
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Movement in cash, cash equivalents and restricted cash | ||||||||
Cash, cash equivalents and restricted cash at beginning of period | 137,137 | 142,804 | ||||||
Increase (decrease) in cash, cash equivalents and restricted cash | 833 | (53,658 | ) | |||||
Effect of exchange rate on cash, cash equivalents and restricted cash | 284 | (401 | ) | |||||
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Cash, cash equivalents and restricted cash at end of period | $ | 138,254 | $ | 88,745 | ||||
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Non-cash investing and financing activities | ||||||||
Construction, software-related and equipment-related payables | $ | 5,658 | $ | 17,094 |
Three Months Ended | ||||||||
(in thousands of U.S. dollars) | September 27, 2019 | September 28, 2018 | ||||||
Cash flows from operating activities | ||||||||
Net income for the period | $ | 25,957 | $ | 27,850 | ||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
Depreciation and amortization | 7,465 | 7,412 | ||||||
Loss on disposal of property, plant and equipment | 8 | 46 | ||||||
Loss on disposal of intangibles | — | 149 | ||||||
(Gain) l oss from sales and maturities of available-for-sale securities | (67 | ) | 178 | |||||
Amortization of investment discount (premium) | 65 | (94 | ) | |||||
Amortization of deferred debt issuance costs | 2 | — | ||||||
(Reversal of) allowance for doubtful accounts | (5 | ) | — | |||||
Unrealized loss (gain) on exchange rate and fair value of foreign currency forward contracts | 1,479 | (4,232 | ) | |||||
Unrealized loss (gain) on fair value of interest rate swaps | 1,671 | (50 | ) | |||||
Share-based compensation | 5,995 | 4,980 | ||||||
Deferred income tax | 705 | 3 | ||||||
Severance liabilities | 811 | 872 | ||||||
Other non-cash expenses | 53 | (282 | ) | |||||
Reversal of inventory obsolescence | (264 | ) | (478 | ) | ||||
Changes in operating assets and liabilities | ||||||||
Trade accounts receivable | (12,967 | ) | (10,887 | ) | ||||
Contract assets | 827 | (280 | ) | |||||
Inventory | (27,634 | ) | (28,904 | ) | ||||
Other current assets and non-current assets | 4,225 | (979 | ) | |||||
Trade accounts payable | (5,263 | ) | 29,182 | |||||
Contract liabilities | 27 | — | ||||||
Income tax payable | 733 | 1,680 | ||||||
Other current liabilities and non-current liabilities | (1,176 | ) | 8,427 | |||||
Net cash provided by operating activities | 2,647 | 34,593 | ||||||
Cash flows from investing activities | ||||||||
Purchase of short-term investments | (62,880 | ) | (1,955 | ) | ||||
Proceeds from sales of short-term investments | 49,472 | 24,181 | ||||||
Proceeds from maturities of short-term investments | 31,673 | 19,863 | ||||||
Purchase of property, plant and equipment | (6,343 | ) | (5,410 | ) | ||||
Purchase of intangibles | (246 | ) | (78 | ) | ||||
Net cash provided by investing activities | 11,676 | 36,601 | ||||||
Cash flows from financing activities | ||||||||
Payment of debt issuance costs | (153 | ) | — | |||||
Proceeds from long-term borrowings | 60,938 | — | ||||||
Repayment of long-term borrowings | (60,938 | ) | (813 | ) | ||||
Repayment of capital lease liability | (109 | ) | (123 | ) | ||||
Release of restricted cash held in connection with business acquisition | — | (3,478 | ) | |||||
Withholding tax related to net share settlement of restricted share units | (4,144 | ) | (8,904 | ) | ||||
Net cash used in financing activities | (4,406 | ) | (13,318 | ) | ||||
Net increase in cash, cash equivalents and restricted cash | 9,917 | 57,876 | ||||||
Movement in cash, cash equivalents and restricted cash | ||||||||
Cash, cash equivalents and restricted cash | 188,241 | 161,433 | ||||||
Increase in cash, cash equivalents and restricted cash | 9,917 | 57,876 | ||||||
Effect of exchange rate on cash, cash equivalents and restricted cash | (41 | ) | 667 | |||||
Cash, cash equivalents and restricted cash at end of period | $ | 198,117 | $ | 219,976 | ||||
Non-cash investing and financing activities | ||||||||
Construction, software and equipment-related payables | $ | 9,816 | $ | 3,830 |
(amount in thousands) | As of December 29, 2017 | As of December 30, 2016 | ||||||
Cash and cash equivalents | $ | 134,831 | $ | 85,619 | ||||
Restricted cash in connection with business acquisition(non-current assets) | 3,423 | 3,126 | ||||||
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Cash, cash equivalents and restricted cash | $ | 138,254 | $ | 88,745 | ||||
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(amount in thousands) | As of September 27, 2019 | As of September 28, 2018 | ||||||
Cash and cash equivalents | $ | 168,535 | $ | 219,976 | ||||
Restricted cash | 29,582 | — | ||||||
Cash, cash equivalents and restricted cash | $ | 198,117 | $ | 219,976 |
1. | Business and organization |
2. | Accounting policies |
28, 2019.December 29, 2017September 27, 2019 and for the three and six months ended December 29, 2017September 27, 2019 and December 30, 2016September 28, 2018 includes normal recurring adjustments necessary for a fair presentationstatement of the financial statements set forth herein, in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, such information does not include all of the information and footnotes required by U.S. GAAP for annual financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in Fabrinet’s Annual Report on Form30, 2017.30, 201728, 2019 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.and six months ended December 29, 2017September 27, 2019 may not be indicative of results for the year ending June 29, 201826, 2020 or any future periods.On September 14, 2016, the Company acquired 100% shareholding in Global CEM Solutions, Ltd. and all of its subsidiaries (including Fabrinet UK), a privately-held group located in Wiltshire, United Kingdom. The unaudited condensed consolidated financial statements of the Company include the financial position, results of operations and the cash flows of Fabrinet UK commencing as of the acquisition date. See Note 8—Business acquisition for further details on the accounting for this transaction.
2019, the Company adopted the new lease accounting standard, Accounting Standards Codification Topic 842 (“ASC 842”), which provides guidance for the recognition and disclosure of lease arrangements. The Company adopted ASC 842 using the modified retrospective transition approach. Accordingly, the Company’s comparative financial statements as of June 28, 2019 have not been adjusted. ASC 842 also provides practical expedients for the Company’s ongoing accounting. The Company elected the short-term lease recognition exemption for its operating leases with a term of less than 12 months, which will not require recognition of right of use (“ROU”) assets or lease liabilities for these leases.
(amount in thousands) | ||||
2020 | $ | 1,746 | ||
2021 | 1,342 | |||
2022 | 1,219 | |||
2023 | 1,172 | |||
Thereafter | 230 | |||
Total future minimum operating lease payments | $ | 5,709 | ||
contract assets
In January 2017, the FASB issuedThis ASU2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings.” The amendment provides guidance to will be effective for the Company in relation to the disclosurefirst quarter of the impact that ASU2014-09, ASU2016-02 and ASU2016-13 will have on the Company’s financial statements when adopted. The Company is currently evaluating the impact of the adoption of this update on its consolidated financial statements.
In January 2017, the FASB issued ASU2017-01, “Business Combination (Topic 805): Clarifying the Definition of a Business.” This amendment clarifies the definition of a business to assist entities when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or business. For public companies, this ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted for the transactions that occur before the issuance date or effective date of the amendment, only when the transaction has not been reported in financial statements that have been issued or made available for issuance.fiscal 2021. The Company does not expect that the adoption of this update will have a material impact on its condensed consolidated financial statements.
In August 2016, the FASB issued ASU2016-15, “Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force).” The amendments in this ASU provide guidance on the presentation of certain cash receipts and cash payments in the statement of cash flows in order to reduce diversity in existing practice. The amendments in ASU2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period.
3. | Revenues from contracts with customers |
In February 2016, the FASB issued ASU2016-02, “Lease (Topic 842).” The core principle of Topic 842 is that a lessee should recognize the lease assetscustomized optics and liabilities that arise from leases in the statement of financial position. For public business entities, this update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted.glass. The Company is currently evaluating the impact of the adoption of this update on its consolidated financial statements.
In January 2016, the FASB issued ASU2016-01, “Financial Instruments – Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This new guidance requires certain equity investmentsrecognizes revenue relating to be measured at fair value, use of the exit price notion and separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements. The ASU on recognition and measurement will take effect for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of this update on its consolidated financial statements.
In May 2014, the FASB issued ASU2014-09, “Revenue from Contractscontracts with Customers (Topic 606), issued as a new Topic, Accounting Standards Codification.” The core principle of this amendment iscustomers that an entity should recognize revenue to depictdepicts the transfer of promised goods or services to customers in an amount that reflectsreflecting the consideration to which the entityCompany expects to be entitled in exchange for thosesuch goods or services. This updateIn order to meet this requirement, the Company applies the following five steps: (1) identify the contract with a customer, (2) identify the performance obligations
New Accounting Pronouncements – adopted byCompany’s contract assets and contract liabilities during the Company
In August 2017,three
(amount in thousands) | Contract | |||
Beginning balance, June 28, 2019 | $ | 12,447 | ||
Revenue recognized | 21,653 | |||
Amounts collected or invoiced | (22,480 | ) | ||
Ending balance, September 27, 2019 | $ | 11,620 |
(amount in thousands) | Contract Liabilities | |||
Beginning balance, June 28, 2019 | $ | 2,239 | ||
Additions advance payment received during the period | 2,230 | |||
Revenue recognized | (2,203 | ) | ||
Ending balance, September 27, 2019 | $ | 2,266 |
In November 2016, the FASB issued ASU2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents and restricted cash or restricted cash equivalents.
(amount in thousands , except percentages) | Three Months Ended September 27, 2019 | As a % of Total Revenues | ||||||
North America | $ | 200,947 | 50.3 | % | ||||
Asia-Pacific | 118,423 | 29.7 | ||||||
Europe | 79,926 | 20.0 | ||||||
$ | 399,296 | 100.0 | % |
(amount in thousands , except percentages) | Three Months Ended September 28, 2018 | As a % of Total Revenues | ||||||
North America | $ | 179,826 | 47.7 | % | ||||
Asia-Pacific | 151,947 | 40.3 | ||||||
Europe | 45,404 | 12.0 | ||||||
$ | 377,177 | 100.0 | % |
In March 2016, the FASB issued ASU2016-05, “Derivatives and Hedging (Topic 815),” to clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815, does not, in and of itself, require designation of the hedging relationship, provided that all other hedge accounting criteria continue to be met. This guidance is effective for public entities for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. During the first six months of fiscal year 2018, the Company adopted this update with no impact to the unaudited condensed consolidated financial statements.
(amount in thousands , except percentages) | Three Months Ended September 27, 2019 | As a % of Total Revenues | ||||||
Optical communications | $ | 302,379 | 75.7 | % | ||||
Lasers, sensors and other | 96,917 | 24.3 | ||||||
Total | $ | 399,296 | 100.0 | % |
(amount in thousands , except percentages) | Three Months Ended September 28, 2018 | As a % of Total Revenues | ||||||
Optical communications | $ | 280,768 | 74.4 | % | ||||
Lasers, sensors and other | 96,409 | 25.6 | ||||||
Total | $ | 377,177 | 100.0 | % |
4. | Earnings per ordinary share |
Three Months Ended | ||||||||
(amount in thousands except per share amounts) | September 27, 2019 | September 28, 2018 | ||||||
Net income attributable to shareholders | $ | 25,957 | $ | 27,850 | ||||
Weighted-average number of ordinary shares outstanding (thousands of shares) | 36,913 | 36,625 | ||||||
Incremental shares arising from the assumed vesting of restricted share units and performance share units (thousands of shares) | 616 | 515 | ||||||
Weighted-average number of ordinary shares for diluted earnings per ordinary share (thousands of shares) | 37,529 | 37,140 | ||||||
Basic earnings per ordinary share | $ | 0.70 | $ | 0.76 | ||||
Diluted earnings per ordinary share | $ | 0.69 | $ | 0.75 | ||||
Outstanding performance share units excluded from the computation of diluted earnings per ordinary share (thousands of shares) (1) | 50 | 351 |
Three Months Ended | Six Months Ended | |||||||||||||||
(amount in thousands except per share amounts) | December 29, 2017 | December 30, 2016 | December 29, 2017 | December 30, 2016 | ||||||||||||
Net income attributable to shareholders | $ | 19,313 | $ | 25,292 | $ | 40,346 | $ | 48,058 | ||||||||
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| |||||||||
Weighted-average number of ordinary shares outstanding (thousands of shares) | 37,477 | 36,848 | 37,462 | 36,626 | ||||||||||||
Incremental shares arising from the assumed exercise of share options and vesting of restricted share units (thousands of shares) | 679 | 957 | 698 | 941 | ||||||||||||
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| |||||||||
Weighted-average number of ordinary shares for diluted earnings per ordinary share (thousands of shares) | 38,156 | 37,805 | 38,160 | 37,567 | ||||||||||||
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| |||||||||
Basic earnings per ordinary share | $ | 0.52 | $ | 0.69 | $ | 1.08 | $ | 1.31 | ||||||||
Diluted earnings per ordinary share | $ | 0.51 | $ | 0.67 | $ | 1.06 | $ | 1.28 |
As
(1) | These performance share units were 0t included in the computation of diluted earnings per ordinary share because they are not expected to vest based on the Company’s current assessment of the related performance obligations. |
5. | Cash, cash equivalents and |
Fair Value | ||||||||||||||||
(amount in thousands) | Carrying Cost | Unrealized Loss | Cash and Cash Equivalents | Marketable Securities | ||||||||||||
As of December 29, 2017 | ||||||||||||||||
Cash | $ | 129,703 | $ | — | $ | 129,703 | $ | — | ||||||||
Cash equivalents | 5,128 | — | 5,128 | — | ||||||||||||
Corporate bonds and commercial papers | 106,783 | (302 | ) | — | 106,481 | |||||||||||
U.S. agency and U.S. treasury securities | 38,823 | (190 | ) | — | 38,633 | |||||||||||
Sovereign and municipal securities | 4,302 | (13 | ) | — | 4,289 | |||||||||||
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| |||||||||
Total | $ | 284,739 | $ | (505 | ) | $ | 134,831 | $ | 149,403 | |||||||
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Fair Value | ||||||||||||||||
(amount in thousands) | Carrying Cost | Unrealized Gain/ (Loss) | Cash and Cash Equivalents | Marketable Securities | ||||||||||||
As of June 30, 2017 | ||||||||||||||||
Cash | $ | 131,240 | $ | — | $ | 131,240 | $ | — | ||||||||
Cash equivalents | 2,585 | — | 2,585 | — | ||||||||||||
Corporate bonds and commercial papers | 98,247 | 27 | — | 98,274 | ||||||||||||
U.S. agency and U.S. treasury securities | 50,768 | (102 | ) | — | 50,666 | |||||||||||
Sovereign and municipal securities | 2,507 | 3 | — | 2,510 | ||||||||||||
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|
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| |||||||||
Total | $ | 285,347 | $ | (72 | ) | $ | 133,825 | $ | 151,450 | |||||||
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|
Fair Value | ||||||||||||||||||||
(amount in thousands) | Carrying Cost | Unrealized Gain/ (Loss) | Cash and Cash Equivalents | Marketable Securities | Other Investments | |||||||||||||||
As of September 27, 2019 | ||||||||||||||||||||
Cash | $ | 167,772 | $ | — | $ | 167,772 | $ | — | $ | — | ||||||||||
Cash equivalents | 763 | — | 763 | — | — | |||||||||||||||
Liquidity funds | 20,701 | — | — | — | 20,701 | |||||||||||||||
Certificates of deposit and time deposits | 35,020 | — | — | — | 35,020 | |||||||||||||||
Corporate bonds and commercial papers | 105,029 | 294 | — | 105,323 | — | |||||||||||||||
U.S. agency and U.S. treasury securities | 77,078 | 144 | — | 77,222 | — | |||||||||||||||
Total | $ | 406,363 | $ | 438 | $ | 168,535 | $ | 182,545 | $ | 55,721 | ||||||||||
As of June 28, 2019 | ||||||||||||||||||||
Cash | $ | 178,019 | $ | — | $ | 178,019 | $ | — | $ | — | ||||||||||
Cash equivalents | 2,820 | — | 2,820 | — | — | |||||||||||||||
Liquidity funds | 20,552 | — | — | — | 20,552 | |||||||||||||||
Certificates of deposit and time deposits | 35,028 | — | — | — | 35,028 | |||||||||||||||
Corporate bonds and commercial papers | 130,959 | 297 | — | 131,256 | — | |||||||||||||||
U.S. agency and U.S. treasury securities | 69,552 | 105 | — | 69,657 | — | |||||||||||||||
Total | $ | 436,930 | $ | 402 | | $ | 180,839 | $ | 200,913 | $ | 55,580 |
(amount in thousands) | Carrying Cost | Fair Value | ||||||
Due within one year | $ | 16,814 | $ | 16,808 | ||||
Due between one to three years | 129,579 | 129,095 | ||||||
Due after three years | 3,515 | 3,500 | ||||||
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|
| |||||
Total | $ | 149,908 | $ | 149,403 | ||||
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|
|
September 27, 2019:
September 27, 2019 | June 29, 2018 | |||||||||||||||
(amount in thousands) | Carrying Cost | Fair Value | Carrying Cost | Fair Value | ||||||||||||
Due within one year | $ | 55,726 | $ | 55,786 | $ | 69,746 | $ | 69,830 | ||||||||
Due between one to five years | 126,381 | 126,759 | 130,765 | 131,083 | ||||||||||||
Total | $ | 182,107 | $ | 182,545 | $ | 200,511 | $ | 200,913 |
AsSeptember 27, 2019.
6. | Fair value of financial instruments |
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
(amount in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
As of December 29, 2017 | ||||||||||||||||
Assets | ||||||||||||||||
Cash equivalents | $ | — | $ | 5,128 | $ | — | $ | 5,128 | ||||||||
Corporate bonds and commercial papers | — | 106,481 | — | 106,481 | ||||||||||||
U.S. agency and U.S. treasury securities | — | 38,633 | — | 38,633 | ||||||||||||
Sovereign and municipal securities | — | 4,289 | — | 4,289 | ||||||||||||
Derivative assets | — | 105 | (1) | — | 105 | |||||||||||
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|
|
|
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|
| |||||||||
Total | $ | — | $ | 154,636 | $ | — | $ | 154,636 | ||||||||
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|
|
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
(amount in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
As of June 30, 2017 | ||||||||||||||||
Assets | ||||||||||||||||
Cash equivalents | $ | — | $ | 2,585 | $ | — | $ | 2,585 | ||||||||
Corporate bonds and commercial papers | — | 98,274 | — | 98,274 | ||||||||||||
U.S. agency and U.S. treasury securities | — | 50,666 | — | 50,666 | ||||||||||||
Sovereign and municipal securities | — | 2,510 | — | 2,510 | ||||||||||||
Derivative assets | — | 15 | (2) | — | 15 | |||||||||||
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|
|
|
|
|
| |||||||||
Total | $ | — | $ | 154,050 | $ | — | $ | 154,050 | ||||||||
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|
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|
|
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
(amount in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
As of September 27, 2019 | ||||||||||||||||
Assets | ||||||||||||||||
Cash equivalents | $ | — | $ | 763 | $ | — | $ | 763 | ||||||||
Liquidity funds | — | 20,701 | — | 20,701 | ||||||||||||
Certificates of deposit and time deposits | — | 35,020 | — | 35,020 | ||||||||||||
Corporate bonds and commercial papers | — | 105,323 | — | 105,323 | ||||||||||||
U.S. agency and U.S. treasury securities | — | 77,222 | — | 77,222 | ||||||||||||
Derivative assets | — | 298 | (1) | — | 298 | |||||||||||
Total | $ | — | $ | 239,327 | $ | — | $ | 239,327 | ||||||||
Liabilities | ||||||||||||||||
Derivative liabilities | $ | — | $ | 4,223 | (2) | $ | — | $ | 4,223 | |||||||
Total | $ | — | $ | 4,223 | $ | — | $ | 4,223 | ||||||||
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
(amount in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
As of June 28, 2019 | ||||||||||||||||
Assets | ||||||||||||||||
Cash equivalents | $ | — | $ | 2,820 | $ | — | $ | 2,820 | ||||||||
Liquidity funds | — | 20,552 | — | 20,552 | ||||||||||||
Certificates of deposit and time deposits | — | 35,028 | — | 35,028 | ||||||||||||
Corporate bonds and commercial papers | — | 131,256 | — | 131,256 | ||||||||||||
U.S. agency and U.S. treasury securities | — | 69,657 | — | 69,657 | ||||||||||||
Derivative assets | — | 2,201 | (3) | — | 2,201 | |||||||||||
Total | $ | — | $ | 261,514 | $ | — | $ | 261,514 | ||||||||
Liabilities | ||||||||||||||||
Derivative liabilities | $ | — | $ | 2,591 | (4) | $ | — | $ | 2,591 | |||||||
Total | $ | — | $ | 2,591 | $ | — | $ | 2,591 |
(1) | Foreign currency forward contracts with a notional amount of 74.0 million. |
(2) | Two interest rate swap agreements with an aggregate notional amount of $ 125.1 million. |
(3) | Foreign currency forward contracts with notional amount of |
(4) | Interest rate swap agreement with a notional amount of $64.2 million. |
As of December 29, 2017,September 27, 2019, the Company had 17sixty-one outstanding foreign currency forward contracts with an aggregate notional amount of $31.5
(amount in thousands) | As of December 29, 2017 | As of June 30, 2017 | ||||||
Trade accounts receivable | $ | 258,901 | $ | 264,389 | ||||
Less: allowance for doubtful account | (45 | ) | (40 | ) | ||||
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| |||||
Trade accounts receivable, net | $ | 258,856 | $ | 264,349 | ||||
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|
|
In
(amount in thousands) | As of December 29, 2017 | As of June 30, 2017 | ||||||
Raw materials | $ | 96,088 | $ | 88,640 | ||||
Work in progress | 112,157 | 105,732 | ||||||
Finished goods | 21,625 | 33,998 | ||||||
Goods in transit | 12,683 | 13,025 | ||||||
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| |||||
242,553 | 241,395 | |||||||
Less: Inventory obsolescence | (3,384 | ) | (2,730 | ) | ||||
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|
|
| |||||
Inventory, net | $ | 239,169 | $ | 238,665 | ||||
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|
|
|
The Company did not designate this interest rate swap for hedge accounting.
The Company has accounted for this acquisition under the provisions of business combinations accounting, in accordance with Accounting Standards Codification Topic 805 – Business Combinations. Accordingly, the estimated fair value of the acquisition consideration was allocatedderivatives used as hedges would be reflected in our earnings. From September 27, 2019, any gains or losses related to these interest rate swaps will be recorded in accumulated other comprehensive income in the
The allocation of consideration to the individual net assets acquired was finalized in the fourth quarter of fiscal year 2017. As the functional currency of Fabrinet UK is pound sterling (“GBP”), for the six months ended December 29, 2017 and December 30, 2016, the Company recognized a $0.6 million gain and a $1.2 million loss, respectively, from foreign currency translation adjustment in its unaudited
Three Months Ended | ||||||||||
(amount in thousands ) | Financial statements line item | September 27, 2019 | September 28, 2018 | |||||||
Derivatives gain | | |||||||||
Interest rate swaps | Other comprehensive income | | $ | 39 | $ | — | ||||
Derivatives gain | ||||||||||
Interest rate swaps | Interest expenses | — | — |
The Company’s allocation ofthese interest rate swaps was reflected in earnings. During the total purchase price for the acquisition is summarized below:
(amount in thousands) | Purchase price allocation | |||
Cash | $ | 474 | ||
Accounts receivable | 4,064 | |||
Inventory | 3,490 | |||
Other current assets | 427 | |||
Property, plant and equipment | 5,678 | |||
Intangibles | 4,492 | |||
Goodwill | 3,883 | |||
Othernon-current assets | 516 | |||
Current liabilities | (6,796 | ) | ||
Deferred tax liabilities | (1,148 | ) | ||
Othernon-current liabilities | (1,563 | ) | ||
|
| |||
Total fair value of assets acquired and liabilities assumed | $ | 13,517 | ||
|
| |||
Total purchase price, net of cash acquired | $ | 13,043 | ||
|
|
In connection with the Company’s acquisition of Fabrinet UK,three months ended September 27, 2019 and September 28, 2018, the Company assumed lease agreements for certain machine and equipment, which are accounted for as capital leases. As recorded unrealized
During the six months ended December 30, 2016, the Company incurred approximately $1.5 million in transaction costs related to the acquisition, which primarily consisted of legal, accounting and valuation-related expenses. These expenses were recorded in selling, general and administrativeinterest rate swaps as interest expense in the accompanying
During
September 27, 2019 | June 28, 2019 | |||||||||||||||
(amount in thousands) | Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | ||||||||||||
Derivatives not designated as hedging instruments | ||||||||||||||||
Foreign currency forward contracts | $ | 340 | $ | (42 | ) | $ | 2,201 | $ | — | |||||||
Interest rate swaps | — | — | $ | — | $ | (2,591 | ) | |||||||||
Derivatives designated as hedging instruments | ||||||||||||||||
Interest rate swaps | — | (4,223 | ) | $ | — | $ | — | |||||||||
Gross amounts of derivatives | 340 | (4,265 | ) | $ | 2,201 | $ | (2,591 | ) | ||||||||
Gross amounts of derivatives offset in the balance sheet | (42 | ) | 42 | $ | — | $ | — | |||||||||
Net amounts of derivatives | $ | 298 | $ | (4,223 | ) | $ | 2,201 | $ | (2,591 | ) | ||||||
Derivative Financial Instruments | Financial statements line item | |
Fair Value of Derivative Assets | Other current assets | |
Fair Value of Derivative Liabilities | Accrued expenses |
Pro forma resultsbelow derivative instruments:
Three Months Ended | ||||||||
(amount in thousands) | September 27, 2019 | September 28, 2018 | ||||||
Foreign currency forward contract | $ | — | $ | — | ||||
Interest rate swaps | (57 | ) | (82 | ) | ||||
Total | $ | (57 | ) | $ | (82 | ) |
7. | Trade accounts receivable, net |
(amount in thousands) | As of September 27, 2019 | As of June 28, 2019 | ||||||
Trade accounts receivable | $ | 273,707 | $ | 260,698 | ||||
Less: allowance for doubtful account | (91 | ) | (96 | ) | ||||
Trade accounts receivable, net | $ | 273,616 | $ | 260,602 |
8. | Inventory |
(amount in thousands) | As of September 27, 2019 | As of June 28, 2019 | ||||||
Raw materials | $ | 133,574 | $ | 115,008 | ||||
Work - in- progress | 151,518 | 142,039 | ||||||
Finished goods | 26,039 | 24,916 | ||||||
Goods in transit | 12,112 | 13,645 | ||||||
323,243 | 295,608 | |||||||
Less: Inventory obsolescence | (1,732 | ) | (1,996 | ) | ||||
Inventory, net | $ | 321,511 | $ | 293,612 |
9. | Restricted cash |
Identifiable intangibles
a customer’s transfer of certain manufacturing operations from Berlin, Germany to the Company’s facilities in Thailand.
10. | Leases |
Customer relationships representinformation available at commencement date in determining the fairpresent value of future projected revenuespayments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Variable lease payments are expensed as incurred and are not included within the ROU asset and lease liability calculation. Variable lease payments primarily include reimbursements of costs incurred by lessors for common area maintenance and
Impact of Adopting ASC 842 | ||||||||||||
(amount in thousands) | Balance at June 28, 2019 | Adjustment | Balance at June 29, 2019 | |||||||||
Assets | ||||||||||||
Operating lease ROU assets | $ | — | $ | 5,370 | $ | 5,370 | ||||||
Liabilities and Shareholders’ Equity | ||||||||||||
Operating lease liabilities – current | $ | — | $ | 1,601 | $ | 1,601 | ||||||
Operating lease liabilities – non current | $ | — | $ | 3,769 | $ | 3,769 |
(amount in thousands) | ||||
2020 (remaining nine months) | $ | 1,323 | ||
2021 | 1,669 | |||
2022 | 1,520 | |||
2023 | 1,427 | |||
2024 | 495 | |||
Thereafter | 279 | |||
Total undiscounted lease payments | 6,713 | |||
Less | (528 | ) | ||
Total present value of lease liabilities | $ | 6,185 | ( 1 ) | |
(1) | Included current portion of operating lease liabilities of $ 1.6 million. |
(amount in thousands) | ||||
2020 | $ | 300 | ||
2021 | 100 | |||
Total minimum capital lease payments | 400 | |||
Less: Future finance charge on capital leases | (9 | ) | ||
Present value of capital lease | $ | 391 | ||
Representing capital lease liabilities | ||||
Current | $ | 391 | ||
Non-current | — | |||
Total capital lease liabilities | $ | 391 | ||
Backlog represents the fair value of sales orders backlogcapital lease
(amount in thousands) | ||||
2020 | $ | 292 | ||
2021 | 99 | |||
Present value of capital lease | $ | 391 |
Goodwill
Goodwill arising from the acquisition is primarily attributablefollowing summarizes additional information related to the abilityCompany’s operating leases and capital leases:
As of September 27, 2019 | ||||
Weighted-average remaining lease term (in years) | ||||
Operating leases | 4.4 | |||
Capital leases | 1.0 | |||
Weighted-average discount rate | ||||
Operating leases | 3.9 | % | ||
Capital leases | 4.1 | % |
(amount in thousands) | Three Months Ended September 27, 2019 | |||
Cash paid for amounts included in the measurement of lease liabilities | ||||
Operating cash flows from operating leases | $ | 458 | ||
Financing cash flows from capital leases | $ | 109 | ||
ROU assets obtained in exchange for lease liabilities | $ | 6,185 | ||
Capital lease assets | $ | 317 |
Intangibles |
(amount in thousands) | Gross Carrying Amount | Accumulated Amortization | Foreign Currency Translation Adjustment | Net | ||||||||||||
As of December 29, 2017 | ||||||||||||||||
Software | $ | 6,251 | $ | (4,240 | ) | $ | — | $ | 2,011 | |||||||
Customer relationships | 4,373 | (1,037 | ) | 43 | 3,379 | |||||||||||
Backlog | 119 | (78 | ) | 1 | 42 | |||||||||||
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| |||||||||
Total intangibles | $ | 10,743 | $ | (5,355 | ) | $ | 44 | $ | 5,432 | |||||||
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|
(amount in thousands) | Gross Carrying Amount | Accumulated Amortization | Foreign Currency Translation Adjustment | Net | ||||||||||||
As of June 30, 2017 | ||||||||||||||||
Software | $ | 5,944 | $ | (3,850 | ) | $ | — | $ | 2,094 | |||||||
Customer relationships | 4,373 | (606 | ) | (88 | ) | 3,679 | ||||||||||
Backlog | 119 | (51 | ) | (1 | ) | 67 | ||||||||||
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| |||||||||
Total intangibles | $ | 10,436 | $ | (4,507 | ) | $ | (89 | ) | $ | 5,840 | ||||||
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|
|
(amount in thousands) | Gross Carrying Amount | | Accumulated Amortization | | F oreignCurrency Translation Adjustment | | Net | |||||||||
As of September 27, 2019 | ||||||||||||||||
Software | $ | 6,698 | $ | (5,004 | ) | $ | — | $ | 1,694 | |||||||
Customer relationships | 4,373 | (2,253 | ) | (153 | ) | 1,967 | ||||||||||
Backlog | 119 | (119 | ) | — | — | |||||||||||
Total intangibles | $ | 11,190 | $ | (7,376 | ) | $ | (153 | ) | $ | 3,661 |
(amount in thousands) | Gross Carrying Amount | Accumulated Amortization | Foreign Currency Translation Adjustment | Net | ||||||||||||
As of June 28, 2019 | ||||||||||||||||
Software | $ | 6,582 | $ | (4,868 | ) | $ | — | $ | 1,714 | |||||||
Customer relationships | 4,373 | (2,096 | ) | (104 | ) | 2,173 | ||||||||||
Backlog | 119 | (119 | ) | — | — | |||||||||||
Total intangibles | $ | 11,074 | $ | (7,083 | ) | $ | (104 | ) | $ | 3,887 |
(years) | As of December 29, 2017 | As of June 30, 2017 | ||||||
Customer relationships | 6.5 | 6.9 | ||||||
Backlog | 1.3 | 1.6 |
(years) | As of September 27, 2019 | As of June 28, 2019 | ||||||
Customer relationships | 5.2 | 5.4 |
(amount in thousands) | ||||
2018 (remaining six months) | $ | 794 | ||
2019 | 1,465 | |||
2020 | 987 | |||
2021 | 837 | |||
2022 | 571 | |||
Thereafter | 778 | |||
|
| |||
Total | $ | 5,432 | ||
|
|
(amount in thousands) | ||||
2020 (remaining nine months) | $ | 862 | ||
2021 | 1,020 | |||
2022 | 784 | |||
2023 | 516 | |||
2024 | 288 | |||
Thereafter | 191 | |||
Total | $ | 3,661 |
Goodwill |
(amount in thousands) | Goodwill | |||
Balance as of June 30, 2017 | $ | 3,806 | ||
Foreign currency translation adjustment | 127 | |||
|
| |||
Balance as of December 29, 2017 | $ | 3,933 | ||
|
|
(amount in thousands) | Goodwill | |||
Balance as of June 28, 2019 | $ | 3,705 | ||
Foreign currency translation adjustment | (102 | ) | ||
Balance as of September 27, 2019 | $ | 3,603 |
(amount in thousands) | Goodwill | |||
Balance as of June 24, 2016 | $ | — | ||
Addition in connection with business acquisition | 3,883 | |||
Foreign currency translation adjustment | (77 | ) | ||
|
| |||
Balance as of June 30, 2017 | $ | 3,806 | ||
|
|
(amount in thousands) | Goodwill | |||
Balance as of June 29, 2018 | $ | 3,828 | ||
Foreign currency translation adjustment | (6 | ) | ||
Balance as of September 28, 2018 | $ | 3,822 |
Borrowings |
(amount in thousands) | ||||||||||||||||
Rate | Conditions | Maturity | As of December 29, 2017 | As of June 30, 2017 | ||||||||||||
Short-term borrowings: | ||||||||||||||||
Revolving borrowing: | ||||||||||||||||
LIBOR(1) + 1.75% per annum | | Repayable in 1 to 6 months |
| January 2018(2) | $ | 39,000 | $ | 34,000 | ||||||||
Short-term loans from bank: |
| |||||||||||||||
Bank Base rate +1.85% per annum | | Repayable based on credit terms of secured | | — | 1,003 | |||||||||||
Current portion of long-term borrowing |
| 13,600 | 13,600 | |||||||||||||
|
|
|
| |||||||||||||
52,600 | 48,603 | |||||||||||||||
Less: Unamortized debt issuance costs |
| (157 | ) | (201 | ) | |||||||||||
|
|
|
| |||||||||||||
$ | 52,443 | $ | 48,402 | |||||||||||||
|
|
|
| |||||||||||||
Long-term borrowings: | ||||||||||||||||
Term loan borrowing: | ||||||||||||||||
LIBOR +1.75% per annum | | Repayable in quarterly installments | | May 2019 | $ | 29,600 | $ | 36,400 | ||||||||
|
|
|
| |||||||||||||
Less: Current portion | (13,600 | ) | (13,600 | ) | ||||||||||||
Unamortized debt issuance costs |
| (31 | ) | (99 | ) | |||||||||||
|
|
|
| |||||||||||||
Non-current portion | $ | 15,969 | $ | 22,701 | ||||||||||||
|
|
|
|
( amount in thousands | ||||||||||||||
Rate | Conditions | Maturity | As of September 27, 2019 | As of June 28, 2019 | ||||||||||
Long-term borrowings, current portion, net: | ||||||||||||||
Long-term borrowings, current portion | $ | 12,188 | $ | 3,250 | ||||||||||
Less: Unamortized debt issuance costs – current portion | (31 | ) | — | |||||||||||
Long-term borrowings, current portion, net | $ | 12,157 | 3,250 | |||||||||||
Long-term borrowings, non-current portion, net: | ||||||||||||||
Term loan borrowings: | ||||||||||||||
1-month LIBOR +1.50% per annum (1) | Repayable in quarterly installments | June 2023 | $ | — | $ | 60,938 | ||||||||
3-month LIBOR +1.35% per annum (1) | Repayable in quarterly installments | June 2024 | 60,938 | — | ||||||||||
Less: Current portion | (12,188 | ) | (3,250 | ) | ||||||||||
Less: Unamortized debt issuance costs – non-current portion | (119 | ) | — | |||||||||||
Long-term borrowings, non-current portion, net | $ | 48,631 | $ | 57,688 | ||||||||||
(1) | 6 . |
Six Months Ended | ||||||||
(amount in thousands) | December 29, 2017 | December 30, 2016 | ||||||
Opening balance | $ | 36,400 | $ | 54,500 | ||||
Repayments during the period | (6,800 | ) | (9,800 | ) | ||||
|
|
|
| |||||
Closing balance | $ | 29,600 | $ | 44,700 | ||||
|
|
|
|
Three Months Ended | ||||||||
(amount in thousands) | September 27, 2019 | September 28, 2018 | ||||||
Opening balance | $ | 60,938 | $ | 64,188 | ||||
Borrowings during the period | 60,938 | — | ||||||
Repayments during the period | (60,938 | ) | (813 | ) | ||||
Closing balance | $ | 60,938 | $ | 63,375 |
(amount in thousands) | ||||
2018 (remaining six months) | $ | 6,800 | ||
2019 | 22,800 | |||
|
| |||
Total | $ | 29,600 | ||
|
|
(amount in thousands) | ||||
2020 (remaining nine months) | $ | 9,140 | ||
2021 | 12,188 | |||
2022 | 15,234 | |||
2023 | 12,188 | |||
2024 | 12,188 | |||
Total | $ | 60,938 |
facility agreements:
On February 26, 2015, the Company entered into the Second Amendment to the Facility Agreement. The amendment extended the availability period for draws on the term loan facility from May 21, 2015 to July 31, 2015. It also allowed the Company, upon the satisfaction of certain conditions, to designate from
Loans under the Facility Agreement bearterm loan bore interest, at Fabrinet’sthe Company’s option, at a rate per annum equal to a
On July 24, 2017,September 28, 2018, the Company entered into anrecorded $0.5
Fabrinet’s obligations under the Facility Agreement are guaranteed by certain of its existing and future direct material of its subsidiaries. In addition, the Facility Agreement is secured by Fabrinet’s present and future accounts receivable, deposit accounts and cash, and a pledge of the capital stock of certain of Fabrinet’s direct subsidiaries. Fabrinet is required to maintain at least $40.0 million of cash, cash equivalents, and marketable securities at financial institutions located in the United States. Further, Fabrinet is required to maintain any of its deposits accounts or securities accounts with balances in excess of $10.0 million in a jurisdiction where a control agreement, or the equivalent under the local law, can be effected.
The Facility Agreement contains customary affirmative and negative covenants. Negative covenants include, among other things, limitations on liens, indebtedness, investments, mergers, sales of assets, changes in the nature of the business, dividends and distributions, affiliate transactions and capital expenditures. The Facility Agreement contains financial covenants requiring Fabrinet to maintain: (1) a minimum tangible net worth of not less than $200.0 million plus 50% of quarterly net income, exclusive of quarterly losses; (2) a minimum debt service coverage ratio of not less than 1.50:1.00; (3) a maximum senior leverage ratio of not more than 2.50:1.00; and (4) a minimum quick ratio of not less than 1.10:1.00. Each of these financial covenants is calculated on a consolidated basis for the consecutive four fiscal quarter period then ended. As of December 29, 2017, the Company was in compliance with all covenants under the Facility Agreement.
The Facility Agreement also contains customary events of default including, among other things, payment defaults, breaches of covenants or representations and warranties, cross-defaults with certain other indebtedness, bankruptcy and insolvency events and change in control of Fabrinet, subject to grace periods in certain instances. Upon an event of default, the lenders may terminate their commitments, declare all or a portion of the outstanding obligations payable by Fabrinet to be immediately due and payable and exercise other rights and remedies provided for under the Facility Agreement.
Fabrinet intends to use the proceeds of the credit line to finance its future manufacturing buildings in the United States and Thailand, and for general corporate purposes including mergers and acquisitions of complementary manufacturing businesses or technology, although Fabrinet has no current commitments with respect to any such acquisitions.
Short-term loans from bank
In connection with the business acquisition in the first quarter of fiscal year 2017, the Company assumed a secured borrowing agreement. In the first quarter of fiscal year 2018,September 27, 2019, the Company fully repaid these short-term loans$61.0 million in principal, accrued interest and sent a notification letterother fees under the agreement. The early termination of this agreement did not trigger any early termination fees. At September 27, 2019, there were 0 amounts outstanding under the Bank of America Facility Agreement. At June 28, 2019, there was $60.9 million outstanding under the Bank of America Facility Agreement, related to the bank to terminate this secured borrowing agreement. term loan.
14. | Income taxes |
Undrawn available credit facilities classified by availability period of future borrowing as of December 29, 2017September 27, 2019 and June 30, 2017 were as follows:
(amount in thousands) | December 29, 2017 | June 30, 2017 | ||||||
Short-term | $ | — | $ | 1,965 | ||||
Long-term | $ | 111,000 | $ | 116,000 |
As of December 29, 2017 and June 30, 2017,28, 2019, the liability for uncertain tax positions including accrued interest and penalties was $2.2 million and $2.0$2.1 million, respectively. The Company expects the estimated amount of liability associated with its uncertain tax positions to decrease within the next 12 months due to the lapse of the applicable statute of limitations in foreign tax jurisdictions.
The effective tax rates for the Company for the six months ended December 29, 2017 and December 30, 2016 were 6.3%5.0% and 6.7%, respectively, of net income. The decrease was primarily due to the fact that the Company had higherlower income not subject to tax during the six months ended December 29, 2017,first quarter of fiscal year 2020 as compared with the six months ended December 30, 2016.
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJ Act”) was enacted into law. The TCJ Act provides for significant changes to the U.S. Internal Revenue Codesame period in fiscal year 2019.
Share-based compensation |
Share-based compensation expense by type of award: Restricted share units Performance share units Total share-based compensation expense Tax effect on share-based compensation expense Net effect on share-based compensation expense Cost of revenue Selling, general and administrative expense Total share-based compensation expense In determining theequity awards, the Company is required to make estimates of expected dividends to be issued, expected volatility of Fabrinet’s ordinary shares, expected forfeitures of the awards, risk free interest rates for the expected term of the awardsrestricted share units and expected terms of the awards. Forfeitures are estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures differ from those estimates. The fair value of restrictedperformance share units is based on the market value of our ordinary shares on the date of grant.and six months ended December 29, 2017September 27, 2019 and December 30, 2016September 28, 2018 was as follows: Three Months Ended Six Months Ended (amount in thousands) December 29,
2017 December 30,
2016 December 29,
2017 December 30,
2016 4,586 7,633 9,433 12,453 872 964 2,945 1,755 5,458 8,597 12,378 14,208 — — — — $ 5,458 $ 8,597 $ 12,378 $ 14,208 Restricted share units $ $ Performance share units Total share-based compensation expense Tax effect on share-based compensation expense Net effect on share-based compensation expense $ $ Three Months ended Six Months Ended (amount in thousands) December 29,
2017 December 30,
2016 December 29,
2017 December 30,
2016 $ 1,812 $ 1,514 $ 3,713 $ 2,528 3,646 7,083 8,665 11,680 $ 5,458 $ 8,597 $ 12,378 $ 14,208 $ $ $ $
September 28, 2018.
On March 12, 2010, Fabrinet’s shareholders adopted the 2010 Plan. On December 20, 2010, December 20, 2012 and December 14, 2017, Fabrinet’s shareholders adopted amendments to the The 2010 Plan and 2017 Inducement Plan are collectively referred to increaseas the number of ordinary shares authorized for issuance under the 2010 Plan by 500,000 shares, 3,700,000 shares and 2,100,000 shares, respectively. “Equity Incentive Plans”.
Share options
Share options have been granted to directors and employees. Fabrinet’s board of directors has the authority to determine the type of option and the number of shares subject to an option. Options generally vest and become exercisable over four years and expire, if not exercised, within seven years of the grant date. In the case of a grantee’s first grant, 25 percent of the underlying shares vest 12 months after the vesting commencement date and 1/48 of the underlying shares vest monthly over each of the subsequent 36 months. In the case of any additional grants to a grantee, 1/48 of the underlying shares vest monthly over four years, commencing one month after the vesting commencement date.
The following summarizes share option activity:
Number of Shares | Number of Exercisable Options | Weighted- Average Exercise Price Per Share | Weighted- Average Grant Date Fair Value Per Share | |||||||||||||
Balance as of June 30, 2017 | 96,688 | 96,688 | $ | 15.70 | ||||||||||||
Granted | — | — | — | |||||||||||||
Exercised | (62,631 | ) | $ | 15.80 | ||||||||||||
Forfeited | — | — | ||||||||||||||
Expired | — | $ | — | |||||||||||||
|
| |||||||||||||||
Balance as of December 29, 2017 | 34,057 | 34,057 | $ | 15.52 | ||||||||||||
|
|
Number of Shares | Number of Exercisable Options | Weighted- Average Exercise Price Per Share | Weighted- Average Grant Date Fair Value Per Share | |||||||||||||
Balance as of June 24, 2016 | 464,334 | 464,334 | $ | 15.95 | ||||||||||||
Granted | — | — | — | |||||||||||||
Exercised | (365,066 | ) | $ | 16.02 | ||||||||||||
Forfeited | — | — | ||||||||||||||
Expired | (5 | ) | $ | 5.75 | ||||||||||||
|
| |||||||||||||||
Balance as of December 30, 2016 | 99,263 | 99,263 | $ | 15.71 | ||||||||||||
|
|
The following summarizes information for share options outstanding as of December 29, 2017 under the 2010 Plan:
Range of Exercise Price | Number of Shares Underlying Options | Weighted- Average Remaining Contractual Life (years) | Aggregate Intrinsic Value (amount in thousands) | |||||||||||||
$14.12 | 21,638 | 0.86 | ||||||||||||||
$15.16 | 5,369 | 0.63 | ||||||||||||||
$18.60 -$25.50 | 7,050 | 0.93 | ||||||||||||||
|
|
|
| |||||||||||||
Options outstanding | 34,057 | 0.84 | $ | 449 | ||||||||||||
|
|
|
|
|
| |||||||||||
Options exercisable | 34,057 | 0.84 | $ | 449 | ||||||||||||
|
|
|
|
|
|
As of December 29, 2017, there was no unrecognized compensation cost for share options issued under the 2010 Plan.
Number of Shares | Weighted- Average Grant Date Fair Value Per Share | |||||||
Balance as of June 30, 2017 | 1,058,605 | $ | 31.59 | |||||
Granted | 430,948 | 37.12 | ||||||
Issued | (285,902 | ) | 27.00 | |||||
Forfeited | (39,657 | ) | 35.97 | |||||
|
| |||||||
Balance as of December 29, 2017 | 1,163,994 | $ | 34.62 | |||||
|
|
Number of Shares | Weighted- Average Grant Date Fair Value Per Share | |||||||
Balance as of June 24, 2016 | 1,181,402 | $ | 18.34 | |||||
Granted | 741,973 | 39.23 | ||||||
Issued | (423,035 | ) | 16.41 | |||||
Forfeited | (38,170 | ) | 22.35 | |||||
|
| |||||||
Balance as of December 30, 2016 | 1,462,170 | $ | 29.40 | |||||
|
|
Number of Shares | Weighted- Average Grant Date Fair Value Per Share | |||||||
Balance as of June 28, 2019 | 800,751 | $ | 42.48 | |||||
Granted | 292,321 | $ | 48.39 | |||||
Issued | (240,595 | ) | $ | 39.62 | ||||
Forfeited | (21,577 | ) | $ | 42.00 | ||||
Balance as of September 27, 2019 | 830,900 | $ | 45.40 |
Number of Shares | Weighted- Average Grant Date Fair Value Per Share | |||||||
Balance as of June 29, 2018 | 1,073,580 | $ | 35.19 | |||||
Granted | 255,821 | $ | 48.02 | |||||
Issued | (369,757 | ) | $ | 34.34 | ||||
Forfeited | (29,845 | ) | $ | 38.32 | ||||
Balance as of September 28, 2018 | 929,799 | $ | 38.95 |
Number of Shares | Weighted- Average Grant Date Fair Value Per Share | |||||||
Balance as of June 28, 2019 | 548,500 | $ | 40.97 | |||||
Granted | 238,474 | $ | 48.39 | |||||
Issued | — | — | ||||||
Forfeited | (350,670 | ) | $ | 36.99 | ||||
Balance as of September 27, 2019 | 436,304 | $ | 48.22 |
Number of Shares | Weighted- Average Grant Date Fair Value Per Share | |||||||
Balance as of June 29, 2018 | 605,892 | $ | 38.41 | |||||
Granted | 201,994 | $ | 48.02 | |||||
Issued | (227,268 | ) | $ | 40.48 | ||||
Forfeited | (27,954 | ) | $ | 39.35 | ||||
Balance as of September 28, 2018 | 552,664 | $ | 41.02 |
Number of Shares | Weighted- Average Grant Date Fair Value Per Share | |||||||
Balance as of June 30, 2017 | 227,268 | $ | 40.48 | |||||
Granted | 378,624 | (1) | 37.16 | |||||
Issued | — | — | ||||||
Forfeited | — | — | ||||||
|
| |||||||
Balance as of December 29, 2017 | 605,892 | $ | 38.41 | |||||
|
|
Number of Shares | Weighted- Average Grant Date Fair Value Per Share | |||||||
Balance as of June 24, 2016 | — | — | ||||||
Granted | 234,678 | (1) | $ | 40.48 | ||||
Issued | — | — | ||||||
Forfeited | — | — | ||||||
|
| |||||||
Balance as of December 30, 2016 | 234,678 | $ | 40.48 | |||||
|
|
market value of our ordinary shares on the date of grant.
Shareholders’ equity |
sixthree months ended December 29, 2017,September 27, 2019, Fabrinet issued 62,631 ordinary shares upon the exercise of options, for cash consideration at a weighted-average exercise price of $15.80 per share, and 194,174158,375 ordinary shares upon the vesting of restricted share units, net of shares withheld.
shares
Accumulated other comprehensive income (loss) (“AOCI”) |
(amount in thousands) | Unrealized net Losses on Marketable Securities | Unrealized net Gains (Losses) on Derivative Instruments | Foreign Currency Translation Adjustment (Losses) Gains | Total | ||||||||||||
Balance as of June 30, 2017 | $ | (72 | ) | $ | 34 | $ | (310 | ) | $ | (348 | ) | |||||
Other comprehensive income before reclassification adjustment | (75 | ) | — | 569 | 494 | |||||||||||
Amounts reclassified out of AOCI to foreign exchange loss in the unaudited condensed consolidated statements of operations and comprehensive income | (357 | ) | (1 | ) | — | (358 | ) | |||||||||
Tax effects | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other comprehensive (loss) income | $ | (432 | ) | $ | (1 | ) | $ | 569 | $ | 136 | ||||||
|
|
|
|
|
|
|
| |||||||||
Balance as of December 29, 2017 | $ | (504 | ) | $ | 33 | $ | 259 | $ | (212 | ) | ||||||
|
|
|
|
|
|
|
|
The changes in AOCI for the six months ended December 30, 2016 were as follows:
(amount in thousands) | Unrealized net (Losses) Gains on Marketable Securities | Unrealized net Gains (Losses) on Derivative Instruments | Foreign Currency Translation Adjustment (Losses) Gains | Total | ||||||||||||
Balance as of June 24, 2016 | $ | 399 | $ | 192 | $ | — | $ | 591 | ||||||||
Other comprehensive income before reclassification adjustment | (525 | ) | — | (1,162 | ) | (1,687 | ) | |||||||||
Amounts reclassified out of AOCI to foreign exchange loss in the unaudited condensed consolidated statements of operations and comprehensive income | (15 | ) | (158 | ) | — | (173 | ) | |||||||||
Tax effects | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other comprehensive loss | $ | (540 | ) | $ | (158 | ) | $ | (1,162 | ) | $ | (1,860 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
Balance as of December 30, 2016 | $ | (141 | ) | $ | 34 | $ | (1,162 | ) | $ | (1,269 | ) | |||||
|
|
|
|
|
|
|
|
(amount in thousands) | Unrealized net (Losses)/Gains on Available-for-sale Securities | Unrealized net (Losses)/Gains on Derivative Instruments | Retirement benefit plan - Prior service cost | Foreign Currency Translation Adjustment | Total | |||||||||||||||
Balance as of June 28, 2019 | $ | 952 | $ | 32 | (2,537 | ) | $ | (833 | ) | $ | (2,386 | ) | ||||||||
Other comprehensive income before reclassification adjustment | (32 | ) | 39 | 83 | (369 | ) | (279 | ) | ||||||||||||
Amounts reclassified out of AOCI to foreign exchange lossin the unaudited condensed consolidated statements of operations and comprehensive income | 67 | — | — | — | 67 | |||||||||||||||
Tax effects | — | — | — | — | — | |||||||||||||||
Other comprehensive income (loss) | $ | 35 | $ | 39 | 83 | $ | (369 | ) | $ | (212 | ) | |||||||||
Balance as of September 27, 2019 | $ | 987 | $ | 71 | (2,454 | ) | $ | (1,202 | ) | $ | (2,598 | ) |
(amount in thousands) | Unrealized net (Losses)/Gains on Available-for-sale Securities | Unrealized net (Losses)/Gains on Derivative Instruments | Retirement benefit plan - Prior service cost | Foreign Currency Translation Adjustment | Total | |||||||||||||||
Balance as of June 29, 2018 | $ | (1,091 | ) | $ | 33 | — | $ | (199 | ) | $ | (1,257 | ) | ||||||||
Other comprehensive income before reclassification adjustmen t | 591 | — | — | (200 | ) | 391 | ||||||||||||||
Amounts reclassified out of AOCI to foreign exchange loss in the unaudited condensed consolidated statements of operations and comprehensive income | (303 | ) | (1 | ) | — | — | (304 | ) | ||||||||||||
Tax effects | — | — | — | — | — | |||||||||||||||
Other comprehensive income (loss) | $ | 288 | $ | (1 | ) | — | $ | (200 | ) | $ | 87 | |||||||||
Balance as of September 28, 2018 | $ | (803 | ) | $ | 32 | — | $ | (399 | ) | $ | (1,170 | ) |
Commitments and contingencies |
2018 (remaining six months) 2019 2020 2021 2022 Thereafter Total minimum operating lease payments 2018 (remaining six months) 2019 2020 2021 Total minimum capital lease payments December 29, 2017September 27, 2019,30, 2017,28, 2019, there were outstanding bank guarantees given by banksa bank on behalf of Fabrinetour subsidiary in Thailand for electricity usage and other normal business amounting to $1.5$1.6 million asand $1.6 million, respectivelyboth dates.Operating lease commitmentsThe Company leases a portion of its office, capital equipment, our subsidiaries in certain land and buildings for its facilities in the Cayman Islands, China, New Jersey and under operating lease arrangements that expire in various calendar years through 2023. Rental expense under these operating leases amounted to $0.9 million$0.8 million for the six months ended December 29, 2017 and December 30, 2016, $25thousand,respectively.As of December 29, 2017, the future minimum lease payments due undernon-cancelable operating leases during each fiscal year were as follows:(amount in thousands) $ 815 1,164 945 543 430 466 $ 4,363 Capital lease commitmentsIn connection with the acquisition of Fabrinet UK, the Company assumed the capital lease commitments of certain machines and equipment, with various expiration dates until September 2020. The equipment can be purchased at the determined prices upon expiration of such contracts.As of December 29, 2017, the future minimum lease payments due undernon-cancelable capital leases during each fiscal year were as follows:(amount in thousands) $ 239 464 422 108 $ 1,233 purchasepOn December 23, 2016, the Company entered into an agreement to purchase a parcel of land in Chonburi, Thailand, to support the expansion of the Company’s production in Thailand. The aggregate purchase price is approximately $5.6 million, of which the first installment of $1.1 million was paid by the Company on January 10, 2017 and the remaining balance of the purchase price was paid by the Company on December 25, 2017.December 29, 2017,September 27, 2019, the Company had an outstanding commitment to third parties of approximately $7.1$8.2 million.
Business segments and geographic information |
Three Months Ended | Six Months Ended | |||||||||||||||
(amount in thousands) | December 29, 2017 | December 30, 2016 | December 29, 2017 | December 30, 2016 | ||||||||||||
North America | $ | 152,167 | $ | 157,997 | $ | 309,158 | $ | 323,992 | ||||||||
Asia-Pacific | 130,354 | 136,692 | 273,217 | 251,437 | ||||||||||||
Europe | 54,551 | 56,467 | 112,010 | 107,770 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 337,072 | $ | 351,156 | $ | 694,385 | $ | 683,199 | |||||||||
|
|
|
|
|
|
|
|
Three Months Ended | ||||||||
(amount in thousands) | September 27, 2019 | September 28, 2018 | ||||||
North America | $ | 200,947 | $ | 179,826 | ||||
Asia-Pacific | 118,423 | 151,947 | ||||||
Europe | 79,926 | 45,404 | ||||||
$ | 399,296 | $ | 377,177 |
20. | Subsequent events |
As part
In February 2018, Fabrinet’s board of directors approved the repurchase of up to an additional $30.0 million of Fabrinet’s outstanding ordinary shares, bringing the aggregate authorization under Fabrinet’s existing share repurchase program to $60.0 million.
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Three Months Ended | Six Months Ended | |||||||||||||||
December 29, 2017 | December 30, 2016 | December 29, 2017 | December 30, 2016 | |||||||||||||
North America | 45.1 | % | 45.0 | % | 44.5 | % | 47.4 | % | ||||||||
Asia-Pacific | 38.7 | 38.9 | 39.3 | 36.8 | ||||||||||||
Europe | 16.2 | 16.1 | 16.2 | 15.8 | ||||||||||||
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100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
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region:
Three Months Ended | ||||||||
September 27, 2019 | September 28, 2018 | |||||||
North America | 50.3 | % | 47.7 | % | ||||
Asia-Pacific | 29.7 | 40.3 | ||||||
Europe | 20.0 | 12.0 | ||||||
100.0 | % | 100.0 | % | |||||
The excess or obsolete inventory is shipped to the customer and revenue is recognized upon shipment.
2019 SG&A expenses.
2019.
As of December 29, 2017 | As of June 30, 2017 | |||||||||||||||||||||||
(amount in thousands, except percentages) | Currency | $ | % | Currency | $ | % | ||||||||||||||||||
Assets | ||||||||||||||||||||||||
Thai baht | 461,231 | $ | 14,114 | 52.3 | 395,123 | $ | 11,628 | 47.3 | ||||||||||||||||
RMB | 22,737 | 3,480 | 12.9 | 26,965 | 3,980 | 16.2 | ||||||||||||||||||
GBP | 6,986 | 9,403 | 34.8 | 6,896 | 8,982 | 36.5 | ||||||||||||||||||
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Total | $ | 26,997 | 100.0 | $ | 24,590 | 100.0 | ||||||||||||||||||
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Liabilities | ||||||||||||||||||||||||
Thai baht | 1,360,214 | $ | 41,622 | 82.7 | 1,875,338 | $ | 55,189 | 82.7 | ||||||||||||||||
RMB | 29,071 | 4,449 | 8.8 | 28,451 | 4,200 | 6.3 | ||||||||||||||||||
GBP | 3,168 | 4,264 | 8.5 | 5,625 | 7,326 | 11.0 | ||||||||||||||||||
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Total | $ | 50,335 | 100.0 | $ | 66,715 | 100.0 | ||||||||||||||||||
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As of September 27, 2019 | As of June 28, 2019 | |||||||||||||||||||||||
(amount in thousands, except percentages) | Currency | $ | % | Currency | $ | % | ||||||||||||||||||
Assets | ||||||||||||||||||||||||
Thai baht | 781,245 | $ | 25,497 | 53.5 | 664,860 | $ | 21,628 | 60.0 | ||||||||||||||||
RMB | 99,873 | 14,120 | 29.6 | 53,393 | 7,767 | 21.5 | ||||||||||||||||||
GBP | 6,540 | 8,062 | 16.9 | 5,270 | 6,682 | 18.5 | ||||||||||||||||||
Total | $ | 47,679 | 100.0 | $ | 36,077 | 100.0 | ||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Thai baht | 1,881,355 | $ | 61,402 | 90.3 | 1,961,972 | $ | 63,825 | 90.0 | ||||||||||||||||
RMB | 28,911 | 4,088 | 6.0 | 26,373 | 3,836 | 5.4 | ||||||||||||||||||
GBP | 2,038 | 2,513 | 3.7 | 2,598 | 3,294 | 4.6 | ||||||||||||||||||
Total | $ | 68,003 | 100.0 | $ | 70,955 | 100.0 | ||||||||||||||||||
As of June 28, 2019, there was $72.0 million of foreign currency forward contracts outstanding on the Thai baht payables.
gains until March 6, 2039.
On December 22, 2017, the.
U.S. subsidiaries.
Three Months Ended | Six Months Ended | |||||||||||||||
(amount in thousands) | December 29, 2017 | December 30, 2016 | December 29, 2017 | December 30, 2016 | ||||||||||||
Revenues | $ | 337,072 | $ | 351,156 | $ | 694,385 | $ | 683,199 | ||||||||
Cost of revenues | (299,906 | ) | (308,110 | ) | (616,887 | ) | (600,545 | ) | ||||||||
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Gross profit | 37,166 | 43,046 | 77,498 | 82,654 | ||||||||||||
Selling, general and administrative expenses | (13,157 | ) | (17,651 | ) | (28,835 | ) | (33,483 | ) | ||||||||
Expenses related to reduction in workforce | (1,776 | ) | — | (1,776 | ) | — | ||||||||||
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Operating income | 22,233 | 25,395 | 46,887 | 49,171 | ||||||||||||
Interest income | 596 | 320 | 1,405 | 757 | ||||||||||||
Interest expense | (826 | ) | (555 | ) | (1,679 | ) | (1,876 | ) | ||||||||
Foreign exchange (loss) gain, net | (1,348 | ) | 1,945 | (3,282 | ) | 3,602 | ||||||||||
Other income | 250 | 147 | 347 | 289 | ||||||||||||
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Income before income taxes | 20,905 | 27,252 | 43,678 | 51,943 | ||||||||||||
Income tax expense | (1,592 | ) | (1,960 | ) | (3,332 | ) | (3,885 | ) | ||||||||
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Net income | 19,313 | 25,292 | 40,346 | 48,058 | ||||||||||||
Other comprehensive income (loss), net of tax | (418 | ) | (2,256 | ) | 136 | (1,860 | ) | |||||||||
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Net comprehensive income | $ | 18,895 | $ | 23,036 | $ | 40,482 | $ | 46,198 | ||||||||
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(amount in thousands) | Three Months Ended | |||||||
September 27, 2019 | September 28, 2018 | |||||||
Revenues | $ | 399,296 | $ | 377,177 | ||||
Cost of revenues | (353,309 | ) | (336,901 | ) | ||||
Gross profit | 45,987 | 40,276 | ||||||
Selling, general and administrative expenses | (16,000 | ) | (14,437 | ) | ||||
Expenses related to reduction in workforce | — | (85 | ) | |||||
Operating income | 29,987 | 25,754 | ||||||
Interest income | 2,098 | 1,444 | ||||||
Interest expense | (2,393 | ) | (634 | ) | ||||
Foreign exchange gain (loss), net | (1,953 | ) | 3,068 | |||||
Other income, net | 377 | 77 | ||||||
Income before income taxes | 28,116 | 29,709 | ||||||
Income tax expense | (2,159 | ) | (1,859 | ) | ||||
Net income | 25,957 | 27,850 | ||||||
Other comprehensive (loss) income, net of tax | (212 | ) | 87 | |||||
Net comprehensive income | $ | 25,745 | $ | 27,937 | ||||
Three Months Ended | Six Months Ended | |||||||||||||||
December 29, 2017 | December 30, 2016 | December 29, 2017 | December 30, 2016 | |||||||||||||
Revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of revenues | (89.0 | ) | (87.7 | ) | (88.8 | ) | (87.9 | ) | ||||||||
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Gross profit | 11.0 | 12.3 | 11.2 | 12.1 | ||||||||||||
Selling, general and administrative expenses | (3.9 | ) | (5.0 | ) | (4.1 | ) | (4.9 | ) | ||||||||
Expenses related to reduction in workforce | (0.5 | ) | — | (0.3 | ) | — | ||||||||||
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Operating income | 6.6 | 7.3 | 6.8 | 7.2 | ||||||||||||
Interest income | 0.2 | 0.1 | 0.2 | 0.1 | ||||||||||||
Interest expense | (0.3 | ) | (0.2 | ) | (0.2 | ) | (0.3 | ) | ||||||||
Foreign exchange (loss) gain, net | (0.4 | ) | 0.6 | (0.5 | ) | 0.5 | ||||||||||
Other income | 0.1 | 0.0 | 0.0 | 0.1 | ||||||||||||
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Income before income taxes | 6.2 | 7.8 | 6.3 | 7.6 | ||||||||||||
Income tax expense | (0.5 | ) | (0.6 | ) | (0.5 | ) | (0.6 | ) | ||||||||
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Net income | 5.7 | 7.2 | 5.8 | 7.0 | ||||||||||||
Other comprehensive income (loss), net of tax | (0.1 | ) | (0.6 | ) | 0.1 | (0.3 | ) | |||||||||
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Net comprehensive income | 5.6 | % | 6.6 | % | 5.9 | % | 6.7 | % | ||||||||
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Three Months Ended | ||||||||
September 27, 2019 | September 28, 2018 | |||||||
Revenues | 100.0 | % | 100.0 | % | ||||
Cost of revenues | (88.5 | ) | (89.3 | ) | ||||
Gross profit | 11.5 | 10.7 | ||||||
Selling, general and administrative expenses | (4.0 | ) | (3.8 | ) | ||||
Expenses related to reduction in workforce | 0.0 | 0.0 | ||||||
Operating income | 7.5 | 6.9 | ||||||
Interest income | 0.5 | 0.4 | ||||||
Interest expense | (0.6 | ) | (0.2 | ) | ||||
Foreign exchange gain (loss), net | (0.5 | ) | 0.8 | |||||
Other income, net | 0.1 | 0.0 | ||||||
Income before income taxes | 7.0 | 7.9 | ||||||
Income tax expense | (0.5 | ) | (0.5 | ) | ||||
Net income | 6.5 | 7.4 | ||||||
Other comprehensive (loss) income, net of tax | (0.1 | ) | 0.0 | |||||
Net comprehensive income | 6.4 | % | 7.4 | % | ||||
Three Months Ended | Six Months Ended | |||||||||||||||
(amount in thousands) | December 29, 2017 | December 30, 2016 | December 29, 2017 | December 30, 2016 | ||||||||||||
Optical communications | $ | 241,889 | $ | 274,244 | $ | 517,501 | $ | 531,051 | ||||||||
Lasers, sensors and other | 95,183 | 76,912 | 176,884 | 152,148 | ||||||||||||
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Total | $ | 337,072 | $ | 351,156 | $ | 694,385 | $ | 683,199 | ||||||||
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Three Months Ended | ||||||||
(amount in thousands) | September 27, 2019 | September 28, 2018 | ||||||
Optical communications | $ | 302,379 | $ | 280,768 | ||||
Lasers, sensors and other | 96,917 | 96,409 | ||||||
Total | $ | 399,296 | $ | 377,177 | ||||
September 28, 2018 revenues September 27, 2019. revenues profit a more favorable product mix. expenses $0.3 million. cash during the three months ended September 27, 2019.and Six Months Ended December 29, 2017September 27, 2019 with Three and Six Months Ended December 30, 2016revenues.decreasedincreased by $14.1$22.1 million, or 4.0%5.9%, to $337.1$399.3 million for the three months ended December 29, 2017,September 27, 2019, compared with $351.2$377.2 million for the three months ended December 30, 2016. This decrease was primarily due to a decrease in our customers’ demand for optical communications manufacturing services partially offset by an increase in our customers’ demand fornon-optical communications manufacturing services. Revenues from optical communications manufacturing services represented 71.8% of our total revenues for the three months ended December 29, 2017, compared to 78.1% for the three months ended December 30, 2016.Our total revenues increased by $11.2 million, or 1.6%, to $694.4 million for the six months ended December 29, 2017, compared with $683.2 million for the six months ended December 30, 2016.September 28, 2018. This increase was primarily due to an increase in our customers’ demand for both optical andpartially offset by a decrease in our customers’ demand for optical communications manufacturing services.during the three months ended September 27, 2019. Revenues from optical andmanufacturing services represented 74.5% of our total revenuesproducts increased by $21.6 million and $0.5 million, or 7.7% and 0.5%, respectively, for the sixthree months ended December 29, 2017, compared to 77.7% for the six months ended December 30, 2016.revenues.decreasedincreased by $8.2$16.4 million, or 2.7%4.9%, to $299.9$353.3 million, or 89.0%88.5% of total revenues, for the three months ended December 29, 2017,September 27, 2019, compared with $308.1$336.9 million, or 87.7%89.3% of total revenues, for the three months ended December 30, 2016.September 28, 2018. The decreaseincrease in cost of revenues on an absolute dollar basis was primarily due to a decrease in sales volume. Cost of revenues also included share-based compensation expenses of $1.8 million forline with the three months ended December 29, 2017, compared with $1.5 million for the three months ended December 30, 2016.Our cost of revenues increased by $16.3 million, or 2.7%, to $616.9 million, or 88.8% of total revenues, for the six months ended December 29, 2017, compared with $600.5 million, or 87.9% of total revenues, for the six months ended December 30, 2016. The increase in cost of revenues was primarily due to an increase in sales volume. Cost of revenues also included share-based compensation expenses of $3.7 million for the six months ended December 29, 2017,compared with $2.5 million for the six months ended December 30, 2016.profit.decreasedincreased by $5.9$5.7 million, or 13.7%14.2%, to $37.2$46.0 million, or 11.0%11.5% of total revenues, for the three months ended December 29, 2017,September 27, 2019, compared with $43.0$40.3 million, or 12.3%10.7% of total revenues, for the three months ended December 30, 2016.Our gross profit decreased by $5.2 million, or 6.2%,September 28, 2018. The increase was primarily due to $77.5 million, or 11.2% of total revenues, for the six months ended December 29, 2017, compared with $82.7 million, or 12.1% of total revenues, for the six months ended December 30, 2016.expenses.decreasedincreased by $4.5$1.6 million, or 25.5%10.8%, to $13.2$16.0 million, or 3.9%4.0% of total revenues, for the three months ended December 29, 2017,September 27, 2019, compared with $17.7$14.4 million, or 5.0%3.8% of total revenues, for the three months ended December 30, 2016. Our SG&A expenses decreasedSeptember 28, 2018. The increase was primarily due to lower incentive-based compensation.Our SG&A expenses decreased by $4.6(1) an increase in share-based compensation of $1.1 million or 13.9%, to $28.8 million, or 4.1%and (2) an increase in severance liabilities of total revenues, for the six months ended December 29, 2017, compared with $33.5 million, or 4.9% of total revenues, for the six months ended December 30, 2016. Our SG&A expenses decreased primarily due to lower incentive-based compensation, and lower expenses relating to merger and acquisition activities.decreasedincreased by $3.2$4.2 million to $22.2$30.0 million, or 6.6%7.5% of total revenues, for the three months ended December 29, 2017,September 27, 2019, compared with $25.4$25.8 million, or 7.3%6.9% of total revenues, for the three months ended December 30, 2016.Our operatingSeptember 28, 2018. The increase was primarily due to an increase in total revenues. decreased by $2.3 million to $46.9 million, or 6.8% of total revenues, for the six months ended December 29, 2017, compared with $49.2 million, or 7.2% of total revenues, for the six months ended December 30, 2016.Interest income.$0.3 million to $0.6$0.7 million, or 0.2%45.3%, to $2.1 million, or 0.5% of total revenues, for the three months ended December 29, 2017,September 27, 2019, compared with $0.3$1.4 million, or 0.1%0.4% of total revenues, for the three months ended December 30, 2016. Our interest income increased by $0.6 million to $1.4 million, or 0.2% of total revenues, for the six months ended December 29, 2017, compared with $0.8 million, or 0.1% of total revenues, for the six months ended December 30, 2016.September 28, 2018. The increase was primarily due to a higher weighted average interest rate and an increase in the average balance of our outstanding cash.
expense
term loan.
Our
Our foreign exchange gain, net, decreased by $6.9 million to foreign exchange (loss), net, of $(3.3) million, or (0.5)% of total revenues, for the six months ended December 29, 2017, compared with foreign exchange gain, net, of $3.6 million, or 0.5% of total revenues, for the six months ended December 30, 2016. The decrease was primarily due to the fluctuation of foreign currencies, particularly the depreciation of U.S. dollars against Thai baht.
September 28, 2018.
taxes
September 28, 2018.
Our provision for2019.
Net income.
We recordedSeptember 28, 2018. The decrease was mainly due to (1) an increase in SG&A expenses of $1.6 million; (2) a net decrease of interest income and expenses of $40.3$ 1.1 million; and (3) a net decrease of foreign exchange gain of $5.0 million, or 5.8%offset by an increase in gross profit of total revenues, for the six months ended December 29, 2017, compared with $48.1 million, or 7.0% of total revenues, for the six months ended December 30, 2016.
$5.7 million.
We recorded other comprehensive income of $0.1 million, or 0.1% of total revenues, for the six months ended December 29, 2017, compared with other comprehensive (loss) of $(1.9) million, or (0.3)% of total revenues, for the six months ended December 30, 2016. The increase was primarily due to the foreign currency translation adjustment of $1.7 million in connection with the operations of Fabrinet UK.
September 27, 2019.
In December 2015, we began construction of a new manufacturing facility at our Chonburi campus, which we substantially completed in the first quarter of fiscal year 2017.
Six Months Ended | ||||||||
(amount in thousands) | December 29, 2017 | December 30, 2016 | ||||||
Net cash provided by operating activities | $ | 37,113 | $ | 19,752 | ||||
Net cash used in investing activities | $ | (20,639 | ) | $ | (84,102 | ) | ||
Net cash (used in) provided by financing activities | $ | (15,641 | ) | $ | 10,692 | |||
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 833 | $ | (53,658 | ) |
Three Months Ended | ||||||||
(amount in thousands) | September 27, 2019 | September 28, 2018 | ||||||
Net cash provided by operating activities | $ | 2,647 | $ | 34,593 | ||||
Net cash provided by investing activities | $ | 11,676 | $ | 36,601 | ||||
Net cash used in financing activities | $ | (4,406 | ) | $ | (13,318 | ) | ||
Net increase in cash, cash equivalents and restricted cash | $ | 9,917 | $ | 57,876 |
Investing Activities
Net cash used in investing activities decreased by $63.5 million, or 75.5%, to $20.6 million for the six months ended December 29, 2017, compared with net cash used in investing activities of $84.1 million for the six months ended December 30, 2016.September 28, 2018. This decrease was primarily due to (1) aan increase of $34.4 million in payments to trade accounts payable offset by (1) an increase in share-based compensation of $1.0 million and (2) an increase in inventory of $1.3 million.
$1.1 million.
fiscal year 2019.
We have not entered into any financial guarantees or
were backed by cash collateral of $29.6 million.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We maintain an investment portfolio in a variety of financial instruments, including, but not limited to, U.S. government and agency bonds, corporate obligations, money market funds, asset-backed securities, and other investment-grade securities. The majority of these investments pay a fixed rate of interest. The securities in the investment portfolio are subject to market price risk due to changes in interest rates, perceived issuer creditworthiness, marketability, and other factors. These investments are generally classified asmarketable securitiesshort-term investments totaling $284.2$406.8 million and $285.3$437.3 million as of December 29, 2017September 27, 2019 and June 30, 2017,28, 2019, respectively. We have interest rate risk exposure relating to the interest income generated by excess cash invested in highly liquid investments with maturities of three months or less from the original dates of purchase. The cash, cash equivalents, and marketable securitiesshort-term investments are held for working capital purposes. We have not used derivative financial instruments in our investment portfolio. We have not been exposed nor do we anticipate being exposed to material risks due to changes in market interest rates. Declines in interest rates, however, will reduce future investment income. If overall interest rates had declined by 10 basis points during the sixthree months ended December 29, 2017September 27, 2019 and December 30, 2016,September 28, 2018, our interest income would have decreased by approximately $0.1 million and $0.1 million, respectively,for both periods, assuming consistent investment levels.sixthree months ended December 29, 2017September 27, 2019 and December 30, 2016,September 28, 2018, our interest expense would have increased by approximately $0.3 million and $0.2 million respectively,for both periods, assuming consistent borrowing levels.an interest rate swap agreementagreements (the “Swap Agreement”Agreements”) to manage this risk and increase the profile of the Company’s debt obligation. The terms of the Swap AgreementAgreements allow the Company to effectively convert the floating interest rate to a fixed interest rate. This locks the variable in interest expenses associated with our floating rate borrowings and results in fixed interest expenses which is unsusceptible from market rate increase. As we did not designateWe designated the Swap AgreementAgreements as a hedging instrument,cash flow hedge, and they qualify for hedge accounting because the net positionhedges are highly effective. While we intend to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective, the changes in the fair value of gainthe derivatives used as hedges would be reflected in our earnings. From September 27, 2019, any gains or loss from the Swap Agreement is recognized aslosses related to these interest expenserate swaps will be recorded in accumulated other comprehensive income in the unaudited condensed consolidated statements of operations and comprehensive income.balance sheets, with subsequent reclassification to interest expense.
ITEM 4. | CONTROLS AND PROCEDURES |
December 29, 2017September 27, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.reporting other than those related to adoption of Leases (Topic 842) that we adopted on June 29, 2019.
ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1A. | RISK FACTORS |
depend on and will continue to depend on a small number of customers. A reduction in orders from any of these customers, the loss of any of these customers, or a customer exerting significant pricing and margin pressures on us could harm our business, financial condition and operating results.December 29, 2017September 27, 2019 and December 30, 2016, we had one customer and two customers, respectively,that contributed 10% or more of our total revenues. These customers together accounted for 17% and 30% of our total revenues during the respective periods. During the six months ended December 29, 2017 and December 30, 2016,September 28, 2018, we had one customer that contributed 10% or more18% of our total revenues. This customer accounted for 15% and 20% of our total revenues during the respective periods. Dependence on a small number of customers means that a reduction in orders from, a loss of, or other adverse actions by any one of these customers would reduce our revenues and could have a material adverse effect on our business, financial condition and operating results.impactsimpact of Brexit. Certain of our customers have gone out of business, declared bankruptcy, been acquired, or announced their withdrawal from segments of the optics market. We generate significant accounts payable and inventory for the services that we provide to our customers, which could expose us to substantial and potentially unrecoverable costs if we do not receive payment from our customers.Reliancethoseour customers substantial purchasing power and leverage in negotiating contracts with us. In addition, although we enter into master supply agreements with our customers, the level of business to be transacted under those agreements is not guaranteed. Instead, we are awarded business under those agreements on amaywill continue and mayto adversely affect our business, financial condition and operating results in several ways. Consolidation among our customers and their customers may result in a smaller number of large customers whose size and purchasing power give them increased leverage that may result in, among other things, decreases in our average selling prices. In addition to pricing pressures, this consolidation may also reduce overall demand for our manufacturing services if customers obtain new capacity to manufacture products
Our quarterly revenues, gross profit margins and operating results have fluctuated significantly and may continue to do so in the future, which may cause the market price of our ordinary shares to decline or be volatile.
Our quarterly revenues, gross profit margins, and operating results have fluctuated significantly and may continue to fluctuate significantly in the future. For example, any of the risks described in this “Risk Factors” section and, in particular, the following factors, could cause our quarterly and annual revenues, gross profit margins, and operating results to fluctuate from period to period:
Therefore, we believe thatquarter-to-quarter comparisons of our operating results may not be useful in predicting our future operating results. You should not rely on our results for one quarter as any indication of our future performance. Quarterly variations in our operations could result in significant volatility in the market price of our ordinary shares.
If we are unable to continue diversifying our precision optical and electro-mechanical manufacturing services across other markets within the optics industry, such as the semiconductor processing, biotechnology, metrology and material processing markets, or if these markets do not grow as fast as we expect, our business may not grow as fast as we expect, which could adversely impact our business, financial condition and operating results.
We intend to continue diversifying across other markets within the optics industry, such as the semiconductor processing, biotechnology, metrology, and material processing markets, to reduce our dependence on the optical communications market and to grow our business. Currently, the optical communications market contributes the significant majority of our revenues. There can be no assurance that our efforts to further expand and diversify into other markets within the optics industry will prove successful or that these markets will continue to grow as fast as we expect. In the event that the opportunities presented by these markets prove to be less than anticipated, if we are less successful than expected in diversifying into these markets, or if our margins in these markets prove to be less than expected, our growth may slow or stall, and we may incur costs that are not offset by revenues in these markets, all of which could harm our business, financial condition and operating results.
We face significant competition in our business. If we are unable to compete successfully against our current and future competitors, our business, financial condition and operating results could be harmed.
Our current and prospective customers tend to evaluate our capabilities against the merits of their internal manufacturing as well as the capabilities of other third-party manufacturers. We believe the internal manufacturing capabilities of current and prospective customers are our primary competition. This competition is particularly strong when our customers have excess manufacturing capacity, as was the case when the markets that we serve experienced a significant downturn in 2008 and 2009 that resulted in underutilized capacity. Should our existing and potential customers have excess manufacturing capacity at their facilities, it could adversely affect our business. In addition, as a result of the 2011 flooding in Thailand, some of our customers began manufacturing products internally or using other third-party manufacturers that were not affected by the flooding. If our customers choose to manufacture products internally rather than to outsource production to us, or choose to outsource to a third-party manufacturer, our business, financial condition and operating results could be harmed.
Competitors in the market for optical manufacturing services include Benchmark Electronics, Inc., Celestica Inc.,Sanmina-SCI Corporation, Jabil Circuit, Inc., and Venture Corporation Limited. Our customized optics and glass operations face competition from companies such as Browave Corporation, Fujian Castech Crystals, Inc., Photop Technologies, Inc., and Research Electro-Optic, Inc. Our UK competitors for printed circuit board assemblies include STI Limited and Axiom Manufacturing Services Limited. Other existing contract manufacturing companies, original design manufacturers or outsourced semiconductor assembly and test companies could also enter our target markets. In addition, we may face more competitors as we attempt to penetrate new markets.
Many of our customers and potential competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater resources than we have. These advantages may allow them to devote greater resources than we can to the development and promotion of service offerings that are similar or superior to our service offerings. These competitors may also engage in more extensive research and development, undertake morefar-reaching marketing campaigns, adopt more aggressive pricing policies or offer services that achieve greater market acceptance than ours. These competitors may also compete with us by making more attractive offers to our existing and potential employees, suppliers, and strategic partners. Further, consolidation in the optics industry could lead to larger and more geographically diverse competitors. New and increased competition could result in price reductions for our services, reduced gross profit margins or loss of market share. We may not be able to compete successfully against our current and future competitors, and the competitive pressures we face may harm our business, financial condition and operating results.
Cancellations, delays or reductions of customer orders and the relatively short-term nature of the commitments of our customers could harm our business, financial condition and operating results.
We do not typically obtain firm purchase orders or commitments from our customers that extend beyond 13 weeks. While we work closely with our customers to develop forecasts for periods of up to one year, these forecasts are not binding and may be unreliable. Customers may cancel their orders, change production quantities from forecasted volumes or delay production for a number of reasons beyond our control. Any material delay, cancellation or reduction of orders could cause our revenues to decline significantly and could cause us to hold excess materials. Many of our costs and operating expenses are fixed. As a result, a reduction in customer demand could decrease our gross profit and harm our business, financial condition and operating results.
In addition, we make significant decisions, including production schedules, material procurement commitments, personnel needs and other resource requirements, based on our estimate of our customers’ requirements. The short-term nature of our customers’ commitments and the possibility of rapid changes in demand for their products reduce our ability to accurately estimate the future requirements of our customers. Inability to forecast the level of customer orders with certainty makes it difficult to allocate resources to specific customers, order appropriate levels of materials and maximize the use of our manufacturing capacity. This could also lead to an inability to meet a spike in production demand, all of which could harm our business, financial condition and operating results.
Our exposure to financially troubled customers or suppliers could harm our business, financial condition and operating results.
We provide manufacturing services to companies, and rely on suppliers, that have in the past and may in the future experience financial difficulty, particularly in light of uncertainty in the credit markets and the overall economy that affected access to capital and liquidity. As a result, we devote significant resources to monitor receivables and inventory balances with certain of our customers. If our customers experience financial difficulty, we could have difficulty recovering amounts owed to us from these customers, or demand for our services from these customers could decline. If our suppliers experience financial difficulty, we could have trouble sourcing materials necessary to fulfill production requirements and meet scheduled shipments. Any such financial difficulty could adversely affect our operating results and financial condition by resulting in a reduction in our revenues, a charge for inventory write-offs, a provision for doubtful accounts, and an increase in working capital requirements due to increases in days in inventory and in days in accounts receivable. For example, in July 2014, one of our customers filed for bankruptcy protection under the Local Trade Court in France; however, the potential losses from this particular customer did not have a significant effect on our unaudited condensed consolidated financial statements.
Fluctuations in foreign currency exchange rates and changes in governmental policies regarding foreign currencies could increase our operating costs, which would adversely affect our operating results.
Volatility in the functional andnon-functional currencies of our entities and the U.S. dollar could seriously harm our business, financial condition, and operating results. The primary impact of currency exchange fluctuations is on our cash, receivables, and payables of our operating entities. We may experience significant unexpected losses from fluctuations in exchange rates. For example, in the three months ended December 29, 2017, we experienced a $1.4 million foreign exchange loss, which negatively affected our net income per share by $0.04.
Our customer contracts generally require that our customers pay us in U.S. dollars. However, the majority of our payroll and other operating expenses are paid in Thai baht. As a result of these arrangements, we have significant exposure to changes in the exchange rate between the Thai baht and the U.S. dollar, and our operating results are adversely impacted when the U.S. dollar depreciates relative to the Thai baht and other currencies. We have experienced such depreciation in the U.S. dollar as compared with the Thai baht, and our results have been adversely impacted by this fluctuation in exchange rates. As of December 29, 2017, the U.S. dollar had depreciated approximately 9.8% against the Thai baht since December 25, 2015. Further, while we attempt to hedge against certain exchange rate risks, we typically enter into hedging contracts with maturities of up to 12 months, leaving us exposed to longer term changes in exchange rates.
Also, we have significant exposure to changes in the exchange rate between the RMB and GBP and the U.S. dollar. The expenses of our subsidiaries located in the PRC and UK are denominated in RMB and GBP, respectively. Currently, RMB are convertible in connection with trade- and service-related foreign exchange transactions, foreign debt service, and payment of dividends. The PRC government may at its discretion restrict access in the future to foreign currencies for current account transactions. If this occurs, our PRC subsidiary may not be able to pay us dividends in U.S. dollars without prior approval from the PRC State Administration of Foreign Exchange. In addition, conversion of RMB for most capital account items, including direct investments, is still subject to government approval in the PRC. This restriction may limit our ability to invest the earnings of our PRC subsidiary. As of December 29, 2017, the U.S. dollar had appreciated approximately 2.3% against the RMB since December 25, 2015. There remains significant international pressure on the PRC government to adopt a substantially more liberalized currency policy. GBP are convertible in connection with trade- and service-related foreign exchange transactions and foreign debt service. As of December 29, 2017, the U.S. dollar had depreciated approximately 3.7% against the GBP since September 14, 2016, the date we acquired Fabrinet UK. Any appreciation in the value of the RMB and GBP against the U.S. dollar could negatively impact our operating results.
We purchase some of the critical materials used in certain of our products from a single source or a limited number of suppliers. Supply shortages have in the past, and could in the future, impair the quality, reduce the availability or increase the cost of materials, which could harm our revenues, profitability and customer relations.
We rely on a single source or a limited number of suppliers for critical materials used in a significant number of the products we manufacture. We generally purchase these single or limited source materials through standard purchase orders and do not maintain long-term supply agreements with our suppliers. We generally use a rolling 12 month forecast based on anticipated product orders, customer forecasts, product order history, backlog, and warranty and service demand to determine our materials requirements. Lead times for the parts and components that we order vary significantly and depend on factors such as manufacturing cycle times, manufacturing yields, and the availability of raw materials used to produce the parts or components. Historically, we have experienced supply shortages resulting from various causes, including reduced yields by our suppliers, which prevented us from manufacturing products for our customers in a timely manner. Our revenues, profitability and customer relations could be harmed by a stoppage or delay of supply, a substitution of more expensive or less reliable parts, the receipt of defective parts or contaminated materials, an increase in the price of supplies, or an inability to obtain reductions in price from our suppliers in response to competitive pressures.
We continue to undertake programs to strengthen our supply chain. Nevertheless, we are experiencing, and expect for the foreseeable future to continue to experience, strain on our supply chain, and periodic supplier problems. We have incurred, and expect to continue to incur for the foreseeable future, costs to address these problems.
Managing our inventory is complex and may require write-downs due to excess or obsolete inventory, which could cause our operating results to decrease significantly in a given fiscal period.
Managing our inventory is complex. We are generally required to procure material based upon the anticipated demand of our customers. The inaccuracy of these forecasts or estimates could result in excess supply or shortages of certain materials. Inventory that is not used or expected to be used as and when planned may become excess or obsolete. Generally, we are unable to use most of the materials purchased for one of our customers to manufacture products for any of our other customers. Additionally, we could experience reduced or delayed product shipments or incur additional inventory write-downs and cancellation charges or penalties, which would increase costs and could harm our business, financial condition and operating results. While our agreements with customers are structured to mitigate our risks related to excess or obsolete inventory, enforcement of these provisions may result in material expense, and delay in payment for inventory. If any of our significant customers becomes unable or unwilling to purchase inventory or does not agree to such contractual provisions in the future, our business, financial condition and operating results may be harmed.
We conduct operations in a number of countries, which creates logistical and communications challenges for us and exposes us to other risks that could harm our business, financial condition and operating results.
The vast majority of our operations, including manufacturing and customer support, are located primarily in the Asia-Pacific region. The distances between Thailand, the PRC and our customers and suppliers globally, create a number of logistical and communications challenges for us, including managing operations across multiple time zones, directing the manufacture and delivery of products across significant distances, coordinating the procurement of raw materials and their delivery to multiple locations and coordinating the activities and decisions of our management team, the members of which are based in different countries.
Our customers are located throughout the world. Total revenues from thebill-to-location of customers outside of North America accounted for 54.9% and 55.0% of our total revenues for the three months ended December 29, 2017 and December 30, 2016, respectively, and 55.5% and 52.6% of our total revenues for the six months ended December 29, 2017 and December 30, 2016, respectively. We expect that total revenues from thebill-to-location of customers outside of North America will continue to account for a significant portion of our total revenues. Our customers also depend on international sales, which further exposes us to the risks associated with international operations. In addition, our international operations and sales subject us to a variety of domestic and foreign trade regulatory requirements.
Political unrest and demonstrations, as well as changes in the political, social, business or economic conditions in Thailand, could harm our business, financial condition and operating results.
The majority of our assets and manufacturing operations are located in Thailand. Therefore, political, social, business and economic conditions in Thailand have a significant effect on our business. In March 2017, Thailand was assessed as a medium-high political risk by AON Political Risk, a risk management, insurance and consulting firm. Any changes to tax regimes, laws, exchange controls or political action in Thailand may harm our business, financial condition and operating results.
Thailand has a history of political unrest that includes the involvement of the military as an active participant in the ruling government. In recent years, political unrest in the country has sparked political demonstrations and, in some instances, violence. In May 2014, the Thai military took over the government in a coup, and it continues to rule the country today. It is unknown how long it may take for the current political situation to be resolved and for democracy to be restored, or what effects the current political situation may have on Thailand and the surrounding region. Most recently, in October 2016, Thailand’s King Bhumibol Adulyadej died at the age of 88. Any succession crisis in the Kingdom of Thailand could cause new or increased political instability, which could prevent shipments from entering or leaving the country and disrupt our ability to manufacture products in Thailand, and we could be forced to transfer our manufacturing activities to more stable, and potentially more costly, regions.
Further, the Thai government may raise the minimum wage standards for labor and could repeal certain promotional certificates that we have received or tax holidays for certain export and value added taxes that we enjoy, either preventing us from engaging in our current or anticipated activities or subjecting us to higher tax rates. A new regime could nationalize our business or otherwise seize our assets and any other future political instability could harm our business, financial condition and operating results.
We expect to continue to invest in our manufacturing operations in the PRC, which will continue to expose us to risks inherent in doing business in the PRC, any of which risks could harm our business, financial condition and operating results.
We anticipate that we will continue to invest in our customized optics manufacturing facilities located in Fuzhou, China. Because these operations are located in the PRC, they are subject to greater political, legal and economic risks than the geographies in which the facilities of many of our competitors and customers are located. In particular, the political and economic climate in the PRC (both at national and regional levels) is fluid and unpredictable. In March 2017, AON Political Risk assessed the PRC as a medium political risk. A large part of the PRC’s economy is still being operated under varying degrees of control by the PRC government. By imposing industrial policies and other economic measures, such as control of foreign exchange, taxation, import and export tariffs, environmental regulations, land use rights, intellectual property and restrictions on foreign participation in the domestic market of various industries, the PRC government exerts considerable direct and indirect influence on the development of the PRC economy. Many of the economic reforms carried out by the PRC government are unprecedented or experimental and are expected to change further. Any changes to the political, legal or economic climate in the PRC could harm our business, financial condition and operating results.
Our PRC subsidiary is a “wholly foreign-owned enterprise” and is therefore subject to laws and regulations applicable to foreign investment in the PRC, in general, and laws and regulations applicable to wholly foreign-owned enterprises, in particular. The PRC has made significant progress in the promulgation of laws and regulations pertaining to economic matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, the promulgation of new laws, changes in existing laws and abrogation of local regulations by national laws may have a negative impact on our business and prospects. In addition, these laws and regulations are relatively new, and published cases are limited in volume andnon-binding. Therefore, the interpretation and enforcement of these laws and regulations involve significant uncertainties. Laws may be changed with little or no prior notice, for political or other reasons. These uncertainties could limit the legal protections available to foreign investors. Furthermore, any litigation in the PRC may be protracted and result in substantial costs and diversion of resources and management’s attention.
Our business and operations would be adversely impacted in the event of a failure of our information technology infrastructure and/or cyber security attacks.
We rely upon the capacity, availability and security of our information technology hardware and software infrastructure. For instance, we use a combination of standard and customized software platforms to manage, record, and report all aspects of our operations and, in many instances, enable our customers to remotely access certain areas of our databases to monitor yields, inventory positions,work-in-progress status and vendor quality data. We are constantly expanding and updating our information technology infrastructure in response to our changing needs. Any failure to manage, expand and update our information technology infrastructure or any failure in the operation of this infrastructure could harm our business.
Despite our implementation of security measures, our systems are vulnerable to damages from computer viruses, natural disasters, unauthorized access and other similar disruptions. Any system failure, accident or security breach could result in disruptions to our operations. To the extent that any disruptions, cyber-attack or other security breach results in a loss or damage to our data, or inappropriate disclosure of confidential information, it could harm our business. In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.
Unfavorable worldwide economic conditions may negatively affect our business, operating results and financial condition.
If we fail to adequately expand our manufacturing capacity, we will not be able to grow our business, which would harm our business, financial condition and operating results. Conversely, if we expand too much or too rapidly, we may experience excess capacity, which would harm our business, financial condition and operating results.
We may not be able to pursue many large customer orders or sustain our historical growth rates if we do not have sufficient manufacturing capacity to enable us to commit to provide customers with specified quantities
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJ Act”) was enacted into law. The TCJ Act provides for significant changes to the U.S. Internal Revenue Code of 1986, as amended (the “Code”), that impact corporate taxation requirements, such as the reduction of the federal tax rate for corporations from 35% to 21% and changes or limitations to certain tax deductions. While we are able to make reasonable estimates of the impact of the reduction in corporate rate, the final impact of the TCJ Act may differ from these estimates, due to, among other things, changes in our interpretations and assumptions, additional guidance that may be issued by the I.R.S., and actions we may take. We are continuing to gather additional information to determine the final impact.
We are subject to governmental export and import controls in several jurisdictions that could subject us to liability or impair our ability to compete in international markets.
We are subject to governmental export and import controls in Thailand, the PRC, the United Kingdom and the United States that may limit our business opportunities. Various countries regulate the import of certain technologies and have enacted laws that could limit our ability to export or sell the products we manufacture. The export of certain technologies from the United States, the United Kingdom and other nations to the PRC is barred by applicable export controls, and similar prohibitions could be extended to Thailand, thereby limiting our ability to manufacture certain products. Any change in export or import regulations or related legislation, shift in approach to the enforcement of existing regulations, or change in the countries, persons or technologies targeted by such regulations, could limit our ability to offer our manufacturing services to existing or potential customers, which could harm our business, financial condition and operating results.
Risks Related to Ownership of Our Ordinary Shares
Risks | Related to Ownership of Our Ordinary Shares |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
shares. Period September 30, 2017 – October 31, 2017 November 1, 2017 – November 30, 2017 December 1, 2017 – December 29, 2017 Total December 29, 2017,September 27, 2019, we had a remaining authorization to purchase up to an additional $20.1$62.2 million worth of our ordinary shares under the share repurchase program.December 29, 2017: Total Number of
Shares Purchased Average Price
Paid
Per Share Total Number of
Shares Purchased As Part
of Publicly Announced
Program Maximum Approximate
Dollar Value of Shares
That May Yet Be Purchased
Under the Program — $ — — $ 30,000,000 315,973 $ 31.36 315,973 $ 20,089,748 — $ — — $ 20,089,748 315,973 $ 315,973 $ 20,089,748
September 27, 2019:ITEMS3, 4 and 5 are not applicable and have been omitted.
Program $ $ $ $ $ $ $ $
ITEM 6. | EXHIBITS |
Exhibit Number | Description | Incorporated by reference herein | ||||||||||||||
Form | Exhibit No. | Filing Date | ||||||||||||||
10.1 | 8-K, Item 5.02 | N/A | August 20, 2019 | |||||||||||||
10.2 | 8-K | 10.1 | August 20, 2019 | |||||||||||||
10.3 | 8-K | 10.1 | September 12, 2019 | |||||||||||||
10.4 | 8-K | 10.2 | September 12, 2019 | |||||||||||||
31.1 | ||||||||||||||||
31.2 | ||||||||||||||||
32.1 | ||||||||||||||||
101.INS | Inline XBRL Instance. | |||||||||||||||
101.SCH | Inline XBRL Taxonomy Extension Schema. | |||||||||||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase. | |||||||||||||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase. | |||||||||||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase. | |||||||||||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase. | |||||||||||||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
FABRINET | ||
By: | /s/ Toh-Seng Ng | |
Name: | Toh-Seng Ng | |
Title: | Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) |
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